FibroGen, Inc. (NASDAQ:FGEN) Q4 2022 Earnings Call Transcript

FibroGen, Inc. (NASDAQ:FGEN) Q4 2022 Earnings Call Transcript February 27, 2023

Operator: Thank you for standing by, and welcome to FibroGen’s Fourth Quarter and Full Year 2022 Financial Results Earnings Call. . I would now like to hand the call over to your host, Mike Tung. Please go ahead.

Michael Tung: Thank you, Latif, and good afternoon, everyone. 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 include forward-looking statements about FibroGen. Such statements may include, but are not limited to, our collaborations with AstraZeneca and Astellas, financial guidance, the initiation, enrollment, design, conduct and results of clinical trials, our regulatory strategies and potential regulatory results, our research and development activities, commercial results and results of operations, risks related to our business and certain other business matters.

Each forward-looking statement is subject to risks and uncertainties that could cause actual results and events to differ materially from those projected in that statement. A more complete description of these and other material risks can be found in FibroGen’s filings with the SEC, including our most recent Form 10-K and Form 10-Q. FibroGen does not undertake any obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. The press release reporting our 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. And with that, I would like to turn the call over to Enrique Conterno, our CEO.

Enrique?

Enrique Conterno: Thank you, Mike. Good afternoon, everyone and welcome to our fourth quarter and full-year 2022 earnings call. On today’s call, I intend to provide a high-level summary of important accomplishments and developments for 2022 and recent months. Juan Graham, our CFO will then review the financials, after which, we will open the call for your questions. Starting with Slide 3. FibroGen is positioned to create significant value for patients and shareholders by executing on three areas of focus. Number one, delivering pivotal Phase 3 pamrevlumab data in three high-value indications, idiopathic pulmonary fibrosis, Duchenne muscular dystrophy, and locally advanced unresectable pancreatic cancer. Number two, increasing our research productivity by advancing novel programs that leverage internal expertise and access external innovation for additional pipeline opportunities.

Number three, ensuring the commercial success of roxadustat in patients with chronic kidney disease were approved, while continue to explore additional indications. Moving on to Slide 4. FibroGen represents an exciting catalyst-rich opportunity. Topline data for five pivotal Phase 3 trials are expected this year, and an additional two by mid-2024. In 2022, we completed enrollment of multiple clinical trials for both pamrevlumab and roxadustat. And progress showcases our capability to deliver on our clinical trial goals and advance our pipeline. We are preparing for various clinical trial outcome scenarios which could include multiple regulatory filings and ultimately, launches, expeditiously deliver these potential therapies to patients. Operationally, we are well prepared to execute our plan, and importantly, we have a strong financial position and a continued focus on financial discipline, with a wide array of options to consider as we look for opportunities to strengthen our cash position over time.

Now, let’s move to our clinical trial timelines on Slide 5. Starting with pamrevlumab. I want to remind everyone that we have both FDA Fast-Track and FDA Orphan Disease designations for all three of these indications. Idiopathic pulmonary fibrosis or IPF, Duchenne muscular dystrophy or DMD, and locally advanced unresectable pancreatic cancer or LAPC are each diseases with significant unmet medical need and represent meaningful potential opportunities to improve the lives of patients. Moving chronologically, we expect top line data from LELANTOS-1, our Phase 3 trial of pamrevlumab in non-ambulatory patients with DMD in the second quarter of 2023. Top line data from ZEPHYRUS-1, our Phase 3 trial in IPF in mid-2023. Data from our LELANTOS-2 trial in ambulatory patients with DMD in the third quarter of 2023.

Now, looking out to next year. Our LAPIS Phase 3 study in locally advanced pancreatic cancer is expected to readout in the first half of 2024, and finally our ZEPHYRUS-2 Phase 3 trial in patients with IPF is expected to report out mid-2024. In addition, although not on the slide, the Pancreatic Cancer Action Network’s PanCAN Precision Promise adaptive trial platform evaluating pamrevlumab in combination with standard of care for patients with metastatic pancreatic cancer, continues to progress. A common question we receive is whether there is any read-through between the pamrevlumab trials. IPF, DMD and LAPC are three very different diseases, all with a common feature of fibrosis. But each with a unique pathophysiology affecting different organs.

In IPF, fibrosis in the lung tissue causes progressive and irreversible damage. DMD is a rare genetic pediatric disease characterized by fibrosis in the muscles. And LAPC is an oncology indication in which tumor associated fibrosis is a key feature of the disease. Given these differences in disease pathophysiology, we believe there is limited or no read-through on efficacy from one of these conditions to the others. On the safety side, pamrevlumab has been studied in over 1,000 patients, and has demonstrated a favorable adverse event and safety profile, including in patients who have been dosed for up to seven years. Moving to the roxadustat timelines on the bottom on Slide 5. We anticipate readouts from the MATTERHORN Phase 3 trial in patients with anemia or myelodysplastic syndromes in the second quarter of 2023, and data from our China Phase 3 study in patients with chemotherapy-induced anemia expected in the second quarter of 2023 as well.

This will be a transformational year for FibroGen and we look forward to sharing the results of these studies. I would like to extend my gratitude to patients, caregivers and investigators as well as to my FibroGen colleagues for their commitment. I’d now like to spend a few minutes highlighting our view of the significant commercial opportunity we see with pamrevlumab, our wholly-owned monoclonal antibody. Starting on Slide 6. I will be providing a more detailed perspective on our view of the IPF opportunity than in past calls. With a diagnosed prevalence of approximately 330,000 patients across the U.S., E.U., China and Japan, IPF represents a significant opportunity with the two approved therapies generating together almost $4 billion in global net revenue in 2021.

Despite the size and growth of the IPF market, there remains an important unmet need with the two approved antifibrotic therapies as characterized by continued disease progression and challenging tolerability. There is a sentiment in the IPF community of limitations with the current therapies and we believe pamrevlumab has the potential to help a sizable number of patients, have become a relevant product for the treatment of IPF. As we highlight on Slide 7, we believe that IPF patients could benefit from new therapeutic options. IPF is a progressive disease where fibrosis in the lung tissue, leads to irreversible loss of lung function, resulting in high morbidity and mortality. In fact, median survival following diagnosis of IPF is only three to five years.

The limitations of current treatment options are well characterized. Having a modest effect on slowing the progressive loss of lung function, along with a challenging tolerability profile. This translates into the low treatment rates as depicted on the right side of Slide 7. In the U.S., there is a prevalence of approximately 120,000 patients with IPF with approximately 30,000 patients diagnosed each year. Of these 30,000 newly-diagnosed patients, we estimate that only about one-third of these patients are treated with an anti-fibrotic. And of these roughly 10,000 patients have started one of the two approved anti-fibrotics in a given year; approximately 40% to 50% discontinued treatment in the first 12 months, usually due to side effect, which includes severe nausea, diarrhea and also sensitivity.

Resulting in a large proportion of diagnosed U.S. IPF patients not being treated with standard-of-care for this progressive and the early condition. Because of this significant unmet need, we believe pamrevlumab has the potential to be an important addition to current IPF treatment options. Competing effectively for newly-diagnosed patients, for existing patients, who have not been treated with antifibrotics, and as well as those patients who have stopped antifibrotic treatment due to challenging tolerability. Moving on to Slide 8. Duchenne muscular dystrophy and locally advanced unresectable pancreatic cancer each represents significant opportunities. Starting with DMD in the left column. Given the devastating nature of DMD and the relentless progression of the disease we are hopeful that LELANTOS Phase 3 program can lead to an approved therapy that is desperately needed by the DMD community.

While the currently approved exon-skipping therapies produced an increase in dystrophin levels, they target only a small portion of DMD patients, that have yet to demonstrate a meaningful clinical improvement in symptoms or disease progression. There is clear need for DMD therapies that can attenuate disease progression by targeting the downstream pathological changes to improve muscle function and prolong ambulation. We’re hopeful the antifibrotic mechanism of pamrevlumab, maybe a treatment that can help these patients under five. The LELANTOS-1 enrolled non-ambulatory patients 12 years and older with more advanced DMD disease. The primary endpoint is the performance of upper limb test, which measure functionality of the shoulder, elbow, wrist and hand.

LELANTOS-2 enrolled ambulatory patients; six to 12 years old with less advanced DMD disease. The primary endpoint is the North Star ambulatory assessment which is a measure of ambulatory function. In the right-hand column, we show a snapshot of the locally advanced pancreatic cancer opportunity. Pancreatic cancer represents one of the largest unmet needs in oncology, given that diagnosed prevalence of over 90,000 patients across the major regions combined with a low five-year disease-free survival rate of around 10%. We believe that pamrevlumab has both direct antitumor effects and effects on the trauma. This is why we are evaluating both LAPC as well as metastatic pancreatic cancer. There have been limited treatment advances over the last two decades with immunooncology therapies failing to demonstrate survival benefits over the current standard-of-care.

This creates a potential meaningful opportunity for pamrevlumab, if it can demonstrate a significant improvement in overall survival. Now, let’s move to the update on roxadustat on Slide 9. Roxadustat is currently in Phase 3 clinical trial for the treatment of anemia in myelodysplastic syndromes, MDS in the U.S. and Europe. And for the treatment of patients with chemotherapy-induced anemia or CIA in China. Starting with myelodysplastic syndromes or MDS. MDS are a group of rare blood disorders that occur because of abnormal development of blood cells within the bone marrow. It is estimated that more than 10,000 patients are diagnosed with MDS each year in the U.S. And overall prevalence is estimated to be between 60,000 and 170,000 patients in the U.S. Anemia is a major complication present in 85% of patients with MDS when first diagnosed and causes fatigue, shortness of breath, dizziness and weakness and over time can lead to frequent red blood cell transfusions.

More recently, luspatercept was approved in this indication, and its successful launch illustrate the unmet medical need. We expect topline data from our global Phase 3 MATTERHORN MDS trial in the second quarter of 2023. Finally, we also expect topline data from China Phase 3 chemotherapy-induced anemia trial in the second quarter of 2023. Moving on to Slide 10. I do want to take a moment and comment on early-stage pipeline. We expect to file up to two INDs in the second half of 2023. FG-3165 is an anti-Gal9 antibody, developed to reverse immune resistance in many solid tumors and inhibit target-driven cancer progression in AML, acute myeloid leukemia. FG-3165 has been shown preclinically to prevent Gal9-mediated cell death of T-cell subtypes that are critical for antitumor immune responses.

And is undergoing characterization for its ability to directly target leukemic cell populations. FG-3163 is an anti-CCR8 antibody designed to selectively deplete suppressive T regulatory cells in the tumor microenvironment without affecting peripheral T regulatory cells. Use of FG-3163 in solid tumors has broad potential to activate immune responses and induce tumor cell killing without disrupting normal immune homeostasis. Additionally, we have undisclosed preclinical development program that leverage our expertise in HIF and CTGF biology. And moving now to China on Slide 11. Roxadustat continue to see robust growth in China. We are reporting fourth quarter total roxadustat net sales in China of $53.1 million by FibroGen and joined distribution entity compared to $32 million in the fourth quarter of 2021.

This growth was driven by an increase in volume of over 90%. Roxadustat net sales growth for full year 2022 in China was $22.7 million, which was driven by an increase in volume of over 80%. FibroGen’s portion of roxadustat net product revenue in China was $23.4 million for the fourth quarter and $82.9 million for the full year 2022 on a U.S. GAAP basis. Juan will elaborate further in the financial update. Next. On Slide 12, Slide 12 provides a snapshot of roxadustat unit growth as indexed to December 2020 on the chart on the left as well as year-over-year growth in the table on the right. Of note, there’s a significant unit growth of roxadustat. While the leading ESA brand is up slightly, reflecting the anemia or CKD market expansion that has been driven by roxadustat since its original NRDL listing in 2020.

I’m going to now turn the call over to our CFO, Juan Graham for the financial update. Juan?

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Juan Graham: Thank you, Enrique. As 2022 through has come to a close, I want to begin by thanking our colleagues in the United States and China for their ongoing commitment to advancing our commercial assets as well as our clinical pipeline. As we open 2023, we are excited about the opportunities ahead with five Phase 3 clinical trials, reading out during the course of the year. We are well positioned to continue to deliver on our strategic priorities as we have our upcoming Phase 3 trial readouts for pamrevlumab and roxadustat, as our roxadustat asset continues on its growth trajectory in China and the Astellas territories, and as we advance our preclinical pipeline. 2023 is a pivotal year for FibroGen, and we’re excited to be in a position to potentially deliver life-altering therapies for patients.

Now, getting into our financial results. Full year revenue for 2022 was $140.7 million versus $235.3 million in 2021. 2021 included a $120 million milestone payment from our partner Astellas, related to the European Commission approval of Evrenzo for the treatment of adult patients with symptomatic anemia associated with CKD. For the fourth quarter of 2022, total revenue was $34.4 million compared to $16.5 million for the same period in 2021, Breakdown of revenue sources for the fourth quarter is as follows. We recorded $23.4 million of net product revenue for roxadustat sales in China, compared to $5.5 million in the fourth quarter of 2021, which represents an increase of $17.9 million or a 328% increase year-over-year. During the quarter, we also recorded development revenue of $4.5 million associated with co-development efforts for roxadustat with our partners as compared to $10 million during the fourth quarter of 2021.

Due to the stage of development of roxadustat with our partners, we expect co-development revenue to be in the range of $3 million to $5 million per quarter for 2023. Lastly, we recorded $6.5 million in drug product revenue for roxadustat bulk drug or active pharmaceutical ingredients sold to Astellas, as compared to $1.1 million during the fourth quarter of 2021. The increase was primarily associated with the volume of shipments in the quarter, partially offset by change in our estimates related to these shipments, mostly impacted by the Japanese yen depreciation versus the U.S. dollar. Now, diving deeper into roxadustat in China. Total roxadustat net sales from the joint distribution entity, jointly owned by AstraZeneca and FibroGen or JDE was $53.1 million this quarter, compared to $32 million in the fourth quarter of 2021, an increase of 66%.

After last year’s NRDL price adjustment, 2022 sales performance of roxadustat resulted from a significant volume increase of over 90% versus fourth quarter of 2021. It is worth noting that the full year 2022 volume increase versus full year 2021 was over 80%, benefiting from the NRDL price renegotiation. As we enter 2023, we expect meaningful net sales growth for roxadustat in China. Moving from roxadustat net sales in China. FibroGen’s net transfer price from sales to the JDE was $17.2 million for the fourth quarter, consistent with the 30% to 45% range of the JDE’s roxadustat net sales, which we have continuously guided. During this quarter, we recorded an additional $3.1 million from the previously deferred balance due to the change in our future estimates as per U.S. GAAP The main driver being favorable renminbi currency impacts.

As we have communicated in the past, the deferred revenue balance in FibroGen China fluctuates based on management estimates of future revenue. As a result, FibroGen recorded $20.3 million in net revenue for the quarter from roxadustat sales to the JDE and $3.1 million of direct to distributor sales from FibroGen China. As I move into the P&L, it is worth noting our focus on execution, enabling us to be more disciplined in our spending. Our operating costs and expenses for the fourth quarter of 2022 were $100.5 million, compared to $151.8 million for the fourth quarter of 2021. The main changes of R&D expenses versus 2021 were a $35 million expense related to the option execution to in-license the anti-CCR8 program for HiFiBiO during Q4 2021 and lower clinical trial expenses and drug supply costs associated with our pamrevlumab programs.

R&D expenses for the fourth quarter of 2022 were $61.6 million compared to $113.9 million in the fourth quarter of 2021. Of the $61.6 million, roughly 61% was dedicated to pamrevlumab development and CMC activities. 21% allocated to support our early-stage pipeline and the remaining 18% directed towards roxadustat development activities in the United States and China. SG&A expenses for the fourth quarter of 2022 were $34 million compared to $34.7 million in the fourth quarter of 2021, representing a 2% reduction year-over-year. This change was driven by our cost management efforts more than offsetting inflationary pressures. During the fourth quarter of 2022, we recorded a net loss of $66.2 million or $0.70 net loss for both basic and diluted share as compared to a net loss of $134.1 million or $1.45 per basic and diluted share for the fourth quarter of 2021.

With regards to our financing efforts, during Q4, we completed a revenue interest monetization transaction with NovaQuest Capital Management of $50 million or 22.5% of Astellas related drug product revenue. This financing further strengthens our balance sheet to continue supporting our strategic priorities. On Slide 13 of our presentation, we make reference that at December 31, we reported $442.7 million in cash, cash equivalents, investments and accounts receivable. Our ending cash balance is roughly $48 million higher than the midpoint of our most recent year-end cash guidance, which included the revenue interest monetization transaction with no request. The cash increase is driven by a mix of savings, spend prioritization and movement of onetime payments into 2023.

Going forward, we believe that we are well funded through multiple key clinical milestones, and we expect our cash, cash equivalents, investments and accounts receivable to be sufficient to fund our operating plan into the second half of 2024. As we’ve previously stated, we are privileged to have a variety of options to further strengthen our balance sheet to meet our strategic objectives. As we close on 2022, we are pleased with our team’s performance, achieving strong operational and financial results. As we enter 2023, we believe we’re well positioned to execute on our strategic, operational and financial goals in a pivotal year for FibroGen. Thank you. And now, I would like to turn the call back over to Enrique.

Enrique Conterno: In closing, I would like to reiterate our confidence and excitement as we embark on 2023. We are committed to advancing pamrevlumab as a potential first-in-class medicine in three indications with significant unmet medical need. And as noted, we expect topline data from three pamrevlumab pivotal Phase 3 studies in 2023, LELANTOS-1 in non-ambulatory patients with DMD in the second quarter of 2023. ZEPHYRUS-1 in IPF patients mid-year and LELANTOS-2, in ambulatory patients with DMD in the third quarter of 2023. In addition, we expect topline data from two roxadustat pivotal Phase 3 studies, MATTERHORN in patients with anemia MDS in the second quarter of this year and China CIA study in the second quarter of this year as well.

In our early-stage filing, we expect to file up to two INDs in the second half of 2023, FG-3163, an anti-CCR8 antibody, and FG-3165 an anti-Gal9 antibody, both in oncology. Roxadustat continues to perform very well in China, and our partner Astellas continues with the commercialization of roxadustat in Europe and Japan. We believe we are properly financed through key topline pamrevlumab data releases, and we’re privileged with a wide array of options to consider as we continue to look for opportunities to strengthen our cash position over time. Now, I would like to turn it over to the operator for the Q&A.

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Q&A Session

Operator: Our first question comes from the line of Michael Yee of Jefferies. Your question please, Michael.

Andrew Tsai: Hello, thanks. This is Andrew Tsai on for Michael. Two on IPF, please. First one is — can you remind us what prompted you to change the primary endpoint of your second Phase 3 study recently? I believe it was from a time to progression type of analysis to FVC change at week 48. So what went what happened there? And then secondly is what percent of enrolled patients in these IPF studies for both pamrevlumab and placebo, do you expect to go on rescue therapy? And how does rescue therapy impact your study outcome as well as your stats analysis? Thanks.

Enrique Conterno: Good. I’m going to ask Dr. Eisner to address both pamrevlumab questions.

Mark Eisner: Sure. Thanks for the question. So we are constantly in touch with regulators, including FDA, European authorities and others, and we monitor the external environment closely. And it’s always been true that ZEPHYRUS-1 has had the primary endpoint of FVC. And it’s become clear that the FVC is actually the global standard for approval. So we’ve just harmonized and aligned, both ZEPHYRUS-1 and ZEPHYRUS-2 to have FVC as the primary endpoint. Key secondary endpoint will be the disease progression defined as FVC 10% or more decline or death. So that will continue to be there. And just to wrap it up, we’re confident that this will meet global regulatory standards for approval. In terms of background standard of care. So just to remind everyone, these are both monotherapy trials.

In other words, it’s pamrevlumab versus placebo in patients who are not on standard of care. Patients can be either treatment naive at baseline or experienced in the past. We do allow patients to initiate standard of care on the trial. If their physician deems as appropriate. These are both approved therapies. We don’t believe this will be a very common event, and we don’t believe it will have a substantive impact on the overall results because these trials are well powered, and we plan on an intention to treat analysis.

Andrew Tsai: And very last one, if I may. Is that okay, if I can ask the last one?

Enrique Conterno: Of course.

Andrew Tsai: Thanks. Speaking of the powering, would the powering assumptions for both Phase 3 studies be the same on the primary endpoint? And Secondly, what would you say is a clinically meaningful efficacy result in the Phase 3 data? What kind of separation versus placebo and FVC do you want to see? Thank you.

Mark Eisner: Right. So the first question is about the powering of ZEPHYRUS-1 and ZEPHYRUS-2 for forced vital capacity, mean both studies aim to enroll 340 patients. We enrolled slightly more in ZEPHYRUS-1. So yes, the powering will be the same for both studies, and we think highly adequate for detecting an effect size that’s planned for. In terms of a clinically meaningful effect for FVC, that’s a really good question. We have designed the Phase 3 program to be highly similar to the Phase 2 program or PRAISE study, with the intention that we can replicate what we see as very highly clinically and statistically meaningful results in PRAISE in the Phase 3 program. So that is the intent. That said, we are powered for a that are somewhat smaller. I think there’s not a clear standard for what is meaningful, but we do intend to replicate PRAISE, we’re something close to that. So, we’re very confident that we will find a meaningful result in the ZEPHYRUS program.

Andrew Tsai: Thanks. Very helpful. Appreciate it.

Operator: Thank you. Our next question comes from the line of Jason Gerberry of Bank of America. Your line is open, Jason.