Good day, and thank you for standing by. Welcome to the FibroGen Second Quarter 2021 Financial Results Conference Call. At this time, all participants are in listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to turn the call over to Mr. Michael Tung. Please go ahead.

Thank you, Charlie. Good afternoon, everyone, and welcome to FibroGen's 2021 Second Quarter Conference Call. 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; Pat Cotroneo, our Chief Financial Officer; Dr. Mark Eisner, our Chief Medical 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 Pat, after which we will open up the call for Q&A. I would like to remind you that remarks made on today's call may include forward-looking statements based on FibroGen's current expectations. Such statements may include statements regarding to, but not limited to, our research and development activities; the initiation, enrollment, design, conduct and results of clinical trials; our regulatory strategies and potential regulatory results; anticipated FDA interactions; commercialization and results of operations; risks, plans, market opportunity and strategy related to our business; our collaborations with AstraZeneca and Astellas; financial guidance; and certain other business matters. Such forward-looking statements are subject to significant risks and uncertainties that could cause actual results to differ materially from those anticipated in such statements. For a discussion of these and other material risks and factors that could affect our future financial results and business, please refer to the disclosure in today's press release reporting our fiscal 2021 second quarter financial results and business update, our most recent Forms 10-K and 10-Q and reports that we may file on Form 8-K with the Securities and Exchange Commission. All our statements are made as of today, August 9, 2021, based on information currently available to us, and FibroGen does not undertake any obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Today's press release reporting our fiscal 2021 second quarter 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. With that, I would like to turn the call over to Enrique Conterno, our CEO. Enrique?

Thank you, Mike, and good afternoon, everyone, and welcome to our second quarter 2021 earnings call. Today, I would like to provide a high-level summary of important accomplishments and developments in recent months. Pat Cotroneo, our CFO, will then review the financials. After which, we will open up the call for your questions. There is no question we are facing a significant challenge given the recent FDA Advisory Committee vote. However, FibroGen continues to be positioned to create significant value for patients and shareholders by executing on the 3 areas of focus as shown on Slide 3. Number one, ensuring regulatory and commercial success of roxadustat, a transformational medicine for the treatment of anemia, first in patients with chronic kidney disease and also with significant potential for expansion to treatment of additional indications; number two, developing pamrevlumab in 3 indications with significant unmet medical need, locally advanced unresectable pancreatic cancer, Duchenne muscular dystrophy and idiopathic pulmonary fibrosis; and number three, strengthening research productivity by leveraging our leadership position, both in hypoxia inducible factor and connective tissue growth factor biology and by accessing external innovation. Today's call will include an update of the regulatory status of roxadustat, our continued strong performance in China, our clinical trial programs and recent corporate developments. Let us get started with roxadustat on Slide 4. In June, the CHMP of the European Medicines Agency adopted a positive opinion relating to the use of roxadustat for the treatment of anemia associated with CKD. We expect a decision from the European Commission by the end of August. In July, the FDA Cardiovascular and Renal Drugs Advisory Committee voted to recommend not approving roxadustat for the treatment of anemia of CKD. We and our partner, AstraZeneca, are in dialogue with the FDA and expect an action in the near…

Thank you, Enrique. As announced today, total revenue for the second quarter of 2021 was $24.4 million as compared to $42.9 million for the second quarter of 2020. The current quarter revenue consists of $13.4 million, net product revenue for roxadustat sales in China; $19.6 million in development revenue; and a negative $8.6 million in drug product revenue, which reflects our estimate of lower potential revenue from commercial batches shipped to date to AstraZeneca in the U.S. as a result of the recent unfavorable Advisory Committee vote. For the same period, operating costs and expenses were $158.2 million and net loss was $134 million or $1.45 per basic and diluted share as compared to operating costs and expenses of $128 million and a net loss of $85.3 million or $0.95 per basic and diluted share for the second quarter last year. Included in operating costs and expenses for the quarter ended June 30, 2021, was a onetime charge of $25 million related to our partnership with HiFiBiO and an increase of approximately $20 million, which is primarily in pamrevlumab development expenses as compared to the second quarter last year. Operating costs and expenses for the quarter also included a noncash charge of $19 million for stock-based compensation expense as compared to $17.6 million for stock-based compensation expense for the same period in the prior year. At June 30, FibroGen had $640.5 million in cash, cash equivalents, restricted time deposits, investments and receivables. As we have previously disclosed, starting the first quarter of 2021, the jointly owned distribution entity between AZ and FibroGen or the JDE began selling roxadustat to distributors and pain for AstraZeneca's commercialization efforts in China and AZ's portion of the profit share. Previously, FibroGen was responsible for these items. To provide context for the operating results of…

Thank you, Pat. And in closing, roxadustat continues to perform very well in China. We expect a decision in Europe by the end of August, and we have multiple regulatory submissions under review in other geographies. Pamrevlumab is a potential first-in-class medicine in Phase 3 development in 3 indications with significant unmet medical need, locally, advanced unresectable pancreatic cancer, Duchenne muscular dystrophy and idiopathic pulmonary fibrosis. Finally, we continue to advance our research agenda by advancing our internal candidates and accessing external innovation like the HiFiBiO deal. As shown on Slide 12, we continue to have a strong financial position with approximately $641 million in cash and another $120 million in anticipated roxadustat milestone payments expected during 2021, assuming EU approval later this year. Now I would like to turn the call back to the operator for questions.

[Operator Instructions]. Your first question comes from the line of Michael Yee with Jefferies.

We just wanted to ask you about how to think about the upcoming next steps after whatever FDA decision comes. I mean I think it's safe to say that the market assumes a negative decision. And if that's the case, how should we expect the ongoing partnership with AstraZeneca to progress? And are you having discussions that would include all options on the table? Maybe just talk to that because I think that that's what people are trying to figure out what the next step will be in the U.S.

Yes. Clearly, I want to ensure that we don't get ahead of any FDA action. But clearly, you have to assume that we're planning on all scenarios here. And it's going to, of course, based on our discussions -- and we've had some discussions with both the FDA and AstraZeneca, we need to -- we've been working basically to try to understand a potential path forward here. We expect a decision -- I think it's difficult to say. We have not been given a timeline for that. But I think you witnessed the outcome just like we did. Of course, we were quite disappointed and surprised with the vote, how that discussion turned out and the final outcome of the vote. Clearly, under a scenario of a complete response letter, we'll need to see what the details are for that complete response letter and make decisions appropriately. But there's no question under any of those scenarios, we will have to make significant reallocation of resources and corresponding reduction in expenses with that. As I mentioned, we are expecting a decision in Europe by the end of this month. So we are excited about that. I don't know, Mark, if you want to make any additional comments?

No. Thanks, Enrique. I think you summarized it well. I mean we're working collaboratively with FDA and AstraZeneca to find the path forward, and we await the FDA's decision and next steps.

Your next question comes from the line of Annabel Samimy with Stifel.

Thanks for taking my questions. And I apologize if I missed the initial comments. But maybe you can sort of talk to us about the chemotherapy-induced anemia studies. I saw that they were completing in clinicaltrials.gov. Can you tell us when and what form of that data might be reporting out? And is there anything that you can pull from these studies that might help you address some of the issues that you came across in the dialysis and the nondialysis CKD studies? And yes, that's essentially my question. I'll wait to follow up…

So we've really finalized the Phase 2 study for chemo-induced anemia. And at this point in time, we're expecting to report top line data imminently. I'm going to ask maybe Mark Eisner to provide some more color on whether any of these data can help any type of discussions with the FDA or how do we think about this data.

Yes. So thanks. It's an interesting question. I think the short answer is no. I mean chemotherapy-induced anemia and CKD are very different indications, very different patient population. So I don't see CIA informing the CKD decision or the assessment there. That said, we feel -- we're looking forward to see the top line data, the Phase 2 data, looking forward to sharing those shortly and thinking about what the pathway could be for CIA as an indication.

Okay. Great. And if I could just ask on -- obviously, it was clear from the panel that the physicians want to see a titration study, not a simulated modeling study of what titration can do. Given that these thrombotic events occur earlier in treatment, do you think that a titration study would be relatively short? Is this something that could be conducted rapidly? Or am I thinking about this incorrectly?

Mark?

Yes, thanks for the question. Just to start out to say that we believe that the benefit/risk of roxadustat for the treatment of CKD anemia in both the NDD and DD populations is favorable with the dosing regimens that we studied in Phase 3. But we did collaborate with FDA on some analyses, as you know, looking at rate of rise of hemoglobin and a relationship with thrombotic events. And we do believe that starting at a lower starting dose of roxadustat and titrating up will be a very reasonable approach to treating patients and mitigating the risk. We actually don't believe another trial is needed to prove the hypothesis. It's well established in the ESA field over the last 2 or 3 decades, and we think the same applies with roxadustat. In terms of what study the FDA may or may not ask us to do, this remains an open question. And I think it's difficult to speculate right now, and we're just waiting for input from the agency on that.

Your next question comes from the line of Geoffrey Porges with SVB Leerink.

I was just wondering, could you tell us whether there's been any correspondence from the EMA since the AdCom requesting additional information or analysis? Or is the file that you originally submitted the only information you've been asked to provide? And then secondly, just in terms of the expenses, I think by the end of the year, it looks like you have about $460 million, $470 million in net cash, and you had a burn rate this quarter of $134 million. I know there were onetime items in that burn rate, but it looks as though, by the end of the year, you might have 1 year to 1.5 years of cash left. What are the options you have to significantly reducing the company's cash burn so that you don't need to refinance the company at this greatly impaired valuation level?

Mark, do you want to discuss the first part of the question, I'll discuss the burn rate.

Sure. So the question is, since the AdCom, has there been any communication from or to EMA? The answer to my knowledge is no, there's been none. And we don't anticipate any impact on the European Commission decision in August.

Yes. On your question about the burn rate, we -- first, I think we have no intention of raising money. I think we have, as I mentioned, a number of scenarios that we're working on. Clearly, under a scenario of a complete response letter, we would need to basically reassess our priorities and reallocate our resources and significantly decrease expenses. There are a number of plans that we have to ensure that we can deliver value for shareholders. And clearly, under that scenario -- yes, we do have roxadustat in China, in a number of markets. And keep in mind that China is now basically profitable. And in the rest of the markets, we do not -- we are reimbursed for any expenses. So we do not have any expenses when it comes to both commercial and development expenses. We will be getting a royalty. And of course, we need to ensure that we can get to the readouts of pamrevlumab as soon as possible. So that's priority one. But yes, there's no question that we have to ensure that we are going to be able to basically bridge for us to be able to see the data and be able to launch pamrevlumab.

Your next question comes from the line of Edwin Zhang with H.C. Wainwright.

On China revenue, can you help us understand why the net roxa revenue that the FibroGen booked this quarter was $2 million less than last quarter, while the total net revenue and hospital listings were actually both increasing? Also, do you expect any roxa pricing pressure in the coming -- upcoming NRDL negotiation in China? And then I have a follow-up.

Yes. I'm going to ask maybe Pat to comment on the first question on the net revenue, the FibroGen booked $2 million less while the overall sales to distributors basically continuing to increase. By the way, of course, we see the overall net sales to distributors as really the fundamentals of the business and one thing to be able to look at. We'll have Pat Cotroneo, our CFO, address that question. And then we'll have Chris talk about the NRDL and what are our expectations there.

Thank you, Enrique. Thank you for the question. To start, just as a reminder, as I mentioned in my prepared remarks, we have deferred revenue, and this is from adjustments to our net transfer price to reflect U.S. GAAP. These adjustments are required for accounting purposes because we have manufacturing and supply obligations to the JDE over an estimated performance period. So what you're seeing here is just a deferral of a portion of the revenue to latter years. And as -- accordingly, we deferred $3.9 million in Q1 of 2021 and then approximately $5.4 million in Q2 of 2021. So this is strictly related to performance obligations and the GAAP requirements under revenue recognition rules. Chris?

Chris, can you comment on the NRDL?

Absolutely, Enrique. So with regard to NRDL, as to the question of whether there will be a change in pricing starting next year, the answer is yes. Per the rules of NRDL, every single 2 years the price is renegotiated. As you know, last time we entered NRDL in January 1, 2020, and we will have a new price for 2022 January 1. The direction of these negotiations is always downward, so it's not a question of whether, but how much. There is a very well-established process in terms of how prices are determined. It's typically based on clinical value, and we stand behind the clinical value demonstrated by roxadustat. And as you have seen in the very strong sales in the last couple of quarters, we also have very strong key opinion leader support from clinical key opinion leaders, pharmacologists and pharmacies. Finally, FibroGen and AstraZeneca believe that we're uniquely positioned as an innovative drug to deliver value not just to patients but to the health care system. So we remain optimistic in terms of what the pricing outcome might look like in Q4 this year.

Great. I have a follow-up on the U.S. I was also wondering what's your future plan on roxa in CKD anemia in the U.S.? Are you willing to do additional safety studies and prepare for resubmission some years later? Or would you rather drop the CKD anemia indication in the U.S., assuming roxa won't receive FDA approval?

Yes. As we mentioned, we don't want to speculate on the action by the FDA. And of course, if we were to get a complete response letter, what would be the terms of that complete response letter. So it's difficult to comment on your question without having the action and any potential specifics there.

Your next question comes from the line of Yaron Werber with Cowen.

I have a couple of questions that are interrelated, Enrique, if I can. The first one, just given valuations in China right now and companies in China that are dual-listed or listing in Hong Kong, has there ever been a discussion to see whether you should spin out the China sub into its own independent company and sort of rerate the valuations there? And then secondly, depending on which way FDA goes here from something small to a whole new study and a much more complicated development path, and in case AZN decides that this might not fit in with their strategy, can they exit the partnership in the U.S. but remain intact with you in China? Or is it a one size fits all?

Yes. Clearly, when it comes to China, we think that we have a meaningful business in China and meaningful capabilities as shown by the type of results and performance that we're basically getting there. And yes, we are looking at -- and we've looked at all options, and we're looking at all options in China to ensure that the value that we have there is basically better reflected on our share price. So that's something that we are very much looking at. When it comes to the partnership, the partnership with both Astellas and AstraZeneca is very collaborative at this stage despite the very negative outcome of the AdCom that we had in the U.S. And I expect that that's going to continue to be the case. We clearly want to see the FDA action, and we do have additional indications that we're pursuing. Keep in mind that MDS is a Phase 3 trial ongoing, and we are about to see the CIA data. And of course, based on that underlying data, we will be making a decision about how do we proceed with that indication.

Your next question comes from the line of Andy Hsieh with William Blair.

So one of the take-home messages from the AdCom is that there is tremendous interest from the physician community about the hyporesponders. So I'm not asking about making projections, but I want to understand the collaboration framework. So let's say, hypothetically, if the parties decide to go forward with that study, how is the decision being made? Is there like a joint steering committee across the 3 companies to make a go and no-go decision? And then also, I guess, from a financial perspective, is there additional cost from the FibroGen standpoint on R&D or you have already hit the limit? Yes. And then the second question I have for Chris. Looking at Slide #8, it seems like the ESA market in China is growing, and then it seems like you're basically growing both the ESA and, obviously, roxadustat. I'm just curious if you can comment on the dynamic. Are you kind of growing the market? Or is there also some element of switching from ESA?

Yes. Maybe just -- let me try to address the question about FibroGen's expenses when it comes to commercial or development expenses for roxadustat. As I mentioned, outside of China, we have no expenses related to roxadustat, either on the commercial or development side. So we are fully reimbursed, and that will be the case as well if we were to pursue additional trials. I'm going to ask maybe Mark to comment on the governance that we have, how our decision is made when it comes to additional trials. In particular, I think there was this question about trials in ESA hyporesponders. Mark?

All right. So the ESA hyporesponder group, I mean, you're quite right, several members of the Advisory Committee noted that there was a high unmet need for patients and were intrigued by our data, both in patients with high systemic inflammation and functional iron deficiency that actually we have some data that do suggest roxadustat as effective in ESA hyporesponders. If we were to embark on another trial, it would be a joint decision between FibroGen and AstraZeneca, and FibroGen and Astellas. I mean we have joint steering committee governance at the higher level, and we have governance at a more team level on both -- with both companies, and we aim to make decisions that are good for the tripartite and that everyone is aligned on. So we do have good governance procedures in place, highly collaborative relationships with both companies. And once we know what the FDA's expectations are, we'll be in a good position to move forward.

And Chris, if you could comment on roxa in China, whether it's just growing the market or is also there's -- you're just capturing new patients versus just switching. I don't know if you could provide some additional color to that.

Absolutely, Enrique. So the answer to the question is, it is both. The category of ESA and HIFs together in the class of anemia treating agents is growing. It's growing because there is increased awareness of the importance of treating the disease. The class share of HIF is also growing, and we are seeing conversion of patients from ESA to HIF.

Your next question comes from the line of Difei Yang with Mizuho.

I'm just curious how do the Chinese doctors react to clearly a split opinion between the EU regulatory agency versus the U.S.? And do you expect this discrepancy will eventually lead to some changes in the demand for roxa in China?

I'm going to ask Chris to maybe comment on the reaction in China, and I would try to complement Chris' comments.

Absolutely. China has a slightly different patient population than what was covered in the global trials. And based on our historical Phase 3 experience as well as real-world evidence based on 2.5 years of on-market use in China, our Chinese key opinion leaders are seeing slightly different event rates. At this point in time, we're not seeing any over-concern by our key investigators and key opinion leaders and HCPs about the U.S. regulatory guidance based on the AdCom. As you know, every single health authority makes its own sovereign decision. FibroGen China sought approval of China based on a domestic Class 1.1 pathway, which meant that the data was only based on China data. And to date, our real-world evidence is consistent with that experience. So at this point in time, we're not expecting any impact or any significant impact on prescription levels and continued wide spread adoption of roxadustat in China based on the AdCom outcome.

I think it's fair to say we -- as far as the AdCom, we shared some data on real-world data and when it comes to pharmacovigilance in China. And as we saw some of the reported rates in the real world when it comes to thrombosis, for example, were very, very low.

And then my other question is related to the delays in some of the trials, more specifically the MDS trial as well. I'm sorry, let me -- yes, it's the MDS trial as well as the DMD trial. And so could you give us a little bit more color of what's causing this? Is it a slow enrollment? Or is it something else?

Yes, we will provide a little bit of comment. It is really related to enrollment. And of course, enrollment is also impacted by current conditions. And we are seeing right now conditions that are more challenging due to COVID. So some of the COVID concerns. And clearly, that creates a bit of a disproportionate impact when we look at our trials in 3 patient populations, MDS, DMD and IPF. And the current timeline that we provided assume that these current conditions basically continue on. Mark, would you like to share more color?

Sure, Enrique. And I agree with the comments about COVID. I mean for MDS, as you know, I mean it's a rare disease. It's a 52-week placebo-controlled period. So it's challenging to find the patients to enroll. We have opened up more than 40 additional sites around the world, and we are seeing increases in enrollment in those sites. So we're making every effort to enroll the MDS trial. And the way I would characterize it as it's just there's a lot of uncertainty around the enrollment rates month-to-month, and we are pushing very hard, though, and working very collaboratively with our investigators to enroll those trials. I mean DMD, similarly a very rare disease, these are young kids, in many cases. And the COVID situation looms large for the parents of those children and those children. So again, we're trying very hard to make those trials as user-friendly as possible and doing everything we can to enroll those. On the positive side, I mean, the pamrevlumab LAPC trials are actually enrolling very, very well, which I think speaks to the high unmet medical need in that condition and the excitement around pam for those conditions. So that's very favorable. And the ZEPHYRUS-1 IPF timeline, we've announced for the first time publicly because we are making very good headway with enrollment there despite COVID, adding additional sites, working closely with the sites to enroll those patients. And also with the Galapagos, Gilead discontinuation, we've been working to try to capture the patients who otherwise would have been candidates for those trials into our trial. So that's looking pretty good right now.

Your next question comes from the line of Paul Choi with Goldman Sachs.

This is Charlie on for Paul. I just had a quick one the upcoming European decision and subsequent events. How are conversations going with partner Astellas for the region? Are they talking about their commercialization strategies pending the approval with the EMA? Are they going to be focusing on certain countries at this point? And are they incorporating any sort of kind of virtual or remote marketing efforts considering the potential threat for further COVID lockdowns later this year?

Very good. I'm going to ask our Chief Commercial Officer, Thane Wettig, to provide some comments on the commercialization strategies in Europe, whatever we can share, Thane.

Yes. Thanks, Enrique, and thanks, Charlie, for your message. Unfortunately, we're not going to be able to comment very much. Astellas, as you can imagine, is in a highly competitive situation. There are certain things that they're not going to disclose, and we can't disclose on their behalf. I think what you could assume is that relative to a European launch, it's going to take the form of other products that we would be launching in Europe. So the traditional markets that are first to launch will be the traditional markets that will be first to launch for roxadustat in Europe as they then work through the other markets from a pricing and reimbursement perspective. Needless to say, there's a lot of excitement because we do have a really nice competitive advantage in the EU from a timing perspective. And I think you can rest assured that Astellas is going to take full advantage of that.

One -- just to remind everyone that Astellas has guided to revenue of $80 million for fiscal year 2021. That $80 million, it was converted at the exchange rates at the time from yen. About half of that was Japan, if I recall correctly, and about half of that was -- for Astellas was basically Europe outside of Japan. So that's -- and the Astellas also provided, as part of their strategic review, an overall peak sales expected for the product which, once again, I'm translating from exchange rates at that time, but they were somewhere between US$0.5 billion to US$1 billion in peak revenue when we look at the Astellas territories.

Your next question comes from the line of Jason Gerberry with Bank of America.

This is Terry on the line for Jason. I have another regarding the CHMP opinion. Is there any risk that it doesn't stick? And additionally, what are the next steps from a regulatory standpoint? And when could we expect to get a label in Europe?

As I mentioned, we're expecting a decision this month. We are expecting a European Commission decision. Clearly, the scientific body assessed roxadustat as having a clear benefit/risk profile. Keep in mind that many of the items that were discussed here were discussed as part of the review in Europe. And I'm going to ask maybe Mark to maybe make a few additional comments.

I think the point Enrique made is a key one, which is the CHMP has already reviewed the efficacy and safety issues that have been up for discussion in the U.S. and issued a positive opinion. We think the European Commission decision will be positive. We don't expect an influence of the U.S. FDA's outcome on that decision. In terms of the next steps for regulatory in Europe, I believe it's just waiting for that EC decision. And then that's the point in time where the product insert, the [SmPC] in Europe will become available. So that's basically the regulatory situation in Europe.

We have no further questions at this time. I will now turn the call back to our presenters for closing remarks.

Very good. I just want to once again just thank everyone for participating. We very much appreciate your participation today in the investor call and your interest in FibroGen. Please enjoy the rest of your day. Thank you very much.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.