UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from to .
Commission file number: 001-36740
FIBROGEN, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
77-0357827
(I.R.S. Employer Identification No.)
409 Illinois Street
San Francisco, CA
(Address of principal executive offices)
94158
(zip code)
Registrant’s telephone number, including area code:
(415) 978-1200
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Common Stock, $0.01 par value
FGEN
Name of each exchange on which
registered
The Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer
Non-accelerated filer
Emerging growth company
☑
☐
☐
Accelerated filer
Smaller reporting company
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, computed by reference to the closing price as of the last business day of the
registrant’s most recently completed second fiscal quarter, June 30, 2019, was approximately $2,463.8 million. Shares of Common Stock held by each executive officer and director and stockholders
known by the registrant to own 10% or more of the outstanding stock based on public filings and other information known to the registrant have been excluded since such persons may be deemed
affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
The number of shares of common stock outstanding as of January 31, 2020 was 87,999,804.
DOCUMENTS INCORPORATED BY REFERENCE
Items 10, 11, 12, 13 and 14 of Part III of this Annual Report on Form 10-K incorporate information by reference from the definitive proxy statement for the registrant’s 2020 Annual
Meeting of Stockholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than after 120 days after the end of the fiscal year covered by this Annual
Report on Form 10-K.
TABLE OF CONTENTS
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosure About Market Risk
Consolidated Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Exhibits and Financial Statement Schedules
Signatures
1
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3
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160
FORWARD-LOOKING STATEMENTS
This Annual Report filed on Form 10-K and the information incorporated herein by reference, particularly in the sections captioned “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 Annual Report, all statements other than statements of historical or present facts contained in this Annual
Report, 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 Annual Report 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, pamrevlumab 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 our initial public offering, 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
Annual Report captioned “Risk Factors” and elsewhere in this Annual Report.
These risks are not exhaustive. Other sections of this Annual Report 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 Annual Report 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 Annual Report or to conform these statements to actual results or to changes in our expectations.
This Annual Report 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.
You should read this Annual Report 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.
2
ITEM 1. BUSINESS
OVERVIEW
PART I
We are a leading biopharmaceutical company discovering, developing and commercializing a pipeline of first-in-class therapeutics. We apply our pioneering
expertise in hypoxia-inducible factor (“HIF”) and connective tissue growth factor (“CTGF”) biology to advance innovative medicines for the treatment of
anemia, fibrotic disease, and cancer.
Roxadustat, our most advanced product, is an inhibitor of HIF prolyl hydroxylase (“HIF-PH”) that acts by stimulating the body’s natural pathway of
erythropoiesis, or red blood cell production.
In August 2019, roxadustat (China tradename: (cid:0)(cid:0)(cid:0)®) received marketing authorization in the People’s Republic of China (“China”) for the treatment of
anemia caused by chronic kidney disease (“CKD”) in non-dialysis-dependent patients. Roxadustat was approved in China for the treatment of anemia caused
by CKD in dialysis-dependent patients in December 2018.
In September 2019, roxadustat (Evrenzo ®) was approved in Japan for the treatment of anemia associated with CKD in dialysis-dependent patients, and in
January 2020, Astellas Pharma Inc. (“Astellas”) submitted a supplemental New Drug Application (“NDA”) in Japan for the treatment of anemia in non-
dialysis CKD patients.
In conjunction with our collaboration partners, AstraZeneca AB (“AstraZeneca”) and Astellas, we have completed the Phase 3 trials of roxadustat intended to
support our NDA in the United States (“U.S.”) and Marketing Authorization Application (“MAA”) in the European Union and the United Kingdom
(“Europe”) for the treatment of anemia in CKD. Our NDA filing for roxadustat for the treatment of anemia in patients with dialysis-dependent CKD and in
patients with non-dialysis-dependent CKD was accepted by the U.S. Food and Drug Administration (“FDA”) in February, 2020. Astellas is in the process of
preparing an MAA for submission to the European Medicines Agency (“EMA”) in the second quarter of 2020 for the same indications. In addition,
AstraZeneca has submitted applications for marketing approval of roxadustat in CKD anemia in Canada, Mexico, Taiwan, Philippines, and Singapore.
Beyond anemia in CKD, roxadustat is in Phase 3 clinical development in the U.S. and Europe and in Phase 2/3 development in China for anemia associated
with myelodysplastic syndromes (“MDS”). We also began a Phase 2 clinical trial of roxadustat in the U.S. in chemotherapy-induced anemia (“CIA”) in the
third quarter of 2019.
Pamrevlumab is our human monoclonal antibody that inhibits the activity of CTGF, a central mediator and critical common element in the progression of
fibrotic and fibro-proliferative diseases. In 2019, we initiated a Phase 3 clinical program for the treatment of idiopathic pulmonary fibrosis (“IPF”) and a
Phase 3 clinical program for locally advanced unresectable pancreatic cancer. We also plan to initiate a Phase 3 program for the treatment of Duchenne
muscular dystrophy (“DMD”) in 2020.
ROXADUSTAT FOR THE TREATMENT OF ANEMIA IN CHRONIC KIDNEY DISEASE
Roxadustat is an orally administered small molecule that treats anemia by a mechanism of action that is different from that of erythropoiesis stimulating
agents (“ESAs”). Roxadustat, as a HIF-PH inhibitor, 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 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 encoding the proteins involved in iron
absorption, mobilization and transport as well as stimulation of red blood cell progenitors.
3
The coordinated erythropoiesis activated by roxadustat includes both the stimulation of erythroid maturation, by increasing the body’s production of
erythropoietin (“EPO”), and an increase in iron availability for hemoglobin synthesis in part through a decrease in hepcidin levels, which is particularly
important in patients with inflammation. Patients taking roxadustat typically have a transient increase in circulating endogenous EPO levels at peak
concentration within or near the physiologic range naturally experienced by humans 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 erythroid maturation 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 addition, the lack of a
coordinated increase in iron availability with ESAs may explain the hyporesponsiveness of patients with inflammation to this class of drugs. It also explains
why patients taking ESAs need more IV iron supplementation and red blood cell transfusions than patients taking roxadustat do. Not only are IV iron and
blood transfusions more costly than oral iron, but both are also associated with increased risk of hospitalization and death.
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.
4
Background of Anemia in Chronic Kidney Disease
Chronic kidney disease is a progressive disease characterized by gradual loss of kidney function that may eventually lead to kidney failure or end-stage renal
disease (“ESRD”) requiring dialysis or a kidney transplant to survive. CKD affects 12% to 14% of the global adult population. CKD is more prevalent in
developed countries, but is also growing rapidly in emerging markets such as China.
Anemia can be a serious medical condition in which patients have insufficient red blood cells and low levels of hemoglobin, a protein in red blood cells that
carries oxygen to cells throughout the body. Anemia in CKD is associated with increased risk of hospitalization, cardiovascular complications and death, and
frequently causes significant fatigue, cognitive dysfunction, and considerable reduction of quality of life.
Anemia is a complication of chronic kidney disease and becomes increasingly common as the disease advances. In the U.S., approximately 18 million adults
have CKD Stages 3-5. Based on literature and market research, we estimate 25%, 50%, and 55% of CKD non-dialysis patients in Stages 3, 4, and 5,
respectively, have anemia. This translates to an estimated 4.9 million CKD non-dialysis anemia patients, and we estimate that up to 50% may be addressable
based on our expected label. Additionally, 90% of CKD patients on dialysis in the U.S., or approximately 0.5 million, have anemia.
When ESAs were introduced in 1989, they dramatically reduced the need for blood transfusions in CKD patients, which was a material development since
transfusions reduce the patient’s opportunity for a kidney transplant and increase the risk of infections and complications such as heart failure and allergic
reactions. However, multiple randomized clinical trials with ESAs suggested safety risks of ESA therapies, and as a result, the anemia guidelines and
approved labels have changed to more restrictive use of ESAs. In the U.S., while 93% of dialysis patients receive ESAs, in contrast, the percentage of patients
who are on one or more ESAs at the time of dialysis initiation declined from 30% in 2006 to 13.6% in 2017, despite the well-recognized health risks of
untreated anemia.
In addition to the safety concerns, which may be a greater impediment in the non-dialysis setting, other factors which contribute to the under-treatment of
anemia in non-dialysis patients are related to the form of administration and accessibility of ESA products. ESAs are administered by infusion or
subcutaneous injections, which is more difficult outside of dialysis centers or nephrology practices where non-dialysis patients are typically treated.
In the dialysis-dependent population, most patients start receiving ESAs when the patient is transitioning to dialysis care. Patients face significant increased
risk of death, cardiovascular events and hospitalizations during the first year on dialysis, and concurrently initiating anemia therapy adds complexity and
safety risks. In addition, patients at an advanced stage CKD are often affected by chronic inflammation that leads to functional iron deficiency, requiring IV
iron, and reduced effectiveness of ESAs.
The Market Opportunity for Roxadustat
We believe there is a significant opportunity for roxadustat, a potentially safer and more effective anemia treatment, to address markets currently served by
injectable ESAs. According to IQVIA MIDAS™ reports, global ESA sales in all indications totaled $7.5 billion in 2018, driven primarily by $5.4 billion sold
in the U.S. and Europe, mostly for treatment of anemia in CKD. 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. In addition, obesity, hypertension, and diabetes prevalence
continue rising, and the mortality of ESRD patients is declining, particularly in many emerging markets.
Furthermore, we believe there is a significant opportunity for roxadustat to address patient segments that are currently not effectively served by ESAs, such as
anemia in non-dialysis CKD due to under-diagnosis of CKD and under-treatment of anemia in this population. Awareness of health consequences and the
burden of CKD may also improve the diagnosis rate of CKD, and thus anemia of CKD.
Recently Completed Roxadustat Phase 3 Clinical Program in CKD Anemia
The table below summarizes the basis of our roxadustat U.S. NDA and planned MAA filing in Europe. Our NDA filing was accepted by the FDA in
February 2020 for CKD anemia in both dialysis and non-dialysis patients. The FDA has set a Prescription Drug User Fee Act goal date of December 20,
2020. We expect Astellas to submit the MAA in Europe in the second quarter of 2020.
5
Study Sponsor, Number
NON-DIALYSIS
FibroGen - FGCL-4592-060 (ANDES)
Astellas - 1517-CL-0608 (ALPS)
AstraZeneca - D5740C00001 (OLYMPUS)
Astellas - 1517-CL-0610
FibroGen - FGCL-4592-808
Astellas - 1517-CL-0310
Astellas - 1517-CL-0314
Non-Dialysis-Dependent CKD Subtotal by
Region
STABLE DIALYSIS
Astellas - 1517-CL-0613 (PYRENEES)
FibroGen - FGCL-4592-806
Astellas - 1517-CL-0302
Astellas - 1517-CL-0307
Astellas - 1517-CL-0308
Astellas - 1517-CL-0312
STABLE AND INCIDENT DIALYSIS
AstraZeneca - D5740C00002 (ROCKIES)
FibroGen - FGCL-4592-064 (SIERRAS)
INCIDENT DIALYSIS
FibroGen - FGCL-4592-063 (HIMALAYAS)
Dialysis-Dependent-CKD Subtotal by
Region
Total by Regulatory Approval Region
Combined Total to Support U.S. and Europe
Approvals
Roxadustat Phase 3 CKD Anemia Clinical Program
Comparator
U.S.
Europe
China
Japan
Number of Patients
-------- 922 --------
-------- 597 --------
-------- 2,781 --------
616
4,300
4,916
838
Placebo
Placebo
Placebo
Darbepoetin alfa
Placebo
Darbepoetin alfa
None
Epoetin alfa or
Darbepoetin alfa
Epoetin alfa
None
Darbepoetin alfa
None
None
Epoetin alfa
Epoetin alfa
-------- 2,133 --------
-------- 741 --------
Epoetin alfa
-------- 1,043 --------
151
151
304
334
99
433
56
303
75
164
3,917
8,217
4,755
9,671
304
455
598
1,031
9,671
6
The primary efficacy endpoint was met in each of the pivotal studies for the U.S. NDA and Europe MAA, as shown below:
Summary of Results from Individual Phase 3 Studies of Roxadustat in CKD Anemia
Summary of Roxadustat U.S. and Europe Phase 3 Primary Efficacy Results
U.S. Primary Endpoint
Endpoint
Met
Europe Primary Endpoint
Endpoint
Met
Study Sponsor, Number
NON-DIALYSIS
FibroGen - FGCL-4592-060
(ANDES)
Superior to Placebo (p<0.0001)
Astellas - 1517-CL-0608 (ALPS)
Superior to Placebo (p<0.001)
AstraZeneca - D5740C00001
(OLYMPUS)
STABLE DIALYSIS
Astellas - 1517-CL-0613
(PYRENEES)
STABLE AND INCIDENT
DIALYSIS
AstraZeneca - D5740C00002
(ROCKIES)
FibroGen - FGCL-4592-064
(SIERRAS)
INCIDENT DIALYSIS
FibroGen - FGCL-4592-063
(HIMALAYAS)
Statistically-Significant
Improvement in Hb Change
Compared to Placebo
Non-Inferior to ESAs
Statistically-Significant Larger Hb
Increase Compared to Epoetin
Alfa
Superior to Epoetin Alfa
(p<0.0001)
Superior to Epoetin Alfa
(p=0.0005)
Pooled Efficacy Results in Non-Dialysis Patients
Superior at Raising Hemoglobin
✓
✓
✓
✓
✓
✓
✓
Superior to Placebo (p<0.0001)
Superior to Placebo (p<0.001)
Statistically-Significant
Improvement in Hb Change
Compared to Placebo
Non-Inferior to ESAs
Statistically-Significant Larger
Hb Increase Compared to
Epoetin Alfa
Superior to Epoetin Alfa
(p<0.0001)
Non-Inferior to Epoetin Alfa
✓
✓
✓
✓
✓
✓
✓
Roxadustat superiority in efficacy was demonstrated in pooled efficacy analyses across the three Phase 3 dialysis-dependent studies and the three non-
dialysis-dependent studies.
In the non-dialysis pool (4,277 patients from OLYMPUS, ANDES, and ALPS), the mean change in hemoglobin (from baseline to the average between Weeks
28-52) in roxadustat patients was also significantly larger than in placebo patients (1.85 g/dL vs. 0.13 g/dL, p<0.001).
Efficacy at Raising Hemoglobin Irrespective of Iron Replete Status
In the non-dialysis pool, roxadustat increased hemoglobin (by 1.94 g/dL) regardless of whether patients were iron-replete (patients shown to have sufficient
baseline stores of iron in their body, TSAT ≥20% and Ferritin ≥100 ng/mL) or not iron-replete.
7
Reduction In Risk of Rescue Therapy and Transfusion
The risk of rescue therapy (blood or red blood cell transfusion, ESA use, or IV iron) was significantly lower in the roxadustat arm (8.9%) than the placebo
arm (31.1%) in the pooled non-dialysis patients with a hazard ratio (“HR”) = 0.19 (95% confidence interval “95% CI” of 0.16, 0.23), p<0.0001. The
percentage of patients receiving red blood cell transfusions during the first year of treatment was also significantly lower in the roxadustat arm (5.2%) as
compared to the placebo arm (15.4%) (HR (95% CI) = 0.26 (0.21, 0.32), p<0.0001).
Reduction of Decline in Kidney Function as Measured by eGFR
In a post hoc subgroup analysis of 2,438 non-dialysis patients with baseline eGFR≥15, the one-year decline in estimated glomerular filtration rate (“eGFR,” a
measure of the filtration function of kidney and renal disease progression) in roxadustat-treated patients (-2.8) was lower than that in placebo treated patients
(-4.4), with a treatment difference of 1.6 mL/min/1.73m 2.
Reduction of LDL Cholesterol
In the pooled non-dialysis patients, roxadustat lowered low-density lipoproteins (“LDL”), with a mean change from baseline of -17.06 mg/dL compared to an
increase of 1.30 mg/dL for placebo patients, a significant treatment difference of -19.83 mg/dL (p<0.0001).
Improvements in Quality of Life Measures
We have also observed improvements in quality of life. In the pooled analysis from the three non-dialysis studies, we observed statistically significant
improvements from baseline to Week 12 in quality of life endpoints, including SF-36 Vitality subscale (p=0.0002), SF-36 Physical Functioning subscale
(p=0.0369), FACT-AN Anemia subscale (p=0.0012), FACT-AN Total score (p=0.0056), and EQ-5D-SL VAS score (p=0.0005) when comparing roxadustat to
placebo in CKD patients not on dialysis.
Pooled Efficacy Results in Dialysis Patients
Superior at Raising Hemoglobin
In the pooled dialysis studies (3,857 patients from HIMALAYAS, SIERRAS, and ROCKIES) the mean change in hemoglobin (from baseline to the average
between Weeks 28-52) in roxadustat patients was significantly larger than in epoetin alfa patients (1.22 g/dL vs. 0.99 g/dL, p<0.001).
Efficacy at Raising Hemoglobin in Patients with Inflammation
In a subgroup of dialysis patients with inflammation (C-reactive protein (“CRP”) levels over 4.9 mg/L), the mean change in hemoglobin (from baseline to the
average between Weeks 28-52) was significantly higher in roxadustat-treated patients (1.29 g/dL) than epoetin alfa treated patients (0.96 g/dL, p<0.0001).
Lower Intravenous (“IV”) Iron Requirements
In the dialysis pool, less mean monthly IV iron supplementation was required at Weeks 28-52 in patients receiving roxadustat versus patients receiving
epoetin alfa in pooled analysis, p< 0.0001.
Reduction In Transfusion Risk
In the dialysis pool, during the first year of treatment, patients in the roxadustat arm had a lower transfusion risk (9.5%) as compared to the epoetin alfa arm
(12.8%) (HR (95% CI) = 0.82 (0.679, 0.997), p=0.046).
Pooled Cardiovascular Safety Results
In the U.S., the primary safety endpoint is time to first Major Adverse Cardiovascular Event (“MACE”), a composite endpoint of all-cause mortality, stroke
and myocardial infarction. In Europe, the primary safety endpoint is the time to first MACE+ (“MACE+”) which, in addition to the components in MACE,
also includes hospitalization due to heart failure or unstable angina. However, the FDA in the U.S., and the EMA in Europe, will each review MACE,
MACE+, and all-cause mortality separately, in addition to other endpoints.
8
The below cardiovascular safety analyses reflect the pooling strategy and analytical approach we agreed on with the FDA. Similar sets of analyses will be
submitted to the EMA to serve as the basis for potential approval in dialysis and non-dialysis in Europe, and additional supportive analyses and sensitivity
analyses as well as subgroup analyses were also included in the NDA and will be included in the MAA. However, the FDA and EMA will each conduct their
own benefit-risk analysis and may use additional statistical analyses other than those agreed with the FDA or set forth below.
Non-Dialysis - Pooled Cardiovascular Safety Data
In our pre-NDA meeting, the FDA agreed that the intent-to-treat analyses followed for long-term safety results would be our primary cardiovascular safety
analysis method for non-dialysis in the U.S. as it uses on-treatment and post treatment long term follow-up (until a common study end date) to account for the
higher drop-out rate in the placebo arm. The figure below shows that in the 4,270 pooled non-dialysis patients (OLYMPUS, ANDES, and ALPS), the risk of
MACE, MACE+, and all-cause mortality in roxadustat patients were comparable to that in placebo patients based on a reference non-inferiority margin of
1.3.
Dialysis - Pooled Cardiovascular Safety Data
In the pooled on-treatment analysis of 3,880 dialysis patients (HIMALAYAS, SIERRAS, and ROCKIES), the risk of MACE and all-cause mortality in
roxadustat patients were not increased (based on a reference non-inferiority margin of 1.3), and roxadustat lowered the risk of MACE+ by 14% compared to
the active comparator epoetin alfa, based on a hazard ratio of 0.86 and an upper bound of 95% CI under 1.0. The hazard ratios represent a point estimate of
relative risk.
9
Incident Dialysis Subgroup - Pooled Cardiovascular Safety Data
In this program, incident dialysis patients are those who started participation in roxadustat Phase 3 studies within their first four months of dialysis initiation.
In this clinically important subgroup of 1,526 incident dialysis patients, roxadustat reduced the risk of MACE by 30% and MACE+ by 34%, with a trend
towards lower all-cause mortality. The lower MACE and MACE+ risks (compared to epoetin alfa) are based on hazard ratios of 0.70 and 0.66, respectively,
with the upper bound of 95% CI under 1.0 in both. We believe this incident dialysis subpopulation is the appropriate setting for comparison of roxadustat
versus epoetin alfa since most incident dialysis patients were ESA-naïve or have had only limited exposure to ESAs prior to study entry. In addition, the
initiation of anemia therapy in this incident dialysis subgroup resembles clinical practice as the vast majority of US patients start anemia therapy early in
dialysis treatment (during the first four months of treatment).
Non-Dialysis CKD Patients (ANDES) – FibroGen
ANDES is a 922-patient Phase 3, randomized, double-blinded, placebo-controlled trial designed to evaluate the efficacy and safety of roxadustat vs. placebo
for the treatment of anemia in patients with later stage CKD (Stages 3, 4 or 5) who are not dialysis-dependent.
U.S. primary efficacy endpoint: roxadustat was superior to placebo in mean hemoglobin change from baseline to the average over Weeks 28 to 52 (2.00 vs.
0.16 g/dL, respectively, p<0.0001).
Europe primary efficacy endpoint: a higher proportion of roxadustat-treated patients (86.0%) achieved a hemoglobin response (defined as achieving a
hemoglobin level of at least 11 g/dL on two consecutive visits during the first 24-weeks of treatment and a hemoglobin increase of at least 1.0 g/dL in subjects
with baseline hemoglobin >8.0 g/dL, or an increase of at least 2.0 g/dL in subjects with baseline hemoglobin ≤8.0 g/dL), as compared to placebo (6.6%),
p<0.0001.
The proportion of subjects who received any rescue therapy (blood/red blood cell transfusion, ESA use, or IV iron) in the first 52 weeks of treatment was
8.9% in the roxadustat arm vs. 28.9% in the placebo arm (HR (95% CI) = 0.19 (0.138, 0.276), p<0.0001). The proportion of subjects who received blood/red
blood cell transfusion in the first 52 weeks of treatment was 5.6% in the roxadustat arm vs. 15.4% in the placebo arm (HR (95% CI) = 0.26 (0.165, 0.406),
p<0.0001).
The mean change in LDL cholesterol from baseline to average over Weeks 12-28 was -18.48 mg/dL (n=564) in the roxadustat arm vs. 0.22 mg/dL (n=269) in
the placebo arm, with a treatment difference of -17.26 mg/dL (p<0.0001).
In this study, roxadustat-treated patients had a sustained reduction in hepcidin whereas placebo patients did not have a reduction in hepcidin. The mean
change from baseline to Week 44 was -22.1μg/L in the roxadustat arm vs. 3.88 μg/L in the placebo arm, for a treatment difference between the two arms of
-25.71 μg/L (95% CI: -38.523, -12.903).
In this study, subjects in the roxadustat arm had a substantially higher overall study drug exposure compared to subjects in the placebo arm. Study drug
discontinuation was higher in the placebo arm compared to roxadustat arm, and the relative difference in discontinuation rates was especially pronounced in
the lowest baseline eGFR category. The overall exposure-adjusted safety profile of roxadustat observed during this study was comparable with placebo and
consistent with that expected in the CKD study population. The most commonly reported adverse events with roxadustat in this trial were nausea,
hyperkalemia, constipation, and hypertension.
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Non-Dialysis CKD Patients (ALPS) – Astellas
ALPS is Astellas’ Phase 3, randomized, double-blind, placebo-controlled study of the efficacy and safety of roxadustat for the treatment of anemia in CKD in
597 patients not on dialysis. The trial met its primary endpoints by demonstrating superiority in efficacy vs. placebo in terms of hemoglobin change from
baseline at Weeks 28 to 52 (1.988 for roxadustat vs 0.406 for placebo, p<0.001).
Roxadustat was superior to placebo in its ability to lower LDL from baseline with an LS mean difference of -0.701 mmol/L (95% CI: -0.83, -0.57).
Roxadustat was superior to placebo in delaying the need for rescue therapy (HR (95%CI) = 0.238 (0.17, 0.33), p<0.001).
The safety profile observed in this study was in line with the expected event profile in non-dialysis patients. Common adverse events in both treatment groups
were ESRD, hypertension, peripheral edema, and decreased glomerular filtration rate.
Non-Dialysis CKD Patients (OLYMPUS) – AstraZeneca
OLYMPUS is AstraZeneca’s Phase 3, randomized, double-blinded, placebo-controlled trial designed to evaluate the efficacy and safety of roxadustat vs.
placebo for the treatment of patients with anemia in CKD Stages 3, 4 or 5 whose disease progression is moderate to severe and who are non-dialysis-
dependent. The trial in 2,781 patients met its primary efficacy endpoint by demonstrating a statistically-significant improvement in mean change from
baseline in hemoglobin levels averaged over Weeks 28 to 52 (1.75 g/dL) as compared with Placebo (0.40 g/dL).
Roxadustat also improved hemoglobin levels from baseline in a subgroup of patients with inflammation (CRP>5 mg/L), with a statistically significant mean
increase of 1.75 g/dL, compared to 0.62g/dL with placebo.
Overall safety findings are generally consistent with the non-dialysis patient population. For all patients, the most commonly reported adverse events in the
intent-to-treat analysis set were ESRD, pneumonia, urinary tract infection and hypertension.
Stable Dialysis CKD Patients (PYRENEES) – Astellas
PYRENEES is Astellas’ Phase 3, randomized, active-controlled trial designed to assess the efficacy and safety of roxadustat vs. epoetin alfa or darbepoetin
alfa, for the treatment of anemia in 838 patients with CKD who are dialysis-dependent. The trial met its primary efficacy endpoint: roxadustat was considered
non-inferior to ESAs based on the mean change from baseline in average hemoglobin levels at Weeks 28 to 52 (0.397 vs 0.183; non-inferiority margin =
-0.75).
Roxadustat was superior to ESAs in its ability to lower LDL from baseline with an LS mean difference of -0.377 mmol/L (95% CI: -0.451, -0.304).
Roxadustat was superior to ESAs in reducing the need for monthly IV iron use (LS mean difference (95%CI) = -31.9 mg (-41.4, -22.4), p<0.001).
The safety profile observed in this study was in line with the expected event profile in dialysis patients. There was a greater proportion of deaths in the
roxadustat treatment group compared with the ESA group; however, the study was not powered to assess risk of MACE events or death, as compared to the
pooled analysis above. Common adverse events in both treatment groups were hypertension, arteriovenous fistula thrombosis, headache, and diarrhea.
Stable and Incident Dialysis CKD Patients (ROCKIES) – AstraZeneca
ROCKIES is AstraZeneca’s Phase 3, randomized, open-label, active-controlled trial designed to assess the efficacy and safety of roxadustat vs. epoetin alfa,
for the treatment of anemia in patients with CKD who are dialysis-dependent. The trial in 2,133 patients met its primary efficacy endpoint by demonstrating a
statistically-significant improvement in mean change from baseline in hemoglobin levels averaged over Weeks 28 to 52 (0.77 g/dL) compared with epoetin
alfa (0.68 g/dL).
Roxadustat also improved hemoglobin levels from baseline in a subgroup of patients with inflammation (CRP>5 mg/L, demonstrating a statistically
significant improvement with a mean increase of 0.80 g/dL compared to 0.59 g/dL with epoetin alfa. Patients treated with roxadustat used less monthly IV
iron (mean = 59mg) compared to those treated with epoetin alfa (mean = 91mg) from Week 36 to the end of the study.
Adverse events with roxadustat were generally similar to those seen in patients treated with epoetin alfa and commonly found in dialysis patients. In
roxadustat-treated patients, the most commonly reported adverse events were diarrhea, hypertension, pneumonia, headache, and arteriovenous fistula
thrombosis.
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Stable and Incident Dialysis CKD Patients Study (SIERRAS) – FibroGen
SIERRAS is a 741-patient U.S. Phase 3, randomized, open-label, active-controlled trial to assess the efficacy and safety of roxadustat compared to epoetin
alfa for the treatment of anemia in dialysis CKD patients who were receiving stable doses of ESA prior to study participation.
U.S. primary efficacy endpoint: the mean hemoglobin change from baseline to the average over Weeks 28 to 52 was 0.39 g/dL (roxadustat) vs. -0.09 g/dL
(epoetin alfa), a least squares mean treatment difference of 0.48 g/dL (95% CI 0.37, 0.59). Roxadustat met the non-inferiority criteria as the lower bound of
95% CI was well above the non-inferiority margin of ‑0.75 g/dL. Roxadustat also achieved superiority, p<0.0001.
Europe primary efficacy endpoint: the mean hemoglobin change from baseline to the average over Weeks 28 to 36 was 0.54 g/dL (roxadustat) vs. -0.03 g/dL
(epoetin alfa), a least squares mean treatment difference of 0.55 g/dL with a 95% CI (0.40, 0.69). Roxadustat met the non-inferiority criteria as the lower
bound of the 95% CI was well above the non-inferiority margin of -0.75 g/dL. Roxadustat also achieved superiority over epoetin alfa, p<0.0001.
As seen in the figures below, in patients with inflammation (CRP>4.9 mg/L), roxadustat doses for maintaining hemoglobin levels were comparable to those
with normal CRP and were stable over time as the effect on hemoglobin was durable, whereas epoetin alfa patients required higher mean doses in patients
with inflammation (CRP>4.9 mg/L), doses which increased by approximately 50% from baseline after about one year. In these patients with inflammation
(CRP>4.9 mg/L) mean change in hemoglobin from baseline to Week 18-24 was 0.61 g/dL in roxadustat vs. -0.03 g/dL in the epoetin alfa group, p<0.0001.
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Subjects in the roxadustat group received lower mean IV iron during Weeks 28 to 52 than subjects in the epoetin alfa group (p=0.00091). Roxadustat-treated
patients had a greater reduction in hepcidin as compared to ESA-treated patients. Additionally, a lower proportion of subjects on roxadustat received a red
blood cell transfusion during treatment than the epoetin alfa group (12.5% and 21.1%, respectively, p=0.0337), with reduction in red blood cell transfusion
risk by 33% compared with epoetin alfa; HR (95% CI) = 0.67 (0.466, 0.970), p=0.0337.
Mean LDL cholesterol levels decreased in the roxadustat group from baseline to the average over Weeks 12 to 28 (-13.70 mg/dL) but increased in the epoetin
alfa group (1.23 mg/dL) with a treatment difference of -14.67 mg/dL (p<0.0001).
The incidence of treatment emergent adverse events was comparable in the roxadustat and epoetin alfa arms and were generally consistent with those
typically expected in study patient population of ESRD on chronic dialysis therapy. The most commonly reported adverse events with roxadustat in this trial
were nausea, hypertension, vomiting, and hyperkalemia.
Incident Dialysis CKD Patients Study (HIMALAYAS) – FibroGen
HIMALAYAS is a 1,043-patient Phase 3 randomized, open-label, active-controlled trial to assess the efficacy and safety of roxadustat compared to epoetin
alfa, an ESA, for the treatment of anemia in CKD patients who have newly initiated dialysis treatment for ESRD and have had minimal or no exposure to an
ESA prior to study participation.
U.S. primary efficacy endpoint: the mean hemoglobin change from baseline to the average over Weeks 28 to 52 was 2.57 g/dL (roxadustat) vs. 2.36 g/dL
(epoetin alfa), a least squares mean difference of 0.18 g/dL, with the 95% CI of (0.08, 0.29). The non-inferiority criteria was met as the lower bound of the
95% CI was well above the non-inferiority margin of -0.75 g/dL, and superiority over epoetin alfa was also achieved, p=0.0005. In subgroup analyses,
roxadustat was also superior to epoetin alfa in hemoglobin change from baseline regardless of iron repletion and inflammation status.
Europe primary efficacy endpoint: a higher proportion of roxadustat-treated patients (88.2%) achieved a hemoglobin response (defined as achieving a
hemoglobin level of at least 11 g/dL on two consecutive visits during the first 24-weeks of treatment and a hemoglobin increase of at least 1.0 g/dL in subjects
with baseline hemoglobin >8.0 g/dL, or an increase of at least 2.0 g/dL in subjects with baseline hemoglobin ≤8.0 g/dL), as compared to an 84.4% responder
rate in the epoetin alfa arm, with the lower bound of the 95% CI (-0.7%, 7.7%) of the treatment difference in responder rate well above the non-inferiority
margin of -15%.
Roxadustat-treated patients had a statistically significant reduction in hepcidin, a key regulator of iron metabolism, as compared to ESA-treated patients.
Roxadustat was shown to increase hemoglobin regardless of baseline inflammation status.
The most commonly reported adverse events with roxadustat in this trial were hypertension, diarrhea, and muscle spasms. The safety profile of roxadustat in
this study was consistent with results from prior roxadustat studies.
ROXADUSTAT FOR THE TREATMENT OF ANEMIA IN CHRONIC KIDNEY DISEASE IN CHINA
In August 2019, roxadustat (China tradename: (cid:0)(cid:0)(cid:0)®) received marketing authorization in China for the treatment of anemia caused by CKD in non-dialysis-
dependent patients. Treatment for anemia caused by CKD in dialysis-dependent patients was approved in 2018.
In July 2019, results from our two China Phase 3 clinical trials were published in the New England Journal of Medicine.
In December 2019, roxadustat was included on the updated National Reimbursement Drug List (“NRDL”) released by China’s National Healthcare Security
Administration. Roxadustat is included on the NRDL for the treatment of anemia in CKD.
Market Opportunity
The currently available forms of treatment in China for anemia in CKD include ESAs, oral iron, intravenous iron, traditional Chinese medicine, and
combinations thereof. ESAs are the largest segment, which we estimate to be approximately $275 million in sales, or approximately 80% of the total ESA
market based on data from IQVIA China Hospital Pharmaceutical Audit. With the unique benefits of roxadustat to treat previously unaddressable patient
populations, we believe the overall CKD anemia market will increase.
China is experiencing epidemiological changes in metabolic diseases due to economic development, urbanization and an aging population. Diabetes and
hypertension are the leading causes of CKD in China, and rates have been growing over past two decades. We believe the increase in diabetes and
hypertension prevalence will result in an increase of CKD anemia patients.
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Dialysis-Dependent CKD
Based on the latest estimates and published data, we believe there are over 600,000 dialysis patients in China, making it the largest single-country dialysis
population in the world. With the substantial growth rate of dialysis patients (over 10% per year from 2011 to 2017), the Ministry of Health and the Chinese
Society of Nephrology have publicly recognized the need for further investment in dialysis infrastructure.
The prevalence rate of CKD dialysis patients that have anemia (defined as hemoglobin < 10g/dL) is estimated to be over 90%.
Dialysis treatment is delivered in the form of hemodialysis or peritoneal dialysis. In China, approximately 85% of dialysis patients with CKD are on
hemodialysis. Hemodialysis is performed primarily in dialysis clinics within hospitals, most of which are publicly owned. This is in contrast to the U.S. where
freestanding dialysis centers located outside of hospitals is common practice. With recent regulatory changes, the number of privately owned dialysis clinics
is growing at a rapid pace, a trend that has provided additional capacity to meet the growing demand. The remaining 14-15% of CKD patients (approximately
100,000) are on peritoneal dialysis, which is self-administered at home by patients, a setting roxadustat, with its oral administration, is particularly well-suited
for roxadustat. Peritoneal dialysis patients typically visit their nephrologists on a monthly basis at the hospital for monitoring and follow-up.
Non-Dialysis-Dependent CKD
We estimate that there are over 10 million Stage 3-5 non-dialysis CKD patients in China with anemia (defined as hemoglobin < 10g/dL). We believe the
addressable population of non-dialysis patients with anemia (anemic patients that have been diagnosed and treated for CKD) is approximately 2-3 million,
with 1-2 million in Stages 3 and 4 and 1 million in Stage 5 non-dialysis. This Stage 5 population that is dialysis-eligible but not receiving dialysis is
characteristic of developing markets like China, and presents a particular opportunity for roxadustat, as many patients have severe anemia.
Unmet Medical Need and Roxadustat Differentiation in China
We believe there is a particularly significant unmet medical need for the treatment of anemia in CKD in China. Anemia is considered a risk multiplier for
CKD patients and is commonly associated with increased rates of cardiovascular events, hospitalizations, CKD progression, and death. Several of the
advantages that roxadustat, as an oral therapeutic, potentially offers over ESAs are particularly suited to address the unmet medical need in each of the three
categories of CKD patients in China.
We believe there is chronic under-treatment of anemia within the CKD patient population on dialysis in China due in part to under-prescription of IV iron
(often necessary for ESA treatment), and lack of efficacy in patients with inflammation. The most recent treatment guidelines published by the Chinese
Society of Nephrology in 2018 recommended treatment to hemoglobin 11.0 g/dL to 12.0 g/dL. Even though over 70% of hemodialysis CKD patients, and
approximately 60% of peritoneal dialysis CKD patients are treated with ESAs, based on the Chinese Renal Data System in 2015, less than 60% of dialysis
patients reached 10.2 g/dL.
In the non-dialysis population and peritoneal dialysis population, only a small percentage of patients receive anemia treatment, and those who do, they receive
only a minimal level of treatment, including patients who are eligible for dialysis and who have severe anemia. Roxadustat, as an oral medication, can be
easily administered in any setting and stored at room temperature. Injectable drugs like ESAs present a challenge in China because even subcutaneous
administration is performed at hospitals and not in the home, in part due to the difficulty in refrigeration and administration of injectable medicines. Frequent
hospital visits, for the sole purpose of receiving injectable ESA treatment (as well as IV iron, which is often necessary with ESA treatment), can present a
substantial logistical and financial burden to patients.
In the context of the rapidly growing China pharmaceutical market, we believe that the demand for anemia therapy will continue to grow as a result of an
expanding CKD population, as well as the central government’s mandate to make dialysis more available through government reimbursement and build-out
of dialysis facilities. In addition, as the standard of living improves in China, the demand for access to innovative drugs increases. In this context, we believe
that roxadustat is a particularly promising product for this market.
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Commercialization
AstraZeneca is our commercialization partner for roxadustat in China. Under our collaboration agreement, AstraZeneca will lead commercialization activities
and has responsibility for sales and marketing, and market access. FibroGen has responsibility for medical affairs, manufacturing (as the Marketing
Authorization Holder), executing sales to distributors, and pharmacovigilance. FibroGen and AstraZeneca will work together to manage distribution.
Pricing and Reimbursement
In December 2019, roxadustat was included for the treatment of anemia in CKD on the updated NRDL released by China’s National Healthcare Security
Administration. The list is effective for a standard two-year period from January 1, 2020 to December 31, 2021. The negotiated price for a roxadustat 50 mg
capsule is RMB 95. Roxadustat will be subject to price re-negotiation at the end of 2021.
We believe reimbursement is one of the two most critical market access factors for commercialization success in China, with the other being hospital
listings. China is mostly a single-payor market with near universal healthcare provided by the government. Over 95% of the population receives healthcare
coverage under one government-funded medical reimbursement plan or another, each with different levels of reimbursement. Commercial health insurance is
available but is minimally adopted, and is seen as a supplement above and beyond government reimbursement.
Reimbursement for roxadustat will differ based on multiple factors including the CKD patient population (dialysis vs. non-dialysis), location, patient
employment status, and if roxadustat is qualified into the “Critical Disease” or “Chronic Disease” insurance programs for such locations. We expect
roxadustat reimbursement rates will be largely consistent with those ESAs listed on the NRDL. We believe in the next few years and in many parts of the
country, dialysis patients will generally be reimbursed for 80-90% of their costs for roxadustat and non-dialysis patients in the 50-70% range.
Hospital Listing
Before roxadustat can be prescribed at a government hospital, which is 90% of the market in China, it has to be carried in the hospital formulary. The process
of entry into the formulary is commonly referred to as “hospital listing”. Decisions are made on a hospital-by-hospital basis, where hospital listing
committees meet anywhere from every six months to every five years. Temporary listings can be used in the interim, where the head of the department could
place an ad-hoc order with the formulary for a single or handful of patients for small quantities of roxadustat. These market access constraints impact all
drugs, not just roxadustat. Consistent with the experience of other product launches in China, significant market uptake is usually seen a few years after
launch, although in the case of roxadustat, it could be sooner given the inclusion in NRDL within 12 months of market approval.
Tendering
Tendering is a provincial level procedure. For drugs with multiple brands, it is a collective tender process for purchases by government hospitals of a
medicine included in provincial or local medicine procurement catalogs. In the case of roxadustat, it is a more administrative process than for most drugs as
roxadustat is currently the only drug of its class (HIF-PHI) available on the market. The tendering process of roxadustat is substantially complete in all 31
provinces in China.
ROXADUSTAT FOR THE TREATMENT OF ANEMIA IN CHRONIC KIDNEY DISEASE IN JAPAN
In September 2019, roxadustat (Evrenzo®) was approved in Japan for the treatment of anemia associated with CKD in dialysis patients. Our collaboration
partner Astellas launched Evrenzo in November 2019, targeting healthcare providers that care for approximately 330,000 dialysis patients across Japan.
In January 2020, Astellas submitted a supplemental NDA in Japan for the treatment of anemia in non-dialysis CKD patients, supported by three clinical
studies in more than 500 Japanese non-dialysis patients with anemia associated with CKD.
ROXADUSTAT FOR THE TREATMENT OF CHEMOTHERAPY-INDUCED ANEMIA AND ANEMIA ASSOCIATED WITH
MYELODYSPLASTIC SYNDROMES
Based on roxadustat’s mechanism of action and safety and efficacy profile to date, we believe it has the potential to treat anemia associated with many other
conditions, including CIA and MDS.
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Background of Chemotherapy-Induced Anemia
As blood cell production in bone marrow is highly prolific, it is particularly vulnerable to the cytotoxic effects of chemotherapy used to treat cancer patients.
Many chemotherapy agents directly impair hematopoiesis in bone marrow, including disruption of red blood cell production. The nephrotoxic effects of some
cytotoxic agents, such as platinum-containing agents, can also result in decreased production of erythropoietin by the kidneys, further contributing to reduced
red blood cell production. Radiation therapy has also been associated with hematologic toxicity.
Approximately 40% of total solid tumor cancer patients, or approximately 6.8 million people, undergo chemotherapy each year globally, including 1.7 million
in the U.S. and 3.2 million in China. Eighty percent of those patients in developed countries and 40% of patients in China develop CIA. The incidence and
severity of CIA depend on a variety of factors, including the tumor type or the level of toxicity of the therapy, and further increases with each successive
chemotherapy round. We believe the addressable population is approximately 600,000 in the U.S. and 500,000 in China.
ESAs have been recommended for patients experiencing CIA with the desirable goals of improvement in anemia-related symptoms and the avoidance of
blood transfusion which increases risk of infections and the risk of complications such as heart failure and allergic reactions. However, not all CIA patients
respond to ESA therapy, which may be due to the etiology of their CIA or inflammatory comorbidity. ESA use also has associated toxicities, including
increased thrombotic events, possible decreased survival and accelerated tumor progression, as published from randomized clinical trials and meta-analyses,
that led to label restrictions and box warnings for ESAs in cancer populations in 2007, followed by the ESA Risk Evaluation and Mitigation Strategy
(“REMS”) program.
Market Opportunity for Roxadustat in Chemotherapy-Induced Anemia
ESA sales for CIA dropped significantly in the U.S. since the reported safety risks of ESA use in cancer patients in 2006, from estimated $2.5 billion in 2006
to less than $0.5 billion in 2019. During the same period, the prevalence of diagnosed CIA remained at similar levels, and is expected to grow slightly as a
marginal decline of chemotherapy use is offset by an aging population.
We believe that if our clinical program shows an acceptable safety and efficacy profile, roxadustat would have the potential to address anemia in this
population of patients undergoing chemotherapy, including, potentially, those patients with concomitant inflammation.
Clinical Development of Roxadustat in Chemotherapy-Induced Anemia
We began a Phase 2 proof of concept clinical trial of roxadustat in the U.S. in CIA in the third quarter of 2019. This is a single-arm open label study
investigating the efficacy and safety of roxadustat for the treatment of anemia in patients receiving myelosuppressive chemotherapy treatment for non-
myeloid malignancies, with treatment duration of 16 weeks, and will enroll up to 100 patients.
Background of Anemia in Myelodysplastic Syndromes
Myelodysplastic syndromes are a diverse group of bone marrow disorders characterized by ineffective production of healthy blood cells and premature
destruction of blood cells in the bone marrow, leading to anemia. In most MDS patients, the cause of the disease is unknown.
Incidence and prevalence of MDS are not yet well understood, and may be greatly underestimated. MDS diagnosis became reportable under the World Health
Organization oncology classification system only in 2001, and since then cases of MDS have been tracked by cancer registries.
The prevalence of MDS in the U.S. is estimated to be between 60,000 and 170,000, and continues to rise as more therapies become available and patients are
living longer with MDS. We estimate that currently, approximately 70,000 patients are diagnosed with MDS in the United States.
Anemia is the most common clinical presentation in MDS, seen in approximately 80% of MDS patients, and producing symptoms, including fatigue,
weakness, exercise intolerance, shortness of breath, dizziness, and cognitive impairment.
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Limitations of the Current Standard of Care for Anemia in Myelodysplastic Syndromes
Stem cell transplant is the only potentially curative therapy for MDS, but it is not feasible in most patients due to their advanced age and frailty. The high rate
of severe anemia leaves recurring red blood cell transfusions as the mainstay of care in MDS patients. Transfusion can result in direct organ damage through
transfusional iron overload. Transfusion dependent MDS patients suffer higher rates of cardiac events, infections and transformation to acute leukemia, and a
decreased overall survival rate when compared with non-transfused patients with MDS, and decreased survival compared to an age-matched elderly
population. Patients receiving red blood cell transfusions may require an iron chelator in order to address toxic elements of iron overload such as lipid
peroxidation and cell membrane, protein, DNA, and organ damage.
Lower-risk MDS patients represent approximately 77% of total diagnosed MDS population. Most national and international guidelines recommend use of
ESAs for anemia only in lower-risk MDS patients presenting with symptomatic anemia with serum EPO levels at or below 500 mU/mL.
Even among the eligible subpopulation, the effectiveness of ESAs in treating anemia in MDS remains limited, with the best clinical study results showing
40% to 60% erythroid response rates, in studies where significantly high doses of ESAs were used, enrolled patients had low serum EPO levels, and in lower-
risk categories. New strategies to broaden the eligible population, improve anemia and maintain adequate iron balance, as well as avoidance of transfusions,
are highly desired in managing patients with MDS.
Market Opportunity for Roxadustat in Myelodysplastic Syndromes
We believe there is a significant need for a safer, more effective, and more convenient option to address anemia in patients with lower-risk MDS. Roxadustat,
our orally administered small molecule HIF-PH inhibitor, stimulates the body’s natural mechanism of red blood cell production and iron hemostasis based on
cellular-level oxygen-sensing and iron-regulation mechanisms. Unlike ESAs which are limited to providing exogenous EPO, roxadustat activates a
coordinated erythropoietic response in the body that includes the stimulation of red blood cell progenitors, an increase in the body’s production of endogenous
EPO, and an increase in iron availability for hemoglobin synthesis, which we believe is important in a broad range of MDS patients. Moreover, in anemia of
CKD, roxadustat has demonstrated the ability in clinical trials to increase and maintain hemoglobin levels in the presence of inflammation as measured by
CRP, where ESAs have shown limited effect. We believe that we may be able to replicate this result in MDS anemia patients, where it is not uncommon for
patients to present with autoimmune and inflammatory conditions.
Clinical Development of Roxadustat in Myelodysplastic Syndromes
We are conducting a Phase 3 placebo controlled, double-blind clinical trial to evaluate the safety and efficacy of roxadustat for treatment of anemia in MDS in
the U.S. and Europe. We continue to enroll this 160-patient randomized, double-blind, placebo-controlled Phase 3 clinical study of roxadustat in transfusion-
dependent, lower-risk MDS patients, in which subjects are randomized 3:2 to receive roxadustat or placebo three-times-weekly. The primary endpoint is the
proportion of patients who achieve transfusion independence by 28 weeks with secondary endpoints and safety evaluated at 52 weeks.
In the open-label dose-finding component of this study, 24 lower-risk, transfusion dependent MDS patients with anemia were enrolled in three sequential
starting dose cohorts (1.5 mg/kg, 2.0 mg/kg, and 2.5 mg/kg), with roxadustat doses adjusted every eight weeks per a pre-defined algorithm based on
hemoglobin response. Best supporting care including red blood cell transfusion was allowed, as needed, per investigator’s discretion. Patients treated with
roxadustat achieved a greater than or equal to 8-week transfusion independence rate of 38% in the first 28 weeks and 54% of patients had greater than or
equal to 50% reduction in red blood cell transfusion over any eight weeks, from baseline. Roxadustat was generally well tolerated in each dose cohort. The
dose level of 2.5 mg/kg was selected as the starting dose for the double-blind component of the study.
In China, we continue to enroll the open-label portion of our Phase 2/3 clinical trial to evaluate the safety and efficacy of roxadustat in non-transfusion
dependent, lower-risk MDS patients with anemia. After the open-label portion we expect to begin the 135-patient double-blind, placebo-controlled Phase 3
portion of the study, in which subjects will be randomized 2:1 to receive roxadustat or placebo three-times weekly for 26 weeks. The primary endpoint for this
study is percentage of patients achieving a hemoglobin response.
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Research at FibroGen
The HIF-PH enzymes that are the targets of roxadustat belong to a broader family of enzymes known as 2-oxoglutarate (2OG)-dependent oxygenases. In
humans, this family comprises more than 60 members that play important roles in a diverse range of biological processes including collagen biosynthesis,
oxygen sensing, epigenetic regulation, nucleic acid modification/repair, and lipid metabolism. The first members of this enzyme family to be characterized
were the collagen prolyl hydroxylases, which play a critical role in the biosynthesis of collagen and as a result, are potential targets for the treatment of
fibrotic disease. The HIF-PH enzymes regulate the stability of the HIF transcription factor, which not only has therapeutic relevance for the treatment of
anemia as exemplified by roxadustat, but also has implications for other diseases where activation of the HIF pathway would be expected to have beneficial
effects. Other members of the 2OG-dependent oxygenase family with relevance to human disease include the Jumonji domain-containing histone
demethylases, which are emerging cancer targets.
The fact that all members of the 2OG-dependent oxygenase enzyme family use 2OG as a co-substrate makes them viable targets for small molecule inhibitors
that compete with 2OG. FibroGen has been a world leader in inhibition of enzymes belonging to this family, and. our internal medicinal chemistry efforts
have generated a large library of novel compounds designed to target the 2OG-dependent oxygenase family.
PAMREVLUMAB FOR THE TREATMENT OF FIBROSIS AND CANCER
We were founded to discover and develop therapeutics for fibrosis and began studying CTGF shortly after its discovery. Our accumulated discovery research
efforts indicate that CTGF is a critical common element in the progression of serious diseases associated with fibrosis.
From our library of human monoclonal antibodies that bind to different parts of the CTGF protein and block various aspects of CTGF biological activity, we
selected pamrevlumab, for which we have exclusive worldwide rights. We believe that pamrevlumab blocks CTGF and inhibits its central role in causing
diseases associated with fibrosis. Our data to date indicate that pamrevlumab is a promising and highly differentiated product candidate with broad potential
to treat a number of fibrotic diseases and cancers.
We are currently conducting Phase 3 studies in pancreatic cancer and IPF and a Phase 2 trial in DMD. In the U.S., the FDA has granted Orphan Drug
Designation to pamrevlumab for the treatment of IPF, locally advanced unresectable pancreatic cancer, and DMD. In addition, the EMA has granted Orphan
Medicinal Product Designation to pamrevlumab for the treatment of DMD. Pamrevlumab has also received Fast Track designation from the FDA for the
treatment of both IPF and locally advanced unresectable pancreatic cancer.
Overview of Fibrosis
Fibrosis is an aberrant response of the body to tissue injury that may be caused by trauma, inflammation, infection, cell injury, or cancer. The normal response
to injury involves the activation of cells that produce collagen and other components of the extracellular matrix (“ECM”) that are part of the healing process.
This healing process helps to fill in tissue voids created by the injury or damage, segregate infections or cancer, and provide strength to the recovering tissue.
Under normal circumstances, where the cause of the tissue injury is limited, the scarring process is self-limited and the scar resolves to approximate normal
tissue architecture. However, in certain disease states, this process is prolonged and excessive and results in progressive tissue scarring, or fibrosis, which can
cause organ dysfunction and failure as well as, in the case of certain cancers, promote cancer progression.
Excess CTGF levels are associated with fibrosis. CTGF increases the abundance of myofibroblasts, a cell type that drives wound healing, and stimulates them
to deposit ECM proteins such as collagen at the site of tissue injury. In the case of normal healing of a limited tissue injury, myofibroblasts eventually die by
programmed cell death, or apoptosis, and the fibrous scarring process recedes.
Multiple biological agents and pathways have been implicated in the fibrotic process, many of which converge on CTGF, a central mediator of fibrosis. In the
case of cancer, the sustained tumor-associated fibrotic tissue promotes tumor cell survival and metastasis. CTGF is a secreted glycoprotein produced by
fibroblasts, endothelium, mesangial cells and other cell types, including cancers, and is induced by a variety of regulatory modulators, including TGF-ß and
VEGF. CTGF expression has been demonstrated to be up-regulated in fibrotic tissues. Thus, we believe that targeting CTGF to block or inhibit its activity
could mitigate, stop or reverse tissue fibrosis. In addition, since CTGF is implicated in nearly all forms of fibrosis, we believe pamrevlumab has the potential
to provide clinical benefit in a wide range of clinical indications that are characterized by fibrosis.
18
Until recently, it was believed that fibrosis was an irreversible process. It is now generally understood that the process is dynamic and potentially amenable to
reversal. Based on studies in animal models of fibrosis of the liver, kidney, muscle and cardiovascular system, it has been shown that fibrosis can be reversed.
It has also been demonstrated in humans that fibrosis caused by hepatitis virus can be reversed (Chang et al. Hepatology (2010)). Additionally, we have
generated data in human and animal studies that lung fibrosis progression can be slowed, arrested, or possibly reversed in some instances upon treatment with
pamrevlumab.
Clinical Development of Pamrevlumab — Overview
We have performed clinical trials of pamrevlumab in IPF, pancreatic cancer, liver fibrosis and diabetic kidney disease. In eleven Phase 1 and Phase 2 clinical
studies involving pamrevlumab to date, including more than 600 patients who were treated with pamrevlumab (about half of patients dosed for more than
six months), pamrevlumab has been well-tolerated across the range of doses studied, and there have been no dose-limiting toxicities seen thus far.
Idiopathic Pulmonary Fibrosis
Understanding IPF and Current Therapies
IPF is a form of progressive pulmonary fibrosis, or abnormal scarring, which destroys the structure and function of the lungs. As tissue scarring progresses in
the lungs, transfer of oxygen into the bloodstream is increasingly impaired. Average life expectancy at the time of confirmed diagnosis of IPF is estimated to
be between three to five 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 cause of IPF is unknown but is believed to be related to unregulated cycles of injury, inflammation and fibrosis.
Patients with IPF experience debilitating symptoms, including shortness of breath and difficulty performing routine functions, such as walking and talking.
Other symptoms include chronic dry, hacking cough, fatigue, weakness, discomfort in the chest, loss of appetite, and weight loss. Over the last decade,
refinements in diagnosis criteria and enhancements in high-resolution computed tomography imaging technology (“quantitative HRCT”) have enabled more
reliable diagnosis of IPF without the need for a lung biopsy.
The U.S. prevalence and incidence of IPF are estimated to be 44,000 to 135,000 cases, and 21,000 new cases per year, respectively, based on Raghu et al.
(Am J Respir Crit Care Med (2006)) and on data from the United Nations Population Division. We believe that with the availability of technology to enable
more accurate diagnoses, the number of individuals diagnosed per year with IPF will continue to increase.
There are currently two therapies approved to treat IPF in Europe and the U.S., pirfenidone and nintedanib. The approvals and subsequent launches of
pirfenidone and nintedanib have clearly shown the commercial potential in IPF. Hoffmann-La Roche (“Roche”) reported worldwide sales of approximately $1
billion for 2018 and $1.15 billion for 2019 for Esbriet® (pirfenidone). Similarly, Boehringer Ingelheim Pharma GmbH & Co. KG (“Boehringer Ingelheim”)
reported total sales of approximately $1 billion for Ofev® (nintedanib) in 2017, and approximately $1.2 billion in 2018.
Phase 3 Clinical Development – Randomized, Double-Blind, Placebo-Controlled Trials of Pamrevlumab in IPF
We continue to enroll ZEPHYRUS, our double-blind, placebo-controlled Phase 3 trial of pamrevlumab in IPF patients. In 2020, we will initiate a second IPF
study similar in design to ZEPHYRUS. Each study will target approximately 340 patients. The primary U.S. efficacy endpoint for each study is change from
baseline in forced vital capacity (“FVC”). The primary efficacy endpoint in Europe for each study is disease progression (defined by a decline in FVC percent
predicted of greater than or equal to 10% or death). Secondary endpoints will include clinical outcomes of disease progression, patient reported outcomes, and
quantitative changes in lung fibrosis volume from baseline.
PRAISE – Study 067 – Randomized, Double-Blind, Placebo-Controlled Phase 2 Trial of Pamrevlumab in IPF
In September 2019, positive results from PRAISE, our randomized, double-blind, placebo-controlled Phase 2 clinical trial (Study 067), were published in The
Lancet Respiratory Medicine. PRAISE was designed to evaluate the safety and efficacy of pamrevlumab in patients with mild-to-moderate IPF (baseline FVC
percentage predicted of 55%), as well as topline results from two sub-studies that were added to evaluate the safety of combining pamrevlumab with
approved IPF therapies.
In the double-blind, placebo-controlled 48-week portion of this study, 103 patients were randomized (1:1) to receive either 30mg/kg of pamrevlumab or
placebo intravenously every three weeks. Lung function assessments were conducted at baseline and at Weeks 12, 24, 36 and 48. Quantitative HRCT
assessments were performed at baseline and on Weeks 24 and 48.
19
Pamrevlumab met the primary efficacy endpoint of change of FVC percent predicted, a measure of a patient’s lung volume as a percentage of what would be
expected for such patient’s age, race, sex and height. The average decline (least squares mean) in FVC percent predicted from baseline to Week 48 was 2.85
in the pamrevlumab arm (n=50) as compared to an average decline of 7.17 in the placebo arm (n=51), a statistically significant difference of 4.33 (p=0.0331,
using a linear slope analysis in intent-to-treat population).
Pamrevlumab-treated patients had an average decrease (least squares mean) in FVC of 129 ml at Week 48 compared to an average decrease of 308 ml in
patients receiving placebo, a statistically significant difference of 178 ml (p=0.0249, using a linear slope analysis in the intent-to-treat population). This
represents a 57.9% relative difference. In addition, the pamrevlumab-treated arm had a lower proportion of patients (10%) who experienced disease
progression (defined by a decline in FVC percent predicted of greater than or equal to 10% or death), than did the placebo arm (31.4%) at Week 48
(p=0.0103). The percentage of pamrevlumab patients who experienced disease progression and discontinued therapy was less than 15% of that in the placebo
arm.
In this study, we measured change in quantitative lung fibrosis from baseline to Week 24 and Week 48 using quantitative HRCT. The pamrevlumab arm
achieved a statistically significant reduction in the rate of progression of lung fibrosis compared to placebo using HRCT to measure quantitative lung fibrosis
(“QLF”). The change in QLF volume from baseline to Week 24 for pamrevlumab-treated patients was 24.8 ml vs. 86.4 ml for placebo, with a treatment
difference of -61.6 ml, p=0.009. The change in QLF volume from baseline to 48 weeks was 75.4 ml in pamrevlumab-treated patients vs. 151.5 ml in patients
on placebo, with a treatment difference of -76.2 ml, p=0.038.
As in our previous open label Phase 2 study, a correlation between FVC percent predicted and quantitative lung fibrosis was confirmed at both Week 24 and
48 in this study.
We are not aware of any other IPF therapies that have shown a statistically significant effect on lung fibrosis as measured by quantitative HRCT analysis.
The treatment effects of pamrevlumab were demonstrated not only on change in FVC, a measure of pulmonary function and IPF disease progression, and
change in fibrosis using quantitative HRCT, but pamrevlumab-treated patients also showed a trend of clinically meaningful improvement in a measure of
health-related quality of life using the St. George’s Respiratory Questionnaire (SGRQ) vs. a reduction in quality of life seen in placebo patients over the 48
weeks of treatment. The SGRQ quality of life measurement has been validated in chronic obstructive pulmonary disease. In the patients that were evaluated
by the UCSD Shortness of Breath Questionnaire, pamrevlumab-treated patients had a significant attenuation of their worsening dyspnea in comparison to
placebo.
Pamrevlumab was well-tolerated in the placebo-controlled study. The treatment-emergent adverse events were comparable between the pamrevlumab and
placebo arms and the adverse events in the pamrevlumab arm were consistent with the known safety profile of pamrevlumab. In this study, as compared with
the placebo group, fewer pamrevlumab patients were hospitalized, following an IPF-related or respiratory treatment-emergent adverse event, or died for any
reason.
The double-blind, active-controlled combination sub-studies were designed to assess the safety of combining pamrevlumab with standard of care medication
in IPF patients. Study subjects were on stable doses of pirfenidone or nintedanib for at least three months and were randomized 2:1 to receive 30 mg/kg of
pamrevlumab or placebo every three weeks for 24 weeks. Thirty-six patients were enrolled in the pirfenidone sub-study and 21 patients were enrolled in the
nintedanib sub-study. Pamrevlumab appeared to be well-tolerated when given in combination with either pirfenidone or nintedanib.
Study 049 – Open-Label Phase 2 Trial of Pamrevlumab in IPF
We completed an open-label extension of Study 049, a Phase 2 open-label, dose-escalation study to evaluate the safety, tolerability, and efficacy of
pamrevlumab in 89 patients with IPF. During the initial one-year treatment period, pamrevlumab was administered at a dose of 15 mg/kg in Cohort 1
(53 patients) and 30 mg/kg in Cohort 2 (36 patients) by IV infusion every three weeks for 45 weeks. After 45 weeks of dosing, subjects whose FVC declined
less than predicted were allowed to continue dosing in an extension study until they had disease progression. Nineteen patients from Cohort 1 (35.8%) and 18
patients from Cohort 2 (50.0%) entered the extension study. Efficacy endpoints were pulmonary function assessments, extent of pulmonary fibrosis as
measured by quantitative imaging and measures of health-related quality of life. We presented data from our open-label Phase 2 IPF extension study (049) at
the International Colloquium on Lung and Airway Fibrosis in November 2016, reporting that no safety issues were observed during prolonged treatment with
pamrevlumab. Some of the 37 patients who enrolled in the extension study were treated with pamrevlumab for up to five years. Trends regarding improved or
stable pulmonary function and stable fibrosis observed during the initial one-year study were also observed in the extension study.
20
In Cohort 1, we enrolled patients with a wide range of disease severity to assess safety and efficacy. Baseline FVC percent predicted for Cohort 1 was 43% to
90%, with a mean of 62.8%. In contrast, other IPF clinical trials, such as those for pirfenidone and nintedanib, have enrolled patients who on average had
mild to moderate disease (mean FVC percent predicted 73.1% to 85.5%). Fourteen patients in Cohort 1 withdrew, and ten of the 14 had severe disease.
In order to enroll IPF patients similar to those in other IPF trials, we amended the protocol for Cohort 2 to include only patients with mild to moderate disease
(FVC ≥ 55% predicted). Baseline FVC percent predicted for Cohort 2 was 53% to 112%, with a mean of 72.7%. Based on this definition of disease severity,
37 patients in Cohort 1 and 32 patients in Cohort 2 had mild to moderate disease.
The table below provides a summary of the observed quantitative change in fibrosis for mild to moderate patients in Cohorts 1 and 2 as measured by
quantitative HRCT. Twenty-four percent of these patients had improved fibrosis at Week 48. We believe that this is the first trial to demonstrate a reversal of
fibrosis (as measured by HRCT) in a subset of IPF patients. Stable fibrosis has been considered the only achievable favorable outcome in IPF. The table
below sets forth the number of patients who showed stable or improved fibrosis at Weeks 24 and 48 compared to the amount of fibrosis at the start of the trial.
Changes in Fibrosis in Patients with Mild to Moderate IPF Treated with Pamrevlumab in FGCL-3019-049
Cohort 1
Cohort 2
Combined
Stable or Improved
Compared to Baseline
Week 24
21/45 (47%)
12/29 (41%)
33/75 (44%)
Week 48
14/38 (37%)
9/28 (32%)
23/66 (35%)
Improved Compared to
Baseline
Week 24
12/45 (27%)
5/29 (17%)
17/74 (23%)
Week 48
12/38 (32%)
4/28 (14%)
16/66 (24%)
Improved Compared
to Week 24
Week 48
8/38 (21%)
8/26 (31%)
16/64 (25%)
Eighty-nine patients had at least one adverse event. The most common reported events were cough, fatigue, shortness of breath, upper respiratory tract
infection, sore throat, bronchitis, nausea, dizziness, and urinary tract infection. Including the open-label extension, there were 45 serious adverse events in 31
patients, four of which were considered possibly related by the principal investigator to the investigational drug. After investigation, it is our belief that there
is no causal relationship between pamrevlumab and the serious adverse events deemed possibly related by the principal investigator. During the first year of
treatment there were 38 treatment-emergent serious adverse events in 24 patients. Adverse events observed to date are consistent with typical conditions
observed in this patient population.
Pancreatic Cancer
Understanding Pancreatic Cancer and the Limitations of Current Therapies
Certain solid malignant tumors have a prominent fibrosis component consisting mostly of ECM that contributes to metastasis and progressive disease. ECM
is the connective tissue framework of an organ or tissue.
Pancreatic ductal adenocarcinoma, or pancreatic cancer, is the third leading cause of cancer deaths in the U.S. According to the European Commission’s
European Cancer Information System, there were 100,005 new cases of pancreatic cancer and 95,373 deaths from pancreatic cancer in the Europe projected
for 2018. The National Cancer Center of Japan estimated that there were 36,239 new cases of pancreatic cancer in 2014, increased from 24,442 cases in 2004.
In its report of December 2017, Decision Resources Group estimated that the major market sales (U.S., Europe and Japan) of pancreatic cancer drugs will
grow from $1.3 billion in 2016 to approximately $3.7 billion in 2026. According to the U.S. National Cancer Institute, there were an estimated 57,000 new
cases of pancreatic cancer in the U.S. in 2019. Fifty percent of new cases are metastatic. Another 15-20% have localized resectable tumors. The remaining 30-
35% have localized but unresectable tumors.
For those with non-resectable tumors, median survival is eight to 12 months post-diagnosis, and about 8% realize five years of survival; similar to metastatic
cases. For those with resectable tumors, 50% survive 17 to 27 months post-diagnosis and ~20% report five-year survival.
Pancreatic cancer is aggressive and typically not diagnosed until it is largely incurable. Most patients are diagnosed after the age of 45, and according to the
American Cancer Society, 94% of patients die within five years from diagnosis. The majority of patients are treated with chemotherapy, but pancreatic cancer
is highly resistant to chemotherapy. Approximately 15% to 20% of patients are treated with surgery; however, even for those with successful surgical
resection, the median survival is approximately two years, with a five year survival rate of 15% to 20% (Neesse et al. Gut (2011)). Radiation treatment may
be used for locally advanced diseases, but it is not curative.
21
The duration of effect of approved anti-cancer agents to treat pancreatic cancer is limited. Gemcitabine demonstrated improvement in median overall survival
from approximately four to six months, and erlotinib in combination with gemcitabine demonstrated an additional ten days of survival. Nab-paclitaxel in
combination with gemcitabine was approved by the FDA in 2013 for the treatment of pancreatic cancer, having demonstrated median survival of 8.5 months.
The combination of folinic acid, 5-fluorouracil, irinotecan and oxaliplatin (FOLFIRINOX) was reported to increase survival to 11.1 months from 6.8 months
with gemcitabine. These drugs illustrate that progress in treatment for pancreatic cancer has been modest, and there remains a need for substantial
improvement in patient survival and quality of life.
The approved chemotherapeutic treatments for pancreatic cancer target the cancer cells themselves. Tumors are composed of cancer cells and associated non-
cancer tissue, or stroma, of which ECM is a major component. In certain cancers such as pancreatic cancer, both the stroma and tumor cells produce CTGF
which in turn promotes the proliferation and survival of stromal and tumor cells. CTGF also induces ECM deposition that provides advantageous conditions
for tumor cell adherence and proliferation, promotes blood vessel formation, or angiogenesis, and promotes metastasis, or tumor cell migration, to other parts
of the body.
Pancreatic cancers are generally resistant to powerful chemotherapeutic agents, and there is now growing interest in the use of an anti-fibrotic agent to
diminish the supportive role of stroma in tumor cell growth and metastasis. The anti-tumor effects observed with pamrevlumab in preclinical models indicate
that it has the potential to inhibit tumor expansion through effects on tumor cell proliferation and apoptosis as well as reduce metastasis.
Phase 3 Clinical Development – Randomized, Double-Blind, Placebo-Controlled Trial of Pamrevlumab in Locally Advanced, Unresectable Pancreatic
Cancer
We continue to enroll LAPIS, our double-blind placebo controlled Phase 3 trial of pamrevlumab as a neoadjuvant therapy for locally advanced unresectable
pancreatic cancer. We intend to enroll approximately 260 patients, randomized 1:1 to receive either pamrevlumab, in combination with gemcitabine and nab-
paclitaxel, or placebo with gemcitabine and nab-paclitaxel. After completion of the 6-month treatment period, if the results show an improved resection rate
in the pamrevlumab arm, we may request a meeting with the FDA to discuss the adequacy of these results to support a marketing application under the
provisions of accelerated approval. After this interim assessment of resection rates, the study will continue to collect data on overall survival, the primary
endpoint.
Study 069 – Randomized, Open-Label, Active-Controlled Phase 1/2 Trial of Pamrevlumab in Locally Advanced Pancreatic Cancer
We continue to follow patients in our ongoing open-label, randomized (2:1) Phase 1/2 trial (FGC004C-3019-069) of pamrevlumab combined with
gemcitabine plus nab-paclitaxel chemotherapy vs. the chemotherapy regimen alone in patients with inoperable locally advanced pancreatic cancer that has not
been previously treated. We enrolled 37 patients in this study and completed the six-month treatment period and surgical assessment at the end of 2017. The
overall goal of the trial is to determine whether the pamrevlumab combination can convert inoperable pancreatic cancer to operable, or resectable, cancer.
Tumor removal is the only chance for cure of pancreatic cancer, but only approximately 15% to 20% of patients are eligible for surgery.
We reported updated results from this ongoing study at the American Society of Clinical Oncology Annual Meeting in June 2018. A higher proportion
(70.8%) of pamrevlumab-treated patients whose tumors were previously considered unresectable became eligible for surgical exploration than patients who
received chemotherapy alone (15.4%), based on pre-specified eligibility criteria at the end of 6 months of treatment. Furthermore, a higher proportion of
pamrevlumab-treated patients (33.3%) achieved surgical resection than those who received chemotherapy alone (7.7%).
In addition, this data showed improved overall survival among patients who were resected vs. not resected (NE vs. 18.56 months, p-value=0.0141) and a
trend toward improved overall survival in patients eligible for surgery vs. patients who were not (27.73 vs. 18.40 months, p-value=0.0766). All of the patients
on study at the time of the results reported in June 2018 continue to remain on study. No increase in serious adverse events was observed in the pamrevlumab
arm and no delay in wound healing was observed post-surgery.
Patients with locally advanced unresectable pancreatic cancer have median survival of less than 12 months, only slightly better than patients with metastatic
pancreatic cancer, whereas patients with resectable pancreatic cancer have a much better prognosis with median survival of approximately 23 months and
some patients being cured. If pamrevlumab in combination with chemotherapy continues to demonstrate an enhanced rate of conversion from unresectable
cancer to resectable cancer, it may support the possibility that pamrevlumab could provide a substantial survival benefit for locally advanced pancreatic
cancer patients.
22
Completed Clinical Trials of Pamrevlumab in Pancreatic Cancer
We completed an open-label Phase 1/2 (FGCL-MC3019-028) dose finding trial of pamrevlumab combined with gemcitabine plus erlotinib in patients with
previously untreated locally advanced (Stage 3) or metastatic (Stage 4) pancreatic cancer. These study results were published in the Journal of Cancer
Clinical Trials (Picozzi et al., J Cancer Clin Trials 2017, 2:123). Treatment continued until progression of the cancer or the patient withdrew for other reasons.
Patients were then followed until death.
Seventy-five patients were enrolled in this study with 66 (88%) having Stage 4 metastatic cancer. The study demonstrated a dose-related increase in survival.
At the lowest doses, no patients survived for even one year while at the highest doses up to 31% of patients survived one year.
A post-hoc analysis found that there was a significant relationship between survival and trough levels of plasma pamrevlumab measured immediately before
the second dose (Cmin), as illustrated below. Cmin greater than or equal to 150 µg/mL was associated with significantly improved progression-free survival
(p=0.01) and overall survival (p=0.03) vs. those patients with Cmin less than 150 µg/mL. For patients with Cmin >150 µg/mL median survival was 9.0
months compared to median survival of 4.4 months for patients with Cmin <150 µg/mL. Similarly, 34.2% of patients with Cmin >150 µg/mL survived for
longer than one year compared to 10.8% for patients with Cmin <150 µg/mL. These data suggest that sufficient blockade of CTGF requires pamrevlumab
threshold blood levels of approximately 150 µg/mL in order to improve survival in patients with advanced pancreatic cancer.
Increased Pancreatic Cancer Survival Associated with Increased Plasma Levels of Pamrevlumab
The Kaplan-Meier plot provides a representation of survival of all patients in the clinical trial. Each vertical drop in the curve represents a recorded event
(death) of one or more patients. When a patient’s event cannot be determined either because he or she has withdrawn from the study or because the analysis is
completed before the event has occurred, that patient is “censored” and denoted by a symbol (●) on the curve at the time of the last reliable assessment of that
patient.
In the study, the majority of adverse events were mild to moderate, and were consistent with those observed for erlotinib plus gemcitabine treatment without
pamrevlumab. There were 99 treatment-emergent serious adverse events; six of which were assessed as possibly related to the investigational drug by the
principal investigator, and 93 as not related to study treatment. After investigation, it is our belief that there is no causal relationship between pamrevlumab
and the treatment-emergent serious adverse events deemed possibly related by the principal investigator. We did not identify any evolving dose-dependent
pattern, and higher doses of pamrevlumab were not associated with higher numbers of serious adverse events or greater severity of the serious adverse events
observed.
23
Pamrevlumab for Duchenne Muscular Dystrophy
Understanding DMD and the Limitations of Current Therapies
In the U.S., approximately one in every 5,000 boys have DMD, and approximately 20,000 children are diagnosed with DMD globally each year. There are
currently no approved disease-modifying treatments. Despite taking steroids to mitigate progressive muscle loss, a majority of children with DMD are non-
ambulatory by adolescence, and median survival is age 25.
DMD is an inherited disorder of one of the dystrophin genes resulting in absence of the dystrophin protein and abnormal muscle structure and function,
leading to progressively diminished mobility as well as pulmonary function and cardiac function which result in early death. Constant myofiber breakdown
results in persistent activation of myofibroblasts and altered production of ECM resulting in extensive fibrosis in skeletal muscles of DMD patients.
Desguerre et al. (2009) showed that muscle fibrosis was the only myo-pathologic parameter that significantly correlated with poor motor outcome as assessed
by quadriceps muscle strength, manual muscle testing of upper and lower limbs, and age at ambulation loss. Numerous pre-clinical studies including those in
the mdx model of DMD suggest that CTGF contributes to the process by which muscle is replaced by fibrosis and fat and that CTGF may also impair muscle
cell differentiation during muscle repair after injury.
Clinical Development of Pamrevlumab for Duchenne Muscular Dystrophy
Based on the FDA review of one year data from our Phase 2 administrative analysis, we intend to begin a Phase 3 study of pamrevlumab in non-ambulatory
DMD patients in the second half of 2020.
All 21 non-ambulatory patients from our fully enrolled Phase 2 open-label single-arm trial have completed over one year of treatment with pamrevlumab.
While we cannot make direct comparisons between our trial and previously published data due to, among other things, differences in subject numbers,
baseline characteristics, inclusion/exclusion criteria, treatment protocols, and analysis methods, we are encouraged by the data obtained so far. Pamrevlumab
was well tolerated in this study.
In June 2019 at the Parent Project Muscular Dystrophy meeting, we reported topline results from our one-year administrative analysis comparing our Phase 2
data to recent published natural disease history studies of DMD patients.
In pulmonary function tests, the results from our study indicate a potential reduction in the 1-year decline in FVC percent predicted from baseline for our
pamrevlumab-treated patients when compared to FVC data of DMD patients (whether such patients were taking steroids or not) published in 2019 by Ricotti.
In the 2019 Ricotti study, the DMD patients were treated with steroids only. Similarly, all of the patients in our Phase 2 pamrevlumab trial were on steroids. In
addition, pamrevlumab showed less decline in both percent predicted forced expiratory volume as compared to previously published study results of Meier in
2016, and in percent predicted peak expiratory flow rate, compared to what was observed in the study by Ricotti in 2019.
Our data showed an increase in cardiac function, measured by mean change of left ventricular ejection fraction (“LVEF”), of 0.29% from baseline for our
pamrevlumab-treated patients. Whereas, data published in 2018 by McDonald of DMD patients only on steroids showed a mean LVEF decline of 0.82% from
baseline in one year.
In muscle function tests, the majority of the results of this Phase 2 study showed the mean change from baseline in our pamrevlumab-treated patients were
more favorable than previously published data. Our results showed a positive increase in grip-strength score in both dominant and non-dominant hands at one
year of treatment with pamrevlumab, while earlier results from a 2015 study by Seferian showed a decline at one year as expected. In the performance of the
upper limb (“PUL”) test specifically developed for DMD patients, our pamrevlumab-treated patients had a mean change from baseline of -1.53. In the 2019
study by Ricotti of DMD patients taking either nothing or only steroids, the annual mean change in the PUL test was -4.13. Furthermore, in our study a strong
correlation between change in biceps brachii T2-mapping and change in PUL score was observed, demonstrating stabilization and even possible improvement
in the muscle fibrosis burden.
Commercialization Strategy for Pamrevlumab
Our goal, if pamrevlumab is successful, is to be a leader in the development and commercialization of novel approaches for inhibiting fibrosis and treating
some forms of cancer and muscular dystrophy diseases. To date, we have retained exclusive worldwide rights for pamrevlumab.
24
COLLABORATIONS
Collaboration Partnerships for Roxadustat
Astellas
We have two agreements with Astellas for the development and commercialization of roxadustat, one for Japan, and one for Europe, the Commonwealth of
Independent States, the Middle East and South Africa. Under these agreements we provided Astellas the right to develop and commercialize roxadustat for
anemia in these territories.
We share responsibility with Astellas for clinical development activities required for U.S. and Europe regulatory approval of roxadustat, and share equally
those development costs under the agreed development plan for such activities. Astellas will be responsible for clinical development activities and all
associated costs required for regulatory approval in all other countries in the Astellas territories. Astellas will own and have responsibility for regulatory
filings in its territories. We are responsible, either directly or through our contract manufacturers, for the manufacture and supply of all quantities of
roxadustat to be used in development and commercialization under the agreements.
The Astellas agreements will continue in effect until terminated. Either party may terminate the agreements for certain material breaches by the other party. In
addition, Astellas will have the right to terminate the agreements for certain specified technical product failures, upon generic sales reaching a particular
threshold, upon certain regulatory actions, or upon our entering into a settlement admitting the invalidity or unenforceability of our licensed patents. Astellas
may also terminate the agreements for convenience upon advance written notice to us. In the event of any termination of the agreements, Astellas will transfer
and assign to us the regulatory filings for roxadustat and will assign or license us the relevant trademarks used with the products in the Astellas territories.
Under certain terminations, Astellas is also obligated to pay us a termination fee.
Consideration under these agreements includes a total of $360.1 million in upfront and non-contingent payments, and milestone payments totaling $557.5
million, of which $542.5 million are development and regulatory milestones, and $15.0 million are commercial-based milestones. Total consideration,
excluding development cost reimbursement and product sales-related payments, could reach $917.6 million.
Additionally, under these agreements, Astellas pays 100% of the commercialization costs in their territories. Astellas will pay us a transfer price for our
manufacture and delivery of roxadustat based on net sales of roxadustat in the low 20% range.
AstraZeneca
We also have two agreements with AstraZeneca for the development and commercialization of roxadustat for anemia, one for China (the “China
Agreement”), and one for the U.S. and all other countries not previously licensed to Astellas (the “U.S./RoW Agreement”). Under these agreements we
provided AstraZeneca the right to develop and commercialize roxadustat for anemia in these territories. We share responsibility with AstraZeneca for clinical
development activities required for U.S. regulatory approval of roxadustat.
In 2015, we reached the $116.5 million cap on our initial funding obligations (under which we shared 50% of the initial development costs), therefore all
future development and commercialization costs for roxadustat for the treatment of anemia in CKD in the U.S., Europe, Japan and all other markets outside of
China will be paid by Astellas and AstraZeneca.
In China, our subsidiary FibroGen Beijing will conduct the development work for CKD anemia and will hold all of the regulatory licenses issued by China
regulatory authorities and be primarily responsible for regulatory, clinical and manufacturing. China development costs are shared 50/50. AstraZeneca is also
responsible for 100% of development expenses in all other licensed territories outside of China. We are responsible, through our contract manufacturers, for
the manufacture and supply of all quantities of roxadustat to be used in development and commercialization under the agreements.
Under the AstraZeneca agreements, we receive upfront and subsequent non-contingent payments totaling $402.2 million. Potential milestone payments under
the agreements total $1.2 billion, of which $571.0 million are development and regulatory milestones, and $652.5 million are commercial-based milestones.
Total consideration under the agreements, excluding development cost reimbursement, transfer price payments, royalties and profit share, could reach
$1.6 billion.
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 U.S. approval, excluding development expense reimbursement.
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Under the U.S./RoW Agreement, AstraZeneca will pay for all commercialization costs in the U.S. and RoW, AstraZeneca will be responsible for the U.S.
commercialization of roxadustat, with FibroGen undertaking specified promotional activities in the ESRD segment in the U.S. In addition, we will receive a
transfer price for delivery of commercial product based on a percentage of net sales in the low- to mid-single digit range and AstraZeneca will pay us a tiered
royalty on net sales of roxadustat in the low 20% range.
Under the China Agreement, which is conducted through FibroGen China Anemia Holdings, Ltd. (“FibroGen China”), the commercial collaboration is
structured as a 50/50 profit share. AstraZeneca will conduct sales and marketing activities in China for roxadustat and will fund roxadustat launch costs in
China until FibroGen Beijing has achieved profitability. At that time, AstraZeneca will recoup 50% of their historical launch costs out of initial roxadustat
profits in China.
AstraZeneca may terminate the U.S./RoW Agreement upon specified events, including our bankruptcy or insolvency, our uncured material breach, technical
product failure, or upon 180 days prior written notice at will. If AstraZeneca terminates the U.S/RoW Agreement at will, in addition to any unpaid non-
contingent payments, it will be responsible to pay for a substantial portion of the post-termination development costs under the agreed development plan until
regulatory approval.
AstraZeneca may terminate the China Agreement upon specified events, including our bankruptcy or insolvency, our uncured material breach, technical
product failure, or upon advance prior written notice at will. If AstraZeneca terminates our China Agreement at will, it will be responsible to pay for transition
costs as well as make a specified payment to FibroGen China.
In the event of any termination of the agreements, but subject to modification upon termination for technical product failure, AstraZeneca will transfer and
assign to us any regulatory filings and approvals for roxadustat in the affected territories that they may hold under our agreements, grant us licenses and
conduct certain transition activities.
Additional Information Related to Collaboration Agreements
Additional information related to collaboration agreements is set forth in Item 7 of this Annual Report on Form 10-K. Information about collaboration
partners that accounted for more than 10% of our total revenue or accounts receivable for the last three fiscal years is set forth in Note 14 to our consolidated
financial statements under Item 8 of this Annual Report.
COMPETITION
The pharmaceutical and biotechnology industries are highly competitive, particularly in some of the indications we are developing drug candidates, including
anemia in CKD, IPF, pancreatic cancer, and DMD. We face competition from multiple other pharmaceutical and biotechnology companies, many of which
have significantly greater financial, technical and human resources and experience in product development, manufacturing and marketing. These potential
advantages of our competitors are particularly a risk in IPF, pancreatic cancer, and DMD, where we do not currently have a development or
commercialization partner.
We expect any products that we develop and commercialize to compete on the basis of, among other things, efficacy, safety, convenience of administration
and delivery, price, the level of generic competition, and the availability of reimbursement from government and other third-party payors.
When any of our product candidates are approved, they will compete with currently marketed products, and product candidates that may be approved for
marketing in the future, for treatment of the following indications:
Roxadustat — Anemia in CKD
Drugs that will compete with roxadustat are expected to include ESAs, particularly in those patient segments where ESAs are used. Currently available ESAs
include epoetin alfa (EPOGEN® marketed by Amgen Inc. in the U.S., Procrit® and Erypo®/Eprex®, marketed by Johnson & Johnson, Inc. and Espo®
marketed by Kyowa Hakko Kirin in Japan and China), darbepoetin (Amgen/Kyowa Hakko Kirin’s Aranesp® and NESP®) and Mircera® marketed by Roche
outside the U.S. and by Vifor Pharma (“Vifor”), a Roche licensee, in the U.S. and Puerto Rico, as well as biosimilar versions of these currently marketed ESA
products. ESAs have been used in the treatment of anemia in CKD for more than 20 years, serving a significant majority of dialysis patients. While non-
dialysis CKD patients who are not under the care of nephrologists, including those with diabetes and hypertension, do not typically receive ESAs and are
often left untreated, some patients under nephrology care may be receiving ESA therapy. It may be difficult to encourage healthcare providers and patients to
switch to roxadustat from products with which they have become familiar.
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We may also face competition from potential new anemia therapies currently in clinical development, including in those patient segments not currently
addressed by ESAs. Companies that are currently developing HIF-PH inhibitors for anemia in CKD indications include GlaxoSmithKline plc (“GSK”), Bayer
Corporation (“Bayer”), Akebia Therapeutics, Inc. (“Akebia”), Japan Tobacco, and Zydus Cadila. Akebia is currently conducting Phase 3 studies in CKD
patients on dialysis and not on dialysis, as well as a Phase 2 study evaluating pharmacokinetics and pharmacodynamics in dialysis-dependent patients with
three-times weekly versus once-a-day dosing. Akebia expects to complete these studies by August 2020. In Japan, Mitsubishi Tanabe Pharmaceutical
Corporation, Akebia’s collaboration partner, submitted an NDA for treatment of anemia in dialysis and non-dialysis CKD patients in July 2019, and is
awaiting an approval decision later in 2020. GSK is also conducting global Phase 3 studies in CKD patients on dialysis and not on dialysis, and expects to
complete those studies by March 2022. GSK and Kyowa Hakko Kirin announced in November 2018 that the two companies signed a strategic
commercialization deal in Japan for daprodustat. GSK submitted a Japan NDA for treatment of anemia in dialysis and non-dialysis in August 2019 and is
awaiting approval later in 2020. Bayer has completed global Phase 2 studies and its HIF-PH inhibitor is now in Phase 3 development in CKD populations on
dialysis and not on dialysis in Japan. Japan Tobacco submitted an NDA for treatment of anemia associated with CKD in Japan in November 2019, supported
by the six Phase 3 studies conducted in CKD patients on dialysis and not on dialysis in Japan, and its partner JW Pharmaceuticals started a Phase 3 study in
dialysis patients in Korea. Zydus Cadila (India) started Phase 3 studies in dialysis and non-dialysis CKD patients in India in 2019.
In addition, there are other companies developing biologic therapies for the treatment of other anemia indications that we may also seek to pursue in the
future, including anemia of MDS. For example, Acceleron Pharma, Inc., in partnership with Celgene Corporation, a Bristol-Myers Squibb company
(“Celgene”), developed Reblozyl® (luspatercept), a protein therapeutic, which was approved in November 2019 by the FDA for anemia treatment in patients
with ß-thalassemia. Its Biologics License Application (“BLA”) under review by the FDA, for treatment of adult patients with very low to intermediate MDS
associated anemia who have ring sideroblast and require red blood cell transfusions, has a Prescription Drug User Fee Act date of April 4, 2020. Acceleron
expects an EMA decision on the MAA in the second half of 2020. In Japan, Celgene started a luspatercept Phase 2 study in May 2019. We may face
competition for patient recruitment, enrollment for clinical trials, and potentially in commercial sales. There may also 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.
In China, biosimilars of epoetin alfa are offered by Chinese pharmaceutical companies such as EPIAO marketed by 3SBio Inc. as well as more than 15 other
local manufacturers. We may also face competition by HIF-PH inhibitors from other companies such as Akebia, Bayer, and GSK, which was authorized by
the National Medical Products Administration (“NMPA”) to conduct trials in China to support its ex-China regulatory filings. Two domestic companies,
Jiangsu Hengrui Medicine Co., Ltd. and Guandong Sunshine Health Investment Co., Ltd, have been permitted by the NMPA to conduct clinical trials for
CKD anemia patients both on dialysis and not on dialysis, and 3SBio Inc. has submitted a clinical trial application to the NMPA to initiate trials for their HIF-
PH inhibitor. Another domestic company, China Medical System, in-licensed desidustat, a compound which is currently in Phase 3 trials in India, from Zydus
Candila for greater China in January 2020. Akebia announced in December 2015 that it had entered into a development and commercialization partnership
with Mitsubishi Tanabe Pharmaceutical Corporation for its HIF-PH inhibitor vadadustat in Japan, Taiwan, South Korea, India and certain other countries in
Asia, and announced in April 2017 an expansion of their U.S. collaboration with Otsuka to add markets, including China. 3SBio Inc. announced in 2016 its
plan to begin a Phase 1 clinical trial of a HIF-PH inhibitor for the China market.
The first biosimilar ESA, Pfizer’s Retacrit® (epoetin zeta), entered the U.S. market in November 2018. Market penetration of Retacrit and the potential
addition of other biosimilar ESAs currently under development may alter the competitive and pricing landscape of anemia therapy in CKD patients on
dialysis under the ESRD bundle. The patents for Amgen’s EPOGEN® (epoetin alfa) expired in 2004 in the Europe, and the final material patents in the U.S.
expired in May 2015. Several biosimilar versions of currently marketed ESAs are available for sale in the Europe, China and other territories. In the U.S., a
few ESA biosimilars are currently under development. Sandoz, a division of Novartis, markets Binocrit® (epoetin alfa) in Europe and may file a biosimilar
BLA in the U.S.
The majority of the current CKD anemia market focuses on dialysis patients, who visit dialysis centers on a regular basis, typically three times a week, and
anemia therapies are administered as part of the visit. Two of the largest operators of dialysis clinics in the U.S., DaVita Healthcare Partners Inc. (“DaVita”),
and Fresenius Medical Care AG & Co. KGaA (“Fresenius”), collectively provide dialysis care to more than 80% of U.S. dialysis patients, and therefore have
historically won long-term contracts including rebate terms with Amgen. DaVita has a six-year sourcing and supply agreement with Amgen effective through
2022. Fresenius’ contract with Amgen expired in 2015, following which Fresenius is providing Roche’s ESA Mircera® to a significant portion of its U.S.
dialysis patients. Successful penetration in this market may require a significant agreement with Fresenius or DaVita, on favorable terms and on a timely
basis.
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Pamrevlumab
We are currently in Phase 2 development of pamrevlumab to treat DMD and Phase 3 development of pamrevlumab in IPF and pancreatic cancer. Most of our
competitors have significantly more resources and expertise in development, commercialization and manufacturing, particularly due to the fact that we have
not yet established a co-development partnership for pamrevlumab. For example, both Roche and Boehringer Ingelheim, which market products for the
treatment of IPF in the U.S., have successfully developed and commercialized drugs in various indications and have built sales organizations that we do not
currently have; both have more resources and more established relationships when competing with us for patient recruitment and enrollment for clinical trials
or, if we are approved, in the market.
Idiopathic Pulmonary Fibrosis
If approved and launched commercially to treat IPF, pamrevlumab is expected to compete with Roche’s Esbriet® (pirfenidone), and Boehringer Ingelheim’s
Ofev® (nintedanib). We believe that if pamrevlumab can be shown to safely stabilize or reverse lung fibrosis, and thus stabilize or improve lung function in
IPF patients, it can compete with pirfenidone and nintedanib for market share in IPF. However, it may be difficult to encourage treatment providers and
patients to switch to pamrevlumab from a product they are already familiar with. We may also face competition from potential new IPF therapies in
recruitment and enrollment in our clinical trials and potentially in commercialization.
Pamrevlumab is an injectable protein, which may be more expensive and less convenient than small molecules such as nintedanib and pirfenidone. Other
potential competitive product candidates in various stages of development for IPF include Galapagos NV’s GLPG1690 and GLPG1205, Kadmon Holdings,
Inc.’s KD025, Liminal BioSciences’ PBI-4050, and Roche/Promedior, Inc.’s PRM-151. In particular, GLPG1690 is in a Phase 3 program consisting of two
clinical trials with 750 subjects each, intended to support both the U.S. NDA and MAA in Europe.
Pancreatic Cancer
We are developing pamrevlumab to be used in combination with Abraxane® (nab-paclitaxel) and gemcitabine in pancreatic cancer. Celgene’s Abraxane 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. In 2015, Merrimack
Pharmaceuticals Inc. (“Merrimack”) received FDA approval for the use of ONIVYDE (irinotecan liposome injection, now licensed to Ipsen) for the treatment
of patients with metastatic adenocarcinoma of the pancreas after disease progression following gemcitabine-based therapy, and the combination therapy with
Abraxane and gemcitabine became the first-line standard of care in these patients. As treatments for pancreatic cancer have shown limited success to date,
combination therapies are expected, but the incremental cost may slow a new product adoption in the market, at least until the generic versions of Abraxane
becomes available. In addition, we may also face competition from other products seeking approval in conjunction with gemcitabine and Abraxane including
FOLFRINOX, a combination chemotherapy regimen of folic acid, 5-fluouracil, oxaliplatin and irinotecan, Rafael Pharma’s defactinib/CPI-613, and
Merrimack’s istiratumab.
Duchenne Muscular Dystrophy
If approved and launched commercially to treat DMD, pamrevlumab is expected to face competition from drugs that have been approved in major markets
such as the U.S., EU, and Japan.
On September 19, 2016, the FDA approved Sarepta Therapeutics Inc.’s (“Sarepta”) Exondys 51TM (eteplirsen). This was the first drug approved to treat
DMD. Exondys 51 is approved to treat patients who have a mutation of the dystrophin gene amenable to exon 51 skipping, representing approximately 13%
of patients with DMD. In Europe, Sarepta received a negative opinion for its marketing application for eteplirsen from the EMA in September 2018. Sarepta
has reported a full year Exondys 51 revenue of $380 million in 2019. Sarepta’s Vyondys 53TM (golodirsen) was also approved by the FDA in December 2019
for patients with a confirmed genetic mutation that is amenable to exon 53 skipping, which accounts for 8% of the DMD population.
PTC Therapeutics’ product Translarna TM received a conditional approval in Europe in 2014, which was renewed in November 2016 with a request for a new
randomized placebo-controlled 18-month study by the Committee for Medicinal Products for Human Use of the EMA; however, the FDA informed the
sponsor in a complete response letter in October 2017, as well as in its response to PTC Therapeutics’ appeal, that the FDA is unable to approve the
application in its current form. While Translarna TM targets a different set of DMD patients from those targeted by Sarepta’s Exondys 51®, it is also limited to
a subset of patients who carry a specific mutation. Conversely, pamrevlumab is intended to treat DMD patients without limitation to type of mutation.
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Pamrevlumab may also face competition from other drugs currently in clinical development in patient recruiting and enrollment in clinical trials, and, if
approved, in commercialization. Examples of those compounds currently under clinical development are the drug candidates from Catabasis Pharmaceuticals
(“Catabasis”), Santhera Pharmaceuticals (“Santhera”) and Sarepta. Catabasis’ edasalonexent was reported to have preserved muscle function and slowed the
progression of DMD compared to rates of change in the control period prior to treatment with edasalonexent in a Phase 2 study, and is currently undergoing
Phase 3 development. Santhera’s Puldysa® (idebenone) MAA for treatment of DMD was filed with the EMA, and the opinion from the Committee for
Medicinal Products for Human Use is expected in the second quarter of 2020. The FDA requested additional clinical data from the idebenone Phase 3 trial
currently ongoing in the U.S. and Europe. Santhera offers compassionate use of idebenone in patients with DMD in U.S. and UK. Sarepta’s SRP-9001 is an
investigational gene therapy for DMD. Sarepta announced in December 2019 the licensing agreement with Roche that grants Roche the commercial rights to
SRP-9001 outside the U.S.
MANUFACTURE AND SUPPLY
We have historically and in the future plan to continue to enter into contractual arrangements with qualified third-party manufacturers to manufacture and
package our products and product candidates. We believe that this manufacturing strategy enables us to more efficiently direct financial resources to the
research, development and commercialization of product candidates rather than diverting resources to establishing a significant internal manufacturing
infrastructure, unless there is additional strategic value for establishing manufacturing capabilities, such as in China. As our product candidates proceed
through development, we explore or enter into longer term commercial supply agreements with key suppliers and manufacturers in order to meet the ongoing
and planned clinical and commercial supply needs for ourselves and our partners. Our timing of entry into these agreements is based on the current
development and commercialization plans.
Roxadustat
Roxadustat is a small-molecule drug manufactured from generally available commercial starting materials and chemical technologies and multi-purpose
equipment available from many third party contract manufacturers. Outside of China, we plan to continue to use, Shanghai SynTheAll Pharmaceutical Co.,
Ltd. (“WuXi STA”) and Catalent, Inc. (“Catalent”) as our primary manufacturers of roxadustat drug substance (also known as active pharmaceutical
ingredient or “API”) and roxadustat drug product, respectively. WuXi STA is located in China and currently supplies our API globally except for China, for
which it manufactures an intermediate to be further manufactured by FibroGen China. WuXi STA has passed inspections by several regulatory agencies,
including the FDA and NMPA, and is Current Good Manufacturing Practice (“cGMP”) compliant. Catalent is located in the U.S. and supplies our drug
product tablets globally except for Japan, where they are manufactured by Astellas, and China, where they are manufactured by FibroGen China. Catalent has
passed several regulatory inspections, including by the FDA, and manufactures commercial products for other clients.
To date, we believe that roxadustat has been manufactured under cGMP and in compliance with applicable regulatory requirements for the manufacture of
drug substance and drug product used in clinical trials and we and Astellas have performed audits of the existing roxadustat manufacturers. The intended
commercial manufacturing route outside of China has been successfully scaled up to multiple hundred kilogram scale and produced several metric tons of
roxadustat drug substance. We are in discussions with multiple parties regarding longer term commercial supply arrangements.
In China, our Beijing facility received the Good Manufacturing Practice (“GMP”) license for API and drug product. We are manufacturing drug product at
our FibroGen Beijing manufacturing facility for commercial supply. We are manufacturing API at our Cangzhou manufacturing facility, which has been fully
qualified and licensed. We may also qualify a third party manufacturer to produce commercial API under the Marketing Authorization Holder System
program.
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Irix Pharmaceuticals, Inc.
In July 2002, we and IRIX Pharmaceuticals, Inc. (“IRIX”), a third party manufacturer, entered into a Letter of Agreement for IRIX Pharmaceuticals Single
Source Manufacturing Agreement (the “Letter of Agreement”), in connection with a contract manufacturing arrangement for clinical supplies of HIF-PH
inhibitors, including roxadustat. The Letter of Agreement contained a service agreement that included terms and schedule for the delivery of clinical
materials, and also included a term sheet for a single source agreement for the cGMP manufacture of HIF-PH inhibitors, including roxadustat. Specifically,
pursuant to the Letter of Agreement, we and IRIX agreed to negotiate a single source manufacturing agreement that included a first right to negotiate a
manufacturing contract for HIF-PH inhibitors, including roxadustat, provided that IRIX is able to match any third party bids within 5%, and the exclusive
right to manufacture extends for five years after approval of an NDA. Any agreement would provide that no minimum amounts would be specified until
appropriate by forecast, that we and our commercialization partner would have the rights to contract with independent third parties that exceed IRIX’s internal
capabilities or in the event that we or our commercialization partner determines for reasons of continuity and security that such a need exists, provided that
IRIX would supply a majority of the product if it is able to meet the requirements and the schedule required by us and our partner. Subsequent to the Letter of
Agreement, we and IRIX have entered into several additional service agreements. IRIX has requested in writing that we honor the Letter of Agreement with
respect to the single source manufacturing agreement. To date, we have offered to IRIX opportunities to bid for the manufacture of HIF-PH inhibitors,
including roxadustat. In 2015, Patheon Pharmaceuticals Inc., a business unit of DPx Holdings B.V. (“Patheon”), acquired IRIX, and in 2017 ThermoFisher
Scientific Inc. acquired Patheon.
Pamrevlumab
To date, pamrevlumab has been manufactured using specialized biopharmaceutical process techniques under an agreement with a qualified third party
contract manufacturer, Boehringer Ingelheim. Our contract manufacturer is the sole source for the current clinical supply of the drug substance and drug
product for pamrevlumab. Our contract manufacturer is only obligated to supply the amounts of pamrevlumab as agreed on pursuant to work orders that are
executed from time to time under our agreement as we determine need for clinical material, and we are not required to make fixed or minimum annual
purchases. Our existing agreement allows us to transfer the cell line manufacturing process to another third party manufacturer at our expense, and our
contractor is obligated to provide reasonable technology transfer assistance in the event of such a transfer.
GOVERNMENT REGULATION
The clinical testing, manufacturing, labeling, storage, distribution, record keeping, advertising, promotion, import, export and marketing, among other things,
of our product candidates are subject to extensive regulation by governmental authorities in the U.S. and other countries. The process of obtaining regulatory
approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations, including in Europe and China, requires
the expenditure of substantial time and financial resources. Failure to comply with the applicable requirements at any time during the product development
process, approval process or after approval may subject an applicant and/or sponsor to a variety of administrative or judicial sanctions, including refusal by
the applicable regulatory authority to approve pending applications, withdrawal of an approval, imposition of a clinical hold, issuance of warning letters and
other types of letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government
contracts, restitution, disgorgement of profits, or civil or criminal investigations and penalties brought by FDA and the Department of Justice, or other
governmental entities.
U.S. Product Approval Process
In the U.S., the FDA regulates drugs and biological products, or biologics, under the Public Health Service Act, as well as the FDCA which is the primary
law for regulation of drug products. Both drugs and biologics are subject to the regulations and guidance implementing these laws. Pharmaceutical products
are also subject to regulation by other governmental agencies, such as the Federal Trade Commission, the Office of Inspector General of the U.S. Department
of Health and Human Services, the Consumer Product Safety Commission and the Environmental Protection Agency. The clinical testing, manufacturing,
labeling, storage, distribution, record keeping, advertising, promotion, import, export and marketing, among other things, of our product candidates are
subject to extensive regulation by governmental authorities in the U.S. and other countries. The steps required before a drug or biologic may be approved for
marketing in the U.S. generally include:
•
•
•
Preclinical laboratory tests and animal tests conducted under Good Laboratory Practices.
The submission to the FDA of an IND for human clinical testing, which must become effective before each human clinical trial commence.
Adequate and well-controlled human clinical trials to establish the safety and efficacy of the product and conducted in accordance with Good
Clinical Practices.
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•
•
•
The submission to the FDA of an NDA, in the case of a small molecule drug product, or a BLA, in the case of a biologic product.
FDA acceptance, review and approval of the NDA or BLA, as applicable.
Satisfactory completion of an FDA inspection of the manufacturing facilities at which the product is made to assess compliance with cGMPs.
The testing and approval process requires substantial time, effort and financial resources, and the receipt and timing of any approval is uncertain. The FDA
may suspend clinical trials at any time on various grounds, including a finding that the subjects or patients are being exposed to a potentially unacceptable
health risk.
Preclinical studies include laboratory evaluations of the product candidate, as well as animal studies to assess the potential safety and efficacy of the product
candidate. Preclinical studies must be conducted in compliance with FDA regulations regarding GLPs. The results of the preclinical studies, together with
manufacturing information and analytical data, are submitted to the FDA as part of the IND, which includes the results of preclinical testing and a protocol
detailing, among other things, the objectives of the clinical trial, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated if
the first phase or phases of the clinical trial lends themselves to an efficacy determination. The IND will become effective automatically 30 days after receipt
by the FDA, unless the FDA raises concerns or questions about the conduct of the trials as outlined in the IND prior to that time. In this case, the IND sponsor
and the FDA must resolve any outstanding concerns before clinical trials can proceed. The IND must become effective before clinical trials may be
commenced.
Clinical trials involve the administration of the product candidates to healthy volunteers, or subjects, or patients with the disease to be treated under the
supervision of a qualified principal investigator. Clinical trials must be conducted under the supervision of one or more qualified principal investigators in
accordance with GCPs and in accordance with protocols detailing the objectives of the applicable phase of the trial, dosing procedures, research subject
selection and exclusion criteria and the safety and effectiveness criteria to be evaluated. Progress reports detailing the status of clinical trials must be
submitted to the FDA annually. Sponsors must also timely report to the FDA serious and unexpected adverse events, any clinically important increase in the
rate of a serious suspected adverse event over that listed in the protocol or investigator’s brochure, or any findings from other studies or tests that suggest a
significant risk in humans exposed to the product candidate. Further, the protocol for each clinical trial must be reviewed and approved by an independent
institutional review board (“IRB”), either centrally or individually at each institution at which the clinical trial will be conducted. The IRB will consider,
among other things, ethical factors, and the safety of human subjects and the possible liability of the institution.
Clinical trials are typically conducted in three sequential phases prior to approval, but the phases may overlap and different trials may be initiated with the
same drug candidate within the same phase of development in similar or different patient populations. These phases generally include the following:
Phase 1. Phase 1 clinical trials represent the initial introduction of a product candidate into human subjects, frequently healthy volunteers. In Phase 1, the
product candidate is usually tested for pharmacodynamic and pharmacokinetic properties such as safety, including adverse effects, dosage tolerance,
absorption, distribution, metabolism and excretion.
Phase 2. Phase 2 clinical trials usually involve studies in a limited patient population to (1) evaluate the efficacy of the product candidate for specific
indications, (2) determine dosage tolerance and optimal dosage and (3) identify possible adverse effects and safety risks.
Phase 3. If a product candidate is found to be potentially effective and to have an acceptable safety profile in Phase 2 studies, the clinical trial program will be
expanded to Phase 3 clinical trials to further evaluate clinical efficacy, optimal dosage and safety within an expanded patient population at geographically
dispersed clinical study sites.
Phase 4. Phase 4 clinical trials are conducted after approval to gain additional experience from the treatment of patients in the intended therapeutic indication
and to document a clinical benefit in the case of drugs approved under accelerated approval regulations, or when otherwise requested by the FDA in the form
of post-market requirements or commitments. Failure to promptly conduct any required Phase 4 clinical trials could result in withdrawal of approval.
The results of preclinical studies and clinical trials, together with detailed information on the manufacture, composition and quality of the product candidate,
are submitted to the FDA in the form of an NDA (for a drug) or BLA (for a biologic), requesting approval to market the product. The application must be
accompanied by a significant user fee payment. The FDA has substantial discretion in the approval process and may refuse to accept any application or decide
that the data is insufficient for approval and require additional preclinical, clinical or other studies.
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Review of Application
Once the NDA or BLA submission has been accepted for filing, which occurs, if at all, 60 days after submission, the FDA informs the applicant of the
specific date by which the FDA intends to complete its review. This is typically 12 months from the date of submission. The review process is often extended
by FDA requests for additional information or clarification. The FDA reviews NDAs and BLAs to determine, among other things, whether the proposed
product is safe and effective for its intended use, and whether the product is being manufactured in accordance with cGMP to assure and preserve the
product’s identity, strength, quality and purity. Before approving an NDA or BLA, the FDA may inspect the facilities at which the product is manufactured
and will not approve the product unless the manufacturing facility complies with cGMPs and will also inspect clinical trial sites for integrity of data
supporting safety and efficacy. During the approval process, the FDA also will determine whether a REMS, is necessary to assure the safe use of the product.
If the FDA concludes a REMS is needed, the sponsor of the application must submit a proposed REMS; the FDA will not approve the application without an
approved REMS, if required. A REMS can substantially increase the costs of obtaining approval. The FDA may also convene an advisory committee of
external experts to provide input on certain review issues relating to risk, benefit and interpretation of clinical trial data. The FDA may delay approval of an
NDA if applicable regulatory criteria are not satisfied and/or the FDA requires additional testing or information. The FDA may require post-marketing testing
and surveillance to monitor safety or efficacy of a product. FDA will issue either an approval of the NDA or BLA or a complete response letter detailing the
deficiencies and information required in order for reconsideration of the application.
Pediatric Exclusivity and Pediatric Use
Under the Best Pharmaceuticals for Children Act, certain drugs or biologics may obtain an additional six months of exclusivity in an indication, if the sponsor
submits information requested in writing by the FDA (“Written Request”), relating to the use of the active moiety of the drug or biologic in children. The
FDA may not issue a Written Request for studies on unapproved or approved indications or where it determines that information relating to the use of a drug
or biologic in a pediatric population, or part of the pediatric population, may not produce health benefits in that population.
We have not received a Written Request for such pediatric studies with respect to our product candidates, although we may ask the FDA to issue a Written
Request for studies in the future. To receive the six-month pediatric market exclusivity, we would have to receive a Written Request from the FDA, conduct
the requested studies in accordance with a written agreement with the FDA or, if there is no written agreement, in accordance with commonly accepted
scientific principles, and submit reports of the studies. A Written Request may include studies for indications that are not currently in the labeling if the FDA
determines that such information will benefit the public health. The FDA will accept the reports upon its determination that the studies were conducted in
accordance with and are responsive to the original Written Request, agreement, or commonly accepted scientific principles, as appropriate, and that the
reports comply with the FDA’s filing requirements.
In addition, the Pediatric Research Equity Act (“PREA”) requires a sponsor to conduct pediatric studies for most drugs and biologicals, for a new active
ingredient, new indication, new dosage form, new dosing regimen or new route of administration. Under PREA, original NDAs, BLAs and supplements
thereto must contain a pediatric assessment unless the sponsor has received a deferral or waiver. The required assessment must include the evaluation of the
safety and effectiveness of the product for the claimed indications in all relevant pediatric subpopulations and support dosing and administration for each
pediatric subpopulation for which the product is safe and effective. The FDA, on its own initiative or at the request of the sponsor, may request a deferral of
pediatric studies for some or all of the pediatric subpopulations. A deferral may be granted by FDA if they believe that additional safety or effectiveness data
in the adult population needs to be collected before the pediatric studies begin. After April 2013, the FDA must send a non-compliance letter to any sponsor
that fails to submit the required assessment, keep a deferral current or fails to submit a request for approval of a pediatric formulation.
Post-Approval Requirements
Even after approval, drugs and biologics manufactured or distributed pursuant to FDA approvals are subject to continuous regulation by the FDA, including,
among other things, requirements relating to recordkeeping, periodic reporting, product distribution, advertising and promotion and reporting of adverse
experiences with the product. After approval, most changes to the approved product, such as adding new indications or other labeling claims are subject to
prior FDA review and approval. There also are continuing, annual user fee requirements for any marketed products and the establishments at which such
products are manufactured, as well as new application fees for supplemental applications with clinical data.
The FDA may impose a number of post-approval requirements as a condition of approval of an NDA or BLA. For example, the FDA may require post-
marketing testing, including Phase 4 clinical trials, and surveillance to further assess and monitor the product’s safety and effectiveness after
commercialization.
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In addition, entities involved in the manufacture and distribution of approved drugs and biologics are required to register their establishments with the FDA
and state agencies, and are subject to periodic unannounced inspections by the FDA and these state agencies for compliance with cGMP requirements.
Changes to the manufacturing process are strictly regulated and often require prior FDA approval before being implemented. FDA regulations also require
investigation and correction of any deviations from cGMP and impose reporting and documentation requirements upon the sponsor and any third-party
manufacturers that the sponsor may decide to use. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and
quality control to maintain cGMP compliance.
Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems
occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated
severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may also result in revisions to the approved
labeling to add new safety information; imposition of post-market studies or clinical trials to assess new safety risks; or imposition of distribution or other
restrictions under a REMS program. Other potential consequences include, among other things:
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Restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product recalls.
Fines, warning letters or holds on post-approval clinical trials.
Refusal of the FDA to approve pending NDAs or BLAs or supplements to approved NDAs or BLAs, or suspension or revocation of product
license approvals.
Product seizure or detention, or refusal to permit the import or export of products.
Injunctions or the imposition of civil or criminal penalties.
The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Drugs may be promoted only for the
approved indications and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations
prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability.
Prescription Drug Marketing Act
The distribution of pharmaceutical products is subject to the Prescription Drug Marketing Act (“PDMA”), which regulates the distribution of drugs and drug
samples at the federal level and sets minimum standards for the registration and regulation of drug distributors at the state level. Under the PDMA and state
law, states require the registration of manufacturers and distributors who provide pharmaceuticals in that state, including in certain states manufacturers and
distributors who ship pharmaceuticals into the state even if such manufacturers or distributors have no place of business within the state. The PDMA and state
laws impose requirements and limitations upon drug sampling to ensure accountability in the distribution of samples. The PDMA sets forth civil and criminal
penalties for violations of these and other provisions.
Federal and State Fraud and Abuse and Data Privacy and Security and Transparency Laws and Regulations
In addition to FDA restrictions on marketing of pharmaceutical products, federal and state healthcare laws restrict certain business practices in the
biopharmaceutical industry. These laws include, but are not limited to, anti-kickback, false claims, data privacy and security, and transparency statutes and
regulations.
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The federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration, directly or
indirectly, to induce, or in return for, purchasing, leasing, ordering or arranging for the purchase, lease or order of any good, facility, item or service
reimbursable under Medicare, Medicaid or other federal healthcare programs. The term “remuneration” has been broadly interpreted to include anything of
value, including for example, gifts, discounts, the furnishing of supplies or equipment, credit arrangements, payments of cash, waivers of payment, ownership
interests and providing anything at less than its fair market value. The Anti-Kickback Statute has been interpreted to apply to arrangements between
pharmaceutical manufacturers on one hand and prescribers, purchasers and formulary managers on the other. Although there are a number of statutory
exemptions and regulatory safe harbors protecting certain common activities from prosecution, the exemptions and safe harbors are drawn narrowly, and our
practices may not in all cases meet all of the criteria for a statutory exception or safe harbor protection. Practices that involve remuneration that may be
alleged to be intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exception or safe harbor.
Failure to meet all of the requirements of a particular applicable statutory exception or regulatory safe harbor does not make the conduct per se illegal under
the Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of all of its facts
and circumstances. Several courts have interpreted the statute’s intent requirement to mean that if any one purpose of an arrangement involving remuneration
is to induce referrals of federal healthcare covered business, the statute has been violated. The intent standard under the Anti-Kickback Statute was amended
by the Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act of 2010 (collectively “PPACA”), to a
stricter intent standard such that a person or entity no longer needs to have actual knowledge of this statute or the specific intent to violate it in order to have
committed a violation. In addition, PPACA codified case law that a claim including items or services resulting from a violation of the federal Anti-Kickback
Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act (discussed below). Further, civil monetary penalties statute imposes
penalties against any person or entity who, among other things, is determined to have presented or caused to be presented a claim to a federal health program
that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent.
The federal false claims laws prohibit, among other things, any person or entity from knowingly presenting, or causing to be presented, a false or fraudulent
claim for payment or approval to the federal government or knowingly making, using or causing to be made or used a false record or statement material to a
false or fraudulent claim to the federal government. As a result of a modification made by the Fraud Enforcement and Recovery Act of 2009, a claim includes
“any request or demand” for money or property presented to the U.S. government. Recently, several pharmaceutical and other healthcare companies have
been prosecuted under these laws for, among other things, allegedly providing free product to customers with the expectation that the customers would bill
federal programs for the product. Other companies have been prosecuted for causing false claims to be submitted because of the companies’ marketing of the
product for unapproved, and thus non-reimbursable, uses. The federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), created new
federal criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program,
including private third-party payors and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious
or fraudulent statement in connection with the delivery of, or payment for, healthcare benefits, items or services.
In addition, we may be subject to data privacy and security regulation by both the federal government and the states in which we conduct our business.
HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act (“HITECH”), and its implementing regulations, imposes
certain requirements relating to the privacy, security and transmission of individually identifiable health information. Among other things, HITECH makes
HIPAA’s privacy and security standards directly applicable to business associates — independent contractors or agents of covered entities that receive or
obtain protected health information in connection with providing a service on behalf of a covered entity. HITECH also created four new tiers of civil
monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave state attorneys general new
authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney’s fees and costs associated with
pursuing federal civil actions. In addition, state laws govern the privacy and security of health information in certain circumstances, many of which differ
from each other in significant ways and may not have the same effect, thus complicating compliance efforts.
Additionally, the federal Physician Payments Sunshine Act within the PPACA, and its implementing regulations, require that certain manufacturers of drugs,
devices, biologicals and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain
exceptions) to report information related to certain payments or other transfers of value made or distributed to physicians and teaching hospitals, or to entities
or individuals at the request of, or designated on behalf of, the physicians and teaching hospitals and to report annually certain ownership and investment
interests held by physicians and their immediate family members.
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Also, many states have similar healthcare statutes or regulations that apply to items and services reimbursed under Medicaid and other state programs, or, in
several states, apply regardless of the payor. Some states require the posting of information relating to clinical studies. In addition, California requires
pharmaceutical companies to implement a comprehensive compliance program that includes a limit on expenditures for, or payments to, individual medical or
health professionals. If our operations are found to be in violation of any of the health regulatory laws described above or any other laws that apply to us, we
may be subject to penalties, including potentially significant criminal, civil and/or administrative penalties, damages, fines, disgorgement, individual
imprisonment, exclusion of products from reimbursement under government programs, contractual damages, reputational harm, administrative burdens,
diminished profits and future earnings and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our
business and our results of operations. To the extent that any of our products will be sold in a foreign country, we may be subject to similar foreign laws and
regulations, which may include, for instance, applicable post-marketing requirements, including safety surveillance, anti-fraud and abuse laws and
implementation of corporate compliance programs and reporting of payments or transfers of value to healthcare professionals.
Pharmaceutical Coverage, Pricing and Reimbursement
In both domestic and foreign markets, our sales of any approved products will depend in part on the availability of coverage and adequate reimbursement
from third-party payors. Third-party payors include government health administrative authorities, managed care providers, private health insurers and other
organizations. Patients who are prescribed treatments for their conditions and providers performing the prescribed services generally rely on third-party
payors to reimburse all or part of the associated healthcare costs. Patients are unlikely to use our products unless coverage is provided and reimbursement is
adequate to cover a significant portion of the cost of our products. Sales of our products will therefore depend substantially, both domestically and abroad, on
the extent to which the costs of our products will be paid by third-party payors. These third-party payors are increasingly focused on containing healthcare
costs by challenging the price and examining the cost-effectiveness of medical products and services. In addition, significant uncertainty exists as to the
coverage and reimbursement status of newly approved healthcare product candidates. The market for our products and product candidates for which we may
receive regulatory approval will depend significantly on access to third-party payors’ drug formularies, or lists of medications for which third-party payors
provide coverage and reimbursement. The industry competition to be included in such formularies often leads to downward pricing pressures on
pharmaceutical companies. Also, third-party payors may refuse to include a particular branded drug in their formularies or otherwise restrict patient access to
a branded drug when a less costly generic equivalent or other alternative is available.
Because each third-party payor individually approves coverage and reimbursement levels, obtaining coverage and adequate reimbursement is a time-
consuming, costly and sometimes unpredictable process. We may be required to provide scientific and clinical support for the use of any product to each
third-party payor separately with no assurance that approval would be obtained, and we may need to conduct expensive pharmacoeconomic studies in order to
demonstrate the cost-effectiveness of our products. This process could delay the market acceptance of any product and could have a negative effect on our
future revenues and operating results. We cannot be certain that our products and our product candidates will be considered cost-effective. Because coverage
and reimbursement determinations are made on a payor-by-payor basis, obtaining acceptable coverage and reimbursement from one payor does not guarantee
that we will obtain similar acceptable coverage or reimbursement from another payor. If we are unable to obtain coverage of, and adequate reimbursement
and payment levels for, our product candidates from third-party payors, physicians may limit how much or under what circumstances they will prescribe or
administer them and patients may decline to purchase them. This in turn could affect our ability to successfully commercialize our products and impact our
profitability, results of operations, financial condition and future success.
In addition, in many foreign countries, particularly the countries of the Europe and China, the pricing of prescription drugs is subject to government control.
In some non-U.S. jurisdictions, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug
pricing vary widely from country to country. For example, the Europe provides options for its member states to restrict the range of medicinal products for
which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. A member state may
approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability of a company placing the
medicinal product on the market. We may face competition for our product candidates from lower-priced products in foreign countries that have placed price
controls on pharmaceutical products. In addition, there may be importation of foreign products that compete with our own products, which could negatively
impact our profitability.
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Healthcare Reform
In the U.S. and foreign jurisdictions, there have been, and we expect there will continue to be, a number of legislative and regulatory changes to the healthcare
system that could affect our future results of operations as we begin to directly commercialize our products. In particular, there have been and continue to be a
number of initiatives at the U.S. federal and state level that seek to reduce healthcare costs. If a drug product is reimbursed by Medicare or Medicaid, pricing
and rebate programs must comply with, as applicable, the Medicaid rebate requirements of the Omnibus Budget Reconciliation Act of 1990, as amended, and
the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (“MMA”). The MMA imposed new requirements for the distribution and
pricing of prescription drugs for Medicare beneficiaries. Under Part D, Medicare beneficiaries may enroll in prescription drug plans offered by private entities
that provide coverage of outpatient prescription drugs. Part D plans include both stand-alone prescription drug benefit plans and prescription drug coverage as
a supplement to Medicare Advantage plans. Unlike Medicare Part A and B, Part D coverage is not standardized. Part D prescription drug plan sponsors are
not required to pay for all covered Part D drugs, and each drug plan can develop its own drug formulary that identifies which drugs it will cover and at what
tier or level. However, Part D prescription drug formularies must include drugs within each therapeutic category and class of covered Part D drugs, though
not necessarily all the drugs in each category or class. Any formulary used by a Part D prescription drug plan must be developed and reviewed by a pharmacy
and therapeutic committee. Government payment for some of the costs of prescription drugs may increase demand for our products for which we receive
marketing approval. However, any negotiated prices for our future products covered by a Part D prescription drug plan will likely be lower than the prices we
might otherwise obtain from non-governmental payors. Moreover, while the MMA applies only to drug benefits for Medicare beneficiaries, private payors
often follow Medicare coverage policy and payment limitations in setting their own payment rates. Any reduction in payment that results from Medicare Part
D may result in a similar reduction in payments from non-governmental payors.
Moreover, on November 27, 2013, the federal Drug Supply Chain Security Act was signed into law, which imposes new obligations on manufacturers of
pharmaceutical products, among others, related to product tracking and tracing. Among the requirements of this new federal legislation, manufacturers will be
required to provide certain information regarding the drug product to individuals and entities to which product ownership is transferred, label drug product
with a product identifier, and keep certain records regarding the drug product. Further, under this new legislation, manufacturers will have drug product
investigation, quarantine, disposition, and notification responsibilities related to counterfeit, diverted, stolen, and intentionally adulterated products, as well as
products that are the subject of fraudulent transactions or which are otherwise unfit for distribution such that they would be reasonably likely to result in
serious health consequences or death.
Furthermore, political, economic and regulatory influences are subjecting the healthcare industry in the U.S. to fundamental change. Initiatives to reduce the
federal budget and debt and to reform healthcare coverage are increasing cost-containment efforts. We anticipate that Congress, state legislatures and the
private sector will continue to review and assess alternative healthcare benefits, controls on healthcare spending through limitations on the growth of private
health insurance premiums and Medicare and Medicaid spending, the creation of large insurance purchasing groups, price controls on pharmaceuticals and
other fundamental changes to the healthcare delivery system. Any proposed or actual changes could limit or eliminate our spending on development projects
and affect our ultimate profitability. In March 2010, PPACA was signed into law. PPACA has the potential to substantially change the way healthcare is
financed by both governmental and private insurers. Among other cost containment measures, PPACA established: an annual, nondeductible fee on any entity
that manufactures or imports certain branded prescription drugs and biologic agents; revised the methodology by which rebates owed by manufacturers to the
state and federal government for covered outpatient drugs under the Medicaid Drug Rebate Program are calculated; increased the minimum Medicaid rebates
owed by most manufacturers under the Medicaid Drug Rebate Program; and extended the Medicaid Drug Rebate program to utilization of prescriptions of
individuals enrolled in Medicaid managed care organizations. In the future, there may continue to be additional proposals relating to the reform of the U.S.
healthcare system, some of which could further limit the prices we are able to charge for our products, or the amounts of reimbursement available for our
products. If future legislation were to impose direct governmental price controls and access restrictions, it could have a significant adverse impact on our
business. Managed care organizations, as well as Medicaid and other government agencies, continue to seek price discounts. Some states have implemented,
and other states are considering, price controls or patient access constraints under the Medicaid program, and some states are considering price-control
regimes that would apply to broader segments of their populations that are not Medicaid-eligible. Due to the volatility in the current economic and market
dynamics, we are unable to predict the impact of any unforeseen or unknown legislative, regulatory, payor or policy actions, which may include cost
containment and healthcare reform measures. Such policy actions could have a material adverse impact on our profitability.
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Regulation in China
The pharmaceutical industry in China is highly regulated. The primary regulatory authority is the NMPA, including its provincial and local branches. As a
developer, manufacturer and supplier of drugs, we are subject to regulation and oversight by the NMPA and its provincial and local branches. The Drug
Administration Law of China provides the basic legal framework for the administration of the production and sale of pharmaceuticals in China and covers the
manufacturing, distributing, packaging, pricing and advertising of pharmaceutical products. Its implementing regulations set forth detailed rules with respect
to the administration of pharmaceuticals in China. In addition, we are, and we will be, subject to other Chinese laws and regulations that are applicable to
business operators, manufacturers and distributors in general.
Pharmaceutical Clinical Development
A new drug must be approved by the NMPA before it can be manufactured and marketed for sale. To obtain NMPA approval, the applicant must conduct
clinical trials, which must be approved by the NMPA and are subject to the NMPA’s supervision and inspection. There are four phases of clinical trials.
Application for registration of new drugs requires completion of Phase 1, 2 and 3 of clinical trials, similar to the U.S. In addition, the NMPA may require the
conduct of Phase 4 studies as a condition to approval.
Phase 4 studies are post-marketing studies to assess the therapeutic effectiveness of and adverse reactions to the new drug, including an evaluation of the
benefits and risks, when used among the general population or specific groups, with findings used to inform adjustments to dosage, among other things.
NDA and Approval to Market
China requires approval of the NDA as well as the manufacturing facility before a drug can be marketed in China. Approval and oversight are performed at
national and provincial levels of the NMPA, involve multiple agencies and consist of various stages of approval.
Under the applicable drug registration regulations, drug registration applications are divided into three different types, namely Domestic NDA, Domestic
Generic Drug Application, and Imported Drug Application. Drugs fall into one of three categories, namely chemical medicine, biological product or
traditional Chinese or natural medicine.
Our roxadustat NDA for treatment of CKD anemia was submitted by FibroGen Beijing as a domestic entity under the Domestic Class 1 designation, which
refers to a new drug which has never been marketed in any country.
Our NDA package in China contained information similar to what is necessary for a U.S. NDA, including preclinical data, clinical data, technical data on API
and drug product, and related stability data.
The NDA package was found acceptable to the NMPA, and FibroGen Beijing was granted a New Drug License confirming the drug as suitable for marketing
in December 2018. In addition, FibroGen Beijing was granted a Manufacturing License which lists the Drug Approval Code as well as the name and address
of the Manufacturing License holder.
Shortly before NDA approval, FibroGen Beijing conducted a three-batch validation campaign, one of which was observed onsite by the NMPA. Following
the successful completion of the validation campaign and associated inspection, FibroGen Beijing was granted a cGMP certification for the commercial
production of roxadustat at our Beijing manufacturing facility. We are using our FibroGen Beijing manufacturing facility for commercial supply of drug
product. Our Cangzhou manufacturing facility has been fully qualified and licensed for manufacture of roxadustat API for the China market, and we will
continue to use this facility for commercial supply. We may also qualify a third party manufacturer to produce commercial API under the Marketing
Authorization Holder System program.
Pricing, Reimbursement, Hospital Listing, and Tendering
Please see the discussion above in the section “Roxadustat for the Treatment of Anemia in Chronic Kidney Disease in China.”
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Foreign Regulation Outside of China
We have received marketing authorization for roxadustat in Japan for anemia of CKD in dialysis patients, and in China for dialysis and non-dialysis patients.
Astellas has submitted a supplemental NDA for non-dialysis patients in Japan and intends on submitting an MAA for Europe in the first half of 2020. Our
partners also intend to submit for marketing authorization in other countries and we may file for marketing authorization for pamrevlumab or roxadustat in
other indications and in other countries in the future. In order to market any product outside of the U.S., we would need to comply with numerous and varying
regulatory requirements of other countries and jurisdictions regarding quality, safety and efficacy and governing, among other things, clinical trials,
manufacturing, marketing authorization, commercial sales and distribution of our products. Whether or not we obtain FDA approval for a product, we would
need to obtain the necessary approvals by the comparable foreign regulatory authorities before we can commence clinical trials or marketing of the product in
foreign countries and jurisdictions. Although many of the issues discussed above with respect to the U.S. apply similarly in the context of other countries we
are seeking approval in, including Europe and China, the approval process varies between countries and jurisdictions and can involve different amounts of
product testing and additional administrative review periods. For example, in Europe and in China, a sponsor must submit a clinical trial application (“CTA”),
much like an IND prior to the commencement of human clinical trials. A CTA must be submitted to each national health authority and an independent ethics
committee.
For other countries outside of the Europe, such as China and the countries in Eastern Europe, Latin America or Asia, the requirements governing the conduct
of clinical trials, product licensing, pricing, and reimbursement vary from country to country. The time required to obtain approval in other countries and
jurisdictions might differ from or be longer than that required to obtain FDA approval. Regulatory approval in one country or jurisdiction does not ensure
regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country or jurisdiction may negatively impact the regulatory
approval process in other countries.
Regulatory Exclusivity for Approved Products
U.S. Patent Term Restoration
Depending upon the timing, duration, and specifics of the FDA approval of our product candidates, some of our U.S. patents may be eligible for limited
patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, commonly referred to as the Hatch-Waxman Act. The
Hatch-Waxman Act permits a patent restoration term of up to five years as compensation for patent term lost during product development and the FDA
regulatory review process. The patent term restoration period is generally one-half the time between the effective date of an initial IND and the submission
date of an NDA or BLA, plus the time between the submission date of the NDA or BLA and the approval of that product candidate application. Patent term
restoration cannot, however, extend the remaining term of a patent beyond a total of 14 years from the product’s approval date. In addition, only one patent
applicable to an approved product is eligible for the extension and the application for the extension must be submitted prior to the expiration of the patent.
The U.S. Patent and Trademark Office, in consultation with the FDA, reviews and approves applications for any patent term extension or restoration. In the
future, we expect to apply for restoration of patent term for patents relating to each of our product candidates in order to add patent life beyond the current
expiration date of such patents, depending on the length of the clinical trials and other factors involved in the filing of the relevant NDA or BLA.
Market exclusivity provisions under the FDCA can also delay the submission or the approval of certain applications of companies seeking to reference
another company’s NDA or BLA. The Hatch-Waxman Act provides a 5-year period of exclusivity to any approved NDA for a product containing a NCE
never previously approved by FDA either alone or in combination with another active moiety. No application or abbreviated NDA directed to the same NCE
may be submitted during the 5-year exclusivity period, except that such applications may be submitted after four years if they contain a certification of patent
invalidity or non-infringement of the patents listed with the FDA by the innovator NDA.
Biologic Price Competition and Innovation Act
The Biologics Price Competition and Innovation Act of 2009 (“BPCIA”), established an abbreviated pathway for the approval of biosimilar and
interchangeable biological products. The abbreviated regulatory approval pathway establishes legal authority for the FDA to review and approve biosimilar
biologics, including the possible designation of a biosimilar as “interchangeable” based on similarity to an existing branded product. Under the BPCIA, an
application for a biosimilar product cannot be approved by the FDA until 12 years after the original branded product was approved under a BLA. However,
an application may be submitted after four years if it contains a certification of patent invalidity or non-infringement to one of the patents listed with the FDA
by the innovator BLA holder. The BPCIA is complex and is only beginning to be interpreted and implemented by the FDA. As a result, its ultimate impact,
implementation, and interpretation are subject to uncertainty.
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Orphan Drug Act
Pamrevlumab has received orphan drug designation in IPF, locally advanced unresectable pancreatic cancer, and DMD in the U.S. Under the Orphan Drug
Act, the FDA may grant orphan designation to a drug or biological product intended to treat a rare disease or condition, which is a disease or condition that
affects fewer than 200,000 individuals in the U.S., or if it affects more than 200,000 individuals in the U.S. there is no reasonable expectation that the cost of
developing and making a drug product available in the U.S. for this type of disease or condition will be recovered from sales of the product. Orphan product
designation must be requested before submitting an NDA. After the FDA grants orphan product designation, the identity of the therapeutic agent and its
potential orphan use are disclosed publicly by the FDA. Orphan product designation does not convey any advantage in or shorten the duration of the
regulatory review and approval process.
If a product that has orphan designation subsequently receives the first FDA approval for the disease or condition for which it has such designation, the
product is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications to market the same drug or biological
product for the same indication for seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan
exclusivity. The designation of such drug also entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax
advantages and user-fee waivers. Competitors, however, may receive approval of different products for the indication for which the orphan product has
exclusivity or obtain approval for the same product but for a different indication for which the orphan product has exclusivity. Orphan product exclusivity also
could block the approval of one of our products for seven years if a competitor obtains approval of the same drug or biological product as defined by the FDA
or if our drug candidate is determined to be contained within the competitor’s product for the same indication or disease. If a drug product designated as an
orphan product receives marketing approval for an indication broader than what is designated, it may not be entitled to orphan product exclusivity in any
indication.
The EMA has granted Orphan Medicinal Product Designation to pamrevlumab for the treatment of DMD. Orphan Medicinal Product Designation status in
the Europe has similar but not identical benefits in that jurisdiction.
Products receiving orphan designation in the Europe can receive ten years of market exclusivity, during which time no similar medicinal product for the same
indication may be placed on the market. The ten-year market exclusivity may be reduced to six years if, at the end of the fifth year, it is established that the
product no longer meets the criteria for orphan designation; for example, if the product is sufficiently profitable not to justify maintenance of market
exclusivity. Additionally, marketing authorization may be granted to a similar product for the same indication at any time if the second applicant can establish
that its product, although similar, is safer, more effective or otherwise clinically superior; the initial applicant consents to a second orphan medicinal product
application; or the initial applicant cannot supply enough orphan medicinal product. An orphan product can also obtain an additional two years of market
exclusivity in the Europe for pediatric studies. No extension to any supplementary protection certificate can be granted on the basis of pediatric studies for
orphan indications.
Foreign Country Data Exclusivity
The Europe also provides opportunities for additional market exclusivity. For example, in the Europe, upon receiving marketing authorization, an NCE
generally receives eight years of data exclusivity and an additional two years of market exclusivity. If granted, data exclusivity prevents regulatory authorities
in the Europe from referencing the innovator’s data to assess a generic application. During the additional two-year period of market exclusivity, a generic
marketing authorization can be submitted, and the innovator’s data may be referenced, but no generic product can be marketed until the expiration of the
market exclusivity.
In China, there is also an opportunity for data exclusivity for a period of six years for data included in an NDA applicable to a NCE. According to the
Provisions for Drug Registration, the Chinese government protects undisclosed data from drug studies and prevents the approval of an application made by
another company that uses the undisclosed data for the approved drug. In addition, if an approved drug manufactured in China qualifies as an innovative drug,
such as Domestic Class 1, and the NMPA determines that it is appropriate to protect public health with respect to the safety and efficacy of the approved drug,
the NMPA may elect to monitor such drug for up to five years. During this post-marketing observation period, the NMPA will not grant approval to another
company to produce, change dosage form of or import the drug while the innovative drug is under observation. The approved manufacturer is required to
provide an annual report to the regulatory department of the province, autonomous region or municipality directly under the central government where it is
located. Each of the data exclusivity period and the observation period runs from the date of approval for production of the NCE or innovative drug, as the
case may be.
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INTELLECTUAL PROPERTY
Our success depends in part upon our ability to obtain and maintain patent and other intellectual property protection for our product candidates including
compositions-of-matter, dosages, and formulations, manufacturing methods, and novel applications, uses and technological innovations related to our product
candidates and core technologies. We also rely on trade secrets, know-how and continuing technological innovation to further develop and maintain our
competitive position.
Our policy is to seek to protect our proprietary position by, among other methods, filing U.S. and foreign patent applications related to our proprietary
technologies, inventions and any improvements that we consider important to the development and implementation of our business and strategy. Our ability to
maintain and solidify our proprietary position for our products and technologies will depend, in part, on our success in obtaining and enforcing valid patent
claims. Additionally, we may benefit from a variety of regulatory frameworks in the U.S., Europe, China, and other territories that provide periods of non-
patent-based exclusivity for qualifying drug products. Refer to “Government Regulation — Regulatory Exclusivity for Approved Products.”
We cannot ensure that patents will be granted with respect to any of our pending patent applications or with respect to any patent applications that may be
filed by us in the future, nor can we ensure that any of our existing or subsequently granted patents will be useful in protecting our drug candidates,
technological innovations, and processes. Additionally, any existing or subsequently granted patents may be challenged, invalidated, circumvented or
infringed. We cannot guarantee that our intellectual property rights or proprietary position will be sufficient to permit us to take advantage of current market
trends or otherwise to provide or protect competitive advantages. Furthermore, our competitors may be able to independently develop and commercialize
similar products, or may be able to duplicate our technologies, business model, or strategy, without infringing our patents or otherwise using our intellectual
property.
Our extensive worldwide patent portfolio includes multiple granted and pending patent applications relating to roxadustat and pamrevlumab. Currently
granted patents relating to composition-of-matter for roxadustat and for pamrevlumab are expected, for each product candidate, to expire in 2024 or 2025, in
each case exclusive of any patent term extension that may be available. U.S. and foreign patents relating to crystalline forms of roxadustat are expected to
expire in 2033, exclusive of any extension. Additional patents and patent applications relating to manufacturing processes, formulations, and various
therapeutic uses, including treatment of specific indications and improvement of clinical parameters, provide further protection for product candidates.
The protection afforded by any particular patent depends upon many factors, including the type of patent, scope of coverage encompassed by the granted
claims, availability of extensions of patent term, availability of legal remedies in the particular territory in which the patent is granted, and validity and
enforceability of the patent. Changes in either patent laws or in the interpretation of patent laws in the U.S. and other countries could diminish our ability to
protect our inventions and to enforce our intellectual property rights. Accordingly, we cannot predict with certainty the enforceability of any granted patent
claims or of any claims that may be granted from our patent applications.
The biotechnology and pharmaceutical industries are characterized by extensive litigation regarding patents and other intellectual property rights. Our ability
to maintain and solidify our proprietary position for our products and core technologies will depend on our success in obtaining effective claims and enforcing
those claims once granted. We have been in the past and are currently involved in various administrative proceedings with respect to our patents and patent
applications and may, as a result of our extensive portfolio, be involved in such proceedings in the future. Additionally, in the future, we may claim that a
third party infringes our intellectual property or a third party may claim that we infringe its intellectual property. In any of the administrative proceedings or in
litigation, we may incur significant expenses, damages, attorneys’ fees, costs of proceedings and experts’ fees, and management and employees may be
required to spend significant time in connection with these actions.
Because of the extensive time required for clinical development and regulatory review of a product candidate we may develop, it is possible that any patent
related to our product candidates may expire before any of our product candidates can be commercialized, or may remain in force for only a short period of
time following commercialization, thereby reducing the advantage afforded by any such patent.
The patent positions for our most advanced programs are summarized below.
Roxadustat Patent Portfolio
Our roxadustat patent portfolio includes multiple granted U.S. patents offering protection for roxadustat, including protection for roxadustat composition-of-
matter, for pharmaceutical compositions containing roxadustat, and for methods for treating anemia using roxadustat or its analogs. Exclusive of any patent
term extension, the granted U.S. patents relating to the composition-of-matter of roxadustat are due to expire in 2024 or 2025, and granted foreign patents are
due to expire in 2024. U.S. and foreign patents relating to crystalline forms of roxadustat are due to expire in 2033.
40
Oppositions were filed against our European Patent No. 2872488 (the “`488 Patent”), which claims a crystalline form of roxadustat. Final resolution of the
opposition proceedings will take time, and we cannot be assured of the breadth of the claims that will remain in the ’488 Patent or that the patent will not be
revoked in its entirety.
We believe that, if roxadustat is approved, a full five-year patent term extension under the Hatch-Waxman act will be available for a granted U.S. patent
relating to roxadustat, which extension would expire in 2029 or 2030, depending on the patent extended. Refer to “Government Regulation — Regulatory
Exclusivity for Approved Products — U.S. Patent Term Restoration.”
We also hold various U.S. and foreign granted patents and pending patent applications directed to manufacturing processes, formulations, and methods for use
of roxadustat.
Roxadustat China Patent Portfolio
Our roxadustat China patent portfolio includes granted patents covering roxadustat composition-of-matter, pharmaceutical compositions, methods of use, and
manufacturing processes for roxadustat, as well as medicaments containing roxadustat for treating anemia and other conditions. Patents relating to roxadustat
composition-of-matter and crystalline forms are due to expire in 2024 and 2033, respectively.
We believe that roxadustat, as a new chemical entity, would be eligible for six years of data exclusivity in China. Furthermore, upon approval as a new drug,
roxadustat may receive up to five years of market exclusivity under a NMPA-imposed new drug monitoring period. Refer to “Government Regulation —
Regulatory Exclusivity for Approved Products — Foreign Country Data Exclusivity.”
HIF Anemia-Related Technologies Patent Portfolio
We also have an extensive worldwide patent portfolio providing broad protection for proprietary technologies relating to the treatment of anemia and
associated conditions. This portfolio currently contains granted patents and pending patent applications providing exclusivity for use of compounds falling
within various and overlapping classes of HIF-PH inhibitors to achieve various therapeutic effects.
This portfolio reflects a series of discoveries we made from the initial days of our HIF program through the present time. Our research efforts have resulted in
progressive innovation, and the corresponding patents and patent applications reflect the success of our HIF program. Such discoveries include the ability of
HIF-PH inhibitors:
•
•
•
•
•
•
•
•
•
To induce endogenous EPO in CKD patients with anemia.
To increase efficacy of EPO signaling.
To enhance EPO responsiveness of the bone marrow, for example, by increasing EPO receptor expression.
To overcome the suppressive and inhibitory effects of inflammatory cytokines, such as members of the interleukin-1 and IL-6 cytokine
families, on EPO production and responsiveness.
To increase effective metabolism of iron.
To increase iron absorption and bioavailability, as measured using clinical parameters such as percent TSAT%.
To overcome iron deficiency through effects on iron regulatory factors such as ferroportin and hepcidin.
To provide coordinated erythropoiesis resulting in increased CHr and increased mean corpuscular volume.
To improve kidney function.
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The table below sets forth representative granted U.S. patents relating to these and other inventions, including the projected expiration dates of these patents.
PATENT NO.
6,855,510
8,466,172
8,629,131
8,604,012
8,609,646
8,604,013
8,614,204
7,713,986
8,318,703
TITLE
Pharmaceuticals and Methods for Treating Hypoxia and Screening Methods Therefor
Stabilization of Hypoxia Inducible Factor (HIF) Alpha
Enhanced Erythropoiesis and Iron Metabolism
Enhanced Erythropoiesis and Iron Metabolism
Enhanced Erythropoiesis and Iron Metabolism
Enhanced Erythropoiesis and Iron Metabolism
Enhanced Erythropoiesis and Iron Metabolism
Compounds and Methods for Treatment of Chemotherapy-Induced Anemia
Methods for Improving Kidney Function
DUE TO EXPIRE
July 2022
December 2022
June 2024
June 2024
June 2024
June 2024
June 2026
June 2026
February 2027
In addition to the U.S. patents listed above, our HIF anemia-related technologies portfolio includes corresponding foreign patents granted and patent
applications pending in various territories worldwide.
Akebia and others have filed oppositions against certain European patents within our HIF anemia-related technologies patent portfolio. In three of these
proceedings, for FibroGen European Patent Nos. 1463823, 1633333, and 2322155, the European Patent Office has handed down decisions unfavorable to
FibroGen. In the fourth of these proceedings, the European Patent Office issued a decision favorable to FibroGen, maintaining FibroGen European Patent No.
2322153 in amended form. All of these decisions are currently under appeal, and these four patents are valid and enforceable pending resolution of the
appeals. The ultimate outcomes of such proceedings remain uncertain, and ultimate resolution of such may take considerable time.
In addition, Akebia has filed oppositions against FibroGen European Patent Nos. 2289531 and 2298301. Akebia and GSK have also initiated invalidation
actions in the United Kingdom against the United Kingdom counterparts of each of these European patents, and GSK has filed for a declaration of non-
infringement of certain United Kingdom patents (corresponding to FibroGen European Patent Nos. 2322153 and 2322155) with respect to its daprodustat
product. Akebia is also pursuing invalidation actions against corresponding patents in Canada and in Japan, and invalidation actions against corresponding
patents in the United Kingdom have been initiated by GSK and by Akebia, although FibroGen has reached an agreement with GSK that will lead to dismissal
of the UK court actions and the proceedings filed by GSK against the patents in the EPO. Astellas’ proceedings brought against GSK on a quia timet basis
have also been dismissed as a result of the settlement agreement. While we believe the ultimate outcome of all proceedings will be that these FibroGen
patents will be upheld in relevant part, we note that narrowing or even revocation of any of these patents would not affect our exclusivity for roxadustat or our
freedom-to-operate with respect to use of roxadustat for the treatment of anemia.
Pamrevlumab Patent Portfolio
Our pamrevlumab patent portfolio includes U.S. patents providing composition-of-matter protection for pamrevlumab and related antibodies, and for methods
of using such in the treatment of fibroproliferative disorders, including IPF, liver fibrosis, and pancreatic cancer. Exclusive of any patent term extension, U.S.
patents relating to pamrevlumab composition-of-matter are due to expire in 2024 or 2025. Corresponding foreign patents are due to expire, exclusive of any
patent term extension, in 2024.
We believe that, if pamrevlumab is approved, a full five-year patent term extension under the Hatch-Waxman act will be available for a granted patent relating
to pamrevlumab, which extension would expire in 2029 or 2030, depending on the patent extended . In addition, we believe that pamrevlumab, if approved
under a BLA, should qualify for the 12-year period of exclusivity currently permitted by the BPCIA. Refer to “Government Regulation — Regulatory
Exclusivity for Approved Products.”
We also hold additional granted U.S. and foreign patents and pending patent applications directed to the use of pamrevlumab to treat IPF, DMD, pancreatic
cancer, liver fibrosis, and other disorders.
Trade Secrets and Know-How
In addition to patents, we rely upon proprietary trade secrets and know-how and continuing technological innovation to develop and maintain our competitive
position. We seek to protect our proprietary information, in part, using confidentiality and other terms in agreements with our commercial partners,
collaboration partners, consultants and employees. Such agreements are designed to protect our proprietary information, and may also grant us ownership of
technologies that are developed through a relationship with a third party, such as through invention assignment provisions. Agreements may expire and we
could lose the benefit of confidentiality, or our agreements may be breached and we may not have adequate remedies for any breach. In addition, our trade
secrets may otherwise become known or be independently discovered by competitors.
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To the extent that our commercial partners, collaboration partners, employees and consultants use intellectual property owned by others in their work for us,
disputes may arise as to the rights in related or resulting know-how and inventions.
In-Licenses
Dana-Farber Cancer Institute
Effective March 2006, we entered into a license agreement with the Dana-Farber Cancer Institute (“DFCI”), under which we obtained an exclusive license to
certain patent applications, patents and biological materials for all uses. The patent rights relate to inhibition of prolyl hydroxylation of the alpha subunit of
hypoxia-inducible factor (HIFα), and include granted U.S. and foreign patents due to expire in 2022, exclusive of possible patent term extension. The licensed
patents relate to use of HIF-PH inhibitors such as roxadustat.
Under the DFCI agreement, we are obligated to pay DFCI for past and ongoing patent prosecution expenses for the licensed patents. We are also obligated to
pay DFCI annual maintenance fees, development milestone payments of up to $425,000, sales milestone payments of up to $3 million, and a sub-single-digit
royalty on net sales by us or our affiliates or sublicensees of products that are covered by the licensed patents or incorporate the licensed biological materials.
In addition, each sublicense we grant is subject to a one-time fixed amount payment to DFCI.
Unless earlier terminated, the agreement will continue in effect, on a country-by-country basis, until the expiration of all licensed patents in a country or, if
there is no patent covering a licensed product incorporating the licensed biological materials, until 20 years after the effective date of the agreement. DFCI
may terminate the agreement for our uncured material breach, if we cease to carry on our business and development activities with respect to all licensed
products, if we fail to comply with our insurance obligations, or if we are convicted of a felony related to the manufacture, use, sale or importation of licensed
products. We may terminate the agreement at any time on prior written notice to DFCI.
University of Miami
In May 1997, we entered into a license agreement with the University of Miami (the “University”), amended in July 1999, under which we obtained an
exclusive, worldwide license to certain patent applications and patents for all uses. The current patent rights consist of a U.S. patent that relates to antibodies
that specifically bind to biologically active fragments of CTGF, and is due to expire in 2022, exclusive of any patent term extension or adjustment that may be
available. The licensed patent relates to pamrevlumab and related products.
Under the University agreement, we are obligated to pay for all ongoing patent expenses for the licensed patent. We were also obligated to pay an upfront
licensing fee of $21,500, all of which has been paid, and development milestone payments of up to $450,000, of which $150,000 has been paid, as well as an
additional milestone payment, in the low hundreds of thousands of dollars, for each new indication for which we obtain approval for a licensed product, and a
single digit royalty, subject to certain reductions, on net sales of licensed products by us or our affiliates or sublicensees.
Unless earlier terminated, the agreement will continue in effect, on a country-by-country basis, until the expiration of all licensed patents in a country. The
University may terminate the agreement for our uncured material breach or bankruptcy. We may terminate the agreement for the University’s uncured
material breach or at any time on prior written notice to the University.
Bristol-Myers Squibb Company (Medarex, Inc.)
Effective July 9, 1998 and as amended on June 30, 2001 and January 28, 2002, we entered into a research and commercialization agreement with Medarex,
Inc. and its wholly-owned subsidiary GenPharm International, Inc. (now, collectively, part of Bristol-Myers Squibb Company (“Medarex”)) to develop fully
human monoclonal antibodies for potential anti-fibrotic therapies. Under the agreement, Medarex was responsible for using its proprietary immunizable
transgenic mice (“HuMAb-Mouse technology”) during a specified research period (“the Research Period”), to produce fully human antibodies against our
proprietary antigen targets, including CTGF, for our exclusive use.
The agreement granted us an option to obtain an exclusive worldwide, royalty-bearing, commercial license to develop antibodies derived from Medarex’s
HuMAb-Mouse technology, for use in the development and commercialization of diagnostic and therapeutic products. In December 2002, we exercised that
option with respect to twelve antibodies inclusive of the antibody from which pamrevlumab is derived. We granted back to Medarex an exclusive, worldwide,
royalty-free, perpetual, irrevocable license, with the right to sublicense, to certain inventions created during the parties’ research collaboration, with such
license limited to use by Medarex outside the scope of our licensed antibodies.
43
As a result of the exercise of our option to obtain the commercial license, Medarex is precluded from (i) knowingly using any technology involving
immunizable transgenic mice containing unrearranged human immunoglobulin genes with any of our antigen targets that were the subject of the agreement,
(ii) granting to a third party a commercial license that covers such antigen targets or those antibodies derived by Medarex during the Research Period, and
(iii) using any antibodies derived by Medarex during the Research Period, except as permitted under the agreement for our benefit or to prosecute patent
applications in accordance with the agreement.
Medarex retained ownership of the patent rights relating to certain mice, mice materials, antibodies and hybridoma cell lines used by Medarex in connection
with its activities under the agreement, and Medarex also owns certain claims in patents covering inventions that arise during the Research Period, which
claims are directed to (i) compositions of matter (e.g., an antibody) except formulations of antibodies for therapeutic or diagnostic use, or (ii) methods of
production. We own the patent rights to any inventions that arise during the Research Period that relate to antigens, as well as claims in patents covering
inventions directed to (a) methods of use of an antibody, or (b) formulations of antibodies for therapeutic or diagnostic use. Upon exercise of our option to
obtain the commercial license, we obtained the sole right but not obligation to control prosecution of patents relating solely to the licensed antibodies or
products. Medarex has back-up patent prosecution rights in the event we decline to further prosecute or maintain such patents.
In addition to research support payments by us to Medarex during the Research Period, and an upfront commercial license fee in the form of 181,819 shares
of FibroGen Series D Convertible Preferred Stock paid upon exercise of our option, we committed development-related milestone payments of up to $11
million per therapeutic product containing a licensed antibody, and we have paid a $1 million development-related milestone, in the form of 133,333 shares of
FibroGen Series G Convertible Preferred Stock, and a cash payment of $2 million, for pamrevlumab to date. At our election, the remaining milestone
payments may be paid in common stock of FibroGen, Inc., or cash.
With respect to our sales and sales by our affiliates, the agreement also requires us to pay Medarex low single-digit royalties for licensed therapeutic products
and low double-digit royalties plus certain capped sales-based bonus royalties for licensed diagnostic products. With respect to sales of licensed products by a
sublicensee, we may elect to pay the foregoing royalties based on our sublicensee’s sales, or a percentage (in the high-teens) of all payments received by us
from such sublicensee. We are also required to reimburse Medarex any pass-through royalties, if any, payable under Medarex’s upstream license agreements
with Medical Research Council and DNX. Royalties payable by us under the agreement are on a licensed product-by-licensed product and country-by-country
basis and subject to reductions in specified circumstances, and royalties are payable for a period until either expiration of patents covering the applicable
licensed product or a specified number of years following the first commercial sale of such product in the applicable country.
Unless earlier terminated, the agreement will continue in effect for as long as there are royalty payment obligations by us or our sublicensees. Either party
may terminate the agreement for certain material breaches by the other party, or for bankruptcy, insolvency or similar circumstances. In addition, we may also
terminate the agreement for convenience upon written notice.
Third Party Filings
Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are developing
products. Because patent applications can take many years to issue, there may be currently pending applications, unknown to us, which may later result in
granted patents that use of our product candidates or proprietary technologies may infringe.
If a third party claims that we infringe its intellectual property rights, we may face a number of issues, including but not limited to, litigation expenses,
substantial damages, attorney fees, injunction, royalty payments, cross-licensing of our patents, redesign of our products, or processes and related fees and
costs.
We may be exposed to, or threatened with, future litigation by third parties having patent or other intellectual property rights alleging that our products,
product candidates, and/or proprietary technologies infringe their intellectual property rights. If one of these patents were to be found to cover our products,
product candidates, proprietary technologies, or their uses, we could be required to pay damages and could be restricted from commercializing our products,
product candidates or using our proprietary technologies unless we obtain a license to the patent. A license may not be available to us on acceptable terms, if
at all. In addition, during litigation, the patent holder might obtain a preliminary injunction or other equitable right, which could prohibit us from making,
using or selling our products, technologies, or methods.
44
EMPLOYEES
As of January 31, 2020, we had 531 full-time employees, 136 of whom held Ph.D. or M.D. degrees, 279 of whom were engaged in research and development
and 252 of whom were engaged in manufacturing, sales and marketing, business development, finance, information systems, facilities, human resources or
administrative support. None of our U.S. employees are represented by a labor union. The employees of FibroGen Beijing are represented by a labor union
under the China Labor Union Law. None of our employees have entered into a collective agreement with us. We consider our employee relations to be good.
FACILITIES
Our corporate and research and development operations are located in San Francisco, California, where we lease approximately 234,000 square feet of office
and laboratory space with approximately 35,000 square feet subleased. The lease for our San Francisco headquarters expires in 2023. We also lease
approximately 67,000 square feet of office and manufacturing space in Beijing, China. Our lease in China expires in 2021. We have constructed a commercial
manufacturing facility of approximately 5,500 square meters in Cangzhou, China, on approximately 33,000 square meters of land. Our right to use such land
expires in 2068. We believe our facilities are adequate for our current needs and that suitable additional or substitute space would be available if needed.
LEGAL PROCEEDINGS
We are not currently a party to any material legal proceedings.
FINANCIAL INFORMATION
Information regarding our revenues, net loss and total assets is contained in our consolidated financial statements under Item 8 of this Annual Report, which
information is incorporated by reference here. For the specifics of our segment and geographic revenue, refer to Note 14 to our consolidated financial
statements.
Research and development expenses for fiscal years ended December 31, 2019, 2018 and 2017 were $209.3 million, $235.8 million, and $196.5 million,
respectively. 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.
Our revenue to date has been generated primarily from our collaboration agreements with Astellas and AstraZeneca for the development and
commercialization of roxadustat. For fiscal years ended December 31, 2019, 2018 and 2017, substantially all of our revenue was related to our collaboration
agreements.
AVAILABLE INFORMATION
Our internet website address is www.fibrogen.com. In addition to the information about us and our subsidiaries contained in this Annual Report, information
about us can be found on our website. Our website and information included in or linked to our website are not part of this Annual Report.
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are available free of charge through our website as soon
as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission (“SEC”). Additionally the SEC
maintains an internet site that contains reports, proxy and information statements and other information. The address of the SEC’s website is www.sec.gov.
CORPORATE INFORMATION
We were incorporated in 1993 in Delaware. Our headquarters are located at 409 Illinois Street, San Francisco, California 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 Annual Report.
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Our subsidiaries consist of the following: 1) FibroGen Europe Oy (“FibroGen Europe”), a majority owned entity incorporated in Finland in 1996; 2) Skin
Sciences, Inc., a majority owned entity incorporated in the State of Delaware in 1995; 3) FibroGen International (Cayman) Limited, a majority owned entity
incorporated in the Cayman Islands in 2011; 4) FibroGen China Anemia Holdings Ltd., a majority owned entity incorporated in the Cayman Islands in 2012;
5) FibroGen International (Hong Kong) Limited, a majority owned entity incorporated in Hong Kong in 2011; and 6) FibroGen (China) Medical Technology
Development Co., Ltd., a majority owned entity incorporated in China in 2011.
“FibroGen,” the FibroGen logo and other trademarks or service marks of FibroGen, Inc. appearing in this Annual Report are the property of FibroGen, Inc.
This Annual Report 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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ITEM 1A. RISK FACTORS
Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below in addition to the other information
included or incorporated by reference in this Annual Report on Form 10-K, including our consolidated 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 biopharmaceutical company with two lead product candidates in clinical development, roxadustat in anemia in chronic kidney disease (“CKD”),
myelodysplastic syndromes (“MDS”), and chemotherapy-induced anemia, and pamrevlumab in idiopathic pulmonary fibrosis (“IPF”), pancreatic cancer, and
Duchenne muscular dystrophy (“DMD”). Most of our revenue generated to date has been based on our collaboration agreements and we have limited
commercial drug 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 year ended December 31, 2019, 2018 and 2017 were $77.0 million, $86.4 million and $120.9 million, respectively. As of December 31, 2019,
we had an accumulated deficit of $784.7 million. As of December 31, 2019, we had capital resources consisting of cash, cash equivalents and short-term
investments of $533.8 million plus $61.1 million of long-term investments classified as available for sale securities. Despite contractual development and cost
coverage commitments from our collaboration partners, AstraZeneca AB (“AstraZeneca”) and Astellas Pharma Inc. (“Astellas”), and the potential to receive
milestone and other payments from these partners, and despite commercialization efforts in the People’s Republic of China (“China”) and Japan for
roxadustat for the treatment of anemia caused by CKD, we anticipate we will continue to incur losses on an annual basis for the foreseeable future. If we do
not successfully develop and continue to obtain regulatory approval for our existing or any future product candidates and effectively manufacture, market and
sell the product candidates that are approved, 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 pamrevlumab, continue to seek regulatory approval, launch 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. The outcome of any 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 our 2017 public offerings, our existing cash and cash equivalents, short-term and long-term investments and
accounts receivable, and expected third-party collaboration revenues 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, including the success of our development and commercialization efforts,
operations costs (including manufacturing and regulatory), competition, 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.
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.
47
Most of our recent revenue has been earned from collaboration partners for our product candidates under development.
If either or both of our Astellas and AstraZeneca collaborations were to be terminated, we could require significant additional capital in order to proceed with
development and commercialization of our product candidates, including with respect to our commercialization of roxadustat for the treatment of anemia
caused by CKD, 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 development or commercialization efforts
or other operations.
Risks Related to the Development and Commercialization of Our Product Candidates
We are substantially dependent on the success of our lead product, roxadustat, and our second compound in development, pamrevlumab.
To date, we have invested a substantial portion of our efforts and financial resources in the research and development of roxadustat and pamrevlumab. While
we have received approval of our New Drug Applications (“NDA”) for roxadustat in China for CKD anemia for patients on dialysis and not on dialysis, and
for roxadustat in Japan for CKD anemia in dialysis patients, we will need to make substantial additional investments in both the development and
commercialization of roxadustat worldwide and in various indications. Our near-term prospects, including maintaining our existing collaborations with
Astellas and AstraZeneca, will depend heavily on successful development and commercialization of roxadustat, including obtaining regulatory approvals for
the commercialization of roxadustat for anemia associated with CKD.
Our other lead product candidate, pamrevlumab, is currently in clinical development for IPF, pancreatic cancer and DMD. Pamrevlumab requires substantial
further development and investment and we do not have a collaboration partner for support of this compound. In addition, pamrevlumab is a monoclonal
antibody, which may require greater financial resources than for our small molecule, roxadustat.
The clinical and commercial success of roxadustat and pamrevlumab 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 pamrevlumab.
The clinical and commercial success of roxadustat and pamrevlumab will depend on a number of factors, including the following:
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the timely initiation and completion of our clinical trials;
our ability to demonstrate the safety and efficacy of our product candidates to the satisfaction of the relevant regulatory authorities;
the ultimate approval criteria (which may include non-inferiority margins and statistical analyses methods), indications, patient populations, and
ultimate benefit-risk analysis used by regulatory authorities in their approval processes;
whether we are required by the United States (“U.S.”) Food and Drug Administration (“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 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;
the receipt or timely receipt of marketing approvals from the FDA and foreign regulatory authorities, including pricing and reimbursement
determinations;
the ability to successfully commercialize, market, sell and distribute our product candidates, if approved, for marketing and sale by the FDA or
foreign regulatory authorities, whether alone or in collaboration with others;
whether we or our partners are able to recruit and retain adequate numbers of effective sales and marketing personnel for the sale of our
products;
whether we will maintain sufficient funding to cover the costs and expenses associated with creating and sustaining a capable sales and
marketing organization and related commercial infrastructure;
whether we can compete successfully as a new entrant in the treatment of anemia caused by CKD;
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;
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our success in educating health care providers, patients and the healthcare community 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 us and 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;
the restrictions on the use of our products together with other medications, if any;
our ability to negotiate, obtain and sustain an adequate level of pricing or reimbursement for our products by third-party payors;
the availability of adequate coverage and reimbursement or pricing by third-party payors and government authorities;
our ability to enforce successfully our intellectual property rights for our product candidates and against the products of potential competitors;
our ability to avoid or succeed in third-party patent interference or patent infringement claims; and
sufficient stability data for launch and market supply.
Many of these factors are beyond our control. Successful commercialization of our products will require significant resources and time, and there is a risk that
we may not successfully commercialize them. If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant
delays or an inability to successfully commercialize our products and generate revenues, which would deprive us from additional working capital and would
materially harm our ability to achieve profitability through the sale of or royalties from our product candidates.
As a company, we have limited commercialization experience, and the time and resources to develop such experience are significant. If we fail to achieve
and sustain commercial success for roxadustat, either directly or with our collaboration partners, our business would be harmed.
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:
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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 any 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.
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Commercializing roxadustat requires us to establish commercialization systems, including but not limited to, medical affairs, sales, pharmacovigilance,
supply-chain, and distribution capabilities to perform our portion of the collaborative efforts. These efforts require resources and time. If we, along with
Astellas and AstraZeneca, are not successful in setting our marketing, pricing and reimbursement strategy, facilitating adoption by hospitals, recruiting sales
and marketing personnel or in building a sales and marketing infrastructure, we will have difficulty commercializing roxadustat, which would adversely affect
our business and financial condition.
Although regulatory approval has been obtained for roxadustat in China and Japan, we may be unable to obtain regulatory approval for our product
candidates in other countries, 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 U.S. 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. In addition, our collaboration partners for roxadustat have final control over development decisions in their
respective territories and they may make decisions with respect to development or regulatory authorities that delay or limit the potential approval of
roxadustat, or increase the cost of development or commercialization. Accordingly, we may be unable to successfully develop or commercialize roxadustat or
pamrevlumab or any of our other product candidates in one or more indications and jurisdictions.
Moreover, for any Phase 3 clinical trial to support an NDA submission for approval, the FDA and foreign regulatory authorities require compliance with
regulations and standards (including good clinical practices (“GCP”) requirements for designing, conducting, monitoring, recording, analyzing, and reporting
the results of clinical trials) to ensure that (1) the data and results from trials are credible and accurate; and (2) that the rights, integrity and confidentiality of
trial participants are protected. Although we rely on third parties to conduct our clinical trials, we as the sponsor remain 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, including GCP.
Regulatory authorities enforce these GCP requirements through periodic inspections of trial sponsors, principal investigators and trial sites. If we or any of
our CROs, trial sites, principal investigators or other third parties fail to comply with applicable GCP requirements, the clinical data generated in our clinical
trials may be deemed unreliable. Accordingly, the FDA or other regulatory authorities may require us to exclude the use of patient data from these unreliable
clinical trials, or perform additional clinical trials before approving our marketing applications. The FDA or other regulatory authorities may even reject our
application for approval or refuse to accept our future applications.
Regulatory authorities may take actions or impose requirements that delay, limit or deny approval of our product candidates for many reasons, including,
among others:
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our failure to adequately demonstrate to the satisfaction of regulatory authorities that roxadustat is safe and effective in treating anemia in CKD
or that pamrevlumab is safe and effective in treating IPF, pancreatic cancer or DMD;
our failure to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;
our failure of clinical trials to meet the level of statistical significance required for approval;
the determination by regulatory authorities that additional clinical trials are necessary to demonstrate the safety and efficacy of roxadustat or
pamrevlumab, 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;
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the clinical research organizations (“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 (“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; or
collaboration partners may not perform or complete their clinical programs in a timely manner, or at all.
Any of these factors, many of which are beyond our control, could jeopardize our or our collaboration partners’ abilities to obtain regulatory approval for our
product candidates in one or more indications.
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 or cause us to abandon the development program altogether. 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.
Preclinical, Phase 1 and Phase 2 clinical trial results 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, which are often highly variable and use small sample sizes, may not be predictive of
similar results in humans or in larger, controlled clinical trials, and successful results from clinical trials in one indication may not be replicated in other
indications.
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.
We do not know whether our ongoing or planned clinical trials of roxadustat or pamrevlumab will need to be redesigned based on interim results or if we
will be able to achieve sufficient patient enrollment or complete planned clinical trials on schedule.
Clinical trials can be delayed or terminated for a variety of reasons, including delay or failure to:
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address any physician or patient safety concerns that arise during the course of the trial;
obtain required regulatory or institutional review board approval or guidance;
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 particular, 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, including:
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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;
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physicians’ and patients’ perceptions of the potential advantages of our product candidates being studied in relation to available therapies or
other products under development;
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.
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.
In addition, we could encounter delays if a clinical trial is suspended or terminated by us, by the relevant institutional review boards 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. If we determine that there is a likely causal relationship between a serious adverse event and
our product candidate, and such safety event is material or significant enough, it may result in:
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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. Refer to “Business — Roxadustat for the Treatment of Anemia in Chronic Kidney Disease” and “Business —
Pamrevlumab 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 pamrevlumab.
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, that a more complete safety profile is 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 been other products, including erythropoiesis
stimulating agents (“ESAs”), for which safety concerns have been uncovered following approval by regulatory authorities. Such safety concerns have led to
labeling changes or withdrawal of ESAs products from the market. While our most advanced product candidate is chemically unique from ESAs, it or any of
our product candidates may be subject to known or unknown risks. 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.
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If we or third-party manufacturers and other service providers on which we rely cannot manufacture sufficient quantities of our product candidates, or at
sufficient quality, or perform other services we require, we may experience delays in development, regulatory approval, launch or successful
commercialization.
Completion of our clinical trials and commercialization of our product candidates require access to, or development of, facilities to manufacture and manage
our product candidates at sufficient yields, quality and at commercial scale. Although we have entered into commercial supply agreements for the
manufacture of some of our drug candidates, active pharmaceutical ingredients, intermediates or raw materials, we will need to enter into additional
commercial supply agreements, including for backup or second source third-party manufacturers. We may not be able to enter into these agreements with
satisfactory terms or on a timely manner.
We have limited experience manufacturing or managing third parties in manufacturing any of our product candidates in the volumes that are expected to be
necessary to support large-scale clinical trials and sales. In addition, we have limited experience forecasting supply requirements or coordinating supply chain
(including export management) for launch or commercialization, which is a complex process involving our third-party manufacturers and logistics providers,
and for roxadustat, our collaboration partners. We may not be able to accurately forecast supplies for commercial launch, or do so in a timely manner and our
efforts to establish these manufacturing and supply chain management capabilities may not meet our requirements as to quantities, scale-up, yield, cost,
potency or quality in compliance with cGMP, particularly if the marketing authorization or market uptake is more rapid than anticipated.
We have a limited amount of roxadustat and pamrevlumab in storage, limited capacity reserved at our third-party manufacturers, and there are long lead times
required to manufacture and scale-up the manufacture of additional supply, as required for both late-stage clinical trials, post-approval trials, and commercial
supply. If we are unable to forecast, order or manufacture sufficient quantities of roxadustat or pamrevlumab on a timely basis, it may delay our development,
launch or commercialization in some or all indications we are currently pursuing. Any delay or interruption in the supply of our product candidates or
products could have a material adverse effect on our business and operations.
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. We, and even an experienced third-party manufacturer, may encounter difficulties in
production. Difficulties may include:
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costs and challenges associated with scale-up and attaining sufficient manufacturing yields, in particular for biologic products such as
pamrevlumab, which is a monoclonal antibody;
supply chain issues, including coordination of multiple contractors in our supply chain and securing necessary licenses (such as export
licenses);
the timely availability and shelf life requirements of raw materials and supplies;
quality control and quality 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 or forecasting limitations and scheduling availability in contracted facilities; and
natural disasters, such as floods, storms, earthquakes, tsunamis, and droughts, or accidents such as fire, that affect facilities, possibly limit or
postpone production, and increase costs.
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The FDA and European Medicines Agency will do their own benefit risk analysis and may reach a different conclusion than we or our partners have
internally, and these regulatory authorities may base their approval decision on different analyses, data, and statistical methods than ours.
Even if we believe we have achieved positive clinical results, such as superiority or non-inferiority, in certain endpoints, populations or subpopulations, or
using certain statistical methods of analysis, the FDA and European Medicines Agency will each conduct their own benefit-risk analysis and may reach
different conclusions, using different statistical methods, different endpoints or definitions thereof, or different patient populations or sub-populations, and
regulatory authorities may change their approvability criteria based on their internal analyses and discussions with expert advisors. Regulatory authorities
may approve roxadustat for fewer or more limited indications than we request or may grant approval contingent on the performance of costly post-approval
clinical trials. While we will present to regulatory authorities certain pre-specified and not pre-specified sub-populations and sub-group analyses (for example,
incident dialysis), multiple secondary endpoints, and multiple analytical methods (such as long-term follow up analyses), including adjusted and censored
data, regulatory authorities may reject these analyses, methods, or even parts of our trial design or certain data from our studies, the rationale for our pre-
specified non-inferiority margins or other portions of our statistical analysis plans. In addition, even if we are able to provide positive data with respect to
certain analyses, such as incident dialysis, estimated glomerular filtration rate, hepcidin, or quality of life measures, regulatory authorities may not include
such claims on any approved labeling for roxadustat, which may limit the commercialization or market opportunity for roxadustat. The failure to obtain
regulatory approval, or any label, population or other approval limitations in any jurisdiction, may significantly limit our ability to generate revenues, and any
failure to obtain such approval for all of the indications and labeling claims we deem desirable could reduce our potential revenue.
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, regulatory approvals obtained, could limit the approved indicated uses for which roxadustat may be marketed. For example, our
label approved in Japan, includes the following warning: “Serious thromboembolism such as cerebral infarction, myocardial infarction, and pulmonary
embolism may occur, possibly resulting in death, during treatment with roxadustat.” Additionally, in the U.S., ESAs have been subject to significant safety
warnings, including the “Black Box” warnings on their labels. 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 or limit the market opportunity or approved
indications for roxadustat. These warnings could include warnings against exceeding specified hemoglobin targets and other warnings that derive from the
lack of clarity regarding the safety issues associated with ESAs, even if our Phase 3 clinical trials do not themselves raise safety concerns.
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, particularly in those patient segments where ESAs are
used. Currently available ESAs include epoetin alfa (EPOGEN ®, marketed by Amgen Inc. in the U.S., Procrit ® and Erypo ®/Eprex ®, marketed by
Johnson & Johnson Inc., and Espo ® marketed by Kyowa Hakko Kirin in Japan and China), darbepoetin (Amgen/Kyowa Hakko Kirin’s Aranesp ® and NESP
®) and Mircera ® marketed by Hoffmann-La Roche (“Roche”) outside of the U.S. and by Vifor Pharma, a Roche licensee, in the U.S. and Puerto Rico, as
well as biosimilar versions of these currently marketed ESA products. ESAs have been used in the treatment of anemia in CKD for more than 20 years,
serving a significant majority of dialysis-dependent CKD patients. While non-dialysis-dependent CKD patients who are not under the care of nephrologists,
including those with diabetes and hypertension, do not typically receive ESAs and are often left untreated, some patients under nephrology care may be
receiving ESA therapy. It may be difficult to encourage healthcare providers and patients to switch to roxadustat from products with which they have become
familiar.
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We may also face competition from potential new anemia therapies currently in clinical development, including in those patient segments not currently
addressed by ESAs. Companies that are currently developing HIF-PH inhibitors for anemia in CKD indications include GlaxoSmithKline plc (“GSK”), Bayer
Corporation (“Bayer”), Akebia Therapeutics, Inc. (“Akebia”), Japan Tobacco, and Zydus Cadila. Akebia is currently conducting Phase 3 studies in CKD
patients on dialysis and not on dialysis, as well as a Phase 2 study evaluating pharmacokinetics and pharmacodynamics in dialysis-dependent patients with
three-times weekly versus once-a-day dosing. Akebia expects to complete these studies by August 2020. In Japan, Mitsubishi Tanabe Pharmaceutical
Corporation, Akebia’s collaboration partner, submitted an NDA for treatment of anemia in dialysis and non-dialysis CKD patients in July 2019, and is
awaiting an approval decision later in 2020. GSK is also conducting global Phase 3 studies in CKD patients on dialysis and not on dialysis, and expects to
complete those studies by March 2022. GSK and Kyowa Hakko Kirin announced in November 2018 that the two companies signed a strategic
commercialization deal in Japan for daprodustat. GSK submitted a Japan NDA for treatment of anemia in dialysis and non-dialysis in August 2019 and is
awaiting approval later in 2020. Bayer has completed global Phase 2 studies and its HIF-PH inhibitor is now in Phase 3 development in CKD populations on
dialysis and not on dialysis in Japan. Japan Tobacco submitted an NDA for treatment of anemia associated with CKD in Japan in November 2019, supported
by the six Phase 3 studies conducted in CKD patients on dialysis and not on dialysis in Japan, and its partner JW Pharmaceuticals started a Phase 3 study in
dialysis patients in Korea. Zydus Cadila (India) started Phase 3 studies in dialysis and non-dialysis CKD patients in India in 2019.
In addition, there are other companies developing biologic therapies for the treatment of other anemia indications that we may also seek to pursue in the
future, including anemia of MDS. For example, Acceleron Pharma, Inc., in partnership with Celgene Corporation, a Bristol-Myers Squibb company
(“Celgene”), developed Reblozyl® (luspatercept), a protein therapeutic, which was approved in November 2019 by the FDA for anemia treatment in patients
with ß-thalassemia. Its Biologics License Application (“BLA”) under review by the FDA, for treatment of adult patients with very low to intermediate MDS
associated anemia who have ring sideroblast and require red blood cell transfusions, has a Prescription Drug User Fee Act date of April 4, 2020. Acceleron
expects an EMA decision on the MAA in the second half of 2020. In Japan, Celgene started a luspatercept Phase 2 study in May 2019. We may face
competition for patient recruitment, enrollment for clinical trials, and potentially in commercial sales. There may also 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.
In China, biosimilars of epoetin alfa are offered by Chinese pharmaceutical companies such as EPIAO marketed by 3SBio Inc. as well as more than 15 other
local manufacturers. We may also face competition by HIF-PH inhibitors from other companies such as Akebia, Bayer, and GSK, which was authorized by
the National Medical Products Administration (“NMPA”) to conduct trials in China to support its ex-China regulatory filings. Two domestic companies,
Jiangsu Hengrui Medicine Co., Ltd. and Guandong Sunshine Health Investment Co., Ltd, have been permitted by the NMPA to conduct clinical trials for
CKD anemia patients both on dialysis and not on dialysis, and 3SBio Inc. has submitted a clinical trial application to the NMPA to initiate trials for their HIF-
PH inhibitor. Another domestic company, China Medical System, in-licensed desidustat, a compound which is currently in Phase 3 trials in India, from Zydus
Candila for greater China in January 2020. Akebia announced in December 2015 that it had entered into a development and commercialization partnership
with Mitsubishi Tanabe Pharmaceutical Corporation for its HIF-PH inhibitor vadadustat in Japan, Taiwan, South Korea, India and certain other countries in
Asia, and announced in April 2017 an expansion of their U.S. collaboration with Otsuka to add markets, including China. 3SBio Inc. announced in 2016 its
plan to begin a Phase 1 clinical trial of a HIF-PH inhibitor for the China market.
The first biosimilar ESA, Pfizer’s Retacrit® (epoetin zeta), entered the U.S. market in November 2018. Market penetration of Retacrit and the potential
addition of other biosimilar ESAs currently under development may alter the competitive and pricing landscape of anemia therapy in CKD patients on
dialysis under the ESRD bundle. The patents for Amgen’s EPOGEN® (epoetin alfa) expired in 2004 in the Europe, and the final material patents in the U.S.
expired in May 2015. Several biosimilar versions of currently marketed ESAs are available for sale in the Europe, China and other territories. In the U.S., a
few ESA biosimilars are currently under development. Sandoz, a division of Novartis, markets Binocrit® (epoetin alfa) in Europe and may file a biosimilar
BLA in the U.S.
The majority of the current CKD anemia market focuses on dialysis patients, who visit dialysis centers on a regular basis, typically three times a week, and
anemia therapies are administered as part of the visit. Two of the largest operators of dialysis clinics in the U.S., DaVita Healthcare Partners Inc. (“DaVita”),
and Fresenius Medical Care AG & Co. KGaA (“Fresenius”), collectively provide dialysis care to more than 80% of U.S. dialysis patients, and therefore have
historically won long-term contracts including rebate terms with Amgen. DaVita has a six-year sourcing and supply agreement with Amgen effective through
2022. Fresenius’ contract with Amgen expired in 2015, following which Fresenius is providing Roche’s ESA Mircera® to a significant portion of its U.S.
dialysis patients. Successful penetration in this market may require a significant agreement with Fresenius or DaVita, on favorable terms and on a timely
basis.
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If approved and launched commercially to treat IPF, pamrevlumab is expected to compete with Roche’s Esbriet® (pirfenidone), and Boehringer Ingelheim’s
Ofev® (nintedanib). We believe that if pamrevlumab can be shown to safely stabilize or reverse lung fibrosis, and thus stabilize or improve lung function in
IPF patients, it can compete with pirfenidone and nintedanib for market share in IPF. However, it may be difficult to encourage treatment providers and
patients to switch to pamrevlumab from a product they are already familiar with. We may also face competition from potential new IPF therapies in
recruitment and enrollment in our clinical trials and potentially in commercialization.
Pamrevlumab is an injectable protein, which may be more expensive and less convenient than small molecules such as nintedanib and pirfenidone. Other
potential competitive product candidates in various stages of development for IPF include Galapagos NV’s GLPG1690 and GLPG1205, Kadmon Holdings,
Inc.’s KD025, Liminal BioSciences’ PBI-4050, and Roche/Promedior, Inc.’s PRM-151. In particular, GLPG1690 is in a Phase 3 program consisting of two
clinical trials with 750 subjects each, intended to support both the U.S. NDA and MAA in Europe.
If pamrevlumab is approved and launched commercially to treat locally advanced pancreatic cancer patients who are not candidates for surgical resection,
pamrevlumab may face competition from other products seeking approval in combination with gemcitibine and nab-paclitaxel, including FOLFRINOX, a
combination chemotherapy regimen of folic acid, 5-fluouracil, oxaliplatin and irinotecan, and from companies such as Rafael Pharma’s defactinib/CPI-613
and Merrimack’s istiratumab. 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, and was the first drug approved in this disease in
nearly a decade.
If approved and launched commercially to treat DMD, pamrevlumab is expected to face competition from drugs that have been approved in major markets
such as the U.S., EU, and Japan. On September 19, 2016, the FDA approved Sarepta Therapeutics Inc.’s (“Sarepta”) Exondys 51TM (eteplirsen). This was the
first drug approved to treat DMD. Exondys 51 is approved to treat patients who have a mutation of the dystrophin gene amenable to exon 51 skipping,
representing approximately 13% of patients with DMD. In Europe, Sarepta received a negative opinion for its marketing application for eteplirsen from the
EMA in September 2018. Sarepta has reported a full year Exondys 51 revenue of $380 million in 2019. Sarepta’s Vyondys 53TM (golodirsen) was also
approved by the FDA in December 2019 for patients with a confirmed genetic mutation that is amenable to exon 53 skipping, which accounts for 8% of the
DMD population.
PTC Therapeutics’ product Translarna TM received a conditional approval in Europe in 2014, which was renewed in November 2016 with a request for a new
randomized placebo-controlled 18-month study by the Committee for Medicinal Products for Human Use of the EMA; however, the FDA informed the
sponsor in a complete response letter in October 2017, as well as in its response to PTC Therapeutics’ appeal, that the FDA is unable to approve the
application in its current form. While Translarna TM targets a different set of DMD patients from those targeted by Sarepta’s Exondys 51®, it is also limited to
a subset of patients who carry a specific mutation. Conversely, pamrevlumab is intended to treat DMD patients without limitation to type of mutation.
Pamrevlumab may also face competition from other drugs currently in clinical development in patient recruiting and enrollment in clinical trials, and, if
approved, in commercialization. Examples of those compounds currently under clinical development are the drug candidates from Catabasis Pharmaceuticals
(“Catabasis”), Santhera Pharmaceuticals (“Santhera”) and Sarepta. Catabasis’ edasalonexent was reported to have preserved muscle function and slowed the
progression of DMD compared to rates of change in the control period prior to treatment with edasalonexent in a Phase 2 study, and is currently undergoing
Phase 3 development. Santhera’s Puldysa® (idebenone) MAA for treatment of DMD was filed with the EMA, and the opinion from the Committee for
Medicinal Products for Human Use is expected in the second quarter of 2020. The FDA requested additional clinical data from the idebenone Phase 3 trial
currently ongoing in the U.S. and Europe. Santhera offers compassionate use of idebenone in patients with DMD in U.S. and UK. Sarepta’s SRP-9001 is an
investigational gene therapy for DMD. Sarepta announced in December 2019 the licensing agreement with Roche that grants Roche the commercial rights to
SRP-9001 outside the U.S.
The success of any or all of these potential competitive products may negatively impact the development and potential for success of pamrevlumab. In
addition, any competitive products that are on the market or in development may compete with pamrevlumab for patient recruitment and enrollment for
clinical trials or may force us to change our clinical trial design, including, in order to compare pamrevlumab against another drug, which may be the new
standard of care.
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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, the currently marketed ESA products are supported by large pharmaceutical companies that have greater experience and expertise in
commercialization in the anemia market, including 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 scale, 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 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.
No or 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 government or third-party
payors and may be affected by existing and future healthcare reform measures or prices of related products for which the government or third-party
reimbursement applies. Coverage and reimbursement by the government or a third-party payor may depend upon a number of factors, including the payor’s
determination that use of a product is:
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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. For example, the initial roxadustat
reimbursement prices set by the Ministry of Health, Labour and Welfare in Japan in November 2019 did not reflect innovation premium over the current ESA
therapy, despite roxadustat’s advantages observed in our clinical programs. We believe the Japanese authority’s decision was primarily based on the
comparability of roxadustat shown in the Japan Phase 3 studies which supported the Japan NDA, that was not designed to evaluate the outcome and
additional efficacy and safety data observed in the large global Phase 3 programs that included over 8,000 patients. We have no control over whether the
agency will revisit the pricing once they review the comprehensive data from the global Phase 3 program including the MACE/MACE+ outcomes. If
reimbursement is not available or is available only to limited levels or only in subsets of the dialysis and non-dialysis populations, we may not be able to
successfully commercialize certain of our products, or in particular jurisdictions.
Price controls may limit the price at which products such as roxadustat, if approved, are sold. For example, reference pricing is used by various Europe
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.
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Risks Related to Our Reliance on Third Parties
If our collaborations with our collaboration partners Astellas or AstraZeneca were terminated, 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, if conflicts arise between us and Astellas or
AstraZeneca, or if Astellas or AstraZeneca becomes our competitor in the future, our ability to successfully develop and commercialize our product
candidates would suffer.
We have entered into collaboration agreements with respect to the development and commercialization of our lead product candidate, roxadustat, with our
collaboration partners 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 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.
Our collaboration partners also 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 with our collaboration partners, 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 regulatory activities, including for the NDA in the U.S. and the Marketing Authorization Application in Europe.
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 regulatory approval applications.
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. 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 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 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, as the sponsor, remain 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, including GCP. Regulatory authorities enforce these GCP requirements through
periodic inspections of trial sponsors, principal investigators and trial sites.
If any of our CROs, trial sites, principal investigators or other third parties fail to comply with applicable GCP requirements, other regulations, trial protocol
or other requirements under their agreements with us, the quality or accuracy of the data they obtain may be compromised or unreliable, and 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, regulatory authorities may require us to exclude the use of patient data from
our approval applications or perform additional clinical trials before approving our marketing applications. Regulatory authorities may even reject our
application for approval or refuse to accept our future applications for an extended time period. We cannot assure that upon inspection by a regulatory
authority, such regulatory authority will determine that any of our clinical trials comply with GCP requirements or that our results may be used in support of
our regulatory submissions. If any of these events occur, we may not be able to obtain regulatory approval for our product candidates on a timely basis, at a
reasonable cost, or at all.
We currently rely, and expect to continue to rely, on third parties to conduct many aspects of our product manufacturing and distribution, and these third
parties may not perform satisfactorily.
We do not have operating manufacturing facilities at this time other than our roxadustat manufacturing facility in China, and our current commercial
manufacturing facility plans in China are not expected to satisfy the requirements necessary to support 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. We also rely entirely on third parties for
distribution in China. Risks arising from our reliance on third-party manufacturers include:
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reduced control and additional burdens of oversight as a result of using third-party manufacturers and distributors for all aspects of
manufacturing activities, including regulatory compliance and quality control and quality assurance;
termination of manufacturing agreements, termination fees associated with such termination, or nonrenewal of manufacturing agreements with
third parties 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, distributors or suppliers unrelated to our product, including the merger,
acquisition, or bankruptcy of a manufacturer or supplier or a catastrophic event affecting our manufacturers, distributors or suppliers.
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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 or our collaboration
partners’ specifications, or the regulatory requirements of the FDA or other regulatory authorities, we may not be able to secure and/or maintain regulatory
approval for our product candidates and our development or commercialization plans may be delayed. 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.
Other than for Catalent, our commercial third-party supplier of roxadustat drug product in the U.S. and Europe, most of our other 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 drug
substance or active pharmaceutical ingredient (“API”) or drug products. With respect to roxadustat, AstraZeneca and Astellas have certain rights to assume
manufacturing of 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. (“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 and 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. In 2015, Patheon Pharmaceuticals Inc., a business unit of DPx Holdings B.V. (“Patheon”), acquired IRIX, and in
2017 ThermoFisher Scientific Inc. acquired Patheon.
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 marketing roxadustat.
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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. We may be unable to enter into long-term commercial supply
arrangements for some of our products, 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.
The logistics of our supply chain, which include shipment of materials and intermediates from countries such as China and India add additional time and risk
(including risk of loss) to the manufacture of our product candidates. While we have in the past maintained sufficient inventory of materials, 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 U.S. increase 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 initiated by third parties, and 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 API 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 U.S. and other countries are typically not
published until 18 months after their 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 U.S. 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 U.S., the first to file a patent application encompassing the
invention is entitled to patent protection for the invention. The U.S. moved to a “first to file” system under the Leahy-Smith America Invents Act, effective
March 16, 2013. This system also includes 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.
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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
U.S. 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 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 pamrevlumab. 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 may consider administrative proceedings and other means for challenging third-party patents and patent applications. 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.
We intend, if necessary, to vigorously enforce our intellectual property in order to protect the proprietary position of our product candidates, including
roxadustat and pamrevlumab. In addition, our collaboration partners who have been granted licenses to our patents may also have rights related to
enforcement of those patents. Active efforts to enforce our patents by us or by our partners 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. For example, we previously prevailed in an administrative challenge initiated by a major biopharmaceutical
company regarding our intellectual property rights, maintaining our intellectual property in all relevant scope, and will continue to protect and enforce our
intellectual property rights. In addition, our partner Astellas initiated quia timet infringement actions against Akebia and GSK based on our specific patents in
the United Kingdom in response to actions taken by Akebia and GSK against those patents, as further detailed below.
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Third parties may also challenge our patents and patent applications, through interference, reexamination, inter partes review, and post-grant review
proceedings before the U.S. Patent and Trademark Office (“USPTO”) or through comparable proceedings in other territories. For example, Akebia and others
have filed oppositions against certain European patents within our HIF anemia-related technologies patent portfolio. In three of these proceedings, for
FibroGen European Patent Nos. 1463823, 1633333, and 2322155, the European Patent Office has handed down decisions unfavorable to FibroGen. In a
fourth of these proceedings, the European Patent Office issued a decision favorable to FibroGen, maintaining FibroGen European Patent No. 2322153 in
amended form. All of these decisions are currently under appeal, and these four patents are valid and enforceable pending resolution of the appeals. The
ultimate outcomes of such proceedings remain uncertain, and ultimate resolution of the appeals may take considerable time. In addition, Akebia has filed
oppositions against FibroGen European Patent Nos. 2289531 and 2298301. As mentioned above, Akebia and GSK initiated invalidation actions in the United
Kingdom against the United Kingdom counterparts of each of these European patents, and GSK has filed for a declaration of non-infringement of certain
United Kingdom patents (corresponding to FibroGen European Patent Nos. 2322153 and 2322155) with respect to its daprodustat product. We have reached a
settlement agreement with GSK to resolve the actions to which GSK is/was a party, resulting in dismissal of the UK court actions as well as the proceedings
filed by GSK against the patents in the EPO. Astellas’ proceedings brought against GSK on a quia timet basis have also been dismissed as a result of the
settlement agreement. Akebia is also pursuing invalidation actions against corresponding patents in Canada and in Japan. While we believe the ultimate
outcome of all proceedings will be that these FibroGen patents will be upheld in relevant part, we note that narrowing or even revocation of any of these
patents would not affect our exclusivity for roxadustat or our freedom-to-operate with respect to use of roxadustat for the treatment of anemia.
Oppositions have also recently been filed against our European Patent No. 2872488, which claims a crystalline form of roxadustat. Final resolution of the
opposition proceedings will take considerable time, and we cannot be assured of the breadth of the claims that will remain in the ’488 Patent or that the patent
will not be revoked in its entirety.
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 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.
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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 U.S. 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 U.S., and we may encounter significant
problems in securing and defending our intellectual property rights outside the U.S.
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 being
granted, 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:
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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.
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 U.S. 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.
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The existence of counterfeit pharmaceutical products in pharmaceutical markets may compromise 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 or used for research under the same or similar names, or similar mechanism of action or product class, but which are sold without proper licenses or
approvals, and are often lower cost, lower quality, different potency, or have different ingredients or formulations, and have the potential to damage the
reputation for quality and effectiveness of the genuine product. Such products may be used for indications or purposes that are not recommended or approved
or for which there is no data or inadequate data with regard to safety or efficacy. Such products divert sales from genuine products. If counterfeit
pharmaceuticals illegally sold or used for research result in adverse events or side effects to consumers, we may be associated with any negative publicity
resulting from such incidents. 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. In addition, the use of counterfeit products could be used in non-clinical or clinical
studies, or could otherwise produce undesirable side effects or adverse events that may be attributed to our products as well, which 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. 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. Except for roxadustat in China for patients on dialysis and not on dialysis, and Japan for
patients on dialysis, we have not obtained regulatory approval for any product candidate, and it is possible that neither roxadustat nor pamrevlumab, nor any
future product candidates we may discover, in-license or acquire and seek to develop in the future, will obtain regulatory approval in additional countries.
Our product candidates could fail to receive regulatory approval from the FDA or other regulatory authorities for many reasons, including:
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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;
disagreement over whether to accept efficacy results from clinical trial sites outside the U.S. where the standard of care is potentially different
from that in the U.S.;
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.
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The FDA or other regulatory authorities may require more information, including additional preclinical or clinical data to support approval, or different
analyses, 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 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.
Our relationships with customers, physicians, and third-party payors are subject, directly or indirectly, to federal and state healthcare fraud and abuse
laws, false claims laws, health information privacy and security laws, and other healthcare laws and regulations. If we are unable to comply, or have not
fully complied, with such laws, we could face substantial penalties.
If we obtain approval in the U.S. 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 U.S. include:
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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 Health Insurance Portability and Accountability Act of 1996 (“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 Health Information Technology and Clinical Health Act, and its implementing regulations, which imposes certain
requirements relating to the privacy, security, and transmission of individually identifiable health information;
the federal physician sunshine requirements under the Patient Protection and Affordable Care Act (“PPACA”), which requires manufacturers of
drugs, devices, biologics, and medical supplies to report annually to the Centers for Medicare and Medicaid Services (“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;
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foreign and state law equivalents of each of the above federal laws, such as the U.S. Foreign Corrupt Practices Act (“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; and
the Trade Agreements Act (“TAA”), which requires that drugs sold to the U.S. Government must be manufactured in the U.S. or in TAA
approved and designated countries. Drugs manufactured in countries not approved under the TAA, may not be sold to the U.S. without specific
regulatory approval. We have little experience with this regulation and there is a risk that drugs made from Chinese-made API may not be sold
to an entity of the U.S. such as the Veterans Health Administration (“VA”) due to our inability to obtain regulatory approval. While there have
been recent VA policy changes that appear to allow for sale of drugs from non-TAA approved countries, this policy may change or there may be
additional policies or legislation that affect our ability to sell drug to the U.S. Government.
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 unknowingly 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.
Even if resolved in our favor, litigation or other legal proceedings relating to healthcare laws and regulations may cause us to incur significant expenses and
could distract our technical and management personnel from their normal responsibilities. In addition, there could be public announcements of the results of
hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a
substantial adverse effect on the price of our common shares. Such litigation or proceedings could substantially increase our operating losses and reduce the
resources available for development, manufacturing, sales, marketing or distribution activities. Uncertainties resulting from the initiation and continuation of
litigation or other proceedings relating to applicable healthcare laws and regulations could have a material adverse effect on our ability to compete in the
marketplace.
We are subject to laws and regulations governing corruption, which will require us to develop, maintain, 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, anti-
bribery and anti-corruption laws in other countries, particularly China. The implementation and maintenance of compliance programs is costly and such
programs may be 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 U.S. 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 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. 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 that have led to vigorous anti-bribery law enforcement actions and heavy fines in multiple jurisdictions, particularly in the U.S. and China.
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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 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, provisions relating to books and records that apply to us as 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 violation of the FCPA’s
accounting provisions. Even if we are not ultimately punished by government authorities, the costs of investigation and review, distraction of our 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.
The impact of recent U.S. healthcare reform, its potential partial or full repeal, 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 could be affected by changes in healthcare spending and policy in the U.S. 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 U.S., the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (“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.
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Under the Medicare Improvements for Patients and Providers Act (“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 the CMS based on the average cost per treatment, including the cost of ESAs and IV iron doses, typically without
adjustment for usage. It is unknown whether roxadustat, if approved in the U.S., will be included in the payment bundle. Under MIPPA, agents that have no
IV equivalent in the bundle are currently expected to be excluded from the bundle until 2025. If roxadustat were included in the bundle, it may reduce the
price that could be charged for roxadustat, and therefore potentially limit our profitability. Based on roxadustat’s differentiated mechanism of action and
therapeutic effects, and discussions with our collaboration partner, we currently believe that roxadustat might not be included in the bundle. If roxadustat is
reimbursed outside of the bundle, it may potentially limit or delay market penetration of roxadustat.
In March 2010, the Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010,
(collectively, the “PPACA”), was passed, which substantially changed the way healthcare is financed by both governmental and private payors in the U.S.
There remain judicial and Congressional challenges to certain aspects of the PPACA as well as efforts by the Trump administration to repeal or replace
certain aspects of the PPACA. For example, the Tax Cuts and Jobs Act of 2017, (the “Tax Act”), was enacted, which includes a provision that repealed,
effective January 1, 2019, the tax-based shared responsibility payment imposed by the PPACA on certain individuals who fail to maintain qualifying health
coverage for all or part of a year that is commonly referred to as the “individual mandate.” In addition, the 2020 federal spending package permanently
eliminates, effective January 1, 2020, the PPACA-mandated “Cadillac” tax on high-cost employer-sponsored health coverage and medical device tax and,
effective January 1, 2021, also eliminates the health insurer tax. Additionally, on December 15, 2018, a Texas U.S. District Court Judge ruled that the
PPACA is unconstitutional in its entirety because the “individual mandate” was repealed by Congress as part of the Tax Act. Additionally, on December 18,
2019, the U.S. Court of Appeals for the 5th Circuit upheld the District Court ruling that the individual mandate was unconstitutional and remanded the case
back to the District Court to determine whether the remaining provisions of the PPACA are invalid as well. It is unclear how this decision, future decisions,
subsequent appeals, and other efforts to repeal and replace the PPACA will impact the PPACA and our business.
Further, in the U.S. there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which
has resulted in several Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more
transparency to drug pricing, reduce the cost of prescription drugs under government payor programs, and review the relationship between pricing and
manufacturer patient programs. At the federal level, the Trump administration’s budget proposals for fiscal year 2020 contains further drug price control
measures that could be enacted during the budget process or in other future legislation. In addition, the Trump administration released a “Blueprint” to lower
drug prices and reduce out of pocket costs of drugs that contains additional proposals to increase manufacturer competition, increase the negotiating power of
certain federal healthcare programs, incentivize manufacturers to lower the list price of their products, and reduce the out of pocket costs of drug products
paid by consumers. The Department of Health and Human Services has solicited feedback on some of these measures and has implemented others under its
existing authority. While some of these measures may require additional authorization to become effective, the U.S. Congress and the Trump administration
have indicated that they will continue to seek new legislative and/or administrative measures to control drug costs. At the state level, legislatures have
increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient
reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases,
designed to encourage importation from other countries and bulk purchasing. We expect that additional U.S. healthcare reform measures will be adopted in
the future, any of which could limit the amounts that the U.S. federal government will pay for healthcare products and services, which could result in reduced
demand for any future products or additional pricing pressures.
Roxadustat is considered a Class 2 substance on the 2019 World Anti-Doping Agency Prohibited List which could limit sales and increase security and
distribution costs for us and our partners, particularly in China.
Roxadustat is considered a Class 2 substance on the World Anti-Doping Agency (“WADA”) Prohibited List. There are enhanced security and distribution
procedures we and our collaboration partners and third-party contractors will have to take to limit the risk of loss of product in the supply chain. As a result,
our distribution, manufacturing and sales costs for roxadustat, as well as for our partners, will be increased which will reduce profitability. In addition, there is
a risk of reduced sales due to patient access to this drug. This is particularly the case in China where we will not be able to sell roxadustat in private
pharmacies due to the WADA classification. While private pharmacies only represent approximately 10% of the market in China, this will negatively affect
sales and therefore the profitability of roxadustat and the Company as a whole.
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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 failure to:
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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 privacy laws protecting personal information;
comply with federal and state healthcare fraud and abuse laws and regulations and similar laws 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 have adopted a code of conduct for our directors, officers and employees, but it is not always
possible to identify and deter employee misconduct. 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 U.S. 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 U.S., 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 of risks related with our international operations, many of which may be beyond our control. These risks include:
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different regulatory requirements for drug approvals in different countries;
different standards of care in various countries that could complicate the evaluation of our product candidates;
different U.S. and foreign drug import and export rules;
reduced protection for intellectual property rights in certain countries;
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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;
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;
U.S. and foreign taxes, including withholding of payroll taxes;
foreign currency fluctuations, which could result in increased operating costs and 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 U.S.;
production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad;
a reliance on CROs, clinical trial sites, principal investigators and other third parties that may be less experienced with clinical trials or have
different methods of performing such clinical trials than we are used to in the U.S.;
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. Refer to “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. For example, the
Chinese government has implemented regulations that impact distribution of pharmaceutical products in China. These regulations generally require that at
most two invoices may be issued throughout the distribution chain. Failure to comply with the “Two-Invoices” regulations would prevent us from accessing
the market in China. As a result of the “Two-Invoices” regulation, we, rather than AstraZeneca, have been directly engaging distributors and a third-party
logistics provider, and we are planning on modifying the distribution responsibilities under the China Agreement such that both companies will work
together to manage the distribution network. FibroGen China Anemia Holdings, Ltd (“FibroGen China”) has never managed distribution of pharmaceutical
products, and this new distribution structure may impose higher costs or limit or delay our ability to sell products to our principal customers, and may limit
the near term sales of our products. Any other 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. 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.
We plan to use our own manufacturing facilities in China to produce roxadustat API and roxadustat drug product. As an organization, we have limited
experience in the construction, licensure, and 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 have two manufacturing facilities in China, with one located in Beijing and the other in Cangzhou, Hebei. However, as an organization, we have limited
experience licensing and operating commercial manufacturing facilities.
We will be obligated to comply with continuing cGMP requirements and there can be no assurance that we will 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
facilities meet applicable specifications and other requirements for product safety, efficacy and quality and there can be no assurance that our efforts will
continue to be successful in meeting these requirements.
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Manufacturing facilities in China are subject to periodic unannounced inspections by the NMPA 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, pandemics, earthquakes, terrorist attacks, government appropriation of our facilities, and wars, could significantly
impair our ability to operate our manufacturing facilities. Certain equipment, records and other materials located in these facilities would be difficult to
replace or would 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.
In addition to manufacturing, we are responsible for pharmacovigilance, medical affairs, and management of the third-party distribution logistics for
roxadustat in China. We have no experience in these areas as a company, and accordingly we cannot assure you we will be able to meet regulatory
requirements or operate in these capacities successfully.
We are responsible for commercial manufacturing, pharmacovigilance, medical affairs, and management of the third-party distribution logistics for roxadustat
commercial activities in China. While we have been increasing our staffing in these areas, as a company, we have no experience managing or operating these
functions for a commercial product and there can be no guarantee that we will do so efficiently or effectively. Mistakes or delays in these areas could limit our
ability to successfully commercialize roxadustat in China, could limit our eventual market penetration, sales and profitability, and could subject us to
significant liability in China.
Our business could be adversely affected by the effects of health epidemics in regions where we have significant manufacturing facilities, concentrations
of customers, or other business operations. We have significant operations in China and depend on China manufacturing operations for various stages of
our worldwide supply chain for roxadustat. We do not yet know the full extent of the impact on our roxadustat global supply chain or China operations
from the disease caused by the 2019 novel coronavirus (“COVID-19”). In addition, if COVID-19 becomes a worldwide pandemic, it could materially
affect our operations globally, including at our headquarters in San Francisco, California, and our clinical trials that are taking place predominantly in
the U.S., Europe and China.
Our business could be adversely affected by health epidemics in regions where we have significant manufacturing facilities, concentrations of customers, or
other business operations.
We have taken measures to minimize the health risks of COVID-19 as the safety and well-being of our staff is our top priority. While we have resumed
manufacturing operations in China, we currently expect many of our employees to continue transitioning from working from home to returning to our offices
following the closure of our offices in Beijing, Shanghai, and Canghzou in February 2020. Our collaboration partner AstraZeneca is also in the process of
resuming operations. In addition, many governments, including the Chinese government, have taken measures to restrict travel to reduce the spread of
COVID-19, which may limit our operational capabilities.
Due to these and potentially additional business disruptions, there may be delays to our roxadustat supply chain, problems with our distribution or
warehousing vendors, or delays to our (and our partners’) commercialization and launch activities in China (including efforts to list roxadustat in hospitals),
all of which could have a material impact on our revenue.
If the COVID-19 outbreak continues to spread, particularly outside of China, we may need to limit operations again in China or implement limitations,
including work from home policies, in the U.S. There is a risk that other countries or regions may be less effective at containing COVID-19, or it may be
more difficult to contain if the outbreak reaches a larger population or broader geography, in which case the risks described herein could be elevated
significantly.
In particular, while we and our Chinese manufacturing partner WuXi STA have resumed manufacturing operations, we only have a limited stockpile of
roxadustat API and Drug Product, and therefore, if there is a greater impact from the COVID-19 outbreak than currently expected, or if operations are halted
again, we could face shortages in our China and global supply chains.
In addition, current and upcoming clinical trials run in China by us and our partner AstraZeneca may be affected by the COVID-19 outbreak. Site initiation
and patient enrollment may be delayed due to prioritization of hospital resources toward the COVID-19 outbreak, but the extent of these potential delays is
unknown at this time. If COVID-19 becomes a worldwide pandemic, it may delay enrollment in our global clinical trials, including here in the U.S., and some
patients may not be able to comply with clinical trial protocols if quarantines impede patient movement or interrupt healthcare services, which would delay
our clinical results and ultimate commercialization of our product candidates affected.
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The COVID-19 outbreak has already impacted China’s economy and the global economy, and China’s healthcare system as a whole has been disrupted since
the beginning of 2020. It is unknown how long this disruption will continue and how it will affect the government healthcare budget and pharmaceutical sales
as patient visits to hospitals and physician engagement and medical affairs efforts have been greatly affected due to the outbreak. The effect on the
government budget in China could lead to increased pressure on drug prices which could affect future reimbursement or our ability to obtain hospital listings
for roxadustat.
For roxadustat specifically, while the effect on our sales may be more limited than for more established drugs as we have only recently been added to the
National Reimbursement Drug List and are still in the process of securing hospital listings, we do expect some delay in our launch-progress, including with
respect to increasing sales and obtaining more hospital listings.
The ultimate impact of the COVID-19 outbreak is highly uncertain and subject to change. We do not yet know the full extent of potential delays or impacts on
our business, healthcare systems, or the global economy as a whole. However, these effects could have a material impact on our operations and revenue and
we will continue to monitor the COVID-19 situation closely.
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 and any difficulties we may experience in generating sales will
affect our bottom line. Difficulties may be related to our ability to maintain reasonable pricing and reimbursement, obtain hospital listing, or other difficulties
related to distribution, marketing, and sales efforts in China. For example, our current National Reimbursement Drug List reimbursement pricing is effective
for a standard two-year period (between January 1, 2020 to December 31, 2021), after which time we will have to renegotiate a new price for roxadustat,
which may be lower. Sales of roxadustat in China may be limited due to the complex nature of the healthcare system, low average personal income, pricing
controls, still developing infrastructure and potentially rapid competition from other products. The hospital listing process is critical to roxadustat’s near-term
commercial success in China and may take many years to obtain the majority of hospital listings.
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 that 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 the China Catalog for Guidance for Foreign Investment, we will need to
operate in China through a variable interest entity (“VIE”) structure.
The China Catalog for Guidance for Foreign Investment sets forth the industries and sectors that the Chinese government encourages and restricts with
respect to foreign investment and participation. The Catalog for Guidance for Foreign Investment is subject to revision from time to time by the 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 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 the Chinese
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 Securities and Exchange Commission (“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.
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FibroGen (China) Medical Technology Development Co., Ltd. (“FibroGen Beijing”) 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 and FibroGen Beijing. We may rely on dividends and royalties paid by FibroGen
Beijing for a portion of our cash needs, including the funds necessary to service any debt we may incur and to pay our operating costs and expenses. The
payment of dividends by FibroGen Beijing 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 Beijing 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 Beijing 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 reaches 50.0% of its registered capital. Statutory reserves are not distributable as cash dividends. In addition, if FibroGen Beijing 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. As of December 31,
2019, approximately $7.0 million of our cash and cash equivalents is held in China.
Any capital contributions from us to FibroGen Beijing 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 Beijing.
The Ministry of Commerce in China or its local counterpart must approve the amount and use of any capital contributions from us to FibroGen Beijing, 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 Beijing 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.
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, the Chinese 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 Beijing 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 (“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 Chinese 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 Beijing’s funds are held in banks that do not provide insurance, the failure of any bank in which FibroGen Beijing deposits 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 Beijing
may not have access to funds on deposit. Depending upon the amount of money FibroGen Beijing 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 U.S. and other jurisdictions in which we operate are extremely complex and subject to change. New laws, new interpretations of
existing laws, such as the Base Erosion Profit Shifting project initiated by the Organization for Economic Co-operation and Development, and any legislation
proposed by the relevant taxing authorities, 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.
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 to the tax treaties, we could be subject to
additional taxes, which could adversely affect our financial condition and results of operations.
On December 22, 2017, the U.S. enacted the Tax Act that instituted fundamental changes to the taxation of multinational corporations. The Tax Act includes
changes to the taxation of foreign earnings by implementing a dividend exemption system, expansion of the current anti-deferral rules, a minimum tax on
low-taxed foreign earnings and new measures to deter base erosion. There have been developing interpretations of the provisions of the Tax Act, including
changes and issuance of new U.S. Treasury regulations, administrative interpretations, or court decisions since its inception. As regulations and guidance
evolve with respect to the Tax Act, we continue to examine the impact to our business, which could have a material adverse effect on our business, results of
operations or financial condition.
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 pursuing patent applications in China and other countries,
relying on trade secrets or pharmaceutical regulatory protection or employing a combination of these methods. We note that 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 of the
technology. Furthermore, the terms of our patents are limited. The patents we hold and the 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 U.S. 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 China
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 China 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.
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 the China judicial system have significant discretion in interpreting and implementing statutory and contractual terms, which may render it
difficult for FibroGen Beijing 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 the 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.
Chinese society and the Chinese economy continue to undergo significant change. Changes in the regulatory structure, regulations, 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 regulatory structure and structure of foreign investment in this industry. We are unable to
predict the frequency and scope of such policy changes and structural changes, any of which could materially and adversely affect FibroGen Beijing’s
development and commercialization timelines, liquidity, 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. In
addition, the changing government regulations and policies could result in delays and cost increases to our development, manufacturing, approval, and
commercialization timelines in China.
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 provides strong protections for employees and imposes many 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.
Developments relating to the United Kingdom’s referendum vote in favor of leaving the European Union could adversely affect us.
Effective January 31, 2020, the United Kingdom commenced an exit from the European Union, commonly referred to as "Brexit." During a transition period
(set to expire on December 31, 2020), the British government will continue to negotiate the terms of the United Kingdom's future relationship with the
European Union. The outcome of these negotiations is uncertain, and we do not know to what extent Brexit will ultimately impact the business and regulatory
environment in the United Kingdom, the rest of Europe, or other countries. The effects of the United Kingdom’s withdrawal from the European Union, and
the perceptions as to its impact, are expected to be far-reaching and may adversely affect business activity and economic conditions in Europe and globally
and could continue to contribute to instability in global financial markets, including foreign exchange markets. The United Kingdom’s withdrawal from the
European Union could also have the effect of disrupting the free movement of goods, services and people between the United Kingdom and Europe and could
also lead to legal uncertainty and potentially divergent national laws and regulations as the United Kingdom determines which European laws to replace or
replicate, including laws that could impact our ability, or our collaborator’s ability in the case of roxadustat, to obtain approval of our products or sell our
products in the United Kingdom. Changes impacting our ability to conduct business in the United Kingdom or other European countries, or changes to the
regulatory regime applicable to our operations in those countries (such as with respect to the approval of our product candidates), may materially and
adversely impact our business, prospects, operating results, and financial condition.
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 continue to 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 in order to manage any future growth effectively. Our failure to accomplish any of these steps could prevent us from successfully
implementing our strategy and maintaining the confidence of investors in us.
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Loss of senior management and key personnel, including the recent passing of our founder, chairman and chief executive officer, could adversely affect
our ability to successfully develop our product candidates, conduct our clinical trials and commercialize our product candidates.
We are highly dependent on members of our senior management team. In August 2019, Thomas B. Neff, our founder, chairman and chief executive officer,
passed away, and subsequently James Schoeneck, a longtime member of our Board of Directors, was appointed as interim chief executive officer. On January
6, 2020, we announced the appointment of Enrique Conterno as chief executive officer, with Mr. Schoeneck stepping down from the interim role. The loss of
Mr. Neff and his knowledge of the Company’s programs may be disruptive to our operations and could negatively impact the development and
commercialization of our product candidates, our existing collaborative relationships, and our ability to successfully implement our business strategy, as could
changes in our executive team in the future.
Recruiting and retaining qualified commercial, development, scientific, clinical, and manufacturing personnel are and will continue to be critical to our
success, particularly as we expand our commercialization operations. 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.
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:
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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.
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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. We upgraded our disaster and data recovery capabilities in 2017, however, to the extent that any disruption or security breach, in particular
with our partners’ operations, 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 it could result in a material disruption and delay 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.
We depend on sophisticated information technology systems to operate our business and a cyber-attack or other breach of these systems could have a
material adverse effect on our business.
We rely on information technology systems to process, transmit and store electronic information in our day-to-day operations. The size and complexity of our
information technology systems makes them vulnerable to a cyber-attack, malicious intrusion, breakdown, destruction, loss of data privacy or other
significant disruption. While we have recently upgraded our disaster data recovery program, a successful attack could result in the theft or destruction of
intellectual property, data, or other misappropriation of assets, or otherwise compromise our confidential or proprietary information and disrupt our
operations. Cyber-attacks are becoming more sophisticated and frequent. We have invested in our systems and the protection and recoverability of our data to
reduce the risk of an intrusion or interruption, and we monitor and test our systems on an ongoing basis for any current or potential threats. There can be no
assurance that these measures and efforts will prevent future interruptions or breakdowns. If we fail to maintain or protect our information technology systems
and data integrity effectively or fail to anticipate, plan for or manage significant disruptions to these systems, we could have difficulty preventing, detecting
and controlling such cyber-attacks and any such attacks could result in losses described above as well as disputes with physicians, patients and our partners,
regulatory sanctions or penalties, increases in operating costs and expenses, expenses or lost revenues or other adverse consequences, any of which could
have a material adverse effect on our business, results of operations, financial condition, prospects and cash flows.
Our headquarters 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 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.
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, or 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 are unlikely to provide adequate protection 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.
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Risks Related to Our Common Stock
The market price of our common stock may be highly volatile, and you may not be able to resell your shares at or above your purchase 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:
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results of clinical trials of our product candidates, including roxadustat and pamrevlumab;
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;
adverse developments concerning our collaborations and our manufacturers;
the termination of a collaboration or the inability to establish additional collaborations;
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;
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;
speculation in the press or investment community;
announcements of investigations or regulatory scrutiny of our operations or lawsuits filed against us;
activities of the government of China, including those related to the pharmaceutical industry as well as industrial policy generally;
performance of other U.S. publicly traded companies with significant operations in China;
changes in market conditions for biopharmaceutical stocks; 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.
If securities or industry analysts do not continue to 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 us 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.
79
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 January 31, 2020, our executive officers, directors and principal stockholders, together with their respective affiliates, owned approximately 27.60% of
our common stock, including shares subject to outstanding options that are exercisable within 60 days after such date and shares issuable upon settlement of
restricted stock units that will vest within 60 days after such date. This percentage is based upon information supplied by officers, directors and principal
stockholders and Schedules 13D and 13G, if any, filed with the SEC, which information may not be accurate as of January 31, 2020. Accordingly, 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 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 us. 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.
80
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 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;
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.
Changes in our tax provision or exposure to additional tax liabilities could adversely affect our earnings and financial condition.
As a multinational corporation, we are subject to income taxes in the U.S. and various foreign jurisdictions. Significant judgment is required in determining
our global provision for income taxes and other tax liabilities. In the ordinary course of a global business, there are intercompany transactions and calculations
where the ultimate tax determination is uncertain. Our income tax returns are subject to audits by tax authorities. Although we regularly assess the likelihood
of adverse outcomes resulting from these examinations to determine our tax estimates, a final determination of tax audits or tax disputes could have an
adverse effect on our results of operations and financial condition.
We are also subject to non-income taxes, such as payroll, sales, use, value-added, net worth, property, gross receipts, and goods and services taxes in the U.S.,
state and local, and various foreign jurisdictions. We are subject to audit and assessments by tax authorities with respect to these non-income taxes and may
have exposure to additional non-income tax liabilities, which could have an adverse effect on our results of operations and financial condition.
81
In addition, our judgment in providing for the possible impact of the Tax Act remains subject to developing interpretations of the provisions of the Tax Act.
As regulations and guidance evolve with respect to the Tax Act, we continue to examine the impact to our tax provision or exposure to additional tax
liabilities, which could have a material adverse effect on our business, results of operations or financial condition.
Tariffs imposed by the U.S. and those imposed in response by other countries, as well as rapidly changing trade relations, could have a material adverse
effect on our business and results of operations.
Changes in U.S. and foreign governments’ trade policies have resulted in, and may continue to result in, tariffs on imports into and exports from the U.S.
Throughout 2018 and 2019, the U.S. imposed tariffs on imports from several countries, including China. In response, China has proposed and implemented
their own tariffs on certain products, which may impact our supply chain and our costs of doing business. If we are impacted by the changing trade relations
between the U.S. and China, our business and results of operations may be negatively impacted. Continued diminished trade relations between the U.S. and
other countries, including potential reductions in trade with China and others, as well as the continued escalation of tariffs, could have a material adverse
effect on our financial performance and results of operations.
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 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.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our corporate and research and development operations are located in San Francisco, California, where we lease approximately 234,000 square feet of office
and laboratory space with approximately 35,000 square feet subleased. The lease for our San Francisco headquarters expires in 2023. We also lease
approximately 67,000 square feet of office and manufacturing space in Beijing, China. Our lease in China expires in 2021. We have constructed a commercial
manufacturing facility of approximately 5,500 square meters in Cangzhou, China, on approximately 33,000 square meters of land. Our right to use such land
expires in 2068. We believe our facilities are adequate for our current needs and that suitable additional or substitute space would be available if needed.
ITEM 3. LEGAL PROCEEEDINGS
We are not currently a party to any material legal proceedings.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
82
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
Market Information for Common Stock
Our common stock has been listed on the NASDAQ Global Select Market (“NASDAQ”) since November 14, 2014, under the symbol “FGEN.” Prior to our
initial public offering, there was no public market for our common stock.
Stock Price Performance Graph
The following graph illustrates a comparison of the total cumulative stockholder return for our common stock since December 31, 2014 to two indices: the
NASDAQ Composite Index and the NASDAQ Biotechnology Index. The graph assumes an initial investment of $100 on December 31, 2014, in our
common stock, the stocks comprising the NASDAQ Composite Index, and the stocks comprising the NASDAQ Biotechnology Index. The stockholder return
shown in the graph below is not necessarily indicative of future performance, and we do not make or endorse any predictions as to future stockholder returns.
The above Stock Price Performance Graph and related information shall not be deemed “soliciting material” or to be “filed” with the Securities and Exchange
Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act or Exchange Act, except to the extent that
we specifically incorporate it by reference into such filing.
Dividend Policy
We have never declared or paid any cash dividends on our capital stock. We currently intend to retain all available funds and any future earnings to support
our operations and finance the growth and development of our business. We do not intend to pay cash dividends on our common stock for the foreseeable
future. Any future determination related to our dividend policy will be made at the discretion of our board of directors and will depend on then-existing
conditions, including our financial condition, operating results, contractual restrictions, capital requirements, business prospects and other factors our board of
directors may deem relevant.
Stockholders
As of January 31, 2020, there were 136 registered stockholders of record for our common stock. This number of registered stockholders does not include
stockholders whose shares are held in street name by brokers and other nominees, or may be held in trust by other entities. Therefore, the actual number of
stockholders is greater than this number of registered stockholders of record.
83
Use of Proceeds from Initial Public Offering of Common Stock
On November 13, 2014, our Registration Statement on Form S-1, as amended (Reg. Nos. 333-199069 and 333-200189) was declared effective in connection
with the initial public offering of our common stock. There has been no material change in the planned use of proceeds from our initial public offering as
described in our final prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act on November 14, 2014.
Recent Sales of Unregistered Securities
During the year ended December 31, 2019, a warrant to purchase 4,430 shares of our common stock was exercised at a per share price of $15.00.
These shares issued pursuant to the warrant were not registered under the Securities Act of 1933, as amended, in reliance upon the exemption set forth in
Section 4(a)(2) of such Act for transactions not involving a public offering.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated results of operations data for the years ended December 31, 2019, 2018 and 2017, and the consolidated balance sheet data as of
December 31, 2019 and 2018 should be read together with Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and in conjunction with the consolidated financial statements, related notes, and other financial information included elsewhere in this Annual
Report. The selected consolidated results of operations data for the year ended December 31, 2016 and 2015 and the consolidated balance sheet data as of
December 31, 2017, 2016 and 2015 have been derived from audited financial statements not included herein. Our historical results are not necessarily
indicative of the results to be expected in the future.
2019
2018
Years Ended December 31,
2017
(in thousands, except for per share data)
2016
2015
Result of Operations
Revenue:
License revenue
Development and other revenue
Product revenue
Total revenue
Operating expenses:
Cost of goods sold
Research and development
Selling, general and administrative
Total operating expenses
$
177,086 $
114,115
(34,624)
256,577
1,147
209,265
135,479
345,891
22,269 $
9,933 $
50,607 $
125,913
64,776
212,958
—
235,839
63,812
299,651
121,063
—
130,996
—
196,517
51,760
248,277
132,582
—
183,189
—
187,206
46,025
233,231
Net loss
Net loss per share - basic and diluted
$
$
(76,970) $
(0.89) $
(86,420) $
(1.03) $
(120,875) $
(1.66) $
(58,068) $
(0.93) $
89,401
82,985
—
172,386
—
214,089
44,364
258,453
(94,221)
(1.56)
Balance Sheet Data:
Cash and cash equivalents
Short-term and long-term investments
Working capital
Total assets
Deferred revenue
Accumulated deficit
Total stockholders' equity
2019
2018
December 31,
2017
(in thousands)
2016
2015
$
126,266 $
468,609
599,745
857,397
99,939
(784,720)
516,135
84
89,258 $
587,964
600,982
880,598
149,880
(715,827)
509,199
673,658 $
72,566
663,010
898,650
154,911
(630,657)
528,467
173,782 $
150,407
192,806
469,552
154,737
(509,782)
115,798
153,324
159,567
131,468
470,574
141,511
(451,714)
133,902
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements
and related notes and other financial information included in Item 15 of this Annual Report on Form 10-K. Some of the information contained in this
discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business,
international operations and product candidates, includes forward-looking statements that involve risks and uncertainties. You should review the “Risk
Factors” section of this Annual Report 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.
BUSINESS OVERVIEW
We were incorporated in 1993 in Delaware and are headquartered in San Francisco, California, with subsidiary offices in Beijing and Shanghai, People’s
Republic of China (“China”). We are a leading biopharmaceutical company developing and commercializing a pipeline of first-in-class therapeutics. We
apply our pioneering expertise in hypoxia-inducible factor (“HIF”), connective tissue growth factor (“CTGF”) biology, and clinical development to advance
innovative medicines for the treatment of anemia, fibrotic disease, and cancer. Roxadustat, our most advanced product, is an oral small molecule inhibitor of
HIF prolyl hydroxylase (“HIF-PH”) activity that has received marketing authorization in China for the treatment of anemia caused by chronic kidney disease
(“CKD”) in dialysis and non-dialysis patients. In September 2019, roxadustat (Evrenzo®) was approved in Japan for the treatment of anemia associated with
CKD in dialysis-dependent patients. In January 2020, Astellas Pharma Inc. (“Astellas”) submitted a supplemental New Drug Application (“NDA”) in Japan
for the treatment of anemia in non-dialysis CKD patients. Our NDA filing for roxadustat for the treatment of anemia patients with dialysis-dependent CKD
and non-dialysis-dependent CKD was accepted for review by the United States (“U.S.”) Food and Drug Administration (“FDA”) in February 2020, and
Astellas is in the process of preparing a Marketing Authorization Application (“MAA”) for submission to the European Medicines Agency (“EMA”) in the
second quarter of 2020 for the same indications. Roxadustat is in Phase 3 clinical development in the U.S. and Europe and in Phase 2/3 development in China
for anemia associated with myelodysplastic syndromes (“MDS”). Roxadustat is in Phase 2 clinical development for chemotherapy-induced anemia.
Pamrevlumab, an anti-CTGF human monoclonal antibody, is in Phase 3 clinical development for the treatment of both idiopathic pulmonary fibrosis (“IPF”)
and pancreatic cancer. Pamrevlumab is also currently in a Phase 2 trial for Duchenne muscular dystrophy (“DMD”).
Financial Highlights
Result of Operations
Revenue
Operating costs and expenses
Net loss
Net loss per share - basic and diluted
Balance Sheet
Cash and cash equivalents
Short-term and long-term investments
Accounts receivable
2019
Years Ended December 31,
2018
(in thousands, except for per share data)
2017
$
$
256,577 $
345,891
(76,970)
(0.89) $
212,958
299,651
(86,420)
(1.03)
$
$
130,996
248,277
(120,875)
(1.66)
December 31, 2019
December 31, 2018
$
$
$
(in thousands)
126,266
468,609
28,455
$
$
$
89,258
587,964
63,684
Our revenue for the year ended December 31, 2019 included the revenues recognized related to the following:
•
•
•
•
Two regulatory milestones totaling $130.0 million associated with the planned MAA submission to the EMA under the collaboration agreement with
Astellas for roxadustat as a treatment for dialysis and non-dialysis CKD patients;
A $50.0 million regulatory milestone associated with the NDA submission to the FDA under the collaboration agreement with AstraZeneca for
roxadustat as a treatment for dialysis and non-dialysis CKD patients;
Three regulatory milestones totaling $22.0 million associated with roxadustat being included on the updated National Reimbursement Drug List
(“NRDL”) released by China’s National Healthcare Security Administration (“NHSA”); and
A regulatory milestone of $12.5 million associated with the NDA approval in Japan.
85
Meanwhile, our overall revenue for the year ended December 31, 2019 was reduced by $36.3 million of a change in estimated variable consideration related
to the API product revenue that was recognized in 2018 discussed below, which reflected the total difference between estimated and actual listed price and
yield from the manufacture of bulk product tablets.
As comparison, our revenue for the year ended December 31, 2018 included the revenues recognized related to the following:
•
•
•
•
A $64.8 million product revenue for API delivered during 2018, under the amendment to the collaboration agreement with Astellas for roxadustat for the
treatment of anemia in Japan (“Japan Agreement”), to conduct commercial scale manufacturing validation for roxadustat drug product in anticipation of
commercial launch in Japan;
A regulatory milestone of $15.0 million associated with an NDA submission during 2018 in Japan;
A $6.0 million milestone under the collaboration agreements with AstraZeneca upon our receipt of marketing authorization from the NMPA for
roxadustat, a first-in-class HIF-PH inhibitor, for the treatment of anemia caused by CKD in patients on dialysis; and
A $6.0 million milestone payable under the collaboration agreement with AstraZeneca upon our receipt of First Manufacturing Approval for a Product
in the Field in the Territory, which allows production for Phase 4 clinical studies, patients’ early experience programs, donation programs, as well as to
supply products for testing and assessments required prior to launch.
Operating expenses increased for the year ended December 31, 2019 compared to the prior year primarily due to the following:
•
•
•
•
•
Higher outside service expenses related to co-promotional activities and scientific contract expenses;
Higher stock-based compensation related to the cumulative impact of stock option grant activities;
Amortization of finance lease ROU assets and higher depreciation expenses related to the adoption of lease accounting guidance under ASC 842;
Higher legal expenses mainly associated with patent-related and international activities; and
Higher employee-related expenses resulting from higher average compensation level.
The increases were partially offset by:
•
•
Lower clinical trial expenses related to lower activities for roxadustat offset by higher activities for pamrevlumab; and
Lower drug development expenses associated with drug substance manufacturing activities related to pamrevlumab, and capitalization of inventory
manufacturing costs.
Our research and development expenses were $209.3 million, $235.8 million and $196.5 million for the years ended December 31, 2019, 2018 and 2017,
respectively. Since inception and through December 31, 2019, we have incurred a total of approximately $2 billion in research and development expenses, a
majority of which relates to the development of roxadustat, pamrevlumab and other HIF-PH inhibitors. We expect to continue to incur significant expenses
and operating losses over at least the next several years and we expect our research and development expenses to increase in the future as we advance our
product candidates through clinical trials and expand our product candidate portfolio. In addition, we expect to incur significant expenses relating to seeking
regulatory approval for our product candidates and commercializing those products in various markets, including China. We consider the active management
and development of our clinical pipeline to be particularly crucial to our long-term success. The process of conducting the necessary clinical research to
obtain regulatory approval is costly and time consuming.
The actual probability of success for each of our product candidates and clinical programs, and our ability to generate product revenue and become profitable,
depends upon a variety of factors, including the quality of the product candidate, clinical results, investment in the program, competition, manufacturing
capability, commercial viability, and our and our partners’ ability to successfully execute our development and commercialization plans. For a description of
the numerous risks and uncertainties associated with product development, refer to “Risk Factors.”
During the year ended December 31, 2019, we had a net loss of $77.0 million, or net loss per basic and diluted share of $0.89, as compared to a net loss of
$86.4 million, or net loss per basic and diluted share of $1.03 for the prior year, primarily due to an increase in revenue, partially offset by an increase in
operating expenses.
Cash and cash equivalents, investments and accounts receivable totaled $623.3 million at December 31, 2019, a decrease of $117.6 million from
December 31, 2018, primarily due to cash used in operations.
86
Programs
Roxadustat, our most advanced product, is an oral small molecule inhibitor of HIF-PH activity that has received marketing authorization in China for the
treatment of anemia caused by CKD in non-dialysis-dependent patients (adding the non-dialysis indication to the label for dialysis-dependent patients, which
was approved in December 2018). In September 2019, roxadustat (Evrenzo®) was approved in Japan for the treatment of anemia associated with CKD in
dialysis-dependent patients. In January 2020, Astellas submitted a supplemental NDA in Japan for the treatment of anemia in non-dialysis CKD patients. Our
U.S. NDA filing for roxadustat for the treatment of anemia patients with dialysis-dependent CKD and non-dialysis-dependent CKD was accepted for review
by the FDA in February 2020, and Astellas is in the process of preparing an MAA for submission to the EMA in the second quarter of 2020 for the same
indications. Roxadustat is in Phase 3 clinical development in the U.S. and Europe and in Phase 2/3 development in China for anemia associated with MDS.
Roxadustat is in Phase 2 clinical development for chemotherapy-induced anemia.
Pamrevlumab, an anti-CTGF human monoclonal antibody, is in Phase 3 clinical development for the treatment of both IPF and pancreatic cancer.
Pamrevlumab is also currently in a Phase 2 trial for DMD.
Collaboration Partnerships for Roxadustat
Our current and future research, development, manufacturing and commercialization efforts with respect to roxadustat and our other product candidates
currently in development depend on funds from our collaboration agreements with Astellas and AstraZeneca as described below.
Astellas
In June 2005, we entered into a collaboration agreement with Astellas for the development and commercialization (but not manufacture) of roxadustat for the
treatment of anemia in Japan (“Japan Agreement”). In April 2006, we entered into the Europe Agreement with Astellas for roxadustat for the treatment of
anemia in Europe, the Commonwealth of Independent States, the Middle East, and South Africa. Under these agreements, we provide Astellas the right to
develop and commercialize roxadustat for anemia indications in these territories.
We share responsibility with Astellas for clinical development activities required for the U.S. and the Europe regulatory approval of roxadustat and share
equally those development costs under the agreed development plan for such activities. Astellas will be responsible for clinical development activities and all
associated costs required for regulatory approval in all other countries in the Astellas territories. Astellas will own and have responsibility for regulatory
filings in its territories. We are responsible, either directly or through our contract manufacturers, for the manufacture and supply of all quantities of
roxadustat to be used in development and commercialization under the agreements.
The Astellas agreements will continue in effect until terminated. Either party may terminate the agreements for certain material breaches by the other party. In
addition, Astellas will have the right to terminate the agreements for certain specified technical product failures, upon generic sales reaching a particular
threshold, upon certain regulatory actions, or upon our entering into a settlement admitting the invalidity or unenforceability of our licensed patents. Astellas
may also terminate the agreements for convenience upon advance written notice to us. In the event of any termination of the agreements, Astellas will transfer
and assign to us the regulatory filings for roxadustat and will assign or license to us the relevant trademarks used with the products in the Astellas territories.
Under certain terminations, Astellas is also obligated to pay us a termination fee.
Consideration under these agreements includes a total of $360.1 million in upfront and non-contingent payments, and milestone payments totaling $557.5
million, of which $542.5 million are development and regulatory milestones and $15.0 million are commercial-based milestones. Total consideration,
excluding development cost reimbursement and product sales-related payments, could reach $917.6 million. The aggregate amount of such consideration
received, through December 31, 2019 totals $500.1 million. Additionally, under these agreements, Astellas pays 100% of the commercialization costs in its
territories. Astellas will pay FibroGen a transfer price, based on net sales, in the low 20% range for our manufacture and delivery of roxadustat.
In September 2019, Japan’s Ministry of Health, Labour and Welfare approved roxadustat for the treatment of anemia associated with dialysis CKD patients.
Accordingly, the consideration of $12.5 million associated with this milestone was included in the transaction price and allocated to performance obligations
under the Japan Agreement in the third quarter of 2019. This milestone payment was received in October 2019.
87
During the second quarter of 2019, we received positive topline results from analyses of pooled major adverse cardiac event (“MACE”) and MACE+ data
from its Phase 3 trials evaluating roxadustat as a treatment for dialysis and non-dialysis CKD patients, enabling Astellas to prepare for an MAA submission to
the EMA in the second quarter of 2020, following our NDA submission to the FDA in 2019 and acceptance for review in February 2020. We evaluated the
two regulatory milestone payments associated with the planned MAA submission and concluded that these milestones became probable of being achieved in
the second quarter of 2019. Accordingly, the total consideration of $130.0 million associated with these milestones was included in the transaction price and
allocated to performance obligations under the Europe Agreement in the second quarter of 2019.
During the second quarter of 2018, Astellas reported positive results from the final Phase 3 CKD-dialysis trial of roxadustat in Japan, indicating that Astellas
was ready to make an NDA submission for the treatment of anemia with roxadustat in CKD-dialysis patients in 2018. We evaluated the regulatory milestone
payment associated with NDA submission in Japan based on variable consideration requirements under the current revenue standards and concluded that this
milestone became probable of being achieved in the second quarter of 2018. Accordingly, the consideration of $15.0 million associated with this milestone
was included in the transaction price and allocated to performance obligations under the Japan Agreement, substantially all of which was recognized as
revenue in 2018.
On November 30, 2018, FibroGen and Astellas entered into an amendment to the Japan Agreement that will allow Astellas to manufacture roxadustat drug
product for commercialization in Japan (the “Japan Amendment”). Under this amendment, FibroGen would continue to manufacture and deliver to Astellas
roxadustat API. The commercial terms of the Japan Agreement relating to the transfer price for roxadustat for commercial use remain substantially the same,
reflecting an adjustment for the manufacture of drug product by Astellas rather than FibroGen. This amendment obligated Astellas to purchase a total of $64.7
million API from FibroGen, all of which was delivered to Astellas in 2018. In 2019, a change in estimated variable consideration resulted in a $36.3 million
reduction to revenue, at the time the listed price for roxadustat was issued by the Japanese Ministry of Health, Labour and Welfare, which reflected the total
difference between estimated and actual listed price and yield from the manufacture of bulk product tablets.
In the fourth quarter of 2018, we were engaged in the final stages of review with our partners over the proposed development of roxadustat for the treatment
of chemotherapy-induced anemia. AstraZeneca and Astellas approved the program in December 2018 and January 2019, respectively. Costs associated with
the development of this indication are shared 50-50 between our two partners. For revenue recognition purposes, we concluded that this new indication
represents a modification to the Europe agreements and will be accounted for separately, meaning the development costs associated with the new indications
are distinct from the original development costs. The development service period for roxadustat for the treatment of CIA under the Europe Agreement is
estimated to continue through the end of 2023 to allow for development of this indication.
In addition, as of December 31, 2019, Astellas had separate investments of $80.5 million in the equity of FibroGen, Inc.
AstraZeneca
In July 2013, we entered into the U.S./RoW Agreement a collaboration agreement with AstraZeneca for roxadustat for the treatment of anemia in the U.S. and
all territories not previously licensed to Astellas, except China. In July 2013, through our China subsidiary and related affiliates, we entered into the China
Agreement a collaboration agreement with AstraZeneca for roxadustat for the treatment of anemia in China. Under these agreements we provide AstraZeneca
the right to develop and commercialize roxadustat for anemia in these territories. We share responsibility with AstraZeneca for clinical development activities
required for U.S. regulatory approval of roxadustat.
In 2015, we reached the $116.5 million cap on our initial funding obligations (during which time we shared 50% of the joint initial development costs),
therefore all development and commercialization costs for roxadustat for the treatment of anemia in CKD in the U.S., Europe, Japan and all other markets
outside of China have been paid by Astellas and AstraZeneca since reaching the cap.
In China, FibroGen (China) Medical Technology Development Co., Ltd. (“FibroGen Beijing”) will conduct the development work for CKD anemia, will hold
all of the regulatory licenses issued by China regulatory authorities, and will be primarily responsible for regulatory, clinical and manufacturing. China
development costs are shared 50/50. AstraZeneca is also responsible for 100% of development expenses in all other licensed territories outside of China. We
are responsible, through our contract manufacturers, for the manufacture and supply of all quantities of roxadustat to be used in development and
commercialization under the AstraZeneca agreements.
Under the AstraZeneca agreements, we will receive upfront and subsequent non-contingent payments totaling $402.2 million. Potential milestone payments
under the agreements total $1.2 billion, of which $571.0 million are development and regulatory milestones and $652.5 million are commercial-based
milestones. Total consideration under the agreements, excluding development cost reimbursement, transfer price payments, royalties and profit share, could
reach $1.6 billion. The aggregate amount of such consideration received through December 31, 2019 totals $444.2 million.
88
Under the U.S./RoW Agreement, AstraZeneca will pay for all commercialization costs in the U.S. and RoW and AstraZeneca will be responsible for the U.S.
commercialization of roxadustat, with FibroGen undertaking specified promotional activities in the end stage renal disease segment in the U.S. In addition,
we will receive a transfer price for delivery of commercial product based on a percentage of net sales in the low- to mid-single digit range and AstraZeneca
will pay us a tiered royalty on net sales of roxadustat in the low 20% range.
Under the China Agreement, which is conducted through FibroGen China Anemia Holdings, Ltd. (“FibroGen China”), the commercial collaboration is
structured as a 50/50 profit share. AstraZeneca will conduct sales and marketing activities in China and fund roxadustat launch costs in China until FibroGen
Beijing has achieved profitability. At that time, AstraZeneca will recoup 50% of their historical launch costs out of initial roxadustat profits in China. As of
December 31, 2019, we accrued $53.1 million of co-promotional expenses related to the estimated amount payable to AstraZeneca for such sales and
marketing efforts. The payment for such amount is not expected to occur within the next year.
Payments under these agreements include over $500.0 million in upfront, non-contingent and other payments received or expected to be received prior to the
first U.S. approval, excluding development expense reimbursement.
AstraZeneca may terminate the U.S./RoW Agreement upon specified events, including our bankruptcy or insolvency, our uncured material breach, technical
product failure, or upon 180 days prior written notice at will. If AstraZeneca terminates the U.S./RoW Agreement at will, in addition to any unpaid non-
contingent payments, it will be responsible for paying for a substantial portion of the post-termination development costs under the agreed development plan
until regulatory approval.
AstraZeneca may terminate the China Agreement upon specified events, including our bankruptcy or insolvency, our uncured material breach, technical
product failure, or upon advance prior written notice at will. If AstraZeneca terminates our China Agreement at will, it will be responsible for paying for
transition costs as well as make a specified payment to FibroGen China.
In the event of any termination of the agreements, but subject to modification upon termination for technical product failure, AstraZeneca will transfer and
assign to us any regulatory filings and approvals for roxadustat in the affected territories that they may hold under our agreements, grant us licenses and
conduct certain transition activities.
In December 2019, roxadustat has been included on the updated NRDL released by China’s NHSA for the treatment of anemia in CKD, covering patients
who are non-dialysis-dependent as well as those who are dialysis-dependent. The inclusion on the NRDL triggered a total of $22.0 million milestones payable
to us by AstraZeneca. Accordingly, the total consideration of $22.0 million associated with these milestones was included in the transaction price and
allocated to performance obligations under the U.S./ RoW Agreement in the fourth quarter of 2019.
As mentioned above, during the second quarter of 2019, we received positive topline results from analyses of pooled MACE and MACE+ data from its Phase
3 trials for roxadustat, enabling our U.S. NDA submission to the FDA. We evaluated the regulatory milestone payment associated with this NDA submission
and concluded that this milestone became probable of being achieved in the second quarter of 2019. Accordingly, the consideration of $50.0 million
associated with this milestone was included in the transaction price and allocated to performance obligations under the U.S./ RoW Agreement in the second
quarter of 2019. We submitted our NDA to the FDA in December 2019, which was accepted for review in February 2020.
On December 17, 2018, FibroGen Beijing, received marketing authorization from the NMPA for roxadustat, a first-in-class HIF-PH inhibitor, for the
treatment of anemia caused by CKD in patients on dialysis. This approval triggered a $6.0 million milestone payable to us by AstraZeneca. On December 29,
2018, FibroGen Beijing received First Manufacturing Approval for a Product in the Field in the Territory, which allows production for Phase 4 clinical
studies, patients’ early experience programs, donation programs, as well as to supply products for testing and assessments required prior to launch. This
approval triggered a $6.0 million milestone payable to us by AstraZeneca.
As mentioned above, in the fourth quarter of 2018, we were engaged in the final stages of review with our partners over the proposed development of
roxadustat for the treatment of CIA. AstraZeneca and Astellas approved the program in December 2018 and January 2019, respectively. Costs associated with
the development of this indication are expected to be shared 50-50 between our two partners. In addition to CIA, in December 2018, anemia of chronic
inflammation (“ACI”) and multiple myeloma (“MM”) have been approved for development by AstraZeneca and is expected to be fully funded by them. For
revenue recognition purposes, we concluded that the approval of additional research and development services for these new indications represent
modifications to our collaboration agreements in the periods in which approval was received. The research and development services associated with the new
indications are distinct from other promises in our collaboration agreements, and will be accounted for separately. The development service period for
roxadustat for the treatment of CIA, ACI and MM under the AstraZeneca agreements is estimated to continue through the end of 2024, to allow for
development of these additional indications.
89
Additional Information Related to Collaboration Agreements
Of the $1.1 billion in development and regulatory milestones payable in the aggregate under our Astellas and AstraZeneca collaboration agreements, $425.0
million is payable upon achievement of milestones relating to the submission and approval of roxadustat in dialysis-dependent CKD and non-dialysis-
dependent CKD in the U.S. and Europe.
For more detailed discussions on the accounting for these agreements, refer to Note 3 to the consolidated financial statements. In addition, refer to “Business
— Collaborations” for a more detailed description of our collaboration agreements.
Total cash consideration received through December 31, 2019 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:
Astellas--related-party:
Japan Agreement
Europe Agreement
Total Astellas
AstraZeneca:
U.S. / RoW Agreement
China Agreement
Total AstraZeneca
Total revenue
Cash
Received Through
December 31, 2019
Additional
Potential
Cash Payments
(in thousands)
Total
Potential
Cash Payments
$
$
90,093
410,000
500,093
389,000
55,200
444,200
944,293
$
$
$
82,500
335,000
417,500
860,000
321,500
1,181,500
1,599,000
$
172,593
745,000
917,593
1,249,000
376,700
1,625,700
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.
RESULTS OF OPERATIONS
Revenue
Revenue:
2019
Years Ended December 31,
2018
2017
(dollars in thousands)
Change 2019 vs. 2018
%
$
License revenue
Development and other revenue
Product revenue
Total revenue
$
$
177,086 $
114,115
(34,624)
256,577 $
22,269 $
125,913
64,776
212,958 $
9,933 $
121,063
—
130,996 $
154,817
(11,798)
(99,400)
43,619
695 %
(9) %
(153) %
20 %
Our revenue to date has been generated substantially from our collaboration agreements with Astellas and AstraZeneca.
Under our revenue recognition policy, license revenue includes amounts from upfront, non-refundable license payments and amounts allocated pursuant to the
standalone selling price method from other consideration received during the periods. This revenue is generally recognized as deliverables are met and
services are performed. License revenues represented 69%, 11% and 8% of total revenues for the years ended December 31, 2019, 2018 and 2017,
respectively.
Development and other revenue includes co-development and other development related services. Co-development services are recognized as revenue in the
period in which they are billed to our partners, excluding China. For China co-development services, revenue is deferred until the end of the development
period once all performance obligations have been satisfied. Other development related services are recognized as revenue over the non-contingent
development period based on a proportional performance method. As of December 31, 2019, the future non-contingent development periods range from 12 to
60 months. Other revenues consist of sales of research and development material and have been included with Development and other revenue in the
consolidated statements of operations, as they have not been material for any of the periods presented. Development and other revenues represented 44%,
59% and 92% of total revenues for the years ended December 31, 2019, 2018 and 2017, respectively.
90
In the third quarter of 2019, we started generating net product revenue from commercial sales of roxadustat drug product in China. In addition, product
revenue for 2019 included a change in estimated variable consideration related to the product revenue recognized in 2018 associated with commercial-grade
API sales to Astellas. Product revenue is recognized when our customer obtains control of promised goods or services in an amount that reflects the
consideration we expect to receive in exchange for those goods or services. Product revenue represented (13)% and 30% of total revenue for the year ended
December 31, 2019 and 2018. There was no product revenue for the year ended December 31, 2017.
In the future, we will continue generating revenue from collaboration agreements in the form of license fees, milestone payments, reimbursements for
collaboration services and royalties on product sales, and from product sales. We expect that any revenues we generate will fluctuate from quarter to quarter
due to the uncertain timing and amount of such payments and sales.
Total revenue increased $43.6 million, or 20% for the year ended December 31, 2019 compared to the year ended December 31, 2018 for the reasons
discussed in the sections below.
License Revenue
License revenue:
Astellas
AstraZeneca
Total license revenue
2019
Years Ended December 31,
2018
2017
(dollars in thousands)
Change 2019 vs. 2018
$
%
$
$
129,405 $
47,681
177,086 $
14,323 $
7,946
22,269 $
— $
9,933
9,933 $
115,082
39,735
154,817
803 %
500 %
695 %
License revenue increased $154.8 million, or 695% for the year ended December 31, 2019 compared to the year ended December 31, 2018.
License revenue recognized under our collaboration agreements with Astellas increased $115.1 million, or 803% for the year ended December 31, 2019
compared to the year ended December 31, 2018. License revenue recognized under our collaboration agreements with Astellas for the year ended December
31, 2019 represented the allocated revenue of $117.5 million related to two regulatory milestones totaling $130.0 million associated with the planned MAA
submission in Europe that were included in the transaction price during the second quarter of 2019 when these milestones became probable of being achieved;
and the allocated revenue of $11.9 million related to a regulatory milestone of $12.5 million associated with the NDA approval in Japan achieved during the
third quarter of 2019. License revenue recognized under our collaboration agreements with Astellas for the year ended December 31, 2018 represented the
allocated revenue related to a $15.0 million regulatory milestone associated with Astellas’ expected NDA submission in Japan that was included in the
transaction price during the second quarter of 2018 when this milestone became probable of being achieved.
License revenue recognized under our collaboration agreements with AstraZeneca increased $39.7 million, or 500% for the year ended December 31, 2019
compared to the year ended December 31, 2018. License revenue recognized under our collaboration agreements with AstraZeneca for the year ended
December 31, 2019 represented the allocated revenue of $33.1 million related to a regulatory milestone of $50.0 million associated with the NDA submission
in the U.S. that was included in the transaction price during the second quarter of 2019 when this milestone became probable of being achieved; and the
allocated revenue of $14.6 million related to three regulatory milestones totaling $22.0 million associated with roxadustat being included on the updated
NRDL released by China’s NHSA during the fourth quarter of 2019. License revenue recognized under our collaboration agreements with AstraZeneca for
the year ended December 31, 2018 represented the allocated revenue related to a $6.0 million milestone associated with FibroGen Beijing’s receipt of
marketing authorization from the NMPA for roxadustat, and a $6.0 million milestone associated with FibroGen Beijing’s receipt of First Manufacturing
Approval for a Product in the Field in the Territory.
91
Development and Other Revenue
Development revenue:
Astellas
AstraZeneca
Total development revenue
Other revenue
Total development and other revenue
2019
Years Ended December 31,
2018
2017
(dollars in thousands)
Change 2019 vs. 2018
%
$
$
$
29,394 $
84,719
114,113
2
114,115 $
20,903 $
104,970
125,873
40
125,913 $
20,111 $
100,928
121,039
24
121,063 $
8,491
(20,251)
(11,760)
(38)
(11,798)
41 %
(19) %
(9) %
(95) %
(9) %
Development revenue decreased $11.8 million, or 9% for the year ended December 31, 2019 compared to the year ended December 31, 2018.
Development revenue recognized under our collaboration agreements with Astellas increased $8.5 million, or 41% for the year ended December 31, 2019
compared to the year ended December 31, 2018. Development revenue recognized under our collaboration agreements with Astellas for the year ended
December 31, 2019 included the allocated revenue of $11.4 million related to the above-mentioned $130.0 million associated with the regulatory milestones
of the planned MAA submission in Europe, and the allocated revenue of $0.5 million related to the above-mentioned $12.5 million associated with the NDA
approval in Japan. Development revenue recognized under our collaboration agreements with Astellas for the year ended December 31, 2018 included the
allocated revenue related to the above-mentioned $15.0 million associated with the regulatory milestone of NDA submission in Japan. The increase for the
year ended December 31, 2019 was partially offset by a decrease in co-development billings related to the development of roxadustat as a result of the
substantial completion of Phase 3 trials for roxadustat.
Development revenue recognized under our collaboration agreements with AstraZeneca decreased $20.3 million, or 19% for the year ended December 31,
2019 compared to the year ended December 31, 2018, primarily due to a decrease in co-development billings related to the development of roxadustat as a
result of the substantial completion of Phase 3 trials for roxadustat. The decrease was partially offset by the allocated revenue of $9.3 million related to the
above-mentioned $50.0 million associated with the regulatory milestone of the NDA submission in the U.S., and the allocated revenue of $4.1 million related
to the above-mentioned regulatory milestones totaling $22.0 million associated with roxadustat being included on the updated NRDL released by China’s
NHSA.
Product Revenue
Product revenue, net:
API product
Drug product
Gross revenue
Price adjustment
Sales rebates and other discounts
Drug product revenue, net
Total product revenue, net
Years Ended December 31,
2018
2019
Change 2019 vs. 2018
$
%
(dollars in thousands)
$
(36,324) $
64,776 $
(101,100)
(156) %
2,803
(936)
(167)
1,700
(34,624) $
—
—
—
—
64,776 $
2,803
(936)
(167)
1,700
(99,400)
— %
— %
— %
— %
(153) %
$
Product revenue of $64.8 million for the year ended December 31, 2018 represented the sales of commercial-grade API to Astellas to conduct commercial
scale manufacturing validation for roxadustat drug product in anticipation of commercial launch in Japan. The product revenue was recorded in 2018 based
on an estimated transaction price after we evaluated the latest available facts and circumstances, and was subject to potential future adjustments. A change in
estimated variable consideration resulted in a $36.3 million reduction to revenue, at the time the listed price for roxadustat was issued by the Japanese
Ministry of Health, Labour and Welfare, which reflected the total difference between estimated and actual listed price and yield from the manufacture of bulk
product tablets.
92
In addition, we started commercial sales of roxadustat drug product in China in the third quarter of 2019. Drug product revenue is recognized in an amount
that reflects the consideration to which we expect to be entitled in exchange for those products, net of price adjustment, contractual sales rebate and other
discounts. For the year ended December 31, 2019, upon roxadustat being included on the NRDL in December 2019, we recorded $0.9 million of price
adjustment based on government-listed price guidance and estimated channel inventory levels. The contractual sales rebate and other discounts were
immaterial for the year ended December 31, 2019.
Operating Expenses
Operating costs and expenses
Cost of goods sold
Research and development
Selling, general and administrative
Total operating costs and expenses
2019
Years Ended December 31,
2018
2017
Change 2019 vs. 2018
$
%
(dollars in thousands)
$
$
1,147 $
209,265
135,479
345,891 $
— $
235,839
63,812
299,651 $
— $
196,517
51,760
248,277 $
1,147
(26,574)
71,667
46,240
100 %
(11) %
112 %
15 %
Total operating expenses increased $46.2 million, or 15%, for the year ended December 31, 2019 compared to the year ended December 31, 2018, for the
reasons discussed in the sections below.
Cost of goods sold
We started commercial sales of roxadustat drug product in China in the third quarter of 2019. The associated cost of goods sold was $1.1 million for the year
ended December 31, 2019.
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, 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, 2019, 2018 and 2017:
Product Candidate
Phase of Development
2019
Years Ended December 31,
2018
(in thousands)
2017
Roxadustat
Pamrevlumab
FG-5200
Other research and development expenses
Total research and development expenses
Phase 3
Phase 2/3
Preclinical
$
$
125,429 $
58,750
5,323
19,763
209,265 $
139,876 $
72,063
5,122
18,778
235,839 $
125,144
52,260
4,628
14,485
196,517
The program-specific expenses summarized in the table above include costs we directly attribute to our product candidates. We allocate research and
development salaries, benefits, stock-based compensation and other indirect costs to our product candidates on a program-specific basis, and we include these
costs in the program-specific expenses. We expect our research and development expenses to increase in the future as we advance our product candidates
through clinical trials and expand our product candidate portfolio. We expect development expenses to increase as we continue Phase 3 trials for
pamrevlumab.
Research and development expenses decreased $26.6 million, or 11%, for the year ended December 31, 2019 compared to the year ended December 31, 2018.
The decrease was primarily due to decreases in drug development expenses of $29.8 million, clinical trials costs of $20.7 million, and $6.8 million of
capitalization of inventory manufacturing costs. The decreases were partially offset by increases in allocated facility related expense of $11.9 million, stock-
based compensation expense of $10.5 million, outside services of $7.3 million, and licenses and permits fees of $2.9 million.
93
Drug development expenses decreased primarily due to lower drug substance manufacturing activities related to pamrevlumab, partially offset by higher
activities for roxadustat in its global program. Clinical trial costs decreased as a result of the substantial completion of Phase 3 trials for roxadustat, partially
offset by the increases resulted from Phase 3 trials for pamrevlumab and preparation work related to NDA submission in the U.S. Facility related expenses, as
part of the allocated overhead costs, was higher due to increase in depreciation expenses related to China facilities, the amortization of finance lease ROU
assets related to the adoption of ASC 842, and higher depreciation expenses primarily related to the change estimated useful life for our leasehold
improvements, from the building life to the shorter of the building life and remaining lease term, as a result of the adoption of ASC 842. Stock-based
compensation expense increased due to the cumulative impact of stock option grant activities. Outside services costs increased due to higher scientific
contract work related to roxadustat submission activities, higher medical affairs expenses for roxadustat in China and higher consulting expenses related to
pamrevlumab. Licenses and permits fees increased related to the Prescription Drug User Fee incurred for NDA submission to the FDA.
Selling, General and Administrative Expenses
We started to incur sales and marketing expenses in the first quarter of 2019 in China to prepare for commercial operations. Selling, general and
administrative (“SG&A”) expenses consist primarily of employee-related expenses for executive, operational, finance, legal, compliance, and human resource
functions. SG&A expenses also include facility-related costs, professional fees, accounting and legal services, other outside services including co-promotional
expenses, recruiting fees and expenses associated with obtaining and maintaining patents.
We anticipate that our SG&A expenses will increase in the future as we increase co-promotional expenses for roxadustat and our headcount to support
potential commercialization of our product candidates. We also anticipate increased expenses, including exchange listing and SEC requirements, director and
officer insurance premiums, legal, audit and tax fees, and regulatory compliance programs associated with being a public company. Additionally, 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.
SG&A expenses increased $71.1 million, or 112%, for the year ended December 31, 2019 compared to the year ended December 31, 2018, primarily due to
increases in outside service expenses of $54.1 million, employee-related costs of $5.1 million, legal expense of $4.7 million, stock-based compensation
expense of $3.6 million, and facility related expenses of $2.9 million,
Outside service expenses increased due to the recognition of our share of co-promotional expenses incurred with AstraZeneca sales and marketing efforts
related to the commercial launch of roxadustat in China, and licensing agreement fees associated with pamrevlumab. Employee-related costs increased due to
higher headcount primarily in the sales and marketing functions in China. Legal expenses increased mainly associated with patent-related and international
activities. Stock-based compensation expense increased due to cumulative impact of stock option grant activities, partially offset by the cancellation of our
founding chief executive officer’s unvested options upon his passing during the year. Facility related expenses, as part of the allocated overhead costs, was
higher due to the amortization of finance lease ROU assets related to the adoption of ASC 842, and higher depreciation expenses primarily related to the
change estimated useful life for our leasehold improvements, from the building life to the shorter of the building life and remaining lease term, as a result of
the adoption of ASC 842.
Interest and Other, Net
Interest and other, net:
Interest expense
Interest income and other, net
Total interest and other, net
Interest Expense
2019
Years Ended December 31,
2018
2017
(dollars in thousands)
Change 2019 vs. 2018
$
%
$
$
(2,876)
15,548
12,672
$
$
(10,991)
11,568
577
$
$
(9,706) $
6,433
(3,273) $
8,115
3,980
12,095
(74) %
34 %
2,096 %
Before December 31, 2018, interest expense included payments made for imputed interest related to the facility lease financing obligations for our leased
facilities in San Francisco and China. After adoption of ASC 842 as of January 1, 2019, the interest expense relates to our finance lease liabilities accretion
primarily for our leased facilities in San Francisco and China. Interest expense also includes interest related to the Technology Development Center of the
Republic of Finland product development obligations.
Interest expense decreased $8.1 million, or 74%, for the year ended December 31, 2019 compared to the year ended December 31, 2018 due to the different
method of interest computation of interest expense under the old and new lease accounting rules.
94
Interest Income and Other, Net
Interest income and other, net primarily include interest income earned on our cash, cash equivalents and investments, foreign currency transaction gains
(losses), remeasurement of certain monetary assets and liabilities in non-functional currency of our subsidiaries into the functional currency, realized gains
(losses) on sales of investments.
Interest income and other, net increased $4.0 million, or 34%, for the year ended December 31, 2019 compared to the year ended December 31, 2018,
primarily due to $3.9 million higher interest earned on our cash, cash equivalents and investments associated with the higher average balances and $1.2
million higher net unrealized gain on our marketable equity investments, partially offset by $1.2 million related to a one-time realized foreign currency gain
during the prior year.
Provision for Income Taxes
Years Ended December 31,
2019
2018
2017
Loss before income taxes
Provision for income taxes
Effective tax rate
$
(76,642)
328
(0.4)%
$
(86,116)
304
(0.4)%
(120,554)
321
(0.3)%
(dollars in thousands)
$
The provisions for income taxes for the years end December 31, 2019 and 2018 were due to foreign taxes.
Based upon the weight of available evidence, which includes our historical operating performance, reported cumulative net losses since inception and
expected continuing net loss, we have established a full valuation allowance against our net deferred tax assets as we do not currently believe that realization
of those assets is more likely than not. We will continue to maintain a full valuation allowance on our net deferred tax assets until there is sufficient evidence
to support the reversal of all or some portion of this allowance.
SELECTED QUARTERLY FINANCIAL DATA
The following tables present unaudited quarterly results for 2019 and 2018. These tables include all adjustments, consisting only of normal recurring
adjustments that we consider for the fair statement of our consolidated financial position and operating results for the quarters presented. Payments from our
collaboration partners have caused, and are likely to continue to cause, fluctuations in our quarterly results. These unaudited quarterly results of operations
should be read in conjunction with the consolidated financial statements and notes included in Item 8 of this Annual Report on Form 10-K. We have prepared
the unaudited information on the same basis as our audited consolidated financial statements. Our operating results for any quarter are not necessarily
indicative of results for any future quarters or for a full year.
Fourth Quarter
Second Quarter
Third Quarter
(in thousands, except for per share data)
First Quarter
2019
Revenue (1)
Operating expenses (2)
Net income (loss)
Net income (loss) per share (4):
Basic
Diluted
Revenue (3)
Operating expenses
Net income (loss)
Net income (loss) per share (4):
Basic
Diluted
$
7,974 $
108,410
(98,123)
(1.12)
(1.12) $
33,174 $
86,028
(49,439)
(0.57)
(0.57) $
2018
191,566 $
78,747
116,003
1.34
1.26 $
23,863
72,706
(45,411)
(0.53)
(0.53)
Fourth Quarter
Second Quarter
Third Quarter
(in thousands, except for per share data)
First Quarter
108,054 $
88,135
20,952
0.25
0.23 $
29,027 $
71,799
(42,556)
(0.50)
(0.50) $
43,952 $
67,193
(23,420)
(0.28)
(0.28) $
31,925
72,524
(41,396)
(0.50)
(0.50)
$
$
$
(1) Revenue for the second quarter of 2019 was significantly higher compared to other quarters primarily due to the revenue recognized related to three
milestone payments. Revenue for the fourth quarter of 2019 was significantly lower compared to other quarters primarily due to the change in
estimated variable consideration related to the API product revenue.
95
(2) Operating expenses for the fourth quarter of 2019 was significantly higher compared to other quarters primarily due to the recognition of our share of
co-promotional expenses incurred with AstraZeneca for sales and marketing efforts related to the commercial launch of roxadustat in China, and permit
fees for NDA filing to the FDA.
(3) Revenue for the fourth quarter of 2018 was significantly higher compared to other quarters due to the API product revenue recognized, and revenue
recognized on two milestone payments.
(4) Basic and diluted net income (loss) per share is computed independently for each of the quarters presented. Therefore, the sum of quarterly basic and
diluted net income (loss) per share may not equal annual basic and diluted net income (loss) per share.
LIQUIDITY AND CAPITAL RESOURCES
Financial Conditions
We have historically funded our operations principally from the sale of common stock (including our public offering proceeds) and from the execution of
collaboration agreements involving license payments, milestones and reimbursement for development services.
As of December 31, 2019, we had cash and cash equivalents of $126.3 million. Cash is invested in accordance with our investment policy, primarily with a
view to liquidity and capital preservation. Investments, consisting of available-for-sale debt investments, marketable equity investments, term deposit and
certificate of deposit, and stated at fair value, are also available as a source of liquidity. As of December 31, 2019 we had short-term and long-term
investments of $407.5 million and $61.1 million, respectively. As of December 31, 2019, a total of $11.9 million of our cash and cash equivalents was held
outside of the U.S. in our foreign subsidiaries to be used primarily for our China operations.
Operating Capital Requirements
In the third quarter of 2019, we started generating revenue from commercial sales of roxadustat drug product in China. Even with the expectation of increases
in revenue from drug product sales, we anticipate that we will continue to generate losses for the foreseeable future. We expect increase in our operating
expenses as we continue the development of, and seek regulatory approvals for, our product candidates, and begin to commercialize any approved products.
To date, we have funded certain portions of our research and development and manufacturing efforts in China and Europe through outside parties. There is no
guarantee that sufficient funds will be available to continue to fund these development efforts through commercialization or otherwise. Although our share of
expenses for roxadustat will decrease as a result of AstraZeneca funding all non-China collaboration expenses not reimbursed by Astellas, we expect our
research and development expenses to continue to increase as we invest in our other programs. We are subject to all the risks related to the development and
commercialization of novel therapeutics, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may
adversely affect our business. We anticipate that we will need substantial additional funding in connection with our continuing operations.
We may not be able to secure additional financing to meet our operating requirements on acceptable terms, or at all. If we raise additional funds by issuing
equity or equity-linked securities, the ownership of our existing stockholders will be diluted. If we raise additional financing by the incurrence of
indebtedness, we will be subject to increased fixed payment obligations and could also be subject to restrictive covenants, such as limitations on our ability to
incur additional debt, and other operating restrictions that could adversely impact our ability to conduct our business. If we are unable to obtain needed
additional funds, we will have to reduce our operating costs and expenses, which would impair our growth prospects and could otherwise negatively impact
our business.
We believe that our existing cash and cash equivalents, short-term and long-term investments and accounts receivable will be sufficient to meet our
anticipated cash requirements for at least the next 12 months from the filing date of this Annual Report on Form 10-K. However, our liquidity assumptions
may change over time, and we could utilize our available financial resources sooner than we currently expect. In addition, we may elect to raise additional
funds at any time through equity, equity-linked or debt financing arrangements. Our forecast of the period of time through which our financial resources will
be adequate to support our operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number
of factors. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we
currently expect. Our future capital requirements and the adequacy of available funds will depend on many factors, including those set forth under Part I, Item
1A “Risk Factors” in this Annual Report on Form 10-K. We may not be able to secure additional financing to meet our operating requirements on acceptable
terms, or at all. If we raise additional funds by issuing equity or equity-linked securities, the ownership of our existing stockholders will be diluted. If we raise
additional financing by the incurrence of indebtedness, we will be subject to increased fixed payment obligations and could also be subject to restrictive
covenants, such as limitations on our ability to incur additional debt, and other operating restrictions that could adversely impact our ability to conduct our
business. If we are unable to obtain needed additional funds, we will have to reduce our operating costs and expenses, which would impair our growth
prospects and could otherwise negatively impact our business.
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Cash Sources and Uses
The following table summarizes the primary sources and uses of cash for the years ended December 31, 2019, 2018 and 2017:
Net cash provided by (used in):
Operating activities
Investing activities
Financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
2019
Years Ended December 31,
2018
(in thousands)
2017
$
$
(78,705) $
120,018
(4,300)
(5)
37,008 $
(76,144) $
(522,123)
13,875
(8)
(584,400) $
(66,513)
69,866
496,472
51
499,876
Operating Activities
Net cash used in operating activities was $78.7 million for the year ended December 31, 2019 and consisted primarily of net loss of $77.0 million adjusted for
non-cash items of $83.9 million and a net decrease in operating assets and liabilities of $85.7 million. The significant non-cash items included stock-based
compensation expense of $66.3 million, depreciation expense of $11.1 million, amortization of finance lease ROU of $10.3 million, and net amortization of
premium and discount on investments of $3.7 million. The significant items in the changes in operating assets and liabilities included decreases resulting from
prepaid expenses and other current assets of $128.6 million, deferred revenue of $49.9 million, inventories of $6.9 million, other assets of $3.3 million, and
accounts payable of $3.1 million, partially offset by increases resulting from other long-term liabilities of $52.4 million, accounts receivable of $35.2 million,
and accrued and other liabilities of $18.3 million. The changes in prepaid expenses and other current assets and deferred revenue were primarily driven by a
$130.0 million unbilled contract asset related to regulatory milestones under the Europe Agreement with Astellas associated with the planned MAA
submission in Europe and a $50.0 million contract asset related to a regulatory milestone under the U.S./RoW Agreement with AstraZeneca associated with
the NDA submission in the U.S., which were not billable to Astellas or AstraZeneca as of December 31, 2019, net of the associated deferred revenues of $4.8
million and $50.0 million, respectively. The change in deferred revenue was also related to the recognition of revenues under our collaboration agreements
with Astellas and AstraZeneca. The change in inventories was due to the capitalization of inventory costs starting in June 2019 when FibroGen Beijing began
productions of roxadustat for commercial sales purposes. The change in other assets was primarily related to the net accumulation of input value added tax by
FibroGen Beijing. The changes in accounts payable, and accrued and other liabilities were primarily driven by the timing of invoicing and payments. The
change in accrued and other liabilities was also driven by accrued $36.3 million related to the change in estimated variable consideration associated with the
roxadustat API. The change in other long-term liabilities was primarily due to the accrual of co-promotional expenses with AstraZeneca for sales and
marketing efforts related to the commercial launch of roxadustat in China that are not expected to be paid in the next year. The change in accounts receivable
was primarily related to the collection of $43.9 million from Astellas for the API delivery in December 2018 under the Japan Amendment, as well as the
timing of the receipt of upfront payments and recognition of revenues under our collaboration agreements with Astellas and AstraZeneca.
Net cash used in operating activities was $76.1 million for the year ended December 31, 2018 and consisted primarily of net loss of $86.4 million adjusted for
non-cash items of $58.7 million and a net decrease in operating assets and liabilities of $48.4 million. The significant non-cash items included stock-based
compensation expense of $52.1 million, depreciation expense of $6.6 million, unrealized loss on our marketable equity investments of $1.1 million and
realized foreign currency gain of $1.1 million. The significant items in the changes in operating assets and liabilities included decreases resulting from
accounts receivable of $55.2 million and deferred revenue of $5.0 million, partially offset by increases resulting from accrued liabilities of $5.6 million,
accounts payable of $3.6 million, other long-term liabilities of $1.6 million and other assets of $1.1 million. The change in accounts receivable was primarily
related to the delivery of $43.9 million roxadustat API to Astellas in December 2018 under the Japan Amendment, as well as the timing of the receipt of
payments and recognition of revenues under our collaboration agreements with Astellas and AstraZeneca. The change in deferred revenue was related to the
recognition of revenues under our collaboration agreements with Astellas and AstraZeneca. The changes in accrued liabilities, accounts payable and other
long-term liabilities were primarily driven by the timing of invoicing and payments. The change in other assets was primarily related to a cash refund for
value added tax received by FibroGen Beijing during the third quarter of 2018.
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Investing Activities
Investing activities primarily consist of purchases of property and equipment, purchases of investments, and proceeds from the maturity and sale of
investments.
Net cash provided by investing activities was $120.0 million for the year ended December 31, 2019 and consisted of proceeds from maturities of investments
of $537.1 million, partially offset by cash used in purchases of available-for-sale securities and term deposit of $411.3 million, and purchases of property and
equipment of $5.8 million.
Net cash used in investing activities was $522.1 million for the year ended December 31, 2018 and consisted of cash used in purchases of available-for-sale
securities and term deposit of $576.9 million, and purchases of property and equipment of $8.0 million, partially offset by proceeds from maturities of
investments of $54.4 million and sales of available-for-sale securities of $8.2 million.
Financing Activities
Financing activities primarily reflect proceeds from the issuance of our common stock, cash paid for payroll taxes on restricted stock unit releases,
repayments of our lease liabilities and obligations.
Net cash used in financing activities was $4.3 million for the year ended December 31, 2019 and consisted primarily of $12.8 million of cash paid for payroll
taxes on restricted stock unit releases, $11.9 million of repayments of finance lease liabilities, and $0.4 million of repayments on our lease obligations,
partially offset by $20.8 million of proceeds from the issuance of common stock upon exercise of stock options and purchases under ESPP.
Net cash provided by financing activities was $13.9 million for the year ended December 31, 2018 and consisted primarily of $29.8 million of proceeds from
the issuance of common stock upon exercise of stock options and purchases under ESPP, partially offset by $15.6 million of cash paid for payroll taxes on
restricted stock unit releases, and $0.4 million of repayments on our lease liability.
Off-Balance Sheet Arrangements
During the year ended December 31, 2019, we did not have any relationships with unconsolidated organizations or financial partnerships, such as structured
finance or special purpose entities that would have been established for the purpose of facilitating off-balance sheet arrangements.
Indemnification Agreements
In the ordinary course of business, we provide indemnifications of varying scope and terms to vendors, lessors, business partners and other parties with
respect to certain matters, including, but not limited to, losses arising out of breach of such agreements, solutions to be provided by us or from intellectual
property infringement claims made by third parties. In addition, we have entered into indemnification agreements with directors and certain officers and
employees that will require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors,
officers or employees.
Contractual Obligations and Commitments
Contractual Obligations
At December 31, 2019, our contractual obligations were as follows:
Operating lease liabilities
Finance lease liabilities
Total contractual obligations
$
$
1,043 $
14,078
15,121 $
975 $
27,554
28,529 $
— $
12,523
12,523 $
— $
—
— $
2,018
54,155
56,173
Less Than 1
Year
1 - 3 Years
Payments Due In
3 - 5 Years
(in thousands)
More Than 5 Years
Total
The contractual obligations table excludes uncertain tax benefits of approximately $31.8 million that are disclosed in Note 12 to the consolidated financial
statements because these uncertain tax positions, if recognized, would be an adjustment to the deferred tax assets.
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Some of our license agreements provide for periodic maintenance fees over specified time periods, as well as payments by us upon the achievement of
development, regulatory and commercial milestones. Future milestone payments for research and pre-clinical stage development programs consisted of up to
$11.0 million in total potential future milestone payments under our license agreements with Dana-Farber Cancer Institute, University of Miami and Medarex,
Inc. These milestone payments generally become due and payable only upon the achievement of certain developmental, clinical, regulatory and/or
commercial milestones. These contingent payments have not been included in the above table as the event triggering such payment or obligation has not yet
occurred.
Clinical Trials
As of December 31, 2019, we have several on-going clinical studies in various stages. Under agreements with various CROs, and clinical study sites, we
incur expenses related to clinical 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, 2019, our FibroGen Europe Oy (“FibroGen Europe”) subsidiary had $10.6 million of principal outstanding and $6.2 million of interest
accrued related to the TEKES loans, respectively, which have been included as product development obligations on 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.
Legal Proceedings
We are a party to various legal actions that arose in the ordinary course of our business. We recognize accruals for any legal action when we conclude that a
loss is probable and reasonably estimable. We did not have any material accruals for any currently active legal action in our consolidated balance sheets as of
December 31, 2019 and 2018, as we could not predict the ultimate outcome of these matters, or reasonably estimate the potential exposure.
99
Recently Issued and Adopted Accounting Guidance
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) (“ASU
2016-02”). Under this guidance, an entity is required to recognize ROU assets and lease liabilities on its balance sheet and disclose key information about
leasing arrangements. This guidance offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are
required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount,
timing and uncertainty of cash flows arising from leases. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements (“ASU
2018-11”), which provides entities the option to initially apply ASU 2016-02 at the adoption date and recognize a cumulative-effect adjustment to the opening
balance of retained earnings in the period of adoption. We adopted the above guidance under ASC 842 as of January 1, 2019, using the modified retrospective
transition method, through a cumulative-effect adjustment at the beginning of the first quarter of 2019. We elected the optional transition method under the
guidance, which allowed it to continue applying previous lease guidance (ASC 840) for the comparative prior year periods presentation in the year of
adoption. Accordingly, we recognized a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. In addition, we
elected the package of transitional practical expedients permitted under the transition guidance under ASC 842, which among other things allows us to carry
forward its historical lease classification, and not to reassess initial direct costs for any existing leases. Meanwhile, we did not elect the hindsight practical
expedient because it has limited number of leases, lease terms are straightforward, and most of its lease renewals are undefined until negotiated. In addition,
we have elected the short term accounting policy practical expedient and does not apply the balance sheet recognition requirements for short-term leases
(excluding expenses relating to leases with a lease term of one month or less), by class of underlying asset to which the right of use relates. We have not
elected the non-lease components practical expedient, and therefore accounts for each lease component separately from the non-lease components. Upon
adoption of ASC 842, we classified our existing building leases that were previously accounted for as build-to-suit arrangements as finance leases, and
applied the transition guidance. Accordingly, we derecognized the assets and liabilities previously recognized under ASC 840 build-to-suit guidance. In
addition, as a result of applying the transition guidance, we also recorded an adjustment to the accumulated depreciation of related leasehold improvements to
reflect a change in estimated useful life from the building life to the shorter of the building life and remaining lease term. Differences between the assets and
liabilities derecognized were recorded to the opening balance of retained earnings. The adoption of ASC 842 resulted in a recognition of approximately $50.3
million in right-of-use assets and approximately $62.0 million in lease liabilities, respectively, upon adoption of this guidance, for our operating leases and
finance leases. The adoption of this guidance did not have a material impact to our consolidated statement of operations or consolidated statement of cash
flows for the year ended December 31, 2019. Refer to Note 2 to the consolidated financial statements for details.
In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income: Reclassification of Certain Tax Effects from
Accumulated Other Comprehensive Income. This guidance allows for the reclassification from accumulated other comprehensive income to retained earnings
for the stranded tax effects arising from the reduction of the U.S. federal statutory income tax rate from 35% to 21%. This guidance was effective for annual
reporting periods beginning after December 15, 2018, including interim periods. We adopted this guidance on January 1, 2019 using the modified
retrospective approach, which resulted in a reclassification of $0.6 million, based on the aggregate portfolio approach, from accumulated other comprehensive
loss to opening accumulated deficit. The adoption of this guidance had no impact to our consolidated statement of operations or consolidated statement of
cash flows for the year ended December 31, 2019. Refer to Note 2 to the consolidated financial statements for details.
In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment
Accounting. This guidance expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees.
The guidance also specifies that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or
consumed in a grantor’s own operations by issuing share-based payment awards. This guidance is effective for annual reporting period beginning after
December 15, 2018, including interim periods. We adopted this guidance on January 1, 2019 and the adoption of this guidance had no impact to our
consolidated financial statements.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been
prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires us to make estimates
and judgments that affect the reported amounts of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities in our financial
statements. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical experience, known trends and events, and
various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or
conditions.
100
While our significant accounting policies are described in more detail in the notes to our financial statements appearing elsewhere in this Annual Report, we
believe the following accounting policies to be most critical to the judgments and estimates used in the preparation of our financial statements.
Revenue Recognition
Substantially all of our revenues to date have been generated from our collaboration agreements.
Our collaboration agreements include multiple performance obligations comprised of promised services, or bundles of services, that are distinct. Services that
are not distinct are combined with other services in the agreement until they form a distinct bundle of services. Our process for identifying performance
obligations and an enumeration of each obligation for each agreement is outlined in Note 3 “Collaboration Agreements and Revenues” to our consolidated
financial statements. Determining the performance obligations within a collaboration agreement often involves significant judgment and is specific to the
facts and circumstances contained in each agreement.
We have identified the following material promises under our collaboration agreements: (1) license of FibroGen technology, (2) the performance of co-
development services, including manufacturing of clinical supplies and other services during the development period, and (3) manufacture of commercial
supply. The evaluation as to whether these promises are distinct, and therefore represent separate performance obligations, is described in more details in Note
3 “Collaboration Agreements” to our consolidated financial statements.
For revenue recognition purposes, we determine that the term of our collaboration agreements begin on the effective date and ends upon the completion of all
performance obligations contained in the agreements. In each agreement, the contract term is defined as the period in which parties to the contract have
present and enforceable rights and obligations. We believe that the existence of what it considers to be substantive termination penalties on the part of the
counterparty create sufficient incentive for the counterparty to avoid exercising its right to terminate the agreement unless in exceptionally rare situations.
The transaction price for each collaboration agreement is determined based on the amount of consideration we expect to be entitled for satisfying all
performance obligations within the agreement. Our collaboration agreements include payments to us of one or more of the following: non-refundable upfront
license fees; co-development billings; development, regulatory, and commercial milestone payments; and royalties on net sales of licensed products.
Upfront license fees are non-contingent and non-refundable in nature and are included in the transaction price at the point when the license fees become due
to us. We do not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between
payment by the customer and the transfer of the promised goods or services to the customer will be one year or less.
Co-development billings resulting from our research and development efforts, which are reimbursable under our collaboration agreements, are considered
variable consideration. Determining the reimbursable amount of research and development efforts requires detailed analysis of the terms of the collaboration
agreements and the nature of the research and development efforts incurred. Determining the amount of variable consideration from co-development billings
requires us to make estimates of future research and development efforts, which involves significant judgment. Co-development billings are allocated entirely
to the co-development services performance obligation when amounts are related specifically to research and development efforts necessary to satisfy the
performance obligation, and such an allocation is consistent with the allocation objective.
Milestone payments are also considered variable consideration, which requires us to make estimates of when achievement of a particular milestone becomes
probable. Similar to other forms of variable consideration, milestone payments are included in the transaction price when it becomes probable that such
inclusion would not result in a significant revenue reversal. Milestone payments are therefore included in the transaction price when achievement of the
milestone becomes probable.
For arrangements that include sales-based royalties and for which the license is deemed to be the predominant item to which the royalties relate, we recognize
revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been
satisfied (or partially satisfied). To date, we have not recognized any royalty revenue resulting from our collaboration arrangements.
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The transaction price is allocated to performance obligations based on their relative standalone selling price (“SSP”), with the exception of co-development
billings allocated entirely to co-development services performance obligations. The SSP is determined based on observable prices at which we separately sell
the products and services. If an SSP is not directly observable, then we will estimate the SSP considering marketing conditions, entity-specific factors, and
information about the customer or class of customer that is reasonably available. The process for determining SSP involves significant judgment 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.
Significant judgment may be required in determining whether a performance obligation is distinct, determining the amount of variable consideration to be
included in the transaction price, and estimating the SSP of each performance obligation. An enumeration of our significant judgments is outlined in Note 3
“Collaboration Agreements and Revenues” to our consolidated financial statements.
For each performance obligation identified within an arrangement, we determine the period over which the promised services are transferred and the
performance obligation is satisfied. Service revenue is recognized over time based on progress toward complete satisfaction of the performance obligation.
We use an input method to measure progress toward the satisfaction of co-development services and certain other related performance obligations, which is
based on costs of labor hours or full time equivalents and out-of-pocket expenses incurred relative to total expected costs to be incurred. We believe this
measure of progress provides a faithful depiction of the transfer of services because other measures do not measure as accurately how we transfer our
performance obligations to our collaboration partners.
During 2019, we started selling roxadustat in China through a number of pharmaceutical distributors located in China. These pharmaceutical distributors are
our customers. Hospitals order roxadustat through a distributor and we ship the product directly to the distributors. The delivery of roxadustat to a distributor
represents a single performance obligation. Distributors are responsible for delivering product to end users, primarily hospitals. Distributors bear inventory
risk once they receive and accept the product. Product revenue is recognized when control of the promised good is transferred to the customer in an amount
that reflects the consideration to which we expect to be entitled in exchange for the product.
The period between the transfer control of promised goods and when we receive payment is based on a general 60-day payment term. As such, product
revenue is not adjusted for the effects of a significant financing component. We establish a bad debt allowance based on our judgment to consider factors such
as the age of the receivables. Bad debt expense is included in selling, general and administrative expenses on the consolidated statements of operations. There
was no bad debt allowance provided as of December 31, 2019.
Product drug revenue is recorded at the net sales prices (transaction price) which includes the following estimates of variable consideration:
•
•
•
•
Price adjustment: In December 2019, China’s NHSA released price guidance for roxadustat under NRDL, effective January 1, 2020. Any channel
inventories as of January 1, 2020 that had not been sold to hospitals by distributors, or to patients by hospitals, were eligible for a price adjustment under
the price protection. The price adjustment is calculated based on estimated channel inventory levels at January 1, 2020. If price guidance changes in the
future, the price adjustment will be calculated in the same manner;
Contractual sales rebate: The contractual sales rebate is calculated based on the stated percentage of gross sales by each distributor in the distribution
agreement entered between FibroGen and each distributor. The contractual sales rebate is accrued at the point of sale to the distributor, and applied to
future sales orders made by the distributor under our discretion;
Key account hospital sales rebate: An additional sales rebate is provided to a distributor for product sold to key account hospitals as a percentage of
gross sales made by the distributor to eligible hospitals. This additional rebate is accrued at the point of sale to the distributor and applied to future sales
orders made by the distributor under our discretion;
Transfer fee discount: The transfer fee discount is offered to a distributor who has its downstream distributors supply to eligible hospitals. This discount
is calculated based on a percentage of gross sales made to the downstream distributors, and accrued at the point of sale to the distributor;
102
•
•
Sales return: Distributors can request to return product to us only due to quality issues and for product within one year of its expiration date. We, at our
sole discretion, decide whether to accept such return request. The sales return allowance provided as of December 31, 2019 was immaterial; and
Non-key account hospital listing award: A one-time fixed-amount award is offered to a distributor who successfully lists the product with an eligible
hospital, and meets the sales volume and timing requirements. The non-key account hospital listing award is accrued when the distributor meets
eligibility requirements, and applied against future sales orders made by the distributor. We consider this particular award to be a material right within
the definitions of ASC 606 and therefore have treated it as a separate performance obligation.
The above allowances are recorded as reductions of the gross accounts receivable from the distributor in the same period that the related revenue is recorded,
with the exception of the non-key account hospital listing award, which is accrued when the distributor meets the eligibility requirements. The calculation of
such allowances are based on gross sales to the distributor, or estimated utilizing best available information from the distributor, maximum known exposures
and other available information including estimated channel inventory levels and estimated sales made by the distributor to hospitals, which involve a
substantial degree of judgment.
103
ITEM 7A. 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 Oy 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.
As of December 31, 2019, our financial assets and liabilities denominated in foreign currencies primarily included CNY14.3 million in cash and cash
equivalent, CNY48.7 million in other current and long-term assets, and CNY434.1 million and EUR1.4 million in accounts payable, accrued liabilities and
other long-term liabilities. These balances are subject to fluctuation in the exchange rate with the U.S. dollar. The effect of a hypothetical 10% change in
foreign currency exchange rates would have resulted in a net gain or loss on foreign currency of approximately $5.5 million for the year ended December 31,
2019.
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 objectives, we invest our non-operating cash and cash equivalents primarily in U.S. government
treasury bills and notes. A portion of our investments is also invested in certificates of deposit and demand deposits with high quality and established banking
institutions. Given the nature of our investments as of December 31, 2019, we believe that our exposure to interest rate risk is not significant. 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.
104
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FibroGen, Inc.
Report of Independent Registered Public Accounting Firm
Financial Statements:
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Loss
Consolidated Statements of Changes in Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Financial Statement Schedule:
II Valuation and Qualifying Accounts for each of the three years ended December 31, 2019
The supplementary financial information required by this Item 8 is included in Item 7 under the caption “Quarterly Results of Operations”.
105
Page
106
108
109
110
111
112
113
149
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of FibroGen, Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of FibroGen, Inc. and its subsidiaries (the “Company”) as of December 31, 2019 and 2018,
and the related consolidated statements of operations, of comprehensive loss, of changes in stockholders’ equity and of cash flows for each of the three years
in the period ended December 31, 2019, including the related notes and financial statement schedule listed in the accompanying index (collectively referred to
as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2019, based on
criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of
December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019 in
conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework
(2013) issued by the COSO.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and
for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over
Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the
Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal
control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing
such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
106
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was
communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated
financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter
in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue Recognition - Estimated Variable Consideration Associated With Milestones Related to the United States New Drug Application (NDA) and the
European Marketing Authorization Application (MAA) Submissions
As described in Notes 2 and 3 to the consolidated financial statements, milestone payments are considered variable consideration, which requires
management to make estimates of when achievement of a particular milestone becomes probable. Milestone payments are included in the transaction price
when it becomes probable that such inclusion would not result in a significant revenue reversal. Management evaluated the two regulatory milestone
payments associated with the planned European MAA submission and the regulatory milestone payment associated with the acceptance by the United States
Food and Drug Administration (FDA) of the NDA submission and concluded that these milestones became probable of being achieved in the second quarter
of 2019. Accordingly, the total consideration of $180.0 million associated with these milestones was included in the transaction price and allocated to
performance obligations under the related agreements, of which $171.2 million was recognized as revenue during the year ended December 31, 2019 from
performance obligations satisfied or partially satisfied as of December 31, 2019.
The principal consideration for our determination that performing procedures relating to revenue recognition – estimated variable consideration associated
with milestones related to the United States NDA submission and European MAA submission is a critical audit matter is there was significant judgment by
management in determining that these milestones became probable of being achieved. This in turn led to a high degree of auditor judgment, subjectivity and
effort in performing procedures and evaluating audit evidence related to the judgments made by management.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated
financial statements. These procedures included testing the effectiveness of controls relating to the revenue recognition process, including the control over the
milestone probability assessment performed by management. These procedures also included, among others, reading the collaboration agreements and testing
management’s process for determining the acceptance of the United States NDA submission and the European MAA submission were probable.
/s/ PricewaterhouseCoopers LLP
San Jose, California
March 2, 2020
We have served as the Company’s auditor since 2000.
107
FIBROGEN, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
December 31, 2019
December 31, 2018
Assets
Current assets:
Cash and cash equivalents
Short-term investments
Accounts receivable, net ($4,845 and $47,210 from a related party)
Inventories
Prepaid expenses and other current assets ($125,210 and $0 from a related party)
Total current assets
Restricted time deposits
Long-term investments
Property and equipment, net
Finance lease right-of-use assets
Other assets
Total assets
Liabilities, stockholders’ equity and non-controlling interests
Current liabilities:
Accounts payable
Accrued and other current liabilities ($36,883 and $444 to a related party)
Deferred revenue
Finance lease liabilities, current
Total current liabilities
Long-term portion of lease obligations
Product development obligations
Deferred rent
Deferred revenue, net of current
Finance lease liabilities, non-current
Other long-term liabilities
Total liabilities
Commitments and Contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value; 125,000 shares authorized; no shares issued
and outstanding at December 31, 2019 and December 31, 2018
Common stock, $0.01 par value; 225,000 shares authorized at December 31, 2019
and December 31, 2018; 87,657 and 85,432 shares issued and outstanding at
December 31, 2019 and December 31, 2018
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Total stockholders’ equity
Non-controlling interests
Total equity
Total liabilities, stockholders’ equity and non-controlling interests
$
$
$
$
126,266 $
407,491
28,455
6,887
133,391
702,490
2,072
61,118
42,743
39,602
9,372
857,397 $
6,088 $
83,816
490
12,351
102,745
1,141
16,780
—
99,449
37,610
64,266
321,991
89,258
532,144
63,684
—
4,929
690,015
4,145
55,820
127,198
—
3,420
880,598
9,139
66,123
13,771
—
89,033
97,157
16,798
3,038
136,109
—
9,993
352,128
—
—
877
1,300,725
(747)
(784,720)
516,135
19,271
535,406
857,397 $
854
1,226,453
(2,281)
(715,827)
509,199
19,271
528,470
880,598
The accompanying notes are an integral part of these Consolidated Financial Statements.
108
FIBROGEN, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Revenue:
License revenue (includes $129,405, $14,323 and $0
from a related party)
Development and other revenue (includes $29,393, $20,903
and $20,111 from a related party)
Product revenue, net (includes $(36,324), $64,776
and $0 from a related party)
Total revenue
Operating costs and expenses:
Cost of goods sold
Research and development
Selling, general and administrative
Total operating costs and expenses
Loss from operations
Interest and other, net
Interest expense
Interest income and other, net
Total interest and other, net
Loss before income taxes
Provision for income taxes
Net loss
Net loss per share - basic and diluted
2019
Years Ended December 31,
2018
2017
$
177,086
$
22,269
$
9,933
114,115
125,913
121,063
(34,624)
256,577
1,147
209,265
135,479
345,891
(89,314)
(2,876)
15,548
12,672
64,776
212,958
—
235,839
63,812
299,651
(86,693)
(10,991)
11,568
577
(76,642)
328
(76,970) $
(86,116)
304
(86,420) $
—
130,996
—
196,517
51,760
248,277
(117,281)
(9,706)
6,433
(3,273)
(120,554)
321
(120,875)
(0.89) $
(1.03) $
(1.66)
$
$
Weighted average number of common shares used to calculate
net loss per share - basic and diluted
86,633
84,062
72,987
The accompanying notes are an integral part of these Consolidated Financial Statements.
109
FIBROGEN, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
Net loss
Other comprehensive income (loss):
Foreign currency translation adjustments
Available-for-sale investments:
Unrealized gain (loss) on investments, net of tax effect
Reclassification from accumulated other comprehensive loss
Net change in unrealized gain on available-for-sale
investments
Other comprehensive income (loss), net of taxes
Comprehensive loss
2019
Years Ended December 31,
2018
2017
$
(76,970) $
(86,420) $
(120,875)
331
592
—
592
923
(76,047) $
$
771
(7)
—
(7)
764
(85,656) $
(2,022)
1,259
(72)
1,187
(835)
(121,710)
The accompanying notes are an integral part of these Consolidated Financial Statements.
110
Balance at December 31,
2016
Net loss
Change in unrealized gain or
loss on investments
Foreign currency translation
adjustments
Follow-on Offerings, net of
underwriting discounts,
commission and issuance
costs
Shares issued from stock
plans, net of payroll taxes
paid
Stock-based compensation
Balance at December 31,
2017
Impact of change in
accounting principle upon
adoption of ASU 2016-01
(Note 2)
Net loss
Change in unrealized gain or
loss on investments
Foreign currency translation
adjustments
Adjustment to issuance costs
for Follow-on Offerings
Shares issued from stock
plans, net of payroll taxes
paid
Stock-based compensation
Balance at December 31,
2018
Impact of adoption of
ASC 842 (Note 2)
Impact of change in
accounting principle upon
adoption of ASU 2018-02
(Note 2)
Net loss
Change in unrealized gain or
loss on investments
Foreign currency translation
adjustments
Shares issued from stock
plans, net of payroll taxes
paid
Warrants exercised
Stock-based compensation
Balance at December 31,
2019
FIBROGEN, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In thousands, except share data)
Common Stock
Shares
Amount
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Loss
Accumulated
Deficit
(Note 2)
Non
Controlling
Interests
Total
63,665,284
—
$
$
637
—
625,903
—
$
(960) $
—
(509,782) $
(120,875)
19,271
—
$
135,069
(120,875)
—
—
14,428,750
4,404,094
—
82,498,128
—
—
—
—
—
2,933,974
—
85,432,102
—
—
—
—
—
2,220,957
4,430
—
—
—
144
44
—
825
—
—
—
—
—
29
—
854
—
—
—
—
—
23
—
—
—
—
470,082
26,570
37,539
1,187
(2,022)
—
—
—
—
—
—
—
—
—
—
—
—
—
1,160,094
(1,795)
(630,657)
19,271
—
—
—
—
11
14,206
52,142
(1,250)
—
(7)
771
—
—
—
1,250
(86,420)
—
—
—
—
—
—
—
—
—
—
—
—
1,226,453
(2,281)
(715,827)
19,271
—
—
—
—
—
7,939
66
66,267
—
8,688
611
—
592
331
—
—
—
(611)
(76,970)
—
—
—
—
—
—
—
—
—
—
—
—
—
1,187
(2,022)
470,226
26,614
37,539
547,738
—
(86,420)
(7)
771
11
14,235
52,142
528,470
8,688
—
(76,970)
592
331
7,962
66
66,267
87,657,489
$
877
$
1,300,725
$
(747) $
(784,720) $
19,271
$
535,406
The accompanying notes are an integral part of these Consolidated Financial Statements.
111
FIBROGEN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Operating activities
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation
Amortization of finance lease right-of-use assets
Net amortization (accretion) of premium (discount) on investments
Unrealized loss (gain) on cash equivalents and short-term equity investments
Loss (gain) on disposal of property and equipment
Stock-based compensation
Realized foreign currency gain
Realized gain on sales of available-for-sale securities
Changes in operating assets and liabilities:
Accounts receivable, net ($42,365, $(43,486) and $98 from a related party)
Inventories
Prepaid expenses and other current assets ($(125,210), $0 and
$0 from a related party)
Other assets
Accounts payable
Accrued and other liabilities ($36,439, $172 and $(1,343) from a related party)
Deferred revenue
Lease obligations
Accrued interest for finance lease liabilities
Other long-term liabilities
Net cash used in operating activities
Investing activities
Purchases of property and equipment
Proceeds from sale of property and equipment
Purchases of available-for-sale securities and term deposit
Proceeds from sales of available-for-sale securities
Proceeds from maturities of investments
Net cash provided by (used in) investing activities
Financing activities
Borrowings under capital lease obligations
Repayments of capital lease obligations
Repayments of finance lease liabilities
Repayments of lease obligations
Proceeds from follow-on offerings, net of underwriting discounts and
commission costs
Cash paid for payroll taxes on restricted stock unit releases
Proceeds from issuance of common stock
Payments of deferred offering costs
Net cash provided by (used in) financing activities
Effect of exchange rate change on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Total cash and cash equivalents at beginning of period
Total cash and cash equivalents at end of period
Supplemental cash flow information:
Interest payments
Balance in accounts payable and accrued liabilities related to purchases of
property and equipment
Deferred offering costs recorded in accounts payable and accrued liabilities
2019
Years Ended December 31,
2018
2017
$
(76,970) $
(86,420) $
(120,875)
11,147
10,307
(3,667)
(88)
(42)
66,267
—
—
35,229
(6,887)
(128,598)
(3,253)
(3,051)
18,288
(49,941)
—
194
52,360
(78,705)
(5,762)
7
(411,299)
—
537,072
120,018
—
—
(11,925)
(403)
—
(12,750)
20,778
—
(4,300)
(5)
$
$
$
37,008
89,258
126,266
$
174
$
460
—
$
6,562
—
(42)
1,120
53
52,142
(1,074)
(87)
(55,232)
—
(129)
1,090
3,630
5,606
(5,031)
32
—
1,636
(76,144)
(8,020)
184
(576,880)
8,167
54,426
(522,123)
49
(6)
—
(403)
—
(15,612)
29,847
—
13,875
(8)
(584,400)
673,658
89,258
$
218
$
276
24
$
6,099
—
1,844
2
3
37,539
—
(143)
1,996
—
(1,911)
(2,365)
(714)
9,196
174
1,023
—
1,619
(66,513)
(8,500)
5
(169)
21,109
57,421
69,866
—
—
—
(403)
471,205
(8,296)
34,910
(944)
496,472
51
499,876
173,782
673,658
255
3,781
35
The accompanying notes are an integral part of these Consolidated Financial Statements.
112
FIBROGEN, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1.
The Company
FibroGen, Inc. (“FibroGen” or the “Company”) was incorporated in 1993 in Delaware and are headquartered in San Francisco, California, with subsidiary
offices in Beijing and Shanghai, People’s Republic of China (“China”). FibroGen is a leading biopharmaceutical company developing and commercializing a
pipeline of first-in-class therapeutics. The Company applies its pioneering expertise in hypoxia-inducible factor (“HIF”), connective tissue growth factor
(“CTGF”) biology, and clinical development to advance innovative medicines for the treatment of anemia, fibrotic disease, and cancer. Roxadustat,
FibroGen’s most advanced product, is an oral small molecule inhibitor of HIF prolyl hydroxylase (“HIF-PH”) activity that has received marketing
authorization in China for the treatment of anemia caused by chronic kidney disease (“CKD”) in dialysis and non-dialysis patients. In September 2019,
roxadustat (Evrenzo®) was approved in Japan for the treatment of anemia associated with CKD in dialysis-dependent patients. In January 2020, Astellas
Pharma Inc. (“Astellas”) submitted a supplemental New Drug Application (“NDA”) in Japan for the treatment of anemia in non-dialysis CKD patients. The
Company’s U.S. NDA filing for roxadustat for the treatment of anemia patients with dialysis-dependent CKD and non-dialysis-dependent CKD was accepted
by the U.S. Food and Drug Administration (“FDA”) in February, 2020, and Astellas is in the process of preparing a Marketing Authorization Application
(“MAA”) for submission to the European Medicines Agency (“EMA”) in the second quarter of 2020 for the same indications. Roxadustat is in Phase 3
clinical development in the U.S. and Europe and in Phase 2/3 development in China for anemia associated with myelodysplastic syndromes (“MDS”).
Roxadustat is in Phase 2 clinical development for chemotherapy-induced anemia. Pamrevlumab, an anti-CTGF human monoclonal antibody, is in Phase 3
clinical development for the treatment of both idiopathic pulmonary fibrosis (“IPF”) and pancreatic cancer. Pamrevlumab is also currently in a Phase 2 trial
for Duchenne muscular dystrophy (“DMD”).
2.
Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.
GAAP”). The consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries and its majority-owned subsidiaries,
FibroGen Europe and FibroGen China Anemia Holdings, Ltd. (“FibroGen China”). All inter-company transactions and balances have been eliminated in
consolidation.
The Company operates in one segment — the discovery, development and commercialization of novel therapeutics to treat serious unmet medical needs.
Foreign Currency Translation
The reporting currency of the Company and its subsidiaries is the United States (“U.S.”) dollar. The functional currency of FibroGen Europe is the Euro. The
assets and liabilities of FibroGen Europe are translated to U.S. dollars at exchange rates in effect at the balance sheet date. All income statement accounts are
translated at monthly average exchange rates. Resulting foreign currency translation adjustments are recorded directly in accumulated other comprehensive
income (loss) as a separate component of stockholders’ equity.
The functional currency of FibroGen, Inc. and all other subsidiaries is the U.S. dollar. Accordingly, monetary assets and liabilities in the non-functional
currency of these subsidiaries are remeasured using exchange rates in effect at the end of the period. Revenues and costs in local currency are remeasured
using average exchange rates for the period, except for costs related to those balance sheet items that are remeasured using historical exchange rates. The
resulting remeasurement gains and losses are included within interest income and other, net in the consolidated statements of operations as incurred and have
not been material for all periods presented.
Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of
revenues and expenses during the reporting period. The more significant areas requiring the use of management estimates and assumptions include valuation
and recognition of revenue. On an ongoing basis, management reviews these estimates and assumptions. Changes in facts and circumstances may alter such
estimates and actual results could differ from those estimates.
113
Concentration of Credit Risk and Other Risks and Uncertainties
The Company is subject to risks associated with concentration of credit for cash and cash equivalents. Outside of short-term operating needs, the majority of
cash on hand is invested in US treasury instruments. Any remaining cash is deposited with major financial institutions in the U.S., Finland, China and the
Cayman Islands. At times, such deposits may be in excess of insured limits. The Company has not experienced any loss on its deposits of cash and cash
equivalents. Included in current assets are significant balances of accounts receivable as follows:
Astellas Pharma Inc. (“Astellas”)—Related party
AstraZeneca AB (“AstraZeneca”)
December 31,
2019
2018
17%
81%
74%
26%
The Company’s future results of operations involve a number of risks and uncertainties. Factors that could affect the Company’s future operating results and
cause actual results to vary materially from expectations include, but are not limited to, rapid technological change, the results of clinical trials and the
achievement of milestones, market acceptance of the Company’s product candidates, competition from other products and larger companies, protection of
proprietary technology, strategic relationships and dependence on key individuals.
Cash, Cash Equivalents and Restricted Time Deposits
The Company considers all highly liquid investments with maturities of three months or less and that are used in the Company’s cash management activities
at the date of purchase to be cash equivalents. Cash and cash equivalents also include money market accounts and various deposit accounts. Restricted time
deposits include an irrevocable standby letter of credit as security deposit for a long-term property lease with the Company’s landlord. Restricted time
deposits as of December 31, 2019 and 2018 totaled $2.1 million and $4.1 million, respectively. As of December 31, 2019 and 2018, a total of $11.9 million
and $21.9 million, respectively, of the Company’s cash and cash equivalents was held outside of the U.S. in the Company’s foreign subsidiaries to be used
primarily for the Company’s China operations.
Investments
As of December 31, 2019, the Company’s investments consist of US treasuries, diversified bond funds, marketable equity investments, a term deposit and a
certificate of deposit. Those investments with original maturities of greater than three months and remaining maturities of less than 12 months (365 days) are
considered short-term investments. Those investments with maturities greater than 12 months (365 days) are considered long-term investments. When such
investments are held, the Company’s investments classified as available-for-sale are recorded at fair value based upon quoted market prices at period end.
Unrealized gains and losses for available-for-sale debt investments that are deemed temporary in nature are recorded in accumulated other comprehensive
income (loss) as a separate component of stockholder’ equity. Marketable equity securities are equity securities with readily determinable fair value, and are
measured and recorded at fair value. Realized and unrealized gains or losses resulting from changes in value and sale of the Company’s marketable equity
investments are recorded in other income (expenses) in the consolidated statement of operations.
A decline in the fair value of any security below cost that is deemed other than temporary results in a charge to earnings and the corresponding establishment
of a new cost basis for the security. Premiums and discounts are amortized (accreted) over the life of the related security as an adjustment to its yield.
Dividend and interest income are recognized when earned. Realized gains and losses are included in earnings and are derived using the specific identification
method for determining the cost of investments sold.
Fair Value of Financial Instruments
Carrying amounts of certain of the Company’s financial instruments including cash equivalents, investments, receivables, accounts payable and accrued
liabilities approximate fair value (refer to Note 4).
114
Inventories
Inventories are stated at the lower of cost or net realizable value. The cost of inventories is determined using full absorption and standard costing, which
approximates cost based on a first-in, first-out method. The Company reviews the standard cost of raw materials, work-in-process and finished goods
annually and more often as appropriate to ensure that its inventories approximate current actual cost. The cost of inventories includes direct material cost,
direct labor and manufacturing overhead. The Company periodically reviews its inventories to identify obsolete, slow-moving, excess or otherwise unsaleable
items. If obsolete, excess or unsaleable items are observed and there are no alternate uses for the inventory, an inventory valuation reserve is recorded through
a charge to cost of goods sold on the Company’s consolidated statements of operations. The establishment of inventory valuation reserves, together with the
calculation of the amount of such reserves, requires judgment including consideration of many factors, such as estimates of future product demand and
product expiration period, among others.
Property and Equipment
Property and equipment are recorded at cost and depreciated over their estimated useful lives using the straight-line method. Computer equipment, laboratory
equipment, machinery and furniture and fixtures are depreciated over three to five years. Leasehold improvements are recorded at cost and amortized over the
term of the lease or their useful life, whichever is shorter.
Leases
The Company determines if an arrangement is or contains a lease at inception date when it is given control of the underlying assets. The Company elected the
practical expedient not to apply the lease recognition and measurement requirements to short-term leases, which is any lease with a term of 12 months or less
as of the commencement date that does not include an option to purchase the underlying asset that the lessee is reasonably certain to exercise.
The Company’s building leases previously accounted for as build-to-suit arrangements prior to the adoption of Accounting Standards Codification (“ASC”)
842 - Leases (“ASC 842”) are accounted for as finance leases under the requirements of ASC 842.
Lease right-of-use (“ROU”) assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at
commencement date. As its leases do not typically provide an implicit rate, the Company uses its incremental borrowing rate based on the information
available at commencement date in determining the present value of future payments. The Company reassesses the incremental borrowing rate periodically
for application to any new leases or lease modifications, which approximates the rate at which the Company would borrow, on a secured basis, in the country
where the lease was executed.
Lease ROU assets include any lease payments made and initial direct costs incurred. The Company has lease agreements with lease and non-lease
components. The Company generally accounts for each lease component separately from the non-lease components, and excludes all non-lease components
from the calculation of minimum lease payments in measuring the ROU asset and lease liability.
The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.
Lease expense for minimum lease payments is recognized on a straight-line basis over the lease terms.
Regarding leases denominated in a foreign currency, the related ROU assets and the corresponding ROU asset amortization costs are remeasured using the
exchange rate in effect at the date of initial recognition; the related lease liabilities are remeasured using the exchange rate in effect at the end of the reporting
period; the lease costs and interest expenses related to lease liability accretion are remeasured using average exchange rates for the reporting period.
Finance leases are included in finance lease ROU assets, finance lease liabilities, current and non-current on the Company’s consolidated balance sheets.
Operating leases are included in other assets, accrued and other current liabilities, and other long-term liabilities on the Company’s consolidated balance
sheets.
Impairment of Long-Lived Assets
The Company continually evaluates whether events or circumstances have occurred that indicate that the estimated remaining useful life of its long-lived
assets may warrant revision or that the carrying value of these assets may be impaired. If the Company determines that an impairment trigger has been met,
the Company evaluates the realizability of its long-lived assets based on a comparison of projected undiscounted cash flows from use and eventual disposition
with the carrying value of the related asset. Any write-downs (which are measured based on the difference between the fair value and the carrying value of the
asset) are treated as permanent reductions in the carrying amount of the assets (asset group). Based on this evaluation, the Company believes that, as of each
of the balance sheet dates presented, none of the Company’s long-lived assets were impaired.
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Revenue Recognition
Revenues under collaboration agreements
Substantially all of the Company’s revenues to date have been generated from its collaboration agreements.
The Company’s collaboration agreements include multiple performance obligations comprised of promised services, or bundles of services, that are distinct.
Services that are not distinct are combined with other services in the agreement until they form a distinct bundle of services. The Company’s process for
identifying performance obligations and an enumeration of each obligation for each agreement is outlined in Note 3 “Collaboration Agreements.”
Determining the performance obligations within a collaboration agreement often involves significant judgment and is specific to the facts and circumstances
contained in each agreement.
The Company has identified the following material promises under its collaboration agreements: (1) license of FibroGen technology, (2) the performance of
co-development services, including manufacturing of clinical supplies and other services during the development period, and (3) manufacture of commercial
supply. The evaluation as to whether these promises are distinct, and therefore represent separate performance obligations, is described in more details in Note
3 “Collaboration Agreements.”
For revenue recognition purposes, the Company determines that the term of its collaboration agreements begin on the effective date and ends upon the
completion of all performance obligations contained in the agreements. In each agreement, the contract term is defined as the period in which parties to the
contract have present and enforceable rights and obligations. The Company believes that the existence of what it considers to be substantive termination
penalties on the part of the counterparty create sufficient incentive for the counterparty to avoid exercising its right to terminate the agreement unless in
exceptionally rare situations.
The transaction price for each collaboration agreement is determined based on the amount of consideration the Company expects to be entitled for satisfying
all performance obligations within the agreement. The Company’s collaboration agreements include payments to the Company of one or more of the
following: non-refundable upfront license fees; co-development billings; development, regulatory, and commercial milestone payments; payments from sales
of active pharmaceutical ingredient (“API”); and royalties on net sales of licensed products.
Upfront license fees are non-contingent and non-refundable in nature and are included in the transaction price at the point when the license fees become due
to the Company. The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is such that
the period between payment by the customer and the transfer of the promised goods or services to the customer will be one year or less.
Co-development billings resulting from the Company’s research and development efforts, which are reimbursable under its collaboration agreements, are
considered variable consideration. Determining the reimbursable amount of research and development efforts requires detailed analysis of the terms of the
collaboration agreements and the nature of the research and development efforts incurred. Determining the amount of variable consideration from co-
development billings requires the Company to make estimates of future research and development efforts, which involves significant judgment. Co-
development billings are allocated entirely to the co-development services performance obligation when amounts are related specifically to research and
development efforts necessary to satisfy the performance obligation, and such an allocation is consistent with the allocation objective.
Milestone payments are also considered variable consideration, which requires the Company to make estimates of when achievement of a particular milestone
becomes probable. Similar to other forms of variable consideration, milestone payments are included in the transaction price when it becomes probable that
such inclusion would not result in a significant revenue reversal. Milestone payments are therefore included in the transaction price when achievement of the
milestone becomes probable.
For arrangements that include sales-based royalties and for which the license is deemed to be the predominant item to which the royalties relate, the Company
recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been
allocated has been satisfied (or partially satisfied). To date, the Company has not recognized any royalty revenue resulting from its collaboration
arrangements.
116
The transaction price is allocated to performance obligations based on their relative standalone selling price (“SSP”), with the exception of co-development
billings allocated entirely to co-development services performance obligations. The SSP is determined based on observable prices at which the Company
separately sells the products and services. If an SSP is not directly observable, then the Company will estimate the SSP considering marketing conditions,
entity-specific factors, and information about the customer or class of customer that is reasonably available. The process for determining SSP involves
significant judgment 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.
Significant judgment may be required in determining whether a performance obligation is distinct, determining the amount of variable consideration to be
included in the transaction price, and estimating the SSP of each performance obligation. An enumeration of the Company’s significant judgments is outlined
in Note 3 “Collaboration Agreements.”
For each performance obligation identified within an arrangement, the Company determines the period over which the promised services are transferred and
the performance obligation is satisfied. Service revenue is recognized over time based on progress toward complete satisfaction of the performance
obligation. The Company uses an input method to measure progress toward the satisfaction of co-development services and certain other related performance
obligations, which is based on costs of labor hours or full time equivalents and out-of-pocket expenses incurred relative to total expected costs to be incurred.
The Company believes this measure of progress provides a faithful depiction of the transfer of services because other measures do not measure as accurately
how the Company transfers its performance obligations to its collaboration partners.
API product revenue
Product revenue in 2018 consisted of sales of commercial-grade API used in support of pre-commercial validation work. In 2018, the Company recorded
revenue from commercial-grade API sales to Astellas based on a transaction price that was subject to potential future adjustments, which represented a form
of variable consideration. The Company evaluated the latest available facts and circumstances in 2018, including listed prices of comparable drug products in
Japan and historical bulk drug product manufacturing yields and costs, to determine whether any adjustments to the estimated transaction price was necessary.
As of December 31, 2018, no new facts or circumstances were available to warrant an adjustment to the estimated transaction price. With respect to these
sales in 2018, a change in estimated variable consideration occurred in 2019 at the time the actual listed price for roxadustat was issued by the Japanese
Ministry of Health, Labour and Welfare, which resulted in a total difference of $36.3 million between the estimated and the actual listed price and yield from
the manufacture of bulk product tablets.
Drug product revenue, net
During 2019, the Company started selling roxadustat in China through a number of pharmaceutical distributors located in China. These pharmaceutical
distributors are the Company’s customers. Hospitals order roxadustat through a distributor and the Company ships the product directly to the distributors. The
delivery of roxadustat to a distributor represents a single performance obligation. Distributors are responsible for delivering product to end users, primarily
hospitals. Distributors bear inventory risk once they receive and accept the product. Product revenue is recognized when control of the promised good is
transferred to the customer in an amount that reflects the consideration to which the Company expects to be entitled in exchange for the product.
The period between the transfer control of promised goods and when the Company receives payment is based on a general 60-day payment term. As such,
product revenue is not adjusted for the effects of a significant financing component. The Company established a bad debt allowance based on its judgment to
consider factors such as the age of the receivables. Bad debt expense is included in selling, general and administrative expenses on the consolidated
statements of operations. There was no bad debt allowance provided as of December 31, 2019.
117
Product drug revenue is recorded at the net sales prices (transaction price) which includes the following estimates of variable consideration:
•
•
•
•
•
•
Price adjustment: In December 2019, China’s NHSA released price guidance for roxadustat under NRDL, effective January 1, 2020. Any channel
inventories as of January 1, 2020 that had not been sold to hospitals by distributors, or to patients by hospitals, were eligible for a price adjustment under
the price protection. The price adjustment is calculated based on estimated channel inventory levels at January 1, 2020. If price guidance changes in the
future, the price adjustment will be calculated in the same manner;
Contractual sales rebate: The contractual sales rebate is calculated based on the stated percentage of gross sales by each distributor in the distribution
agreement entered between FibroGen and each distributor. The contractual sales rebate is accrued at the point of sale to the distributor, and applied to
future sales orders made by the distributor under the Company’s discretion;
Key account hospital sales rebate: An additional sales rebate is provided to a distributor for product sold to key account hospitals as a percentage of
gross sales made by the distributor to eligible hospitals. This additional rebate is accrued at the point of sale to the distributor and applied to future sales
orders made by the distributor under the Company’s discretion;
Transfer fee discount: The transfer fee discount is offered to a distributor who has its downstream distributors supply to eligible hospitals. This discount
is calculated based on a percentage of gross sales made to the downstream distributors, and accrued at the point of sale to the distributor;
Sales return: Distributors can request to return product to the Company only due to quality issues and for product within one year of its expiration date.
The Company, at its sole discretion, decides whether to accept such return request. The sales return allowance provided as of December 31, 2019 was
immaterial; and
Non-key account hospital listing award: A one-time fixed-amount award is offered to a distributor who successfully lists the product with an eligible
hospital, and meets the sales volume and timing requirements. The non-key account hospital listing award is accrued when the distributor meets
eligibility requirements, and applied against future sales orders made by the distributor. The Company considers this particular award to be a material
right within the definitions of ASC 606 and therefore have treated it as a separate performance obligation.
The above allowances are recorded as reductions of gross accounts receivable from the distributor in the same period that the related revenue is recorded, with
the exception of the non-key account hospital listing award, which is accrued when the distributor meets the eligibility requirements. The calculation of such
allowances are based on gross sales to the distributor, or estimated utilizing best available information from the distributor, maximum known exposures and
other available information including estimated channel inventory levels and estimated sales made by the distributor to hospitals, which involve a substantial
degree of judgment.
Research and Development Expenses
Research and development expenses consist of independent research and development costs and the gross amount of costs associated with work performed
under collaboration agreements. Research and development costs include employee-related expenses, expenses incurred under agreements with clinical
research organizations (“CROs”), other clinical and preclinical costs and allocated direct and indirect overhead costs, such as facilities costs, information
technology costs and other overhead. All research and development costs are expensed as incurred.
Clinical Trial Accruals
Clinical trial costs are a component of research and development expenses. The Company accrues and expenses clinical trial activities performed by third
parties based upon actual work completed in accordance with agreements established with clinical research organizations and clinical sites. The Company
determines the costs to be recorded based upon validation with the external service providers as to the progress or stage of completion of trials or services and
the agreed-upon fee to be paid for such services.
Selling, General and Administrative Expenses
Selling, general and administrative (“SG&A”) expenses consist primarily of employee-related expenses for executive, operational, finance, legal, compliance
and human resource functions. SG&A expenses also include facility-related costs, professional fees, accounting and legal services, other outside services
including co-promotional expenses, recruiting fees and expenses associated with obtaining and maintaining patents.
118
Income Taxes
The Company utilizes the asset and liability method of accounting for income taxes which requires the recognition of deferred tax assets and liabilities for
expected future consequences of temporary differences between the financial reporting and income tax bases of assets and liabilities using enacted tax rates.
Management makes estimates, assumptions and judgments to determine the Company’s provision for income taxes and also for deferred tax assets and
liabilities, and any valuation allowances recorded against the Company’s deferred tax assets. The Company assesses the likelihood that its deferred tax assets
will be recovered from future taxable income and, to the extent the Company believes that recovery is not likely, the Company must establish a valuation
allowance.
The calculation of the Company’s current provision for income taxes involves the use of estimates, assumptions and judgments while taking into account
current tax laws, interpretation of current tax laws and possible outcomes of future tax audits. The Company has established reserves to address potential
exposures related to tax positions that could be challenged by tax authorities. Although the Company believes its estimates, assumptions and judgments to be
reasonable, any changes in tax law or its interpretation of tax laws and the resolutions of potential tax audits could significantly impact the amounts provided
for income taxes in the Company’s consolidated financial statements.
The calculation of the Company’s deferred tax asset balance involves the use of estimates, assumptions and judgments while taking into account estimates of
the amounts and type of future taxable income. Actual future operating results and the underlying amount and type of income could differ materially from the
Company’s estimates, assumptions and judgments thereby impacting the Company’s financial position and results of operations.
The Company has adopted ASC 740-10, Accounting for Uncertainty in Income Taxes, that prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of uncertain tax positions taken or expected to be taken in the Company’s income tax return, and also
provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
The Company includes interest and penalties related to unrecognized tax benefits within income tax expense in the Consolidated Statements of Operations.
Stock-Based Compensation
The Company maintains equity incentive plans under which incentive and nonqualified stock options are granted to employees and non-employee
consultants. Compensation expense relating to non-employee stock options has not been material for all the periods presented.
The Company measures and recognizes compensation expense for all stock options and restricted stock units (“RSUs”) granted to its employees and directors
based on the estimated fair value of the award on the grant date. The Company uses 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. The Company believes 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 each
period. The resulting increase in value, if any, is recognized as expense during the period the related services are rendered on a straight-line basis. The
determination of the grant date fair value of options using an option pricing model is affected by the Company’s 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.
Comprehensive Income (Loss)
The Company is required to report all components of comprehensive income (loss), including net loss, in the consolidated financial statements in the period in
which they are recognized. Comprehensive income (loss) is defined as the change in equity during a period from transactions and other events and
circumstances from non-owner sources, including unrealized gains and losses on investments and foreign currency translation adjustments. Comprehensive
gains (losses) have been reflected in the consolidated statements of comprehensive income (loss) for all periods presented.
119
Recently Issued and Adopted Accounting Guidance
ASC 842
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) (“ASU
2016-02”). Under this guidance, an entity is required to recognize ROU assets and lease liabilities on its balance sheet and disclose key information about
leasing arrangements. This guidance offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are
required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount,
timing and uncertainty of cash flows arising from leases. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements (“ASU
2018-11”), which provides entities the option to initially apply ASU 2016-02 at the adoption date and recognize a cumulative-effect adjustment to the opening
balance of retained earnings in the period of adoption.
The Company adopted the above guidance under ASC 842 as of January 1, 2019, using the modified retrospective transition method, through a cumulative-
effect adjustment at the beginning of the first quarter of 2019. The Company elected the optional transition method under the guidance, which allowed it to
continue applying previous lease guidance (ASC 840) for the comparative prior year periods presentation in the year of adoption. Accordingly, the Company
recognized a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.
In addition, the Company elected the package of transitional practical expedients permitted under the transition guidance under ASC 842, which among other
things allows the Company to carry forward its historical lease classification, and not to reassess initial direct costs for any existing leases. Meanwhile, the
Company did not elect the hindsight practical expedient because it has a limited number of leases, lease terms are straightforward, and most of its lease
renewals are undefined until negotiated.
In addition, the Company has elected the short-term accounting policy practical expedient and does not apply the balance sheet recognition requirements for
short-term leases (excluding expenses relating to leases with a lease term of one month or less), by class of underlying asset to which the right of use relates.
The Company has not elected the non-lease components practical expedient, and therefore accounts for each lease component separately from the non-lease
components.
Upon adoption of ASC 842, the Company classified its existing building leases that were previously accounted for as build-to-suit arrangements as finance
leases and applied the transition guidance. Accordingly, the Company derecognized the assets and liabilities previously recognized under ASC 840 build-to-
suit guidance. In addition, as a result of applying the transition guidance, the Company also recorded an adjustment to the accumulated depreciation of related
leasehold improvements to reflect a change in estimated useful life from the building life to the shorter of the building life and remaining lease term.
Differences between the assets and liabilities derecognized were recorded to the opening balance of retained earnings.
The impacts to the select line items from the Company’s consolidated balance sheet upon adoption of the ASC 842 guidance are as follows (in thousands):
Balance Sheet Line Item
Nature of Adjustment
New Lease Guidance
Adoption Adjustment
Assets
Property and equipment, net
Derecognition - build-to-suit lease assets - building shell, cost
$
(53,880)
Finance lease right-of-use assets
Other assets
Liabilities
Accrued and other current liabilities
Finance lease liabilities, current
Long-term portion of lease obligations
Deferred rent
Finance lease liabilities, non-current
Other long-term liabilities
Stockholders’ equity
Accumulated deficit
Derecognition - build-to-suit lease assets - building shell,
accumulated depreciation
Change of useful life - leasehold improvements,
accumulated depreciation
Recognition - finance lease ROU assets
Recognition - operating lease ROU assets
Derecognition - deferred rent, current
Derecognition - build-to-suit lease liabilities, current
Recognition - operating lease liabilities, current
Recognition - finance lease liabilities, current
Derecognition - build-to-suit lease liabilities, non-current
Derecognition - deferred rent, non-current
Recognition - finance lease liabilities, non-current
Recognition - operating lease liabilities, non-current
13,476
(38,877)
49,597
730
(619)
(545)
404
11,499
(95,613)
(3,038)
49,884
250
Cumulative decrease to accumulated deficit
$
8,688
120
The adoption of this guidance did not have a material impact to the Company’s consolidated statement of operations or consolidated statement of cash flows
for the year ended December 31, 2019.
ASU 2018-02
In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income: Reclassification of Certain Tax Effects from
Accumulated Other Comprehensive Income. This guidance allows for the reclassification from accumulated other comprehensive income to retained earnings
for the stranded tax effects arising from the reduction of the U.S. federal statutory income tax rate from 35% to 21%. This guidance was effective for annual
reporting periods beginning after December 15, 2018, including interim periods. The Company adopted this guidance on January 1, 2019 using the modified
retrospective approach. The impacts, based on the aggregate portfolio approach, to the Company’s accumulated other comprehensive loss and accumulated
deficit upon adoption of this guidance are as follows (in thousands):
Balance at December 31, 2018
Impact of change in accounting principle
upon adoption of ASU 2018-02
Opening balance as of January 1, 2019
Accumulated
Other
Comprehensive Loss
Accumulated Deficit
$
$
(2,281) $
611
(1,670) $
(715,827)
(611)
(716,438)
The adoption of this guidance had no impact to the Company’s consolidated statement of operations or consolidated statement of cash flows for the year
ended December 31, 2019.
ASU 2018-07
In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment
Accounting. This guidance expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees.
The guidance also specifies that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or
consumed in a grantor’s own operations by issuing share-based payment awards. This guidance was effective for annual reporting periods beginning after
December 15, 2018, including interim periods. The Company adopted this guidance on January 1, 2019, and the adoption of this guidance had no impact to
the Company’s consolidated financial statements.
ASU 2016-01
In January 2016, the FASB issued ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10). The Company adopted this guidance as of January 1,
2018 using the modified retrospective approach. The impacts to the Company’s accumulated other comprehensive loss and accumulated deficit upon adoption
of this guidance are as follows (in thousands):
Balance at December 31, 2017
Impact of change in accounting principle
upon adoption of ASU 2016-01
Opening balance as of January 1, 2018
Accumulated
Other
Comprehensive Loss
Accumulated Deficit
$
$
(1,795) $
(1,250)
(3,045) $
(630,657)
1,250
(629,407)
The adoption of this guidance had no impact to the Company’s consolidated statement of cash flows for the year ended December 31, 2018.
Recently Issued Accounting Guidance Not Yet Adopted
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This guidance simplifies the
accounting for income taxes by clarifying and amending existing guidance related to the recognition of franchise tax, the evaluation of a step up in the tax
basis of goodwill, and the effects of enacted changes in tax laws or rates in the effective tax rate computation, among other clarifications. This guidance is
effective for annual reporting periods beginning after December 15, 2020 including interim periods, with early adoption permitted. The Company does not
plan to early adopt this guidance and does not anticipate a material impact to its consolidated financial statements upon adoption of this guidance.
121
In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting
for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This guidance requires capitalizing implementation costs
incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). This guidance should be applied
either retrospectively or prospectively, and is effective for annual reporting periods beginning after December 15, 2019 including interim periods, with early
adoption permitted. The Company will adopt this guidance on January 1, 2020 and does not anticipate a material impact to its consolidated financial
statements upon adoption of this guidance.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments. This guidance is intended to provide financial statement users with more decision-useful information about the expected credit losses on
financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. This guidance requires the measurement of
financial assets with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable
information to inform credit loss estimates. This guidance requires an impairment model, known as the current expected credit loss model, which is based on
expected losses rather than incurred losses. Entities are required to carry an allowance for expected credit losses for financial assets, including most debt
instruments (except those carried at fair value) and trade receivables. Available-for-sale debt securities are scoped out of this guidance. This guidance is
effective for annual reporting periods beginning after December 15, 2019 including interim periods. The Company’s investment portfolio primarily consists
of U.S. Treasury bills and notes carried at fair value. Further, the Company’s trade receivables do not have abnormally long terms and the Company has never
written off trade receivables. Accordingly, the Company has concluded that the adoption of this guidance on January 1, 2020 will not have a material impact
on the Company’s consolidated financial statements.
3. Collaboration Agreements and Revenues
Astellas Agreements
Japan Agreement
In June 2005, the Company entered into a collaboration agreement with Astellas Pharma Inc. (“Astellas”) for the development and commercialization (but not
manufacture) of roxadustat for the treatment of anemia in Japan (“Japan Agreement”). Under this agreement, Astellas paid license fees and other
consideration totaling $40.1 million (such amounts were fully received as of February 2009). Under the Japan Agreement, the Company is also eligible to
receive from Astellas an aggregate of approximately $132.5 million in potential milestone payments, comprised of (i) up to $22.5 million in milestone
payments upon achievement of specified clinical and development milestone events (such amounts were fully received as of July 2016), (ii) up to
$95.0 million in milestone payments upon achievement of specified regulatory milestone events, and (iii) up to approximately $15.0 million in milestone
payments upon the achievement of specified commercial sales milestone. The Japan Agreement also provides for tiered payments based on net sales of
product (as defined) in the low 20% range after commercial launch. The aggregate amount of such consideration received through December 31, 2019 totals
$90.1 million.
In September 2019, Japan’s Ministry of Health, Labour and Welfare approved Evrenzo® (generic name: roxadustat; tradename Evrenzo® in Japan) for the
treatment of anemia associated with CKD in dialysis patients. This approval triggered a $12.5 million milestone payable to the Company by Astellas under
the Japan Agreement. Accordingly, the consideration of $12.5 million associated with this milestone was included in the transaction price and allocated to
performance obligations under the Japan Agreement in the third quarter of 2019, substantially all of which was recognized as revenue during the year ended
December 31, 2019 from performance obligations satisfied or partially satisfied.
During the second quarter of 2018, Astellas reported positive results from the final phase 3 CKD-dialysis trial of roxadustat in Japan, indicating that Astellas
was ready to make an NDA submission for the treatment of anemia with roxadustat in CKD-dialysis patients in 2018. The Company evaluated the regulatory
milestone payment associated with NDA submission in Japan based on variable consideration requirements under the current revenue standards and
concluded that this milestone became probable of being achieved in the second quarter of 2018. Accordingly, the consideration of $15.0 million associated
with this milestone was included in the transaction price and allocated to performance obligations under the Japan Agreement in the second quarter of 2018,
substantially all of which was recognized as revenue during the year ended December 31, 2018 from performance obligations satisfied or partially satisfied.
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On November 30, 2018, FibroGen and Astellas entered into an amendment to the Japan Agreement that will allow Astellas to manufacture roxadustat drug
product for commercialization in Japan (the “Japan Amendment”). Under this amendment, FibroGen would continue to manufacture and deliver to Astellas
roxadustat API. The commercial terms of the Japan Agreement relating to the transfer price for roxadustat for commercial use remain substantially the same,
reflecting an adjustment for the manufacture of drug product by Astellas rather than FibroGen. This amendment obligates Astellas to purchase API from the
Company, of which $20.9 million was delivered to Astellas in the second quarter of 2018 under a material transfer agreement to conduct commercial scale
manufacturing validation for roxadustat drug product in anticipation of commercial launch in Japan. The remaining $43.9 million of API was delivered to
Astellas in December 2018. The transaction price of such API product was adjusted in 2019 at the time the listed price for roxadustat was issued by the
Japanese Ministry of Health, Labour and Welfare to reflect a total difference of $36.3 million between estimated and actual listed price and yield from the
manufacture of bulk product tablets.
Europe Agreement
In April 2006, the Company entered into a separate collaboration agreement with Astellas for the development and commercialization of roxadustat for the
treatment of anemia in Europe, the Middle East, the Commonwealth of Independent States and South Africa (“Europe Agreement”). Under the terms of the
Europe Agreement, Astellas paid license fees and other upfront consideration totaling $320.0 million (such amounts were fully received as of February 2009).
The Europe Agreement also provides for additional development and regulatory approval milestone payments up to $425.0 million, comprised of (i) up to
$90.0 million in milestone payments upon achievement of specified clinical and development milestone events (such amounts were fully received as of 2012),
(ii) up to $335.0 million in milestone payments upon achievement of specified regulatory milestone events. Under the Europe Agreement, Astellas committed
to fund 50% of joint development costs for Europe and North America, and all territory-specific costs. The Europe Agreement also provides for tiered
payments based on net sales of product (as defined) in the low 20% range. The aggregate amount of such consideration received through December 31, 2019
totals $410.0 million.
During the second quarter of 2019, the Company received positive topline results from analyses of pooled major adverse cardiac event (“MACE”) and
MACE+ data from its Phase 3 trials evaluating roxadustat as a treatment for dialysis and non-dialysis CKD patients, enabling Astellas to prepare for an MAA
submission to the EMA in the second quarter of 2020, following the Company’s NDA submission to the FDA that was accepted for review in February 2020.
The Company evaluated the two regulatory milestone payments associated with the planned MAA submission and concluded that these milestones became
probable of being achieved in the second quarter of 2019. Accordingly, the total consideration of $130.0 million associated with these milestones was
included in the transaction price and allocated to performance obligations under the Europe Agreement in the second quarter of 2019, of which $128.8 million
was recognized as revenue during the year ended December 31, 2019 from performance obligations satisfied or partially satisfied. According to the Europe
Agreement, these milestone payments are not billable to Astellas until the submission of an MAA, therefore this $130.0 million remained as an unbilled
contract asset as of December 31, 2019.
In the fourth quarter of 2018, the Company’s was engaged in the final stages of review with its partners over the proposed development of roxadustat for the
treatment of chemotherapy induced anemia (“CIA”). AstraZeneca and Astellas approved the program in December 2018 and January 2019, respectively.
Costs associated with the development of this indication are expected to be shared 50-50 between the Company’s two partners. For revenue recognition
purposes, the Company concluded that this new indication represents a modification to the Europe agreements and will be accounted for separately, meaning
the development costs associated with the new indications are distinct from the original development costs. The development service period for roxadustat for
the treatment of CIA under the Europe Agreement is estimated to continue through the end of 2023 to allow for development of this indication.
AstraZeneca Agreements
U.S./Rest of World (“RoW”) Agreement
Effective July 30, 2013, the Company entered into a collaboration agreement with AstraZeneca for the development and commercialization of roxadustat for
the treatment of anemia in the U.S. and all other countries in the world, other than China, not previously licensed under the Astellas Europe and Astellas
Japan Agreements (“U.S./RoW Agreement”). It also excludes China, which is covered by a separate agreement with AstraZeneca described below. Under the
terms of the U.S./RoW Agreement, AstraZeneca paid upfront, non-contingent, non-refundable and time-based payments totaling $374.0 million (such
amounts were fully received as of June 2016). Under the U.S./RoW Agreement, the Company is also eligible to receive from AstraZeneca an aggregate of
approximately $875.0 million in potential milestone payments, comprised of (i) up to $65.0 million in milestone payments upon achievement of specified
clinical and development milestone events, $15.0 million of which was received in 2015 as a result of the finalization of its two audited pre-clinical
carcinogenicity study reports, (ii) up to $325.0 million in milestone payments upon achievement of specified regulatory milestone events, (iii) up to
$160.0 million in milestone payments related to activity by potential competitors and (iv) up to approximately $325.0 million in milestone payments upon the
achievement of specified commercial sales events. The aggregate amount of such consideration received through December 31, 2019 totals $389.0 million.
123
Under the U.S./RoW Agreement, the Company and AstraZeneca will share equally in the development costs of roxadustat not already paid for by Astellas, up
to a total of $233.0 million (i.e. the Company’s share of development costs is $116.5 million, which was reached in 2015). Development costs incurred by
FibroGen during the development period in excess of the $233.0 million (aggregated spend) are fully reimbursed by AstraZeneca. AstraZeneca will pay the
Company tiered royalty payments on AstraZeneca’s future net sales (as defined in the agreement) of roxadustat in the low 20% range. In addition, the
Company will receive a transfer price for delivery of commercial product based on a percentage of AstraZeneca’s net sales (as defined in the agreement) in
the low- to mid-single digit range.
As mentioned above, during the second quarter of 2019, the Company received positive topline results from analyses of pooled MACE and MACE+ data
from its Phase 3 trials for roxadustat, enabling the Company’s NDA submission to the FDA. The Company evaluated the regulatory milestone payment
associated with this planned NDA submission and concluded that this milestone became probable of being achieved in the second quarter of 2019.
Accordingly, the consideration of $50.0 million associated with this milestone was included in the transaction price and allocated to performance obligations
under the U.S./ RoW Agreement in the second quarter of 2019, of which $42.4 million was recognized as revenue during the year ended December 31, 2019
from performance obligations satisfied or partially satisfied. On December 23, 2019, the Company submitted such NDA, which was accepted by FDA in
February 2020. According to the U.S/RoW Agreement, this milestone payment is not billable to AstraZeneca until the NDA is accepted by the FDA,
therefore this $50.0 million remained as an unbilled contract asset as of December 31, 2019, and will be billed during the first quarter of 2020.
China Agreement
Effective July 30, 2013, the Company (through its subsidiaries affiliated with China) entered into a collaboration agreement with AstraZeneca for the
development and commercialization (but not manufacture) of roxadustat for the treatment of anemia in China (“China Agreement”). Under the terms of the
China Agreement, AstraZeneca agreed to pay upfront consideration totaling $28.2 million (such amounts were fully received in 2014). Under the China
Agreement, the Company is also eligible to receive from AstraZeneca an aggregate of approximately $348.5 million in potential milestone payments,
comprised of (i) up to $15.0 million in milestone payments upon achievement of specified clinical and development milestone events, (ii) up to $146.0
million in milestone payments upon achievement of specified regulatory milestone events, and (iii) up to approximately $187.5 million in milestone payments
upon the achievement of specified commercial sales and other events. The China Agreement is structured as a 50/50 profit or loss share (as defined) and
provides for joint development costs (including capital and equipment costs for construction of the manufacturing plant in China), to be shared equally during
the development. The aggregate amount of such consideration received through December 31, 2019 totals $55.2 million.
In December 2019, roxadustat has been included on the updated NRDL released by China’s NHSA for the treatment of anemia in CKD, covering patients
who are non-dialysis dependent as well as those who are dialysis-dependent. The inclusion on the NRDL triggered a total of $22.0 million milestones payable
to the Company by AstraZeneca. Accordingly, the total consideration of $22.0 million associated with these milestones was included in the transaction price
and allocated to performance obligations under the China Agreement, of which $18.7 million was recognized as revenue during the year ended December 31,
2019 from performance obligations satisfied or partially satisfied.
As mentioned above, in the fourth quarter of 2018, the Company was engaged in the final stages of review with its partners over the proposed development of
roxadustat for the treatment of CIA. AstraZeneca and Astellas approved the program in December 2018 and January 2019, respectively. Costs associated with
the development of this indication are expected to be shared 50-50 between the Company’s two partners. In addition to CIA, in December 2018, anemia of
chronic inflammation (“ACI”) and multiple myeloma (“MM”) have been approved for development by AstraZeneca and is expected to be fully funded by
them. For revenue recognition purposes, the Company concluded that the addition of these new indications represents a modification to the collaboration
agreements and will be accounted for separately, meaning the development costs associated with the new indications are distinct from the original
development costs. The development service period for roxadustat for the treatment of CIA, ACI and MM under the AstraZeneca agreements is estimated to
continue through the end of 2024, to allow for development of these additional indications.
On December 17, 2018, FibroGen (China) Medical Technology Development Co., Ltd. (“FibroGen China”), received marketing authorization from the
NMPA for roxadustat, a first-in-class hypoxia-inducible factor prolyl hydroxylase inhibitor, for the treatment of anemia caused by CKD in patients on
dialysis. This approval triggered a $6.0 million milestone payable to the Company by AstraZeneca. On December 29, 2018, FibroGen China received First
Manufacturing Approval for a Product in the Field in the Territory , which allows production for Phase 4 clinical studies, patients’ early experience programs,
donation programs, as well as to supply products for testing and assessments required prior to launch. This approval triggered a $6.0 million milestone
payable to the Company by AstraZeneca. Approximately $9.9 million of the total $12.0 million milestone payables was recognized as revenue during the year
ended December 31, 2018 from performance obligations satisfied or partially satisfied.
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Accounting for the Astellas Agreements
For each of the Astellas agreements, the Company has evaluated the promised services within the respective arrangements and has identified performance
obligations representing those services and bundles of services that are distinct.
Promised services that were not distinct have been combined with other promised services to form a distinct bundle of promised services, with revenue being
recognized on the bundle of services rather than the individual services. There are no right-of-return provisions for the delivered items in the Astellas
agreements.
As of December 31, 2019, the transaction price for the Japan Agreement included $40.1 million of non-contingent upfront payments, $50.0 million of
variable consideration related to payments for milestones considered probable of being achieved, and $11.4 million of variable consideration related to co-
development billings. The transaction price for the Europe Agreement included $320.0 million of non-contingent upfront payments, $220.0 million of
variable consideration related to payments for milestones considered probable of being achieved, and $229.2 million of variable consideration related to co-
development billings.
For revenue recognition purposes, the Company determined that the term of each collaboration agreement with Astellas begins on the effective date and ends
upon the completion of all performance obligations contained in the agreement. The contract term is defined as the period in which parties to the contract
have present and enforceable rights and obligations. The Company believes that the requirement to continue funding development for a substantive period of
time and loss of product rights, along with non-refundable upfront payments already remitted by Astellas, create significant disincentive for Astellas to
exercise its right to terminate the agreements.
For the Astellas agreements, the Company allocated the transaction price to the various performance obligations based on the relative SSP of each
performance obligation, with the exception of co-development billings allocated entirely to co-development services performance obligations.
For the technology license under the Japan Agreement and Europe Agreement, SSP was determined primarily by using the discounted cash flow (“DCF”)
method, which aggregates the present value of future cash flows to determine the valuation as of the effective date of each of the agreements. The DCF
method involves the following key steps: 1) the determination of cash flow forecasts and 2) the selection of a range of comparative risk-adjusted discount
rates to apply against the cash flow forecasts. The discount rates selected were based on expectations of the total rate of return, the rate at which capital would
be attracted to the Company and the level of risk inherent within the Company. The discounts applied in the DCF analysis ranged from 17.5% to 20.0%. The
Company’s cash flow forecasts were derived from probability-adjusted revenue and expense projections by territory. Such projections included consideration
of taxes and cash flow adjustments. The probability adjustments were made after considering the likelihood of technical success at various stages of clinical
trials and regulatory approval phases. SSP also considered certain future royalty payments associated with commercial performance of the Company’s
compounds, transfer prices and expected gross margins.
The promised services that were analyzed, along with their general timing of satisfaction and recognition as revenue, are as follows:
(1)
License to the Company’s technology existing at the effective date of the agreements. For both of the Astellas agreements, the license was delivered at
the beginning of the agreement term. In both cases, the Company concluded at the time of the agreement that its collaboration partner, Astellas, would
have the knowledge and capabilities to fully exploit the licenses without the Company’s further involvement. However, the Japan Agreement has
contractual limitations that might affect Astellas’ ability to fully exploit the license and therefore, potentially, the conclusion as to whether the license is
capable of being distinct. In the Japan Agreement, Astellas does not have the right to manufacture commercial supplies of the drug. In order to
determine whether this characteristic of the agreement should lead to a conclusion that the license was not distinct in the context of the agreement, the
Company considered the ability of Astellas to benefit from the license together with other resources readily available to Astellas. Finally, the Company
considered the fact that at the time of delivery of the license, the development services were beyond the preclinical development phase and any
remaining development work in either agreement would not be expected to result in any significant modification or customization to the licensed
technology. As such, the development services are separately identifiable from the licensed technology, indicating that the license is a distinct
performance obligation.
Manufacturing rights. In the case of the Japan Agreement, the Company retained manufacturing rights largely because of the way the parties chose for
FibroGen to be compensated under the agreement. At the time the agreement was signed, the Company believed that it was more advantageous upon
commercialization to have a transfer price revenue model in place as opposed to a traditional sales-based model. The manufacturing process does not
require specialized knowledge or expertise uniquely held by FibroGen, and notwithstanding contractual restrictions, Astellas could employ
manufacturing services from readily available third parties in order to benefit from the license. Therefore, along with the foregoing paragraph, the
Company determined that the license in Japan is a distinct performance obligation despite the retention of manufacturing rights by the Company.
125
In summary, the Company concludes that item (1) represents a performance obligation. The portion of the transaction price allocated to this
performance obligation based on a relative SSP basis is recognized as revenue in its entirety at the point in time the license transfers to Astellas.
(2)
Co-development services (Europe Agreement). This promise relates to co-development services that were reasonably expected to be performed by the
Company at the time the collaboration agreement was signed and is considered distinct. Co-development billings are allocated entirely to the co-
development services performance obligation as amounts are related specifically to research and development efforts necessary to satisfy the
performance obligation, and such an allocation is consistent with the allocation objective. Revenue is recognized over time based on progress toward
complete satisfaction of the performance obligation. The Company uses an input method to measure progress toward the satisfaction of the
performance obligation, which is based on costs of labor hours and out-of-pocket expenses incurred relative to total expected costs to be incurred. The
measure of progress is updated each reporting period. Co-development services are expected to continue over the development period that is currently
estimated to continue through the end of 2019. In addition, the Company concluded that the new indication related to CIA approved in January 2019
represents a modification to the Europe agreements at that time and will be accounted for separately, for which the development service period is
estimated to continue through the end of 2023. There was no provision for co-development services in the Japan Agreement.
(3)
License to the Company’s technology developed during the term of the agreement and development (referred to as “when and if available”) and
information sharing services. These promises are generally satisfied throughout the term of the agreements.
(4) Manufacturing of clinical supplies of products. This promise is satisfied as supplies for clinical product are delivered for use in the Company’s clinical
trial programs during the development period, or pre-commercialization period.
(5)
Committee service. This promise is satisfied throughout the course of the agreements as meetings are attended.
Items (3)-(5) are bundled into a single performance obligation which is distinct given the fact that all are highly interrelated during the development
period (pre-commercial phase of development) such that satisfying them independently is not practicable. Revenue is recognized over time based on
progress toward complete satisfaction of the performance obligation. The Company uses an input method to measure progress toward the satisfaction
of the performance obligation, which is based on costs of labor hours or full time equivalents and out-of-pocket expenses incurred relative to total
expected costs to be incurred. The measure of progress is updated each reporting period.
(6) Manufacturing commercial supplies of products. This promised service is distinct as services are not interrelated with any of the other performance
obligations. Payments received for commercial supplies of products represent sales-based payments related predominately to the license of intellectual
property under both Astellas agreements. Revenue is recognized as supplies are shipped for commercial use during the commercialization period. To
date, no such revenue has been recognized.
In 2018, the Company recorded revenue from commercial-grade API sales to Astellas to conduct commercial scale manufacturing validation based on
a transaction price that was subject to potential future adjustments. This represents a form of variable consideration. The Company evaluated the latest
available facts and circumstances in 2018, including listed prices of comparable drug products in Japan and historical bulk drug product manufacturing
yields and costs, to determine whether any adjustments to the estimated transaction price was necessary. As of December 31, 2018, no new facts or
circumstances were available to warrant an adjustment to the transaction price. The transaction price was later adjusted in 2019 at the time the listed
price for roxadustat was issued by the Japanese Ministry of Health, Labour and Welfare to reflect the difference between estimated and actual listed
price and yield from the manufacture of bulk product tablets.
126
Accounting for the AstraZeneca Agreements
The Company evaluated whether the U.S./RoW Agreement and China Agreement should be accounted for as a single or separate arrangements and concluded
that the agreements should be accounted for as a single arrangement with the presumption that two or more agreements executed with a single customer at or
around the same time should be presumed to be a single arrangement. The key points the Company considered in reaching this conclusion are as follows:
1. While the two agreements were largely negotiated separately, those negotiations proceeded concurrently, and were intended to be completed
contemporaneously, presuming AstraZeneca decided to proceed with licenses in all regions available.
2.
3.
Throughout negotiations for both agreements, the Company and the counterparties understood and considered the possibility that one arrangement may
be executed without the execution of the other arrangement. However, the preference for the Company and the counterparties during the negotiations
was to execute both arrangements concurrently.
The two agreements were executed as separate agreements because different development, regulatory and commercial approaches required certain terms
of the agreements to be structured differently, rather than because the Company or the counterparties considered the agreements to be fundamentally
separate negotiations.
Accordingly, as the agreements are being accounted for as a single arrangement, upfront and other non-contingent consideration received and to be received
has been and will be pooled together and allocated to each of the performance obligations in both the U.S./RoW Agreement and China Agreement based on
their relative SSPs.
For each of the AstraZeneca agreements, the Company has evaluated the promised services within the respective arrangements and has identified
performance obligations representing those services and bundled services that are distinct.
Promised services that were not distinct have been combined with other promised services to form a distinct bundle of promised services, with revenue being
recognized on the bundle of services rather than the individual promised services. There are no right-of-return provisions for the delivered items in the
AstraZeneca agreements.
As of December 31, 2019, the transaction price for the U.S./RoW Agreement and China Agreement included $402.2 million of non-contingent upfront
payments, $114.0 million of variable consideration related to payments for milestones considered probable of being achieved, and $598.8 million of variable
consideration related to co-development billings.
For the AstraZeneca agreements, the Company allocated the transaction price to the various performance obligations based on the relative SSP of each
performance obligation, with the exception of co-development billings. Co-development billings under the U.S./RoW Agreement were allocated entirely to
the U.S./RoW co-development services performance obligation, and co-development billings under the China Agreement were allocated entirely to the
combined performance obligation under the China Agreement.
For revenue recognition purposes, the Company determined that the term of its collaboration agreements with AstraZeneca begin on the effective date and
ends upon the completion of all performance obligations contained in the agreements. The contract term is defined as the period in which parties to the
contract have present and enforceable rights and obligations. The Company believes that the requirement to continue funding development for a substantive
period of time and the loss of product rights, along with non-refundable upfront payments already remitted by AstraZeneca, represent substantive termination
penalties that create significant disincentive for AstraZeneca to exercise its right to terminate the agreement.
For the technology license under the AstraZeneca U.S./RoW Agreement, SSP was determined based on a two-step process. The first step involved
determining an implied royalty rate that would result in the net present value of future cash flows to equal to zero (i.e. where the implied royalty rate on the
transaction would equal the target return for the investment). This results in an upper bound estimation of the magnitude of royalties that a hypothetical
acquirer would reasonably pay for the forecasted cash flow stream. The Company’s cash flow forecasts were derived from probability-adjusted revenue and
expense projections. Such projections included consideration of taxes and cash flow adjustments. The probability adjustments were made after considering
the likelihood of technical success at various stages of clinical trials and regulatory approval phases. The second step involved applying the implied royalty
rate, which was determined to be 40%, against the probability-adjusted projected net revenues by territory and determining the value of the license as the net
present value of future cash flows after adjusting for taxes. The discount rate utilized was 17.5%.
127
U.S./RoW Agreement:
The promised services that were analyzed, along with their general timing of satisfaction and recognition as revenue, are as follows:
(1)
(2)
License to the Company’s technology existing at the effective date of the agreements. For the U.S./RoW Agreement, the license was delivered at the
beginning of the agreement term. The Company concluded that AstraZeneca has the knowledge and capabilities to fully exploit the license under the
U.S./RoW Agreement without the Company’s further involvement. Finally, the Company considered the fact that at the time of delivery of the license,
the development services were beyond the preclinical development phase and any remaining development work would not be expected to result in any
significant modification or customization to the licensed technology. As such, the development services are separately identifiable from the licensed
technology, indicating that the license is a distinct performance obligation. Therefore, the Company has concluded that the license is distinct and
represents a performance obligation. The portion of the transaction price allocated to this performance obligation based on a relative SSP basis is
recognized as revenue in its entirety at the point in time the license transfers to AstraZeneca.
Co-development services. This promise relates to co-development services that were reasonably expected to be performed by the Company at the time
the collaboration agreement was signed and is distinct. Co-development billings are allocated entirely to the co-development services performance
obligation as amounts are related specifically to research and development efforts necessary to satisfy the performance obligation, and such an
allocation is consistent with the allocation objective. Revenue is recognized over time based on progress toward complete satisfaction of the
performance obligation. The Company uses an input method to measure progress toward the satisfaction of the performance obligation, which is based
on costs of labor hours or full time equivalents and out-of-pocket expenses incurred relative to total expected costs to be incurred. Co-development
services are expected to continue over the development period that is currently estimated to continue through the end of 2020. In addition, the
Company concluded that the addition of the new indications related to CIA, ACI and MM approved during the fourth quarter of 2018 represents a
modification to the collaboration agreements and will be accounted for separately, for which the joint development service period is estimated to
continue through the end of 2024.
(3) Manufacturing of clinical supplies of products. This promise is satisfied as supplies for clinical product are delivered for use in the Company’s clinical
trial programs during the development period, or pre-commercialization period.
(4)
Information sharing and committee service. These promises are satisfied throughout the course of the agreement as services are provided.
Items (3)-(4) are bundled into a single performance obligation which is distinct given the fact that all are highly interrelated during the development
period (pre-commercial phase of development) such that delivering them independently is not practicable. Revenue is recognized over time based on
progress toward complete satisfaction of the performance obligation. The Company uses an input method to measure progress toward the satisfaction
of the performance obligation, which is based on costs of labor hours or full time equivalents and out-of-pocket expenses incurred relative to total
expected costs to be incurred. The measure of progress is updated each reporting period.
(5) Manufacturing commercial supplies of products. This promise is distinct as services are not interrelated with any of the other performance obligations.
Payments received for commercial supplies of products represent sales-based royalties related predominately to the license of intellectual property
under the agreement. Revenue is recognized as supplies are shipped for commercial use during the commercialization period. To date, no such revenue
has been recognized.
China Agreement:
The performance obligation that were analyzed, along with their general timing of satisfaction and recognition as revenue, are as follows:
•
License to the Company’s technology existing at the effective date of the agreement. The license was delivered at the beginning of the agreement term.
However, the China Agreement with AstraZeneca has contractual limitations that might affect AstraZeneca’s ability to fully exploit the license and
therefore, potentially, the conclusion as to whether the license is distinct in the context of the agreement. In the China Agreement, AstraZeneca does
not have the right to manufacture commercial supplies of the drug. In order to determine whether this characteristic of the arrangement should lead to a
conclusion that the license was not distinct in the context of the agreement, the Company considered the ability of AstraZeneca to benefit from the
license on its own or together with other resources readily available to AstraZeneca.
128
For the China Agreement, the Company retained manufacturing rights as an essential part of a strategy to pursue domestic regulatory pathway for product
approval which requires the regulatory licensure of the manufacturing facility in order to commence commercial shipment. The prospects for the
collaboration as a whole would have been substantially different had manufacturing rights been provided to AstraZeneca. Due to certain regulatory
restrictions in China, manufacturing services of commercial drug product in China are not readily available to AstraZeneca or any other parties. Therefore,
AstraZeneca cannot benefit from the license on its own or together with other readily available resources. Accordingly, all the promises identified, including
co-development services, under the China Agreement have been bundled into a single performance obligation and amounts of the transaction price allocable
to this performance obligation are deferred until control of the manufactured commercial drug product has begun to transfer to AstraZeneca. Upon
commencement of the transfer of control to commercial drug product, revenue would be recognized in a pattern consistent with estimated deliveries of the
commercial drug product.
Summary of revenue recognized under the collaboration agreements
The table below summarizes the accounting treatment for the various performance obligations pursuant to each of the Astellas and AstraZeneca agreements.
License amounts identified below are included in the “License revenue” line item in the consolidated statements of operations. All other elements identified
below are included in the “Development and other revenue” line item in the consolidated statements of operations.
Amounts recognized as revenue under the Japan Agreement with Astellas were as follows (in thousands):
Agreement
Japan
Performance Obligation
License revenue
Development revenue
2019
Years Ended December 31,
2018
2017
$
$
11,935 $
1,222 $
14,323 $
2,400 $
—
1,588
The transaction price related to consideration received and accounts receivable has been allocated to each of the following performance obligations under the
Japan Agreement, along with any associated deferred revenue as follows (in thousands):
Japan Agreement
License
Development revenue
Total license and development revenue
Cumulative
Revenue
Through
December 31, 2019
Deferred
Revenue at
December 31, 2019
Total
Consideration
Through
December 31, 2019
$
$
86,024 $
15,130
101,154 $
— $
375
375 $
86,024
15,505
101,529
The revenue recognized under the Japan Agreement for the year ended December 31, 2019 included an increase of $12.1 million resulting from changes to
estimated variable consideration in the current year relating to performance obligations satisfied or partially satisfied in previous periods. The remainder of
the transaction price related to the Japan Agreement includes no further variable consideration from estimated future co-development billing.
Amounts recognized as revenue under the Europe Agreement with Astellas were as follows (in thousands):
Agreement
Europe
Performance Obligation
License revenue
Development revenue
2019
Years Ended December 31,
2018
117,470 $
28,172 $
—
18,503
$
$
2017
—
18,523
$
$
129
The transaction price related to consideration received and accounts receivable has been allocated to each of the following performance obligations under the
Europe Agreement with Astellas, along with any associated deferred revenue as follows (in thousands):
Europe Agreement
License
Development revenue
Total license and development revenue
Cumulative
Revenue
Through
December 31, 2019
Deferred
Revenue at
December 31, 2019
Total
Consideration
Through
December 31, 2019
$
$
487,951 $
231,008
718,959 $
$
—
4,790
4,790 * $
487,951
235,798
723,749
* Contract assets and liabilities related to rights and obligations in the same contract are recorded net on the condensed consolidated balance sheets. As of
December 31, 2019, prepaid expenses and other current assets included a net unbilled contract asset of $125.2 million related to the Europe Agreement,
which represents the net of the above-mentioned unbilled contract asset of $130.0 million, and $4.8 million of deferred revenue presented above.
The revenue recognized under the Europe Agreement for the year ended December 31, 2019 included an increase in revenue of $124.7 million resulting from
changes to estimated variable consideration in the current year relating to performance obligations satisfied or partially satisfied in previous periods. The
remainder of the transaction price related to the Europe Agreement includes $45.4 million of variable consideration from estimated future co-development
billing and is expected to be recognized over the remaining development service period.
Amounts recognized as revenue under the U.S./RoW and China Agreements with AstraZeneca were as follows (in thousands):
Agreement
U.S. / RoW
and China
Performance Obligation
License revenue
Development revenue
China performance obligation
2019
Years Ended December 31,
2018
2017
$
$
47,681 $
84,629
90 $
7,946
104,970
—
$
$
9,933
100,928
—
The transaction price related to consideration received and accounts receivable has been allocated to each of the following performance obligations under the
U.S./RoW Agreement and China Agreement, along with any associated deferred revenue as follows (in thousands):
U.S. / RoW and China Agreements
License
Co-development, information sharing &
committee services
China performance obligation
Cumulative
Revenue
Through
December 31, 2019
Deferred
Revenue at
December 31, 2019
Total
Consideration
Through
December 31, 2019
$
341,844 $
—
$
341,844
493,266
90
8,452
140,872
149,324 * $
501,718
140,962
984,524
Total license and development revenue
$
835,200 $
*
Contract assets and liabilities related to rights and obligations in the same contract are recorded net on the condensed consolidated balance sheets. As of
December 31, 2019, long-term deferred revenue included $99.3 million related to the U.S./RoW and China Agreement, which represents the net of
$149.3 million of deferred revenue presented above and the above-mentioned $50.0 million unbilled contract asset.
130
The revenue recognized under the U.S./RoW Agreement and China Agreement for the year ended December 31, 2019 included an increase in revenue of
$62.6 million resulting from changes to estimated variable consideration in the current year relating to performance obligations satisfied or partially satisfied
in previous periods. The remainder of the transaction price related to the U.S./RoW Agreement and China Agreement includes $130.4 million of variable
consideration from estimated future co-development billing and is expected to be recognized over the remaining development service period, except for
amounts allocated to the China performance obligation, which are expected to be recognized in a pattern consistent with estimated deliveries of the
commercial drug product.
Product Revenue, Net
Product revenue, net:
API product
Drug product
Gross revenue
Price adjustment
Sales rebates and other discounts
Drug product revenue, net
Total product revenue, net
Years Ended December 31,
2019
2018
(dollars in thousands)
$
(36,324) $
2,803
(936)
(167)
1,700
(34,624) $
$
64,776
—
—
—
—
64,776
As described above, the Japan Amendment obligates Astellas to purchase API from the Company to conduct commercial scale manufacturing validation for
roxadustat drug product in anticipation of commercial launch in Japan. The Company fulfilled all the delivery obligations under the term of the Japan
Amendment during the year ended December 31, 2018, and recognized the related product revenue of $64.8 million in the same period based on a transaction
price that was subject to potential future adjustments, which represented a form of variable consideration. A change in estimated variable consideration
incurred in 2019 at the time the actual listed price for roxadustat was issued by the Japanese Ministry of Health, Labour and Welfare, which resulted in a total
difference of $36.3 million between the estimated and the actual listed price and yield from the manufacture of bulk product tablets.
In addition, the Company started commercial sales of roxadustat drug product in China in the third quarter of 2019. Drug product revenue is recognized in an
amount that reflects the consideration to which the Company expects to be entitled in exchange for those products, net of price adjustment, contractual sales
rebate and other discounts. For the year ended December 31, 2019, a $0.9 million of price adjustment was recorded based on government-listed price
guidance and estimated channel inventory levels. The contractual sales rebate and other discounts were immaterial for the year ended December 31, 2019.
Other Revenues
Other revenues consist primarily of collagen material sold for research purposes. Other revenues were immaterial for each of the three years ended
December 31, 2019.
Deferred Revenue
Deferred revenue represents amounts billed, or in certain cases, yet to be billed to the Company’s collaboration partners for which the related revenues have
not been recognized because one or more of the revenue recognition criteria have not been met. The current portion of deferred revenue represents the amount
to be recognized within one year from the balance sheet date based on the estimated performance period of the underlying performance obligations. The long-
term portion of deferred revenue represents amounts to be recognized after one year through the end of the non-contingent performance period of the
underlying performance obligations.
Deferred revenue includes amounts allocated to the China unit of accounting under the AstraZeneca arrangement as revenue recognition associated with this
unit of accounting is tied to the commercial launch of the products within China. As of December 31, 2018, such deferred revenue was included in long-term
deferred revenue. As of December 31, 2019, following receipt of the Chinese Good Manufacturing Practices license by FibroGen Beijing in the second
quarter of 2019, approximately $0.8 million of the related deferred revenue was included in short-term deferred revenue, which represents the amount of
deferred revenue associated with the China unit of accounting that is expected to be recognized within the next 12 months, as a result of the transfer of control
of commercial drug product in China.
131
4.
Fair Value Measurements
In accordance with the authoritative guidance on fair value measurements and disclosures under U.S. GAAP, the Company presents all financial assets and
liabilities and any other assets and liabilities that are recognized or disclosed at fair value on a nonrecurring basis. The guidance defines fair value, establishes
a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair-value measurements. The guidance also
requires fair value measurements be classified and disclosed in one of the following three categories:
Level 1: Quoted prices in active markets for identical assets or liabilities.
Level 2: Observable inputs other than quoted prices in active markets for identical assets or liabilities.
Level 3: Unobservable inputs.
The Company values certain assets and liabilities, focusing on the inputs used to measure fair value, particularly in instances where the measurement uses
significant unobservable (Level 3) inputs. The Company’s financial instruments are valued using quoted prices in active markets (Level 1) or based upon
other observable inputs (Level 2). The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires
management to make judgments and considers factors specific to the asset or liability. In addition, the categories presented do not suggest how prices may be
affected by the size of the purchases or sales, particularly with the largest highly liquid financial issuers who are in markets continuously with non-equity
instruments, or how any such financial assets may be impacted by other factors such as U.S. government guarantees. Assets and liabilities measured at fair
value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The availability of observable data is
monitored to assess appropriate classification of financial instruments within the fair value hierarchy. Depending upon the availability of such inputs, specific
securities may transfer between levels. In such instances, the transfer is reported at the end of the reporting period.
The fair values of the Company’s financial assets that are measured on a recurring basis are as follows (in thousands):
US treasury notes and bills
Bond and mutual funds
Equity investments
Money market funds
Certificate of deposit
Total
US treasury notes and bills
Bond and mutual funds
Equity investments
Money market funds
Term deposit
Certificate of deposit
Total
Level 1
Level 2
Level 3
Total
December 31, 2019
347,383 $
10,816
255
85,551
—
444,005 $
80,123 $
—
—
—
30,032
110,155 $
— $
—
—
—
—
— $
427,506
10,816
255
85,551
30,032
554,160
Level 1
Level 2
Level 3
Total
December 31, 2018
292,317 $
10,484
234
541
—
—
303,576 $
224,953 $
—
—
—
80,000
29,910
334,863 $
— $
—
—
—
—
—
— $
517,270
10,484
234
541
80,000
29,910
638,439
$
$
$
$
The Company’s Level 2 investments are valued using third-party pricing sources. The pricing services utilize industry standard valuation models, including
both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs
include reported trades of and broker/dealer quotes on the same or similar investments, issuer credit spreads, benchmark investments, prepayment/default
projections based on historical data and other observable inputs. During the fourth quarter of 2019, there was a $29.8 million transfer of assets from Level 1 to
Level 2 as such US treasury notes and bills were changed to off-the-run when they were issued before the most recent issue and were still outstanding at
measurement day. There were no transfers of assets between levels for the years ended December 31, 2018 and 2017.
132
The fair values of the Company’s financial liabilities that are carried at historical cost are as follows (in thousands):
Lease obligations
Lease obligations
Level 1
Level 2
Level 3
Total
— $
— $
1,544 $
1,544
December 31, 2019
Level 1
Level 2
Level 3
Total
— $
— $
98,105 $
98,105
December 31, 2018
$
$
The fair value of the Company’s financial liabilities were derived by using an income approach, which required Level 3 inputs such as discounted estimated
future cash flows.
As of December 31, 2018, the Company had $96.2 million in lease obligations related to its building leases under build-to-suit arrangements. Upon the
adoption of ASC 842 as of January 1, 2019, using the modified retrospective transition method, the Company derecognized these liabilities previously
recognized under ASC 840 build-to-suit designation. Refer to Note 2 for details.
There were no transfers of liabilities between levels for the years ended December 31, 2019, 2018 and 2017.
5.
Leases
The Company currently has two building leases treated as finance leases.
In 2006, the Company entered into a long-term property lease with Alexandria for its corporate headquarters in San Francisco, California, with an initial term
of 15 years, scheduled to expire in 2023. The Company has an option to extend the lease for an additional 10 years through 2033. The lease contract provides
for a fixed annual rent, with scheduled increases of two percent that occur on each anniversary of the rent commencement date. This lease requires the
Company to pay all costs of ownership, operation, and maintenance of the premises, including without limitation all operating costs, insurance costs, and
taxes.
In 2013, the Company 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 (“BYBP”) of BDA. The building is leased for an initial lease term of eight years, scheduled to
expire in 2021. Renewal options are not specified within the lease contract. The lease contract provides for fixed quarterly rent payments, with scheduled
increases that occur as detailed in the lease contract. This lease requires the Company to pay all operating and maintenance costs, and a fixed amount for
property management fees.
The Company currently has seven additional real estate leases for space within a building, which are treated as operating leases. These leases have lease terms
ranging from two to four years. These lease contracts provide for fixed quarterly rent payments, and require the Company to pay operating and maintenance
costs, and a fixed amount for property management fees.
In addition, the Company has several immaterial lease arrangements for office equipment, scientific devices and automobile leases, with contracted lease
terms ranging from two to five years, treated as finance leases or operating leases, respectively.
133
The Company’s lease assets and related lease liabilities were as follows (in thousands):
Balance Sheet Line Item
December 31, 2019
Assets
Finance:
Right-of-use assets - cost
Accumulated amortization
Finance lease right-of-use assets, net
Finance lease right-of-use assets
Operating:
Right-of-use assets - cost
Accumulated amortization
Operating lease right-of-use assets, net
Other assets
Total lease assets
Liabilities
Current:
Finance lease liabilities
Operating lease liabilities
Non-current:
Finance lease liabilities
Operating lease liabilities
Total lease liabilities
Finance lease liabilities, current
Accrued and other current liabilities
Finance lease liabilities, non-current
Other long-term liabilities
$
$
$
$
49,909
(10,307)
39,602
2,736
(805)
1,931
41,533
12,351
983
37,610
942
51,886
The components of lease expense were as follows (in thousands):
Statement of Operations Line Item
Year Ended
December 31, 2019
Finance lease cost:
Amortization of right-of-use assets
Interest on lease liabilities
Operating lease cost
Sublease income
Total lease cost
Research and development,
Selling, general and administrative expenses
Interest expense
Research and development,
Selling, general and administrative expenses
Selling, general and administrative expenses
Supplemental cash flow information related to leases were as follows (in thousands):
$
$
10,307
2,373
891
(1,385)
12,186
Year Ended
December 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Operating cash flows from finance leases
Financing cash flows from finance leases
Right-of-use assets obtained in exchange for new lease liabilities:
Finance leases
Operating leases
134
$
$
914
2,196
11,925
49,909
2,736
Lease term and discount rate were as follows at December 31, 2019:
Weighted-average remaining lease term (years):
Finance leases
Operating leases
Weighted-average discount rate:
Finance leases
Operating leases
Maturities of lease liabilities are as follows:
Year Ending
2020
2021
2022
2023
Total future lease payments
Less: Interest
Present value of lease liabilities
December 31, 2019
3.6
2.1
4.42%
4.75%
Finance Leases
Operating Leases
$
$
14,078 $
13,676
13,878
12,523
54,155
(4,194)
49,961 $
1,043
668
307
—
2,018
(93)
1,925
The following information was previously disclosed under ASC 840 as of December 31, 2018:
Future minimum lease payments under all non-cancelable operating lease obligations as of December 31, 2018 were as follows (in thousands):
Year Ending
2019
2020
2021
2022
2023
Total minimum payments
$
$
Operating Leases
444
232
25
16
—
717
Future minimum lease payments, on a consolidated basis, under the Company’s facility lease financing obligations as of December 31, 2018 were as follows
(in thousands):
Year Ending
2019
2020
2021
2022
2023
Total minimum payments
135
Lease financing
obligations
14,379
14,664
14,179
14,335
12,872
70,429
$
$
6.
Balance Sheet Components
Cash and Cash Equivalents
Cash and cash equivalents consisted of the following (in thousands):
Cash
US treasury notes and bills
Money market funds
Total cash and cash equivalents
Investments
December 31,
2019
2018
$
$
40,715 $
—
85,551
126,266 $
38,783
49,934
541
89,258
The Company’s investments consist of available-for-sale debt investments, marketable equity investments, term deposit and certificate of deposit. The
amortized cost, gross unrealized holding gains or losses, and fair value of the Company’s investments by major investments type are summarized in the tables
below (in thousands):
US treasury notes and bills
Certificates of deposit
Bond and mutual funds
Equity investments
Total investments
US treasury notes and bills
Term deposit
Certificates of deposit
Bond and mutual funds
Equity investments
Total investments
Amortized Cost
December 31, 2019
Gross Unrealized
Holding Gains
Gross Unrealized
Holding Losses
Fair Value
426,995 $
30,000
10,730
125
467,850 $
536 $
32
86
130
784 $
(25) $
—
—
—
(25) $
427,506
30,032
10,816
255
468,609
Amortized Cost
December 31, 2018
Gross Unrealized
Holding Gains
Gross Unrealized
Holding Losses
Fair Value
467,296 $
80,000
30,000
10,464
125
587,885 $
109 $
—
—
20
109
238 $
(69) $
—
(90)
—
—
(159) $
467,336
80,000
29,910
10,484
234
587,964
$
$
$
$
The contractual maturities of the available-for-sale investments and term deposit were as follows (in thousands):
Within one year
After one year through four years
Total debt investments
Bond and mutual funds
Equity investments
Total investments
December 31, 2019
407,491
50,047
457,538
10,816
255
468,609
$
$
The Company periodically reviews its available-for-sale investments and term deposit for other-than-temporary impairment. The Company considers factors
such as the duration, severity and the reason for the decline in value, the potential recovery period and its intent to sell. For debt securities, the Company also
considers whether (i) it is more likely than not that the Company will be required to sell the debt securities before recovery of their amortized cost basis, and
(ii) the amortized cost basis cannot be recovered as a result of credit losses. During the three years ended December 31, 2019, the Company did not recognize
any other-than-temporary impairment loss.
136
Inventories
Inventories consisted of the following (in thousands):
Raw materials
Work-in-progress
Finished goods
Total inventories
December 31, 2019
325
2,264
4,298
6,887
$
$
The Company started capitalizing inventory costs in June 2019 when FibroGen China began productions of roxadustat for commercial sales purposes. The
provision to write-down excess and obsolete inventory was nominal for the year ended December 31, 2019.
Prepaid expenses and other current assets
Prepaid expenses and other current assets consisted of the following (in thousands):
Unbilled contract assets
Deferred revenues from associated contracts
$
Net unbilled contract assets
Prepaid assets
Other current assets
Total prepaid expenses and other current assets
$
December 31,
2019
2018
180,000 $
(54,790)
125,210
6,464
1,717
133,391 $
—
—
—
2,705
2,224
4,929
The unbilled contract assets as of December 31, 2019 were related to two regulatory milestones totaling $130.0 million under the Europe Agreement with
Astellas associated with the planned MAA submission in Europe, and a $50.0 million regulatory milestone under the U.S./RoW Agreement with AstraZeneca
associated with the NDA submission in the U.S., which was submitted in December 2019 and accepted for review in February 2020. See Note 3 for details.
Property and Equipment
Property and equipment consisted of the following (in thousands):
Leasehold improvements
Building shell
Laboratory equipment
Machinery
Computer equipment
Furniture and fixtures
Construction in progress
Total property and equipment
Less: accumulated depreciation
Property and equipment, net
December 31,
2019
2018
$
$
$
101,548 $
—
17,329
8,217
8,399
5,822
1,792
143,107 $
(100,364)
42,743 $
101,200
53,880
16,405
8,382
6,473
5,690
367
192,397
(65,199)
127,198
As of December 31, 2018, the Company had $53.9 million building shell cost and $13.5 million accumulated depreciation related to its building leases under
build-to-suit arrangements. Upon the adoption of ASC 842 as of January 1, 2019, using the modified retrospective transition method, the Company
derecognized these assets previously recognized under ASC 840 build-to-suit designation. Up to December 31, 2018, the leasehold improvements related to
these building leases were depreciated over the life of the building under ASC 840. Upon the adoption of ASC 842, these leasehold improvements should
have a useful life based on the lease term. As a result, at the adoption date, the Company recorded a cumulative adjustment of $38.9 million to the opening
accumulated depreciation for these leasehold improvements so that their net balance equals the undepreciated amount had the useful life of the leasehold
improvements always been equal to the lease terms. Refer to Note 2 for details.
137
Depreciation expense for the years ended December 31, 2019, 2018 and 2017 was $11.1 million, $6.6 million, and $6.1 million, respectively.
Accrued Liabilities
Accrued liabilities consisted of the following (in thousands):
Preclinical and clinical trial accruals
API product price adjustment
Payroll and related accruals
Property taxes and other
Professional services
Other
Total accrued liabilities
December 31,
2019
2018
16,279 $
36,324
19,784
2,044
4,842
4,543
83,816 $
35,413
—
21,430
1,095
2,648
5,537
66,123
$
$
The amount of $36.3 million accrued as of December 31, 2019 was related to the change in estimated variable consideration of API product at the time the
roxadustat listed price was issued by the Japanese Ministry of Health, Labour and Welfare. Refer to Note 3 for details.
Other Long-term Liabilities
Other long-term liabilities consisted of the following (in thousands):
Accrued long-term co-promotional expenses
Other long-term tax liabilities
Operating lease liabilities, non-current
Other
Total other long-term liabilities
December 31,
2019
2018
$
$
53,071 $
8,913
942
1,340
64,266 $
—
8,138
—
1,855
9,993
The accrued long-term co-promotional expenses of $53.1 million as of December 31, 2019 was related to the estimated amount payable to AstraZeneca for its
sales and marketing efforts related to the commercial launch for roxadustat in China. The payment for such amount is not expected to occur within the next
year.
7.
Product Development Obligations
The Technology Development Center of the Republic of Finland (“TEKES”) product development obligations consist of 11 separate advances (each in the
form of a note agreement) received by FibroGen Europe between 1996 and 2008 from TEKES. These advances are granted on a project by project basis to
fund various product development efforts undertaken by FibroGen Europe only. Each separate note is denominated in EUR and bears interest (not
compounded) calculated as one percentage point less than the Bank of Finland rate in effect at the time of the note, but no less than 3.0%.
If the research work funded by TEKES does not result in an economically profitable business or does not meet its technological objectives, TEKES may, on
application from FibroGen Europe, forgive each of these loans, including accrued interest, either in full or in part. As of December 31, 2019 and 2018, the
Company had USD equivalent of $10.6 million and $10.8 million of principal outstanding, respectively, and $6.2 million and $6.0 million of interest accrued,
respectively, which were presented in the product development obligations line on the consolidated balance sheets.
The Company is not a guarantor of these loans, and these loans are not repayable by FibroGen Europe until it has distributable funds.
138
8. Commitments and Contingencies
Lease Obligations
In 2006, upon signing the Company’s above-mentioned long-term property lease agreement with Alexandria, a stand-by letter of credit $7.3 million was
established which has been included in restricted time deposits on the Company’s consolidated balance sheet. Starting the fourth quarter of 2016, on an annual
basis, a portion of this letter of credit was released. As a result, the restriction of a $2.1 million was removed during the year ended December 31, 2019. The
agreement also included an expansion option to occupy part of an adjacent building, for which the Company gave notice to its landlord that it would not
exercise this expansion option. This resulted in a $5.0 million payment liability to the landlord which is being financed over the remaining lease term of its
lease. The related balance was $1.5 million as of December 31, 2019, with $0.4 million included in accrued and other current liabilities, and $1.1 million
included in long-term portion of lease obligations on the Company’s consolidated balance sheet.
Legal Proceedings
The Company a party to various legal actions that arose in the ordinary course of its business. The Company recognizes accruals for any legal action when it
concludes that a loss is probable and reasonably estimable. The Company did not have any material accruals for any currently active legal action in its
consolidated balance sheets as of December 31, 2019 and 2018, as it could not predict the ultimate outcome of these matters, or reasonably estimate the
potential exposure.
Indemnification Agreements
The Company enters into standard indemnification arrangements in the ordinary course of business, including for example, service, manufacturing and
collaboration agreements. Pursuant to these arrangements, the Company indemnifies, holds harmless, and agrees to reimburse the indemnified parties for
losses suffered or incurred by the indemnified party, including in connection with intellectual property infringement claims by any third party with respect to
its technology. The term of these indemnification agreements is generally perpetual any time after the execution of the agreement. The maximum potential
amount of future payments the Company could be required to make under these arrangements is not determinable. The Company has never incurred costs to
defend lawsuits or settle claims related to these indemnification agreements. As a result, the Company believes the estimated fair value of these arrangements
is minimal.
The Company has entered into indemnification agreements with its directors and officers that may require the Company to indemnify its directors and officers
against liabilities that may arise by reason of their status or service as directors or officers to the extent permissible under applicable law.
Some of the Company’s license agreements provide for periodic maintenance fees over specified time periods, as well as payments by the Company upon the
achievement of development, regulatory and commercial milestones. Future milestone payments for research and pre-clinical stage development programs
consisted of up to approximately $11.0 million in total potential future milestone payments under the Company’s license agreements with Dana-Farber
Cancer Institute, University of Miami and Medarex, Inc. These milestone payments generally become due and payable only upon the achievement of certain
developmental, clinical, regulatory and/or commercial milestones. The event triggering such payment or obligation has not yet occurred.
9.
Equity and Stock-based Compensation
Subsidiary Stock and Non-Controlling Interests
FibroGen Europe
As of December 31, 2019 and 2018, respectively, FibroGen Europe had a total of 42,619,022 shares of Preferred Stock outstanding, of which there were
1,700,845 shares of Series A Preferred Stock, 1,875,000 shares of Series B Preferred Stock, 1,599,503 shares of Series C Preferred Stock, 1,520,141 shares of
Series D Preferred Stock, 459,565 shares of Series E Preferred Stock, 5,714,332 shares of Series F Preferred Stock, 9,927,500 shares of Series G Preferred
Stock and 19,822,136 shares of Series H Preferred Stock, all of which shares no longer have any right to be exchanged for FibroGen, Inc. Common Stock.
The holders of FibroGen Europe’s shares of Preferred Stock (“Preferred Shares”) have the following rights, preferences and privileges:
Dividend Rights — When the assets of FibroGen Europe are distributed (except for distribution in a liquidation), Preferred Shares shall have the same
rights to dividend or other forms of distribution as shares of Common Stock of FibroGen Europe. In the event of a merger, holders of Preferred Shares
do not have the right to demand FibroGen Europe to redeem all or part of their Preferred Shares. FibroGen Europe may repurchase shares of Common
Stock or Preferred Shares for consideration.
139
Pre-emptive Right — Preferred Shares shall have pre-emptive subscription right in accordance with the Finnish Limited Liability Companies Act if
additional shares are issued, option rights are given, or convertible loan is taken, provided, however, that the foregoing pre-emptive right does not
apply to a directed share issue, for which two thirds (2/3) of the voting shares represented at a general meeting of shareholders approve for an
important legitimate cause.
Redemption Right — If a Preferred Share can be redeemed by a majority shareholder owning more than ninety percent (90%) of the shares of
FibroGen Europe in accordance with the provisions of the Finnish Limited Liability Companies Act, the minority holders of Preferred Shares have the
right to request redemption of their shares.
Voting Right — Each share has one vote. Preferred Shares have voting rights only in situations that are specifically provided in the Articles of
Association, which include a merger transaction and directed share issue. In addition, Preferred Shares have right to vote in a general shareholder
meeting for amending the Articles of Association if the amendment will affect the rights of Preferred Shares.
Conversion Right (1-for-1 basis into Common Stock of FibroGen Europe):
•
•
Voluntary conversion right: Preferred Shares can be converted into common shares upon the written request of a shareholder provided that the
conversion is feasible within the maximum and minimum amounts of shares of classes of FibroGen Europe as set forth in its Articles of
Association. Such request can be withdrawn before the notification of conversion is filed with the Finnish Trade Register.
Compulsory conversion right: Preferred Shares will be converted into common shares if (i) FibroGen Europe’s shares are listed in a stock
exchange or other trading system in the European Economic Area, or (ii) FibroGen Europe’s recombinant collagen and gelatin production
technology is being put into commercial use in the area of Europe and certain other European states. Commercial use means there is income
generated from the first commercial sale of the products incorporating the above mentioned technology and does not include license fees,
development financing, milestone payments or income from test products or equipment used in research. The board of directors of FibroGen
Europe shall notify the shareholders of the compulsory conversion in writing, and the shareholders shall request to convert their shares within
the timeframe provided in the notification. Should the shareholders fail to make the conversion request within the time limit, FibroGen Europe
may redeem the shares of such shareholders.
Liquidation Right — In the event of a dissolution of FibroGen Europe, holders of Preferred Shares are entitled to be paid in an amount equal to the
subscription price of the shares before any distribution is made to holders of common shares. Among holders of Preferred Shares, holders of shares of
Series F Preferred Stock are entitled to be paid in an amount equal to the subscription price of Series F Preferred Stock before any distribution is made
to holders of other Preferred Shares.
FibroGen China
FibroGen China had 6,758,000 Series A Preference Shares outstanding as of December 31, 2019 and 2018, respectively. The holders of the FibroGen China
Series A Preference Shares have the following rights, preferences and privileges:
Liquidation — In the event of liquidation, dissolution, or winding up of the Company, either voluntary or involuntary, including by means of a merger,
the holders of FibroGen China Series A Preference Shares are entitled to be paid an amount equal to the product of the number of shares held by a
holder of shares of FibroGen China Series A Preference Shares and the original issue price of $1.00 (subject to equitable adjustment for any stock
dividend, combination, split, reclassification, recapitalization) plus all declared and unpaid dividends thereon.
Conversion — Each share of FibroGen China Series A Preference Shares is convertible into the number of fully paid and non-assessable shares of
Common Stock of FibroGen China that results from dividing the original issue price by the conversion price in effect at the time of the conversion,
subject to adjustments for stock splits, stock dividends, reclassifications and like events. The FibroGen China Series A Preference Shares have a
conversion price that is equal to the original issuance price such that the conversion ratio to FibroGen China Common Stock is 1:1 as of all periods
presented.
Voting — The holders of FibroGen China Series A Preference Shares are entitled to vote together with the FibroGen China Common Stock holders on
all matters submitted for a vote of the stockholders. The holder of each share of FibroGen China Series A Preference Shares has the number of votes
equal to the number of shares of FibroGen China Common Stock into which it is convertible.
Dividends — The holders of FibroGen China Series A Preference Shares are entitled to receive cash dividends when and if declared, at a rate of 6%.
140
Non-Controlling Interests
Non-controlling interest positions related to the issuance of subsidiary stock as described above are reported as a separate component of consolidated equity
from the equity attributable to the Company’s stockholders at December 31, 2019 and 2018. In addition, the Company does not allocate losses to the non-
controlling interests as the outstanding shares representing the non-controlling interest do not represent a residual equity interest in the subsidiary. Upon the
initial public offering and as described above, all eligible FibroGen Europe preferred shares were exchanged for 958,996 shares of FibroGen Common Stock.
No other FibroGen Europe shares have the right to be exchanged for FibroGen, Inc. Common Stock.
Common Stock
Each share of Common Stock is entitled to one vote. The holders of Common Stock are also entitled to receive dividends whenever funds are legally
available and when declared by the board of directors, subject to the prior rights of holders of all classes of stock outstanding.
Shares of Common Stock outstanding, shares of stock plans outstanding and shares reserved for future issuance related to stock options and RSU grants and
the Company’s Employee Stock Purchase Plan (“ESPP”) purchases are as follows (in thousands):
Common stock outstanding
Stock options outstanding
RSUs outstanding
Common stock warrants outstanding
Shares reserved for future stock options and RSUs grant
Shares reserved for future ESPP offering
Total shares of common stock reserved
Stock Plans
Stock Option and RSU Plans
December 31,
2019
2018
87,657
10,018
1,483
—
7,725
3,337
110,220
85,432
10,430
1,428
4
6,041
2,618
105,953
Under the Company’s Amended and Restated 2005 Stock Plan (“2005 Stock Plan”), the Company may issue shares of Common Stock and options to
purchase Common Stock and other forms of equity incentives to employees, directors and consultants. Options granted under the 2005 Stock Plan may be
incentive stock options or nonqualified stock options. Incentive stock options (“ISO”) may be granted only to employees and officers of the Company.
Nonqualified stock options (“NSO”) and stock purchase rights may be granted to employees, directors and consultants. The board of directors has the
authority to determine to whom options will be granted, the number of options, the term and the exercise price. Options are to be granted at an exercise price
not less than fair market value for an ISO or an NSO. Options generally vest over four years. Options expire no more than 10 years after the date of grant.
Upon the effective date of the registration statement related to the Company’s initial public offering, the 2005 Plan was amended to cease the grant of any
additional awards thereunder, although the Company will continue to issue common stock upon the exercise of previously granted stock options under the
2005 Plan.
In September 2014, the Company adopted a 2014 Equity Incentive Plan (the “2014 Plan”) which became effective on November 13, 2014. The 2014 Plan is
the successor equity compensation plan to the 2005 Plan. The 2014 Plan will terminate on November 12, 2024. The 2014 Plan provides for the grant of
incentive stock options, nonqualified stock options, restricted stock awards, stock appreciation rights, performance stock awards, performance cash awards,
restricted stock units and other stock awards to employees, directors and consultants. Stock options granted must be at prices not less than 100% of the fair
market value at date of grant. Option vesting schedules are determined by the Company at the time of issuance and generally have a four year vesting
schedule (25% vesting on the first anniversary of the vesting base date and quarterly thereafter over the next 3 years). Options generally expire ten years from
the date of grant unless the optionee is a 10% stockholder, in which case the term will be five years from the date of grant. Unvested options exercised are
subject to the Company’s repurchase right. Shares reserved for issuance increases on January 1 of each year commencing on January 1, 2016 and ending on
January 1, 2024 by the lesser of (i) the amount equal to 4% of the number of shares issued and outstanding on December 31 immediately prior to the date of
increase or (ii) such lower number of shares as may be determined by the board of directors. As of December 31, 2019, the Company has reserved 7,724,691
shares of its common stock that remains unissued for issuance under the 2014 Plan.
Issuance of shares upon share option exercise or share unit conversion is made through issuance of new shares authorized under the plan.
141
Certain Common Stock option holders have the right to exercise unvested options, subject to a right held by the Company to repurchase the stock, at the
original exercise price, in the event of voluntary or involuntary termination of employment of the stockholder. The shares are generally released from
repurchase provisions ratably over four years. The Company accounts for the cash received in consideration for the early exercised options as a liability. At
December 31, 2019 and 2018, no shares of Common Stock were subject to repurchase by the Company.
Stock option transactions, including forfeited options granted under the 2014 Plan as well as prior plans, are summarized below:
Shares
(In thousands)
Weighted
Average
Exercise per
Share
Weighted
Average
Remaining
Contractual
Life
(In Years)
Aggregate
Intrinsic Value
(In thousands)
Outstanding at December 31, 2018
Granted
Exercised
Expired
Forfeited
Outstanding at December 31, 2019
Vested and expected to vest, December 31, 2019
Exercisable at December 31, 2019
10,430 $
1,909
(1,642)
(21)
(658)
10,018
10,018
7,318 $
20.25
53.75
10.15
50.40
44.65
26.63
26.63
18.63
5.17 $
5.17
3.89 $
193,226
193,226
183,707
The total intrinsic value of options exercised during the years ended December 31, 2019, 2018 and 2017 was $59.2 million, $97.5 million, and $111.9 million,
respectively.
The following table summarizes RSU activity:
Unvested at December 31, 2018
Granted
Vested
Forfeited
Unvested at December 31, 2019
Shares
(In thousands)
Fair Value at Grant
1,428 $
1,110
(715)
(340)
1,483 $
38.26
54.74
37.71
46.15
49.05
Among the vested RSUs during the year ended December 31, 2019, 448,647 shares were released and issued, while the remaining was withheld for the
related payroll taxes. The estimated weighted-average fair value of the awards granted during the years ended December 31, 2019, 2018 and 2017 was
$54.74, $53.69 and $26.59, respectively.
ESPP
In September 2014, the Company adopted a 2014 ESPP that became effective on November 13, 2014. The 2014 ESPP is designed to enable eligible
employees to periodically purchase shares of the Company’s common stock at a discount through payroll deductions of up to 15% of their eligible
compensation, subject to any plan or IRS limitations. At the end of each offering period, employees are able to purchase shares at 85% of the lower of the fair
market value of the Company’s common stock on the first trading day of the offering period or on the last day of the offering period. Purchases are
accomplished through participation in discrete offering periods. The 2014 ESPP is intended to qualify as an ESPP under Section 423 of the Internal Revenue
Code. The Company has reserved 1,600,000 shares of its common stock for issuance under the 2014 ESPP and shares reserved for issuance increases
January 1 of each year commencing January 1, 2016 by the lesser of (i) a number of shares equal to 1% of the total number of outstanding shares of common
stock on December 31 immediately prior to the date of increase; (ii) 1,200,000 shares or (iii) such number of shares as may be determined by the board of
directors. There were 135,115 shares, 230,317 shares and 250,834 shares purchased by employees under the 2014 Purchased Plan for the years ended
December 31, 2019, 2018 and 2017, respectively.
The expected term of 2014 ESPP shares is the average of the remaining purchase periods under each offering period.
142
Stock-Based Compensation
Stock-based compensation expense allocated to research and development and selling, general and administrative expense for the years ended December 31,
2019, 2018 and 2017 was as follows (in thousands):
Research and development
Selling, general and administrative
Total stock-based compensation expense
$
$
41,015 $
25,252
66,267 $
30,491 $
21,651
52,142 $
21,807
15,732
37,539
2019
Years Ended December 31,
2018
2017
The Company estimates the fair value of stock options using the Black-Scholes option valuation model. The fair value of employee stock options is being
amortized on a straight-line basis over the requisite service period of the awards.
Prior to the Company’s initial public offering, the Company, in making its determinations of the fair value of its Common Stock, considered a variety of
quantitative and qualitative factors, including (i) net present value of the Company’s projected earnings, (ii) fair market value of the stock of comparable
publicly-traded companies, (iii) any third party transactions involving the Company’s convertible preferred stock, (iv) liquidation preferences of the
Company’s preferred stock and the likelihood of conversion of the preferred stock, (v) changes in the Company’s business operations, financial condition and
results of operations over time, including cash balances and burn-rate, (vi) the status of new product development, and (vii) general financial market
conditions. Subsequent to the IPO, the fair market value of common stock is based on the closing price of the Company’s common stock as reported on the
NASDAQ Global Select Market on the date of the grant.
The fair value of employee stock-based compensation was estimated using the following assumptions:
•
•
•
•
Expected Term. Expressed as a weighted-average, the expected life of the options is based on the average period the stock options are expected to be
outstanding and was based on the Company’s historical information of the option exercise patterns and post-vesting termination behavior as well as
contractual terms of the instruments.
Expected Volatility. The Company considers its historical volatility data for volatility considerations for its ESPP. The expected volatility for all other
stock-based compensation is currently based upon the historical volatility of comparable public entities. In evaluating comparable companies, the
Company considered factors such as industry, stage of life cycle, size and duration as a public company.
Risk-Free Interest Rate. Expressed as a weighted-average, the risk-free interest rate assumption is based on the U.S. Treasury instruments whose term
was consistent with the expected term of the Company’s stock options.
Expected Dividend Yield. The Company has never declared or paid any cash dividends and does not plan to pay cash dividends in the foreseeable future.
The assumptions used to estimate the fair value of stock options granted and ESPPs using the Black-Scholes option valuation model were as follows:
Stock Options
Expected term (in years)
Expected volatility
Risk-free interest rate
Expected dividend yield
Weighted average estimated fair value
ESPPs
Expected term (in years)
Expected volatility
Risk-free interest rate
Expected dividend yield
Weighted average estimated fair value
2019
Years Ended December 31,
2018
2017
5.3
68.0 %
2.4 %
—
31.98
$
5.4
67.9 %
2.7 %
—
32.12
$
5.7
71.5 %
2.2 %
—
16.96
0.5 - 2.0
48.1 - 62.1 %
1.3 - 2.9 %
—
19.27
$
0.5 - 2.0
47.3 - 75.3 %
0.8 - 2.9 %
—
16.27
$
0.5 - 2.0
52.8 - 77.2 %
0.5 - 1.6 %
—
9.41
$
$
143
As of December 31, 2019, there was $57.5 million of total unrecognized compensation costs, net of estimated forfeitures, related to non-vested stock option
awards granted that will be recognized on a straight-line basis over the weighted-average period of 2.32 years. As of December 31, 2019, there was $52.9
million of total unrecognized compensation costs, net of estimated forfeitures, related to non-vested RSUs granted that will be recognized on a straight-line
basis over the weighted-average period of 2.36 years.
Warrants
During the year ended December 31, 2019, a warrant to purchase 4,430 shares of our common stock was exercised and there was no warrant to purchase
shares of Common Stock outstanding at December 31, 2019.
10. Net Loss Per Share
The following weighted impacts of outstanding securities were excluded from the calculation of diluted net loss per share because their effect would have
been anti-dilutive for the three years presented (in thousands):
Employee stock options
RSUs
ESPP
Warrants
11. FibroGen, Inc. 401(k) Plan
2019
Years Ended December 31,
2018
2017
7,602
1,187
260
1
9,050
7,815
820
195
4
8,834
8,936
799
206
4
9,945
Substantially all of the Company’s full-time United States of America-based employees are eligible to make contributions to the Company’s 401(k) Plan.
Under this plan, participating employees may defer up to 60% of their pretax salary during the year, but not more than statutory limits. The Company may
elect to match employee contributions. Matching contributions of $3.0 million, $2.9 million and $2.5 million were made during years ended December 31,
2019, 2018 and 2017, respectively.
12.
Income Taxes
The components of loss before income taxes are as follows (in thousands):
Domestic
Foreign
Loss before provision for income taxes
The provision for income taxes consists of the following (in thousands):
Current:
Federal
State
Foreign
Total current
Deferred:
Federal
State
Foreign
Total deferred
Total provision for income taxes
2019
Years Ended December 31,
2018
2,538 $
(79,180)
(76,642) $
(38,472) $
(47,644)
(86,116) $
2017
(80,735)
(39,819)
(120,554)
2019
Years Ended December 31,
2018
2017
— $
—
328
328
—
—
—
—
328 $
— $
2
302
304
—
—
—
—
304 $
—
2
319
321
—
—
—
—
321
$
$
$
$
144
The following is the reconciliation between the statutory federal income tax rate and the Company’s effective tax rate:
2019
Years Ended December 31,
2018
2017
Tax at statutory federal rate
State tax
Stock-based compensation expense
Change in deferred tax assets due to rate change
Change in valuation allowance due to rate change
Net operating losses not benefitted
Foreign net operating losses not benefitted
Orphan drug credit
Deduction limitation on executive compensation
Other
Total
Significant components of the Company’s deferred tax assets are as follows (in thousands):
Federal and state net operating loss carryforwards
Tax credit carryforwards
Foreign net operating loss carryforwards
Stock-based compensation
Lease obligations
Reserves and accruals
Deferred revenue
Fixed assets
Other
Subtotal
Less: Valuation allowance
Net deferred tax assets
Fixed assets
Other
Net deferred tax liabilities
Total net deferred tax assets
21.0%
—%
6.3%
—%
—%
(2.9)%
(21.7)%
—%
(2.5)%
(0.6)%
(0.4)%
$
21.0%
—%
14.5%
—%
—%
(23.2)%
(11.6)%
—%
(0.5)%
(0.6)%
(0.4)%
34.0%
—%
18.5%
43.9%
(43.9)%
(43.8)%
(6.7)%
(2.0)%
—%
(0.3)%
(0.3)%
December 31,
2019
2018
91,267 $
52,243
37,786
11,159
10,698
5,353
13,323
—
284
222,113
(213,847)
8,266
(8,266)
—
(8,266)
91,683
45,885
21,295
9,281
2,511
6,072
16,454
356
450
193,987
(193,987)
—
—
—
—
—
$
— $
A valuation allowance has been provided to reduce the deferred tax assets to an amount management believes is more likely than not to be realized. Expected
realization of the deferred tax assets for which a valuation allowance has not been recognized is based on upon the reversal of existing temporary differences
and future taxable income.
The valuation allowance increased by $19.9 million, $34.4 million and $30.5 million for the years ended December 31, 2019, 2018 and 2017, respectively.
Due to uncertainty surrounding the realization of the favorable tax attributes in the future tax returns, the Company has established a valuation allowance
against its otherwise recognizable net deferred tax assets.
At December 31, 2019, the Company had net operating loss carryforwards available to offset future taxable income of approximately $404.6 million and
$129.4 million for federal and state tax purposes, respectively. These carryforwards will begin to expire in 2026 for federal and 2020 for state purposes, if not
utilized before these dates. The Company also had foreign net operating loss carryforwards of approximately $152.2 million which expire between 2020 and
2029 if not utilized.
At December 31, 2019, the Company had approximately $54.1 million of federal and $29.4 million of California research and development tax credit and
other tax credit carryforwards available to offset future taxable income. The federal credits begin to expire in 2020 and the California research credits have no
expiration dates.
145
On December 22, 2017, the Tax Cuts and Jobs Act (“Tax Act”) was signed into law making significant changes to the Internal Revenue Code. Changes
include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, the transition of U.S
international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative
foreign earnings. In the fourth quarter of 2018, the Company completed its analysis to determine the effect of the Tax Act and no material adjustments were
recognized as of December 31, 2018. Developing interpretations of the provisions of the Tax Act, changes to U.S. Treasury regulations, administrative
interpretations or court decisions interpreting the Tax Act in the future periods may require further adjustments to the Company’s analysis.
Federal and state tax laws impose substantial restrictions on the utilization of net operating loss and credit carryforwards in the event of an “ownership
change” for tax purposes, as defined in IRC Section 382. The Company reviewed its stock ownership for year ended December 31, 2019 and concluded no
ownership changes occurred which would result in a reduction of its net operating loss or in its research and development credits expiring unused. If
additional ownership change occurs, the utilization of net operating loss and credit carryforwards could be significantly reduced.
Uncertain Tax Positions
The Company had unrecognized tax benefits of approximately $32.3 million as of December 31, 2019. Approximately $0.5 million of unrecognized tax
benefits, if recognized, would affect the effective tax rate. The interest accrued as of December 31, 2019 and 2018 was immaterial.
A reconciliation of the beginning and ending amounts of unrecognized income tax benefits during the three years ended December 31, 2019 is as follows (in
thousands):
Balance as of December 31, 2016
Increase due to prior positions
Increase due to current year position
Decrease due to U.S. tax rate change
Balance as of December 31, 2017
Increase due to prior positions
Increase due to current year position
Balance as of December 31, 2018
Decrease due to prior positions
Increase due to current year position
Balance as of December 31, 2019
Federal and State
19,654
303
5,448
(2,044)
23,361
379
4,216
27,956
(111)
4,418
32,263
$
$
Unrecognized tax benefits may change during the next twelve months for items that arise in the ordinary course of business. The Company does not anticipate
a material change to its unrecognized tax benefits over the next twelve months that would affect the Company’s effective tax rate.
The Company classifies interest and penalties as a component of tax expense, if any.
The Company files income tax returns in the U.S. federal jurisdiction, U.S. state and other foreign jurisdictions. The U.S. federal and U.S. state taxing
authorities may choose to audit tax returns for tax years beyond the statute of limitation period due to significant tax attribute carryforwards from prior years,
making adjustments only to carryforward attributes. The foreign statute of limitation generally remains open from 2010 to 2019. The Company is not
currently under audit in any tax jurisdiction.
13. Related Party Transactions
Astellas is an equity investor in the Company and considered a related party. During the years ended December 31, 2019, 2018 and 2017, the Company
recorded revenue related to collaboration agreements with Astellas of $122.5 million, $100.0 million, and $20.1 million, respectively. The related party
revenue for the year ended December 31, 2019 included a change in estimated variable consideration that resulted in a $36.3 million reduction to revenue
related to the product revenue of $64.8 million for API recorded in 2018. See Note 3 and below for details.
During the years ended December 31, 2019, 2018 and 2017, the Company recorded expense related to collaboration agreements with Astellas of $2.8 million,
$1.5 million and $1.0 million, respectively.
146
As of December 31, 2019 and 2018, accounts receivable from Astellas were $4.8 million and $47.2 million, respectively, and amounts due to Astellas were
$36.9 million and $0.4 million, respectively. The amounts due are included in accrued liabilities on the consolidated balance sheets. The accounts receivable
from Astellas as of December 31, 2018 included $43.8 million related to the delivery of roxadustat API to Astellas during the fourth quarter of 2018. The sale
of API was pursuant to the Japan Amendment allowing Astellas to manufacture roxadustat drug product for commercialization in Japan. The amount was
received during the first quarter of 2019. The amounts due to Astellas as of December 31, 2019 included $36.3 million of a change in estimated variable
consideration related to the API product revenue recognized in 2018, at the time the roxadustat listed price was issued by the Japanese Ministry of Health,
Labour and Welfare. Refer to Note 3 for details.
Prepaid expenses and other current assets as of December 31, 2019 included $125.2 million of net unbilled contract assets, representing a $130.0 million
unbilled contract asset related to two regulatory milestones under the Europe Agreement with Astellas associated with the planned MAA submission to the
EMA, net of $4.8 million of associated deferred revenue. See Note 3 for details. According to the Europe Agreement, this $130.0 million is not billable to
Astellas until the submission of an MAA, therefore the net contract asset was included in the prepaid expenses and other current assets line on the Company’s
consolidated balance sheet as of December 31, 2019. There was no such contract asset balance as of December 31, 2018.
14. Segment and Geographic Information
The Company has determined that the chief executive officer is the chief operating decision maker (“CODM”). The CODM reviews financial information
presented for the Company’s various clinical trial programs as well as results on a consolidated basis. License revenues and development revenues received
are not allocated to various programs for purposes of determining a profit measure and resource allocation decisions are made by the CODM based primarily
on consolidated results. As such, the Company has concluded that it operates as one segment. Supplemental enterprise-wide information has been presented
below.
Geographic Revenues
Geographic revenues, which are based on the bill-to region, are as follows (in thousands):
Europe
Japan (related party)
All other
Total revenue
2019
Years Ended December 31,
2018
2017
$
$
132,400 $
122,475
1,702
256,577 $
112,916
100,002
40
212,958
$
$
110,861
20,111
24
130,996
Revenues to other regions include the Company commercial sales of roxadustat drug product in China starting in the third quarter of 2019. See Note 3 for
details.
Geographic Long-Lived Assets
Property and equipment, net by geographic location are as follows (in thousands):
United States
China
Total property and equipment
December 31,
2019
2018
27,325 $
15,418
42,743 $
103,539
23,659
127,198
$
$
147
Finance lease right-of-use assets and operating lease right-of-use assets, net by geographic location are as follows (in thousands):
United States
China
Total finance lease right-of-use assets
United States
China
Total operating lease right-of-use assets
December 31,
2019
2018
$
$
$
$
39,237 $
365
39,602 $
75 $
1,856
1,931 $
—
—
—
—
—
—
Customer Concentration
Substantially all of the Company’s revenues to date have been generated from the following collaboration partners that respectively accounted for 10% or
more of the Company’s total revenue and accounts receivable:
Astellas—Related party
AstraZeneca
Percentage of Revenue
Years Ended December 31,
2018
2019
48%
52%
47%
53%
Percentage of Accounts Receivable
December 31,
2017
2019
2018
15%
85%
17%
81%
74%
26%
148
Schedule II: Valuation and Qualifying Accounts
(in thousands)
Balance at
Beginning of
Year
Charged
(Credited)
to Statement
of Operation
Charged
to Other
Accounts -
Equity
Deductions,
Net
Balance at
End of Year
Valuation allowances for deferred tax assets
Year ended December 31, 2019
Year ended December 31, 2018
Year ended December 31, 2017
$
$
$
193,987 $
159,540 $
128,995 $
19,860 $
34,447 $
11,039 $
— $
— $
19,506 $
— $
— $
— $
213,847
193,987
159,540
149
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None.
ITEM 9A. CONTROLS AND PROCEDURES
Attached as exhibits 31.1 and 31.2 to this Annual Report on Form 10-K are certifications of our Chief Executive Officer and our Chief Financial Officer
required by Rule 13a-14(a) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Rule 13a-14(a) and 15d-15(e)
Certifications”). This Controls and Procedures section of the Annual Report on Form 10-K includes the information concerning the controls evaluation
referred to in the Rule 13a-14(a) and 15d-15(e) Certifications.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure
controls and procedures as of December 31, 2019, the end of the period covered by this Annual Report on Form 10-K. Disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are designed to provide reasonable
assurance that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms and that such information is
accumulated and communicated to the company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow
timely decisions regarding required disclosure.
Based on management’s evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures
were effective as of December 31, 2019 at the reasonable assurance level.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rule 13a-15(f) of
the Exchange Act. Our internal control over financial reporting is a process established under the supervision of and with the participation of our
management, including our Chief Executive Officer and our Chief Financial Officer. Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls
may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management, with the participation and under the supervision of our Chief Executive Officer and our Chief Financial Officer, evaluated our internal control
over financial reporting as of December 31, 2019, the end of our fiscal year, using the criteria established in Internal Control - Integrated Framework (2013)
set forth by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on management’s evaluation of our internal control over financial reporting, management concluded that our internal control over financial reporting
was effective as of December 31, 2019.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2019 has been audited by PricewaterhouseCoopers LLP, an
independent registered public accounting firm, as stated in their report which appears herein.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of
the Exchange Act that occurred during the most recent fiscal quarter ended December 31, 2019 that materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
150
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this item is incorporated by reference to our Proxy Statement for our 2020 Annual Meeting of Stockholders to be filed with the
SEC within 120 days after the end of the fiscal year ended December 31, 2019.
Code of Conduct
We have adopted a Code of Business Conduct which applies to all of our directors, officers and employees. A copy of our Code of Business Conduct can be
found on our website (www.FibroGen.com) under “Corporate Governance.” The contents of our website are not a part of this report.
In addition, we intend to promptly disclose the nature of any amendment to, or waiver from, our Code of Business Conduct that applies to our principal
executive officer, principal financial officer, principal accounting officer or persons performing similar functions on our website in the future.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to our Proxy Statement for our 2020 Annual Meeting of Stockholders to be filed with the
SEC within 120 days after the end of the fiscal year ended December 31, 2019.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
The information required by this item is incorporated by reference to our Proxy Statement for our 2020 Annual Meeting of Stockholders to be filed with the
SEC within 120 days after the end of the fiscal year ended December 31, 2019.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this item is incorporated by reference to our Proxy Statement for our 2020 Annual Meeting of Stockholders to be filed with the
SEC within 120 days after the end of the fiscal year ended December 31, 2019.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this item is incorporated by reference to our Proxy Statement for our 2020 Annual Meeting of Stockholders to be filed with the
SEC within 120 days after the end of the fiscal year ended December 31, 2019.
151
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) We have filed the following documents as part of this Annual Report on Form 10-K:
1. Consolidated Financial Statements
Information in response to this Item is included in Part II, Item 8 of this Annual Report on Form 10-K.
2. Financial Statement Schedules
Schedule II is included on page 166. All other schedules are omitted because they are not required or the required information is included in the
consolidated financial statements or notes thereto.
3. Exhibits
See Item 15(b) below.
(b) Exhibits—We have filed, or incorporated into this Annual Report on Form 10-K by reference, the exhibits listed below. Where an exhibit is incorporated
by reference, the number in parentheses indicates the document to which cross-reference is made. Refer to the end of this table for a listing of cross-reference
documents.
Exhibit
Number
3.1
3.2
4.1
4.2
4.3
Exhibit Description
Amended and Restated Certificate of Incorporation of
FibroGen, Inc.
Form
8-K
Incorporation By Reference
SEC File No.
Exhibit
001-36740
Amended and Restated Bylaws of FibroGen, Inc.
S-1/A
333-199069
Form of Common Stock Certificate.
Shareholders’ Agreement by and among FibroGen
International (Cayman) Limited and certain of its
shareholders, dated as of September 8, 2017.
Common Stock Purchase Agreement by and between
FibroGen, Inc. and AstraZeneca AB, dated as of
October 20, 2014.
8-K
10-Q
001-36740
001-36740
3.1
3.4
4.1
4.6
Filing Date
11/21/2014
10/23/2014
11/21/2014
11/8/2017
S-1/A
333-199069
4.17
10/24/2014
—
S-1
S-1
—
333-199069
333-199069
—
10.3(i)
10.3(ii)
—
10/1/2014
10/1/2014
S-1
333-199069
10.3(iii)
10/1/2014
S-1
333-199069
10.3(iv)
10/1/2014
4.4*
Description of Capital Stock of FibroGen, Inc.
10.1(i)+
FibroGen, Inc. Amended and Restated 2005 Stock Plan.
10.1(ii)+
10.1(iii)+
10.1(iv)+
Forms of stock option agreement, restricted stock purchase
agreement and stock appreciation right agreement under
the FibroGen, Inc. Amended and Restated 2005 Stock
Plan.
Form of stock option agreement under the FibroGen, Inc.
Amended and Restated 2005 Stock Plan applicable to
options exchanged pursuant to FibroGen, Inc.’s 2010
amendment and exchange offer.
Form of 2010 amendment to the form of stock option
agreement under the FibroGen, Inc. Amended and Restated
2005 Stock Plan applicable to options amended pursuant to
FibroGen, Inc.’s 2010 amendment and exchange offer.
152
10.1(v)+
10.2+
10.3+
10.4+
10.5+
10.6
10.7
10.8+
10.9†
10.9(i)†
10.10†
Form of 2013 amendment to the form of stock option
agreement under the FibroGen, Inc. Amended and Restated
2005 Stock Plan applicable to options amended or exchanged
pursuant to FibroGen, Inc.’s 2010 amendment and exchange
offer.
FibroGen, Inc. 2014 Equity Incentive Plan and forms of
agreement thereunder.
S-1
333-199069
10.3(v)
10/1/2014
S-1/A 333-199069
10.4
11/12/2014
FibroGen, Inc. 2014 Employee Stock Purchase Plan.
S-1/A 333-199069
FibroGen, Inc. Non-Employee Director Compensation Policy,
as amended.
10-Q
001-36740
10.5
10.6
10.5
10.8
11/12/2014
11/12/2019
2/16/2018
10/1/2014
8-K
S-1
001-36740
333-199069
FibroGen, Inc. 2018 Bonus Plan.
Lease Agreement by and between FibroGen, Inc. and X-4
Dolphin LLC, dated as of September 22, 2006; as amended by
First Amendment to Lease by and between FibroGen, Inc. and
X-4 Dolphin LLC, dated as of October 10, 2007; as amended
by Second Amendment to Lease by and between FibroGen, Inc.
and X-4 Dolphin LLC, dated as of June 29, 2009; as amended
by Third Amendment to Lease by and between FibroGen, Inc.
and Are-San Francisco No. 43, LLC (as successor in interest to
X-4 Dolphin LLC), dated as of May 19, 2011; as amended by
Fourth Amendment to Lease by and between FibroGen, Inc.
and Are-San Francisco No. 43, LLC, dated as of September 8,
2011.
Lease for Premises in Beijing BDA Biomedical Park by and
among Beijing FibroGen Medical Technology Development
Co., Ltd., Beijing Economic and Technology Investment
Development Parent Company and Beijing BDA International
Biological Pharmaceutical Investment Management Co., Ltd.,
effective as of February 1, 2013, as supplemented by the
Supplementary Agreement to Lease of Premises in Beijing
BDA Biomedical Park by and among Beijing FibroGen
Medical Technology Development Co., Ltd., Beijing Economic
Technology Investment Development Parent Company and
Beijing BDA International Biological Pharmaceutical
Investment Management Co., Ltd., dated as of January 30,
2013.
S-1
333-199069
10.9
10/1/2014
Form of Employment Offer Letter.
S-1
333-199069
10.10
Collaboration Agreement, by and between FibroGen, Inc. and
Astellas Pharma Inc., effective as of June 1, 2005.
10-Q
001-36740
10.9
10/1/2014
11/8/2017
Amendment No. 1 to Collaboration Agreement, by and between
FibroGen, Inc. and Astellas Pharma Inc., effective as of
January 1, 2013.
Anemia License and Collaboration Agreement, by and between
FibroGen, Inc. and Astellas Pharma Inc., effective as of
April 28, 2006.
153
10-K
001-36740
10.9(i)
2/27/2019
S-1
333-199069
10.12
10/1/2014
10.11†
10.12
10.13†
10.14†
10.15†
10.16†
10.17†
10.18†
10.19
10.20
10.21†
10.22†
10.23
Amendment to Anemia License and Collaboration Agreement,
by and between FibroGen, Inc. and Astellas Pharma Inc.,
effective as of August 31, 2006.
Amendment No. 2 to Anemia License and Collaboration
Agreement, by and between FibroGen, Inc. and Astellas
Pharma Inc., effective as of December 1, 2006.
Supplement to Anemia License and Collaboration Agreement,
by and between FibroGen, Inc. and Astellas Pharma Inc.,
effective as of April 28, 2006.
Amendment No. 3 to Anemia License and Collaboration
Agreement, by and between FibroGen, Inc. and Astellas
Pharma Inc., dated as of May 10, 2012.
Amended and Restated License, Development and
Commercialization Agreement (China) by and among FibroGen
China Anemia Holdings, Ltd., Beijing FibroGen Medical
Technology Development Co., Ltd., FibroGen International
(Hong Kong) Limited and AstraZeneca AB, effective as of
July 30, 2013.
Amended and Restated License, Development and
Commercialization Agreement by and between Registrant and
AstraZeneca AB, effective as of July 30, 2013.
License Agreement by and between FibroGen, Inc. and the
University of Miami and its School of Medicine, dated as of
May 23, 1997.
First Amendment to May 23, 1997 License Agreement by and
between FibroGen, Inc. and University of Miami, effective as
of July 29, 1999.
Research and Commercialization Agreement by and among
FibroGen, Inc., GenPharm International Inc., Medarex, Inc. and
FibroPharma, Inc., effective as of July 9, 1998.
Amendment No. 1 to Research and Commercialization
Agreement by and among FibroGen, Inc., GenPharm
International Inc., Medarex, Inc. and FibroPharma, Inc.,
effective as of June 30, 2001.
Amendment No. 2 to Research and Commercialization
Agreement by and among FibroGen, Inc., GenPharm
International Inc., Medarex, Inc. and FibroPharma, Inc.,
effective as of January 28, 2002.
License Agreement by and between FibroGen, Inc. and the
Dana-Farber Cancer Institute, Inc., effective as of March 29,
2006.
Amendment No. 1 to License agreement by and between
FibroGen, Inc. and Dana-Farber Cancer Institute, Inc., effective
as of February 28, 2006.
154
S-1
333-199069
10.13
10/1/2014
S-1
333-199069
10.14
10/1/2014
S-1
333-199069
10.15
10/1/2014
S-1
333-199069
10.16
10/1/2014
S-1/A 333-199069
10.17
10/23/2014
10-Q/A
001-36740
10.16
12/14/2017
S-1
333-199069
10.19
10/1/2014
S-1
333-199069
10.20
10/1/2014
S-1
333-199069
10.21
10/1/2014
S-1
333-199069
10.22
10/1/2014
S-1
333-199069
10.23
10/1/2014
S-1
333-199069
10.24
10/1/2014
S-1
333-199069
10.25
10/1/2014
10.24
10.25+
10.26(i)†
10.26(ii)†
10.26(iii)†
10.26(iv)†
10.26(v)†
10.26(vi)†
10.26(vii)†
10.26(viii)†
10.26(ix)†
10.26(x)†
10.26(xi)†
Amendment No. 2 to License Agreement by and between
FibroGen, Inc. and Dana-Farber Cancer Institute, Inc., effective
as of March 14, 2006.
Form of Indemnity Agreement by and between FibroGen, Inc.
and its directors and officers.
Process Development and Clinical Supply Agreement by and
between FibroGen, Inc. and Boehringer Ingelheim Pharma
GmbH & Co. KG, effective as of November 29, 2007.
Letter Agreement by and between FibroGen, Inc. and
Boehringer Ingelheim Pharma GmbH & Co. KG, effective as of
June 26, 2008.
Letter Agreement by and between FibroGen, Inc. and
Boehringer Ingelheim Pharma GmbH & Co. KG, effective as of
August 18, 2008.
Amendment No. 1 to the Process Development and Clinical
Supply Agreement by and between FibroGen, Inc. and
Boehringer Ingelheim Pharma GmbH & Co. KG, effective as of
May 28, 2009.
Amendment No. 3 to the Process Development and Clinical
Supply Agreement by and between FibroGen, Inc. and
Boehringer Ingelheim Pharma GmbH & Co. KG, effective as of
November 5, 2010.
Amendment No. 4 to the Process Development and Clinical
Supply Agreement by and between FibroGen, Inc. and
Boehringer Ingelheim Pharma GmbH & Co. KG, effective as of
January 24, 2011.
Amendment No. 5 to the Process Development and Clinical
Supply Agreement by and between FibroGen, Inc. and
Boehringer Ingelheim Pharma GmbH & Co. KG, effective as of
April 15, 2011.
Amendment No. 6 to the Process Development and Clinical
Supply Agreement by and between FibroGen, Inc. and
Boehringer Ingelheim Pharma GmbH & Co. KG, effective as of
May 26, 2011.
Amendment No. 7 to the Process Development and Clinical
Supply Agreement by and between FibroGen, Inc. and
Boehringer Ingelheim Pharma GmbH & Co. KG, effective as of
January 1, 2012.
Amendment No. 8 to the Process Development and Clinical
Supply Agreement by and between FibroGen, Inc. and
Boehringer Ingelheim Pharma GmbH & Co. KG, effective as of
July 10, 2012.
Amendment No. 9 to the Process Development and Clinical
Supply Agreement by and between FibroGen, Inc. and
Boehringer Ingelheim Pharma GmbH & Co. KG, effective as of
November 26, 2012.
155
S-1
333-199069
10.26
10/1/2014
S-1/A 333-199069
10.27
10/23/2014
S-1
333-199069
10.28(i)
10/1/2014
S-1
333-199069
10.28(ii)
10/1/2014
S-1
333-199069
10.28(iii)
10/1/2014
S-1
333-199069
10.28(iv)
10/1/2014
S-1
333-199069
10.28(v)
10/1/2014
S-1
333-199069
10.28(vi)
10/1/2014
S-1
333-199069
10.28(vii)
10/1/2014
S-1
333-199069
10.28(viii)
10/1/2014
S-1
333-199069
10.28(ix)
10/1/2014
S-1
333-199069
10.28(x)
10/1/2014
S-1
333-199069
10.28(xi)
10/1/2014
10.26(xii)†
10.26(xiii)†
10.26(xiv)†
10.26(xv)†
10.26(xvi)†
10.26(xvii)†
10.26(xviii)†
10.26(xix)†
10.26(xx)†
10.26(xxi)†
10.26(xxii)†
10.26(xxiii)†
Amendment No. 10 to the Process Development and Clinical
Supply Agreement by and between FibroGen, Inc. and
Boehringer Ingelheim Pharma GmbH & Co. KG, effective as of
June 21, 2013.
Amendment No. 11 to the Process Development and Clinical
Supply Agreement by and between FibroGen, Inc. and
Boehringer Ingelheim Pharma GmbH & Co. KG, effective as of
July 9, 2013.
Amendment No. 12 to the Process Development and Clinical
Supply Agreement by and between FibroGen, Inc. and
Boehringer Ingelheim Pharma GmbH & Co. KG, effective as of
August 1, 2013.
Amendment No. 13 to the Process Development and Clinical
Supply Agreement by and between FibroGen, Inc. and
Boehringer Ingelheim Pharma GmbH & Co. KG, effective as of
March 6, 2014.
Amendment No. 14 to the Process Development and Clinical
Supply Agreement by and between FibroGen, Inc. and
Boehringer Ingelheim Pharma GmbH & Co. KG, effective as of
February 5, 2014.
Amendment No. 15 to the Process Development and Clinical
Supply Agreement by and between FibroGen, Inc. and
Boehringer Ingelheim Pharma GmbH & Co. KG, effective as of
October 20, 2014.
Amendment No. 16 to the Process Development and Clinical
Supply Agreement by and between FibroGen, Inc. and
Boehringer Ingelheim Pharma GmbH & Co. KG, effective as of
December 8, 2014.
Amendment No. 17 to the Process Development and Clinical
Supply Agreement by and between FibroGen, Inc. and
Boehringer Ingelheim Pharma GmbH & Co. KG, effective as of
December 8, 2014.
Amendment No. 18 to the Process Development and Clinical
Supply Agreement by and between FibroGen, Inc. and
Boehringer Ingelheim Pharma GmbH & Co. KG, effective as of
February 15, 2015.
Amendment No. 19 to the Process Development and Clinical
Supply Agreement by and between FibroGen, Inc. and
Boehringer Ingelheim Pharma GmbH & Co. KG, effective as of
March 1, 2015.
Amendment No. 20 to the Process Development and Clinical
Supply Agreement by and between FibroGen, Inc. and
Boehringer Ingelheim Pharma GmbH & Co. KG, effective as of
June 1, 2015.
Amendment No. 21 to the Process Development and Clinical
Supply Agreement by and between FibroGen, Inc. and
Boehringer Ingelheim Pharma GmbH & Co. KG, effective as of
May 29, 2015.
156
S-1
333-199069
10.28(xii)
10/1/2014
S-1
333-199069
10.28(xiii)
10/1/2014
S-1
333-199069
10.28(xiv)
10/1/2014
S-1
333-199069
10.28(xv)
10/1/2014
S-1
333-199069
10.28(xvi)
10/1/2014
10-Q
001-36740
10.28(xvii)
11/12/2015
10-Q
001-36740
10.28(xviii)
11/12/2015
10-Q
001-36740
10.28(xix)
11/12/2015
10-Q
001-36740
10.28(xx)
11/12/2015
10-Q
001-36740
10.28(xxi)
11/12/2015
10-Q
001-36740
10.28(xxii)
11/12/2015
10-Q
001-36740
10.28(xxiii)
11/12/2015
10.26(xxiv)†
10.26(xxv)†
10.26(xxvi)†
10.26(xxvii)†
10.26(xxviii)†
10.26(xxix)†
10.26(xxx)†
10.26(xxxi)†
10.26(xxxii)†
10.26(xxxiii)†
Amendment No. 23 to the Process Development and Clinical
Supply Agreement by and between FibroGen, Inc. and
Boehringer Ingelheim Pharma GmbH & Co. KG, effective as of
September 1, 2015.
Amendment No. 22 to the Process Development and Clinical
Supply Agreement, by and between FibroGen, Inc. and
Boehringer Ingelheim Biopharmaceuticals GmbH, effective as
of April 14, 2016.
Amendment No. 24 to the Process Development and Clinical
Supply Agreement, by and between FibroGen, Inc. and
Boehringer Ingelheim Biopharmaceuticals GmbH, retroactively
effective as of September 15, 2015.
Amendment No. 25 to the Process Development and Clinical
Supply Agreement, by and between FibroGen, Inc. and
Boehringer Ingelheim Biopharmaceuticals GmbH, retroactively
effective as of October 15, 2015.
Amendment No. 26 to the Process Development and Clinical
Supply Agreement, by and between FibroGen, Inc. and
Boehringer Ingelheim Biopharmaceuticals GmbH, effective as
of June 30, 2016.
Amendment No. 27 to the Process Development and Clinical
Supply Agreement, by and between FibroGen, Inc. and
Boehringer Ingelheim Biopharmaceuticals GmbH, effective as
of July 25, 2016.
Amendment No. 28 to the Process Development and Clinical
Supply Agreement, by and between FibroGen, Inc. and
Boehringer Ingelheim Biopharmaceuticals GmbH, effective as
of September 22, 2016.
Amendment No. 29 to the Process Development and Clinical
Supply Agreement, by and between FibroGen, Inc. and
Boehringer Ingelheim Biopharmaceuticals GmbH, effective as
of December 20, 2016.
Amendment No. 30 to the Process Development and Clinical
Supply Agreement, by and between FibroGen, Inc. and
Boehringer Ingelheim Biopharmaceuticals GmbH, effective as
of December 20, 2016.
Amendment No. 31 to the Process Development and Clinical
Supply Agreement, by and between FibroGen, Inc. and
Boehringer Ingelheim Biopharmaceuticals GmbH, effective as
of March 2, 2017
157
10-Q
001-36740
10.28(xxiv)
11/12/2015
10-Q
001-36740
10.26(xxv)
8/8/2016
10-Q
001-36740
10.26(xxvi)
8/8/2016
10-Q
001-36740
10.26(xxvii)
8/8/2016
10-Q
001-36740
10.26(xxviii)
8/8/2016
10-Q
001-36740
10.26(xxix)
11/8/2016
10-Q
001-36740
10.26(xxx)
11/8/2016
10-K
001-36740
10.26(xxxi)
3/1/2017
10-K
001-36740
10.26(xxxii)
3/1/2017
10-Q
001-36740
10.26(xxxiii)
5/9/2017
10.26(xxxiv)†
10.26(xxxv)†
10.26(xxxvi)†
10.27†
10.28*†
10.29+
10.30+
10.31+
10.32*+
10.33*+
10.34*+
10.35*+
21.1
23.1*
24.1*
31.1*
31.2*
Amendment No. 32 to the Process Development and Clinical
Supply Agreement, by and between FibroGen, Inc. and
Boehringer Ingelheim Biopharmaceuticals GmbH, effective as
of September 1, 2017
Work Order No. 1 to the Process Development and Clinical
Supply Agreement, by and between FibroGen, Inc. and
Boehringer Ingelheim Biopharmaceuticals GmbH, effective as
of September 1, 2017
Amendment No. 33 to the Process Development and Clinical
Supply Agreement, by and between FibroGen, Inc. and
Boehringer Ingelheim Biopharmaceuticals GmbH, effective as
of January 4, 2019
State-Owned Construction Land Use Right Granting Contract
by and between FibroGen (China) Medical Technology
Development Co., Ltd. and The Bureau of Land and Resources
of Cangzhou, dated as of February 24, 2017
Commercial Supply Agreement by and between FibroGen, Inc.
and Catalent Pharma Solutions, LLC, effective as of January 1,
2020
Offer Letter, by and between FibroGen, Inc. and Pat Cotroneo,
dated as of October 23, 2000.
Offer Letter, by and between FibroGen, Inc. and K. Peony Yu,
dated as of November 21, 2008.
Offer Letter, by and between FibroGen, Inc. and James
Schoeneck, dated as of September 18, 2019.
Offer Letter, by and between FibroGen, Inc. and Christine
Chung, dated as of June 17, 2008.
Offer Letter, by and between FibroGen, Inc. and Elias
Kouchakji, dated as of January 24, 2014.
Offer Letter, by and between FibroGen, Inc. and Enrique
Conterno, dated as of December 17, 2019.
Form of Executive Officer Change in Control and Severance
Agreement
10-K
001-36740
10.26(xxxiv)
2/27/2018
10-K
001-36740
10.26(xxxv)
2/27/2018
10-Q
001-36740
10.26(xxxvi)
5/9/2019
10-Q
001-36740
10.32
5/9/2017
--
--
--
--
S-1
333-199069
10.31
10/1/2014
S-1
333-199069
10.30
10/1/2014
10-Q
001-36740
10.7
11/12/2019
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
--
Subsidiaries of FibroGen, Inc.
S-1/A 333-199069
21.1
10/24/2014
Consent of PricewaterhouseCoopers LLP.
Power of Attorney (included in signature pages).
Certification of Chief Executive Officer, as required by Rule
13a-14(a) or Rule 15d-14(a).
Certification of Chief Financial Officer, as required by Rule
13a-14(a) or Rule 15d-14(a).
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—
—
—
—
—
—
—
—
158
32.1*
Certification of Principal Executive Officer and Principal
Financial Officer, as required by Rule 13a-14(b) or Rule 15d-
14(b) and Section 1350 of Chapter 63 of Title 18 of the United
States Code (18 U.S.C. §1350)(1).
101.INS*
Inline XBRL Instance Document
101.SCH*
Inline XBRL Taxonomy Schema Linkbase Document
101.CAL*
Inline XBRL Calculation Linkbase Document
101.DEF*
Inline XBRL Definition Linkbase Document
101.LAB*
Inline XBRL Labels Linkbase Document
101.PRE*
Inline XBRL Taxonomy Presentation Linkbase Document
Cover Page Interactive Data File (embedded within the inline
XBRL document)
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Filed herewith.
Confidential Information Omitted.
Indicates a management contract or compensatory plan.
This certification accompanies the Form 10-K to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be
incorporated by reference into any filing of FibroGen, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as
amended (whether made before or after the date of the Form 10-K), irrespective of any general incorporation language contained in such filing.
(c) Financial Statement Schedules—See (a) 2 above. All other financial statement schedules are omitted because they are not applicable because the
requested information is included in the consolidated financial statements or notes thereto.
ITEM 16. FORM 10-K SUMMARY
None
159
104
*
†
+
(1)
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this Annual Report on
Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of San Francisco, State of California.
SIGNATURES
Date: March 2, 2020
Date: March 2, 2020
FIBROGEN, INC.
/s/ Enrique Conterno
Enrique Conterno
Chief Executive Officer
(Principal Executive Officer)
/s/ Pat Cotroneo
Pat Cotroneo
Senior Vice President, Finance and Chief Financial Officer
(Principal Financial and Accounting Officer)
By:
By:
160
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Enrique Conterno and Pat
Cotroneo, jointly and severally, his or her attorneys-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any
amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith with the Securities
and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature
/s/ Enrique Conterno
Enrique Conterno
/s/ Pat Cotroneo
Pat Cotroneo
/s/ James A. Schoeneck
James A. Schoeneck
/s/ Suzanne Blaug
Suzanne Blaug
/s/ Jeffrey L. Edwards
Jeffrey L. Edwards
/s/ Jeffrey W. Henderson
Jeffrey W. Henderson
/s/ Maykin Ho, Ph.D.
Maykin Ho, Ph.D.
/s/ Thomas F. Kearns Jr.
Thomas F. Kearns Jr.
/s/ Kalevi Kurkijärvi, Ph.D.
Kalevi Kurkijärvi, Ph.D.
/s/ Gerald Lema
Gerald Lema
/s/ Rory B. Riggs
Rory B. Riggs
/s/ Roberto Pedro Rosenkranz, Ph.D., M.B.A.
Roberto Pedro Rosenkranz, Ph.D., M.B.A.
/s/ Toshinari Tamura, Ph.D.
Toshinari Tamura, Ph.D.
Title
Chief Executive Officer
(Principal Executive Officer)
Date
March 2, 2020
Senior Vice President, Finance and Chief Financial Officer
(Principal Financial and Accounting Officer)
March 2, 2020
Chairman of the Board and Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
161
March 2, 2020
March 2, 2020
March 2, 2020
March 2, 2020
March 2, 2020
March 2, 2020
March 2, 2020
March 2, 2020
March 2, 2020
March 2, 2020
March 2, 2020
DESCRIPTION OF CAPITAL STOCK
Exhibit 4.4
General
The following description summarizes the most important terms of our capital stock. Because it is only a summary, it does not contain all the
information that may be important to you. For a complete description of the matters set forth in this “Description of Capital Stock,” you should refer to our
amended and restated certificate of incorporation and amended and restated bylaws, which are included as exhibits to our Annual Report on Form 10-K, and
to the applicable provisions of Delaware law.
Our authorized capital stock consists of 225,000,000 shares of common stock, par value $0.01 per share and 125,000,000 shares of preferred
stock, par value $0.01 per share.
Common Stock
Voting Rights
Each holder of our common stock is entitled to one vote for each share of common stock held on all matters submitted to a vote of stockholders,
except as otherwise expressly provided in our amended and restated certificate of incorporation or required by applicable law. We have not provided for
cumulative voting for the election of directors in our amended and restated certificate of incorporation.
Economic Rights
Dividends and Distributions. Subject to the prior rights of holders of all classes and series of stock at the time outstanding having prior rights as to
dividends, the holders of common stock will be entitled to receive, when, as and if declared by our board of directors, out of any assets legally available
therefor, such dividends as may be declared from time to time by our board of directors.
Liquidation Rights. In the event of our liquidation, dissolution or winding-up, upon the completion of the distributions required with respect to any
series of preferred stock that may then be outstanding, the remaining assets legally available for distribution to stockholders shall be distributed ratably among
the holders of common stock and any participating preferred stock outstanding at that time.
Holders of common stock have no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund
provisions applicable to the common stock.
Preferred Stock
Our amended and restated certificate of incorporation provides that our board of directors may, without further action by our stockholders, fix the
rights, preferences, privileges and restrictions of up to an aggregate of 125,000,000 shares of preferred stock in one or more series and authorize their
issuance. These rights, preferences and privileges could include dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences,
sinking fund terms and the number of shares constituting any series or the designation of such series, any or all of which may be greater than the rights of our
common stock. The issuance of our preferred stock could adversely affect the voting power of holders of our common stock and the likelihood that such
holders will receive dividend payments and payments upon liquidation, which could decrease the market price of our common stock. In addition, the issuance
of preferred stock could have the effect of delaying, deferring or preventing a change of control or other corporate action. No shares of preferred stock are
outstanding, and we have no present plan to issue any shares of preferred stock.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is American Stock Transfer & Trust Company. Its address is 6201 15th Avenue, Brooklyn,
New York 11219.
Exhibit 4.4
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted because it is both (i) not material and (ii) would likely cause
competitive harm to the company if publicly disclosed.
Exhibit 10.28
Confidential
COMMERCIAL SUPPLY AGREEMENT
(Roxadustat)
This Commercial Supply Agreement (the “Agreement”) is effective as of January 1, 2020 (the “Effective Date”), by and between
FibroGen, Inc., a Delaware corporation with offices located at 409 Illinois Street, San Francisco, California 94158, and its Affiliates
(collectively, “FibroGen”), and Catalent Pharma Solutions, LLC, a Delaware limited liability corporation having an address at 14 Schoolhouse
Road, Somerset, New Jersey 08873 (“Catalent”). Catalent and each of its Affiliates shall collectively be referred to herein as
“Catalent”. FibroGen and Catalent may be referred to individually as a “Party”, and collectively as the “Parties”.
RECITALS
A.
FibroGen owns or controls certain technology and intellectual property relating to the compound known as roxadustat (or
FG-4592);
B.
Catalent is a leading provider of advanced technologies, and development, manufacturing and packaging services, for
pharmaceutical, biotechnology and consumer healthcare companies; and
C.
FibroGen desires to engage Catalent to perform Manufacturing Services (as defined below) for FibroGen, including
without limitation the manufacture and supply of roxadustat bulk drug product, and Catalent desires to provide such services on the terms set
forth below.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the Parties hereto agree
as follows:
ARTICLE 1
DEFINITIONS
The following capitalized terms, whether used in the singular or plural, shall have the meanings ascribed to them below for purposes
of this Agreement:
1.1
“Acknowledgement” has the meaning set forth in Section 2.2.2.
1.2
“Affiliate” means, with respect to either Party, any other corporation or business entity that directly, or indirectly through
one or more intermediaries, controls, is controlled by or is under common control with such Party. For purposes of this definition, the term
“control” means direct or indirect ownership of more than fifty percent (50%) of the outstanding voting securities or other ownership interests
or the power to direct or cause the direction of the management or policies of such entity, whether through the ownership of voting securities,
by contract, or otherwise. Affiliates of FibroGen shall include, without limitation, any wholly foreign owned entities (whether owned or
controlled directly by FibroGen or through one of its subsidiaries).
1.3
“ANVISA” means Brazil's National Health Surveillance Agency.
1
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted because it is both (i) not material and (ii) would likely cause
competitive harm to the company if publicly disclosed.
Confidential
1.4
“API” means FibroGen’s proprietary active pharmaceutical ingredient designated as FG-4592 (roxadustat), as further
described in the Specifications.
1.5
“Applicable Law(s)” means, with respect to FibroGen, all laws, ordinances, rules and regulations, currently in effect or
enacted or promulgated during the Term, and as amended from time to time, of each jurisdiction in which API or Product is produced,
marketed, distributed, used or sold; and, with respect to Catalent, all laws, rules, and regulations applicable to the Manufacturing Services or
otherwise bearing on the performance of this Agreement, and the relevant Purchase Order, including, as applicable, cGMP and other regulatory
standards or requirements of Regulatory Authorities.
1.6
“Batches” or a “Batch” of Product means a specific quantity of tablets defined in Attachment A hereto that is intended
to have uniform character and quality, within specified limits as described in more detail in Attachment A hereto).
1.7
“Batch Documentation Package” means all of the documentation associated with the production, manufacturing,
packaging, labeling, testing, and release of a given Batch or Blend, including without limitation, Executed Batch Records, sampling
documentation, raw data, test results, deviation reports, the Certificate of Analysis, the Certificate of Compliance, and any additional
documentation required under the applicable Quality Agreement. Unless otherwise agreed to in a signed writing by both Parties, the Batch
Documentation Package shall be in the English language.
1.8
“Binding Forecast” has the meaning set forth in Section 2.7.
1.9
“Blend” means a theoretical yield of [ ] ([ ]) kilograms of drug product blend that is to be compressed into Batches
(tablets of different strengths) and produced according to a single manufacturing order during the same cycle of manufacture as specified in the
applicable Purchase Order. For clarity, a Blend refers to a mixture that contains API and excipients, and is lubricated and ready for compression
into different strengths of Product, as described in more detail in Attachment A hereto.
1.10
“Catalent Background Intellectual Property” means all Intellectual Property that is: (a) used in the course of
performing Manufacturing Services under this Agreement; and (b) (i) owned or controlled by Catalent prior to the Effective Date of this
Agreement, or (ii) made, conceived or reduced to practice outside the scope of this Agreement without the use of any FibroGen Confidential
Information, FibroGen-supplied Materials or Product. For clarity, Catalent Background Intellectual Property shall not include any FibroGen
Intellectual Property, FibroGen Owned Work Product, Product, or Manufacturing Process(es), or any other Intellectual Property relating to
FibroGen-supplied Materials or Product.
1.11
“Catalent Confidential Information” means all confidential and proprietary information actually disclosed by Catalent
to FibroGen in the course of performing Manufacturing Services under this Agreement and approved Purchase Orders. For clarity, Catalent
Confidential Information shall not include any FibroGen Confidential Information, API, Product, or FibroGen Owned Work Product.
1.12
“Catalent Facility(ies)” means the facility(ies) listed in Section 3.1 hereto, which facility(ies) are owned and operated
by Catalent and will be used for the performance of Manufacturing Services, and the production of Product.
1.13
“Catalent Owned Work Product” shall have the meaning as set forth in Section 10.1.
2
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted because it is both (i) not material and (ii) would likely cause
competitive harm to the company if publicly disclosed.
Confidential
1.14
“Certificate of Analysis” means a document prepared by Catalent certifying that a particular Batch of Product was
tested and conforms to the Specifications. Unless otherwise agreed to in a signed writing by both Parties, the Certificate of Analysis shall be in
the English language.
1.15
“Certificate of Compliance” means a document prepared by Catalent that states that a particular Batch of Product was
manufactured in compliance with the Quality Agreement and: (a) lists the manufacturing date, unique Batch number, Product number, and
quantity of Product in such Batch; (b) certifies that such Batch was manufactured in accordance with the Master Batch Record and all
Applicable Laws including cGMP; and (c) certifies all excursions and investigations associated with the Batch have been closed and found to
not impact the Batch. The Parties shall from time to time agree upon a format or formats for the Certificate of Compliance to be used under this
Agreement. Unless otherwise agreed to in a signed writing by both Parties, the Certificate of Compliance shall be in the English language.
1.16
“cGMP” means the current good manufacturing practices for the manufacture of pharmaceutical products, including
without limitation: (a) the United States Federal Food, Drug, and Cosmetic Act, as amended (21 U.S.C. §321 et seq.) and the regulatory
requirements for current good manufacturing practices as promulgated by the FDA thereunder; including without limitation 21 C.F.R. Part 11
(as applicable to electronic systems used in the manufacture of Product), 21 C.F.R. Parts 210 and 211 as amended; and (b) the regulatory
requirements for current good manufacturing practices as promulgated by the International Conference on Harmonization (ICH); and (c)
Guidance for Industry Q7A Good Manufacturing Practice Guidance for Active Pharmaceutical Ingredients; and/or the European Community
Directive 2003/94/EC of October 8, 2003; and (d) the EC Guide to Good Manufacturing Practice for Medicinal Intermediate Products; and (e)
2003/94/EEC Directive (as supplemented by Volume 4 of EudraLex published by the European Commission), as amended, if and as
implemented in the relevant constituent country; and (f) all additional Regulatory Authority documents and regulations that replace, amend,
modify, supplant or complement any of the foregoing and any amendments to the foregoing; and (g) any and all current Good Manufacturing
Practices applicable to the manufacture, testing and/or any other processing of pharmaceutical products in other countries and territories
worldwide where the respective Final Products are sold or otherwise marketed from time to time provided that Catalent is informed about such
other Good Manufacturing Practices by FibroGen in accordance with the Quality Agreement within a reasonable time so as not to delay release
of the Final Product.
1.17
“Confidential Information” means FibroGen Confidential Information and/or Catalent Confidential Information, as the
context requires.
1.18
“Contract Year” means, (i) for the first Contract Year, the period beginning on the Effective Date and ending on
December 31, 2020 (“Contract Year 1”) and (ii) following Contract Year 1, each consecutive twelve (12) month period beginning on January 1
and ending on December 31 (“Contract Year 2”, “Contract Year 3”, etc.).
“Delivery” shall mean that Product shall be made available pursuant to Section 4.3 of this Agreement; and “Delivery
Date” shall mean the date specified for Delivery of Product pursuant to a Purchase Order or Acknowledgement in accordance with Section 2.2.
1.19
1.20
“Demand” means the number of units of Product required by FibroGen, or its Designees, to fulfill all of its
requirements for [ ] in the Territory for the applicable Contract Year. “Demand Records” has the meaning set forth in Section 2.4.1.
1.21
“Designee” means a designee of FibroGen that has been granted the right to receive Product, as specified in writing by
FibroGen to Catalent.
3
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted because it is both (i) not material and (ii) would likely cause
competitive harm to the company if publicly disclosed.
Confidential
1.22
1.23
1.24
was produced.
“DQSA” shall have the meaning described in Section 11.2.9 hereof.
“EMA” means the European Medicines Agency, or any successor agency thereto.
“Executed Batch Records” means the collection of records that provides a traceable history of how a Batch of Product
1.25
“FDA” means the United States Food and Drug Administration, or any successor agency thereto, having the
administrative authority to regulate the marketing of human pharmaceutical products or biological therapeutic products in the United States.
1.26
“FibroGen Confidential
Information” means any
research, development, clinical, manufacturing, or
commercialization strategies, and all related technical and other data and information, whether patented or unpatented, that relate to FibroGen-
supplied Materials, FibroGen's compound structures, synthesis, formulation and manufacturing methods, test methods, operations,
technologies, forecasts and business and scientific plans, including without limitation, trade secrets, know-how, and other intellectual property,
that is disclosed to, or supplied to Catalent in any form by or on behalf of FibroGen pursuant to this Agreement, or data, results, and
information included in or relating to the Products generated or otherwise obtained by Catalent in the course of performing Manufacturing
Services pursuant to this Agreement. For clarity, all Product, Batch Documentation Package, Master Batch Records, FibroGen Intellectual
Property, FibroGen-supplied Materials and FibroGen Owned Work Product, shall be deemed to be FibroGen Confidential Information.
1.27
1.28
1.29
1.30
“FibroGen Intellectual Property” means all Intellectual Property owned or controlled by FibroGen.
“FibroGen Owned Work Product” has the meaning set forth in Section 10.1.
“FibroGen Review Period” has meaning set forth in Section 4.2
“Final Product” means a final product sold to the public that includes Product supplied hereunder.
1.31
“FibroGen-supplied Materials” means any materials (including API, reference standards, progeny, derivatives, and
modifications thereof) that are provided by or on behalf of FibroGen to Catalent for the purpose of performing Manufacturing Services, as
further described in Attachment D.
1.32
“FMD” has the meaning set forth in Section 11.2.9 hereof.
1.33
“Intellectual Property” means all Patents, copyrights, trade secrets, know-how, inventions, and all other intellectual
property rights that are owned or controlled by a Party (whether patentable or not), including all applications and registrations with respect
thereto.
1.34
1.35
1.36
1.37
“Joint Manufacturing Committee” or “JMC” shall have the meaning set forth in Section 3.8.
“Key Performance Indicators” or “KPI(s)” has the meaning set forth in Section 3.8 hereof.
“Latent Defects” has the meaning set forth in Section 4.2.4.
“Long Lead Time Materials” has the meaning set forth in Section 3.2.1.
4
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted because it is both (i) not material and (ii) would likely cause
competitive harm to the company if publicly disclosed.
Confidential
1.38
1.39
“Manufacturing Process” means the production process for the manufacture of Product.
“Manufacturing Services” has the meaning set forth in Section 2.3.
1.40
“Master Batch Record” or “MBR” means the document agreed on by the Parties in a signed writing that defines the
Manufacturing Process of a particular Product, and pertains to the manufacture and supply of each Batch of Product, as may be amended from
time to time by a signed writing of the Parties. The Master Batch Record shall include, without limitation, the appropriate applicable
requirements for components (such as Raw Materials, FibroGen-supplied Materials, intermediates, in-process materials, and packaging
materials and labels) and quantities of each as used; major production equipment; detailed production instructions, including sequences to be
followed; sampling instructions and in-process controls with their acceptance criteria; time limits for completion of individual processing steps
and/or the total process; expected yield ranges at appropriate phases of processing or of time; special notations and precautions to be followed;
and instructions for storage of the intermediate, in-process material, Product to assure its viability for use. The Master Batch Record shall be
presented in the English language. The Master Batch Record shall also incorporate by reference, without limitation, such additional information
as may be required under the Quality Agreement.
1.41
1.42
1.43
1.44
1.45
1.46
1.47
“MHRA” means the United Kingdom Medicines and Healthcare products Regulatory Agency.
“[ ] Requirement” has the meaning set forth in Section 2.4.
“Non-Conforming FibroGen-supplied Materials” has the meaning set forth in Section 3.2.2(b).
“Non-Conforming Processing” has the meaning set forth in Section 4.2.1.
“Non-Conforming Product” has the meaning set forth in Section 4.2.1.
“Other Services” has the meaning set forth in Section 2.6 hereof.
“PAI” means a pre-approval inspection of the Catalent Facility as required by a Regulatory Authority.
1.48
“Patents” means, with respect to an invention, any patent or patent application, and any patent issuing therefrom,
together with any extensions, reissues, reexaminations, substitutions, renewals, divisions, continuations, continuations-in-part, and foreign
equivalents thereof, and any patent or patent application claiming priority to any application in common with any such patent containing a
disclosure substantially similar to that of any such patent, all to the extent the foregoing contain claims covering such invention.
1.49
“Process” or “Processing” means the compounding, filling or tableting, encapsulating, producing and bulk packaging
(but not secondary or retail packaging) of FibroGen-supplied Materials and Raw Materials into Product by Catalent, in accordance with the
Specifications and under the terms of this Agreement.
1.50
1.51
“Processing Date” means the day on which the first step of physical processing occurs.
“Product” means the bulk pharmaceutical drug product containing the API, as more specifically described in the
Specifications, in the form attached hereto as Attachment E, and as may be further amended by the Parties.
1.52
“Product Maintenance Services” has the meaning set forth in Section 2.5.
5
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted because it is both (i) not material and (ii) would likely cause
competitive harm to the company if publicly disclosed.
Confidential
1.53
“Product Storage Fees” has the meaning set forth in Section 4.4, and as further described in this Agreement in
Attachment A. For clarity, Product Storage Fees shall not include storage of API.
1.54
1.55
“Purchase Order(s)” has the meaning set forth in Section 2.2.2.
“Quality Agreement” means the quality agreement agreed on by Catalent and FibroGen in a signed writing that relates
to the manufacture of Product, as may be amended from time to time by a signed writing of the Parties, and as more fully set forth in Article 8.
1.56
“Raw Material” means all ingredients, excipients, packaging materials, and reagents, including labels, solvents and
other components other than FibroGen-supplied Materials that are required to perform the Manufacturing Services and/or manufacture the
Product.
1.57
1.58
“Recall” has the meaning set forth in Section 6.6.1.
“Registration” has the meaning set forth in Section 6.1.
1.59
“Regulatory Approval” means each approval, permit, product and/or establishment license, registration or
authorization, including each approval pursuant to U.S. Investigational New Drug Applications, New Drug Applications and Abbreviated New
Drug Applications (or equivalent non-U.S. filings, such as European marketing authorization applications), as applicable, of a Regulatory
Authority that is necessary or advisable in connection with the development, manufacture, testing, use, storage, exportation, importation,
transport, promotion, marketing, distribution or sale of API or Product in the Territory.
1.60
“Regulatory Authority(ies)” means the FDA (for the USA), EMA (for the EU), ANVISA (for Brazil), MHRA (for the
UK), and/or all other applicable, national, multi-national, state, regional or local regulatory agency, department, bureau, body or other
governmental entity involved in or responsible for regulation of the relevant subject, as the context requires in this Agreement. Notwithstanding
the foregoing, Regulatory Authorities shall include the relevant health, environmental, and safety agency pertaining to the country in which
Manufacturing Services are performed.
1.61
“Regulatory Filing” means any or all applications submitted to Regulatory Authorities for the purpose of registering the
Product, the Manufacturing Process, and/or Final Product as required by statute or regulation, and any amendments or supplements thereto, and
any other filings required by the Regulatory Authorities relating to the manufacture, testing, sale or distribution of Product and/or Final Product
(as applicable).
1.62
“Representatives” of an entity mean such entity's duly authorized officers, directors, employees, agents, accountants,
attorneys or other professional advisors.
1.63
1.64
“Rolling Forecast” has the meaning set forth in Section 2.7.
“Seizure” means any action by the FDA or other Regulatory Authority to detain Final Products manufactured from
Product or prevent the distribution, prescription, consumption or release of such Final Products manufactured from Product.
1.65
“Specifications” means the Product, Raw Material, and other specifications detailed in Attachment E, including
reference standards agreed on by the Parties in one or more signed writings, including as applicable the characteristics, formulae, labeling,
expiry date, storage requirements, and as may be amended from time to time by a signed writing of the Parties with Catalent's consent not to be
unreasonably withheld.
6
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted because it is both (i) not material and (ii) would likely cause
competitive harm to the company if publicly disclosed.
Confidential
1.66
“Special Packaging” means packaging that is not industry standard or commonly used by Catalent for commercial
products, which shall include metal drums, or special tape. Special Packaging shall not include fiber drums, plastic drums, serialized seals,
temperature/humidity monitoring devices, and similar packaging.
1.67
“Subcontractor” means any independent entity that Catalent contracts with FibroGen's prior written consent pursuant to
Section 3.7 to perform any Manufacturing Services or meet any obligations that are required under the terms and conditions of this Agreement
and applicable Purchase Orders.
1.68
1.69
“Term” has the meaning set forth in Article 16.
“Territory” means [ ] with the exception of [ ]and the countries then being sanctioned by the United States, as listed by
the Office of Foreign Asset Control.
1.70
1.71
1.72
1.73
“Third Party” means any entity other than FibroGen, Catalent, and FibroGen's Designees.
“Unit” has the meaning set forth on Attachment A.
“Unit Pricing” has the meaning set forth in Section 5.2.1.
“Vendor” has the meaning set forth in Section 3.2.1(b).
1.74
“Waste” means any “hazardous substance” and/or “hazardous material” and/or any other waste material, pollutant
and/or contaminant of any kind as defined by the Regulatory Authority(ies) having jurisdiction at the Catalent Facility, including, without
limitation, any Raw Materials, in-process materials, routine process waste or any by-product arising from any activities conducted pursuant to
this Agreement.
ARTICLE 2
PURCHASE ORDERS AND SUPPLY; FORECASTS
2.1
Agreement. This Agreement establishes the general terms and conditions applicable to Catalent's manufacturing and
supply of the Product to FibroGen. This Agreement is intended to allow the Parties to contract for the performance of manufacturing and
supply of the Product through the execution of separate written Purchase Orders (defined below in Section 2.2.2) in accordance with this
Agreement. Each Purchase Order shall become part of and incorporated by reference into this Agreement and each Purchase Order shall be
subject to all of the terms and conditions of this Agreement. Any changes to a Purchase Order shall be agreed to in a signed writing by the
Parties prior to any such changes being effective.
2.2
Purchase Order(s).
Each Purchase Order complying with the requirements of this Section shall be valid and binding upon the
submission of such Purchase Order by FibroGen, subject to Section 2.2.2. Each such Purchase Order submitted by FibroGen shall be governed
by the terms and conditions of this Agreement.
2.2.1
2.2.2
From time to time as provided in this Section, FibroGen shall submit to Catalent a binding, non-cancelable
purchase order for Product specifying the number of Blends of Product to be manufactured, the Batch size (to the extent the Specifications
permit Batches of different sizes), number of Batches of specific strengths, and the requested Delivery Date and FibroGen Designee address for
each Batch of Product (each, a “Purchase Order”); provided, the Delivery Date may not be less than [ ] ([ ]) days after the date such Purchase
Order is submitted unless agreed on by Catalent. Within [ ] ([ ]) business days following receipt of a
7
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted because it is both (i) not material and (ii) would likely cause
competitive harm to the company if publicly disclosed.
Confidential
Purchase Order, Catalent shall issue a written acknowledgement (each, an “Acknowledgement”) that it accepts or rejects such Purchase Order.
Each acceptance Acknowledgement shall either confirm the Delivery Date set forth in the Purchase Order or set forth an alternative Delivery
Date in view of the Binding Forecast. Catalent and FibroGen will jointly work towards establishing the alternate Delivery Date. Catalent may
reject any Purchase Order if it exceeds [ ] percent ([__]%) of the Binding Forecast or is otherwise not given in accordance with this
Agreement. In the event of a conflict between the terms of any Purchase Order or Acknowledgment and this Agreement, the terms of this
Agreement shall control. FibroGen shall submit a Purchase Order for the amount set forth in the applicable Binding Forecast in increments of
[]. Purchase Orders for quantities of Product in excess of the Binding Forecast (as defined in Section 2.7) shall be submitted by FibroGen at
least [ ] ([]) days in advance of the Delivery Date requested in the Purchase Order.
2.2.3
Catalent shall use [ ] efforts to manufacture and supply FibroGen with quantities of Product in excess of
[__] of the quantities specified in the Binding Forecast, or with a Delivery Date earlier than those specified in the Binding Forecast, subject to
Catalent's other supply commitments and manufacturing, packaging and equipment capacity. Catalent shall at all times maintain (i) sufficient
manufacturing capacity at the Catalent Facility, and (ii) sufficient stocks of Raw Materials, in each case enabling Catalent to manufacture [ ])
of the quantities of Product set forth in the most recent Binding Forecast. [ ].
2.2.4
FibroGen may modify the Delivery Date or quantity of Product in a Purchase Order only by submitting a
written change order to Catalent and communicating Product strengths at least [ ] ([ ]) days in advance of the earliest Processing Date covered
by such change order. Such change order shall be effective and binding against Catalent only upon the written approval of Catalent (such
approval not to be unreasonably withheld), and, notwithstanding any such written approval, FibroGen shall remain responsible for the Binding
Forecast. Notwithstanding any amount due to Catalent under Section 5.3, if FibroGen fails to place Purchase Orders sufficient to satisfy the
Binding Forecast, FibroGen shall pay to Catalent in accordance with Article 5 an amount equal to the Unit Pricing for all Units that would have
been Processed if FibroGen had placed Purchase Orders sufficient to satisfy the Binding Forecast. Neither changes to nor postponement of any
Blend or Batch of Product, nor the payment of the fees described in this Section, will reduce or in any way affect the Binding Forecast
obligations set forth in Section 2.7. Additionally, and notwithstanding anything to the contrary in this Section 2.2.4, Catalent shall have no
further obligation with respect to such Purchase Order, until FibroGen supplies conforming FibroGen-supplied Materials set forth in Section
3.2.2(a). Any deferment of Purchase Orders to the extent caused by FibroGen’s failure to supply FibroGen-supplied Materials in accordance
with this Section 2.2.4 shall not constitute a breach of this Agreement by Catalent.
2.3
Supply. Subject to the terms and conditions of this Agreement, Catalent hereby agrees to manufacture and supply
FibroGen (and other Designees) with the amounts of Product ordered by FibroGen pursuant to the Purchase Orders submitted in accordance
with this Agreement. Such manufacture and supply of Product, including (a) the compounding, filling, or tableting, producing and bulk
packaging (but not secondary or retail packaging) of FibroGen-supplied Materials and Raw Materials into Product by Catalent, in accordance
with the Specifications and under the terms of this Agreement; (b) Product Maintenance Services as described in Section 2.5 (and Attachment
B hereto); (c) the provision of other deliverables, such as the Batch Document Package; and (d) Other Services (collectively, the
“Manufacturing Services”) shall be performed in a professional manner consistent with industry standards and in compliance with the terms
and conditions of this Agreement, the Quality Agreement, the Specifications and all Applicable Laws.
During [ ], Catalent covenants and agrees that it shall manufacture and supply Product [ ] pursuant to this Agreement and shall not [ ]. It is
understood and agreed that FibroGen may [ ], and nothing in this Agreement shall be construed to prevent FibroGen from doing so provided
that the foregoing shall not limit FibroGen's [ ].
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2.4
[ ].
2.4.1
Demand Records; Audit Rights. FibroGen will keep complete and accurate books and records relating to the
Demand, in sufficient detail to enable the calculation and verification of applicable [ ] in any given Contract Year (“Demand Records”). Upon
the written request and not more than once per calendar year, Catalent shall be entitled to audit, or to have an independent accountant audit,
such Demand Records. FibroGen shall provide Catalent or such auditors, as applicable, with access during normal business hours at FibroGen's
relevant location and to such of the pertinent Demand Records of FibroGen as may be reasonably necessary to verify the matters in question.
Such access shall include the right of Catalent or the independent accounting firm to interview FibroGen's personnel if reasonable. Each such
examination shall be limited to pertinent Demand Records for any year ending not more than [ ] ([ ]) years prior to the date of such request.
Before permitting such independent accounting firm to have access to such Demand Records and personnel, FibroGen may require such
independent accounting firm and its personnel involved in such audit, to sign a confidentiality and use agreement to prohibit the independent
accounting firm and its personnel from disclosing FibroGen's financial and proprietary information except to Catalent as contemplated by this
section of the Agreement. Furthermore, the number of such audit personnel shall be limited to [ ] person.
2.5
Product Maintenance Services. Catalent shall provide and FibroGen will receive those product maintenance services
specified in Attachment B (the “Product Maintenance Services”).
2.6
Other Services. Catalent shall provide other Product-related services set forth in Attachment C, such as validation
services, supported by Catalent on an as-needed basis under a countersigned quotation and preapproved in writing by FibroGen (“Other
Services”) as set forth in Attachment C. The terms and conditions of this Agreement shall govern and apply to such services.
2.7
Forecast. On or around the [ ] ([ ]) day of each [ ], beginning at least [ ], or such other date as agreed by the Parties,
and continuing during the Term of this Agreement on a monthly basis, FibroGen shall furnish to Catalent a written [ ] ([ )] month rolling
forecast of the quantities of Product that FibroGen anticipates FibroGen will require for Product to be delivered under a Purchase Order (each, a
“Rolling Forecast”). By way of example, the Rolling Forecast delivered in [ ] will cover the period from [ ] through [ ]. The first [ ] ([ ])
months of each Rolling Forecast shall constitute a binding order for the quantities of Product in such Rolling Forecast (the “Binding
Forecast”) and the following [ ] months of the Rolling Forecast shall be non-binding, good-faith estimates.
2.8
Shortfalls in Supply. If Catalent fails to meet its supply obligations to FibroGen under this Agreement, then Catalent shall
use [ ] efforts to cure such failure as soon as practicable. During such supply failure, Catalent shall use [ ] efforts to allocate manufacturing
capacity to the manufacture and supply of Product to FibroGen or other Designees, until such supply failure is remedied. If any supply failure
continues in effect for a period of more than [ ] ([ ]) days, Catalent and FibroGen shall meet and work together reasonably and in good faith to
seek a prompt and commercially reasonable solution to the problem causing the supply failure.
ARTICLE 3
OTHER OBLIGATIONS
3.1
Catalent Facility. All Product manufactured for FibroGen hereunder shall be manufactured solely by Catalent at the
Catalent facility located at [ ] (“[ ] Facility”) and for the purpose of a second option to support Product release and stability testing at the
Catalent facility located at [ ] (“[ ] Facility”) or such other facility as agreed by the Parties in writing (collectively, the “Catalent Facility”).
The Catalent Facility may not be changed without an amendment to this Agreement.
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3.2
Raw Materials and FibroGen-supplied Materials.
3.2.1
Raw Materials.
(a)
Procurement. Catalent shall be responsible for procuring, inspecting and releasing adequate Raw
Materials as necessary to meet [] of the Binding Forecast, unless otherwise agreed by the Parties in writing. Catalent shall not be liable for any
delay in delivery of Product if (i) Catalent is unable to obtain, in a timely manner, a particular Raw Material necessary for Processing and (ii)
Catalent placed orders for such Raw Materials (other than Long Lead Time Materials) promptly following receipt of FibroGen's Binding
Forecast and in view of the Raw Materials procurement necessary for the Rolling Forecast. As used herein, “Long Lead Time Materials”
means any Raw Material that is subject to purchase lead time beyond the Binding Forecast time frame, as identified in Attachment D. Catalent
shall maintain a stock of Long Lead Time Materials as necessary to meet the then-current Rolling Forecast. For clarity, [ ].
If FibroGen requires a change to a specific supplier, manufacturer or vendor (“Vendor”) to be used
for Raw Material, then such Vendor will be identified in the Specifications and the Raw Materials from such Vendor shall be deemed FibroGen-
supplied Materials for purposes of the other Sections of this Agreement. [ ]. If FibroGen decides to use a specific vendor, FibroGen will be
responsible for [ ].
(b)
Material or (iii) expiration or termination of this Agreement by FibroGen other than due to a material breach of Catalent, [ ].
(c)
In the event of (i) a Specification change requested by FibroGen (ii) obsolescence of any Raw
Raw Materials Compliance. All Raw Materials used in the Manufacturing Process shall comply with
the applicable Specifications, Purchase Order, and Quality Agreement, or as otherwise agreed in a signed writing by the Parties. Catalent or a
Subcontractor approved in accordance with Section 3.7 shall perform testing and evaluation of the Raw Materials as required to meet the
foregoing obligations.
(d)
Retention and Reserve Samples. Catalent shall identify and retain certain reserve samples as set forth
in the Quality Agreement, the Master Batch Record, the applicable standard operating procedures and Applicable Laws, or as otherwise agreed
to in a signed writing by Catalent and FibroGen.
(e)
(f)
Artwork and Labeling. FibroGen shall provide or approve, prior to the procurement of applicable
Raw Material, all artwork, advertising and labeling information necessary for Processing, if any. Such artwork, advertising and labeling
information is and shall remain the exclusive property of FibroGen, and FibroGen shall be solely responsible for the content thereof. Such
artwork, advertising and labeling information or any reproduction thereof may not be used by Catalent in any manner other than performing its
obligations hereunder without FibroGen's written consent. The content of all artwork provided by or on behalf of FibroGen to Catalent shall
comply with all Applicable Laws.
3.2.2
FibroGen-supplied Materials.
(a)
FibroGen shall supply to Catalent, at FibroGen's cost, FibroGen-supplied Materials in quantities
sufficient to meet FibroGen's requirements for Product. FibroGen shall deliver such items and associated Certificates of Analysis to the
Catalent Facility no later than [ ] ([ ]) days (but not earlier than [ ] ([ ]) days) before the commencement of Manufacturing Services. Catalent
shall use FibroGen-supplied Materials solely for performance of the Manufacturing Services. Catalent shall not transfer the FibroGen-supplied
Materials, or otherwise provide access to the FibroGen-supplied Materials to any Third Party without the prior written consent of FibroGen.
Catalent agrees that no express or implied licenses or other rights relating to the FibroGen-
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supplied Materials are provided to Catalent under any Patents, trade secrets or other proprietary rights of FibroGen except to use such
FibroGen-supplied Materials solely in accordance with this Agreement and the applicable Purchase Orders. Prior to delivery of any FibroGen-
supplied Materials, FibroGen shall provide to Catalent a copy of all associated material safety data sheets, safe handling instructions and health
and environmental information and any governmental certification or authorization that may be required under Applicable Laws relating to the
API and Product, and thereafter shall provide promptly any update thereto. FibroGen shall be responsible at its expense for securing any
necessary export, import or other governmental clearance, permit or certification required in respect of such supply. Additionally, FibroGen
represents and warrants that all FibroGen-supplied Materials shall have been produced in accordance with Applicable Laws, shall comply with
all applicable specifications, including the Specifications, shall not be adulterated, misbranded or mislabeled within the meaning of Applicable
Laws, and shall have been provided in accordance with the terms and conditions of this Agreement.
(b)
Catalent shall inspect all FibroGen-supplied Materials received to verify their identity. Unless
otherwise expressly required by the Specifications or pursuant to Attachment A, Catalent shall have no obligation to test Fibrogen-supplied
Materials it receives to confirm that they meet the associated specifications, certificate of analysis or otherwise; but in the event that Catalent
detects a nonconformity with the Specifications, Catalent shall give FibroGen prompt notice of such nonconformity. Catalent shall not be liable
for any defect in FibroGen-supplied Materials, or in Product as a result of FibroGen-supplied Materials not meeting the associated
specifications (“Non-Conforming FibroGen-supplied Materials”), unless Catalent did not perform the foregoing obligations in accordance
with the Specifications. Catalent shall follow FibroGen's reasonable written instructions in respect of return or disposal of Non-Conforming
FibroGen-supplied Materials [ ].
(c)
FibroGen shall retain title to FibroGen-supplied Materials at all times (including while at the Catalent
Facility and in transit) and shall bear the risk of loss of any such FibroGen-supplied Materials. FibroGen shall obtain and maintain insurance for
such items while at the Catalent Facility and in transit to and from any Catalent Facility. Catalent shall not reverse engineer, attempt to
determine the structure or chemical composition of any of the FibroGen-supplied Materials, or make any modifications or derivatives of the
FibroGen-supplied Materials, except as expressly allowed under each Purchase Order. Upon completion of all Manufacturing Services with
respect to specific FibroGen-supplied Materials, or earlier upon FibroGen's request, Catalent shall return all FibroGen-supplied Materials
provided hereunder to FibroGen, or at FibroGen's option, destroy (with certification of disposition)[ ].
FibroGen will not release any Batch of Product if the required certificates of conformance indicate
that Product does not comply with the Specifications. All Product delivered to FibroGen by Catalent shall be held, used and disposed of by or
on behalf of FibroGen in accordance with Applicable Laws, and FibroGen will otherwise comply with Applicable Laws relating to FibroGen's
performance under this Agreement.
(d)
3.3
Manufacturing Standards. Catalent shall manufacture all Product in a professional manner and in accordance with
Applicable Law and in compliance with the terms and conditions of the applicable Purchase Order, Specifications, this Agreement, and the
Quality Agreement.
3.4
Documentation for Manufacture of Product. Catalent shall keep complete, accurate accounts, notes, data and records
pertaining to the manufacture, processing, testing, packaging and storage of the Product, including without limitation (a) Executed Batch
Records for Product manufactured in accordance with cGMP and (b) any other records required to be maintained under the Quality Agreement,
or Applicable Laws. Catalent shall retain all such records for a period as set forth in the Quality Agreement, and shall provide such records to
FibroGen upon reasonable advance notice. Catalent shall notify FibroGen in writing prior to the destruction of
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any records retained under this Section and, at FibroGen's request, shall transfer such records to FibroGen at FibroGen's reasonable expense.
3.5
Analytical Testing. Catalent may designate a Subcontractor in accordance with Section 3.7, to perform the analytical
testing on Raw Materials, Products, intermediates, and all other materials used in the Manufacturing Process as set forth in the current Master
Batch Records, current Specifications, and/or as otherwise agreed in a signed writing by Catalent and FibroGen.
3.6
FibroGen-supplied Materials and Raw Materials Storage. As part of the Manufacturing Services, Catalent shall ensure
that all, FibroGen-supplied Materials and Raw Materials that are to be used in the manufacture of Product, as well as all Products,
intermediates, and all other materials used in the Manufacturing Process in Catalent's control, are stored in accordance with the terms and
conditions of this Agreement, the Specifications or the MBR (as applicable), retest date letters (reference standard), the Quality Agreement, all
Applicable Law, and/or as otherwise mutually agreed to in a signed writing by Catalent and FibroGen, at no additional cost[ ].
3.7
Approval of Subcontracting. Catalent shall not subcontract, sublicense or otherwise delegate any material obligations
under this Agreement without FibroGen's prior written approval. All Subcontractors shall have entered into agreements with Catalent to enable
Catalent to comply with all obligations hereunder relating to performance of Manufacturing Services hereunder, including without limitation,
obligations relating to FibroGen Confidential Information and FibroGen Intellectual Property. FibroGen may also approve certain Catalent
Affiliates to perform subcontracted work, and such Catalent Affiliates who are so approved and identified on the Purchase Order may perform
the subcontracted work as described in such Purchase Order.
3.8
Key Performance Indicators. FibroGen and Catalent (through the JMC) shall set targets in writing for performance and
minimum standards where applicable, for each of the Key Performance Indicators, and the actual performance versus targets will be measured,
with the understanding and agreement by the Parties that such KPIs shall be set for tracking purposes only, with no obligations on Catalent to
meet them, nor consequences for failure to meet them. All such changes to the KPIs or the review and assessment shall be recorded in writing.
The Parties shall supply each other with appropriate data to calculate the KPIs.
3.9
Joint Manufacturing Committee. After the Effective Date, Catalent and FibroGen shall establish a joint steering
committee (the “Joint Manufacturing Committee” or “JMC”) consisting of at least [ ] ([ ]) members appointed by each Party meeting
biannually or as otherwise scheduled. The JMC shall be responsible for reviewing the ongoing relationship of the Parties, considering and
attempting to achieve resolution of any disputes referred to it pursuant to Section 18.8 hereof and addressing such other matters as the Parties
may mutually agree. For the avoidance of doubt, the JMC is not authorized to amend this Agreement.
ARTICLE 4
ACCEPTANCE/REJECTION; DELIVERY
4.1
Batch Records and Data; Catalent Internal Release.
Except for Batches that are being investigated or retested, at the time of Catalent Internal Release to FibroGen (or Designee), each
Batch of Product shall have no more than [ ] ([ ]) calendar days elapsed from the start of the then-current approved shelf life. Unless otherwise
agreed to by the Parties in writing, after Catalent completes Processing of a Batch or Blend, Catalent shall provide FibroGen with copies of
Batch records prepared in accordance with the Specifications and allow FibroGen [ ] ([ ]) business day review period to confirm the Batch
records meet the requirements set forth in the Specifications. Catalent shall also provide FibroGen or its
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Designee with Catalent’s certificate of analysis for such Batch. Issuance of a certificate of conformance/analysis by Catalent constitutes release
of the Batch by Catalent (“Catalent Internal Release”). FibroGen shall be responsible for final release of Product to the market.
4.2
FibroGen Review Period; Acceptance and Rejection Procedure.
4.2.1
Testing; Rejection. Catalent will complete Catalent Internal Release and promptly provide FibroGen with
copies of all relevant components of the Batch Documentation Package (including but not limited to: (i) a Certificate of Analysis; (ii) a
Certificate of Compliance; (iii) TSE/BSE; (iv) Material Safety Data Sheets (MSDS); and (v) analytical test results specified in the Quality
Agreement). Catalent shall also if requested by FibroGen provide Product samples, and thereafter, FibroGen will, no later than [ ] (“FibroGen
Review Period”), notify Catalent whether the Batch conforms to the Specifications. Upon receipt of notice from FibroGen that a Batch meets
the Specifications, or upon failure of FibroGen to respond by the end of the FibroGen Review Period, the Batch shall be deemed accepted by
FibroGen and FibroGen shall have no right to reject such Batch, except as set forth in Section 4.2.4 (“FibroGen Acceptance”). If FibroGen
notifies Catalent in writing (a “Complaint”) that a Batch does not conform to the Specifications or otherwise does not meet the warranty set
forth in Section 11.2.6 (“Non-Conforming Product”), and [ ]then Catalent shall conduct an appropriate investigation to determine whether
Catalent agrees with FibroGen that Product is Non-Conforming Product and to determine the cause of any nonconformity. If Catalent agrees
that Product is Non-Conforming Product and [ ], then Section 4.2.3. shall apply. Catalent shall cooperate with FibroGen in determining the
cause of any Non-Conforming Product, including quality problems involving a Product, identifying corrective/preventive action and ensuring
the implementation and effectiveness thereof.
4.2.2
Discrepant Results. If the Parties disagree as to whether Product is Non-Conforming Product and/or whether
the cause of the nonconformity is Non-Conforming Processing, and this is not resolved within [ ] ([ ]) days of the Complaint date, the Parties
shall cause a mutually acceptable independent Third Party nominated by the JMC to review records, test data and to perform comparative tests
and/or analyses on samples of the alleged Non-Conforming Product and its components, including FibroGen-supplied Materials. The
independent Third Party's results as to whether or not Product is Non-Conforming Product and the cause of any nonconformity shall be final
and binding. Unless otherwise agreed by the Parties in writing, the costs associated with such testing and review shall be borne by Catalent if
Product is Non-Conforming Product attributable to Non-Conforming Processing, by FibroGen if Product is deemed Conforming, and shared
equally between the Parties in all other circumstances. [ ]
4.2.3
Non-Conforming Processing. At FibroGen's direction and option, Catalent shall either (A) Process, [ ]
another Batch of Product as a replacement for any Batch of Non-Conforming Product attributable to Non-Conforming Processing, [ ], or
(B) credit or refund FibroGen for such rejected Batch. For the avoidance of doubt, FibroGen shall be liable to pay for either the rejected
Batch(es) or the replacement Batch(es), but not both. [ ]
4.2.4
Latent Defects. If any Product is subsequently found to contain a Latent Defect (as defined below) after
FibroGen's receipt of the applicable Batch and Batch Documentation Package and such Product has not yet reached [ ], then FibroGen may
bring a Complaint to Catalent for Non-Conforming Product, [ ], and Sections 4.2.1, 4.2.2 and 4.2.3, shall apply. The Parties will work together
in good faith to determine the origin of the Latent Defect, including by review of any applicable reserve samples of the applicable Batch of
Product retained at Catalent and through Section 4.2.3, which shall apply if there is a dispute between the Parties regarding whether a Latent
Defect exists or what the origin of the defect is. For purposes of this Section 4.2.4, “Latent Defect” means [ ].
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4.3
Delivery Terms; Storage. Promptly following Catalent's Internal Release of Product (which includes FibroGen's right of
[ ] ([ ]) business days review as set forth in Section 4.1), Catalent shall deliver Product to FibroGen or Designee by making Product available
[ ] (Incoterms 2010) Catalent Facility (“Delivery”) and shall invoice FibroGen. Sole and exclusive title to Product shall always remain with
FibroGen; and risk of its loss shall transfer to FibroGen upon Catalent's tender of Delivery. In the event Catalent arranges logistics services for
FibroGen at FibroGen's request, such services are performed by Catalent as a convenience to FibroGen only and do not alter the terms and
limitations set forth in this Section 4.3. If the Purchase Order does not specify disposition of Product, then Catalent shall store such Product in
accordance with the storage requirements (as defined in the Specifications and the MBR as applicable and this Agreement) until such time as
FibroGen requests shipment or other disposition or use of such Product. If Catalent provides storage services (as outlined in Section 4.4 below),
title to such items shall pass to FibroGen upon transfer to storage. Catalent shall not be responsible for Product in transit, including any cost of
insurance or transport fee for Product, or any risk associated with transit or customs delays, storage and handling.
4.4
Product Storage Fees. If FibroGen fails to take possession of any Product within [ ] ([ ]) business days of the scheduled
Delivery Date, Catalent shall store such Product and have the right to invoice FibroGen monthly following such scheduled Delivery Date for
reasonable administration and storage costs (“Product Storage Fees”).
4.5
Bill and Hold. From time to time, at FibroGen's request the agreed Delivery Date of the Purchase Order may be extended
under a bill and hold arrangement as more fully set forth below. For each such Batch of stored Product, FibroGen agrees that: [
].
ARTICLE 5
PAYMENTS
5.1
Compensation. Except as otherwise provided hereunder, Catalent shall not charge FibroGen for (a) [ ], or (b) any [ ]; or,
(c) any Manufacturing Services, Products, or costs [ ].
5.2
Fees; Invoicing. In consideration for Catalent performing Manufacturing Services and other services hereunder:
5.2.1
Unit Pricing and Unit Pricing Increase. FibroGen shall pay Catalent the unit pricing for Product Delivered
pursuant to this Agreement as set forth on Attachment A (together with any subsequent updates pursuant to pricing, the “Unit Pricing”). Unit
Pricing includes all fees for the Manufacturing Services, including, but not limited to, all packaging other than Special Packaging, storage of
FibroGen-supplied Materials and Raw Materials, and release testing and other work to be performed as set forth in the Specifications, but
excluding cost of API, Product Maintenance Services, or Other Services. The Unit Pricing shall be adjusted on an [ ] basis, effective on [ ]
during the Term, upon [ ] ([ ]) days' prior written notice from Catalent to FibroGen, to reflect increases in, among other things, labor, utilities
]. In addition, price increases for Raw Materials
and overhead and shall be in an aggregate increased amount no greater than [
referenced in Attachment D shall be passed through to FibroGen at the time of such price increase to Catalent if the price increase for the Raw
Material is greater than [ ] percent ([ ]%) through an adjustment to the then prevailing Unit Pricing at the prices actually imposed by such Raw
Materials suppliers.
Product Maintenance. FibroGen shall pay Catalent the annual fees for Product Maintenance Services set forth
on Attachment A. Catalent shall submit an invoice to FibroGen for such fees beginning upon the Effective Date and prorated for the calendar
days remaining in the then current year, and the
5.2.2
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first day of each calendar year thereafter during the Term. All fees associated with Product Maintenance Services described in Attachment B
are included in the annual fee described in Attachment A.
5.2.3
Other Fees that are not Product Maintenance Fees or Unit Pricing. Catalent shall provide quotes for all fees
for services or costs. FibroGen shall pay Catalent for all other fees for services or costs approved in writing in advance by FibroGen explicitly
set forth in this Agreement or a Purchase Order, including pursuant to Attachment C, 2.6 (Other Services), 4.4 (Product Storage Fees), 4.5 (Bill
and Hold) fees, and any validation services. Catalent shall submit an invoice to FibroGen for such fees as and when appropriate.
5.3
Payment Terms. Catalent shall submit an invoice to FibroGen for such fees upon tender of Delivery of Product as
provided in Section 4.3. FibroGen will pay Catalent [ ] invoiced in accordance with this Article 5 within [ ] ([ ]) days of date of such invoice,
provided that: [ ]. All invoices and payments hereunder shall be in U.S. Dollars (USD). All such invoices relating to this Agreement must have
the invoice coding as indicated in the Purchase Order and be sent to:
Accounts Payable
FibroGen, Inc.
409 Illinois Street
San Francisco, CA 94158
AP@FibroGen.com
5.4
Taxes and Other Surcharges. All taxes, duties and other amounts (excluding taxes based on net income and franchise
taxes) assessed in respect of FibroGen-supplied Materials or in connection with the sale or delivery of Product hereunder, whether assessed
prior to or upon provision or sale, and whether assessed on Catalent or FibroGen, are the responsibility of FibroGen, and either FibroGen shall
reimburse Catalent for all such taxes, duties or other amounts paid by Catalent or such sums will be itemized and added to invoices directed at
FibroGen, with supportive documentation to be provided by FibroGen to Catalent, as needed to comply with this Section 5.4. If any deduction
or withholding in respect of tax or otherwise is required by law to be made from any of the sums payable hereunder, FibroGen shall be obliged
to pay to Catalent such greater sum as will leave Catalent, after deduction or withholding as is required to be made, with the same amount as it
would have been entitled to receive in the absence of any such requirement to make a deduction or withholding. Catalent shall use all
reasonable endeavors to obtain the relevant withholding or deducting certificate or certificates in a form which FibroGen can utilize in order to
enable it to recover or obtain credit from the relevant taxing or other government authority the amount so withheld or deducted. In determining
the applicability of any withholding tax, the provision of any relevant bilateral income tax treaties or regulatory instrument or document shall
be taken into account.
ARTICLE 6
REGULATORY OBLIGATIONS
6.1
Registrations, Permits and Licenses. All Catalent Facilities will be properly licensed and have all necessary permits to
perform the Manufacturing Services. Catalent shall secure and maintain in good order, at its sole cost and expense, such current governmental
registrations, permits, approvals and licenses (including Catalent Facilities licenses) as are required by Applicable Law and applicable
Regulatory Authorities in order for Catalent to perform all of its obligations under this Agreement and each Purchase Order (each, a
“Registration”), for so long and insofar as is necessary to permit Catalent to perform any of its obligations under this Agreement. Catalent
shall supply such Registrations and all related documents, including all permits and licenses related to Catalent Facilities to FibroGen or a
FibroGen Designee upon request by FibroGen, to the extent specifically related to the Product or the Manufacturing Services or Deliverables
hereunder.
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6.2
Regulatory Communications and Correspondence. Any and all communications from and to the FDA or other Regulatory
Authorities related to the manufacture of the Products at the Catalent Facility shall be handled in accordance with the terms and conditions of
the Quality Agreement, or as otherwise agreed in a signed writing by Catalent and FibroGen.
6.3
Regulatory Inspections.
6.3.1
Inspection by Regulatory Authorities. Upon the request of any Regulatory Authority having jurisdiction over
the manufacture of Product hereunder, such Regulatory Authority shall have access to observe and inspect Catalent's facilities (including
Catalent Facility) and procedures used for the manufacture, release and stability testing, and/or warehousing of all Product, and to inspect such
facilities (including Catalent Facility) for compliance with cGMP and other Applicable Law. FibroGen Representatives shall be permitted to be
on site for (but not participate in) any such inspections by Regulatory Authorities. Catalent specifically agrees to cooperate with any inspection
by a Regulatory Authority, whether prior to or after regulatory approval of Product manufactured by Catalent, and to provide FibroGen with a
copy of any document received including any inspection report resulting from any such inspection by a Regulatory Authority (redacted as
appropriate to protect any confidential information of Catalent or Catalent's other customers), which document/report shall be received by
FibroGen no later than [ ] ([ ]) business days from such inspection. Catalent agrees that Catalent shall promptly notify FibroGen of any
regulatory inspections relating to Product as further set forth in the Quality Agreement. For clarity, the foregoing reporting requirements do not
impact Catalent's reporting obligations to FibroGen as set forth in Section 6.6.2. If Catalent is purchasing Raw Materials from a Third Party for
use in manufacturing Product, Catalent shall use [ ] efforts to ensure that such supplier's facilities and procedures are similarly subject to the
provisions of this Section as to the manufacture of such Raw Materials. FibroGen shall carry out audits pursuant to the Quality Agreement.
Among other requirements set forth in the Quality Agreement, Catalent will be required to permit Regulatory Authorities to carry out a PAI.
The Parties hereby acknowledge that Regulatory Authorities may require to inspect the Catalent Facilities in order to approve them.
6.3.2
Remedial Actions. Catalent shall notify FibroGen immediately in writing in the event any action is taken or
threatened by a Regulatory Authority relating to the manufacture, supply, or storage of Product by Catalent, or relating to Catalent Facility in
which such manufacture, supply, or storage occurs, or which may impair the ability of Catalent to manufacture, supply, or store Product
(including without limitation any impairment to Catalent's ability to manufacture Product conforming to the applicable Specifications) in
accordance with this Agreement. In any event, Catalent shall use [ ] efforts to address and resolve any issues, concerns or warnings from any
Regulatory Authority that impact Catalent's ability to manufacture, supply, or store Product in accordance with this Agreement, the
Specifications and MBR (as applicable). To the extent Catalent must implement a plan of remediation or for other modifications or changes to
Catalent's Facility in order to address and resolve any such issues, concerns or warnings from any Regulatory Authority, Catalent shall: (a)
prepare such plan as soon as practicable; (b) provide a draft of the plan to FibroGen to the extent specifically referencing the production of the
Product; and (c) implement and complete all aspects of the plan as agreed with FibroGen soon as practicable.
6.4
Regulatory Authority Fees. [ ], which fees result directly from Catalent's formulation, development, manufacturing,
processing, filling, packaging, storing or testing of FibroGen's Product or FibroGen-supplied Materials, other than pursuant to Attachment B.
Catalent will invoice FibroGen for reimbursement of all other payments or fees at the time they are actually incurred by Catalent as a direct
pass-through cost with no associated overhead or administration costs. FibroGen shall pay all invoices pursuant to Article 5 hereof.
6.5
Regulatory Filings and Maintenance; Cooperation in Obtaining Government Approvals. Catalent shall provide
information and documentation to support FibroGen's Regulatory Filings and in maintaining
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competitive harm to the company if publicly disclosed.
Confidential
Regulatory Authority approvals for the Product, as necessary, and shall prepare and maintain manufacturing files, certificates, authorizations,
data and other records that pertain to the manufacture of the Product as further set forth in the Quality Agreement or applicable Purchase Order,
or as otherwise agreed to in a signed writing by Catalent and FibroGen. FibroGen (or other Designees) shall have the exclusive right to prepare
and submit any and all Regulatory Filings regarding any products containing Product and Final Product, and including filing any amendments
or supplements thereto and pursuing such Regulatory Filings for approval or registration. Any and all such Regulatory Filings regarding API,
Product or Final Products, and any approvals obtained thereon, will be owned solely by and held in the name of FibroGen (or other Designees,
as applicable). To the extent required or appropriate under Applicable Law, any such Regulatory Filings, or any approvals obtained thereon,
may list Catalent as a manufacturer of the Product under this Agreement. Notwithstanding the above, FibroGen (or other Designees) shall not
identify Catalent in any ANDA/NDA application or other such initial regulatory filing or submission without Catalent's prior written
acknowledgment. Such acknowledgment shall not be unreasonably withheld and shall be memorialized in a writing signed by authorized
Representatives of both Parties. FibroGen shall provide Catalent with notice of any Regulatory Filings that name Catalent as a manufacturer of
the Product and provide Catalent with a copy of each Regulatory Approval required to distribute, market or sell Product in the Territory.
6.6
Recalls.
6.6.1
Responsibility. If a Regulatory Authority orders or requires the recall of Product supplied pursuant to this
Agreement or if either Catalent or FibroGen believes a recall, field alert, Product withdrawal or field correction (“Recall”) may be necessary
with respect to Product supplied under this Agreement, the Party receiving the notice from the Regulatory Authority or that holds such belief
shall promptly notify the other Party in writing. Recalls or Seizures of Final Product will be further handled by the Quality Agreement between
the Parties.
6.6.2
Communication. Catalent shall keep FibroGen fully and promptly informed of any notification, event or other
information, whether Catalent receives directly or indirectly, which notification, event or other information (a) might affect the marketability,
safety, or effectiveness of the Product; or (b) might result in a Recall or Seizure. Upon request, Catalent shall cooperate with, and provide
reasonable assistance in a timely manner to FibroGen in connection with any Recall or Seizure, including without limitation providing
information relating to a potential or actual Recall or Seizure within [ ] ([ ]) business day after FibroGen's request therefor, to the extent such
information is readily available to Catalent. In the event that Catalent believes that a Recall may be necessary or appropriate, Catalent shall
notify FibroGen within [ ] ([ ]) business day.
6.6.3
Replacement; Refund. The cost of any Recall shall be borne by FibroGen, and FibroGen shall reimburse
Catalent for expenses incurred in connection with any Recall, in each case except to the extent such Recall is caused by Catalent's breach of its
manufacturing obligations under this Agreement or Catalent's violation of Applicable Laws or its negligence or willful misconduct, in which
case Catalent shall bear [ ].
ARTICLE 7
HAZARDS AND SAFETY
7.1
Hazards. As of the effective date of each applicable Purchase Order, FibroGen shall provide Catalent with all information
then known to FibroGen and in FibroGen's possession or control concerning any hazardous conditions or Wastes associated with exposure to or
the handling, storage, use, or disposal of FibroGen-supplied Materials and Product, including without limitation Materials Safety Data Sheets
for FibroGen-supplied Materials and Product.
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competitive harm to the company if publicly disclosed.
Confidential
7.2
Safety. Catalent shall in accordance with Catalent's internal procedures and Applicable Law, inform its employees,
contractors and other personnel of any known or reasonably ascertainable chemical and processing hazards associated with the Raw Materials,
FibroGen-supplied Materials, Product, or any Wastes generated through performance of the Manufacturing Services hereunder, and provide
such persons with training in the proper methods of handling and disposing of such items. Catalent shall be responsible for maintaining safety
procedures and required training documentation for Catalent's handling and manufacture of the Product, FibroGen-supplied Materials, and all
Raw Materials and components thereof, and for the generation, treatment, storage and disposal of Wastes relating thereto all of which shall
comply with all applicable national and local environmental and occupational safety and health requirements where the Waste is located.
FibroGen shall have the right to audit and comment on such procedures. In accordance with the Quality Agreement, each Party shall promptly
notify the other of any information or notice of which it becomes aware concerning the Product, including, without limitation, any threatened or
pending action by any Regulatory Authority. FibroGen shall be responsible for handling all complaints and communications from Regulatory
Authorities with respect to the Final Product or Product, except to the extent such complaints and communications relate to the Catalent
Facility. Catalent shall cooperate in resolving such complaints and responding to such communications to the extent such cooperation is
reasonably requested by FibroGen.
7.3
Waste Handling; Notification. At Catalent's expense, Catalent or an approved Subcontractor shall handle, label, package,
store, transport and dispose of all Wastes generated through performance of the Manufacturing Services hereunder in material compliance with
all Applicable Laws, and be responsible for such actions therefor. Each Party shall promptly notify the other of any health hazards or potential
health hazards of which it is or becomes aware concerning exposure to or handling of the Raw Materials, FibroGen-supplied Materials,
Product, or Wastes.
7.4
Accident Reports/Adverse Event Reporting. It is understood and agreed that FibroGen (or other Designees) shall have the
sole right and responsibility for reporting to the applicable and appropriate Regulatory Authorities any adverse events involving the Product or
Final Product (as applicable). Catalent shall provide FibroGen all reasonable assistance in complying with such reporting requirements.
Catalent shall report to FibroGen immediately within [ ] ([ ]) business day all material accidents related to the manufacture, handling, use or
storage of any Raw Materials, FibroGen-supplied Materials, or Product, including, without limitation: (a) accidents resulting in significant
personal injury requiring more than first aid treatment, (b) accidents resulting in chronic illness or loss of consciousness, (c) accidents resulting
in material property damage, (d) accidents resulting in material environmental release, and (e) accidents that result in regulatory, safety, health
or environmental audits. Catalent shall notify FibroGen of any information of which Catalent becomes aware concerning any side effect, injury,
toxicity or sensitivity reaction, or any unexpected incident, and the severity thereof, that is associated with the manufacturing of Product.
ARTICLE 8
QUALITY ASSURANCE
8.1
Quality Agreement. Prior to any Regulatory Filing for the Product that names Catalent as a manufacturer of Product and
in any case before first cGMP Manufacturing of the Product, the Parties shall agree upon and execute a quality agreement (the “Quality
Agreement”). The Quality Agreement shall set forth the responsibilities of the Parties with respect to pharmacovigilance, quality assurance,
document retention, notification obligations relating to Regulatory Authority inquiries and activities, audit and inspection rights, and similar
matters with respect to the manufacture of Product including Recalls, returned goods, and authorization for Recalls.
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competitive harm to the company if publicly disclosed.
Confidential
8.2
Changes to Specifications. All Specifications, and any change to the Specifications agreed by the Parties from time to
time, shall be in writing, dated and signed by the Parties. Any change to the Manufacturing Process or MBR shall be deemed a Specification
change. No change in the Specifications shall be implemented by Catalent, whether requested by FibroGen or requested or required by any
Regulatory Authority, until the Parties have agreed in writing to such change, the implementation date of such change, and any increase or
decrease in costs, expenses or fees associated with such change (including any change to Unit Pricing). Catalent shall respond promptly to any
request made by FibroGen for a change in the Specifications, and both Parties shall use commercially reasonable, good-faith efforts to agree to
the terms of such change in a timely manner. For changes to Specifications due to revisions to compendial specifications, such Specification
changes shall be implemented by Catalent no later than the effective date of the corresponding change in the compendia. As soon as practicable
after a request is made for any change in Specifications, Catalent shall notify FibroGen of the costs associated with such change and shall
provide such supporting documentation as FibroGen may reasonably require. FibroGen shall pay all costs associated with FibroGen requested
changes to the Specifications. Catalent shall pay for all costs associated with changes to the Specifications requested by Catalent or [ ], to the
extent not resulting from a Specification change requested by FibroGen.
8.3
Quality Control. Catalent shall ensure that all Product manufactured for supply to FibroGen pursuant to this Agreement is
subject to quality controls in conformance with customary practices, cGMP and regulatory standards. In addition, Catalent shall maintain and
follow a quality control and testing program to confirm that all Product supplied hereunder conforms to the Specifications.
8.4
Responsibility for Quality Assurance and Quality Control. Responsibility for quality assurance and quality control of
Product shall be allocated between FibroGen and Catalent as set forth in the Quality Agreement.
8.5
Audits; Observation of Product Manufacture. Notwithstanding anything to the contrary herein or in any Purchase Order,
Catalent agrees that it shall not commence any manufacture of Product until FibroGen has approved the applicable Master Batch Record. On an
ongoing basis, FibroGen, other Designees, and other authorized agents designated by FibroGen shall have the right to perform, directly or
through its representatives or agents, certain audits of records and documentation, and to have Representatives of FibroGen (or representatives
of FibroGen's designee, including representatives of FibroGen's partners or other Designees) visit each Catalent Facility during normal business
hours to review Catalent's manufacturing operations, to assess its compliance with and the Quality Agreement, the quality-related obligations in
this Agreement, and applicable regulatory standards, and to discuss any related issues with manufacturing and management personnel. Catalent
shall cooperate fully in all such reviews, audits, and inspections. Catalent shall provide at no further cost personnel time and resources as may
be available and commercially reasonable to complete such audits. FibroGen shall provide reasonable advance notice to Catalent of visits to
Catalent Facility. FibroGen's Representatives (and/or representatives of FibroGen's designee or partner or other Designees) shall be granted
access upon to (A) the portion of the Catalent Facility where Catalent performs Manufacturing Services, (B) relevant personnel involved in
Manufacturing Services and (C) records pertaining to Manufacturing Services, in each case solely to the extent pertaining to the Product and for
the purpose of verifying that Catalent is performing the Manufacturing Services in accordance with Applicable Laws, including cGMPs, the
Specifications, Quality Agreement and the Master Batch Records. FibroGen, including its partners, Representatives and/or other Designees,
may not conduct an audit under this Section more than [ ] during any [ ] ([ ]) month period, unless there is a material quality or compliance or
security issue concerning Product, the Manufacturing Services, or the Manufacturing Process (as provided under Attachment B hereto); except
that additional inspections may be conducted [ ]. Notwithstanding the foregoing, FibroGen (or its designee) may conduct an audit of Catalent's
security procedures [ ] every [ ] ([ ]) months to ensure adequate Product security processes are in place. Audits and inspections shall be
designed to minimize disruption of operations at the Catalent Facility. If following an inspection FibroGen considers that the
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competitive harm to the company if publicly disclosed.
Confidential
Products are not meeting the requirements set forth in Section 11.2.6, or the security requirements posed under Section 8.6 hereof are
insufficient, FibroGen shall inform Catalent and Catalent shall take such immediate action as is necessary to ensure that the Product is or will
be as warranted under Section 11.2.6. FibroGen shall have the right to re-conduct inspections and take further samples after Catalent has carried
out its remedial actions at no additional costs.
8.6
Product Security. Catalent will ensure that all FibroGen-supplied Materials, including API and Product, while under the
control of Catalent are under appropriately secure conditions with procedures in place to (a) protect the materials against diversion and theft,
and (b) include mechanisms for full accounting and reconciliation of FibroGen Materials, including API and Product, in each case, as may be
more fully set forth under the Quality Agreement. Catalent will promptly notify FibroGen should any breach or discrepancy thereof occur, and
Catalent will work cooperatively with FibroGen to resolve any such breach or discrepancy, within the scope of its responsibilities under the
Quality Agreement. [ ].
ARTICLE 9
LICENSE GRANTS; TRANSFER ASSISTANCE
9.1
Licenses to Catalent. During the Term, FibroGen hereby grants to Catalent a limited, royalty-free, non-exclusive, non-
transferable license (without any right to sublicense) under any FibroGen Intellectual Property for the sole and limited purpose of Catalent's
performance of its obligations under this Agreement, including, without limitation, the manufacture and supply of Product pursuant to any
applicable Purchase Order(s). Catalent covenants that it shall not use or practice the FibroGen Intellectual Property for any use or purpose other
than for the limited manufacturing and supply as provided in this Agreement, and shall not disclose, transfer, make public or sublicense any
rights, data and information under the FibroGen Intellectual Property.
9.2
License to FibroGen. Catalent shall and hereby grants to FibroGen an irrevocable, perpetual, worldwide, fully paid,
royalty-free, non-exclusive license, with the right to grant and authorize sublicenses, under any and all Catalent Background Intellectual
Property and Catalent Owned Work Product that Catalent incorporates into the Product, the MBR, Batch Documentation Package and such
other deliverables, in each case to practice such Catalent Background Intellectual Property for the sole and limited purpose of: selling, having
sold, offering for sale, using, having sold, importing and/or exporting, and commercializing the Product (or any back-up compounds or next-
generation compounds thereof).
9.3
Transfer Assistance. [
].
ARTICLE 10
OWNERSHIP OF INTELLECTUAL PROPERTY AND
MATERIALS
10.1
Rights to Intellectual Property.
10.1.1
Except as otherwise provided for hereunder, all Intellectual Property developed under this Agreement which
relates exclusively to the Product, including the Batch Documentation Package, the MBR, the Manufacturing Process, and all other deliverables
required by this Agreement, including any improvements or modifications thereto (collectively, “FibroGen Owned Work Product”) shall be
owned by FibroGen and Catalent shall and hereby assigns all of Catalents's rights, title and interest in the FibroGen Owned Work Product to
FibroGen. For clarity, FibroGen Owned Work Product shall not include Catalent Background Intellectual Property, and, except as set forth in
Section 9.2, no rights to Catalent Background Intellectual Property are provided for hereunder. FibroGen Owned Work Product shall be deemed
FibroGen Confidential Information.
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competitive harm to the company if publicly disclosed.
Confidential
Catalent shall execute documents and take other actions as FibroGen reasonably requests (at FibroGen's expense) for purposes of applying for,
obtaining, perfecting, evidencing, sustaining and enforcing FibroGen's interest in the FibroGen Owned Work Product. The content of all
artwork provided by or on behalf of FibroGen to Catalent shall and shall continue to be the sole and exclusive property of FibroGen.
10.1.2
Catalent shall own Intellectual Property relating to its Manufacturing Services under this Agreement,
including those that are generally applicable to developing, formulating, manufacturing, filling, processing, packaging, analyzing, or testing
pharmaceutical products generally to the extent not specific to the manufacture, formulation, filling, processing, packaging, analyzing, testing,
use, sale, offer for sale, export and/or import of the Product and do not rely on or make a claim towards FibroGen Owned Work Product or
FibroGen Confidential Information (“Catalent Owned Work Product”). All Catalent Owned Work Product shall be solely owned by
Catalent.
10.2
FibroGen-supplied Materials. As between the Parties and without prejudice to any other ownership rights hereunder,
FibroGen shall own all rights and interests in and title to the FibroGen-supplied Materials, including API.
10.3
Intellectual Property Controls. Catalent shall require any of its employees, approved Subcontractors, and employees of
such approved Subcontractors to hold any of FibroGen Confidential Information and FibroGen-supplied Materials in strict trust and confidence,
and shall require such employees, approved Subcontractors, and employees of such approved Subcontractors to assign all right, title and
interest in and to FibroGen Owned Work Product to Catalent so that Catalent may comply with its obligations under this Agreement.
Furthermore, Catalent shall protect all FibroGen Confidential Information in no less than the same manner it uses to protect its own confidential
information.
ARTICLE 11
REPRESENTATIONS AND WARRANTIES
11.1
FibroGen. FibroGen hereby represents and warrants to Catalent that, as of the Effective Date:
11.1.1
Power and Authority. FibroGen is duly formed and validly existing under the laws of its jurisdiction of
formation and has all requisite corporate power and authority to execute and enter into this Agreement and to perform its obligations hereunder.
Furthermore, FibroGen represents and warrants to Catalent that neither FibroGen nor any of its employees has (to the best of its knowledge) or
will perform any of the following acts, either directly or through a Third Party, in connection with this Agreement: (a) pay, offer or promise to
pay, or authorize the payment of, any money; (b) give or promise to give, or authorize the giving of, any services or anything else of value; or
(c) enter into any other transactions, to or with any official or employee of any governmental agency or instrumentality, or of a public
international organization, or of any agency or subdivision thereof, or to any political party or official thereof or to any candidate for political
office, in each case for the purpose of: (i) influencing any act or decision of that person in his/her official capacity, including a decision to fail to
perform his/her official functions with such governmental agency or instrumentality or such public international organization or such political
party; (ii) inducing such person to use his/her influence with such governmental agency or instrumentality or such public international
organization or such political party to affect or influence any act or decision thereof; or (iii) securing any improper advantage.
11.1.2
Execution, Delivery and Performance of the Agreement. FibroGen has taken all necessary corporate action
on its part to authorize the execution and delivery of this Agreement and the performance of its obligations under this Agreement. This
Agreement shall be duly executed and delivered on behalf of FibroGen, and constitute a legal, valid, binding obligation, enforceable against
FibroGen and its
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competitive harm to the company if publicly disclosed.
Confidential
successors and assigns in accordance with its terms and conditions. The execution, delivery and performance of this Agreement does not
materially breach, conflict with, violate, contravene or constitute a default under any contracts, arrangements or commitments to which
FibroGen is a party or by which it is bound nor does the execution, delivery and performance of this Agreement by FibroGen violate any order,
law or regulation of any court or Regulatory Authority having authority over it.
and FibroGen-supplied Materials supplied by FibroGen to Catalent.
11.1.3
Materials and Information. FibroGen is free to supply to Catalent the FibroGen Confidential Information
above.
11.1.4
License. FibroGen has the right, power and authority to grant Catalent the license set forth in Section 9.1
11.1.5
All FibroGen-supplied Materials shall have been produced in accordance with Applicable Laws, shall
comply with all applicable specifications, including the Specifications, shall not be adulterated, misbranded or mislabeled within the meaning
of Applicable Laws, and shall have been provided in accordance with the terms and conditions of this Agreement. If FibroGen learns of the
noncompliance of an Applicable Law that materially impacts the Manufacturing Services by an employee, agent, or Subcontractor being used
by Fibrogen, Fibrogen will promptly so notify Catalent in writing, and appropriate action will be taken by FibroGen in consultation with
Catalent, as may be practical and appropriate under the circumstances.
Applicable Laws.
11.1.6
The content of all artwork provided by or on behalf of FibroGen to Catalent shall comply with all
All Product delivered to FibroGen by Catalent shall be held, used and disposed of by or on behalf of
FibroGen in accordance with this Agreement and Applicable Laws, and FibroGen will otherwise comply with Applicable Laws relating to
FibroGen's performance under this Agreement.
11.1.7
FibroGen will not release any Batch of Product if the required certificates of conformance indicate that
Product does not comply with the Specifications or if FibroGen (or its Designee) does not hold all necessary Regulatory Approvals to market
and sell the Product, or in the conduct of any clinical trial utilizing Product or API.
11.1.8
11.1.9
To FibroGen's knowledge, there is (i) no patent owned by a Third Party related to the FibroGen Intellectual
Property used to Process Product that would be infringed or misused by performance under this Agreement and (ii) no trade secret or other
proprietary right of a Third Party related to the FibroGen Intellectual Property used to Process Product that would be infringed or misused by
performance under this Agreement..
11.1.10
FibroGen has all authorizations and permits required to deliver (or have delivered) API to the Facility.
FibroGen further represents and warrants that no transaction or dealing under this Agreement shall be
conducted with or for an individual or entity that is designated as the target of any sanction, restriction or embargo administered by the United
Nations, European Union, United Kingdom, or United States.
11.1.11
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competitive harm to the company if publicly disclosed.
Confidential
11.2
Catalent. Catalent hereby represents and warrants to FibroGen that, as of the Effective Date:
Power and Authority. Catalent is duly formed and validly existing under the laws of its jurisdiction of
formation and has all requisite corporate power and authority to execute and enter into this Agreement and to perform its obligations hereunder.
11.2.1
11.2.2
Execution, Delivery and Performance of Agreement. Catalent has taken all necessary corporate action on its
part to authorize the execution and delivery of this Agreement and the performance of its obligations under this Agreement. This Agreement
shall be duly executed and delivered on behalf of Catalent, and constitutes a legal, valid, binding obligation, enforceable against Catalent and
its successors and assigns in accordance with its terms. The execution, delivery and performance of this Agreement does not materially breach,
conflict with, violate, contravene or constitute a default under any contracts, arrangements or commitments to which Catalent is a party or by
which it is bound nor does the execution, delivery and performance of this Agreement by Catalent violate any order, law or regulation of any
court or Regulatory Authority having authority over it.
11.2.3
Compliance with Applicable Laws. Catalent is, to its knowledge, in compliance with all Applicable Laws,
regulatory guidelines and industry standards relating to the performance of the Manufacturing Services. If Catalent learns of the noncompliance
of an Applicable Law that materially impacts the Manufacturing Services by an employee, agent, or Subcontractor being used by Catalent,
Catalent will promptly so notify FibroGen in writing, and appropriate action will be taken by Catalent at Catalent's sole expense.
11.2.4
No Patent Infringement. The Manufacturing Services to be performed under this Agreement, based on the
practice of Catalent Background Intellectual Property as contemplated to be used to manufacture the Products hereunder, will not violate or
infringe upon any patent, trade secret, copyright or other intellectual property held by a Third Party; it being understood that such
representation shall not extent to any such infringement or violation based on FibroGen Intellectual Property, instructions, or specifications
provided to Catalent. No Third Party has filed, pursued or maintained or threatened in writing to file, pursue or maintain any claim, lawsuit,
charge, complaint or other action alleging infringement of a Third Party Patent or misappropriation of trade secret based on the practice of
Catalent Background Intellectual Property as contemplated to be used to manufacture the Products hereunder. [ ].
above and will not enter into any contract, arrangement or commitment in the future which prohibits the grant of such license.
11.2.5
License. Catalent has the right, power and authority to grant FibroGen the license set forth in Section 9.2
11.2.6
Product Warranty. At the time of Delivery by Catalent as provided in Section 4.3, Product shall have been
Processed in accordance with Applicable Laws and in conformity with the Master Batch Record, and will at the time of Delivery, conform to
the Specifications and Purchase Order, and shall not be adulterated, misbranded or mislabeled within the meaning of Applicable Laws; will
have been packaged in accordance with the storage requirements as defined in the Specifications and Master Batch Records (as applicable); and
will be transferred free and clear of any liens or encumbrances of any kind; provided, that Catalent shall not be liable for defects attributable to
FibroGen-supplied Materials (including artwork, advertising and labeling).
debarred or suspended under 21 U.S.C. §335(a) or (b).
11.2.7
Catalent will not in the performance of its obligations under this Agreement use the services of any person
with or for an individual or entity that is designated as the target of any sanction, restriction or
11.2.8
Catalent represents and warrants that no transaction or dealing under this Agreement shall be conducted
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competitive harm to the company if publicly disclosed.
Confidential
embargo administered by the United Nations, European Union, United Kingdom, or United States. Furthermore, Catalent represents and
warrants to FibroGen that neither Catalent nor any of its employees has (to the best of its knowledge) or will perform any of the following acts,
either directly or through a Third Party, in connection with this Agreement: (a) pay, offer or promise to pay, or authorize the payment of, any
money; (b) give or promise to give, or authorize the giving of, any services or anything else of value; or (c) enter into any other transactions, to
or with any official or employee of any governmental agency or instrumentality, or of a public international organization, or of any agency or
subdivision thereof, or to any political party or official thereof or to any candidate for political office, in each case for the purpose of: (i)
influencing any act or decision of that person in his/her official capacity, including a decision to fail to perform his/her official functions with
such governmental agency or instrumentality or such public international organization or such political party; (ii) inducing such person to use
his/her influence with such governmental agency or instrumentality or such public international organization or such political party to affect or
influence any act or decision thereof; or (iii) securing any improper advantage.
money laundering or terrorism, and ensuring product safety, it will comply with [ ].
11.2.9 Catalent represents and warrants that, in furtherance of preventing fraud, bribery and corruption, racketeering,
11.3
Limitations. THE REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS ARTICLE ARE THE SOLE
AND EXCLUSIVE REPRESENTATIONS AND WARRANTIES MADE BY EACH PARTY TO THE OTHER PARTY, AND NEITHER
PARTY MAKES ANY OTHER REPRESENTATION, WARRANTY OR GUARANTEE OF ANY KIND WHATSOEVER, INCLUDING
ANY IMPLIED WARRANTY OF MERCHANTABILITY, NON-INFRINGEMENT OR FITNESS FOR A PARTICULAR PURPOSE.
ARTICLE 12
INDEMNIFICATION; LIMITATION OF LIABILITY
12.1
Indemnification by FibroGen. Subject to Section 12.3, FibroGen shall indemnify, defend and hold Catalent, and their
directors, officers, employees and agents (the “Catalent Indemnitees”) harmless from and against all losses, damages, liabilities, settlements,
penalties, fines, costs and expenses (including, without limitation, reasonable attorneys' fees and expenses) (collectively, the “Losses”) incurred
by Catalent Indemnitees to the extent such Losses arise out of, relate to or result from any claim, lawsuit or other action or threat by a Third
Party relating to or arising out of [ [ ] ], except to the extent any such Losses arise out of or result from a Catalent Indemnitee's negligence,
willful misconduct, or breach of its representations, warranties or obligations set forth in this Agreement.
12.2
Indemnification by Catalent. Subject to Section 12.3, Catalent shall indemnify, defend and hold FibroGen, and their
directors, officers, employees and agents (the “FibroGen Indemnitees”) harmless from and against all Losses incurred by FibroGen
Indemnitees to the extent such Losses arise out of or result from any claim, lawsuit or other action or threat by a Third Party relating to or
arising out of [ ] in each case except to the extent any such Losses arise out of or result from a FibroGen Indemnitee's negligence, willful
misconduct, or breach of its representations, warranties or obligations set forth in this Agreement.
12.3
Indemnification Procedures.
“Indemnitee” means the indemnified Party and their respective directors, officers, employees and agents.
12.3.1
Identification of Indemnitor and Indemnitee. An “Indemnitor” means the indemnifying Party. An
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competitive harm to the company if publicly disclosed.
Confidential
12.3.2
Indemnification Procedures. An Indemnitee which intends to claim indemnification under Section 12.1 or
Section 12.2 hereof shall promptly notify the Indemnitor in writing of any claim, lawsuit or other action (including a copy of any related
complaint, summons, notice or other instrument) in respect of which the Indemnitee or any of their respective directors, officers, employees and
agents intend to claim such indemnification; provided, however, that failure to provide such notice within a reasonable period shall not relieve
the Indemnitor of its obligations under this Article 12 except to the extent, if any, the Indemnitor is prejudiced by such failure. The Indemnitee
and their respective directors, officers, employees and agents shall additionally [ ]. The Indemnitee shall have the right, but not the obligation,
to be represented by counsel of its own selection and expense. FibroGen always has the right to control proceedings relating to API and Product
12.4
LIMITATIONS OF LIABILITY.
FIBROGEN-SUPPLIED MATERIALS, [ ].
12.4.1
IN THE EVENT OF ANY CLAIM FOR LOST, DAMAGED OR DESTROYED API OR OTHER
12.4.2
12.4.3
EXTENT ARISING OUT OF:
CATALENT'S TOTAL LIABILITY UNDER THIS AGREEMENT SHALL IN NO EVENT EXCEED [ ].
THE LIMITATIONS OF LIABILITY IN SECTIONS 12.4.1 AND 12.4.2 SHALL NOT APPLY TO THE
(a)
(b)
(c)
(d)
(e)
[ ];
[ ];
[ ];
[ ]; OR
[ ].
12.5
DISCLAIMER OF CONSEQUENTIAL DAMAGES. NEITHER PARTY SHALL BE LIABLE TO THE OTHER
PARTY FOR INDIRECT, INCIDENTAL, PUNITIVE OR CONSEQUENTIAL DAMAGES OR LOSS OF REVENUES, PROFITS OR DATA
ARISING OUT OF PERFORMANCE UNDER THIS AGREEMENT, WHETHER IN CONTRACT OR IN TORT, EVEN IF SUCH PARTY
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
ARTICLE 13
INSURANCE
Each Party shall, at its own cost and expense, obtain and maintain in full force and effect during the Term the following: (A)
Commercial General Liability and/or Foreign Liability Insurance with a per occurrence limit of $[ ] ([ ] United States Dollars) or equivalent
and an annual aggregate limit of $[ ] United States Dollars) or equivalent; (B) Products and Completed Operations Liability Insurance with a
per occurrence limit of not less than $[ ] ([ ] United States Dollars) or equivalent covering each Party's own operations arising out of or
connecting with this Agreement, providing coverage for bodily injury and property damage claims; (C) Workers' Compensation as required by
any applicable law or regulation and in accordance with the provisions of the laws of the nation, state, territory or province having jurisdiction
over FibroGen's employees. If any such jurisdiction has a social scheme to provide insurance or benefits to injured workers, the relevant Party
must be in full
25
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted because it is both (i) not material and (ii) would likely cause
competitive harm to the company if publicly disclosed.
Confidential
compliance with the laws of such jurisdiction. Employer's Liability insurance will be provided in amounts not less than the local currency
equivalent of US$[ ] ([] United States Dollars) or equivalent per accident and US[ ] ([ ] United States Dollars) or equivalent per employee for
disease, provided that such coverage is available in the nation, state, territory or province having jurisdiction over each Party's employees. If
there is an exposure of injury to each Party's employees under the U.S. Longshoremen's and Harbor Workers' Compensation Act, the Jones Act
or under the laws, regulations or statutes applicable to maritime employees, coverage will be included for such injuries or claims; and (D) Auto
Liability insurance in a minimum amount of $[ ] ([ ] United States Dollars) or equivalent combined single limit for all vehicles used in
connection with the performance of this contract. Each Party shall, at its own cost and expense, obtain and maintain in full force and effect
during the Term, All Risk Property Insurance, including transit coverage, an amount equal to [ ] while in, or in transit to, or from, a Catalent
facility. If any of the required policies of insurance are written on a claims made basis, such policies shall be maintained throughout the Term
and for a period of at least [ ] ([ ]) years thereafter. Each insurance policy that is required under this Agreement shall be obtained from an
insurance carrier with an A.M. Best or equivalent rating of at least A- VII or an S&P rating of A. Each Party may self-insure all or any portion
of the required insurance as long as, together with its Affiliates, its US GAAP net worth is greater than $[ ] United States Dollars or equivalent
or its annual EBITDA (earnings before interest, taxes, depreciation and amortization) is greater than $[ ] United States Dollars or equivalent.
Upon the other Party's written request from time to time, each Party shall promptly furnish to the other Party a certificate of insurance or other
evidence of the required insurance.
ARTICLE 14
CONFIDENTIALITY
14.1
Definition. As used in this Agreement, the term “Confidential Information” means all confidential information of the
disclosing person of whatever type, including all information furnished by or on behalf of Catalent or FibroGen (as the case may be,
“Discloser”), its Affiliates or any of its or their respective Representatives, to the other Party (for purposes of this Article 14, “Recipient”), its
Affiliates or any of its or their respective Representatives, whether furnished before, on or after the Effective Date and furnished in any form,
including written, verbal, visual, electronic or in any other media or manner and information acquired by observation or otherwise during any
site visit at the other Party's facility. Confidential Information includes all proprietary technologies, know-how, trade secrets, discoveries,
inventions and any other Intellectual Property (whether or not patented), analyses, compilations, business or technical information and other
materials prepared by either Party, their respective Affiliates, or any of its or their respective Representatives, containing or based in whole or in
part on any Confidential Information furnished by Discloser, its Affiliates or any of its or their respective Representatives. Confidential
Information also includes the existence and terms of this Agreement.
14.2
Exclusions. Notwithstanding anything in Section 14.1 to the contrary, Confidential Information does not include
information that Recipient can demonstrate upon competent written proof (A) is or becomes generally available to the public or within the
industry to which such information relates other than as a result of a breach of this Agreement, (B) is already known by Recipient at the time of
disclosure without obligations of confidentiality, (C) becomes available to Recipient on a non-confidential basis from a source that is entitled to
disclose it on a non-confidential basis or (D) was or is independently developed by or for Recipient without reference to Discloser's
Confidential Information.
14.3
Mutual Obligation. Recipient (A) will keep confidential all Confidential Information, employing such protections as it
would use for its own Confidential Information of a similar type but in no case less than reasonable protections under the circumstances,
(B) will not use Discloser's Confidential Information except in connection with the performance of its obligations under this Agreement and
(C) will not disclose to any Third Party, without Discloser's prior written consent, Discloser's Confidential Information, except that Recipient
may disclose Discloser's Confidential Information to any of its Affiliates and its or their respective Representatives
26
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted because it is both (i) not material and (ii) would likely cause
competitive harm to the company if publicly disclosed.
Confidential
(and in FibroGen's case, Designees) that (A) need to know such Confidential Information for the purpose of performing under this Agreement,
(B) are advised of the contents of this Article and (C) are bound to Recipient by obligations of confidentiality and non-use at least as restrictive
as the terms of this Article. Each Party shall be jointly and severally responsible for any breach of this Article by its Affiliates or any of its or
their respective Representatives.
14.4
Permitted Disclosure. Recipient may disclose Discloser's Confidential Information to the extent required by law or
regulation; provided, that prior to making any such legally required disclosure, Recipient shall give Discloser as much prior notice of the
requirement for and contents of such disclosure as is practicable under the circumstances, and Recipient will cooperate with Discloser in
Discloser's efforts to obtain protective order, confidential treatment or other legal remedy. Any such disclosure, however, shall not relieve
Recipient of its obligations under this Agreement. In addition, FibroGen may use Catalent's name and disclose Catalent Confidential
Information to potential investors or other lending sources who have a specific need to know such Confidential Information in connection with
a proposed financing arrangement so long as the Third Party to whom such Confidential Information is disclosed is bound to FibroGen by
obligations of confidentiality and non-use at least as restrictive as the terms of this Article, and subject to the restrictions set forth in this Article
14.
14.5
No Implied License. Except as expressly set forth in Section 14.1, Recipient will obtain no right of any kind or license
under any of Discloser's Confidential Information, including any patent application or patent, by reason of this Agreement. Discloser's
Confidential Information will remain Discloser's sole property, subject to Article 10.
14.6
Return of Confidential Information. Upon expiration or termination of this Agreement, Recipient will (and will cause its
Affiliates and its and their respective Representatives to) cease its use and, upon written request, within [ ] ([ ]) days either return or destroy
(and certify as to such disposition) all of Discloser's Confidential Information, including any copy of such information, except for a single copy,
which may be retained for the sole purpose of ensuring compliance with its obligations under this Agreement. In addition, Catalent shall require
that all authorized Subcontractors and Affiliates performing Services have similarly returned or destroyed all FibroGen Confidential
Information.
14.7
Survival. The obligations of this Article will terminate [ ] years from the expiration or termination of this Agreement,
except with respect to trade secrets, for which the obligations of this Article will continue for so long as such information remains a trade secret
under law.
ARTICLE 15
PRESS RELEASES; USE OF NAMES
15.1
Press Releases. Neither Party shall issue or disclose any press release, publicity or other form of public written
disclosure regarding this Agreement or the terms hereof without receiving the other Party's express prior written consent, except required under
Applicable Laws, by any governmental agency or by the rules of any stock exchange on which the securities of the disclosing Party are listed,
in which case the Party required to make the press release or public disclosure shall use commercially reasonable efforts to obtain the approval
of the other Party as to the form, nature and extent of the press release or public disclosure prior to issuing the press release or making the
public disclosure.
15.2
Use of Names. Except as expressly set forth in Section 14.4, neither Party shall make use of the name, trademark, logo
or symbol of the other Party of its Affiliates or any of their respective officers, directors, employees, or agents, in any advertising or
promotional material, or otherwise, in connection with this Agreement or any related agreements, without the prior written consent of the other
Party.
27
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted because it is both (i) not material and (ii) would likely cause
competitive harm to the company if publicly disclosed.
Confidential
ARTICLE 16
TERM; TERMINATION
16.1
Term. This Agreement shall commence on the Effective Date and shall continue until the end of [ ] (“Initial Term”),
and automatically extend for [ ] year periods (each a “Renewal Term”). Either Party may provide the other with [ ] ([ ]) months’ written
notice of termination with or without cause, provided the date of termination cannot occur before [ ]. The Initial Term and Renewal Terms are
collectively referred to as the “Term”.
16.2
Termination. This Agreement may be terminated as follows:
16.2.1
Material Breach. Either Party may terminate this Agreement or Purchase Order by written notice to the other
Party, for any material breach of this Agreement or Purchase Order by the other Party, if such breach is not cured within [ ] ([ ]) days after the
breaching Party receives written notice of such breach from the non-breaching Party. Such termination shall be effective upon expiration of
such cure period.
16.2.2
Insolvency. Either Party may terminate this Agreement and all Purchase Orders upon notice to the other
Party, upon (a) the dissolution, termination of existence, liquidation or business failure of the other Party; (b) the appointment of a custodian or
receiver for the other Party who has not been terminated or dismissed within [ ] ([ 90]) days of such appointment; or (c) the institution by the
other Party of any proceeding under national, federal or state bankruptcy, reorganization, receivership or other similar laws affecting the rights
of creditors generally or the making by such Party of a composition or any assignment for the benefit of creditors under any national, federal or
state bankruptcy, reorganization, receivership or other similar law affecting the rights of creditors generally, which proceeding is not finally
dismissed within [ ] ([ ]) days of filing. All rights and licenses granted pursuant to this Agreement are, and shall otherwise be deemed to be,
for purposes of Section 365(n) of Title 11 of the United States Code, licenses of rights of “intellectual property” as defined therein.
16.3
Consequences of Termination.
16.3.1
Generally. If FibroGen delivers to Catalent a notice of termination of this Agreement pursuant to Section
16.2, Catalent shall use [ ] efforts to wind-down all Manufacturing Services in accordance with its responsibilities under Applicable Laws,
and use [ ] efforts to reduce or eliminate further costs, and to cancel, if permitted under the terms of applicable agreements, any Third Party
obligations. Except for invoices or Purchase Orders directly related to Catalent's material breach of this Agreement pursuant to Section 16.2.1,
hereof FibroGen shall pay Catalent all invoiced amounts outstanding hereunder, plus, upon receipt of invoice therefor, for any [ ] and [ ] in the
event that this Agreement is terminated for any reason other than by FibroGen pursuant to Section 16.2.2, all Product being Processed pursuant
to Purchase Orders (or, alternatively, FibroGen may instruct Catalent to complete such work in process, and the resulting completed Product
shall be governed by clause (ii)). In the event that this Agreement is terminated for any reason other than by FibroGen pursuant to Section
16.2.2, FibroGen shall pay Catalent for[ ], in connection with Catalent's performance of this Agreement, so long as such costs, expenses or
commitments were made by Catalent consistent with FibroGen's most recent Binding Forecast and the vendor's [ ]. In addition, Catalent shall
return to FibroGen all FibroGen-supplied Materials together with any Product existing, generated, or in progress as of the date of termination.
For avoidance of doubt, all services and delivery fees in connection with the transition shall be borne by FibroGen, unless the termination is
due to breach of this Agreement by Catalent.
Return of Product. At FibroGen’s request or upon expiration or termination of this Agreement, Catalent
shall promptly: return or, at FibroGen’s written request, destroy (with certification of such destruction), all quantities of Product, FibroGen-
supplied Materials, Raw Materials, intermediates and in-process
16.3.2
28
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted because it is both (i) not material and (ii) would likely cause
competitive harm to the company if publicly disclosed.
Confidential
materials being held by Catalent under this Agreement and outstanding Purchase Order(s). Such actions shall be taken at FibroGen’s pre-
approved cost and expense.
Accrued Rights. Except as otherwise expressly set forth herein, any termination or expiration of this
Agreement shall be without prejudice to any right which shall have accrued to the benefit of either Party prior to such expiration or termination.
16.3.4
16.4
Right to Return and Settle. If Catalent requests in writing from FibroGen direction with respect to disposal of any
inventories of Product, FibroGen-supplied Materials, equipment, samples or other items belonging to FibroGen and is unable to obtain a
response from FibroGen despite written notice as required under Section 18.1 hereof, after making commercially reasonable efforts to do so,
Catalent shall be entitled to (A) return all such items to FibroGen, and (B) set-off any and all amounts due to Catalent or any of its Affiliates
from FibroGen against any credits FibroGen may hold with Catalent or any of its Affiliates. Catalent shall in no event dispose of Product
without FibroGen’s prior written consent.
16.5
Surviving Rights. Sections[ ], and the rights and obligations contained therein shall survive the termination or expiration
of this Agreement to the extent expressly stated therein.
ARTICLE 17
FORCE MAJEURE
Except as to payments required under this Agreement, neither Party shall be liable hereunder for any failure in performance if such delay or
failure is caused by fire, flood, explosion, storm, acts of God, acts of any government or government agency or other causes beyond such
Party’s reasonable control, provided that, upon the occurrence of any event of force majeure, (a) the Party whose performance is thereby
affected shall promptly notify the other Party of the force majeure event and the circumstances so surrounding and of the expected duration
thereof and shall take all reasonable steps to mitigate such delay or failure to perform and (b) if the delay or failure to perform continues for
more than [ ] ([ ]) days, the unaffected Party may terminate this Agreement upon written notice to the affected Party. Upon cessation of such
force majeure event, the affected Party shall promptly resume performance under this Agreement as soon as it is possible for the Party to do so.
ARTICLE 18
MISCELLANEOUS
18.1
Notices. Any notice required or permitted to be given under this Agreement by any Party shall be in writing and shall be
(a) delivered personally, (b) sent by registered mail, return receipt requested, postage prepaid, (c) sent by a nationally-recognized courier
service guaranteeing next-day or second day delivery, charges prepaid, or (d) delivered by facsimile (with documented evidence of
transmission), to the addresses of the other Party set forth below, or at such other addresses as may from time to time be furnished by similar
notice by any Party. The effective date of any notice under this Agreement shall be the date of receipt by the receiving Party.
To FibroGen:
FibroGen, Inc.
409 Illinois Street
San Francisco, CA 94158
Attn: Legal Department
Telephone: + 1 415 978-1200
29
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted because it is both (i) not material and (ii) would likely cause
competitive harm to the company if publicly disclosed.
Confidential
To Catalent
With a copy to:
Catalent Pharma Solutions, LLC
1100 Enterprise Drive
Winchester, KY 40391
Attn: General Manager
Telephone: +1 859-745-2200
Catalent Pharma Solutions, LLC
14 Schoolhouse Road
Somerset, NJ 08873
Attn: General Counsel (Legal Department)
E-Mail: GenCouns@catalent.com
Facsimile: +1 (732) 537-6491
18.2
Governing Law. This Agreement shall be governed by, construed and interpreted in accordance with the laws of the
State of [ ], United States of America, without reference to conflict of laws principles. The Parties shall negotiate in good faith and use
reasonable efforts to settle any dispute, controversy or claim arising from or related to this Agreement or the breach thereof, as follows: the
matter shall be referred first to the JMC having responsibility for the subject matter of the dispute. The JMC shall negotiate in good faith to
resolve such dispute in a mutually satisfactory manner for up to [ ] ([ ]) days. If such efforts do not result in mutually satisfactory resolution of
the dispute, then such dispute may be submitted by either Party to arbitration by the [ ] by [ ] arbitrator selected by the Parties; provided, either
Party will have the right to withdraw from the arbitration at any time, and termination of such participation will be effective upon written notice
to the other Party. If no agreement on an arbitrator can be reached within [ ] ([ ]) days after the [ ] offers names of potential arbitrators, then
the [ ] will choose one arbitrator having reasonable experience in commercial transactions of the type described in this Agreement. The
arbitration shall take place in the English language in [ ], in accordance with the [ ] administered arbitration rules then in effect, and judgment
upon any award rendered in such arbitration will be binding and may be entered in any court having jurisdiction of the matter. The arbitration
shall commence within [ ] ([ ]) days of the date on which an arbitrator is selected. The arbitrator's decision shall set forth a reasoned basis for
any award of damages or finding of liability. The arbitrator shall not have power to [ ]. The arbitrator shall award to the prevailing Party, if any,
its costs and attorneys' fees and expenses reasonably incurred in connection with the arbitration, in accordance with this Section. In any dispute
resolution proceeding between the Parties in connection with this Agreement, the prevailing Party will be entitled to recover its reasonable
attorney's fees and costs in such proceeding, including any subsequent or related enforcement proceeding, from the other Party.
18.3
this Agreement.
Headings. All headings in this Agreement are for convenience of reference only and shall not affect the interpretation of
18.4
Exhibits. All exhibits, attachments or appendices referred to herein form an integral part of this Agreement and are
incorporated into this Agreement by such reference.
18.5
Assignment. Neither Party may assign or transfer this Agreement or any rights or obligations hereunder without the prior
written consent of the other Party, except that a Party may make such an assignment without the other Party's consent to such Party's Affiliate
or to a successor to all or substantially all of the assets or business of such Party to which this Agreement pertains, whether by asset sale, stock
sale, merger, acquisition, or otherwise. Any permitted successor or assignee of rights and/or obligations hereunder shall, in a writing to the
other Party, expressly assume performance of such rights and/or obligations. Any purported assignment that is not
30
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted because it is both (i) not material and (ii) would likely cause
competitive harm to the company if publicly disclosed.
Confidential
in conformance with this Section 18.5 shall be null, void and of no legal effect. Subject to the foregoing, this Agreement shall be binding upon
and inure to the benefit of the successors and assigns of the Parties.
18.6
Severability. If any part of this Agreement shall be found to be invalid or unenforceable under applicable law in any
jurisdiction, such part shall be ineffective only to the extent of such invalidity or unenforceability in such jurisdiction, without in any way
affecting the remaining parts of this Agreement in that jurisdiction or the validity or enforceability of the Agreement as a whole in any other
jurisdiction. In addition, the part that is ineffective shall be reformed in a mutually agreeable manner so as to as nearly approximate the intent of
the Parties as possible.
18.7
Independent Contractors. Each of the Parties is an independent contractor and nothing herein contained shall be deemed
to constitute the relationship of partners, joint venturers, nor of principal and agent between the Parties. Neither Party shall at any time enter
into, incur, or hold itself out to Third Parties as having authority to enter into or incur, on behalf of the other Party, any commitment, expense,
or liability whatsoever.
18.8
Conflict. In the event of conflict or ambiguity between or among the provisions of a particular Purchase Order, and the
body of this Agreement or any amendments hereto and any other ancillary agreements, the terms and conditions of the body of this Agreement
and amendments hereto shall prevail, govern, override, and control followed by the terms and conditions of ancillary agreements such as the
Quality Agreement, Specifications, and Master Batch Records; and then finally the terms and conditions of the particular Purchase Order.
Notwithstanding the foregoing, the Quality Agreement shall control with respect to quality assurance subject matters. For clarity, only explicit
exceptions or modifications of named sections of this Agreement or other agreements set forth in a Purchase Order, shall act as exceptions,
modifications or amendments of such agreements, and only then for the Product under such Purchase Order.
18.9
Waiver. No waiver of any term, provision or condition of this Agreement whether by conduct or otherwise in any one or
more instances shall be deemed to be or construed as a further or continuing waiver of any such term, provision or condition or of any other
term, provision or condition of this Agreement.
18.10
Entirety; Amendments. This Agreement, including any exhibits or ancillary documents attached hereto or referenced
herein, constitutes the full understanding of the Parties and a complete and exclusive statement of the terms of their agreement with respect to
the specific subject matter hereof, and no terms, conditions, understandings or agreements purporting to modify or vary the terms thereof shall
be binding unless hereafter made in a written instrument referencing this Agreement and signed by each of the Parties.
18.11
Counterparts. This Agreement and any amendment hereto may be executed in any number of counterparts, each of
which shall for all purposes be deemed an original and all of which shall constitute the same instrument. This Agreement shall be effective
upon full execution by portable document format (pdf), facsimile or original, and a pdf or facsimile signature shall be deemed to be and shall be
as effective as an original signature.
31
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted because it is both (i) not material and (ii) would likely cause
competitive harm to the company if publicly disclosed.
Confidential
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed as of the Effective Date.
CATALENT PHARMA SOLUTIONS, LLC
FIBROGEN, INC.
By:
/s/ Aris Gennadios, Ph.D.
Name Aris Gennadios, Ph.D.
Title: President
Date: 18 December 2019
By: /s/ Michael Martinelli
Name Michael Martinelli
Title: VP Tech Dev
Date: 1/8/2020
32
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted because it is both (i) not material and (ii) would likely cause
competitive harm to the company if publicly disclosed.
Confidential
[ ]
ATTACHMENT A
UNIT PRICING, PURCHASE ORDERS AND ADDITIONAL FEES
33
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted because it is both (i) not material and (ii) would likely cause
competitive harm to the company if publicly disclosed.
Confidential
ATTACHMENT B
PRODUCT MAINTENANCE SERVICES
Product Maintenance Services are comprised of the following:
[ ]
34
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted because it is both (i) not material and (ii) would likely cause
competitive harm to the company if publicly disclosed.
Confidential
ATTACHMENT C
OTHER SERVICES
The following services and items are not included in Product Maintenance Services and may be supported by Catalent on an as-needed basis
under a countersigned quotation. The list below is provided for illustration purposes and not intended to represent an exhaustive list of Product
requests or services provided by Catalent:
[ ]
35
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted because it is both (i) not material and (ii) would likely cause
competitive harm to the company if publicly disclosed.
Confidential
ATTACHMENT D
FibroGen-Supplied Materials and Raw Materials
[ ]
36
[*] = Certain confidential information contained in this document, marked by brackets, has been omitted because it is both (i) not material and (ii) would likely cause
competitive harm to the company if publicly disclosed.
Confidential
ATTACHMENT E
Product Specifications
[ ]
37
Exhibit 10.32
June 17, 2008
Ms. Christine Chung
[PRIVATE ADDRESS]
Dear Chris,
FibroGen, Inc. is pleased to offer you the position of Senior Director, China, reporting to Sarah O’Dowd, Vice President and General Counsel. We are very
excited about the possibility of you joining our team, and we look forward to the prospect of working with you in our innovative company! The following
outlines the specific terms of our offer:
•
•
•
•
•
•
•
Your salary will be $12,533.34 per month, less taxes and standard deductions as required by law. Paid bimonthly, this figure will annualize to
$150,400. Your scheduled work week will be 32 hours.
Pending any necessary approvals, including those of the Company’s Board of Directors, and in compliance with applicable laws and regulations,
we plan to offer you an option to purchase 50,000 shares of common stock of FibroGen, with a vesting base date of the first day of your
employment, pursuant to the terms and conditions of the Company’s 2005 Stock Plan, and may be amended or modified from time to time.
The above option grant is in addition to the Stock Option grants previously awarded in accordance with terms of your Consulting Agreement:
50,000 – with vesting base date of December 15, 2006, vesting ratably over 3 years
40,000 – vesting upon achievement of the following milestones
10,000 – vesting upon approval of CTA
10,000 – vesting upon initiation of PRC clinical trial – with first patient, first visit.
20,000 – vesting upon completion of significant business transaction – a) closing of significant investment from non-
affiliate(s), or b) signing transaction with marketing partner.
You will be entitled to fly business class outside of North America
You will be eligible for certain FibroGen employee benefits, which will include medical, vision and dental health insurance. Additionally, we offer
a 401(k) plan, which provides you with the opportunity for pre-tax long-term savings by deferring from 1-60% of your annual salary, subject to
certain maximums. These benefits may be modified or terminated from time to time, and a benefit summary has been included with this letter.
More detailed information regarding your benefits will be provided at your New Employee Orientation, shortly after you begin employment.
As a 32 hour-per-week employee, you will receive twelve (12) days of paid vacation each year, which will accrue at the rate of 1 day per month
beginning from your first day of employment at FibroGen.
You will abide by FibroGen’s strict company policy that prohibits any new employee from using or bringing with them from any prior employer
any proprietary information, trade secrets, proprietary materials or processes of such former employers. Moreover, because the Company’s
proprietary information is extremely important, this offer is expressly subject to your executing the enclosed Confidential Information, Secrecy
and Invention Agreement for Employees. You also agree to follow all other rules and policies that the Company may announce from time to time.
Chung, Chris
Page 2
Exhibit 10.32
•
You will also be required to sign the Employment Eligibility Verification (Form I-9). (You will need to complete and return Section One of the I-9
form along with your signed offer letter). On your first day of employment, please bring the necessary documents that establish your identity and
employment eligibility. Acceptable documents are listed on the reverse side of the I-9 form. Such documentation must be provided to us within
three (3) business days of your date of hire, or our employment relationship with you may be terminated.
You should be aware that your employment with the Company is for no specified period and constitutes "at-will" employment. As a result, you
are free to resign at any time, for any reason, with or without cause or notice. Similarly, the Company is free to conclude its employment with you
at any time. The changing needs of the Company could also result in changes to certain aspects of your employment, such as compensation,
responsibilities, location, etc. These provisions expressly supersede any previous representations, oral or written. Your at-will employment cannot
be modified or amended except by written agreement signed by both you and the President of the Company.
Any dispute or claim, including all contract, tort, discrimination and other statutory claims, arising under or relating to your employment or
termination of your employment with the Company but excepting claims under applicable workers’ compensation law and unemployment
insurance claims (“arbitrable claims”) alleged against the Company and/or its agents shall be resolved by arbitration. However, you and the
Company agree that this arbitration provision shall not apply to any disputes or claims relating to or arising out of the misuse or misappropriation
of the Company’s trade secrets. Such arbitration shall be final and binding on the parties and shall be the exclusive remedy for arbitrable claims.
You and the Company hereby waive any rights each may have to a jury trial in regard to the arbitrable claims. Arbitration shall be conducted by
the American Arbitration Association in San Mateo (or other mutually agreed upon city) under the National Rules for the Resolution of
Employment Disputes. In any arbitration, the burden of proof shall be allocated as provided by applicable law. The Company agrees to pay the
fees and costs of the arbitrator. However, the arbitrator shall have the same authority as a court to award equitable relief, damages, costs, and fees
(excluding the costs and fees for the arbitrator) as provided by law for the particular claims asserted.
Unless otherwise notified by the Company, this offer of employment is effective for 5 business days from the date of this letter. There are two originals of this
letter enclosed. If all of the foregoing is satisfactory, please sign and date each original and return one to me within five business days in the enclosed
envelope, saving the other original for yourself. Please also complete the following enclosed forms and mail them back with your signed offer letter:
•
•
•
I-9 Form
Confidential Information, Secrecy and Invention Agreement
FibroGen Employment Application
Exhibit 10.32
Chung, Chris
Page 3
Chris, we look forward to your joining our team at FibroGen.
Sincerely,
/s/ Ted A. Tucker
Ted A. Tucker
Vice President, Human Resources
ACCEPTED AND AGREED TO this
18th Day of June, 2008
/s/ Christine Chung
Christine Chung
June 18th, 2008
Intended Start Date
Enclosures:
Benefits Summary
Duplicate Letter
Return Envelope
Employment Eligibility Verification (I-9) Form
Confidential Information, Secrecy and Invention Agreement
FibroGen Employment Application
Exhibit 10.33
January 24, 2014
Elias Kouchakji, MD
[PRIVATE ADDRESS]
Dear Elias,
FibroGen, Inc. is pleased to offer you the position of Vice President, Drug Safety in our Clinical Development department reporting to Frank Valone, MD,
Chief Medical Officer. We are very excited about the possibility of you joining our team, and we look forward to the prospect of working with you in our
innovative company! The following outlines the specific terms of our offer:
•
•
•
•
•
•
•
•
Your salary will be $29,167.00 per month, less taxes and standard deductions as required by law. Paid bimonthly, this figure will annualize to
$350,000
You will be paid an employment bonus of $25,000 less taxes and standard deductions.
You will also be eligible to participate in the FibroGen Incentive Compensation Plan.
Pending any necessary approvals, including those of the Company’s Board of Directors and Stockholders, and in compliance with applicable laws
and regulations, we plan to offer you an option to purchase 100,000 shares of common stock of FibroGen, pursuant to the terms and conditions of
the Company’s 2005 Stock Plan, and may be amended or modified from time to time.
You will be eligible for certain FibroGen employee benefits, which will include medical, vision and dental health insurance. Additionally, we offer
a 401(k) plan, which provides you with the opportunity for pre-tax long-term savings by deferring from 1-60% of your annual salary, subject to
certain maximums. These benefits may be modified or terminated from time to time, and a benefit summary has been included with this letter.
More detailed information regarding your benefits will be provided at your New Employee Orientation, shortly after you begin employment.
You will be eligible to participate in our Corporate Relocation Program – which includes payment of certain expenses associated with your
relocation to the Bay Area. Details of the services available to you are outlined in a separate, attached document. As the IRS may consider some of
these benefits taxable income, we recommend you consult with your tax advisor.
As a full-time employee, you will receive fifteen (15) days of paid vacation each year, which will accrue at the rate of 1.25 days per month
beginning from your first day of employment at FibroGen.
You will abide by FibroGen’s strict company policy that prohibits any new employee from using or bringing with them from any prior employer
any proprietary information, trade secrets, proprietary materials or processes of such former employers. Moreover, because the Company’s
proprietary information is extremely important, this offer is expressly subject to your executing the enclosed Confidential Information, Secrecy
and Invention Agreement for Employees. You also agree to follow all other rules and policies that the Company may announce from time to time.
Kouchakji, Elias, MD
Page 2
Exhibit 10.33
•
•
•
•
You will also be required to sign the Employment Eligibility Verification (Form I-9). (You will need to complete and return Section One of the I-9
form along with your signed offer letter). On your first day of employment, please bring the necessary documents that establish your identity and
employment eligibility. Acceptable documents are listed on the reverse side of the I-9 form. Such documentation must be provided to us within
three (3) business days of your date of hire, or our employment relationship with you may be terminated
You should be aware that your employment with the Company is for no specified period and constitutes "at-will" employment. As a result, you
are free to resign at any time, for any reason, with or without cause or notice. Similarly, the Company is free to conclude its employment with you
at any time. The changing needs of the Company could also result in changes to certain aspects of your employment, such as compensation,
responsibilities, location, etc. These provisions expressly supersede any previous representations, oral or written. Your at-will employment cannot
be modified or amended except by written agreement signed by both you and the President of the Company.
Any dispute or claim, including all contract, tort, discrimination and other statutory claims,
arising under or relating to your employment or termination of your employment with the Company but excepting claims under applicable
workers’ compensation law and unemployment insurance claims (“arbitrable claims”) alleged against the Company and/or its agents shall be
resolved by arbitration. However, you and the Company agree that this arbitration provision shall not apply to any disputes or claims relating to or
arising out of the misuse or misappropriation of the Company’s trade secrets. Such arbitration shall be final and binding on the parties and shall be
the exclusive remedy for arbitrable claims. You and the Company hereby waive any rights each may have to a jury trial in regard to the arbitrable
claims. Arbitration shall be conducted by the American Arbitration Association in San Mateo (or other mutually agreed upon city) under the
National Rules for the Resolution of Employment Disputes. In any arbitration, the burden of proof shall be allocated as provided by applicable
law. The Company agrees to pay the fees and costs of the arbitrator. However, the arbitrator shall have the same authority as a court to award
equitable relief, damages, costs, and fees (excluding the costs and fees for the arbitrator) as provided by law for the particular claims asserted.
This offer of employment is made contingent upon successful completion of FibroGen, Inc.’s background check. This includes verification of the
information provided online and your employment application. If necessary, you will be contacted to resolve any discrepancies in the verification
of information. Whether you have successfully “passed” the background check is solely within FibroGen’s discretion. Your employment hire date
will be determined after the completion of the background check process and your signed acceptance of this offer.
Kouchakji, Elias, MD
Page 3
Exhibit 10.33
Unless otherwise notified by the Company, this offer of employment is effective for 5 business days from the date of this letter. There are two originals of this
letter enclosed. If all of the foregoing is satisfactory, please sign and date each original and return one to me within five business days in the enclosed
envelope, saving the other original for yourself. Please also complete the following enclosed forms and mail them back with your signed offer letter:
•
•
•
•
•
I-9 Form
Confidential Information, Secrecy and Invention Agreement
FibroGen Employment Application
FibroGen Relocation Assistance Terms
FibroGen Relocation Repayment Agreement
Elias, we look forward to your joining our team at FibroGen.
Sincerely,
/s/ Ted A. Tucker
Ted A. Tucker
Vice President, Human Resources
ACCEPTED AND AGREED TO this
31 Day of January, 2014
/s/ Elias Kouchakji, MD
Elias Kouchakji, MD
February 10, 2014
Intended Start Date
Enclosures:
Benefits Summary
Duplicate Letter
Return Envelope
Employment Eligibility Verification (I-9) Form
Confidential Information, Secrecy and Invention Agreement
FibroGen Employment Application
FibroGen Relocation Assistance Package
Exhibit 10.34
December 17, 2019
Enrique Conterno
[PRIVATE ADDRESS]
Dear Enrique,
FibroGen, Inc. is pleased to offer you the position of Chief Executive Officer reporting to the Board of Directors (the “Board”) under the terms and
conditions set forth in this letter (the “Offer Letter”). The effective date ("Effective Date") of your employment will be set, as mutually agreed upon in
advance with FibroGen, Inc. (“FibroGen”) and confirmed with Interim Chief Executive Officer, Jim Schoeneck.
This offer of employment is made contingent upon successful completion of FibroGen’s background check and upon completion of all required
documentation that will be made available to you on the Effective Date or by your intended start date. This includes verification of the information provided
online and your employment application. If necessary, you will be contacted to resolve any discrepancies in the verification of information. Your employment
hire date will be determined after the completion of the background check process and your signed acceptance of this Offer Letter.
The terms of this offer of employment are as follows:
1.
2.
3.
4.
Position/Duties. As Chief Executive Officer of the Company, you will be responsible for the general management of the affairs of the Company. You
shall devote your best efforts and full business time, skill and attention to the performance of your duties. You will also be expected to adhere to the
general employment policies and practices of the Company that may be in effect from time to time, except that when the terms of this Offer Letter
conflict with the Company’s general employment policies or practices, this Offer Letter will control. You will work out of the Company’s offices in San
Francisco, California. The Company may change your position, duties, work location and compensation from time to time in its discretion, subject to
the terms and conditions set forth herein. During employment, you will also serve as a member of the Board, subject to your future election by
FibroGen stockholders, and you shall submit your resignation from the Board upon the termination of your employment. If you wish to serve on the
Board of Directors of a separate company, you may do so subject to approval by the Board, and to the extent such service does not conflict with
FibroGen responsibilities.
Compensation. FibroGen will pay you a starting annual salary of $800,000 payable in semi-monthly installments on our regular paydays in accordance with
FibroGen's standard payroll policies. Your salary will begin as of the Effective Date. The position is classified as exempt and therefore not
eligible for overtime pay. The first and last payment by FibroGen to you will be adjusted, if necessary, to reflect a commencement or termination date
other than the first or last working day of a pay period.
Signing Bonus. FibroGen will pay you a sign-on bonus in the amount of $250,000 (subject to applicable payroll taxes and withholdings) to be payable on
the first payroll date which occurs after ninety (90) days following the Effective Date of your employment, including to cover all costs associated with your
relocation, and any commuting or services prior to relocation to the San Francisco Bay Area.
Stock Options and Restricted Stock Units. Pending approval by the FibroGen Compensation Committee, you will be granted the following equity
incentive grant(s) pursuant to the terms and conditions of the Equity Plan effective on the date of acceptance of this letter (the “Equity Plan”), as may
be amended or modified from time to time:
•
•
a stock option to purchase 300,000 shares of FibroGen's Common Stock with an exercise price set at the fair market value on the date of
grant (“Stock Options”); and
a grant of 60,000 restricted stock units relating to shares of FibroGen’s Common Stock (“RSUs”).
The actual number of shares subject to the grant hereunder may be adjusted, if required, for events such as stock splits, stock dividends, etc. pursuant to
the Equity Plan. The Stock Options and RSUs will vest according to the standard schedule set forth in the Grant Notice and Award Notice for such
grants.
Exhibit 10.34
5.
Bonus Plan. You will be eligible to participate in FibroGen’s Incentive Compensation Plan (the “Bonus Plan”) adopted by FibroGen for its employees
on such terms as the Board may determine in its discretion.
The CEO target bonus for level is 75%. Under the terms of the Plan, both corporate and individual performance is assessed annually and subject to final
approval by the Board. Employees hired during the course of a year will have a pro-rated bonus provided they commence their employment on or
before September 30th of a calendar year. To remain eligible, employees must maintain satisfactory performance and be in an active status on the day of
payment. Payments are expected to occur no later than the 15th of March in the year following the performance cycle.
6.
7.
8.
9.
Change in Control and Severance Agreement. You will be eligible to enter into the Company’s Change in Control and Severance Agreement approved
by the Board that provides for certain severance benefits upon a termination following a Change in Control (as defined therein) and upon certain other
terminations.
Benefits. During the term of your employment, you will be eligible to participate in FibroGen’s benefits program, which may include FibroGen's vacation
benefits and other employee benefits such as medical, vision and dental health insurance, covering employees and officers. Your vacation benefit will
accrue at four weeks per year. These benefits may be modified or subject to change from time to time. A copy of FibroGen's current benefits summary
has been provided to you.
Employment Eligibility. You will also be required to sign the Employment Eligibility Verification (Form I-9). (You will need to complete and return
Section One of Form I-9 along with your signed Offer Letter). On or prior to your first day of employment, please provide the necessary original
documents that establish your identity and employment eligibility to work in the United States. Acceptable documents are listed on the reverse side of
Form I-9. Such documentation must be provided to us within three (3) business days of your date of hire, or our employment relationship with you may
be terminated.
Proprietary Information. You will abide by FibroGen’s strict company policy that prohibits any new employee from using or bringing with them from
any prior employer any proprietary information, trade secrets, proprietary materials or processes of such former employers. Moreover, because
FibroGen’s proprietary information is extremely important, this offer of employment is expressly subject to your execution of the enclosed Confidential
Information, Secrecy and Invention Agreement for Employees.
10. At Will Employment. You should be aware that your employment with FibroGen is for no specified period and constitutes "at-will" employment. As a
result, both FibroGen and you are free to terminate the employment relationship at any time, for any reason or for no reason, and with or without
advance notice. The changing needs of FibroGen could also result in changes to certain aspects of your employment, such as compensation,
responsibilities, location, etc. These provisions expressly supersede any previous representations, oral or written. Your at-will employment cannot be
modified or amended except by written agreement signed by you, and a Company officer approved by the Board.
11. Arbitration. In connection with this Agreement, we request that you execute the enclosed FibroGen Arbitration Agreement.
12.
Indemnification. FibroGen will enter into with you the enclosed Indemnity Agreement
Unless otherwise notified by FibroGen, this offer of employment is effective until 5:00 p.m. PST on December 20, 2019. However, if you have any questions
regarding the above provisions, please do not hesitate to contact us.
FibroGen retains the right to amend its employment policies and practices, compensation plans, policies and programs, and forms of employment related
agreements from time to time. In the event of conflict between the terms contained in this Offer Letter and any other document, the terms of this Offer Letter
(including any amendment to this letter) shall control. This Offer Letter may only be modified in a written document signed by you and an authorized
representative of FibroGen. This Offer Letter will be governed by and enforced under the laws of the State of California, without regard to any conflict of
law rules, and will inure to the benefit of, be binding on and be enforceable by, the parties and their respective successors, heirs, agents and assigns. This
Offer Letter may be executed in counterparts and by .pdf, facsimile or other electronic means and, when so executed, will have the same force and effect as an
original, and constitute a binding agreement of the Parties.
Enclosed are two original copies of this Offer Letter. If all of the foregoing terms are satisfactory and acceptable to you, please sign and date each original and
(i) return one to me within the time frame set forth above in the enclosed envelope, and (ii) save the other original for yourself. Please also complete the
following enclosed forms and mail them back with your countersigned offer letter:
Exhibit 10.34
•
•
•
•
•
•
FibroGen Employment Application
Confidential Information, Secrecy And Invention Agreement
Change in Control and Severance Agreement
I – 9
FibroGen Arbitration Agreement
FibroGen Indemnity Agreement
We look forward to your joining our team at FibroGen.
Sincerely,
/s/ Thomas F. Kearns, Jr.
Thomas F. Kearns, Jr.
Chairman, FibroGen, Inc. Board of Directors
ACCEPTED AND AGREED TO this
21 Day of December, 2019
/s/ Enrique Conterno
Name
Jan 6, 2020
Intended Start Date
Enclosures:
Benefits Overview
Duplicate Letter
FibroGen Arbitration Agreement
Change in Control and Severance Agreement
FibroGen Indemnity Agreement
Return Envelope
FibroGen Employment Application
Confidential Information, Secrecy And Invention Agreement
I-9
Exhibit 10.35
Form of Agreement (CEO Executive)
FIBROGEN, INC.
CHANGE IN CONTROL AND SEVERANCE AGREEMENT
This Change in Control and Severance Agreement (this “Agreement”) is dated as of ____________ (the “Effective Date”), by and between
[______________] (“Executive”) and FibroGen, Inc., a Delaware corporation (the “Company”). This Agreement is intended to provide Executive with
certain benefits described herein upon the occurrence of specific events.
RECITALS
A.
It is expected that the Company from time to time will consider the possibility of a Change in Control. The Company’s Board of
Directors (the “Board”) recognizes that such consideration can be a distraction to Executive and can cause Executive to consider alternative employment
opportunities. The Board believes that it is in the best interests of the Company and its stockholders to assure that the Company will have the continued
dedication and objectivity of Executive, notwithstanding the possibility, threat or occurrence of a Change in Control (as defined below).
B.
The Company’s Board believes it is in the best interests of the Company and its shareholders to retain Executive and provide
incentives to Executive to continue in the service of the Company.
C.
The Board further believes that it is imperative to provide Executive with certain benefits upon a qualifying termination of Executive’s
employment (whether in connection with a Change in Control or otherwise) which benefits are intended to provide Executive with financial security and
provide sufficient income and encouragement to Executive to remain with the Company, notwithstanding the possibility of a Change in Control and/or
termination of Executive’s employment with the Company under certain circumstances.
Now therefore, in consideration of the mutual promises, covenants and agreements contained herein, and in consideration of the continuing
employment of Executive by the Company, the parties hereto agree as follows:
1.
At-Will Employment. The term of the Agreement shall begin on the Effective Date and shall end on the third anniversary of the
Effective Date. Executive’s employment is at-will, which means that the Company may terminate Executive’s employment at any time, with or without
advance notice, and with or without Cause. Similarly, Executive may resign Executive’s employment at any time, with or without advance notice. Executive
shall not receive any compensation of any kind, including, without limitation, Stock Awards (as defined below), or other equity award vesting acceleration
and severance benefits, following Executive’s termination of employment with the Company in connection with a Change in Control, except as expressly
provided herein.
2.
Accrued Wages, Bonus and Vacation, Expenses. Without regard to the reason for, or the timing of, Executive’s termination of
employment: (i) the Company shall pay Executive any unpaid base salary due for periods prior to and including the date of Separation from Service (as
defined below); (ii) the Company shall pay Executive all of Executive’s accrued and unused vacation through the date of Separation from Service; (iii) the
Company shall pay Executive any earned (as determined and approved by the Board prior to the Separation from Service) but not yet paid incentive bonus
from the prior fiscal year, which bonus shall be paid in accordance with the Company’s regular bonus payment process and in any event by no later than
March 15 of such subsequent year; and (iv) following submission of proper expense reports by Executive, the Company shall reimburse Executive for all
expenses reasonably and necessarily incurred by Executive in connection with the business of the Company prior to the Separation from Service. These
payments shall be made promptly upon or following termination and within the period of time mandated by law (or in the case of an earned bonus, within the
time period set forth in the Company’s bonus plan and in any event by no later than March 15 of the calendar year following the year in which the bonus was
earned).
3.
Severance Benefits. Executive shall be eligible for severance benefits (“Severance Benefits”) in the amounts and under the conditions
set forth in subsections 3(a), 3(b) and 3(c) below. For the avoidance of doubt, Executive shall not receive Severance Benefits under more than one such
subsection. Notwithstanding any other provision hereof, no Severance Benefits shall be provided upon termination of employment unless such termination
constitutes a “separation from service” (within the meaning of Treasury Regulation Section 1.409A-1(h), a “Separation from Service”).
(a)
Benefits upon a Termination in Connection with or Following a Change in Control. If Executive’s employment is
terminated by the Company without Cause (as defined below), and other than as a result of death or disability, or Executive resigns his or her employment
with the Company for Good Reason (as defined below) in connection with or within twelve (12) months following the effective date of a Change in Control,
and provided that Executive delivers an effective release of claims as required under Section 4 below, then Executive shall be entitled to the following
Severance Benefits:
Executive’s then current base salary and (B) one-and-a-half (1.5) times Executive’s then current target bonus, ignoring any decrease in base salary or target
bonus that forms the basis for Good Reason, less all applicable withholdings and deductions, paid over the twenty-four (24) month period immediately
following the Separation from Service in accordance with the Company’s regular payroll practices, on the schedule described in Section 4 below.
(i)
The Company shall pay Executive an amount equal to the sum of (A) twenty-four (24) months of
(ii)
The Company shall pay Executive’s expenses for continuing his or her health care coverage and the
coverage of his or her dependents who are covered at the time of the Executive’s Separation from Service (the “COBRA Premiums”) under the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”) (or another state law equivalent), as applicable, for a period ending on the earlier of
the eighteen (18) month anniversary of the Separation from Service or the date on which Executive becomes eligible to be covered by the health care plans of
another employer; provided however that any Company obligation under this paragraph requires that Executive timely elects COBRA continuation coverage
as required by applicable law. Notwithstanding the foregoing, if the Company determines, in its sole discretion, that the Company cannot pay the COBRA
Premiums without potentially incurring financial costs or penalties under applicable law (including, without limitation, Section 2716 of the Public Health
Service Act), the Company shall in lieu thereof pay Executive a taxable cash amount, which payment shall be made regardless of whether Executive or
Executive’s eligible family members elect health care continuation coverage (the “Health Care Benefit Payment”). The Health Care Benefit Payment shall be
paid in monthly installments on the same schedule that the COBRA Premiums would otherwise have been paid to the insurer. The Health Care Benefit
Payment shall be equal to the amount that the Company would have otherwise paid for COBRA Premiums (which amount shall be calculated based on the
premium for the first month of coverage), and shall be paid until the expiration of the period during which the COBRA Premiums would have been paid.
respect to all of the shares subject thereto effective immediately prior to Executive’s Separation from Service under this Section 3(a).
(iii)
All outstanding Stock Awards then held by Executive shall become fully vested and exercisable with
Notwithstanding the foregoing, in the event that Executive would be entitled to a greater level of severance benefits under the terms and conditions of a
severance plan or policy provided by the Company or its successor to other
2
Company employees being terminated in connection with or within twelve (12) months following a Change in Control but for the existence of this Agreement
(the “Change in Control Benefits”), Executive shall be entitled to receive the greater of the severance benefits under this Section 3(a) or the Change in
Control Benefits, subject to the applicable terms and conditions thereof.
Benefits Upon Certain Other Terminations. If Executive’s employment is terminated by the Company without Cause,
and other than as a result of death or disability, under circumstances other than those set forth in in the foregoing provisions of this Section 3, and provided
that Executive delivers an effective release of claims as required under Section 4 below, then Executive shall be entitled to the following severance benefits:
(b)
The Company shall pay Executive an amount equal to eighteen (18) months of Executive’s then current
base salary, less all applicable withholdings and deductions, paid over such eighteen (18) month period immediately following the Separation from Service in
accordance with the Company’s regular payroll practices, on the schedule described in Section 4 below.
(i)
(ii)
The Company shall pay Executive’s COBRA Premiums for a period ending on the earlier of the
eighteen (18) month anniversary of the Separation from Service or the date on which Executive becomes eligible to be covered by the health care plans of
another employer; provided however that any Company obligation under this paragraph requires that Executive timely elects COBRA continuation coverage
as required by applicable law. Notwithstanding the foregoing, if the Company determines, in its sole discretion, that the Company cannot pay the COBRA
Premiums without potentially incurring financial costs or penalties under applicable law (including, without limitation, Section 2716 of the Public Health
Service Act), the Company shall in lieu thereof pay the Health Care Benefit Payment. The Health Care Benefit Payment shall be paid in monthly installments
on the same schedule that the COBRA Premiums would otherwise have been paid to the insurer. The Health Care Benefit Payment shall be equal to the
amount that the Company would have otherwise paid for COBRA Premiums (which amount shall be calculated based on the premium for the first month of
coverage), and shall be paid until the expiration of the period during which the COBRA Premiums would have been paid.
4.
Release Prior to Payment of Severance Benefits. Prior to the payment of any of the Severance Benefits, Executive shall execute, and
allow to become effective, a customary and standard employment release agreement in substantially the form attached hereto as EXHIBIT A, EXHIBIT B, or
EXHIBIT C, as applicable, releasing the Company (and its successor) from any and all claims Executive may have against such entities related to or arising in
connection with his or her employment and the terms of such employment and termination thereof (the “Release”) within the time frame set forth therein, but
not later than sixty (60) days following Executive’s Separation from Service (the “Release Effective Date”). Such Release shall specifically relate to all of
Executive’s rights and claims in existence at the time of such execution and shall confirm Executive’s continuing obligations to the Company (including but
not limited to obligations under any confidentiality and/or non-solicitation agreement with the Company). No Severance Benefits will be paid prior to the
Release Effective Date. Within five (5) days following the Release Effective Date, the Company will pay Executive the Severance Benefits Executive would
otherwise have received on or prior to such date but for the delay in payment related to the effectiveness of the Release, with the balance of the benefits being
paid as originally scheduled. Unless a Change in Control has occurred, the Board, in its sole discretion, may modify the form of the required Release to
comply with applicable law and shall determine the form of the required Release, which may be incorporated into a termination agreement or other agreement
with Executive. Notwithstanding the foregoing, if the Company (or, if applicable, the successor entity thereto) determines that any of the Severance Benefits
constitute “deferred compensation” under Section 409A (defined below), then, solely to the extent necessary to avoid the incurrence of the adverse personal
tax consequences under Section 409A, no Severance Benefits will be paid prior to the sixtieth (60th) day following Executive’s Separation from Service. On
the sixtieth (60th) day following the date of Separation from Service, the Company will pay to Executive in a lump sum the applicable Severance Benefits
that Executive would otherwise have received on or prior to such date, with the balance of the Severance Benefits being paid as originally scheduled.
5.
Limitation on Payments. If any payment or benefit (including payments and benefits pursuant to this Agreement) that Executive would
receive in connection with a Change in Control from the Company or otherwise (“Transaction Payment”) would (i) constitute a “parachute payment” within
the meaning of Section 280G of the Code, and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”),
then the Company shall cause to be determined, before any amounts of the Transaction Payment are paid to Executive, which of the following two alternative
forms of payment would result in Executive’s receipt, on an after-tax basis, of the greater amount of the Transaction Payment notwithstanding that all or some
portion of the Transaction Payment may be subject to the Excise Tax: (1) payment in full of the entire amount of the Transaction
3.
Payment (a “Full Payment”), or (2) payment of only a part of the Transaction Payment so that Executive receives the largest payment possible without the
imposition of the Excise Tax (a “Reduced Payment”) . For purposes of determining whether to make a Full Payment or a Reduced Payment, the Company
shall cause to be taken into account all applicable federal, state and local income and employment taxes and the Excise Tax (all computed at the highest
applicable marginal rate, net of the maximum reduction in federal income taxes which could be obtained from a deduction of such state and local taxes). If a
Reduced Payment is made, (x) Executive shall have no rights to any additional payments and/or benefits constituting the Transaction Payment, and (y)
reduction in payments and/or benefits will occur in the following order: (1) reduction of cash payments; (2) cancellation of accelerated vesting of equity
awards other than stock options; (3) cancellation of accelerated vesting of stock options; and (4) reduction of other benefits paid to Executive. In the event
that acceleration of vesting of equity award compensation is to be reduced, such acceleration of vesting will be cancelled in the reverse order of the date of
grant of Executive’s equity awards. In no event will the Company or any stockholder be liable to Executive for any amounts not paid as a result of the
operation of this Section 5.
(a)
The professional firm engaged by the Company for general tax purposes as of the day prior to the effective date of the
Change in Control shall make all determinations required to be made under this Section 5. If the professional firm so engaged by the Company is serving as
accountant or auditor for the individual, entity or group effecting the Change in Control, the Company shall appoint a nationally recognized independent
registered public accounting firm to make the determinations required hereunder. The Company shall bear all expenses with respect to the determinations by
such professional firm required to be made hereunder.
(b)
The professional firm engaged to make the determinations hereunder shall provide its calculations, together with detailed
supporting documentation, to the Company and Executive within fifteen (15) calendar days after the date on which Executive’s right to a Transaction
Payment is triggered or such other time as reasonably requested by the Company or Executive. If the professional firm determines that no Excise Tax is
payable with respect to the Transaction Payment, either before or after the application of the Reduced Amount, it shall furnish the Company and Executive
with detailed supporting calculations of its determinations that no Excise Tax will be imposed with respect to such Transaction Payment. Any good faith
determinations of the professional firm made hereunder shall be final, binding and conclusive upon the Company and Executive.
6.
Successors.
(a)
Company’s Successors. Any successor to the Company (whether direct or indirect and whether by purchase, lease,
merger, consolidation, liquidation or otherwise) to all or substantially all of the Company’s business and/or assets shall assume the Company’s, or ensure that
the Company fully performs its, obligations under this Agreement and shall perform the Company’s, or ensure that the Company performs its, obligations,
under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a
succession. For all purposes under this Agreement, the term “Company” shall include any such successor.
(b)
Executive’s Successors. Without the written consent of the Company, Executive shall not assign or transfer any right or
obligation under this Agreement to any other person or entity. Notwithstanding the foregoing, the terms of this Agreement and all rights of Executive
hereunder shall inure to the benefit of, and be enforceable by, Executive’s personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
4.
7.
Notices.
(a)
General. Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed
to have been duly given when personally delivered or when mailed by U.S. registered or certified mail, return receipt requested and postage prepaid. In the
case of Executive, mailed notices shall be addressed to him at the home address which he most recently communicated to the Company in writing. In the case
of the Company, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its Secretary.
resignation for any reason shall be communicated by a notice of termination to the other party hereto given in accordance with this Agreement.
(b)
Notice of Termination. Any termination by the Company with or without Cause or by Executive as a result of a voluntary
8.
Arbitration. The Company and Executive shall attempt to settle any disputes arising in connection with this Agreement through good
faith consultation. In the event that Executive and the Company are not able to resolve any such disputes within fifteen (15) days after notification in writing
to the other, any dispute or claim arising out of or in connection with this Agreement will be finally settled by binding arbitration in San Francisco, California
in accordance with the rules of the American Arbitration Association by one arbitrator mutually agreed upon by the parties. The arbitrator will apply
California law, without reference to rules of conflicts of law or rules of statutory arbitration, to the resolution of any dispute. Except as set forth in Section
10(h) below, the arbitrator shall not have authority to modify the terms of this Agreement. The Company shall pay the costs of the arbitration
proceeding. Each party shall, unless otherwise determined by the arbitrator, bear its or his or her own attorneys’ fees and expenses, provided however that if
Executive prevails in an arbitration proceeding, the Company shall reimburse Executive for his or her reasonable attorneys' fees and costs. Judgment on the
award rendered by the arbitrator may be entered in any court having jurisdiction thereof. Notwithstanding the foregoing, the Company and Executive may
apply to any court of competent jurisdiction for preliminary or interim equitable relief, or to compel arbitration in accordance with this paragraph, without
breach of this arbitration provision.
9.
Definition of Terms. The following terms referred to in this Agreement shall have the following meanings:
(a)
Cause. “Cause” for termination of Executive’s employment will exist if Executive is terminated by the Company for any
of the following reasons: (i) Executive’s willful failure substantially to perform his or her duties and responsibilities to the Company or deliberate violation of
a Company policy; (ii) Executive’s commission of any act of fraud, embezzlement, dishonesty or any other willful misconduct that has caused or is
reasonably expected to result in material injury to the Company; (iii) unauthorized use or disclosure by Executive of any proprietary information or trade
secrets of the Company or any other party to whom Executive owes an obligation of nondisclosure as a result of his or her relationship with the Company; or
(iv) Executive’s willful breach of any of his or her obligations under any written agreement or covenant with the Company. The determination as to whether
Executive is being terminated for Cause shall be made in good faith by the Company and shall be final and binding on Executive. The foregoing definition
does not in any way limit the Company’s ability to terminate Executive’s employment relationship at any time as provided in Sections 1 and 10(d) of this
Agreement, and the term “Company” will be interpreted to include any subsidiary, parent or affiliate of the Company, as appropriate.
(b)
Change in Control. “Change in Control” means the first to occur of any of the following transactions that also constitutes
a change in the ownership or effective control of the Company, or a change in the ownership of a substantial portion of the Company’s assets, as described in
Treasury Regulation Section 1.409A‑3(i)(5): (A) a merger or consolidation in which the Company is not the surviving entity, except for a transaction the
principal purpose of which is to change the state in which the Company is incorporated; (B) the sale, transfer or other disposition of all or substantially all of
the assets of the Company (including the capital stock of the Company’s subsidiary corporations); (C) any reverse merger in which the Company is the
surviving entity but in which securities possessing more than fifty percent (50%) of the total combined voting power of the Company’s outstanding securities
are transferred to a person or persons different from those who held such securities immediately prior to such merger; or (D) an acquisition in a single or
series of related transactions by any person or related group of persons (other than the Company or by a Company-sponsored employee benefit plan) of
beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of securities possessing more than fifty percent (50%) of the total combined
voting power of the Company’s outstanding securities.
(c)
Good Reason. “Good Reason” for Executive's resignation of his or her employment shall exist following the occurrence
of any of the following without Executive’s written consent: (i) a material reduction in job duties or responsibilities inconsistent with the Executive’s position
with the Company;
5.
provided, however, that any such reduction or change after a Change in Control will not constitute Good Reason if Executive retains reasonably comparable
duties, and responsibilities with respect to the Company’s business within the successor entity following a Change of Control; (ii) a material reduction of
Executive’s then current base salary or target bonus; (iii) the relocation of Executive’s principal place of employment to a place that increases Executive’s
one-way commute by more than forty (40) miles as compared to Executive’s then current principal place of employment immediately prior to such relocation;
(iv) any material breach by the Company of the Plan or any other written agreement between the Company and the Executive; or (v) the failure by any
successor to the Company to assume the Plan and any obligations under the Plan; provided, that the Executive gives written notice to the Company of the
event forming the basis of the termination for Good Reason within sixty (60) days after the date on which the Company gives written notice to the Executive
of the Company’s affirmative decision to take an action set forth in clause (i), (ii), (iii), (iv) or (v) above, the Company fails to cure such basis for the Good
Reason resignation within thirty (30) days after receipt of Executive’s written notice and Executive terminates his or her employment within thirty (30) days
following the expiration of the cure period.
(d)
Plan. “Plan” collectively refers to (i) Company’s Amended and Restated 2005 Stock Plan, adopted by the Board on
February 17, 2005, as amended from time to time, (ii) Company’s 2014 Equity Incentive Plan, adopted by the Board on September 9, 2014, as amended from
time to time, and (iii) any preceding and succeeding plans thereto.
(e)
Stock Awards. “Stock Award(s)” means any right to receive or purchase equity of the Company or other equity based
award or compensation as granted under the Plan, including without limitation an Incentive Stock Option, a Nonstatutory Stock Option, a Stock Purchase
Award, a Stock Bonus Award, a Restricted Stock Award, a Restricted Stock Unit Award, a Stock Unit Award, a Stock Appreciation Right, a Performance
Stock Award or any Other Stock Award, each of the foregoing as defined under the Plan; provided, however, that a Stock Award shall not include any of the
foregoing awards to the extent that the grant documentation evidencing such award explicitly provides that the terms of this Agreement shall be superseded
by the provisions of such grant documentation.
10.
Miscellaneous Provisions.
(a)
Executive Obligations. Notwithstanding anything to the contrary contained herein, payment of any of the Severance
Benefits will be conditioned upon (i) Executive continuing to comply with his or her obligations under his or her Confidential Information, Secrecy and
Invention Agreement during the period of time in which Executive is receiving the Severance Benefits; and (ii) if Executive is a member of the Board,
Executive’s resignation from the Board, to be effective no later than the date of Separation from Service (or such other date as requested by the Board).
(b)
Effect of Statutory Benefits. To the extent that any severance benefits are required to be paid to Executive upon
termination of employment with the Company as a result of any requirement of law or any governmental entity in any applicable jurisdiction, the aggregate
amount of severance benefits payable pursuant to Section 3 hereof shall not be reduced by such amount.
Agreement, nor shall any such payment be reduced by any earnings that Executive may receive from any other source.
(c)
No Duty to Mitigate. Executive shall not be required to mitigate the amount of any payment contemplated by this
Executive or the Company can terminate the employment relationship at any time, with or without Cause.
(d)
At-Will Employment Status. Nothing in this Agreement modifies Executive’s at-will employment status. Either
(e)
Waiver. No provision of this Agreement may be waived or discharged unless the waiver or discharge is agreed to in
writing and signed by the Executive and by an authorized officer of the Company (other than Executive). No waiver by either party of any breach of, or of
compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the
same condition or provision at another time.
(f)
Integration. This Agreement supersedes all prior or contemporaneous agreements, whether written or oral, with respect to
this Agreement; provided that, for clarification purposes, this Agreement shall not affect any agreements between the Company and Executive regarding
intellectual property matters, non-
6.
solicitation or non-competition restrictions or confidential information of the Company. This Agreement expressly supersedes and terminates all Change in
Control and Severance Agreements entered into by and between Company and Executive prior to the Effective Date.
internal substantive laws, but not the conflicts of law rules, of the State of California.
(g)
Choice of Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the
validity or enforceability of any other provision hereof, which shall remain in full force and effect.
(h)
Severability. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the
(i)
Income and Employment Taxes. Executive is responsible for any applicable taxes of any nature (including any penalties
or interest that may apply to such taxes) that the Company reasonably determines apply to any payment made hereunder. Executive’s receipt of any benefit
hereunder is conditioned on his or her satisfaction of any applicable withholding or similar obligations that apply to such benefit and any cash payment owed
hereunder will be reduced to satisfy any such withholding or similar obligations that may apply.
(j)
Code Section 409A. It is intended that each installment of the payments and benefits provided for in this Agreements
constitute a separate “payment” for purposes of Treasury Regulation Section 1.409A-2(b)(2)(i). For the avoidance of doubt, it is intended that payments of
the amounts set forth in this Agreement satisfy, to the greatest extent possible, the exemptions from the application of Section 409A of the Internal Revenue
Code of 1986, as amended (the “Code”) (Section 409A of the Code, together, with any state law of similar effect, “Section 409A”) provided under Treasury
Regulations 1.409A-1(b)(4), 1.409A-1(b)(5) and 1.409A-1(b)(9). However, if the Company (or, if applicable, the successor entity thereto) determines that the
severance payments and benefits provided under this Agreement(the “Agreement Payments”) constitute “deferred compensation” under Section 409A and
Executive is, on the date of his or her Separation from Service, a “specified employee” of the Company or any successor entity thereto, as such term is
defined in Section 409A(a)(2)(B)(i) of the Code (a “Specified Employee”), then, solely to the extent necessary to avoid the incurrence of the adverse personal
tax consequences under Section 409A, the timing of the Severance Benefits described in Section 4(b) shall be delayed as follows: on the earlier to occur of (i)
the date that is six months and one day after Executive’s Separation from Service or (ii) the date of Executive’s death (such earlier date, the “Delayed Initial
Payment Date”), the Company (or the successor entity thereto, as applicable) shall pay to Executive a lump sum amount equal to the applicable benefit that
Executive would otherwise have received through the Delayed Initial Payment Date if the commencement of the payment of the benefit had not been so
delayed pursuant to this Section 10(j). If a release revocation period spans two calendar years, then amounts will not be paid until the second of the two years
to the extent necessary to avoid taxation under Section 409A.
with the execution of this Agreement.
(k)
Legal Fees and Expenses. The parties shall each bear their own expenses, legal fees and other fees incurred in connection
which together will constitute one and the same instrument.
(l)
Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of
[Signature Page Follows]
7.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first set forth above.
[EXECUTIVE NAME]
Name:
Date:
FIBROGEN, INC.
By:
Name:
Michael D. Lowenstein
Title:
Chief Legal Officer
Date:
EXHIBIT A
RELEASE AGREEMENT
For Executive Age 40 or Older
In consideration of receiving certain benefits under my Change in Control and Severance Agreement with FibroGen, Inc. (the “Company”) dated
_________ (the “Agreement”), I have agreed to sign this Release. I understand that I am not entitled to benefits under the Agreement unless I sign this
Release.
I understand that this Release, together with the Agreement, constitutes the complete, final and exclusive embodiment of the entire agreement
between the Company, affiliates of the Company and me with regard to the subject matter hereof. I am not relying on any promise or representation by the
Company that is not expressly stated therein. Certain capitalized terms used in this Release are defined in the Agreement.
I hereby confirm my obligations under my Confidential Information, Secrecy and Invention Agreement with the Company.
Except as otherwise set forth in this Release, I hereby generally and completely release the Company and its current and former directors,
officers, executives, shareholders, shareholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates, and
assigns (collectively, the “Released Parties”) from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way
related to events, acts, conduct, or omissions occurring prior to my signing this Release (collectively, the “Released Claims”). The Released Claims include,
but are not limited to: (1) all claims arising out of or in any way related to my employment with the Company or its affiliates, or the termination of that
employment; (2) all claims related to my compensation or benefits, including salary, bonuses, commissions, vacation pay, expense reimbursements, severance
pay, fringe benefits, stock, stock options, Stock Awards, or any other ownership interests in the Company or its affiliates; (3) all claims for breach of contract,
wrongful termination, and breach of the implied covenant of good faith and fair dealing; (4) all tort claims, including claims for fraud, defamation, emotional
distress, and discharge in violation of public policy; and (5) all federal, state, and local statutory claims, including claims for discrimination, harassment,
retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of
1990, the federal Age Discrimination in Employment Act of 1967 (as amended) (“ADEA”), the federal Employee Retirement Income Security Act of 1974
(as amended), and the California Fair Employment and Housing Act (as amended)1. Notwithstanding the foregoing, the following are not included in the
Released Claims (the “Excluded Claims”): (1) any rights or claims for indemnification I may have pursuant to any written indemnification agreement with the
Company to which I am a party, the charter or bylaws of the Company, or under applicable law; (2) any rights related to vested securities of the Company that
were granted to me during the course of my employment with the Company or any shares of capital stock or other securities of the Company that I purchased
other than pursuant to Company’s Plan; or (3) any rights which are not waivable as a matter of law. In addition, nothing in this Release prevents me from
filing, cooperating with, or participating in any proceeding before the Equal Employment Opportunity Commission, the Department of Labor, the California
Department of Fair Employment and Housing, or any other
1
Will need to revise for other states, as applicable.
local, state, or federal administrative body or government agency that is authorized to enforce or administer laws related to employment, against
the Company, except that I hereby waive my right to any monetary benefits in connection with any such claim, charge or proceeding. I hereby represent and
warrant that, other than the Excluded Claims, I am not aware of any claims I have or might have against any of the Released Parties that are not included in
the Released Claims.
I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under the ADEA. I also acknowledge that the
consideration given for the Released Claims is in addition to anything of value to which I was already entitled. I further acknowledge that I have been
advised by this writing, as required by the ADEA, that: (a) the Released Claims do not apply to any rights or claims that arise after the date I sign this
Release; (b) I should consult with an attorney prior to signing this Release (although I may choose voluntarily not to do so); (c) I have forty-five (45) days to
consider this Release (although I may choose to voluntarily sign it sooner); (d) I have seven (7) days following the date I sign this Release to revoke the
Release by providing written notice to an officer of
-1-
For Executive Age 40 or Older
the Company; and (e) the Release will not be effective until the date upon which the revocation period has expired unexercised, which will be the eighth day
after I sign this Release (“Effective Date”).
I have received with this Release all of the information required by the ADEA, including without limitation a detailed list of the job titles and
ages of all employees who were terminated in this group termination and the ages of all employees of the Company in the same job classification or
organizational unit who were not terminated, along with information on the eligibility factors used to select employees for the group termination and any time
limits applicable to this group termination program.
I acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: “A general release does not
extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him
or her must have materially affected his or her settlement with the debtor.” I hereby expressly waive and relinquish all rights and benefits under that
section and any law of any jurisdiction of similar effect with respect to my release of any claims hereunder.
I hereby represent that I have been paid all compensation owed and for all hours worked, I have received all the leave and leave benefits and
protections for which I am eligible, and I have not suffered any on-the-job injury for which I have not already filed a workers’ compensation claim.
I hereby agree not to disparage the Company, or its officers, directors, executives, shareholders or agents, in any manner likely to be harmful to its
or their business, business reputation, or personal reputation; provided, however, that I will respond accurately and fully to any question, inquiry or request for
information when required by legal process.
I acknowledge that to become effective, I must sign and return this Release to the Company so that it is received not later than forty-five (45)
days following the date it is provided to me, and I must not revoke it thereafter.
[EXECUTIVE NAME]
Name:
Date:
-2-
For Executive Under Age 40
Individual Termination
EXHIBIT B
RELEASE AGREEMENT
In consideration of receiving certain benefits under my Change in Control and Severance Agreement with FibroGen, Inc. (the “Company”)
dated ____________ (the “Agreement”), I have agreed to sign this Release. I understand that I am not entitled to benefits under the Agreement unless I sign
this Release.
I understand that this Release, together with the Agreement, constitutes the complete, final and exclusive embodiment of the entire agreement
between the Company, affiliates of the Company and me with regard to the subject matter hereof. I am not relying on any promise or representation by the
Company that is not expressly stated therein. Certain capitalized terms used in this Release are defined in the Agreement.
I hereby confirm my obligations under my Confidential Information, Secrecy and Invention Agreement with the Company.
Except as otherwise set forth in this Release, I hereby generally and completely release the Company and its current and former directors, officers,
executives, shareholders, shareholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates, and assigns
(collectively, the “Released Parties”) from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related
to events, acts, conduct, or omissions occurring prior to my signing this Release (collectively, the “Released Claims”). The Released Claims include, but are
not limited to: (1) all claims arising out of or in any way related to my employment with the Company or its affiliates, or the termination of that employment;
(2) all claims related to my compensation or benefits, including salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe
benefits, stock, stock options, Stock Awards, or any other ownership interests in the Company or its affiliates; (3) all claims for breach of contract, wrongful
termination, and breach of the implied covenant of good faith and fair dealing; (4) all tort claims, including claims for fraud, defamation, emotional distress,
and discharge in violation of public policy; and (5) all federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation,
attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the
federal Age Discrimination in Employment Act of 1967 (as amended) (“ADEA”), the federal Executive Retirement Income Security Act of 1974 (as
amended), and the California Fair Employment and Housing Act (as amended). Notwithstanding the foregoing, the following are not included in the
Released Claims (the “Excluded Claims”): (1) any rights or claims for indemnification I may have pursuant to any written indemnification agreement with the
Company to which I am a party, the charter or bylaws of the Company, or under applicable law; (2) any rights related to vested securities of the Company that
were granted to me during the course of my employment with the Company or any shares of capital stock or other securities of the Company that I purchased
other than pursuant to Company’s Plan; or (3) any rights which are not waivable as a matter of law. In addition, nothing in this Release prevents me from
filing, cooperating with, or participating in any proceeding before the Equal Employment Opportunity Commission, the Department of Labor, the California
Department of Fair Employment and Housing, or any other local, state, or federal administrative body or government agency that is authorized to enforce or
administer laws related to employment, against the Company, except that I hereby waive my right to any monetary benefits in connection with any such
claim, charge or proceeding. I hereby represent and warrant that, other than the Excluded Claims, I am not aware of any claims I have or might have against
any of the Released Parties that are not included in the Released Claims.
I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under the ADEA. I also acknowledge that the
consideration given for the Released Claims is in addition to anything of value to which I was already entitled. I further acknowledge that I have been
advised by this writing, as required by the ADEA, that: (a) the Released Claims do not apply to any rights or claims that arise after the date I sign this
Release; (b) I should consult with an attorney prior to signing this Release (although I may choose voluntarily not to do so); (c) I have twenty-one (21) days to
consider this Release (although I may choose to voluntarily sign it sooner); (d) I have seven (7) days following the date I sign this Release to revoke the
Release by providing written notice to an officer of the Company; and (e) the Release will not be effective until the date upon which the revocation period has
expired unexercised, which will be the eighth day after I sign this Release (“Effective Date”).
-1-
For Executive Under Age 40
Individual Termination
I acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: “A general release does not
extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him
or her must have materially affected his or her settlement with the debtor.” I hereby expressly waive and relinquish all rights and benefits under that
section and any law of any jurisdiction of similar effect with respect to my release of any claims hereunder.
I hereby represent that I have been paid all compensation owed and for all hours worked, I have received all the leave and leave benefits and
protections for which I am eligible, and I have not suffered any on-the-job injury for which I have not already filed a workers’ compensation claim.
I hereby agree not to disparage the Company, or its officers, directors, executives, shareholders or agents, in any manner likely to be harmful to its
or their business, business reputation, or personal reputation; provided, however, that I will respond accurately and fully to any question, inquiry or request for
information when required by legal process.
-2-
I acknowledge that to become effective, I must sign and return this Release to the Company so that it is received not later than twenty-one (21) days following
the date it is provided to me, and I must not revoke it thereafter.
For Executive Under Age 40
Individual Termination
[EXECUTIVE NAME]
Name:
Date:
-3-
For Executive Under Age 40
Individual Termination
EXHIBIT C
RELEASE AGREEMENT
In consideration of receiving certain benefits under my Change in Control and Severance Agreement with FibroGen, Inc. (the “Company”)
dated __________ (the “Agreement”), I have agreed to sign this Release. I understand that I am not entitled to benefits under the Agreement unless I sign
this Release.
I understand that this Release, together with the Agreement, constitutes the complete, final and exclusive embodiment of the entire agreement
between the Company, affiliates of the Company and me with regard to the subject matter hereof. I am not relying on any promise or representation by the
Company that is not expressly stated therein. Certain capitalized terms used in this Release are defined in the Agreement.
I hereby confirm my obligations under my Confidential Information, Secrecy and Invention Agreement with the Company.
Except as otherwise set forth in this Release, I hereby generally and completely release the Company and its current and former directors, officers,
executives, shareholders, shareholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates, and assigns
(collectively, the “Released Parties”) from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related
to events, acts, conduct, or omissions occurring prior to my signing this Release (collectively, the “Released Claims”). The Released Claims include, but are
not limited to: (1) all claims arising out of or in any way related to my employment with the Company or its affiliates, or the termination of that employment;
(2) all claims related to my compensation or benefits, including salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe
benefits, stock, stock options, Stock Awards, or any other ownership interests in the Company or its affiliates; (3) all claims for breach of contract, wrongful
termination, and breach of the implied covenant of good faith and fair dealing; (4) all tort claims, including claims for fraud, defamation, emotional distress,
and discharge in violation of public policy; and (5) all federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation,
attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the
federal Executive Retirement Income Security Act of 1974 (as amended), and
the California Fair Employment and Housing Act (as
amended). Notwithstanding the foregoing, the following are not included in the Released Claims (the “Excluded Claims”): (1) any rights or claims for
indemnification I may have pursuant to any written indemnification agreement with the Company to which I am a party, the charter or bylaws of the
Company, or under applicable law; (2) any rights related to vested securities of the Company that were granted to me during the course of my employment
with the Company or any shares of capital stock or other securities of the Company that I purchased other than pursuant to Company’s Plan; or (3) any rights
which are not waivable as a matter of law. In addition, nothing in this Release prevents me from filing, cooperating with, or participating in any proceeding
before the Equal Employment Opportunity Commission, the Department of Labor, the California Department of Fair Employment and Housing, or any other
local, state, or federal administrative body or government agency that is authorized to enforce or administer laws related to employment, against the
Company, except that I hereby waive my right to any monetary benefits in connection with any such claim, charge or proceeding. I hereby represent and
warrant that, other than the Excluded Claims, I am not aware of any claims I have or might have against any of the Released Parties that are not included in
the Released Claims.
I acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: “A general release does not
extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him
or her must have materially affected his or her settlement with the debtor.” I hereby expressly waive and relinquish all rights and benefits under that
section and any law of any jurisdiction of similar effect with respect to my release of any claims hereunder.
I hereby represent that I have been paid all compensation owed and for all hours worked, I have received all the leave and leave benefits and
protections for which I am eligible, and I have not suffered any on-the-job injury for which I have not already filed a workers’ compensation claim.
I hereby agree not to disparage the Company, or its officers, directors, executives, shareholders or agents, in any manner likely to be harmful to its
or their business, business reputation, or personal reputation; provided, however, that I will respond accurately and fully to any question, inquiry or request for
information when required by legal process.
-1-
I acknowledge that to become effective, I must sign and return this Release to the Company so that it is received not later than fourteen (14) days
following the date it is provided to me, and I must not revoke it thereafter.
For Executive Under Age 40
Individual Termination
[EXECUTIVE NAME]
Name:
Date:
-2-
Form of Agreement (Non-CEO Executive)
FIBROGEN, INC.
CHANGE IN CONTROL AND SEVERANCE AGREEMENT
This Change in Control and Severance Agreement (this “Agreement”) is dated as of _______ (the “Effective Date”), by and between
[______________] (“Executive”) and FibroGen, Inc., a Delaware corporation (the “Company”). This Agreement is intended to provide Executive with
certain benefits described herein upon the occurrence of specific events.
RECITALS
A.
It is expected that the Company from time to time will consider the possibility of a Change in Control. The Company’s Board of
Directors (the “Board”) recognizes that such consideration can be a distraction to Executive and can cause Executive to consider alternative employment
opportunities. The Board believes that it is in the best interests of the Company and its stockholders to assure that the Company will have the continued
dedication and objectivity of Executive, notwithstanding the possibility, threat or occurrence of a Change in Control (as defined below).
B.
The Company’s Board believes it is in the best interests of the Company and its shareholders to retain Executive and provide
incentives to Executive to continue in the service of the Company.
C.
The Board further believes that it is imperative to provide Executive with certain benefits upon a qualifying termination of Executive’s
employment (whether in connection with a Change in Control or otherwise) which benefits are intended to provide Executive with financial security and
provide sufficient income and encouragement to Executive to remain with the Company, notwithstanding the possibility of a Change in Control and/or
termination of Executive’s employment with the Company under certain circumstances.
Now therefore, in consideration of the mutual promises, covenants and agreements contained herein, and in consideration of the continuing
employment of Executive by the Company, the parties hereto agree as follows:
11.
At-Will Employment. The term of the Agreement shall begin on the Effective Date and shall end on the third anniversary of the
Effective Date. Executive’s employment is at-will, which means that the Company may terminate Executive’s employment at any time, with or without
advance notice, and with or without Cause. Similarly, Executive may resign Executive’s employment at any time, with or without advance notice. Executive
shall not receive any compensation of any kind, including, without limitation, Stock Awards (as defined below), or other equity award vesting acceleration
and severance benefits, following Executive’s termination of employment with the Company in connection with a Change in Control, except as expressly
provided herein.
12.
Accrued Wages, Bonus and Vacation, Expenses. Without regard to the reason for, or the timing of, Executive’s termination of
employment: (i) the Company shall pay Executive any unpaid base salary due for periods prior to and including the date of Separation from Service (as
defined below); (ii) the Company shall pay Executive all of Executive’s accrued and unused vacation through the date of Separation from Service; (iii) the
Company shall pay Executive any earned (as determined and approved by the Board prior to the Separation from Service) but not yet paid incentive bonus
from the prior fiscal year, which bonus shall be paid in accordance with the Company’s regular bonus payment process and in any event by no later than
March 15 of such subsequent year; and (iv) following submission of proper expense reports by Executive, the Company shall reimburse Executive for all
expenses reasonably and necessarily incurred by Executive in connection with the business of the Company prior to the Separation from Service. These
payments shall be made promptly upon or following termination and within the period of time mandated by law (or in the case of an earned bonus, within the
time period set forth in the Company’s bonus plan and in any event by no later than March 15 of the calendar year following the year in which the bonus was
earned).
13.
Severance Benefits. Executive shall be eligible for severance benefits (“Severance Benefits”) in the amounts and under the
conditions set forth in subsections 3(a), 3(b) and 3(c) below. For the avoidance of doubt,
Executive shall not receive Severance Benefits under more than one such subsection. Notwithstanding any other provision hereof, no Severance Benefits shall
be provided upon termination of employment unless such termination constitutes a “separation from service” (within the meaning of Treasury Regulation
Section 1.409A-1(h), a “Separation from Service”).
(a)
Benefits upon a Termination in Connection with or Following a Change in Control. If Executive’s employment is
terminated by the Company without Cause (as defined below), and other than as a result of death or disability, or Executive resigns his or her employment
with the Company for Good Reason (as defined below) in connection with or within twelve (12) months following the effective date of a Change in Control,
and provided that Executive delivers an effective release of claims as required under Section 4 below, then Executive shall be entitled to the following
Severance Benefits:
Executive’s then current base salary and (B) one (1.0) times Executive’s then current target bonus, ignoring any decrease in base salary or target bonus that
forms the basis for Good Reason, less all applicable withholdings and deductions, paid over the eighteen (18) month period immediately following the
Separation from Service in accordance with the Company’s regular payroll practices, on the schedule described in Section 4 below.
(i)
The Company shall pay Executive an amount equal to the sum of (A) eighteen (18) months of
(ii)
The Company shall pay Executive’s expenses for continuing his or her health care coverage and the
coverage of his or her dependents who are covered at the time of the Executive’s Separation from Service (the “COBRA Premiums”) under the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”) (or another state law equivalent), as applicable, for a period ending on the earlier of
the eighteen (18) month anniversary of the Separation from Service or the date on which Executive becomes eligible to be covered by the health care plans of
another employer; provided however that any Company obligation under this paragraph requires that Executive timely elects COBRA continuation coverage
as required by applicable law. Notwithstanding the foregoing, if the Company determines, in its sole discretion, that the Company cannot pay the COBRA
Premiums without potentially incurring financial costs or penalties under applicable law (including, without limitation, Section 2716 of the Public Health
Service Act), the Company shall in lieu thereof pay Executive a taxable cash amount, which payment shall be made regardless of whether Executive or
Executive’s eligible family members elect health care continuation coverage (the “Health Care Benefit Payment”). The Health Care Benefit Payment shall be
paid in monthly installments on the same schedule that the COBRA Premiums would otherwise have been paid to the insurer. The Health Care Benefit
Payment shall be equal to the amount that the Company would have otherwise paid for COBRA Premiums (which amount shall be calculated based on the
premium for the first month of coverage), and shall be paid until the expiration of the period during which the COBRA Premiums would have been paid.
respect to all of the shares subject thereto effective immediately prior to Executive’s Separation from Service under this Section 3(a).
(iii)
All outstanding Stock Awards then held by Executive shall become fully vested and exercisable with
Notwithstanding the foregoing, in the event that Executive would be entitled to a greater level of severance benefits under the terms and conditions of a
severance plan or policy provided by the Company or its successor to other Company employees being terminated in connection with or within twelve (12)
months following a Change in Control but for the existence of this Agreement (the “Change in Control Benefits”), Executive shall be entitled to receive the
greater of the severance benefits under this Section 3(a) or the Change in Control Benefits, subject to the applicable terms and conditions thereof.
(b)
Benefits upon a Termination in Connection with Change in Chief Executive Officer. If Executive’s employment is
terminated by the Company without Cause, and other than as a result of death or disability, or Executive resigns his or her employment with the Company for
Good Reason within twelve (12) months following the start date of a non-interim Chief Executive Officer of the Company who is not Chief Executive Officer
of the Company as of the Effective Date, and provided that Executive delivers an effective release of claims as required under Section 4 below, then
Executive shall be entitled to the following severance benefits:
Executive’s then current base salary and (B) a pro rata portion of Executive’s then current target bonus (based on the number of days during the year in which
the Separation from Service occurred that Executive
(i)
The Company shall pay Executive an amount equal to the sum of (A) twelve (12) months of
2.
was employed by the Company), ignoring any decrease in base salary or target bonus that forms the basis for Good Reason, less all applicable withholdings
and deductions, over the twelve (12) month period immediately following the Separation from Service in accordance with the Company’s regular payroll
practices, on the schedule described in Section 4 below.
(ii)
The Company shall pay Executive’s COBRA Premiums for a period ending on the earlier of the twelve
(12) month anniversary of the Separation from Service or the date on which Executive becomes eligible to be covered by the health care plans of another
employer; provided however that any Company obligation under this paragraph requires that Executive timely elects COBRA continuation coverage as
required by applicable law. Notwithstanding the foregoing, if the Company determines, in its sole discretion, that the Company cannot pay the COBRA
Premiums without potentially incurring financial costs or penalties under applicable law (including, without limitation, Section 2716 of the Public Health
Service Act), the Company shall in lieu thereof pay the Health Care Benefit Payment. The Health Care Benefit Payment shall be paid in monthly installments
on the same schedule that the COBRA Premiums would otherwise have been paid to the insurer. The Health Care Benefit Payment shall be equal to the
amount that the Company would have otherwise paid for COBRA Premiums (which amount shall be calculated based on the premium for the first month of
coverage), and shall be paid until the expiration of the period during which the COBRA Premiums would have been paid.
immediately prior to Executive’s Separation from Service under this Section 3(b) with respect to the portion of the shares subject thereto that would have
vested during the twelve (12) month period following Executive’s termination of employment, had Executive remained employed by the Company during
such period.
(iii)
All outstanding Stock Awards then held by Executive shall become vested and exercisable effective
Benefits Upon Certain Other Terminations. If Executive’s employment is terminated by the Company without Cause,
and other than as a result of death or disability, under circumstances other than those set forth in in the foregoing provisions of this Section 3, and provided
that Executive delivers an effective release of claims as required under Section 4 below, then Executive shall be entitled to the following severance benefits:
(c)
The Company shall pay Executive an amount equal to twelve (12) months of Executive’s then current
base salary, less all applicable withholdings and deductions, paid over such twelve (12) month period immediately following the Separation from Service in
accordance with the Company’s regular payroll practices, on the schedule described in Section 4 below.
(i)
(ii)
The Company shall pay Executive’s COBRA Premiums for a period ending on the earlier of the twelve
(12) month anniversary of the Separation from Service or the date on which Executive becomes eligible to be covered by the health care plans of another
employer; provided however that any Company obligation under this paragraph requires that Executive timely elects COBRA continuation coverage as
required by applicable law. Notwithstanding the foregoing, if the Company determines, in its sole discretion, that the Company cannot pay the COBRA
Premiums without potentially incurring financial costs or penalties under applicable law (including, without limitation, Section 2716 of the Public Health
Service Act), the Company shall in lieu thereof pay the Health Care Benefit Payment. The Health Care Benefit Payment shall be paid in monthly installments
on the same schedule that the COBRA Premiums would otherwise have been paid to the insurer. The Health Care Benefit Payment shall be equal to the
amount that the Company would have otherwise paid for COBRA Premiums (which amount shall be calculated based on the premium for the first month of
coverage), and shall be paid until the expiration of the period during which the COBRA Premiums would have been paid.
3.
14.
Release Prior to Payment of Severance Benefits. Prior to the payment of any of the Severance Benefits, Executive shall execute, and
allow to become effective, a customary and standard employment release agreement in substantially the form attached hereto as EXHIBIT A, EXHIBIT B, or
EXHIBIT C, as applicable, releasing the Company (and its successor) from any and all claims Executive may have against such entities related to or arising in
connection with his or her employment and the terms of such employment and termination thereof (the “Release”) within the time frame set forth therein, but
not later than sixty (60) days following Executive’s Separation from Service (the “Release Effective Date”). Such Release shall specifically relate to all of
Executive’s rights and claims in existence at the time of such execution and shall confirm Executive’s continuing obligations to the Company (including but
not limited to obligations under any confidentiality and/or non-solicitation agreement with the Company). No Severance Benefits will be paid prior to the
Release Effective Date. Within five (5) days following the Release Effective Date, the Company will pay Executive the Severance Benefits Executive would
otherwise have received on or prior to such date but for the delay in payment related to the effectiveness of the Release, with the balance of the benefits being
paid as originally scheduled. Unless a Change in Control has occurred, the Board, in its sole discretion, may modify the form of the required Release to
comply with applicable law and shall determine the form of the required Release, which may be incorporated into a termination agreement or other agreement
with Executive. Notwithstanding the foregoing, if the Company (or, if applicable, the successor entity thereto) determines that any of the Severance Benefits
constitute “deferred compensation” under Section 409A (defined below), then, solely to the extent necessary to avoid the incurrence of the adverse personal
tax consequences under Section 409A, no Severance Benefits will be paid prior to the sixtieth (60th) day following Executive’s Separation from Service. On
the sixtieth (60th) day following the date of Separation from Service, the Company will pay to Executive in a lump sum the applicable Severance Benefits
that Executive would otherwise have received on or prior to such date, with the balance of the Severance Benefits being paid as originally scheduled.
15.
Limitation on Payments. If any payment or benefit (including payments and benefits pursuant to this Agreement) that Executive
would receive in connection with a Change in Control from the Company or otherwise (“Transaction Payment”) would (i) constitute a “parachute payment”
within the meaning of Section 280G of the Code, and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the “Excise
Tax”), then the Company shall cause to be determined, before any amounts of the Transaction Payment are paid to Executive, which of the following two
alternative forms of payment would result in Executive’s receipt, on an after-tax basis, of the greater amount of the Transaction Payment notwithstanding that
all or some portion of the Transaction Payment may be subject to the Excise Tax: (1) payment in full of the entire amount of the Transaction Payment (a “Full
Payment”), or (2) payment of only a part of the Transaction Payment so that Executive receives the largest payment possible without the imposition of the
Excise Tax (a “Reduced Payment”) . For purposes of determining whether to make a Full Payment or a Reduced Payment, the Company shall cause to be
taken into account all applicable federal, state and local income and employment taxes and the Excise Tax (all computed at the highest applicable marginal
rate, net of the maximum reduction in federal income taxes which could be obtained from a deduction of such state and local taxes). If a Reduced Payment is
made, (x) Executive shall have no rights to any additional payments and/or benefits constituting the Transaction Payment, and (y) reduction in payments
and/or benefits will occur in the following order: (1) reduction of cash payments; (2) cancellation of accelerated vesting of equity awards other than stock
options; (3) cancellation of accelerated vesting of stock options; and (4) reduction of other benefits paid to Executive. In the event that acceleration of vesting
of equity award compensation is to be reduced, such acceleration of vesting will be cancelled in the reverse order of the date of grant of Executive’s equity
awards. In no event will the Company or any stockholder be liable to Executive for any amounts not paid as a result of the operation of this Section 5.
(a)
The professional firm engaged by the Company for general tax purposes as of the day prior to the effective date of the
Change in Control shall make all determinations required to be made under this Section 5. If the professional firm so engaged by the Company is serving as
accountant or auditor for the individual, entity or group effecting the Change in Control, the Company shall appoint a nationally recognized independent
registered public accounting firm to make the determinations required hereunder. The Company shall bear all expenses with respect to the determinations by
such professional firm required to be made hereunder.
(b)
The professional firm engaged to make the determinations hereunder shall provide its calculations, together with detailed
supporting documentation, to the Company and Executive within fifteen (15) calendar days after the date on which Executive’s right to a Transaction
Payment is triggered or such other time as reasonably requested by the Company or Executive. If the professional firm determines that no Excise Tax is
payable with respect to the Transaction Payment, either before or after the application of the Reduced Amount, it shall furnish the Company and Executive
with detailed supporting calculations of its determinations that no Excise Tax will be imposed with respect to such Transaction Payment. Any good faith
determinations of the professional firm made hereunder shall be final, binding and conclusive upon the Company and Executive.
4.
16.
Successors.
(a)
Company’s Successors. Any successor to the Company (whether direct or indirect and whether by purchase, lease,
merger, consolidation, liquidation or otherwise) to all or substantially all of the Company’s business and/or assets shall assume the Company’s, or ensure that
the Company fully performs its, obligations under this Agreement and shall perform the Company’s, or ensure that the Company performs its, obligations,
under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a
succession. For all purposes under this Agreement, the term “Company” shall include any such successor.
(b)
Executive’s Successors. Without the written consent of the Company, Executive shall not assign or transfer any right or
obligation under this Agreement to any other person or entity. Notwithstanding the foregoing, the terms of this Agreement and all rights of Executive
hereunder shall inure to the benefit of, and be enforceable by, Executive’s personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
17.
Notices.
(a)
General. Notices and all other communications contemplated by this Agreement shall be in writing and shall be deemed
to have been duly given when personally delivered or when mailed by U.S. registered or certified mail, return receipt requested and postage prepaid. In the
case of Executive, mailed notices shall be addressed to him at the home address which he most recently communicated to the Company in writing. In the case
of the Company, mailed notices shall be addressed to its corporate headquarters, and all notices shall be directed to the attention of its Secretary.
resignation for any reason shall be communicated by a notice of termination to the other party hereto given in accordance with this Agreement.
(b)
Notice of Termination. Any termination by the Company with or without Cause or by Executive as a result of a voluntary
18.
Arbitration. The Company and Executive shall attempt to settle any disputes arising in connection with this Agreement through good
faith consultation. In the event that Executive and the Company are not able to resolve any such disputes within fifteen (15) days after notification in writing
to the other, any dispute or claim arising out of or in connection with this Agreement will be finally settled by binding arbitration in San Francisco, California
in accordance with the rules of the American Arbitration Association by one arbitrator mutually agreed upon by the parties. The arbitrator will apply
California law, without reference to rules of conflicts of law or rules of statutory arbitration, to the resolution of any dispute. Except as set forth in Section
10(h) below, the arbitrator shall not have authority to modify the terms of this Agreement. The Company shall pay the costs of the arbitration
proceeding. Each party shall, unless otherwise determined by the arbitrator, bear its or his or her own attorneys’ fees and expenses, provided however that if
Executive prevails in an arbitration proceeding, the Company shall reimburse Executive for his or her reasonable attorneys' fees and costs. Judgment on the
award rendered by the arbitrator may be entered in any court having jurisdiction thereof. Notwithstanding the foregoing, the Company and Executive may
apply to any court of competent jurisdiction for preliminary or interim equitable relief, or to compel arbitration in accordance with this paragraph, without
breach of this arbitration provision.
19.
Definition of Terms. The following terms referred to in this Agreement shall have the following meanings:
(a)
Cause. “Cause” for termination of Executive’s employment will exist if Executive is terminated by the Company for any
of the following reasons: (i) Executive’s willful failure substantially to perform his or her duties and responsibilities to the Company or deliberate violation of
a Company policy; (ii) Executive’s commission of any act of fraud, embezzlement, dishonesty or any other willful misconduct that has caused or is
reasonably expected to result in material injury to the Company; (iii) unauthorized use or disclosure by Executive of any proprietary information or trade
secrets of the Company or any other party to whom Executive owes an obligation of nondisclosure as a result of his or her relationship with the Company; or
(iv) Executive’s willful breach of any of his or her obligations under any written agreement or covenant with the Company. The determination as to whether
Executive is being terminated for Cause shall be made in good faith by the Company and shall be final
5.
and binding on Executive. The foregoing definition does not in any way limit the Company’s ability to terminate Executive’s employment relationship at any
time as provided in Sections 1 and 10(d) of this Agreement, and the term “Company” will be interpreted to include any subsidiary, parent or affiliate of the
Company, as appropriate.
(b)
Change in Control. “Change in Control” means the first to occur of any of the following transactions that also constitutes
a change in the ownership or effective control of the Company, or a change in the ownership of a substantial portion of the Company’s assets, as described in
Treasury Regulation Section 1.409A‑3(i)(5): (A) a merger or consolidation in which the Company is not the surviving entity, except for a transaction the
principal purpose of which is to change the state in which the Company is incorporated; (B) the sale, transfer or other disposition of all or substantially all of
the assets of the Company (including the capital stock of the Company’s subsidiary corporations); (C) any reverse merger in which the Company is the
surviving entity but in which securities possessing more than fifty percent (50%) of the total combined voting power of the Company’s outstanding securities
are transferred to a person or persons different from those who held such securities immediately prior to such merger; or (D) an acquisition in a single or
series of related transactions by any person or related group of persons (other than the Company or by a Company-sponsored employee benefit plan) of
beneficial ownership (within the meaning of Rule 13d-3 of the Exchange Act) of securities possessing more than fifty percent (50%) of the total combined
voting power of the Company’s outstanding securities.
(c)
Good Reason. “Good Reason” for Executive's resignation of his or her employment shall exist following the occurrence
of any of the following without Executive’s written consent: (i) a material reduction in job duties or responsibilities inconsistent with the Executive’s position
with the Company; provided, however, that any such reduction or change after a Change in Control will not constitute Good Reason if Executive retains
reasonably comparable duties, and responsibilities with respect to the Company’s business within the successor entity following a Change of Control; (ii) a
material reduction of Executive’s then current base salary or target bonus; (iii) the relocation of Executive’s principal place of employment to a place that
increases Executive’s one-way commute by more than forty (40) miles as compared to Executive’s then current principal place of employment immediately
prior to such relocation; (iv) any material breach by the Company of the Plan or any other written agreement between the Company and the Executive; or (v)
the failure by any successor to the Company to assume the Plan and any obligations under the Plan; provided, that the Executive gives written notice to the
Company of the event forming the basis of the termination for Good Reason within sixty (60) days after the date on which the Company gives written notice
to the Executive of the Company’s affirmative decision to take an action set forth in clause (i), (ii), (iii), (iv) or (v) above, the Company fails to cure such
basis for the Good Reason resignation within thirty (30) days after receipt of Executive’s written notice and Executive terminates his or her employment
within thirty (30) days following the expiration of the cure period.
(d)
Plan. “Plan” collectively refers to (i) Company’s Amended and Restated 2005 Stock Plan, adopted by the Board on
February 17, 2005, as amended from time to time, (ii) Company’s 2014 Equity Incentive Plan, adopted by the Board on September 9, 2014, as amended from
time to time, and (iii) any preceding and succeeding plans thereto.
(e)
Stock Awards. “Stock Award(s)” means any right to receive or purchase equity of the Company or other equity based
award or compensation as granted under the Plan, including without limitation an Incentive Stock Option, a Nonstatutory Stock Option, a Stock Purchase
Award, a Stock Bonus Award, a Restricted Stock Award, a Restricted Stock Unit Award, a Stock Unit Award, a Stock Appreciation Right, a Performance
Stock Award or any Other Stock Award, each of the foregoing as defined under the Plan; provided, however, that a Stock Award shall not include any of the
foregoing awards to the extent that the grant documentation evidencing such award explicitly provides that the terms of this Agreement shall be superseded
by the provisions of such grant documentation.
20.
Miscellaneous Provisions.
(a)
Executive Obligations. Notwithstanding anything to the contrary contained herein, payment of any of the Severance
Benefits will be conditioned upon (i) Executive continuing to comply with his or her obligations under his or her Confidential Information, Secrecy and
Invention Agreement during the period of time in which Executive is receiving the Severance Benefits; and (ii) if Executive is a member of the Board,
Executive’s resignation from the Board, to be effective no later than the date of Separation from Service (or such other date as requested by the Board).
6.
(b)
Effect of Statutory Benefits. To the extent that any severance benefits are required to be paid to Executive upon
termination of employment with the Company as a result of any requirement of law or any governmental entity in any applicable jurisdiction, the aggregate
amount of severance benefits payable pursuant to Section 3 hereof shall not be reduced by such amount.
Agreement, nor shall any such payment be reduced by any earnings that Executive may receive from any other source.
(c)
No Duty to Mitigate. Executive shall not be required to mitigate the amount of any payment contemplated by this
Executive or the Company can terminate the employment relationship at any time, with or without Cause.
(d)
At-Will Employment Status. Nothing in this Agreement modifies Executive’s at-will employment status. Either
(e)
Waiver. No provision of this Agreement may be waived or discharged unless the waiver or discharge is agreed to in
writing and signed by the Executive and by an authorized officer of the Company (other than Executive). No waiver by either party of any breach of, or of
compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the
same condition or provision at another time.
(f)
Integration. This Agreement supersedes all prior or contemporaneous agreements, whether written or oral, with respect to
this Agreement; provided that, for clarification purposes, this Agreement shall not affect any agreements between the Company and Executive regarding
intellectual property matters, non-solicitation or non-competition restrictions or confidential information of the Company. This Agreement expressly
supersedes and terminates all Change in Control and Severance Agreements entered into by and between Company and Executive prior to the Effective Date.
internal substantive laws, but not the conflicts of law rules, of the State of California.
(g)
Choice of Law. The validity, interpretation, construction and performance of this Agreement shall be governed by the
validity or enforceability of any other provision hereof, which shall remain in full force and effect.
(h)
Severability. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the
(i)
Income and Employment Taxes. Executive is responsible for any applicable taxes of any nature (including any penalties
or interest that may apply to such taxes) that the Company reasonably determines apply to any payment made hereunder. Executive’s receipt of any benefit
hereunder is conditioned on his or her satisfaction of any applicable withholding or similar obligations that apply to such benefit and any cash payment owed
hereunder will be reduced to satisfy any such withholding or similar obligations that may apply.
(j)
Code Section 409A. It is intended that each installment of the payments and benefits provided for in this Agreements
constitute a separate “payment” for purposes of Treasury Regulation Section 1.409A-2(b)(2)(i). For the avoidance of doubt, it is intended that payments of
the amounts set forth in this Agreement satisfy, to the greatest extent possible, the exemptions from the application of Section 409A of the Internal Revenue
Code of 1986, as amended (the “Code”) (Section 409A of the Code, together, with any state law of similar effect, “Section 409A”) provided under Treasury
Regulations 1.409A-1(b)(4), 1.409A-1(b)(5) and 1.409A-1(b)(9). However, if the Company (or, if applicable, the successor entity thereto) determines that the
severance payments and benefits provided under this Agreement(the “Agreement Payments”) constitute “deferred compensation” under Section 409A and
Executive is, on the date of his or her Separation from Service, a “specified employee” of the Company or any successor entity thereto, as such term is
defined in Section 409A(a)(2)(B)(i) of the Code (a “Specified Employee”), then, solely to the extent necessary to avoid the incurrence of the adverse personal
tax consequences under Section 409A, the timing of the Severance Benefits described in Section 4(b) shall be delayed as follows: on the earlier to occur of (i)
the date that is six months and one day after Executive’s Separation from Service or (ii) the date of Executive’s death (such earlier date, the “Delayed Initial
Payment Date”), the Company (or the successor entity thereto, as applicable) shall pay to Executive a lump sum amount equal to the applicable benefit that
Executive would otherwise have received through the Delayed Initial Payment Date if the commencement of the payment of the benefit had not been so
delayed pursuant to this Section 10(j). If a release
7.
revocation period spans two calendar years, then amounts will not be paid until the second of the two years to the extent necessary to avoid taxation under
Section 409A.
with the execution of this Agreement.
(k)
Legal Fees and Expenses. The parties shall each bear their own expenses, legal fees and other fees incurred in connection
which together will constitute one and the same instrument.
(l)
Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of
[Signature Page Follows]
8.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first set forth above.
[EXECUTIVE NAME]
Name:
Date:
FIBROGEN, INC.
By:
Name:
Michael D. Lowenstein
Title:
Chief Legal Officer
Date:
For Executive Age 40 or Older
Group Termination
EXHIBIT A
RELEASE AGREEMENT
In consideration of receiving certain benefits under my Change in Control and Severance Agreement with FibroGen, Inc. (the “Company”) dated
_______ (the “Agreement”), I have agreed to sign this Release. I understand that I am not entitled to benefits under the Agreement unless I sign this Release.
I understand that this Release, together with the Agreement, constitutes the complete, final and exclusive embodiment of the entire agreement
between the Company, affiliates of the Company and me with regard to the subject matter hereof. I am not relying on any promise or representation by the
Company that is not expressly stated therein. Certain capitalized terms used in this Release are defined in the Agreement.
I hereby confirm my obligations under my Confidential Information, Secrecy and Invention Agreement with the Company.
Except as otherwise set forth in this Release, I hereby generally and completely release the Company and its current and former directors,
officers, executives, shareholders, shareholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates, and
assigns (collectively, the “Released Parties”) from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way
related to events, acts, conduct, or omissions occurring prior to my signing this Release (collectively, the “Released Claims”). The Released Claims include,
but are not limited to: (1) all claims arising out of or in any way related to my employment with the Company or its affiliates, or the termination of that
employment; (2) all claims related to my compensation or benefits, including salary, bonuses, commissions, vacation pay, expense reimbursements, severance
pay, fringe benefits, stock, stock options, Stock Awards, or any other ownership interests in the Company or its affiliates; (3) all claims for breach of contract,
wrongful termination, and breach of the implied covenant of good faith and fair dealing; (4) all tort claims, including claims for fraud, defamation, emotional
distress, and discharge in violation of public policy; and (5) all federal, state, and local statutory claims, including claims for discrimination, harassment,
retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of
1990, the federal Age Discrimination in Employment Act of 1967 (as amended) (“ADEA”), the federal Employee Retirement Income Security Act of 1974
(as amended), and the California Fair Employment and Housing Act (as amended)2. Notwithstanding the foregoing, the following are not included in the
Released Claims (the “Excluded Claims”): (1) any rights or claims for indemnification I may have pursuant to any written indemnification agreement with the
Company to which I am a party, the charter or bylaws of the Company, or under applicable law; (2) any rights related to vested securities of the Company that
were granted to me during the course of my employment with the Company or any shares of capital stock or other securities of the Company that I purchased
other than pursuant to Company’s Plan; or (3) any rights which are not waivable
2
Will need to revise for other states, as applicable.
as a matter of law. In addition, nothing in this Release prevents me from filing, cooperating with, or participating in any proceeding before the
Equal Employment Opportunity Commission, the Department of Labor, the California Department of Fair Employment and Housing, or any other local, state,
or federal administrative body or government agency that is authorized to enforce or administer laws related to employment, against the Company, except that
I hereby waive my right to any monetary benefits in connection with any such claim, charge or proceeding. I hereby represent and warrant that, other than the
Excluded Claims, I am not aware of any claims I have or might have against any of the Released Parties that are not included in the Released Claims.
I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under the ADEA. I also acknowledge that the
consideration given for the Released Claims is in addition to anything of value to which I was already entitled. I further acknowledge that I have been
advised by this writing, as required by the ADEA, that: (a) the Released Claims do not apply to any rights or claims that arise after the date I sign this
Release; (b) I should consult with an attorney prior to signing this Release (although I may choose voluntarily not to do so); (c) I have forty-five (45) days to
consider this Release (although I may choose to voluntarily sign it sooner); (d) I have
-1-
For Executive Age 40 or Older
Group Termination
seven (7) days following the date I sign this Release to revoke the Release by providing written notice to an officer of the Company; and (e) the Release will
not be effective until the date upon which the revocation period has expired unexercised, which will be the eighth day after I sign this Release (“Effective
Date”).
I have received with this Release all of the information required by the ADEA, including without limitation a detailed list of the job titles and
ages of all employees who were terminated in this group termination and the ages of all employees of the Company in the same job classification or
organizational unit who were not terminated, along with information on the eligibility factors used to select employees for the group termination and any time
limits applicable to this group termination program.
I acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: “A general release does not
extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him
or her must have materially affected his or her settlement with the debtor.” I hereby expressly waive and relinquish all rights and benefits under that
section and any law of any jurisdiction of similar effect with respect to my release of any claims hereunder.
I hereby represent that I have been paid all compensation owed and for all hours worked, I have received all the leave and leave benefits and
protections for which I am eligible, and I have not suffered any on-the-job injury for which I have not already filed a workers’ compensation claim.
I hereby agree not to disparage the Company, or its officers, directors, executives, shareholders or agents, in any manner likely to be harmful to its
or their business, business reputation, or personal reputation; provided, however, that I will respond accurately and fully to any question, inquiry or request for
information when required by legal process.
I acknowledge that to become effective, I must sign and return this Release to the Company so that it is received not later than forty-five (45)
days following the date it is provided to me, and I must not revoke it thereafter.
[EXECUTIVE NAME]
Name:
Date:
-2-
For Executive Under Age 40
Individual and Group Termination
EXHIBIT B
RELEASE AGREEMENT
In consideration of receiving certain benefits under my Change in Control and Severance Agreement with FibroGen, Inc. (the “Company”)
dated ___________ (the “Agreement”), I have agreed to sign this Release. I understand that I am not entitled to benefits under the Agreement unless I sign
this Release.
I understand that this Release, together with the Agreement, constitutes the complete, final and exclusive embodiment of the entire agreement
between the Company, affiliates of the Company and me with regard to the subject matter hereof. I am not relying on any promise or representation by the
Company that is not expressly stated therein. Certain capitalized terms used in this Release are defined in the Agreement.
I hereby confirm my obligations under my Confidential Information, Secrecy and Invention Agreement with the Company.
Except as otherwise set forth in this Release, I hereby generally and completely release the Company and its current and former directors, officers,
executives, shareholders, shareholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates, and assigns
(collectively, the “Released Parties”) from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related
to events, acts, conduct, or omissions occurring prior to my signing this Release (collectively, the “Released Claims”). The Released Claims include, but are
not limited to: (1) all claims arising out of or in any way related to my employment with the Company or its affiliates, or the termination of that employment;
(2) all claims related to my compensation or benefits, including salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe
benefits, stock, stock options, Stock Awards, or any other ownership interests in the Company or its affiliates; (3) all claims for breach of contract, wrongful
termination, and breach of the implied covenant of good faith and fair dealing; (4) all tort claims, including claims for fraud, defamation, emotional distress,
and discharge in violation of public policy; and (5) all federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation,
attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the
federal Age Discrimination in Employment Act of 1967 (as amended) (“ADEA”), the federal Executive Retirement Income Security Act of 1974 (as
amended), and the California Fair Employment and Housing Act (as amended). Notwithstanding the foregoing, the following are not included in the
Released Claims (the “Excluded Claims”): (1) any rights or claims for indemnification I may have pursuant to any written indemnification agreement with the
Company to which I am a party, the charter or bylaws of the Company, or under applicable law; (2) any rights related to vested securities of the Company that
were granted to me during the course of my employment with the Company or any shares of capital stock or other securities of the Company that I purchased
other than pursuant to Company’s Plan; or (3) any rights which are not waivable as a matter of law. In addition, nothing in this Release prevents me from
filing, cooperating with, or participating in any proceeding before the Equal Employment Opportunity Commission, the Department of Labor, the California
Department of Fair Employment and Housing, or any other local, state, or federal administrative body or government agency that is authorized to enforce or
administer laws related to employment, against the Company, except that I hereby waive my right to any monetary benefits in connection with any such
claim, charge or proceeding. I hereby represent and warrant that, other than the Excluded Claims, I am not aware of any claims I have or might have against
any of the Released Parties that are not included in the Released Claims.
I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under the ADEA. I also acknowledge that the
consideration given for the Released Claims is in addition to anything of value to which I was already entitled. I further acknowledge that I have been
advised by this writing, as required by the ADEA, that: (a) the Released Claims do not apply to any rights or claims that arise after the date I sign this
Release; (b) I should consult with an attorney prior to signing this Release (although I may choose voluntarily not to do so); (c) I have twenty-one (21) days to
consider this Release (although I may choose to voluntarily sign it sooner); (d) I have seven (7) days following the date I sign this Release to revoke the
Release by providing written notice to an officer of the Company; and (e) the Release will not be effective until the date upon which the revocation period has
expired unexercised, which will be the eighth day after I sign this Release (“Effective Date”).
-1-
For Executive Under Age 40
Individual and Group Termination
I acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: “A general release does not
extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him
or her must have materially affected his or her settlement with the debtor.” I hereby expressly waive and relinquish all rights and benefits under that
section and any law of any jurisdiction of similar effect with respect to my release of any claims hereunder.
I hereby represent that I have been paid all compensation owed and for all hours worked, I have received all the leave and leave benefits and
protections for which I am eligible, and I have not suffered any on-the-job injury for which I have not already filed a workers’ compensation claim.
I hereby agree not to disparage the Company, or its officers, directors, executives, shareholders or agents, in any manner likely to be harmful to its
or their business, business reputation, or personal reputation; provided, however, that I will respond accurately and fully to any question, inquiry or request for
information when required by legal process.
-2-
I acknowledge that to become effective, I must sign and return this Release to the Company so that it is received not later than twenty-one (21)
days following the date it is provided to me, and I must not revoke it thereafter.
For Executive Under Age 40
Individual and Group Termination
[EXECUTIVE NAME]
Name:
Date:
-3-
For Executive Under Age 40
Individual and Group Termination
EXHIBIT C
RELEASE AGREEMENT
In consideration of receiving certain benefits under my Change in Control and Severance Agreement with FibroGen, Inc. (the “Company”)
dated ___________ (the “Agreement”), I have agreed to sign this Release. I understand that I am not entitled to benefits under the Agreement unless I sign
this Release.
I understand that this Release, together with the Agreement, constitutes the complete, final and exclusive embodiment of the entire agreement
between the Company, affiliates of the Company and me with regard to the subject matter hereof. I am not relying on any promise or representation by the
Company that is not expressly stated therein. Certain capitalized terms used in this Release are defined in the Agreement.
I hereby confirm my obligations under my Confidential Information, Secrecy and Invention Agreement with the Company.
Except as otherwise set forth in this Release, I hereby generally and completely release the Company and its current and former directors, officers,
executives, shareholders, shareholders, partners, agents, attorneys, predecessors, successors, parent and subsidiary entities, insurers, affiliates, and assigns
(collectively, the “Released Parties”) from any and all claims, liabilities and obligations, both known and unknown, that arise out of or are in any way related
to events, acts, conduct, or omissions occurring prior to my signing this Release (collectively, the “Released Claims”). The Released Claims include, but are
not limited to: (1) all claims arising out of or in any way related to my employment with the Company or its affiliates, or the termination of that employment;
(2) all claims related to my compensation or benefits, including salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay, fringe
benefits, stock, stock options, Stock Awards, or any other ownership interests in the Company or its affiliates; (3) all claims for breach of contract, wrongful
termination, and breach of the implied covenant of good faith and fair dealing; (4) all tort claims, including claims for fraud, defamation, emotional distress,
and discharge in violation of public policy; and (5) all federal, state, and local statutory claims, including claims for discrimination, harassment, retaliation,
attorneys’ fees, or other claims arising under the federal Civil Rights Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the
federal Executive Retirement Income Security Act of 1974 (as amended), and
the California Fair Employment and Housing Act (as
amended). Notwithstanding the foregoing, the following are not included in the Released Claims (the “Excluded Claims”): (1) any rights or claims for
indemnification I may have pursuant to any written indemnification agreement with the Company to which I am a party, the charter or bylaws of the
Company, or under applicable law; (2) any rights related to vested securities of the Company that were granted to me during the course of my employment
with the Company or any shares of capital stock or other securities of the Company that I purchased other than pursuant to Company’s Plan; or (3) any rights
which are not waivable as a matter of law. In addition, nothing in this Release prevents me from filing, cooperating with, or participating in any proceeding
before the Equal Employment Opportunity Commission, the Department of Labor, the California Department of Fair Employment and Housing, or any other
local, state, or federal administrative body or government agency that is authorized to enforce or administer laws related to employment, against the
Company, except that I hereby waive my right to any monetary benefits in connection with any such claim, charge or proceeding. I hereby represent and
warrant that, other than the Excluded Claims, I am not aware of any claims I have or might have against any of the Released Parties that are not included in
the Released Claims.
I acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: “A general release does not
extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of executing the release, which if known by him
or her must have materially affected his or her settlement with the debtor.” I hereby expressly waive and relinquish all rights and benefits under that
section and any law of any jurisdiction of similar effect with respect to my release of any claims hereunder.
I hereby represent that I have been paid all compensation owed and for all hours worked, I have received all the leave and leave benefits and
protections for which I am eligible, and I have not suffered any on-the-job injury for which I have not already filed a workers’ compensation claim.
I hereby agree not to disparage the Company, or its officers, directors, executives, shareholders or agents, in any manner likely to be harmful to its
or their business, business reputation, or personal reputation; provided, however, that I will respond accurately and fully to any question, inquiry or request for
information when required by legal process.
-1-
I acknowledge that to become effective, I must sign and return this Release to the Company so that it is received not later than fourteen (14) days
following the date it is provided to me, and I must not revoke it thereafter.
For Executive Under Age 40
Individual and Group Termination
[EXECUTIVE NAME]
Name:
Date:
-2-
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-200348, No. 333-213816, No. 333-216369, and
No. 333-233204) of FibroGen, Inc. of our report dated March 2, 2020 relating to the financial statements, financial statement schedule and the effectiveness
of internal control over financial reporting, which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
San Jose, California
March 2, 2020
Exhibit 31.1
I, Enrique Conterno, certify that;
1. I have reviewed this annual report on Form 10-K of FibroGen, Inc.;
CERTIFICATION
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in the Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
Date: March 2, 2020
/s/ Enrique Conterno
Enrique Conterno
Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
I, Pat Cotroneo, certify that;
1. I have reviewed this annual report on Form 10-K of FibroGen, Inc.;
CERTIFICATION
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in the Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
Date: March 2, 2020
/s/ Pat Cotroneo
Pat Cotroneo
Senior Vice President, Finance and Chief Financial
Officer (Principal Financial Officer)
CERTIFICATION
Exhibit 32.1
Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 1350 of
Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350), Enrique Conterno, Chief Executive Officer of FibroGen, Inc. (the “Company”), and Pat
Cotroneo, Chief Financial Officer of the Company, each hereby certifies that, to the best of his knowledge:
1.
2.
The Company’s Annual Report on Form 10-K for the year ended December 31, 2019 (the “Annual Report”), to which this Certification is attached as
Exhibit 32.1, fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act, and
The information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
In Witness Whereof, the undersigned have set their hands hereto as of the 2nd day of March, 2020.
/s/ Enrique Conterno
Enrique Conterno
Chief Executive Officer
/s/ Pat Cotroneo
Pat Cotroneo
Senior Vice President, Finance and Chief Financial Officer
This certification accompanies the Form 10-K to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be
incorporated by reference into any filing of FibroGen, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended
(whether made before or after the date of the Form 10-K), irrespective of any general incorporation language contained in such filing.