FibroGen, Inc. — Form 10-Q Summary
Reporting period: Quarter ended June 30, 2019; filed August 8, 2019. The supplied filing is for FibroGen, Inc. (Nasdaq: FGEN), not Kyntra Bio, Inc. FibroGen is a clinical-stage biopharmaceutical company developing roxadustat, pamrevlumab and other candidates.
Financial performance and position
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $191.6 million | $44.0 million | $215.4 million | $75.9 million |
| Operating expenses | $78.7 million | $67.2 million | $151.5 million | $139.7 million |
| Operating income (loss) | $112.8 million | $(23.2) million | $64.0 million | $(63.8) million |
| Net income (loss) | $116.0 million | $(23.4) million | $70.6 million | $(64.8) million |
| Diluted earnings (loss) per share | $1.26 | $(0.28) | $0.77 | $(0.78) |
| Operating cash flow | Not provided by quarter | $(6.2) million | $(66.9) million |
- Revenue was largely collaboration revenue, not product sales. Q2 included $129.5 million recognized against two Astellas regulatory milestones and $41.6 million against an AstraZeneca regulatory milestone; the related $130 million and $50 million milestones were not yet billable pending planned regulatory submissions.
- No product-sales gross margin is reported; FibroGen said it had not generated revenue from approved-product sales. Profitability in the period was therefore heavily affected by milestone accounting and should not be viewed as evidence of recurring product earnings.
- At June 30, cash and cash equivalents were $74.6 million; short- and long-term investments totaled $597.1 million; accounts receivable was $6.5 million. Total assets were $915.1 million and total liabilities $266.8 million. The company reported an accumulated deficit of $637.2 million.
- Finance lease liabilities were $55.9 million, with $0.9 million of operating lease liabilities. The filing does not identify conventional borrowings as a material debt balance. Product development obligations were $16.8 million.
- Operating cash use was modest despite reported net income, in part because of working-capital movements, including unbilled milestone assets and lower deferred revenue. Cash declined $14.7 million during the first half. Cash, investments and receivables together were $678.1 million at quarter-end, down $62.8 million from year-end.
Material changes versus comparable periods
- Q2 revenue rose 336% year over year and first-half revenue rose 184%, mainly from recognizing the planned U.S. NDA and European MAA milestone consideration. These were recognized when management concluded in Q2 that the milestones had become probable of achievement.
- Q2 net income compared with a loss in Q2 2018; first-half net income compared with a first-half loss. The change was principally revenue-driven, while operating expenses increased 17% in Q2 and 8% for the first half.
- First-half R&D expense fell 6% to $102.5 million, largely reflecting lower roxadustat trial activity as Phase 3 trials substantially completed, partly offset by increased pamrevlumab activity and other costs. SG&A rose 60% to $48.9 million, including China launch preparation and co-promotional spending.
- FibroGen adopted lease accounting standard ASC 842 in January 2019, recording right-of-use assets and lease liabilities and changing the accounting for building leases. The adoption did not materially affect reported operating results or cash flows.
Outlook, commentary and risks
- Management planned to submit the U.S. roxadustat NDA in October 2019; Astellas planned a European MAA submission during the second half of its fiscal 2019, ending March 31, 2020. Japan’s dialysis NDA was under review, with a decision expected in the second half of 2019.
- The company expected to launch roxadustat in China in Q3 2019 and expected non-dialysis CKD patients to be added to the Chinese label in Q3. FibroGen said its existing financial resources were expected to cover at least 12 months from the filing date, while cautioning that assumptions could change and additional funding might be needed.
- FibroGen expected losses and spending to continue as it advances candidates, seeks approvals, expands China operations and develops pamrevlumab. It anticipated increased R&D as pamrevlumab advances in Phase 3 and higher commercialization-related costs.
- Key risks include regulatory review and cardiovascular safety analysis for roxadustat; clinical-trial outcomes and development costs for pamrevlumab; China pricing, reimbursement, hospital access and launch execution; reliance on Astellas and AstraZeneca; manufacturing and supply capacity; competition; and patent disputes. The filing describes ongoing challenges to certain European patents, with appeals pending, while stating that the company believes the challenges will not affect roxadustat exclusivity or freedom to operate.
- Management reported effective disclosure controls as of June 30, 2019 and no material legal proceedings. The filing gives no formal financial guidance.
Important facts for investors to verify
- Whether and when the planned FDA NDA and EMA MAA submissions occurred, and whether the milestone amounts were subsequently billed and collected.
- Regulatory outcomes and safety findings for roxadustat, including the cardiovascular analyses and China label expansion.
- China launch progress, reimbursement and hospital access, commercial sales, and related costs under the AstraZeneca collaboration.
- Enrollment, milestones and results for pamrevlumab Phase 3 programs, and the funding required to advance them.
- Cash conversion and burn excluding non-recurring collaboration milestone recognition; also monitor unbilled contract assets and deferred revenue.
- Lease obligations, collaboration-partner commitments, potential financing needs and developments in the patent proceedings.