Hello. Thank you for standing by. Welcome to the FibroGen Third 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] Please be advised that today's conference call is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Dr. Michael Tung. Please go ahead.

Thank you, Josh. Good afternoon, everyone, and welcome to FibroGen's 2021 third 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; 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 may include forward-looking statements based on FibroGen's current expectations. Such statements may include statements regarding, 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 third 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, November 9th, 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 third 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?

Very good. Thank you, Mike and good afternoon everyone and welcome to our third quarter 2021 earnings call. Today, I would like to provide a high-level summary of important accomplishments and developments in recent months. I would also like to welcome and introduce our newly appointed CFO, Juan Graham, who will review the financials. We will then open the call for your questions. I also want to thank Pat Cotroneo, who stepped down as CFO in September and who worked at FibroGen for 21 years. Under his leadership, FibroGen transitioned from a private to public company and from a development stage to commercial-stage company. Pat will serve as Executive Adviser through March 2022 to ensure a smooth transition. Today's call will include an update of the regulatory status of roxadustat and our continued strong performance in China. So, why don't we get started? Let's get started with roxadustat on slide three. In August, the European Commission approved EVRENZO for the treatment of symptomatic anemia associated with chronic kidney disease. Astellas has launched in Germany, the United Kingdom, Netherlands, and Austria, and the early feedback from healthcare providers is positive. The anemia of CKD opportunity in Europe is significant, and EVRENZO has an important first-mover advantage relative to other HIF PHIs. The recent FDA completed response letter we received for roxadustat for the treatment of anemia of chronic kidney disease, however, represents a major setback. We and our partner, AstraZeneca, are in discussions on a potential path forward in anemia of CKD, and we have an additional meeting with the FDA scheduled. In China, we reported another strong quarter of roxadustat performance. Finally, last week, we and our partners, Astellas and AstraZeneca presented 15 poster presentations related to roxadustat on CKD at the ASN Kidney Week 2021 Virtual Conference. Moving now…

Thank you, Enrique and appreciate the welcoming words as I join the team. Before jumping in, let me start by stating how excited I am to be joining FibroGen. I'm looking forward to supporting the organization and our vision of developing and commercializing innovative medicines in areas of significant unmet need in addition to delivering value to our shareholders. I also want to extend my thanks to Pat Cotroneo for his leadership and contributions to the organization for the last two decades. Now, getting into our results for the quarter. As we announced today, total revenue was $156 million for the third quarter of 2021 as compared to $44 million for the same period in 2020. Before diving 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 or deemed probable of being earned in the period. Second, development and other revenue, which is revenue from development expense, reimbursement, and revenue from other development activities. Third, net product revenue, which is revenue from direct sales to distributors and sales to our joint distribution entity or JDE in China from which we recognize a transfer price. And fourth, drug product revenue, which includes transfer price payments from our collaboration partners for our commercial-grade API for bulk drug product shipments made to them. In the third quarter, revenue includes a total of $120 million in milestone payments from Astellas related to the European Commission approval of roxadustat or EVRENZO, for the treatment of adult patients with symptomatic anemia associated with CKD. This amount is allocated at $108.4 million and $11.6 million between license revenue and development revenue, respectively. In the third quarter, we recorded $14.6 million in development and other revenue, in addition to $8 million…

In closing, we continue to look to maximize the value of our portfolio and reduce expenses, which will enable us to focus on our strategic priorities and development of pamrevlumab, roxadustat, and advancing our pipeline. Pamrevlumab is a potential first-in-class medicine in Phase 3 development in three indications with significant unmet medical needs, idiopathic pulmonary fibrosis, locally advanced unresectable pancreatic cancer, and Duchenne muscular dystrophy. Roxadustat continues to perform very well in China, and commercialization has now commenced in Europe. As shown on slide 11, we continue to have a strong financial position with approximately $665 million in cash and expect to end the year with $580 million to $610 million in cash. We are well-capitalized to meet our goal of delivering innovation to areas of unmet clinical needs. Now, I would like to turn the call back to the operator for questions. Josh?

Thank you. [Operator Instructions] Our first question comes from Annabel Samimy with Stifel. You may proceed with your question.

Hi, thanks for taking my questions. I was just wondering if you've had discussions with AstraZeneca on what is okay and what is the nonstarter as far as additional clinical work for both of you for roxa in the U.S.? And could that drive a change in the U.S. agreement and would they be willing to continue investing given that that, I guess, altering competitive landscape, and I guess, the catch-up that competitors are having on you? And then secondly, since the CRL, have you noticed whether enrollment in any of the studies, namely the MATTERHORN study has slowed down and have any of the new therapies that are picking up in the space complicated that as well? Thank you.

Very good. Thank you very much for your question. I think on AstraZeneca and the potential path forward, what I would say, and I'm going to ask Mark Eisner to complement me is we -- not only do we have to have an aligned plan with AstraZeneca but of course, we need to ensure that whatever path forward basically is, it's discussed and aligned with the FDA. So, there is no question that we continue to believe in the product. And the question is really, how can we ensure that we can conduct a trial that meets the complete response letter for us to be able to have commercial access in the U.S. in anemia of CKD. And at the same time, be able to do that in an expeditious manner. But I'm going to ask Mark to comment -- provide a bit more color and then I'll answer your questions on the collaboration agreement.

Thanks Enrique. So, as Enrique said, we are collaborating very closely with AstraZeneca to determine the best path forward. We are planning to jointly meet with the FDA to discuss this in the very near future. And we're highly aligned with AZ on doing that. You asked a question about the CRL and has it affected enrollment in the MATTERHORN study or other studies. We haven't noticed any slowdown after the CRL. I think the clinicians and the investigators seem to be still very interested in those studies and enrolling those studies. So, back to you, Enrique.

Yes. And clearly, our discussion with the FDA will be key when it comes to how do we think about this potential path forward here in the U.S. And as far as the relationship with AstraZeneca, the relationship is healthy. Of course, we suffered a significant setback here in the U.S., but we're trying to have an aligned path forward and the teams are collaborating, I think, very closely.

Thank you.

Thank you. Our next question comes from Edwin Zhang with H.C. Wainwright. You may proceed with your question.

Hi. Thanks for taking my questions. A question on roxa in China. We know last year, you amended your agreement with AstraZeneca on China operations. One of the major purpose of the amendment was for FibroGen to be profitable sooner in China. Can you talk about this business go a bit further? Given the current roxa sales and growth in China, when do you expect to achieve profitability there?

Yes. Very good. Clearly, we are very excited about our profitability -- our performance and overall progress when it comes to profitability in China. I think it's fair to say that the product has had significant success. And I think this is demonstrated this quarter again. Since the -- we've gotten reimbursement from the NRDL, we see continued increased adoptions. As we mentioned in the past, hospital listings used to be a major driver. We are now largely listed in about 80% of the universe or the opportunity for anemia of CKD in China. The question is really now increasing the adoption within those listed hospitals. And I think it's fair to say things are going very well. We did amend the agreement with AstraZeneca. I think for FibroGen this, as you well point out, meant more predictable and a profitable business. So -- and I think we've made huge progress. At the end of the day, I think the overall performance of the product makes a very important difference in that regard. I'm going to ask now Juan to maybe make a few additional comments.

Sure, Enrique. I think, Edwin, apart from what Enrique has just mentioned, the other component around China is that we are in a good trajectory, as I mentioned earlier, around the growth of the product. We are, I think, well on our way for P&L profitability at this point in time in addition to -- in 2023, being able to start as well repatriating some of that cash that we have in China, which is tied to as well our profitability. So, I think, overall, we are well on track to continue on that path and being able to continue to fund operations as well within the Chinese business.

Good. Also, I think, Enrique, you mentioned that roxa is becoming the standard of care for CKD patients in China. Can you provide some color on this? Is roxa officially included in the clinical guidance in China or is it recommended as the first-line treatment over ESA for anemic patients? Thank you.

Yes, this is an excellent question. Indeed, roxa has been included in a number of the clinical guidelines in China. It is included together with ESAs and other treatments. But as you know, I think for new product, this inclusion becomes critical. I think how roxa is described, I -- we are very pleased with that. The mention that we made related to becoming standard of care relates to basically just looking at the share performance that we're having. When we look at the last few months, basically, now roxadustat is the largest brand by value in China. It has about a 33%, 34% share by value and it's continually increasing. Clearly, our aspiration is still higher. And I think what's important, I think, is when we look at the market is -- not just that we're capturing share, but since roxadustat was launched and reimbursed, we've seen an expansion of the market. In fact, an expansion are of -- even ESAs are growing at faster rates. So, there is the increased promotion of roxadustat and anemia CKD. Clearly, there's a lot of unmet need, and we basically have seen that reflected in the marketplace in China. So, we are very pleased in terms of where we are on the -- withstanding the progress today in China.

Very helpful. Thank you.

Thank you. Our next question comes from Michael Yee with Jefferies. You may proceed with your question.

Hi guys. Good afternoon. I had two questions. Following up on the scenario tree with the FDA and with AstraZeneca, can you maybe lay out some of the various scenarios that you see? And when you would be in a position, generally speaking, to update us on what happens? Presumably, the goal is to run another study with the FDA, so is that the base case and the alternatives would include not doing that and rejiggering the whole partnership? So, maybe you could just make some comments on that and the timing of when you think this is reasonable to update the stream. Thank you.

Yes. Thank you. Yes, the meeting with the -- scheduled with the FDA is coming up shortly. That meeting, of course, is critical. I think our basis, given the complete response letter is that -- and given the discussion we've with the FDA is that we will need to conduct a trial to be able to bring roxadustat in the -- to market in the U.S. for anemia of CKD. Once we basically have an aligned path forward with the FDA. I think at that point in time, we'll be in a better position, I think, to provide an update to the market. I don't want to speculate on the different types of scenarios here in terms of how to think if that's not the case. Right now, I think that's -- I want to make sure that we have the meeting. We have, I think, a good proposal we'd like to make to discuss with the FDA and see where we go from there.

Okay. Thank you.

Thank you. Our next question comes from Geoffrey Porges with SVB Leerink. You may proceed with your question.

Thank you very much. A couple of questions, if I may. First, I just want to be clear on the expense guidance and the restructuring. You've highlighted the $100 million reduction in 2022 and then again in 2023. But is that -- I think you said it was against what you were planning to spend. Should we be modeling a $100 million reduction versus the $105 million expense run rate in Q3 or the $450 million to $500 million for the full year? So, should we literally be saying $350 million for next year or $300 million for next year and the $200 million for the year after or is it a reduction against a hypothetical increase that you would otherwise have incurred in support of the product launch? So, it'd be helpful if you could be really clear about that. Second -- to the other question. Are you -- would you consider monetizing the JDE in China as a source of capital to fund your internal R&D investments? And then lastly, I'd be interested in your comments of having seen all the competitors' data for their HIF, do you believe the signals that the FDA identified in your studies were molecule effects or class effects? Thanks.

Very good. Thank you. Let me first try to address your first question. I'm going to ask Juan to also comment, and then we'll go to the other two questions that you basically had around China monetization, and then whether some of the signals are product or marginal to the class. First, I think the -- what we basically provided in terms of guidance today, was guidance around cuts relative to projected expenses. Now, having said that, we are eliminating positions. So our headcount is going to be lower and that, by definition, basically means that we are lowering expenses. But yes, I think the $100 million is relative to projected expenses. Keep in mind that as we get pamrevlumab closer to the readouts and to a potential launch, we basically will have some additional expenses that we have to account for. Our aim today is to be able to launch pam in the U.S. as FibroGen and we want to make sure that we have the resources to be able to do that. Juan, do you want to make any additional comments on the first point? We're not providing guidance when it comes to operating expenses at this stage, but do you want to provide any more color on that?

I think you explained it well, Enrique. I think, Geoffrey, as Enrique mentioned, this is against our forecasted spend given of what we have planned prior to the CRL. So, that's, I think, how to think through this in terms of our future expenses. And -- but as Enrique mentioned, there is also some element of reduction of costs versus our actual dollars, right related to the number that he highlighted earlier around some job eliminations or terminations in the United States.

Okay.

Just to give you a sense, I think we said we are eliminating 100 positions, right? 30 of those positions were currently filled. But clearly, over the last few months, we've been managing positions, not filling them, and we're not replacing positions. So all in all, I think we are expecting to -- vis-à-vis the expected position that we have, is basically a full elimination of 100 positions. You probably have also seen, Geoff, that we have -- our cash guidance for the year has increased. Some of it is timing, but about $15 million of increase in the cash guidance, it relates directly to expense reduction. So -- and that's, of course, very recent. So, that's already having an impact on -- for the rest of the year. When it comes to China, clearly, we always think about all of the options to -- we're continually thinking about how to maximize the value of our assets and what is it that we could do, whether it's China operations and that's something that we're always thinking about and exploring. When -- whether it's China or whether it's thinking about -- I know I get a lot of questions about partnering. Clearly, I think the aim for us is always how can we basically maximize the value of the asset. And if partnering, for example, in the case of pam, provides more value to partnering, that's something that we would pursue. Of course, as I mentioned, our aim is to launch in the U.S. as FibroGen. But clearly, we are always thinking about what is it that we could do to ensure that the value of all of our assets is basically maximized. Finally, a quip on your question the -- on some of the additional data. I think it's always very difficult to say whether the signals were just a matter of -- signals are a matter of chance when events are low and you start seeing different signals in different products. These are large trials but in any large trial, you are going to see basically some adverse events that basically go against you. Some are going to go for you. Clearly, the safety signals are the ones that are going against you. But my take right now, I think it's very difficult to say whether what we're seeing in some cases, some of those signals go across products or not. And I think at the end of the day, I think more data needs to be released and time would basically tell. I'm going to ask Mark also to provide some additional comments to the last question.

Thanks Enrique. I mean, I think the differences in trial designs, dosing strategies, choice of competitor, for example, roxadustat was compared to placebo in a non-dialysis population versus daprodustat are compared to an active comparator. It makes it very difficult to draw generalizable principles there about the class versus the molecules. And there's also a lot we don't know yet, just based on a very top line data we've seen in presentations and publications. So, very interesting question, but I don't think we have a full answer for you.

Right. Okay. Thank you.

Thank you. And your next question comes from Jason Gerberry with Bank of America. You may proceed with your question.

Hi, this is Perry on the line for Jason. Thanks for taking our questions. First, I'd like to understand your impression of the roxa CRL. What were your main takeaways related to the details of the CRL? And I guess, how has that informed the potential path forward for roxa in CKD in the U.S. market? Could there be a potential for a trial focused on either dialysis-dependent or non-dialysis-dependent patients focused on ESA hypo-responders? And then just have one follow-up question.

Yes, I'm going to have Mark directly address this question.

Yes. So, good question. As Enrique said, we're still working through the path forward and are going to be meeting with the FDA soon. As you'll recall from our advisory committee, we had proposed that a lower starting dose and a different dosing strategy could be a path forward for the molecule. So, that's something we're clearly going to explore with the FDA. In terms of the specific populations that we need to study in order to achieve a broad label, I mean, we are still intending to achieve a label that includes both DD and NDD. That's still a point of discussion with the FDA about exactly how we can achieve that.

Okay. Thanks. And then just one other related to adoption trends for roxa in CKD in China is -- I guess, where is the growth coming from at the indication level? Is it around 50-50 between dialysis-dependent, non-dialysis-dependent? Is it predominantly one over the other? Any color would be helpful.

Yes, we are seeing clearly, when -- if you are referring to market growth, all right, clearly, market growth is only coming from both, but clearly, we are seeing a lot more NDD market expansion. Most patients with DD are actually treated for with -- patients with anemia are being treated. So that's a point that we made at the market level. If you're asking about roxadustat specifically, most of our revenue, as we said before, is coming from DD. Maybe about $65 million coming from DD and $35 million coming from NDD. At the revenue level, we do see NDD as a huge, significant opportunity longer term. And that's something that I think is going to be playing out. The opportunity for continued market expansion and for roxadustat to play a leading role in that, I think, is still very significant in China. My view is we are in the first innings of this -- the opportunity that we have with roxadustat in China.

Great. Thanks.

Thank you. Your next question comes from Paul Choi with Goldman Sachs. You may proceed with your question.

Hi. Thank you and good afternoon. And thank you for taking our questions. My first question is on Europe. And can you maybe just, Enrique, update us on how you and your partner Astellas are thinking about the cadence of establishing reimbursement into key geographies? And just how you're thinking about the launch trajectory over the next one to two years, given that, that's a potential gating factor there in Europe? And then I had a pipeline follow-up question.

Yes, I'll make a general comment. I think the specifics when it comes to Europe, I think those questions need to be asked of Astellas as we've agreed that they're going to be answering those questions directly. But as you know, in Europe, just generally, what you basically have is you are launching in markets that allow you to launch with what is called a temporary price like Germany and other markets. And then I think you are launching in markets once you get basically actual reimbursement. So, in Europe, the reimbursement is, of course, granted at the country level. And that basically tends to be staggered. And I know that Astellas is now launching in the four markets, the four countries that I just mentioned, Germany and the U.K., Netherlands, Austria, but in addition of that -- to that, of course, they are working diligently to ensure that they can have reimbursement across Europe.

Okay. Thanks for that, Enrique. And then second, as a follow-up, just on the pipeline. Can you maybe just update us on where you are with the -- or how you're thinking about the development of roxadustat for CIA. I didn't see it mentioned here in your 3Q slides. And is that just something an indication that's been deprioritized?

No, it is -- thank you for your question. It's not a matter of the prioritization but I think we are looking forward to getting the insights from the discussion with the FDA and around anemia of CKD because that also informs how we think about CIA and that program. The data for CIA, it's positive data, but we want to ensure that we are on a solid footing as we think about that trial. Mark, anything else?

Yes. Not much to add, Enrique. I mean, as you said, our main for us right now is establishing the path forward for CKD and then CIA is under discussion with AZ in parallel and we're trying to find a path forward for that one as well.

Okay. Thank you very much.

Thank you. Your next question comes from Andy Hsieh with William Blair. You may proceed with your question.

Great. Thanks for taking my questions. So one is, Enrique, or -- can you kind of highlight the strength of your internal R&D and how is that differentiating? We're just trying to understand or reconcile between the desire to obviously seek internal pipeline candidates or external collaborations and also the reorganization expense reduction plans that you have.

Yes, very good. Very good question. I'll start, and then I'm going to ask John Hunter to complement that question. I think your focus is -- if the answer is that -- the focus of your question is more on the R than on the D. But clearly, I think as part of this exercise, we've taken a very close look at every single area in the company. And every line item by line item trying to think about how do we ensure that we can run more efficiently and of course, that is a hugely important process. But as part of that, we also had to -- we've raised the hurdle when it comes to innovation, including on -- as we think about research and as we think about our preclinical program. So, we've basically targeted a certain number of programs that we believe have the best chance to make it to the clinic within the next few years. And those are the ones that we're basically investing behind. There is a mix of products. There are products from our HiFiBiO collaboration, which, as you mentioned, is external. But then there are also internal programs that we are moving forward, and we're investing behind. I'm going to ask, John, if you'd like to make some additional comments.

Sure. I would only add that there are areas of expertise that have been developed over the years at FibroGen, and we're really looking to take full advantage of them with the existing preclinical programs. And with the HiFiBiO programs, clearly, that brought in a new set of projects that I think were initially outside of the expertise area of the company, but we have been building up around them as well. And we're really looking to move forward by kind of expanding out expertise where we need it, but also consolidating the programs around our therapeutic focus areas so that we have a coherent path forward with the new clinical programs.

Great. Thank you. I have a follow-up question related to the price negotiation with the Chinese government coming up towards the year-end period. I'm just curious if you can educate us on how they are thinking. When it comes to renegotiation on price, do they look at real-world evidence, do they look at renewed value proposition? Just curious about how they think about this process and maybe things that you can prepare, heading into the process to really position FibroGen at the best potential leverage point.

Yes. Clearly, it is the case in China, and it is the case with any payer around the world when it comes to negotiating for pricing. I think the interest is to, of course, lower the price, the reimbursement price, the price that the government is paying for products. In China, this happened, as you know, across the board every two years, right? So every product, every two years has -- product in the NRDL has a reimbursement renegotiation and a new price basically is set. There are a number of factors that basically are brought into the mix as part of this discussion. Everything from the clinical value of the product to the number of competitors, whether they are direct competitors in the same class or functional competitors, neighboring countries, prices. And then also, I think it's how successful the product is being, meaning products that have significant success just because of the impact on the budget than to also garner more attention. So, there's a combination of factors. I think it is extremely important, right, for products to be in the NRDL. And I think that's something that the industry is going to go across basically this month in terms of all the discussions, including us, right, to ensure that their products are basically reimbursed going forward. So, that's maybe the frame that I would provide, and I'm not sure I can add much more to that. I don't know if that answer your question.

Yes, that's helpful. Thank you very much.

Thank you. [Operator Instructions] Our next question comes from Yaron Werber with Cowen. You may proceed with your question. If you line is on mute, please unmute. And I would like to now turn the call back over to Enrique for any further remarks.

No, thank you for your questions. We very much appreciate your participation in today's investor call and your interest in FibroGen. Enjoy the rest of your day. Thank you very much.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.