FibroGen, Inc. — FY 2017 Form 10-K
Entity note: The source filing is for FibroGen, Inc. (NASDAQ: FGEN), not Kyntra Bio, Inc. It covers the fiscal year ended December 31, 2017, and was filed February 27, 2018. FibroGen is a clinical-stage biopharmaceutical company with no approved products or product-sales revenue.
Business context and reporting period
The company’s lead candidate, roxadustat, was in Phase 3 development for anemia in chronic kidney disease (CKD). Pamrevlumab was in Phase 2 development for idiopathic pulmonary fibrosis (IPF), pancreatic cancer and Duchenne muscular dystrophy (DMD). Roxadustat development and potential commercialization were partnered with Astellas and AstraZeneca; FibroGen was advancing pamrevlumab largely on its own.
Financial results and liquidity
| Metric | FY 2017 | FY 2016 |
|---|---|---|
| Revenue | $125.7 million | $179.6 million |
| Operating expenses | $248.3 million | $233.2 million |
| Operating loss | $122.6 million | $53.7 million |
| Net loss | $126.2 million | $61.7 million |
| Basic and diluted loss per share | $1.73 | $0.98 |
| Net cash from (used in) operations | $(66.5) million | $7.1 million |
- Revenue was entirely collaboration-driven in substance; the company reported no product sales. Operating and net loss margins were approximately 97.6% and 100.4%, respectively. Gross margin is not a meaningful disclosed measure for this development-stage business.
- R&D expense was $196.5 million, up 5% year over year; G&A was $51.8 million, up 12%. R&D spending included $125.1 million for roxadustat and $52.3 million for pamrevlumab.
- At year-end, cash and cash equivalents were $673.7 million and short- and long-term investments were $72.6 million, totaling $746.2 million. Working capital was $671.7 million. Management said available resources were expected to fund operations for at least 12 months from the filing date.
- FibroGen reported $97.8 million in long-term lease financing obligations on the balance sheet. Separately, scheduled future lease-financing payments totaled $84.8 million; these are different measures. Product-development obligations were $17.2 million, largely TEKES advances whose repayment depends on distributable funds and which may be forgiven under stated conditions.
- Financing cash flow included $471.2 million in net proceeds from two 2017 follow-on offerings. Shares outstanding rose from 63.7 million at year-end 2016 to 82.5 million at year-end 2017.
Material changes versus the prior comparable period
- Revenue declined 30% to $125.7 million. The comparison was affected by a $62.0 million AstraZeneca upfront payment and a $10.0 million Astellas milestone recognized in 2016, versus a $15.0 million China NDA-acceptance milestone in 2017. Revenue recognition was also spread over a longer estimated development period after the program expanded to include MDS.
- Operating expenses increased 6%, principally because of higher employee costs, pamrevlumab drug-substance manufacturing and stock-based compensation; lower outside-services and facility-related costs partly offset these increases.
- Net loss more than doubled, while operating cash flow shifted from $7.1 million provided in 2016 to $66.5 million used in 2017. The company attributed the cash use primarily to operating losses, partly offset in the reconciliation by non-cash expenses and working-capital movements.
- Fourth-quarter 2017 revenue was $42.5 million, operating expenses were $66.3 million and net loss was $22.1 million. The quarter’s revenue included the $15.0 million milestone.
Outlook, commentary and key risks
- Roxadustat: China Phase 3 primary efficacy endpoints were met in both dialysis-dependent and non-dialysis-dependent CKD studies; China accepted the NDA in October 2017. Management anticipated a China decision by year-end 2018. The U.S. program planned to complete enrollment in Q2 2018, report topline results in Q4 2018 and submit an NDA in H1 2019. These were expectations at the time of filing, not assured outcomes.
- Pamrevlumab: The Phase 2 IPF study met its primary lung-function endpoint, but larger controlled trials are needed to confirm results. A small, randomized pancreatic-cancer study reported interim signals in survival and conversion to resectable disease; the company planned to seek FDA feedback on a pivotal-trial design by mid-2018. The DMD study remained exploratory.
- Management expected losses and significant R&D spending to continue and potentially increase. Future funding needs depend on trial progress, regulatory requirements, collaborations, manufacturing and commercialization costs.
- Key risks include failure or delay in late-stage trials or regulatory approval; cardiovascular and other safety findings for roxadustat; reliance on Astellas and AstraZeneca; competition from ESAs, biosimilars and other HIF-PH inhibitors; pricing, reimbursement and dialysis-provider access; and manufacturing, regulatory and distribution execution in China.
- The company planned to adopt the new revenue standard in Q1 2018 using full retrospective application. Its then-current estimate was revenue increases of $5.3 million for 2017 and $3.6 million for 2016, a $8.4 million decrease for 2015, and a $35.2 million increase in opening accumulated deficit as of January 1, 2015; estimates remained subject to finalization.
- The Tax Cuts and Jobs Act effects were provisional at year-end. FibroGen recorded a $55.2 million reduction in deferred tax assets with a corresponding valuation-allowance reduction; it maintained a full valuation allowance on net deferred tax assets. The filing reported no material legal proceedings. The auditor issued an unqualified opinion and concluded internal control over financial reporting was effective.
Important facts for investors to verify
- Whether roxadustat’s U.S. and China trials, regulatory reviews and approval timelines progressed as management expected, including MACE safety results.
- Whether reported China NDA acceptance, manufacturing readiness, reimbursement access and AstraZeneca’s commercialization arrangements translated into approval and sustainable sales.
- Whether pamrevlumab’s Phase 2 signals are confirmed in adequately powered trials, and what the cost and funding requirements of pivotal studies will be.
- How long cash and investments can fund operations under actual operating cash burn, and whether further financing or dilution is needed.
- The final retrospective impact of adoption of the revenue standard, and the terms and status of lease-financing and TEKES obligations.