Business context and reporting period
The supplied filing is FibroGen, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2017; it does not identify Kyntra Bio, Inc. FibroGen is a clinical-stage biopharmaceutical company. Its lead candidate, roxadustat, was in Phase 3 development for anemia in chronic kidney disease (CKD); pamrevlumab was in Phase 2 development for several indications, including idiopathic pulmonary fibrosis (IPF), pancreatic cancer and Duchenne muscular dystrophy.
Financial results and position
Amounts below are in millions of dollars except per-share data. The filing reports no product-sales revenue; revenue was substantially from Astellas and AstraZeneca collaboration agreements.
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Total revenue | $29.0 | $89.3 | $55.9 | $117.6 |
| Operating expenses | $60.4 | $62.8 | $118.7 | $117.8 |
| Operating income (loss) | $(31.4) | $26.5 | $(62.8) | $(0.3) |
| Net income (loss) | $(33.2) | $24.3 | $(66.3) | $(3.5) |
| Basic and diluted EPS | $(0.48) | $0.39 / $0.35 | $(0.99) | $(0.06) |
Operating margin was approximately (108%) in Q2 and (112%) for the first half of 2017, versus 30% and approximately 0%, respectively, in the comparable 2016 periods. Net margin was approximately (114%) and (119%) in 2017. These are calculated from reported operating results and revenue; the filing does not present a gross margin, and product sales had not begun.
- Research and development expense was $47.0 million in Q2 and $93.7 million for the first half; general and administrative expense was $13.4 million and $25.0 million, respectively.
- Net cash used in operating activities was $46.9 million for the first half, compared with $27.4 million provided in the prior-year period. Investing activities provided $40.3 million, largely from securities sales and maturities; financing activities provided $123.0 million, primarily from the April offering.
- At June 30, cash and cash equivalents were $290.3 million; short- and long-term investments totaled $108.3 million; accounts receivable was $8.9 million. Together, these totaled $407.5 million. Current assets were $371.3 million and current liabilities $59.8 million.
- Total liabilities were $293.3 million. The balance sheet reported $97.5 million of long-term lease financing obligations and $16.3 million of product development obligations; no conventional borrowings are separately listed.
- Accumulated deficit was $536.1 million. FibroGen had 70.969 million common shares outstanding at June 30 and 71.195 million at July 31, 2017.
Material changes versus the prior comparable period
- Revenue fell 68% in Q2 and 52% in the first half. The principal comparison was against Q2 2016, which included a $62 million AstraZeneca payment and a $10 million Astellas milestone, neither repeated in 2017. Revenue recognition under the AstraZeneca agreements also declined after the estimated joint development service period was extended through 2020 to include MDS development.
- Q2 operating expenses decreased 4%, mainly due to lower drug-development and outside-services costs, partly offset by higher compensation, stock-based compensation and legal costs. First-half operating expenses rose 1%; higher roxadustat clinical-trial costs and compensation were partly offset by lower manufacturing, outside-services and property-tax costs.
- The first-half operating cash outflow contrasted with positive operating cash flow in 2016, when deferred revenue increased by $15.1 million. In 2017, the company raised $115.1 million net in an April follow-on offering.
Outlook, management commentary, risks and unusual items
- Management said existing cash, investments and receivables were expected to fund anticipated cash requirements for at least the next 12 months, while cautioning that actual needs could arise sooner. The company expected continuing losses and anticipated increased R&D spending as programs advanced. It had not generated product-sales revenue.
- Management anticipated a U.S. roxadustat NDA filing in 2018 and expected to complete the China CKD Phase 3 submission process in Q3 2017. Planned MDS trials were expected to start in the U.S. in Q3 and China in Q4 2017. These are company expectations, not guarantees.
- FibroGen reported topline results from a 103-patient, 48-week Phase 2 IPF trial: the mean decline in FVC percent predicted was 2.85 with pamrevlumab versus 7.17 with placebo, a statistically significant difference of 4.33; mean FVC decline was 129 mL versus 308 mL, a significant difference of 178 mL. The filing described the treatment as generally well tolerated. Combination safety sub-studies were also reported, but the results require further verification and do not establish approval or commercial success.
- The FDA granted pamrevlumab orphan drug designation for pancreatic cancer. The company expected surgical-assessment data from its pancreatic cancer study in Q4 2017 or Q1 2018.
- FibroGen planned to adopt the new revenue standard in Q1 2018 using the full retrospective method. It warned that milestone accounting would change and could defer revenue, while its evaluation of the effect was still underway.
- Risks include clinical-trial and regulatory uncertainty, reliance on Astellas and AstraZeneca for roxadustat development and commercialization, funding needs, manufacturing and China-operating risks, competition, and reimbursement uncertainty. European patent opposition outcomes remained uncertain: an initial decision against one patent was under appeal, while another patent was maintained. The filing said these proceedings would not affect roxadustat exclusivity or freedom to operate for its anemia use.
- The company reported no material legal proceedings, no material change in contractual obligations, and effective disclosure controls as of June 30, 2017. It stated that there had been no material change in market-risk exposure.
Most important facts for investors to verify
- Confirm the filing identity: this is FibroGen, Inc.’s 10-Q, not a Kyntra Bio filing.
- Review the full roxadustat Phase 3 safety and efficacy data, regulatory timelines and any subsequent changes to the expected U.S. or China submissions.
- Verify whether the reported pamrevlumab IPF topline results are confirmed in full trial data and subsequent controlled studies.
- Assess the expected revenue-recognition impact of adopting the new revenue standard, including the planned retrospective restatement.
- Track operating cash use, collaboration-partner funding and the company’s stated 12-month liquidity outlook; the filing notes that forecasts depend on assumptions.
- Monitor the European patent appeals, manufacturing readiness, and any developments affecting collaboration agreements or China regulatory plans.