FibroGen, Inc. (NASDAQ: FGEN) Q4 2021 earnings call dated Feb. 28, 2022
Corporate Participants:
Michael Tung — Vice President, Corporate Strategy & Investor Relations
Enrique Conterno — Chief Executive Officer
Juan Graham — Chief Financial Officer
Mark Eisner — Chief Medical Officer
Christine L Chung — Senior Vice President, China Operations
Thane Wettig — Chief Commercial Officer
Analysts:
Unidentified Participant — — Analyst
Annabel Samimy — Stifel — Analyst
Alexandra Ramsey — William Blair — Analyst
Presentation:
Operator
Good day and thank you for standing by, and welcome to the FibroGen Fourth Quarter 2021 Financial Results conference call. [Operator Instructions].
I would now like to hand the conference over to your host today, Mike Tung, Vice President of Corporate Strategy and Investor Relations. You may begin.
Michael Tung — Vice President, Corporate Strategy & Investor Relations
Thank you, Justin. And good afternoon everyone. I’m Michael Tung, Vice President of Corporate Strategy and Investor Relations at FibroGen. Joining me on today’s call are Enrique Conterno, our Chief Executive Officer; Dr. Mark Eisner, our Chief Medical Officer; Juan Graham, our Chief Financial Officer; Dr. John Hunter, our Chief Scientific Officer; Thane Wettig, our Chief Commercial Officer; and Chris Chung, our Senior Vice President of China operations.
The format for today’s call includes prepared remarks from Enrique and Juan, after which, we will open up the call for Q&A. I would like to remind you that remarks made on today’s call include forward-looking statements about FibroGen. Such statements may include but are not limited to our collaborations with AstraZeneca and Astellas financial guidance, the initiation, enrollment, design, conduct and results of clinical trials and regulatory strategies and potential regulatory results, our research and development activities. Commercial results and results of operations, risks related to our business and certain other business matters.
Each forward-looking statement is subject to risks and uncertainties that could cause actual results and events to differ materially from those projected in that statement. A more complete description of these and other material risks can be found at FibroGen’s filings with the SEC including our most recent Form 10-K and Form 10-Q. FibroGen does not undertake any obligation to update publicly any forward-looking statements whether as a result of new information, future events or otherwise. The press release reporting our financial results and business update and a webcast of today’s conference call can be found on the Investors section of FibroGen’s website at www.fibrogen.com.
And with that, I would like to turn the call over to Enrique Conterno, our CEO. Enrique?
Enrique Conterno — Chief Executive Officer
Very good. Thank you, Mike, and good afternoon everyone and welcome to our fourth quarter and full year 2021 earnings Call. Briefly before we begin, I would like to highlight that today is Rare Disease Day which is especially relevant to us, given our pamrevlumab Phase 3 programs and our roxadustat MDS program. As we enter 2022, we’re excited about our future, if we continue to advance our Phase 3 pamrevlumab clinical trials in 3 indications, continue our strong performer with roxadustat in China, launch roxadustat in Europe and expand our research and development portfolio in the immuno-oncology and autoimmune space. On today’s call, I intend to cover recent developments and key events beginning with pamrevlumab. Juan Graham, our CFO, will then review the financials, after which we will open up the call for your questions.
Starting with Side 3. FibroGen is positioned to create significant value for patients and shareholders by executing on our 3 areas of focus. Number one, accelerating the development of pamrevlumab in 3 indications with significant unmet medical need: idiopathic pulmonary fibrosis, locally advanced unresectable pancreatic cancer and Duchenne muscular dystrophy. Number two, ensuring commercial success of roxadustat in patients with chronic kidney disease outside the US, while continuing to explore a path forward in the US. Number 3, increasing our research productivity to advance novel program, that leverage internal expertise and accessing external innovation for additional portfolio opportunities.
Let’s move to our clinical trials, focusing on pamrevlumab on Slide 4. Pamrevlumab is a wholly-owned asset in Phase 3 clinical trials for 3 highly important indications. As we said, IPF, LAPC, and DMD. Today, we announced completion of enrollment of our LAPIS Phase 3 study of 284 patients with locally advanced unresectable pancreatic cancer. We also completed enrollment of the LELANTOS-1 Phase 3 study of 99 patients with non-ambulatory DMD. In the next few weeks, we expect to complete enrollment of the ZEPHYRUS-1 Phase 3 study of approximately 340 patients with IPF. Our Phase 3 ZEPHYRUS study is largely based on our Phase 2 PRAISE study, which demonstrated a meaningful reduction of lung function decline. Each of these diseases represents an important unmet medical need. And collectively, they constitute a significant market opportunity. We expect multiple pamrevlumab data readouts in 2023 and an interim analysis of LAPC later this year.
I’d like to spend a few minutes highlighting our perspective on the significant opportunity we see with pamrevlumab in each of the three disease states beginning with IPF on Slide 5. With the diagnosed prevalence of approximately 330,000 patients across the US, EU, China and Japan, the two key medicines comprising the IPF market generated over $3 billion in net revenue in 2020. Despite these market size, there remain significant unmet need with these two approved therapies, as characterized by continued disease progression and challenging tolerability. There is a sentiment in the IPF community of limitations with the current therapies and a desire for additional therapeutic options.
Given the limited number of late-stage products in development, we believe pamrevlumab if approved is well positioned to take advantage of this opportunity. The Phase 3 ZEPHYRUS program reduces comparable results to the Phase 2 PRAISE trial, we believe pamrevlumab has the potential to help a sizable number of patients with IPF and we have very significant product for FibroGen.
Turning now to Slide 6 and the locally advanced pancreatic cancer opportunity. Non-metastatic pancreatic cancer represents one of the greatest unmet missing oncology given the diagnosed prevalence of almost 140,000 patients across the major regions, combined with a low 5-year disease free survival rate of around 10%. There have been limited treatment advances in the non-metastatic setting over the last 2 decades with therapies failing to demonstrate a survival benefits over the current standard of care. Similar to IPF there is limited late-stage development activity in non-metastatic pancreatic cancer which creates a meaningful opportunity for pamrevlumab if we can demonstrate an improvement in overall survival. As we said earlier, the LAPIS Phase 3 trial is fully enrolled and we look forward to seeing if pamrevlumab will provide an important new treatment option for patients.
Turning to Slide 7. We’ll wrap up the pamrevlumab section with a snapshot of the DMD opportunity. Given the devastating nature of DMD and the relentless disease progression, we’re hopeful that the LELANTOS clinical trial program can lead to an approved therapy that is so needed by the DMD community. With corticosteroids as the current standard of care, patients commonly deal with travelsome side effects as they continue to experience disease progression and loss of ambulation. With the currently approved exon-skipping therapies produce an increase in dystrophin levels, they only target a small proportion of DMD patients. There’s clearly need for therapies that can improve muscle function and prolong ambulation by targeting the downstream pathological changes of DMD. We believe the anti-fibrotic mechanism of pamrevlumab maybe a solution that can help these patients and their families.
Now let’s move to roxadustat on Slide 8. Following the European Commission approval of EVRENZO for the treatment of adult patients with symptomatic anemia associated with chronic kidney disease. Astellas has launched now in Germany, the United Kingdom, the Netherlands, Austria, and the Nordic countries. The early feedback from healthcare providers prescribing EVRENZO has been positive. The anemia of CKD opportunity in Europe is significant and EVRENZO has an important first mover advantage relative to other HIF-PHIs. Regarding roxadustat in the US, we and our partner, AstraZeneca are in discussions on a potential path forward in anemia CKD. In November, FibroGen and AstraZeneca met with the FDA and discuss next step following the advisory committee meeting. At this time, we are working together with AstraZeneca to determine those next steps.
Moving now to China. As you can see on Slide 9, we are reporting total roxadustat net sales to distributors in China of $32 million for the fourth quarter. The total net roxadustat to distributors in China for 2021 was $186.1 million, significant growth over the $72.5 million in 2020. As a result of the price reduction associated with the NRDL listing renewal, the roxadustat net sales for the fourth quarter of 2021 reflected a one-time adjustment driven by a revaluation of channel inventory. FibroGen’s portion of roxadustat net product revenue in China was $5.5 million for the 4th quarter and $47.6 million for the full-year 2021 on a US GAAP basis. Juan I will dive deeper into further detail in the finance update.
We have continued to see broad adoption across our 3 segments of hemodialysis, peritoneal dialysis and non-dialysis and continue to see strong performance of roxadustat in China. Since the launch of roxadustat in mid 2019, a primary focus of our commercialization efforts has been to secure hospitalists which is a right to be prescribed to the particular hospital. As of the end of 2021, who are listed in hospital that represent approximately 80% of the addressable anemia CKD market. Roxadustat was included in the 2021 NRDL with a meaningful reduction in price. However, we do expect roxadustat net sales growth for the full year in China driven by significant growth in volume.
As you can see on Slide 10, roxadustat continues to drive the expansion of the anemia CKD category and is capturing share in an expanding market. Roxadustat captured the large majority of the category growth for the 12 months ended December 2021 over the same period in 2020.
Finally, as shown on Slide 11, roxadustat is the number one branded treatment for anemia CKD in China for the past 12 months, achieving a value share of 36% in the most recent quarter within that segment. That includes all ESA products and roxadustat currently the only HIF-PHI in the market. We look forward to keeping you updated as we advance our long-term goal of making roxadustat the standard of care in treating China’s CKD anemia patients.
I will now turn the call over to our CFO, Juan Graham for the financial update. Juan?
Juan Graham — Chief Financial Officer
Thank you, Enrique. Well, 2021 was a difficult year due to the CRL outcome. I’m inspired by the positive energy and resilience of our team. I’m optimistic about the progress made on our pamrevlumab Phase 3 clinical trial recruitment and about the potential opportunity pamrevlumab represent for patients suffering from diseases such as idiopathic pulmonary fibrosis, locally advanced pancreatic cancer and Duchenne muscular dystrophy. In addition to providing patients with a therapeutic option in these diseases, pamrevlumab also presents a very attractive commercial opportunity for FibroGen. I’m confident we are well positioned for the future to deliver on our vision to bringing innovative medicines to patients and diseases of significant unmet need.
Now diving into our financials. As we announced today, full year revenue for 2021 grew by 33.5% to $235.3 million versus $176.3 million in 2020. Total revenue for the fourth quarter was $16.5 million as compared to $65 million for the same period in 2020. As we go deeper into our revenue performance, and as a reminder, we record four sources of revenue. First, license revenue, which is allocated from license payments and milestones earned for deemed probably of being earned in the period. Second, development revenue which is revenue from development expense reimbursement and revenue from other development activities. Third, net product revenue, which is the revenue from sales to the distribution entity jointly owned by AstraZeneca and FibroGen or JDE in China from which we recognize a transfer price as well as our direct sales to distributors.
And fourth, drug product revenue, which includes transfer price payments from our collaboration partners for our commercial-grade API or bulk drug product shipments to them. During the fourth quarter, we recorded $10 million in development revenue from our collaboration agreements associated with co-development efforts for roxadustat. During the quarter, we recorded $5.5 million net product revenue for roxadustat sales in China. This includes $3.1 million from our sales to the JDE and $2.4 million of direct sales FibroGen made to distributors.
It is important to note that based on the NRDL listing renewal, we have updated our estimates and reflected a cumulative downward adjustment in our revenue in the fourth quarter. Providing context for the operating results of our roxadustat business in China, we begin with total roxadustat fourth quarter net sales of $32 million which include sales through the JDE to its distributors and FibroGen China’s direct sales to our distributors. It is important to note that due to the NRDL listing renewal, fourth quarter total roxadustat net sales reflect the one-time inventory revaluation adjustment.
Despite this adjustment, total roxadustat net sales grew by 10% compared to $29.2 million for the fourth quarter in 2020. Focusing on FibroGen sales to the JDE as we have previously disclosed, starting in the first quarter of 2021, the JDE began selling roxadustat to distributors and paying for AstraZeneca’s commercialization efforts in China and AstraZeneca’s portion of the profit share. Previously FibroGen was responsible for these items. As per this agreement with AstraZeneca, FibroGen recorded a net transfer price from sales to the JDE which was $12.2 million for the fourth quarter.
As we have previously guided, this net transfer price lies within the 30% to 45% range of the JDE’s roxadustat net sales to its distributors. From this net transfer price, $9.1 million is deferred and will be recognized in future period. After this deferral, FibroGen recorded $3.1 million in net revenue for the quarter from roxadustat sales to the JDE. We continue to be encouraged by the growth of our China operations and we expect continued strong market penetration with our renewed NRDL contracts ’22 and beyond.
For the quarter, we did not have license revenue and drug product revenue was not significant. As we wrap up with revenue providing more texture to the fourth quarter revenue variance versus 2020, the major drivers in order of magnitude are: one, lower product revenue in China due to the change from FibroGen’s direct sales to distributor model transitioning to FibroGen sales to the joint distribution entity, which represents nearly 50% of the change. Two, lower license revenue due to a one-time milestone payment in the prior year period, representing roughly 30% of the change. And three, lower development revenue due to substantial completion of Phase 3 trials for roxadustat.
Now moving down to the income statement. During the fourth quarter, operating costs and expenses were $151.8 million compared to $123 million a year ago. The primary drivers of the change are R&D costs, driven by an increase in Phase 3 clinical trials including drug supply costs associated with our pamrevlumab programs and the HiFiBiO license. During the fourth quarter, net loss was $134.1 million or $1.45 net loss for both basic and diluted shares as compared to net loss of $58.6 million or $0.64 per basic and diluted shares for the fourth quarter last year. At December 31, we reported $590.4 million in cash, cash equivalents, investments and accounts receivable.
As we look forward, we estimate our 2022 ending cash, ending balance of cash, cash equivalents, investments and accounts receivable to be in the range of $270 million to $300 million. While we are appropriately financed, we are privileged with a wide array of options to consider as we continue to evaluate opportunities that would lead to strengthening our cash position and our balance sheet.
Thank you. And now I would like to turn the call back over to Enrique.
Enrique Conterno — Chief Executive Officer
In closing, we remain committed to advancing pamrevlumab as a potential first-in-class medicine in Phase 3 development in three indications with significant unmet medical need: idiopathic pulmonary fibrosis, locally advanced unresectable pancreatic cancer and Duchenne muscular dystrophy. Roxadustat continues to perform very well in China. Our partner Astellas is moving forward with commercialization of roxadustat in Europe. And we have multiple regulatory submissions and the review in other geographies.
FibroGen and our partner, AstraZeneca are in discussions to determine next steps in the US. As shown on Slide 12, we continue to have a strong financial position with approximately $590 million in cash and expect to end 2022 with $200 million to $300 million in cash. Additionally, we have multiple options to consider to further strengthen our balance sheet and cash position to ensure a long-term success.
Now I would like to turn the call back to the operator for questions. Justin?
Questions and Answers:
Operator
Thank you. [Operator Instructions] And our first question comes from Michael Yee from Jefferies. Your line is now open.
Unidentified Participant — — Analyst
Hi, this is [Indecipherable] for Mike Yee. Thanks for taking my question. So I guess two from here. So first one is, how are you thinking about the plans for roxa in the United States? And do you have a timeline in mind for the next steps? And could you also give some color on the potential scenarios for future regulatory process down the road? And maybe comment on the value proposition in the US as well.
And second one, could you also comment on roxa in China especially on recent price adjustment from NRDL appreciating that’s something that may occur every two years. So, wondering if you could comment on your strategy to drive more China sales to control pricing headwinds? And also please comment on the patent situation expectations, please. And how should we think about the tail value of roxa in China? Thank you.
Enrique Conterno — Chief Executive Officer
Very good. Thank you for your questions. I’m going to first ask Mark Eisner to comment on the first question about the US and potential scenarios there.
Mark Eisner — Chief Medical Officer
Yes, thanks for the question, Michael. It’s Mark Eisner here. So in terms of CKD in the US, we’re continuing to work with our partner, AstraZeneca and the FDA. Those discussions are ongoing. And we’re continuing to evaluate our options there. In terms of timelines on that, we should be able to provide more information in the upcoming weeks. In terms of regulatory down the road, I think I answered that one. So I’ll turn it back to Enrique.
Enrique Conterno — Chief Executive Officer
Chris, maybe you can provide a little bit about — little bit of color, when it comes to China, including any — how we’re thinking about volume growth and what are we doing to counteract some of the price decrease with the NRDL price, new price? And then also how — provide some color also on market exclusivity.
Christine L Chung — Senior Vice President, China Operations
Absolutely, Enrique. So as was expected, the NRDL pricing happens every 24 months. So this was certainly not unexpected. And the range of price cuts are also not unexpected. So the company and roxadustat had plans in place to really address the price cut with extension of duration of treatment and the lower out of pocket price, how we leverage that to expand the adoption in certain segments of the market in particular in NDD where affordability on the out of pocket basis might have been challenging for HIF as a class.
So we remain very optimistic about the outlook for 2022. We believe the increase in volume growth would offset the pricing and we are expecting topline growth in 2022 above 2021 despite the NRDL price cut. With respect to the patent situation, the patent it’s also are known. There are currently a couple of things going on in terms of the patent regulation in China. It is still unclear in terms of what the regulations might be with patent term extension. But we are doing some scenario planning and obviously there are different parties who are actively discussing with the government in terms of what might make sense to continue to encourage innovation in the People’s Republic of China, which is one of their major country strategy. So we remain optimistic in terms of what that situation might be.
Unidentified Participant — — Analyst
Thank you.
Operator
And thank you. And our next question comes from Annabel Samimy from Stifel. Your line is now open.
Annabel Samimy — Stifel — Analyst
Hi, thanks for taking my question. So just had a question about the MDS and the CIA indication. So I know that MDS indication is strong going, the CIA I guess still on hold. And so if you had any further thoughts about the risk benefit equation for that population? And are you — is it still wholly-owned or is it something that you could potentially monetize down the line? And then I guess for pamrevlumab, again are you considering any licensing of these programs? Are you going to stick with owning them thoroughly [Phonetic]. Thanks.
Enrique Conterno — Chief Executive Officer
Yes. Very good, thank you very much, Annabel. I’m going to ask once again, Dr. Eisner to comment on MDS and in particular, CIA and in particular to the benefit risk profile.
Mark Eisner — Chief Medical Officer
Sure. So, as you know, the study way through the MDS trial is ongoing. We’ve communicated that we should have top line results second half of this year, first half of next. We feel very excited about the potential there. We believe roxadustat could be a very efficacious therapy. But that’s why we’re doing the Phase 3 trial to evaluate that and provide a more comprehensive assessment of the benefit risk. In terms of CIA, we announced our Phase 2 completion not long ago in terms of Phase 3 planning those discussions are ongoing with our partner, AstraZeneca in the US and with our partner Astellas for Europe and their territories.
Enrique Conterno — Chief Executive Officer
I think you also asked Annabel whether MDS was fully owned or — MDS is part of the partnership agreements with both AstraZeneca and Astellas? In terms of, PAM I think, as we shared in the past, we do intend to launch pamrevlumab in the US as FibroGen and we are considering partnering outside of the US, outside of Canada.
Annabel Samimy — Stifel — Analyst
Thank you.
Operator
And, thank you. And our next question comes from Alex Ramsey from William Blair. Your line is now open.
Alexandra Ramsey — William Blair — Analyst
Hello, this is Alex on for Andy. I just had one question. In the 10-K, the company disclosed that it has received an SEC subpoena. I was just wondering if you could elaborate on that and give us a sense of procedurally how this inquiries will go?
Enrique Conterno — Chief Executive Officer
Yes, we’ve received the request for documents from the SEC. There is not much that we can say at this point in time other than we are collaborating with the SEC. And at the appropriate time we will basically update investors as we know more.
Alexandra Ramsey — William Blair — Analyst
Okay, great. Thanks so much.
Operator
And thank you. And our next question comes from Jason Gerberry from Bank of America. Your line is now open.
Unidentified Participant — — Analyst
Hey, this is Perry [Phonetic] on the line for Jason. Thanks for taking my questions. First I have a question about the CKD category expansion with ESA and HIFs in China. The current split is around, it looks like it’s around 70:30. How do you expect this to evolve over time? Do you expect it to — more become — improved towards a 50:50 split or, and do you expect that to happen as a result of category expansion overall or do you expect roxa to start eroding away at ESA directly based on clinical profile?
And then just one other question on the LAPIS study and the pancreatic cancer indication for Pamrev? Can you talk about the potential for accelerated pathway submission post the event free survival readout. Is there kind of a benchmark that you have to hit to really justify an accelerated pathway submission? Just want to get your thought process on that. Thanks.
Enrique Conterno — Chief Executive Officer
Very good. Thank you for the questions. I’m going to ask Thane and Chris to comment on the question about the category expansion in China and the split between ESAs and roxadustat HIF-PHIs and what we expect in the future. And then Mark, if you could offer your — some color on LAPIS event free survival and how are we thinking about that?
Christine L Chung — Senior Vice President, China Operations
Should I start?
Enrique Conterno — Chief Executive Officer
Sure.
Christine L Chung — Senior Vice President, China Operations
So, Thane, I will start and please supplement. So first of all, if we ask ourselves, why is there category expansion? The main idea behind here is, we believe the ESA market in China is not equivalent to the Anemia and CKD market. The CKD anemia market was under penetrated because of some of the constraints of ESA because of the safety profile or the fact that is it injectable and many other constraints, such as the need for intravenous iron to address inflammation. So the fact that we see category expansion is a direct evidence of the differentiation of the HIF class.
So if you ask yourself, will the HIF class eventually take over 100% of the ESA class, the question would be one price. And second, what are the sub-segments of the population where ESA continues to be sufficient. And what is the equation of price versus value. So in terms of a terminal number, I personally expect the HIF class to continue to help grow the category and increase the share of that category. It’s hard for me to guess what the terminal value would be, but I think there significant differentiation of the HIF class in non-dialysis because of the oral nature and the fact that we could reach target without routine chronic supplementation of iron for that home based population. Thane?
Thane Wettig — Chief Commercial Officer
Yes, thanks, Chris. Just a couple of additional points to make. If we take a look at the 12 months ending in 2021 versus the 12 months ending in 2020, roxadustat drove that substantial portion of the category growth. I think roxadustat portion of that was over 75%. And so we would expect that to continue. It will continue based upon the positive experience from clinicians and patients. And then what Chris referred to as well in terms of the renewal of roxadustat on the NRDL and greater affordability from a patient pocket perspective.
And so we do anticipate roxadustat to continue to capture a majority of that category growth. The final point is, is that we believe that the NDD category is largely untapped. Now the dialysis segment is very well defined, 90% plus patients who are in dialysis are receiving treatment for their anemia associated with their chronic kidney disease, but there is still substantial opportunity that remains in the NDD category and we think that the value proposition for roxadustat will continue to be tailor-made for more and more patients being treated for their anemia in that NDD population.
Enrique Conterno — Chief Executive Officer
Thank you, Thane. And Mark, maybe you can now address the LAPIS EFS question.
Mark Eisner — Chief Medical Officer
Sure. So just to remind everybody, we are planning an interim analysis based on event free survival, which is comprised of resection, lack of progression locally or distantly of disease and our freedom from mortality or survival. Based on the interim analysis, we do have a predefined threshold for efficacy that would be utilized to decide whether or not there is potential to file accelerated approval — to file a BLA from accelerated approval. And that would be a decision made after FDA feedback as well. So there’s a number of stuffs there that we would take to make that decision.
Enrique Conterno — Chief Executive Officer
Very good. Thank you.
Operator
And thank you. And I’m showing no further questions. I would now like to turn the call back over to Enrique Conterno for closing remarks.
Enrique Conterno — Chief Executive Officer
Very good. Thank you very much for everyone’s participation in today’s investor call and your interest in FibroGen. Enjoy very much the rest of your day. Bye-bye.
Operator
[Operator Closing Remarks]