fgen-10q_20160930.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2016

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                to                 

Commission file number: 001-36740

 

FIBROGEN, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

77-0357827

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

409 Illinois Street

 

 

San Francisco, CA

 

94158

(Address of Principal Executive Offices)

 

(Zip Code)

(415) 978-1200

Registrant’s telephone number, including area code:

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

  (Do not check if a smaller reporting company)

Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).    Yes      No  

The number of shares of common stock outstanding as of October 31, 2016 was 63,160,110.

 

 

 


 

FIBROGEN, INC.

TABLE OF CONTENTS

 

 

 

Page

PART I—FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1.

Condensed Consolidated Financial Statements

 

3

 

Condensed Consolidated Balance Sheets as of September 30, 2016 and December 31, 2015

 

3

 

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2016 and 2015

 

4

 

Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, 2016 and 2015

 

5

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2016 and 2015

 

6

 

Notes to the Condensed Consolidated Financial Statements

 

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

16

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

30

Item 4.

Controls and Procedures

 

30

 

 

 

 

PART II—OTHER INFORMATION

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

31

Item 1A.

Risk Factors

 

31

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

71

Item 3.

Defaults Upon Senior Securities

 

71

Item 4.

Mine Safety Disclosures

 

71

Item 5.

Other Information

 

71

Item 6.

Exhibits

 

71

 

Signatures

 

72

 

Exhibit Index

 

73

 

2


Table of Contents

FIBROGEN, INC.

PART I—FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

(Unaudited)

 

 

 

September 30, 2016

 

 

December 31, 2015

 

 

 

 

 

 

 

(Note 1)

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

198,283

 

 

$

153,324

 

Short-term investments

 

 

43,522

 

 

 

27,847

 

Accounts receivable ($4,816 and $4,455 from a related party)

 

 

7,692

 

 

 

15,405

 

Prepaid expenses and other current assets

 

 

3,965

 

 

 

3,988

 

Total current assets

 

 

253,462

 

 

 

200,564

 

 

 

 

 

 

 

 

 

 

Restricted cash

 

 

7,254

 

 

 

7,254

 

Long-term investments

 

 

98,730

 

 

 

131,720

 

Property and equipment, net

 

 

124,774

 

 

 

129,020

 

Other assets

 

 

1,993

 

 

 

2,016

 

Total assets

 

$

486,213

 

 

$

470,574

 

 

 

 

 

 

 

 

 

 

Liabilities, stockholders’ equity and non-controlling interests

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

2,039

 

 

$

6,521

 

Accrued liabilities ($1,843 and $2,045 to related parties)

 

 

51,748

 

 

 

47,932

 

Deferred revenue

 

 

7,957

 

 

 

12,728

 

Total current liabilities

 

 

61,744

 

 

 

67,181

 

 

 

 

 

 

 

 

 

 

Long-term portion of lease financing obligations

 

 

97,377

 

 

 

97,042

 

Product development obligations

 

 

15,744

 

 

 

15,085

 

Deferred rent

 

 

4,339

 

 

 

4,702

 

Deferred revenue, net of current

 

 

104,636

 

 

 

85,132

 

Other long-term liabilities

 

 

4,757

 

 

 

4,607

 

Total liabilities

 

 

288,597

 

 

 

273,749

 

 

 

 

 

 

 

 

 

 

Commitments and Contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value; 125,000 shares authorized at September 30, 2016 and

   December 31, 2015; no shares issued and outstanding at September 30, 2016

   and December 31, 2015

 

 

 

 

 

 

Common stock, $0.01 par value; 225,000 shares authorized at September 30, 2016 and

   December 31, 2015; 63,075 and 61,985 shares issued and outstanding at

   September 30, 2016 and December 31, 2015

 

 

631

 

 

 

620

 

Additional paid-in capital

 

 

614,787

 

 

 

586,647

 

Accumulated other comprehensive loss

 

 

(1,333

)

 

 

(1,651

)

Accumulated deficit

 

 

(435,740

)

 

 

(408,062

)

Total stockholders’ equity

 

 

178,345

 

 

 

177,554

 

Non-controlling interests

 

 

19,271

 

 

 

19,271

 

Total equity

 

 

197,616

 

 

 

196,825

 

Total liabilities, stockholders’ equity and non-controlling interests

 

$

486,213

 

 

$

470,574

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

3


Table of Contents

FIBROGEN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

      License and milestone revenue (includes $4,370, $5,120, $20,727 and $14,672 from a related party)

 

$

20,867

 

 

$

13,045

 

 

$

113,802

 

 

$

131,430

 

      Collaboration services and other revenue (includes $436, $868, $1,114 and $2,221 from a related party)

 

 

9,235

 

 

 

6,493

 

 

 

33,863

 

 

 

24,956

 

Total revenue

 

 

30,102

 

 

 

19,538

 

 

 

147,665

 

 

 

156,386

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

40,558

 

 

 

52,071

 

 

 

136,599

 

 

 

154,165

 

General and administrative

 

 

11,646

 

 

 

11,237

 

 

 

33,440

 

 

 

31,399

 

Total operating expenses

 

 

52,204

 

 

 

63,308

 

 

 

170,039

 

 

 

185,564

 

Loss from operations

 

 

(22,102

)

 

 

(43,770

)

 

 

(22,374

)

 

 

(29,178

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and other, net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(2,760

)

 

 

(2,758

)

 

 

(7,975

)

 

 

(8,278

)

Interest income and other, net

 

 

866

 

 

 

1,458

 

 

 

2,411

 

 

 

3,008

 

Total interest and other, net

 

 

(1,894

)

 

 

(1,300

)

 

 

(5,564

)

 

 

(5,270

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

 

(23,996

)

 

 

(45,070

)

 

 

(27,938

)

 

 

(34,448

)

Provision for (benefit from) income taxes

 

 

158

 

 

 

28

 

 

 

(260

)

 

 

(38

)

Net loss

 

$

(24,154

)

 

$

(45,098

)

 

$

(27,678

)

 

$

(34,410

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share - basic and diluted

 

$

(0.38

)

 

$

(0.74

)

 

$

(0.44

)

 

$

(0.57

)

Weighted average number of common shares used to calculate net loss per share - basic and diluted

 

 

62,858

 

 

 

60,767

 

 

 

62,543

 

 

 

59,926

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

4


Table of Contents

FIBROGEN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Net loss

 

$

(24,154

)

 

$

(45,098

)

 

$

(27,678

)

 

$

(34,410

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(184

)

 

 

(1,000

)

 

 

(446

)

 

 

1,213

 

Available-for-sale investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on investments, net of tax effect

 

 

(144

)

 

 

191

 

 

 

745

 

 

 

534

 

Reclassification from accumulated other comprehensive loss

 

 

19

 

 

 

(182

)

 

 

19

 

 

 

(212

)

Net change in unrealized gain (loss) on available-for-sale investments

 

 

(125

)

 

 

9

 

 

 

764

 

 

 

322

 

Other comprehensive income (loss), net of taxes

 

 

(309

)

 

 

(991

)

 

 

318

 

 

 

1,535

 

Comprehensive loss

 

$

(24,463

)

 

$

(46,089

)

 

$

(27,360

)

 

$

(32,875

)

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

 

5


Table of Contents

FIBROGEN, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Nine Months Ended September 30,

 

 

 

2016

 

 

2015

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(27,678

)

 

$

(34,410

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

4,520

 

 

 

4,218

 

Amortization of premium on investments

 

 

2,080

 

 

 

2,292

 

Unrealized foreign exchange gain on short-term investments

 

 

(436

)

 

 

 

Loss on disposal of property and equipment

 

 

 

 

 

100

 

Stock-based compensation

 

 

24,256

 

 

 

20,232

 

Tax benefit on unrealized gain on available-for-sale securities

 

 

(371

)

 

 

(66

)

Realized gain on sales of available-for-sale securities

 

 

(37

)

 

 

(89

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

7,713

 

 

 

6,080

 

Prepaid expenses and other current assets

 

 

23

 

 

 

1,289

 

Other assets

 

 

23

 

 

 

(243

)

Accounts payable

 

 

(4,482

)

 

 

(317

)

Accrued liabilities

 

 

4,231

 

 

 

(7,611

)

Deferred revenue

 

 

14,733

 

 

 

28,494

 

Lease financing liability

 

 

690

 

 

 

474

 

Other long-term liabilities

 

 

388

 

 

 

289

 

Net cash provided by operating activities

 

 

25,653

 

 

 

20,732

 

 

 

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(1,106

)

 

 

(1,668

)

Purchases of available-for-sale securities

 

 

(72

)

 

 

(16,683

)

Proceeds from sales of available-for-sale securities

 

 

4,298

 

 

 

10,154

 

Proceeds from maturities of available-for-sale securities

 

 

12,617

 

 

 

14,035

 

Net cash provided by investing activities

 

 

15,737

 

 

 

5,838

 

 

 

 

 

 

 

 

 

 

Financing activities

 

 

 

 

 

 

 

 

Repayments of lease liability

 

 

(302

)

 

 

(302

)

Cash paid for payroll taxes on restricted stock unit releases

 

 

(2,242

)

 

 

 

Proceeds from issuance of common stock

 

 

6,137

 

 

 

8,523

 

Net cash provided by financing activities

 

 

3,593

 

 

 

8,221

 

Effect of exchange rate change on cash and cash equivalents

 

 

(24

)

 

 

(62

)

Net increase in cash and cash equivalents

 

 

44,959

 

 

 

34,729

 

Cash and cash equivalents at beginning of period

 

 

153,324

 

 

 

165,455

 

Cash and cash equivalents at end of period

 

$

198,283

 

 

$

200,184

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

 

 

6


Table of Contents

FIBROGEN, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.

Significant Accounting Policies

Description of Operations

FibroGen, Inc. (“FibroGen” or the “Company”) was incorporated in 1993 in Delaware and is a research-based biopharmaceutical company focused on the discovery, development and commercialization of novel therapeutics agents to treat serious unmet medical needs. The Company’s focus in the areas of fibrosis and hypoxia-inducible factor (“HIF”) biology has generated multiple programs targeting various therapeutic areas. The Company’s most advanced product candidate, roxadustat, or FG-4592, is an oral small molecule inhibitor of HIF prolyl hydroxylases in Phase 3 clinical development for the treatment of anemia in chronic kidney disease. Pamrevlumab, or FG-3019, is the Company’s monoclonal antibody in Phase 2 clinical development for the treatment of idiopathic pulmonary fibrosis, pancreatic cancer, Duchenne muscular dystrophy and liver fibrosis. We have taken a global approach with respect to the development and future commercialization of our product candidates, and this includes development and commercialization in the People’s Republic of China (“China”).

Basis of Presentation and Principles of Consolidation

The condensed consolidated financial statements include the accounts of FibroGen, its wholly owned subsidiaries and its majority-owned subsidiaries, FibroGen Europe Oy and FibroGen China Anemia Holdings, Ltd. (“FibroGen China”). All inter-company transactions and balances have been eliminated in consolidation. The Company operates in one segment — the discovery, development and commercialization of novel therapeutics to treat serious unmet medical needs.

The unaudited condensed consolidated financial statements and related disclosures have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) applicable to interim financial reporting and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the United States (“U.S.”) Securities and Exchange Commission (“SEC”) and, therefore, do not include all information and footnote disclosures normally included in the annual consolidated financial statements. The December 31, 2015 condensed consolidated balance sheet data contained within this Form 10-Q was derived from audited consolidated financial statements included in the Company’s Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2015 ( “2015 Form 10-K”), but does not include all disclosures required by U.S. GAAP.

The financial information included herein should be read in conjunction with the consolidated financial statements and related notes in the 2015 Form 10-K. The accounting policies used by the Company in its presentation of interim financial results are consistent with those presented in Note 2 to the consolidated financial statements included in the 2015 Form 10-K.

For the three months ended September 30, 2016, the Company recorded an out-of-period adjustment of $2.2 million as a reversal of operating expenses, related to an overstatement of its operating expenses for the three and six months ended June 30, 2016. The out-of-period adjustment is immaterial to the previously filed financial statements and the current period financial statements as presented.  The out-of-period adjustment had no impact to the financial statements for the nine months ended September 30, 2016.

In addition, the Company has revised its condensed consolidated financial statements for the period ended September 30, 2015 to correct a misclassification that was identified during the fourth quarter of 2015. Specifically, the Company has reclassified $8.5 million from cash and cash equivalents to short-term investments on its condensed consolidated balance sheet as of September 30, 2015 (not presented herein).  Accordingly, in the accompanying condensed consolidated statement of cash flows for the nine months ended September 30, 2015, the Company has corrected the associated overstatement of $8.5 million in its net cash provided by investing activities. This revision represents an error that was not deemed material, individually or in aggregate, based on the Company's assessment of qualitative and quantitative factors, to the previously filed condensed consolidated financial statements for the period ended September 30, 2015.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. In our opinion, the accompanying unaudited condensed consolidated financial statements include all normal recurring adjustments necessary for a fair statement of our financial position, results of operations and cash flows for the interim periods presented.

7


Table of Contents

Recently Issued Accounting Guidance Not Yet Adopted

In August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This guidance clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows with the objective of reducing the existing diversity in practice related to eight specific cash flow issues. This guidance is effective for the annual period beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is permitted. The Company is currently evaluating the impact on its consolidated financial statements upon the adoption of this guidance.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This guidance requires that financial assets measured at amortized cost be presented at the net amount expected to be collected. The measurement of expected credit losses is based on historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability. This guidance is effective for the annual reporting period beginning after December 15, 2019, including interim periods within that reporting period. The Company is currently evaluating the impact on its consolidated financial statements upon the adoption of this guidance.

In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718). This guidance identifies areas for simplification involving several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. This guidance is effective for the annual reporting period beginning after December 15, 2016, including interim periods within that reporting period, with early adoption permitted. The Company is currently evaluating the impact on its consolidated financial statements upon the adoption of this guidance.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Under this guidance, an entity is required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. This guidance offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. This guidance is effective for the annual reporting period beginning after December 15, 2018, including interim periods within that reporting period, and requires a modified retrospective adoption, with early adoption permitted. The Company is currently evaluating the impact on its consolidated financial statements upon the adoption of this guidance.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10). This guidance requires equity investments that are not accounted for under the equity method of accounting to be measured at fair value with changes recognized in net income, simplifies the impairment assessment of certain equity investments, and updates certain presentation and disclosure requirements. This guidance is effective for the annual reporting period beginning after December 15, 2017 and interim periods within those annual periods. The Company is currently evaluating the impact on its consolidated financial statements upon the adoption of this guidance.

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This guidance requires management to evaluate, at each interim and annual reporting period, whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date the financial statements are issued, and provide related disclosures. This guidance will be effective for annual period ending after December 15, 2016, and for annual and interim periods thereafter. Early adoption is permitted. The Company does not expect a material impact on its consolidated financial statements upon the adoption of this guidance.

8


Table of Contents

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which supersedes the revenue recognition requirements in Accounting Standards Codification (“ASC”) 605, Revenue Recognition. ASU 2014-09 is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 can be adopted either retrospectively to each prior reporting period presented, or retrospectively with a cumulative-effect adjustment recognized as of the date of adoption. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing (“ASU 2016-10”), which clarifies the implementation guidance on identifying performance obligations in a contract and determining whether an entity’s promise to grant a license provides a customer with either a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the entity’s intellectual property (which is satisfied over time). In May 2016, the FASB issued ASU 2016-11, Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815) (“ASU 2016-11”), which rescinds SEC paragraphs pursuant to SEC staff announcements. These rescissions include changes to topics pertaining to accounting for shipping and handling fees and costs and accounting for consideration given by a vendor to a customer. In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients (“ASU 2016-12”), which amends the guidance in the new revenue standard on collectability, non-cash consideration, presentation of sales tax, and transition, to address implementation issues and provide additional practical expedients to reduce the cost and complexity of applying the new revenue standard. The effective date and transition requirements for ASU 2016-10, ASU 2016-11 and ASU 2016-12 are same as those for ASU 2014-09 (as amended by ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, issued in August 2015), i.e. for the annual reporting period beginning after December 15, 2017, including interim periods within that reporting period. A reporting entity may choose to early adopt the guidance as of the original effective date. The Company does not anticipate an early adoption, and is currently evaluating the impact on its consolidated financial statements upon the adoption of these ASUs, and has not selected a transition method.

2.

Collaboration Agreements

Astellas Agreements

Japan Agreement

In June 2005, the Company entered into a collaboration agreement with Astellas Pharma Inc. (“Astellas”) for the development and commercialization (but not manufacture) of roxadustat for the treatment of anemia in Japan (“Japan Agreement”). Under this agreement, Astellas paid license fees and other consideration totaling $40.1 million (such amounts were fully received as of February 2009). The Japan Agreement also provides for additional development and regulatory approval milestone payments up to $117.5 million, a commercial sales related milestone of $15.0 million and additional consideration based on net sales (as defined) in the low 20% range after commercial launch. A clinical milestone payment of $12.5 million was received in 2013. During the second quarter of 2016, the Company recognized $10.0 million revenue as a result of the initiation by Astellas of the first Phase 3 clinical study in Japan of roxadustat for treatment of anemia associated with chronic kidney disease in patients on dialysis. The amount was received in early July 2016. The Company evaluated the criteria under ASC 605-28 and concluded that the aforementioned milestone was substantive.

Europe Agreement

In April 2006, the Company entered into a separate collaboration agreement with Astellas for the development and commercialization of roxadustat for the treatment of anemia in Europe, the Middle East, the Commonwealth of Independent States and South Africa (“Europe Agreement”). Under the terms of the Europe Agreement, Astellas paid license fees and other upfront consideration totaling $320.0 million (such amounts were fully received as of February 2009). The Europe Agreement also provides for additional development and regulatory approval milestone payments up to $425.0 million. Clinical milestone payments of $40.0 million and $50.0 million were received in 2010 and 2012, respectively. The Company evaluated the criteria under ASC 605-28 and concluded that each of those milestones was substantive. Under the Europe Agreement, Astellas committed to fund 50% of joint development costs for Europe and North America, and all territory-specific costs. The Europe Agreement also provides for tiered payments based on net sales of product (as defined) in the low 20% range.

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AstraZeneca Agreements

U.S./Rest of World Agreement

Effective July 30, 2013, the Company entered into a collaboration agreement with AstraZeneca AB (“AstraZeneca”) for the development and commercialization of roxadustat for the treatment of anemia in the U.S. and all other countries in the world, other than China, not previously licensed under the Astellas Europe and Astellas Japan Agreements (“U.S./RoW Agreement”). It also excludes China, which is covered by a separate agreement with AstraZeneca described below. Under the terms of the U.S./RoW Agreement, AstraZeneca has agreed to pay upfront, non-contingent and time-based payments totaling $374.0 million, the last $62.0 million of which was received during the second quarter of 2016. In addition, the U.S./RoW Agreement also provides for development and regulatory approval based milestone payments of up to $550.0 million, which include potential future indications which the companies choose to pursue, and commercial related milestone payments of up to $325.0 million. During the second quarter of 2015, the Company received a $15.0 million development milestone payment as a result of the finalization of its two audited pre-clinical carcinogenicity study reports. The Company evaluated the criteria under ASC 605-28 and concluded that the aforementioned milestone was substantive.

Under the U.S./RoW Agreement, the Company and AstraZeneca will share equally in the development costs of roxadustat not already paid for by Astellas, up to a total of $233.0 million (i.e. the Company’s share of development costs is $116.5 million, which was reached during the fourth quarter of 2015). Any additional development costs incurred by FibroGen during the development period in excess of the $233.0 million (aggregated spend) will be fully reimbursed by AstraZeneca. AstraZeneca will pay the Company tiered royalty payments on AstraZeneca’s future net sales (as defined in the agreement) of roxadustat in the low 20% range. In addition, the Company will receive a transfer price for delivery of commercial product based on a percentage of AstraZeneca’s net sales (as defined in the agreement) in the low- to mid-single digit range.

China Agreement

Effective July 30, 2013, the Company (through its subsidiaries affiliated with China) entered into a collaboration agreement with AstraZeneca for the development and commercialization (but not manufacture) of roxadustat for the treatment of anemia in China (“China Agreement”). Under the terms of the China Agreement, AstraZeneca agreed to pay upfront consideration totaling $28.2 million, which were fully received in 2014. In addition, the China Agreement provides for AstraZeneca to pay regulatory approval and other approval related milestones of up to $161.0 million. The China Agreement also provides for sales related milestone payments of up to $167.5 million and contingent payments of $20.0 million related to possible future compounds. The China Agreement is structured as a 50/50 profit or loss share (as defined) and provides for joint development costs (including capital and equipment costs for construction of the manufacturing plant in China), to be shared equally during the development.

In September 2016, AstraZeneca approved the protocol related to the development of roxadustat for the treatment of anemia in patients with myelodysplastic syndrome (“MDS”), for which the Company has submitted a Clinical Trial Application in China in the first half of 2016 and an Investigational New Drug application (“NDA”) to the U.S. Food and Drug Administration in the fourth quarter of 2016. As a result, for revenue recognition purposes, during the third quarter of 2016, the Company extended the estimated joint development service period for the AstraZeneca agreements from the end of 2018 to the end of 2020, to allow for development of MDS. This extension resulted in a higher portion of deferred revenue which remained as non-current as of September 30, 2016, as compared to December 31, 2015, with an additional $7.1 million of deferred revenue being classified as non-current as of September 30, 2016.

Summary of Revenue Recognized Under the Collaboration Agreements

The table below summarizes the accounting treatment for the various deliverables pursuant to each of the Astellas and AstraZeneca agreements. License amounts identified below are included in the “License and milestone revenue” line item in the condensed consolidated statements of operations. All other elements identified below are included in the “Collaboration services and other revenue” line item in the condensed consolidated statements of operations.

Amounts recognized as revenue under the Japan Agreement were as follows (in thousands): 

 

 

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

Agreement

 

Deliverable

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Japan

 

    License

 

$

3,041

 

 

$

414

 

 

$

3,159

 

 

$

942

 

 

 

    Milestones

 

 

 

 

 

 

 

 

10,000

 

 

 

 

 

 

Total license and milestone revenue

 

 

3,041

 

 

$

414

 

 

$

13,159

 

 

$

942

 

 

 

Collaboration services revenue*

 

 

144

 

 

$

57

 

 

$

151

 

 

$

157

 

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*

When and if available compounds, manufacturing — clinical supplies and committee services have each been identified as separate units of accounting with standalone value and amounts allocable to these elements have been recognized and classified within the Collaboration services revenue line item within the condensed consolidated statements of operations.

The total arrangement consideration has been allocated to each of the following deliverables under the Japan Agreement, along with any associated deferred revenue as follows (in thousands):

 

 

 

Cumulative

Revenue

Through

September 30, 2016

 

 

Deferred

Revenue at

September 30, 2016

 

 

Total

Consideration

Through

September 30, 2016

 

License

 

$

45,403

 

 

$

 

 

$

45,403

 

When and if available compounds

 

 

20

 

 

 

26

 

 

 

46

 

Manufacturing--clinical supplies

 

 

2,108

 

 

 

 

 

 

2,108

 

Committee services

 

 

20

 

 

 

 

 

 

20

 

Total license and collaboration services revenue

 

$

47,551

 

 

$

26

 

 

$

47,577

 

Amounts recognized as revenue under the Europe Agreement were as follows (in thousands):

 

 

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

Agreement

 

Deliverable

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Europe

 

    License

 

$

1,330

 

 

$

4,706

 

 

$

7,568

 

 

$

13,730

 

 

 

    Milestones

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total license and milestone revenue

 

 

1,330

 

 

 

4,706

 

 

 

7,568

 

 

 

13,730

 

 

 

Collaboration services revenue*

 

$

292

 

 

$

812

 

 

$

963

 

 

$

2,065

 

 

 

*

When and if available compounds, manufacturing — clinical supplies, development services — in progress at the time of signing of the agreement, and committee services have each been identified as a separate unit of accounting with standalone value and amounts allocable to these units have been recognized in revenue as services are performed and classified within the Collaboration services revenue line item within the condensed consolidated statements of operations.

The total arrangement consideration has been allocated to each of the following deliverables under the Europe Agreement, along with any associated deferred revenue as follows (in thousands):

 

 

 

Cumulative

Revenue

Through

September 30, 2016

 

 

Deferred

Revenue at

September 30, 2016

 

 

Total

Consideration

Through

September 30, 2016

 

License

 

$

409,012

 

 

$

 

 

$

409,012

 

When and if available compounds

 

 

362

 

 

 

417

 

 

 

779

 

Manufacturing--clinical supplies

 

 

9,797

 

 

 

 

 

 

9,797

 

Development services--in progress

 

 

32,770

 

 

 

 

 

 

32,770

 

Committee services

 

 

283

 

 

 

 

 

 

283

 

Total license and collaboration services revenue

 

$

452,224

 

 

$

417

 

 

$

452,641

 

 

Amounts recognized as revenue under the U.S./RoW Agreement were as follows (in thousands):

 

 

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

Agreement

 

Deliverable

 

2016

 

 

2015

 

 

2016

 

 

2015

 

U.S. / RoW

and China

 

    License

 

$

16,496

 

 

$

7,925

 

 

$

93,075

 

 

$

101,758

 

 

 

    Milestones

 

 

 

 

 

 

 

 

 

 

 

15,000

 

 

 

Total license and milestone revenue

 

 

16,496

 

 

 

7,925

 

 

 

93,075

 

 

 

116,758

 

 

 

Collaboration services revenue*

 

 

8,784

 

 

 

5,614

 

 

 

32,723

 

 

 

22,694

 

 

 

China single unit of accounting**

 

$

 

 

$

 

 

$

 

 

$

 

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*

Co-development, information sharing, and committee services have been combined into a single unit of accounting because the requirements to share information and serve on committees are useful only in combination with the development services, and because all three items are delivered over the same period while manufacturing — clinical supplies has been identified as a separate unit of accounting with standalone value and amounts allocable to this unit of accounting have been recognized and classified within the Collaboration services revenue line item within the condensed consolidated statements of operations.

**

All revenues attributable to the China unit of accounting are deferred until all deliverables are met. The China license and collaboration services elements have been combined into a single unit of accounting and consideration allocable to this unit is being deferred due to FibroGen’s retention of manufacturing rights and lack of standalone value.

The total arrangement consideration has been allocated to each of the following deliverables under the U.S./RoW Agreement, along with any associated deferred revenue as follows (in thousands):

 

 

 

Cumulative

Revenue

Through

September 30, 2016

 

 

Deferred

Revenue at

September 30, 2016

 

 

Total

Consideration

Through

September 30, 2016

 

License

 

$

382,842

 

 

$

 

 

$

382,842

 

Co-development, information sharing &

  committee services

 

 

82,759

 

 

 

33,638

 

 

 

116,397

 

Manufacturing--clinical supplies

 

 

358

 

 

 

40

 

 

 

398

 

China-single unit of accounting

 

 

 

 

 

78,472

 

 

 

78,472

 

Total license and collaboration services revenue

 

$

465,959

 

 

$

112,150

 

 

$

578,109

 

 

Other Revenues

Other revenues consist of royalty payments received, which are recorded on a monthly basis as they are reported to the Company, and collagen feasibility sales. Other revenues were immaterial for all periods presented.

Deferred Revenue

Deferred revenue represents amounts billed to the Company’s collaboration partners for which the related revenues have not been recognized because one or more of the revenue recognition criteria have not been met. The current portion of deferred revenue represents the amount to be recognized within one year from the balance sheet date based on the estimated performance period of the underlying deliverables. The long term portion of deferred revenue represents amounts to be recognized after one year through the end of the non-contingent performance period of the underlying deliverables. The long term portion of deferred revenue also includes amounts allocated to the China unit of accounting under the AstraZeneca arrangement as revenue recognition associated with this unit of accounting is tied to the commercial launch of the products within China, which is not expected to occur within the next year.

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3.

Fair Value Measurements

The fair values of our financial assets that are measured on a recurring basis are as follows (in thousands):

 

 

 

September 30, 2016

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Corporate bonds

 

$

 

 

$

118,831

 

 

$

 

 

$

118,831

 

Bond and mutual funds

 

 

23,201

 

 

 

 

 

 

 

 

 

23,201

 

Equity investments

 

 

220

 

 

 

 

 

 

 

 

 

220

 

Money market funds

 

 

105,663

 

 

 

 

 

 

 

 

 

105,663

 

Total

 

$

129,084

 

 

$

118,831

 

 

$

 

 

$

247,915

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2015

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Corporate bonds

 

$

 

 

$

126,103

 

 

$

 

 

$

126,103

 

Bond and mutual funds

 

 

25,052

 

 

 

 

 

 

 

 

 

25,052

 

Equity investments

 

 

197

 

 

 

 

 

 

 

 

 

197

 

Money market funds

 

 

77,639

 

 

 

 

 

 

 

 

 

77,639

 

Certificate of deposits

 

 

 

 

 

8,215

 

 

 

 

 

 

8,215

 

Total

 

$

102,888

 

 

$

134,318

 

 

$

 

 

$

237,206

 

 

Our Level 2 investments are valued using third-party pricing sources. The pricing services utilize industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades of and broker/dealer quotes on the same or similar investments, issuer credit spreads, benchmark investments, prepayment/default projections based on historical data and other observable inputs.

The fair values of our financial liabilities that are carried at historical cost are as follows (in thousands): 

 

 

 

September 30, 2016

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Lease financing obligations

 

$

 

 

$

 

 

$

97,833

 

 

$

97,833

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2015

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Lease financing obligations

 

$

 

 

$

 

 

$

97,445

 

 

$

97,445

 

 

The fair values of our financial liabilities were derived by using an income approach, which required Level 3 inputs such as discounted estimated future cash flows.

There were no transfers of assets or liabilities between levels for any of the periods presented.

 

4.

Balance Sheet Components

Cash and Cash Equivalents

Cash and cash equivalents consisted of the following (in thousands):

 

 

 

September 30, 2016

 

 

December 31, 2015

 

Cash

 

$

92,620

 

 

$

75,685

 

Money market funds

 

 

105,663

 

 

 

77,639

 

Total cash and cash equivalents

 

$

198,283

 

 

$

153,324

 

At September 30, 2016, a total of $25.0 million of our cash and cash equivalents were held outside of the U.S. in our foreign subsidiaries to be used primarily for our China operations.

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Investments

All investments are classified as available-for-sale. The amortized cost, gross unrealized holding gains or losses, and fair value of the Company’s available-for-sale investments by major investments type are summarized in the tables below (in thousands):

 

 

 

September 30, 2016

 

 

 

Amortized Cost

 

 

Gross Unrealized

Holding Gains

 

 

Gross Unrealized

Holding Losses

 

 

Fair Value

 

Corporate bonds

 

$

118,291

 

 

$

547

 

 

$

(7

)

 

$

118,831

 

Bond and mutual funds

 

 

23,049

 

 

 

152

 

 

 

 

 

 

23,201

 

Equity investments

 

 

125

 

 

 

95

 

 

 

 

 

 

220

 

Total investments

 

$

141,465

 

 

$

794

 

 

$

(7

)

 

$

142,252

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2015

 

 

 

Amortized Cost

 

 

Gross Unrealized

Holding Gains

 

 

Gross Unrealized

Holding Losses

 

 

Fair Value

 

Corporate bonds

 

$

126,522

 

 

$

54

 

 

$

(473

)

 

$

126,103

 

Certificate of deposits

 

 

8,217

 

 

 

 

 

 

(2

)

 

 

8,215

 

Bond and mutual funds

 

 

25,052

 

 

 

 

 

 

 

 

 

25,052

 

Equity investments

 

 

126

 

 

 

71

 

 

 

 

 

 

197

 

Total investments

 

$

159,917

 

 

$

125