FIBROGEN INC - Annual Report: 2017 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K 

(Mark One)

For the fiscal year ended December 31, 2017

OR

For the transition period from            to           .

Commission file number: 001-36740 

FIBROGEN, INC.

(Exact name of registrant as specified in its charter) 

Registrant’s telephone number, including area code:

(415) 978-1200 

Securities registered pursuant to Section 12(b) of the Act: 

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☒    No  ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ☐     No  ☒

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ☒

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:

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     ☐    

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

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant, computed by reference to the closing price as of the last business day of the registrant’s most recently completed second fiscal quarter, June 30, 2017, was approximately $1,674.4 million. Shares of Common Stock held by each executive officer and director and stockholders known by the registrant to own 10% or more of the outstanding stock based on public filings and other information known to the registrant have been excluded since such persons may be deemed affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

The number of shares of common stock outstanding as of January 31, 2018 was 82,666,979.

DOCUMENTS INCORPORATED BY REFERENCE

Items 10, 11, 12, 13 and 14 of Part III of this Annual Report on Form 10-K incorporate information by reference from the definitive proxy statement for the registrant’s 2018 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than after 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

TABLE OF CONTENTS

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FORWARD-LOOKING STATEMENTS

This Annual Report filed on Form 10-K and the information incorporated herein by reference, particularly in the sections captioned “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” contains forward-looking statements, which involve substantial risks and uncertainties. In this Annual Report, all statements other than statements of historical or present facts contained in this Annual Report, including statements regarding our future financial condition, business strategy and plans and objectives of management for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “believe,” “will,” “may,” “estimate,” “continue,” “anticipate,” “contemplate,” “intend,” “target,” “project,” “should,” “plan,” “expect,” “predict,” “could,” “potentially” or the negative of these terms or other similar terms or expressions that concern our expectations, strategy, plans or intentions. Forward-looking statements appear in a number of places throughout this Annual Report and include statements regarding our intentions, beliefs, projections, outlook, analyses or current expectations concerning, among other things, our ongoing and planned preclinical development and clinical trials, the timing of and our ability to make regulatory filings and obtain and maintain regulatory approvals for roxadustat, pamrevlumab and our other product candidates, our intellectual property position, the potential safety, efficacy, reimbursement, convenience clinical and pharmaco-economic benefits of our product candidates, the potential markets for any of our product candidates, our ability to develop commercial functions, our ability to operate in China, expectations regarding clinical trial data, our results of operations, cash needs, spending of the proceeds from our initial public offering and the concurrent private placement, financial condition, liquidity, prospects, growth and strategies, the industry in which we operate and the trends that may affect the industry or us. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions described in the section of this Annual Report captioned “Risk Factors” and elsewhere in this Annual Report.

These risks are not exhaustive. Other sections of this Annual Report may include additional factors that could adversely impact our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in, or implied by, any forward-looking statements.

You should not rely upon forward-looking statements as predictions of future events. We cannot assure you that the events and circumstances reflected in the forward-looking statements will be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. The forward-looking statements made in this Annual Report are based on circumstances as of the date on which the statements are made. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Annual Report or to conform these statements to actual results or to changes in our expectations.

This Annual Report also contains market data, research, industry forecasts and other similar information obtained from or based on industry reports and publications, including information concerning our industry, our business, and the potential markets for our product candidates, including data regarding the estimated size and patient populations of those and related markets, their projected growth rates and the incidence of certain medical conditions, as well as physician and patient practices within the related markets. Such data and information involve a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates.

You should read this Annual Report with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

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PART I

ITEM 1. BUSINESS

OVERVIEW

We are a science-based biopharmaceutical company discovering and developing first-in-class therapeutics. Roxadustat (FG-4592), our most advanced product candidate, is an oral small molecule inhibitor of HIF prolyl hydroxylase (“HIF-PH”) activity in Phase 3 clinical development for the treatment of anemia in chronic kidney disease (“CKD”). Pamrevlumab (FG-3019), a fully-human monoclonal antibody that inhibits the activity of connective tissue growth factor (“CTGF”), is in Phase 2 clinical development for the treatment of idiopathic pulmonary fibrosis (“IPF”), pancreatic cancer, and Duchenne muscular dystrophy (“DMD”). We have taken a global approach to the development and future commercialization of our product candidates, which includes development and commercialization in the People’s Republic of China (“China”).

We are capitalizing on our extensive experience in fibrosis and hypoxia inducible factor (“HIF”) biology and clinical development to advance a pipeline of innovative medicines for the treatment of anemia, fibrotic disease, cancer, corneal blindness, and other serious unmet medical needs. The chart below is a summary of our most advanced product candidates.

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ROXADUSTAT FOR THE TREATMENT OF ANEMIA IN CHRONIC KIDNEY DISEASE

Roxadustat is an internally discovered HIF-PH inhibitor that acts by stimulating the body’s natural pathway of erythropoiesis, or red blood cell production. Roxadustat, the first HIF-PH inhibitor to enter Phase 3 clinical development, represents a new paradigm for the treatment of anemia with the potential to offer a safer, more effective, more convenient, and more accessible therapy than the current therapies available for anemia in CKD, such as injectable erythropoiesis stimulating agents (“ESAs”).

Roxadustat is currently in Phase 3 development and we and our collaboration partners have enrolled more than 8,000 patients in our Phase 3 global program for the treatment of anemia in patients with CKD. More than 1,400 subjects have participated in 26 completed Phase 1 and Phase 2 clinical studies for roxadustat in North America, Europe, and Asia. These studies have demonstrated roxadustat’s potential for a favorable safety and efficacy profile in anemic CKD patients for those who are dialysis-dependent (“DD-CKD’), including difficult-to-treat patients who are hyporesponsive to ESAs, and those who are not dialysis-dependent (“NDD-CKD”). According to IMS Health, 2013 global ESA sales in all anemia indications totaled $8.6 billion. While the use of ESAs to treat anemia in CKD has largely been limited to the DD-CKD population, we and our partners believe that, as an oral agent with a potentially more favorable safety profile, roxadustat could increase accessibility and expand the market for anemia treatment by penetrating the NDD-CKD market. In the long term, we believe roxadustat has the potential to address non-CKD anemia markets, including chemotherapy-induced anemia, anemia related to inflammation (such as inflammatory bowel disease, lupus, and rheumatoid arthritis), myelodysplastic syndromes (“MDS”), and surgical procedures requiring red blood cell transfusions.

We, along with our collaboration partners Astellas Pharma Inc. (“Astellas”) and AstraZeneca AB (“AstraZeneca”), have designed a major global Phase 3 program to support regulatory approval of roxadustat for both NDD-CKD and DD-CKD patients in the United States (“U.S.”), the European Union (“EU”), Japan, and China. Our U.S. and EU Phase 3 program has an aggregate target enrollment of more than 8,000 patients worldwide and is the largest Phase 3 clinical program ever conducted for an anemia product candidate. In addition, we have completed a 456-patient Phase 3 program in China, and our partner, Astellas, has completed three of its six Phase 3 trials in Japan, studying approximately 1,000 additional patients. Our U.S. Phase 3 program is designed to incorporate major adverse cardiac event (“MACE”) composite safety endpoints that we believe will be required for approval in the U.S. for all new anemia therapies. These Phase 3 programs are evaluating the use of roxadustat in multiple populations, including patients within the first four months of initiating dialysis, or incident dialysis, and non-incident, or stable dialysis patients and include numerous placebo-controlled NDD-CKD studies of roxadustat.

Background of Anemia in CKD

Anemia is a serious medical condition in which patients have insufficient red blood cells and low levels of hemoglobin (“Hb”), a protein in red blood cells that carries oxygen to cells throughout the body. Anemia is associated with increased risk of hospitalization, cardiovascular complications, need for blood transfusion, exacerbation of other serious medical conditions, and death. In addition, anemia frequently causes significant fatigue, cognitive dysfunction, and decreased quality of life. The more severe the anemia, as measured by lower Hb levels, the greater the health impact on patients. Severe anemia is common in patients with CKD, cancer, MDS, inflammatory diseases, and other serious illnesses. Even when it accompanies prevalent and serious diseases, anemia is often not effectively treated.

Anemia is particularly prevalent in patients with CKD, which is a critical healthcare problem in the U.S. and Europe, and most commonly caused by diabetes and hypertension. CKD affects more than 200 million people worldwide and significantly increases healthcare costs for those patients. CKD is generally a progressive disease characterized by gradual loss of kidney function that may eventually lead to kidney failure, which is also known as end-stage renal disease (“ESRD”). Patients with ESRD require renal replacement therapy — either dialysis treatment or kidney transplantation. CKD accompanied by anemia is associated with worse health outcomes than CKD alone, including more rapid disease progression and an increased death rate. There are five stages of CKD that are primarily defined by a measure of the filtration function of the kidney (GFR).

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Stages of CKD and Prevalence in the U.S.

Sources: The prevalence of stage 1 through stage 4 CKD was calculated based on 2014 estimates by the United States Renal Data System (“USRDS”) presented in the 2016 USRDS annual data report: Epidemiology of kidney disease in the United States (“2016 USRDS ADR”), using data from the National Health and Nutrition Examination Survey (“NHANES”) 2011-2014 and 2014 data from the U.S. Census Bureau. The prevalence of stage 5 CKD was calculated based on 2014 data from the 2016 USRDS ADR using data from the U.S. National ESRD database, NHANES 2011-2014 and 2014 data from the U.S. Census Bureau.

The prevalence rate of anemia in patients with Hb<12 g/dL is set forth below.

Sources: The prevalence of anemia in stage 1 through stage 4 CKD and stage 5 NDD-CKD was derived from Stauffer and Fan, Prevalence of Anemia in Chronic Kidney Disease in the United States, PLoS ONE (2014). The prevalence of anemia in patients undergoing dialysis was derived from Goodkin et al., Naturally Occurring Higher Hemoglobin Concentration Does Not Increase Mortality among Hemodialysis Patients, J Am Soc Nephrol (2011).

In the U.S., according to the USRDS, a majority of dialysis eligible CKD patients are currently on dialysis. Of the approximately 475,000 patients receiving dialysis in the U.S., approximately 83% were being treated with ESAs for anemia. Despite the presence of anemia in stages 3 and 4 CKD patients, in clinical practice, patients typically do not receive ESA treatment for their anemia until they initiate dialysis. As of 2014, approximately 14% of U.S. NDD-CKD patients were being treated with ESAs prior to initiation of dialysis (2016 USRDS ADR). In many CKD patients, the disease progresses gradually over decades and patients can spend years suffering from the symptoms and negative health effects of anemia before they receive treatment. Many of these patients die from cardiovascular events before they initiate dialysis.

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Limitations of the Current Standard of Care for Anemia in CKD

Current therapies to treat anemia in CKD include injectable ESAs, intravenous (“IV”) iron, oral iron, and blood transfusions. ESAs have been used in the treatment of anemia in CKD for more than 20 years and are administered intravenously or subcutaneously, typically in conjunction with IV iron. NDD-CKD patients who are not under the care of nephrologists, including those with diabetes and hypertension, do not typically receive ESAs and are often left untreated. ESAs currently on the market are all synthetic recombinant versions of human erythropoietin (“EPO”), a hormone that stimulates erythropoiesis and increases Hb levels by binding to receptors on red blood cell precursors in the bone marrow.

The market introduction of the first ESA in 1989 was viewed as a major advance in the treatment of anemia in CKD because it significantly decreased the need for blood transfusions. Since then, ESAs have become one of the most commercially successful drug classes. Because ESAs were never studied relative to placebo in large randomized clinical trials prior to approval, safety issues were elucidated post commercialization. In particular, studies published during 2006 to 2009 demonstrated the safety risks of higher ESA doses used to reach target Hb levels of 13 to 15 g/dL, prompting physicians to balance serious safety concerns against the efficacy of ESAs. The safety concerns observed with injectable ESAs in these studies included an increased risk of cardiovascular adverse events and death, as well as a potentially increased rate of tumor recurrence in patients with cancer.

These safety issues resulted in several changes to ESA drug labeling. The combination of safety concerns and labeling changes, in addition to the subsequent reimbursement limitations described below, led to a steady decline in ESA sales revenues, beginning in 2007. While we believe the decline in ESA sales is primarily due to complete suspension of the label for use in anemias associated with cancer, and restrictions on use in chemotherapy-induced anemia, we also believe the decline in sales is partly due to the progressive decline in ESA dose administered to CKD patients. Compared to the average ESA dose at the end of 2006, the mean monthly ESA dose in patients on hemodialysis (“HD”) dropped by 18%, 36%, 45%, and 45% by the end of 2010, 2011, 2012, and 2013 respectively (2015 USRDS ADR).

Safety Issues of ESAs

Several large clinical trials were designed to demonstrate that targeting higher as opposed to lower Hb levels results in better outcomes. Instead these studies generated data showing that targeting higher Hb levels with ESAs resulted in an increase in adverse events, including cardiovascular adverse events. These adverse events were initially observed in 1998 in the NHCT (Normal Hematocrit Cardiac Trial) in CKD patients on dialysis, where the high Hb level treatment arm targeted Hb levels of 13 to 15 g/dL. Additional safety concerns emerged following the CHOIR (Correction of Hemoglobin in Outcomes and Renal Insufficiency), CREATE (Cardiovascular Risk Reduction by Early Anemia Treatment with Epoetin Beta), and TREAT (Trial to Reduce Cardiovascular Events with Aranesp Therapy) studies in NDD-CKD patients, that were published between 2006 and 2009.

Secondary analyses of NHCT, CHOIR and TREAT, as well as subsequent observational studies in dialysis patients, suggest that these safety concerns, particularly the increased cardiovascular risk associated with ESAs, may result from the high ESA doses used to target higher Hb levels rather than the Hb levels achieved. For example, a secondary analysis of CHOIR showed that patients who achieved the desired Hb level with the lowest amounts of ESA had the lowest risk of adverse cardiovascular outcomes, as measured by composite endpoints consisting of hospitalization for heart failure, heart attack, stroke, and death. Patients who were treated with the highest ESA doses and, particularly those who achieved the lowest Hb levels, had the greatest risk for these events. In addition, observational studies in patients undergoing dialysis highlighted these risks with high ESA doses and also indicated that higher Hb levels achieved with lower ESA doses were associated with better outcomes.

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For example, in an analysis of data from the USRDS of 94,569 HD patients, increased mortality was found in patients with increased epoetin alfa dose. Patients who achieved the highest hematocrit level (which is a measure of the percentage of volume of whole blood made up of red blood cells; under typical conditions, Hb level can be estimated as one-third of the hematocrit level) and received the lowest ESA doses (lowest dose quartile, Q1) had the lowest mortality rate, and, at any particular ESA dose quartile, patients with higher hematocrit levels tended to have lower mortality levels, according to Zhang et al. (Am J Kidney Dis 44:866-876) as illustrated in the chart below.

Unadjusted One-Year Mortality Rates (per 1000)

by Hematocrit and ESA dosing quartile

Warnings about these risks have been incorporated into treatment guidelines and position papers from major kidney societies and thought leaders in the industry. Kidney Disease: Improving Global Outcomes (“KDIGO”), a non-profit foundation established in 2003 and operated by the National Kidney Foundation, committed to improving global clinical guidelines for kidney patients, for example, states that, “[t]here may be toxicity from high doses of ESA, as suggested, though not proven, by recent post-hoc analyses of major ESA randomized controlled trials, especially in conjunction with the achievement of high Hb levels. Therefore, in general ESA dose escalation should be avoided.” In addition, the European Renal Best Practices Group specified in a recent position statement that caution should be used in ESA therapy in patients with specific risk factors.

Limited Effectiveness of ESAs in Certain Patient Populations

Hb responses to ESA doses are on a continuum with some patients responding with a satisfactory Hb increase to a small ESA dose and others responding very poorly to very high doses. In addition, patients’ responsiveness to ESAs can change over time and as a result of circumstances such as acute illness or surgery. In an attempt to reach target Hb level, ESA doses are increased in treatment-resistant patients (hyporesponders), which can result in up to a 40-fold difference in ESA doses between the most ESA-resistant and the most ESA-responsive DD-CKD patients. Even with high doses of ESAs and concomitant IV iron, some of these hyporesponders are unable to reach target Hb levels.

Hyporesponsiveness is a significant problem in incident dialysis patients, for whom ESA doses are typically high, and is associated with a combination of critically low kidney function and accompanying illnesses, such as infections and chronic inflammation. Incident dialysis patients are generally more anemic, and have a higher risk of death, than patients who have been on dialysis for many months.

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A major cause of ESA hyporesponsiveness is an underlying chronic inflammatory state that exists in many CKD patients. Chronic inflammation has a suppressive effect on erythropoiesis in CKD via two main mechanisms. Firstly, pro-inflammatory cytokines such as tumor necrosis factor alpha (“TNF-alpha”) and interleukin-6 (“IL-6”) have been implicated in the suppression of erythropoiesis through inhibition of the response of erythroid progenitor cells to EPO. Secondly, pro-inflammatory cytokines such as IL-6 elevate the levels of hepcidin, the major hormone regulating iron metabolism. The consequence of elevated hepcidin levels is a reduction in iron absorption from the gastrointestinal tract (“GI tract”) and the trapping of iron in cellular stores. Together, this leads to inadequate availability of iron to keep pace with the demands of the bone marrow for erythropoiesis, despite adequate total body iron stores. This condition is referred to as functional iron deficiency.

In the presence of inflammation, even high doses of ESAs may be ineffective to achieve target Hb levels, and to the extent Hb levels are raised, the risks associated with the higher ESA doses required may outweigh the benefits.

Requirement for IV Iron to Support ESA Activity and Associated Safety Risks

IV iron supplementation is used to support anemia correction in a majority of HD patients treated with ESAs in the U.S. ESA labeling indicates that physicians should evaluate the iron status in all patients before and during CKD anemia treatment and maintain iron repletion. However, many CKD patients have deficient iron stores, or absolute iron deficiency, and cannot absorb enough iron from diet or oral iron supplements to correct this deficiency. Physicians administer IV iron to ensure these patients are iron replete prior to initiating ESA treatment and continue to receive IV iron to mitigate iron depletion caused by ESA-mediated erythropoiesis.

Additionally, many CKD patients who have adequate iron stores suffer from functional iron deficiency. IV iron is administered to these patients, in an attempt to address this shortage of available iron, resulting in many patients having elevated body iron stores. While IV iron can help correct anemia when used in combination with ESAs, published studies have suggested both acute and chronic risk of morbidity and mortality associated with the use of IV iron. The acute risks of IV iron supplementation include infection and hypersensitivity reactions, which can be life-threatening. The warning of anaphylaxis risk appears in every IV iron product package insert in the U.S. Less severe but more common side effects include skin problems, hypotension, and GI tract symptoms. In addition to these acute side effects, there may be chronic adverse effects resulting from the volume of iron administered and associated cumulative deposits of iron in organ systems.

Increased use of IV iron has been associated with increased risk of hospitalization and death. Using data from 12 countries obtained over the past 12 years, Bailie et al. demonstrated a direct dose risk relationship between the amount of IV iron administered monthly to dialysis patients and the risk of hospitalization and death (Kidney International (2014)). The study identified that, even after controlling for other risk factors and adjusting for different practice patterns globally, dialysis patients receiving greater than 300 mg of IV iron per month had a greater risk of hospitalization or death than those receiving less than 300 mg. Mortality was 13% greater among those receiving between 300 mg and 400 mg of IV iron per month and 18% greater among those receiving greater than 400 mg of IV iron per month. Furthermore, hospitalization risk was 12% greater among those who received greater than 300 mg per month. The current paradigm of administrating greater doses of IV iron to decrease ESA doses in light of this recently described associated risk underscores the significant unmet need in the treatment of anemia. However, new and purportedly safer and more effective iron supplementation therapies are being developed and introduced, and if such new therapies are accepted by patients and physicians as a superior alternative to traditional IV iron supplementation therapies, they may help maintain or increase the attractiveness of ESA therapy.

Elevated Blood Pressure

ESAs have long been associated with increased blood pressure, including new onset hypertension and exacerbation of pre-existing hypertension. As a result, ESA labeling carries a warning for the potential for increased blood pressure with ESA usage. Hypertension has been shown to accelerate CKD progression and significantly increase the risk of death in CKD patients due to the increased risk of heart attack or stroke.

Increased Thromboembolism and Vascular Access Thrombosis

ESA use has been associated with thromboembolic events, including stroke, vascular access thrombosis (where the dialysis access shunt is blocked due to blood-clotting), and blood clots in the leg, which may in part be due to increases in circulating platelet levels. ESA labels now carry a warning for an increased risk of thromboembolic events.

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FDA Restrictions on ESA Usage

In response to safety concerns elucidated in the large clinical studies described above, the U.S. Food and Drug Administration (“FDA”), steadily increased restrictions on the use of injectable ESAs from 2007 through 2011. During 2007, following the NHCT, CHOIR, CREATE, and several oncology studies, the FDA mandated the inclusion of a boxed warning, or “Black Box” warning, in the package insert for ESAs. A Black Box warning is the strongest warning that the FDA can mandate for prescription drugs. Further, in June 2011, the FDA required additional modification to the package insert for ESA use. The current label carries a black box warning of increased risk of death, myocardial infarction, or heart attack, stroke, venous thromboembolism, thrombosis of vascular access, and tumor progression or recurrence. In addition, the current package insert recommends more conservative dosing guidelines for the use of injectable ESAs in anemic CKD patients. More specifically, the FDA removed the prior target Hb range of 10 g/dL to 12 g/dL and recommends that physicians initiate treatment of CKD patients when the Hb level is less than 10 g/dL, and reduce or interrupt ESA dosing if the Hb level approaches or exceeds 10 g/dL for NDD-CKD patients and 11 g/dL for DD-CKD patients. In addition, physicians are advised to use only the lowest dose needed to avoid red blood cell transfusions.

Reimbursement Challenges Associated with ESAs

In addition to the safety concerns and labeling changes for ESAs, dialysis reimbursement, including associated drugs such as ESAs, has also changed significantly in recent years, which has made ESAs less economically attractive for healthcare providers to administer. Prior to January 2011, the Centers for Medicare and Medicaid Services (“CMS”) reimbursed dialysis centers and other healthcare providers for use of ESAs at average selling price plus a premium to their cost, which enabled providers to realize a profit on the administration of ESAs, regardless of the quantity dosed. Under the Medicare Improvements for Patients and Providers Act (“MIPPA”), a basic case-mix adjusted composite, or bundled, payment system commenced in January 2011 and transitioned fully by January 2014 to a single reimbursement rate for drugs and all services furnished by renal dialysis centers for Medicare beneficiaries with end-stage renal disease. Specifically, under MIPPA the bundle now covers drugs, services, lab tests, and supplies under a single treatment base rate for reimbursement by CMS based on the average cost per treatment, including the cost of ESAs and IV iron doses, typically without dose adjustment.

ESAs administered to NDD-CKD patients have long been reimbursed under Medicare Part B, which requires providers to purchase and store ESAs in advance of being reimbursed, and in many healthcare practices, the amount reimbursed does not cover the cost of ESA administration. For many of these providers, including in nephrology practices where purchase and storing is most common, due to label changes and related reduction in patients available for treatment, ESA administration in NDD-CKD has become economically unattractive. Furthermore, non-nephrologists generally have elected not to provide ESAs. Accordingly, ESA treatment is limited outside of dialysis centers.

Inconvenience of ESAs

In addition to safety, labeling, reimbursement, and efficacy limitations, ESAs must be administered intravenously or subcutaneously, often with IV iron in order for ESAs to be effective at treating to target Hb levels. ESAs are therefore inconvenient for the NDD-CKD population, the peritoneal dialysis (“PD”) population, for whom treatment is often administered at home, and other non-CKD anemia patients who are not already regularly visiting a hospital or dialysis center.

Our Solution

We believe that there is a significant need for a safer, more effective, more convenient, and more accessible alternative to injectable ESAs for the treatment of anemia in CKD patients. In addition, we believe there is a significant opportunity for treatment of anemia in markets not effectively addressed by ESAs, such as in the NDD-CKD population, DD-CKD in the presence of inflammation, and non-CKD anemia markets.

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Roxadustat — A Novel, Orally Administered Treatment for Anemia

Roxadustat is an orally administered small molecule that corrects anemia by a different mechanism of action from that of ESAs. As a HIF-PH inhibitor, roxadustat activates a response that is naturally activated when the body responds to reduced oxygen levels in the blood, such as when a person adapts to high altitude. The response activated by roxadustat involves the regulation of multiple, complementary processes to promote erythropoiesis and increase the blood’s oxygen carrying capacity.

Coordinated erythropoiesis includes both the stimulation of red blood cell progenitors, by increasing the body’s production of EPO, and an increase in iron availability for Hb synthesis. Patients taking roxadustat typically have circulating endogenous EPO levels at peak concentration within or near the physiologic range naturally experienced by people adapting to hypoxic conditions such as at high altitude, following blood donation or impaired lung function, such as pulmonary edema. By contrast, ESAs act only to stimulate red blood cell progenitors without a corresponding increase in iron availability, and are typically dosed at well above the natural physiologic range of EPO. The sudden demand for iron stimulated by ESA-induced erythropoiesis can lead to functional or absolute iron deficiency. We believe these high doses of ESAs are a main cause of the significant safety issues that have been attributed to this class of drugs. In contrast, the differentiated mechanism of action of roxadustat, which involves induction of the body’s own natural pathways to achieve a more complete erythropoiesis, has the potential to provide a safer and more effective treatment of anemia, including in the presence of inflammation, which normally limits iron availability.

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Our HIF-PH inhibitor technology relies on the natural mechanism by which the body responds to low oxygen levels. HIF is a transcription factor comprised of a HIF-alpha and a HIF-beta subunit, both of which are required to stimulate erythropoiesis. Under normal oxygen conditions, the HIF-alpha subunit is targeted for rapid degradation through the activity of a family of HIF-PH enzymes. However, under low oxygen conditions, the HIF-PH enzymes cannot function and HIF-alpha accumulates. HIF-alpha then combines with HIF-beta, and the newly formed HIF complex initiates transcription of a number of genes involved in erythropoiesis, which ultimately leads to increased oxygen delivery to tissues. Roxadustat works by reversibly inhibiting the HIF-PH enzymes, thus mimicking this coordinated natural erythropoiesis through genes encoding the proteins shown below involved in iron absorption, mobilization and transport, as well as stimulation of red blood cell progenitors.

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Our discovery and development of roxadustat resulted from years of experience working with prolyl hydroxylase enzymes, such as those that regulate HIF, and a deep understanding of the complexities of HIF biology. We have explored therapeutic activation of HIF to treat anemia from an integrated perspective with a focus on applying our HIF-PH inhibitor technology to produce coordinated effects on erythropoiesis, iron homeostasis, and metabolism. As part of these progressive efforts, we have explored the ability of our HIF-PH inhibitor technology to increase sensitivity to endogenous EPO by increasing EPO receptor expression on red blood cell progenitors. We have investigated multiple effects of HIF-PH inhibitors on iron metabolism, including their ability to regulate genes that can increase iron bioavailability. We have also shown that administration of HIF-PH inhibitors can decrease expression of hepcidin, the key hormone that regulates iron metabolism. Hepcidin is elevated under conditions of chronic inflammation, leading to reduced iron availability for erythropoiesis. Based on our gene expression and hepcidin data, we believe HIF-PH inhibitors can increase intestinal iron absorption and enhance the mobilization and uptake of iron. In addition, we have shown that HIF-PH inhibitors can improve transferrin saturation (“TSAT”), a measure of circulating iron available for erythropoiesis, and can correct anemia associated with chronic inflammation by overcoming the hepcidin-mediated sequestration of iron.

We selected roxadustat from our extensive library of compounds from various chemical classes of HIF-PH inhibitors, including heterocyclic carboxamides and 2-oxoglutarate mimetics. Roxadustat was selected based on our belief that stabilizing the two main forms of HIF in the cell, HIF-1 and HIF-2, leads to more complete erythropoiesis.

Although HIF-PH inhibitor programs have been subsequently initiated at several other companies, we expect to remain the leader in the development of HIF-PH inhibitors for anemia, with more patients dosed and more studies conducted with roxadustat than with any other HIF-PH inhibitor.

Potential Advantages of Roxadustat for Treatment of Anemia in CKD

We believe that roxadustat has the potential to offer several safety, efficacy, reimbursement, and convenience advantages over ESAs.

Potential Safety and Efficacy Advantages

Our clinical trials to date have shown that roxadustat can treat anemia in CKD with much lower circulating EPO levels than with treatment by ESAs, mitigate the need for IV iron and treat anemia in the presence of inflammation, thereby offering potential safety and efficacy benefits over ESAs. We have incorporated several endpoints into our Phase 3 studies to further elucidate and demonstrate these and other potential clinical benefits of roxadustat.

Potential Cardiovascular Benefits

The CKD patient population is at high risk for cardiovascular events such as heart attacks and strokes. One known side effect of ESAs is elevation of blood pressure, which is particularly dangerous in this high-risk patient population. In contrast, we did not observe increases in blood pressure in patients treated with roxadustat beyond the background levels observed for the comparable, placebo-treated patients in a NDD-CKD Phase 2 trial. However, these data should be cautiously assessed due to the limited number of patients exposed. In Study 041, the NDD-CKD patients treated with roxadustat three-times weekly for more than 12 weeks had a modest decrease in blood pressure in a subgroup analysis of our Phase 2 NDD-CKD study.

In our Phase 2 studies, we did not observe a safety signal for thromboembolic risk. In contrast to the platelet increase with ESA treatment, platelet counts reported in roxadustat-treated patients did not increase, as those with platelet levels in the top 25th percentile at baseline saw their platelet levels decrease towards normal levels while those with platelet levels in the lower 75th percentile at baseline saw their platelet levels remain stable. This finding supports our belief in a potential safety benefit over ESAs since the platelet increase with ESAs could be a contributing factor in the thromboembolic risk associated with ESAs.

In addition, in our Phase 2 clinical trials, we observed reductions in total cholesterol and an improvement in average high-density lipoprotein (“HDL”) / low-density lipoprotein (“LDL”) ratio. Since many CKD patients have high cholesterol levels, which contribute to cardiovascular-related morbidity and mortality, the improvement in the average HDL / LDL ratio observed with roxadustat treatment could confer a benefit to patients.

Based on our preclinical and clinical data generated to date, we believe roxadustat could offer cardiovascular benefits to a CKD patient population that typically has cardiovascular-related co-morbidities and is at a high risk for cardiovascular events.

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Potential for Anemia Correction with Moderate EPO Levels

Randomized trials have suggested that high doses of ESAs administered in an attempt to achieve a target Hb level may cause the safety issues associated with ESA therapy. These high doses result in serum EPO levels much higher than physiological range. In contrast, the level of endogenous EPO elevation among patients treated with roxadustat is typically within or near the range observed when ascending to a higher elevation or giving blood. Treating anemia while maintaining lower circulating EPO levels may mitigate, or even avoid, the risks from ESA therapy, including cardiovascular events and death.

The following graph depicts:

¹ Milledge & Cotes (1985) J Appl Physiol 59:360;² Goldberg et al. (1993), Clin Biochem 26:183, Maeda et al. (1992), Int J Hematol 55:111; ³Kato et al. (1994) Ren Fail 16:645; ⁴The transient peak endogenous EPO concentrations (“Cmax”), data for roxadustat was derived from a subset of 243 patients who achieved a Hb response to roxadustat in our Phase 2 studies for whom we believe doses depicted approximated therapeutic doses. Hb target ranges for these patients were above the Hb levels specified in the current ESA package insert for CKD patients. Only doses in those patients whose Hb responded in Phase 2 studies are reflected in the figure. The subset of patients included 134 NDD-CKD patients treated to thrice-weekly, twice-weekly, or weekly doses of roxadustat for >16 weeks. The subset also included 109 DD-CKD patients, including incident dialysis patients whose anemia was corrected with therapeutic doses and stable dialysis patients who received maintenance doses. Cmax of endogenous EPO levels were not measured in all patients; instead the range of EPO Cmax levels were estimated based on data derived from a more limited number of patients in whom EPO levels were measured at various roxadustat doses and among whom there was substantial variation in measured EPO levels. Accordingly, individual patients who received roxadustat may have realized EPO Cmax levels significantly above or below these estimated levels. Moreover, the estimates reflected in the graph may not be reflective or predictive of actual EPO Cmax levels or ranges that will be realized in larger populations of patients receiving roxadustat in our Phase 3 clinical trials. ⁵EPO C_max was computed from ESA dose distributions based on Flaherty et al. (1990) Clin Pharmacol Ther 47:557.

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Potential for Anemia Correction for Patient Populations that are Hyporesponsive to ESAs

Incident dialysis patients and patients who have chronic inflammation are often hyporesponsive to ESAs, which necessitates the use of higher doses of ESAs to increase Hb levels, thus increasing both safety risk and treatment cost. In contrast, the dose of roxadustat may not need to be increased in incident dialysis patients or to overcome the suppressive effects of inflammation on erythropoiesis, which we believe may confer significant safety and efficacy benefits.

As a result of roxadustat’s different mechanism of action, the ability of roxadustat to stimulate erythropoiesis does not appear to be impaired by chronic inflammation.

Our preclinical studies indicate that roxadustat can overcome the direct suppressive effects of inflammatory cytokines on erythropoiesis. In these studies, we observed roxadustat’s ability to reduce hepcidin expression, thus increasing absorption of iron from the GI tract and the release of iron from intracellular stores and mitigating the functional iron deficiency associated with chronic inflammation.

In our Phase 2 studies, patients’ Hb response to roxadustat was independent of the degree of underlying inflammation, as assessed by circulating levels of C-reactive protein (“CRP”), a well-recognized marker of inflammation. Incident dialysis patients are known to have the highest levels of mortality of all dialysis patients. The incident dialysis period is also the period during which mean ESA doses are generally highest. To the extent the increased levels of mortality are associated with high ESA doses, roxadustat may offer a benefit to incident dialysis patients. The median roxadustat dose in our dialysis Study 053 was 1.3 mg/kg; the Cmax of endogenous EPO levels usually associated with this dose level are comparable to the physiologic range naturally experienced by people adapting to high altitude or following blood donation. Refer to additional information on endogenous EPO levels under the heading “Potential for Anemia Correction with Moderate EPO Levels.”

Potential for Reduced Hepcidin Levels and Anemia Correction without IV Iron

An important differentiator of roxadustat from ESAs is that roxadustat is expected to correct anemia and maintain Hb without IV iron supplementation. Patients with chronic illness, such as CKD, often suffer from absolute iron deficiency or functional iron deficiency. We believe that elevated levels of hepcidin, the major hormone that regulates iron metabolism, contributes to both absolute and functional iron deficiency.

Our Phase 2 clinical trials have shown that roxadustat can significantly reduce hepcidin levels in patients with DD-CKD and NDD-CKD. The following figure shows an average reduction in serum hepcidin level of approximately two thirds, observed at week 5, in 52 incident dialysis patients treated with roxadustat. Roxadustat’s ability to reduce hepcidin levels was also confirmed in our Phase 3 studies in China.

Reduction of Serum Hepcidin Levels (Study 053) in Incident Dialysis Patients

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In addition, we believe roxadustat increases the levels of proteins involved in iron uptake, release, and transport. Data from our Phase 2 clinical trials indicate that oral iron supplementation alone is adequate to correct anemia during treatment with roxadustat, in contrast to ESAs, which typically require IV iron supplementation. Additionally, our data indicate that unlike ESAs, roxadustat treatment does not require that patients be iron replete before initiating therapy.

Avoiding IV iron helps to avoid the significant safety risks associated with IV iron described above, and, because the cost of oral iron is significantly less than the cost of IV iron, could also confer significant costs savings.

Potential Reimbursement and Convenience Advantages

Potentially Differentiated Reimbursement Framework

ESAs are included in the MIPPA bundled payment system in the DD-CKD setting and reimbursed under Medicare Part B in the NDD-CKD setting. Based on our roxadustat data to date, we believe roxadustat has the potential to correct anemia through a differentiated mechanism of action and that offers different therapeutic effects and the potential to displace multiple drugs in current use (such as ESAs and IV iron), and/or those in development (such as agents for suppression of hepcidin). Although the bundle currently covers ESAs or oral equivalents of ESAs or other IV products encompassed by the bundle, due to the differentiated nature of roxadustat, it is unclear whether roxadustat will be included in or excluded from the bundle. We believe that there may be commercial benefits in either event but are unable to predict the potential benefits until further guidance from CMS becomes available.

In the NDD-CKD setting, we expect that roxadustat, an oral treatment, should be subject to Medicare Part D, which would allow physicians to prescribe roxadustat without the financial and reimbursement risk associated with purchasing and storing injectable ESAs. We believe that this should encourage significantly greater usage outside of the dialysis setting.

Potential Reduction of Other Medications

In addition to potentially eliminating the need for IV iron, based on our Phase 2 clinical trial results to date, we believe that roxadustat has the potential to reduce the use of other medications frequently required in some CKD anemia patients, such as anti-hypertensives, anti-coagulants, and statins.

Oral Administration

Many physicians that treat CKD patients, particularly cardiologists, endocrinologists, and internists, do not typically stock or administer ESAs. An easily accessible oral agent that is dispensed by pharmacies could significantly increase the number of physicians treating anemia in patients with CKD, and therefore, the number of patients receiving treatment.

In addition, the oral administration of roxadustat potentially offers a significant convenience advantage for CKD patients who have yet to initiate dialysis and are therefore not regularly visiting a dialysis center. Patients can more easily self-administer medicine in any setting, rather than being subject to the inconvenience and restrictions of regular visits to physicians’ offices or infusion centers to receive treatment with ESAs.

Potential Pharmacoeconomic Advantages

Based on our Phase 2 clinical trial results to date, we believe that roxadustat’s potential pharmacoeconomic advantages over ESA therapy may include safety (with a potential decrease in cardiovascular events and consequently lower associated treatment costs), lower administrative cost, reduction or elimination of IV iron and potentially other medications. If demonstrated in our Phase 3 studies, these pharmacoeconomic advantages may support reimbursement worldwide, including in Europe and China.

The Market Opportunity for Roxadustat

We believe that there is a significant opportunity for roxadustat to address markets currently served by injectable ESAs. According to IMS Health, 2013 global ESA sales in all indications totaled $8.6 billion, driven primarily by $6.2 billion sold in the U.S. and Europe. We believe that a substantial portion of ESA sales are for CKD anemia. For example, in the U.S., EPOGEN, which is primarily used in the DD-CKD patient population, had 2014 sales of approximately $2 billion. We further believe that the number of patients requiring anemia therapy will grow steadily as the global CKD population and access to dialysis care continue to expand, particularly in China and other emerging markets including the rest of Asia, Latin America, Eastern Europe, the Middle East, and the Commonwealth of Independent States.

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Furthermore, we believe that there is a significant opportunity for roxadustat to address patient segments that are currently not effectively served by ESAs, such as anemia in the NDD-CKD patient population, which is substantially larger than the DD-CKD patient population. Diabetes and hypertension are the leading causes of secondary CKD. Although we estimate approximately 36% of diabetic and 20% of hypertensive CKD patients are anemic (Hb<12 g/dL), we believe the majority of these patients are currently untreated for anemia since they are under the care of non-nephrology specialists, such as endocrinologists, diabetologists, cardiologists, and internists, where ESA therapies are not readily available.

We also believe that roxadustat may provide a safer option to re-establish the chemotherapy-induced anemia market, which was once a market of comparable size to the DD-CKD anemia market. Other non-CKD anemias, including anemia related to inflammatory diseases, MDS and surgical procedures requiring transfusions, which are not addressed adequately with currently available therapies, could form another opportunity.

OUR DEVELOPMENT PROGRAM FOR ROXADUSTAT

We along with our partners, Astellas and AstraZeneca, have designed our global Phase 3 programs to support regulatory approval of roxadustat in both NDD-CKD and DD-CKD patients in the U.S., EU, Japan, and China. These Phase 3 programs are studying multiple patient populations, including incident dialysis patients and stable dialysis patients being compared to epoetin alfa as an active comparator, and include multiple NDD-CKD studies comparing roxadustat against placebo controls.

For our U.S. program, we have agreed with our partner, AstraZeneca, on the timing to complete our Phase 3 studies. We believe at that time we will have accrued sufficient MACE events. We now plan to complete enrollment in the second quarter of 2018, report topline results in the fourth quarter of 2018, and file the NDA for roxadustat in CKD anemia during the first half of 2019.

In 2017, we and our China subsidiary, FibroGen (China) Medical Technology Development Co., Ltd. (“FibroGen Beijing”), reported topline results from our two Phase 3 CKD anemia studies in China. Primary efficacy endpoints were met in both the NDD-CKD and the DD-CKD trials. Results are included below in the section titled “Roxadustat for the Treatment of Anemia in Chronic Kidney Disease in China”. We completed the 52-week safety exposure in the China Phase 3 studies, and in October 2017 the China Food and Drug Administration (“CFDA”) accepted for review our New Drug Application (“NDA”) submission for the registration of roxadustat to treat anemia for DD-CKD patients and NDD-CKD patients. We currently anticipate a market approval decision for our CKD anemia NDA in China by the end of 2018.

In Japan, Astellas is conducting six Phase 3 anemia studies, four in DD-CKD and two in NDD-CKD, of which three have been completed. These studies include conversion studies, studies in ESA-naïve patients, studies in HD and PD, and studies comparing roxadustat to active control.

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The table below summarizes our ongoing and completed Phase 3 clinical trials of roxadustat for the treatment of anemia associated with CKD, all of which include Hb level maintenance as a study objective, once correction or conversion is achieved. The chart emphasizes the differences, by regulatory approval region in estimated patient enrollment numbers.

Roxadustat Phase 3 Clinical Trials

To maximize the commercial potential for roxadustat, we have incorporated several unique elements into our Phase 3 program. We are performing the first placebo-controlled Phase 3 studies in NDD-CKD patients to potentially demonstrate the benefits of anemia therapy and safety of roxadustat compared to placebo. We are also performing the largest Phase 3 study in incident dialysis anemia patients, who have the highest risk for death, and are the most difficult patients to stabilize and treat for anemia in CKD. Based on data from our Phase 2 studies, we believe that roxadustat may offer a safer alternative to ESAs for this particularly vulnerable patient population. We are also evaluating the cardiovascular safety of roxadustat compared to placebo in NDD-CKD patients to first demonstrate a lack of increased risk to qualify for marketing approval by the FDA, and in these patients we will have an opportunity to measure improvements in patient outcomes with anemia therapy. Separately, we are evaluating cardiovascular safety of roxadustat compared to ESA in DD-CKD patients.

Our U.S. and European Phase 3 Program

Our U.S. and European Phase 3 program has an aggregate target enrollment of more than 8,000 patients worldwide. Our U.S. Phase 3 program is also designed and sized for to demonstrate non-inferiority to comparators for the MACE composite safety endpoints in separate patient pools of NDD-CKD and DD-CKD. Five of the six Phase 3 studies supporting approval in the EU will also support approval in the U.S.

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Primary and Secondary Endpoints of Our U.S. and European Phase 3 Program

With our partners, we have designed our Phase 3 studies to evaluate the following endpoints, most of which were evaluated in our Phase 2 studies.

Dosing Regimen

Our Phase 3 studies incorporate dosing regimens that were extensively tested in our six Phase 2 studies.

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In addition, our previous preclinical studies suggested that a wider therapeutic window was achieved with intermittent dosing as compared to daily dosing. Preclinical observations such as these led us to conclude that intermittent dosing could enable a better Hb response with a lower overall drug exposure and offer a potentially wider therapeutic window.

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Our Phase 2 studies indicate that intermittent dosing enabled anemia correction up to 24 weeks and Hb maintenance up to 19 weeks when converting a patient from ESA.

Clinical Trial Eligibility, Iron Status, and Iron Supplementation During Treatment

Unlike ESA clinical trials where patient study eligibility criteria included a requirement of adequate iron availability (measured by ferritin ≥100 ng/mL and TSAT ≥ 20%) and encouraged IV iron use, roxadustat Phase 2 studies included anemic NDD-CKD patients with ferritin ≥ 30 ng/mL and TSAT ≥ 5% and anemic DD-CKD patients with ferritin ≥ 50 ng/mL and TSAT ≥ 10%, which permitted the inclusion of iron-deficient patients. Hb response was generally achieved in iron deficient NDD-CKD and DD-CKD patients (ferritin <100 ng/mL and TSAT<20%), despite the fact that IV iron was not allowed during roxadustat treatment.

Our placebo-controlled Phase 3 NDD-CKD studies are using the same iron eligibility criteria employed in our Phase 2 studies, which allow oral iron, but prohibit the use of IV iron (except as a rescue medication). In our Phase 3 DD-CKD studies, since ESA serves as the comparator and similar treatment conditions are required for roxadustat and ESA, study eligibility criteria include ferritin ≥ 100 ng/mL and TSAT ≥ 20%. Patients are randomized to roxadustat or ESA, and are encouraged to take oral iron as a first-line supplemental agent. IV iron is permitted if there is inadequate Hb response to treatment and if the patient is iron deficient (ferritin <100 ng/mL and TSAT<20%).

Our Phase 2 Program

We and our partner have completed eight roxadustat Phase 2 studies, four in NDD-CKD patients and four in DD-CKD patients, to assess the efficacy of roxadustat to both correct anemia (correction) and maintain the Hb response (maintenance). Two of the six completed Phase 2 studies were conducted in China and are discussed in the section below titled “Roxadustat for the Treatment of Anemia in Chronic Kidney Disease in China”. The efficacy and safety data generated from our China studies were consistent with our U.S. Phase 2 studies and further contributed to the promising efficacy and safety results reported to date. In addition, we announced positive Hb correction and maintenance data from Astellas’ Phase 2 DD-CKD and NDD-CKD studies in Japan in July of 2016 and these studies are discussed in the section below titled “Roxadustat for the Treatment of Anemia in Chronic Kidney Disease in Japan”.

Of the remaining four studies, data have been published and presented at various medical conferences and in medical journals. The data from our completed Phase 2 studies demonstrated that roxadustat achieved a clinically meaningful increase in Hb levels in anemic NDD-CKD and DD-CKD patients and maintained Hb levels in DD-CKD patients who were converted from ESA therapy. Roxadustat corrected anemia without the need for IV iron supplementation and exhibited an acceptable safety profile. Specifically, our Phase 2 studies achieved the following objectives:

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The following chart summarizes the design of our completed Phase 2 studies outside of Japan and China (discussed in their respective sections below) and the primary objectives of each study.

Completed Phase 2 Studies

QW = weekly; BIW = twice weekly; TIW = three-times weekly

Study 017: Dose-Escalating Study in NDD-CKD patients

Study 017 established proof of concept for roxadustat by showing a significant increase in Hb in a dose-dependent manner, and providing data on the relationship between roxadustat dose and Hb response. This formed the basis for the dosing rules that we applied in subsequent studies of longer duration and in a larger number of patients.

This study, a randomized, single-blind, placebo-controlled, dose-escalation study, was the first Phase 2 study to assess the safety and efficacy of a range of roxadustat doses in the correction of anemia in NDD-CKD stage 3 and 4 patients, over four weeks of treatment, and a 12-week safety follow-up period. A total of 117 patients (of which 96 were evaluable) were randomized sequentially into four weight-based dose cohorts: 1 mg/kg, 1.5 mg/kg, 2 mg/kg, and 0.7 mg/kg, respectively. Roxadustat was administered either twice weekly or three-times weekly.

Weight-Based, Three-Times Weekly and Twice Weekly Dosing Leads to Hb Improvement. We tested four different roxadustat weight-based doses administered for four weeks with Hb measurements over a six-week period. As shown in the table below, all of the patients in the highest weight-based dose cohort met the criteria for response in that they achieved Hb rise >1 g/dL in four weeks. As roxadustat achieved 100% Hb response at the 2 mg/kg dose, higher doses were not pursued in this study despite the absence of dose-limiting toxicities. Roxadustat was well tolerated without any safety concerns.

Significant, Dose-Dependent Increases in Hb. As shown in the table below, the dose-dependent change in Hb from baseline in roxadustat patients was statistically significant from placebo by day eight (p=0.025) and remained so at each assessment through week six (p=0.0001 at Day 22; p<0.0001 at Day 26–29/end of treatment).

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A p-value is a statistical measure of the probability that the difference in two values could have occurred by chance. The smaller the p-value, the greater the statistical significance and confidence in the result. Typically, results are considered statistically significant if they have a p-value less than 0.05, meaning that there is less than a one-in-twenty likelihood that the observed results occurred by chance. The FDA requires that sponsors demonstrate the effectiveness and safety of their product candidates through the conduct of adequate and well-controlled studies in order to obtain marketing approval. Generally, the FDA requires a p-value of less than 0.05 to establish the statistical significance of a clinical trial, although there are no laws or regulations requiring that clinical data be statistically significant, or that require a specific p-value, in order for the FDA to grant approval.

Hb Responses to a Range of Roxadustat Doses in FGCL-4592-017

BIW = twice weekly; TIW = three-times weekly

Standard error of the mean (“SE”), is a statistical measure of the amount that an observed mean may be expected to differ by chance from the true mean. For a population that follows a normal distribution, 68% of observed means will be within one standard error of the mean.

Dose-Dependent Reduction in Hepcidin Levels. Roxadustat reduced serum hepcidin levels in a dose-dependent fashion.

Study 041: Study for Optimization of Starting Dose and Dose Titration in NDD-CKD Patients

Study 041 demonstrated that both tier-weight and fixed starting doses can initiate anemia correction. In tier-weight based dosing for this study, we used starting doses based on the patient’s body weight category: high, middle or low. This randomized, open-label Phase 2 study was designed to evaluate the efficacy and safety of roxadustat over 16 to 24 weeks in 145 NDD-CKD patients (of which 143 were efficacy evaluable), and to evaluate the effects of dosing regimens in order to determine an optimized approach to anemia correction. In this trial, we tested six different starting dose regimens: three fixed doses and three tier-weight doses. In fixed dosing, all patients in the same cohort were given the same starting dose. Results from this study were published in the June 2016 Clinical Journal of the American Society of Nephrology.

We tested both three-times weekly and twice weekly dosing frequencies for anemia correction, similar to Study 017, and further demonstrated that Hb levels can be maintained using three dosing frequencies (three-times weekly, twice weekly, and weekly) once target Hb ≥11 g/dL was achieved. We also studied various dose adjustment rules, with dose adjustment decisions made from five weeks onward, and every four weeks thereafter, to seek the best dose titration scheme.

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Hb Correction. We met the primary efficacy endpoint of cumulative number (%) of patients with a Hb response, defined as an increase in Hb ≥ 1.0 g/dL from baseline and Hb ≥ 11.0 g/dL at the end of treatment. Regardless of the starting dose or dose titration scheme, 92% of patients collectively from all cohorts achieved an Hb increase of at least 1 g/dL from baseline. These data suggest the doses studied are of adequate range for anemia correction. The following figure shows mean Hb levels for the six dose groups.

FGCL-4592-041 Hb Response over Various Dosing Regimens

TIW = three-times weekly; BIW = twice weekly; QW= once weekly

Hb Correction was Independent of Inflammation Status. In this study, in a post-hoc analysis, we observed that the magnitude of increases in Hb in response to roxadustat treatment was comparable for both patients with inflammation (elevated CRP levels) and without inflammation (normal CRP levels).

FGCL-4592-041 Mean (± SE) Maximum Change in Hb (g/dL) in 12 Weeks

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This stands in contrast to treatments with ESAs, where elevated CRP is frequently associated with lower Hb response to ESAs. We observed a 38% reduction in mean hepcidin level from baseline with eight weeks of roxadustat treatment (p≤0.0001), which supports our belief in roxadustat’s ability to overcome inflammation and to maintain iron availability for erythropoiesis.

FGCL-4592-041 Mean (± SE) Serum Hepcidin Level (ng/mL)

Hb Correction Without IV Iron and in Patients Who Have Low Iron Levels at Study Initiation. We also evaluated several iron parameters to assess roxadustat’s ability to improve Hb without the use of IV iron. At baseline, 49% of the efficacy evaluable patients did not have sufficient iron levels in the body to qualify for initiation of ESA treatment under current practice guidelines and would have been excluded from participation in all prior ESA Phase 3 trials. These patients would not be considered iron replete and are typically first treated with IV iron prior to ESA treatment initiation in an effort to ensure an adequate response to ESA and to minimize the risk of iron depletion. Of all patients in this study receiving roxadustat, only 38% were taking oral iron supplements. A mean Hb increase of 1.8 g/dL was achieved in the first 16 weeks of treatment without IV iron supplementation. There was no evidence for iron depletion as reticulocyte Hb content (“CHr” or the amount of Hb in newly formed red blood cells) was maintained. On the other hand, there was evidence for improved iron utilization with increases in the MCV and increase in mean corpuscular Hb concentration (MCHC) over the first 16 weeks of treatment with roxadustat from baseline (p=0.0018 and p<0.0001, respectively); both MCV and MCHC typically decrease when there is iron deficiency.

Despite the minimal use of oral iron and lack of IV iron usage, patients who were not iron replete had similar Hb responses at week 16 as patients who were iron replete.

Reduction in Cholesterol Levels. In a post-hoc analysis of all cohorts, total cholesterol decreased during treatment with roxadustat by a mean of 26 (SD+/- 30) mg/dL after eight weeks of therapy. Mean reductions in total cholesterol were greater for patients with abnormally high cholesterol levels (>200 mg/dL). Decreases in cholesterol levels were independent of whether patients were taking statins or other lipid lowering agents. Furthermore, the HDL/LDL ratio improved with roxadustat treatment in the subgroup of patients in which lipid profiles were conducted.

Improvement in Quality of Life. Finally, in an analysis of exploratory endpoints we observed improved quality of life in patients treated with roxadustat using a standard questionnaire called the SF-36 HRQOL. The largest positive changes from baseline occurred in the Vitality subscale (>4 points, p<0.0001) and Physical Component (>1.6 points, p<0.005) subscales of the questionnaire. We believe these data demonstrate that roxadustat may improve quality of life by correcting patients’ anemia.

Study 040: ESA Conversion Study in DD-CKD Patients

Study 040 was designed to evaluate the short- and long-term dosing of roxadustat in patients on HD treatment. These results established a conversion dose relationship between ESAs and roxadustat that will be used for Phase 3 trials. Roxadustat maintained Hb without the use of IV iron, which is generally required for the treatment of anemia by ESAs.

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This randomized, single-blind study was the first roxadustat study in patients on HD treatment. Part 1 was a six-week, open-label Phase 2 dose ranging study in 54 patients (of whom 42 were efficacy evaluable) to evaluate the impact of four sequential doses of roxadustat on dialysis patients’ Hb levels over six weeks upon switching from epoetin alfa, in comparison to those continuing prior epoetin alfa doses. Part 2 was a 19-week treatment study in 90 patients (of whom 83 were efficacy evaluable) to establish optimal conversion doses and dose adjustments. Patients included had previously demonstrated a wide range of ESA-responsiveness. In Part 1, study 040 met its primary endpoint of maintaining Hb in patients previously treated with epoetin alfa at week 6, indicating that roxadustat can replace ESAs in DD-CKD. In Part 2, study 040 also met its primary endpoint of maintaining Hb at week 19, indicating that roxadustat may be effective at long-term maintenance of Hb. IV iron was prohibited in both roxadustat-treated patients and ESA-treated control patients during this study.

Maintenance of Hb Levels Following Conversion from ESAs. In Part 1 of this study (six-week treatment), 41 patients were randomized to one of four roxadustat dose cohorts, and 13 were randomized to continue on epoetin alfa treatment. The primary endpoint of this study was to maintain an Hb level equal to or above 0.5 g/dL below baseline Hb by the end of six weeks. As shown in the figure below, roxadustat had a dose-response effect for maintaining Hb levels. The lowest roxadustat dose cohort of 1.0 mg/kg was comparable to epoetin alfa with maintenance in 44% of roxadustat patients and 33% of the control arm, patients who continued treatment with epoetin alfa (but who were required to stop concomitant treatment with IV iron). Roxadustat doses of 1.5 mg/kg or higher performed better than epoetin alfa in maintaining Hb, with 79.2% overall maintenance and 80% maintenance at the 1.5 mg/kg roxadustat dose, 80% maintenance at the 1.8 mg/kg roxadustat dose and 77.8% maintenance at 2 mg/kg roxadustat dose.

In Part 2 of the study (19-week treatment), 67 patients (with baseline ESA dose requirements ranging from 7 to 164.5 U/kg three-times weekly) were randomized to seven cohorts of roxadustat (with various starting doses) and 23 patients were randomized to continue on epoetin alfa. Hb correction in the roxadustat treated patients pooled across all treatment cohorts was maintained over the 19-week treatment period and was comparable to epoetin alfa. The average roxadustat dose requirement for Hb maintenance was approximately 1.70 mg/kg three-times weekly.

In Part 1, which was dose ranging, we observed an increase in Hb level at doses of 1.5 to 2.0 mg/kg TIW as shown in the figures below. In Part 2, which was to establish the optimal conversion dose, we observed similar Hb maintenance between roxadustat and epoetin alfa.

FGCL-4592-040 Mean: (± SE) Hb over Time During Anemia Treatment with Roxadustat or Epoetin Alfa in Dialysis Patients

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In addition, in an exploratory analysis of this study we observed a dose-dependent decrease in hepcidin in Part 1 of this study.

FGCL-4592-040: Change in Hepcidin Level from Baseline (ng/mL)

DD-CKD patients who switched from ESA treatment to treatment with 2.0 mg/kg roxadustat had significantly greater reduction in serum hepcidin level than those who continued ESA treatment (p=0.038).

FGCL-4592-040 Mean (± SE) Serum Hepcidin Level (ng/mL)

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Roxadustat Doses are Associated with Lower Circulating EPO Levels than Epoetin Alfa. The following chart shows the result of six patients who were highly responsive to epoetin alfa and participated in a sub study in which their EPO levels during treatment with roxadustat were compared to EPO levels when the patients were receiving epoetin alfa prior to randomization. Their mean peak EPO concentration after an average dose of 44 U/kg was significantly higher when patients were receiving epoetin alfa relative to when they were receiving a mean roxadustat dose of 1.3 mg/kg as illustrated below. This observation is consistent with the mechanisms of action of ESA and roxadustat, respectively, and we believe the lower EPO exposure observed with roxadustat offers potential safety benefits.

FGCL-4592-040: Mean (+SE) Plasma EPO Levels During Treatment with Roxadustat Compared with Prior Epoetin Alfa Dosing in the Same Patients (n=6)

Maintenance of Adequate Iron Supply. The concentration of Hb within newly formed red blood cells (“CHr”) is a measure of iron availability for erythropoiesis. In an exploratory analysis of this study, without IV iron supplementation (which was prohibited in this study), CHr was maintained during roxadustat treatment but declined in patients who continued treatment with epoetin alfa. This finding indicates that unlike epoetin alfa, roxadustat allows endogenous stores of iron to provide an adequate supply to newly forming red blood cells without IV iron supplementation.

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FGCL-4592-040: Mean Reticulocyte Hb Content (CHr) over Time in Subjects Treated with Roxadustat and Epoetin Alfa

Reduction in Total Cholesterol. Consistent with our Phase 2 studies in NDD-CKD patients, we observed in a post-hoc analysis that roxadustat reduced total cholesterol levels in stable dialysis patients, and this effect appeared durable throughout the 19-week treatment period as depicted below.

FGCL-4592-040: Mean (±SE) Total Cholesterol over Time During Treatment of Dialysis Patients with Roxadustat or Epoetin Alfa-Treated

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Study 053: Correction of Anemia in Incident Dialysis Patients

Results from this study were published in the April 2016 Journal of the American Society of Nephrology. Incident dialysis patients are at increased risk of serious cardiovascular events and death as compared to stable dialysis patients. The mortality rate among dialysis patients is highest during the first few months of dialysis initiation, and on average, patients also require the highest doses of ESA in this period. These patients typically have high levels of systemic inflammation and require IV iron supplementation for ESA to be effective.

This randomized, open-label study was designed to evaluate the safety and efficacy of roxadustat for correction of anemia in 60 incident dialysis patients (of whom 55 were efficacy evaluable) who were on dialysis for at least two weeks and not more than four months and had not been treated with ESAs, and to compare the treatment responses to roxadustat under the different iron supplementation conditions. All treatment groups in Study 053 met their primary endpoint of increasing Hb level during treatment: each cohort achieved maximum mean Hb increases from baseline, ranging between 2.8 g/dL to 3.5 g/dL, resulting from 12 weeks of roxadustat treatment. We observed that at week 12 in excess of 90% of the patients achieved a greater than 1 g/dL increase in Hb from baseline. In addition, while roxadustat corrected anemia without iron supplementation, oral iron enabled an optimal Hb response. More importantly, oral iron was as effective as IV iron for Hb correction by roxadustat. In contrast, ESA therapy requires IV iron supplementation in this patient population.

This study also showed that roxadustat can correct anemia regardless of the patient’s level of inflammation as measured by CRP. At week 12, the median weekly dose of roxadustat was 4.0 mg/kg in this trial of incident dialysis patients and is similar to the median weekly dose of 4.45 mg/kg at week 12 in Study 040, our trial of roxadustat in stable dialysis patients. In contrast, ESA therapy typically involves higher doses at the time of dialysis initiation.

The 48 HD patients were randomized to one of the three iron supplementation options: oral iron, IV iron, or no iron. Included in the 60 patients were 12 PD patients who received oral iron. This study incorporated the same tier-weight based dosing regimen utilized in Study 041.

Hb Correction in Incident Dialysis Patients without IV Iron Administration. All three cohorts of roxadustat-treated HD patients (no iron, oral iron or IV iron supplementation) and PD patients (oral iron) achieved a significant increase in the maximum Hb change from baseline, which was the primary efficacy endpoint. Most importantly, the maximum increase in Hb was not significantly different between roxadustat-treated HD patients supplemented with oral iron (3.5 g/dL) and those supplemented with IV iron (3.5 g/dL). In contrast, a published study of ESAs in this patient population showed that patients supplemented with oral iron achieved an Hb response comparable to no iron supplementation and significantly lower Hb response than those supplemented with IV iron. These Phase 2 data demonstrate that roxadustat, unlike ESAs, may eliminate the need for IV iron and thus avoid the side effects of IV iron in DD-CKD patients.

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FGCL-4592-053: Hb over Time During Anemia Correction with Roxadustat in Incident Dialysis Patients, with No Iron, Oral Iron, or IV Iron Supplementation

Note: Hb = hemoglobin; HD = hemodialysis; PD = peritoneal dialysis; n = number of patients

Note: *p<0.05 compared to IV iron and oral iron

Maintenance of Iron Stores. In an exploratory analysis of this study, TSAT, a marker of iron stores, was well maintained during this period of intensive production of red blood cells with oral iron alone, indicating that iron stores can be maintained without IV iron.

FGCL-4592-053: TSAT over Time During Anemia Correction with Roxadustat in Incident Dialysis Patients, with No Iron, Oral Iron, or IV Iron Supplementation

Hb Correction Independent of Inflammation Status. As is typical of incident dialysis patients, about half of all patients had elevated CRP levels at baseline. In a post-hoc analysis of this study, we observed that Hb responses following roxadustat treatment were independent of baseline CRP levels. These data demonstrate that, unlike the ESAs, roxadustat has the potential to overcome the suppressive effects of inflammation on Hb responsiveness to treatment.

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Significant Reduction in Hepcidin. Consistent with our other studies, in an exploratory analysis of this study we observed that patients’ hepcidin levels were significantly reduced, most notably in the no iron and oral iron cohorts, by >50% from baseline, and to a lesser extent in the IV iron cohort. At follow up (four weeks after stopping roxadustat), hepcidin levels approached baseline values. Hepcidin reduction may be one of the mechanisms for overcoming the Hb suppressive effects of inflammation by making iron more available for roxadustat-induced erythropoiesis.

Safety Summary

In addition to the more than 1,100 subjects who have been exposed to roxadustat in Phase 1 and Phase 2 clinical studies, including treatment of some Phase 2 study patients for 24 weeks and several patients for approximately four years in a safety extension study, our ongoing Phase 3 program provides significant additional long-term safety data.

A range of roxadustat doses, up to 3.0 mg/kg in DD-CKD patients and up to 5.0 mg/kg in healthy volunteers, have been administered and all roxadustat doses have been well-tolerated. In December 2017, the roxadustat data safety monitoring board completed its scheduled review of the data from all active Phase 3 roxadustat clinical trials and recommended that the program proceed with no protocol changes. The following summarizes the safety findings of our preclinical, Phase 1 and Phase 2 studies:

Of our completed Phase 2 clinical studies outside of Japan and China (discussed in their respective sections below), two (Studies 017 and 040) were controlled, and two were not, one with placebo and one with ESA.

For Study 017, which had a treatment period of four weeks, for 88 subjects on roxadustat, and 28 subjects on placebo, we observed treatment-emergent SAEs (“TSAEs”), in four patients (4.5%) on roxadustat, with zero cardiovascular SAEs and zero SAEs for the composite safety endpoint. There were also TSAEs in one patient (3.6%) in the placebo arm of the study, including one cardiovascular SAE and zero SAEs for the composite safety endpoint. The composite safety endpoint (exploratory analysis) includes death, myocardial infarction, congestive heart failure, subendocardial ischemia, cerebrovascular accident, thrombosis (fistula), arteriovenous fistula occlusion, angina pectoris, and vascular graft thrombosis. A patient may experience more than one SAE, in which case a patient is only counted once in this analysis. TSAEs observed in patients treated with roxadustat were arteriovenous fistula site complications, dyspnea, femoral neck fracture, and non-cardiac chest pain. SAEs observed in patients treated with placebo were acute renal failure and pericarditis.

For Study 040, for those who had a treatment period of 19 weeks, for 66 subjects on roxadustat, and 23 subjects on ESAs, we observed TSAEs in 15 patients on roxadustat (22.7%), including one cardiovascular SAEs (1.5%), and eight SAEs for the composite safety endpoint (12.1%), and TSAEs in four patients on ESAs (17.4%), including two cardiovascular SAEs (8.7%), and four SAEs (17.4%) for the composite safety endpoint. TSAEs categorized by System Organ Class, a standard event classification, observed in patients treated with roxadustat were infections and infestations (5), metabolism and nutrition disorders (2), cardiac disorders (1), gastrointestinal disorders (1), nervous system disorders (2), respiratory, thoracic and mediastinal disorders (2), skin and subcutaneous tissue disorders (1), injury, poisoning, and procedural complications (2), and psychiatric disorders (1). TSAEs categorized by System Organ Class observed in patients treated with ESA were infections and infestations (3), metabolism and nutrition disorders (3), cardiac disorders (1), respiratory, thoracic and mediastinal disorders (1), blood and lymphatic system disorders (1), and vascular disorders (1).

The differences in the SAE percentages described are not considered statistically significant.

The three SAEs described above that were considered by the principal investigator to be possibly related to roxadustat did not occur in these four other studies.

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In March 2015, we received final reports for two-year rat and mouse carcinogenicity studies of roxadustat. Roxadustat treatment had no adverse effect on survival and did not cause carcinogenic effects in either species. Two-year rodent carcinogenicity studies that were conducted with one of the other HIF-PH inhibitors evaluated in the tumor models showed no effect on mortality or incidence of tumors.

In clinical studies to date, we and our independent data monitoring committee have not identified any evidence to suggest tumor risk in the use of roxadustat.

ROXADUSTAT FOR THE TREATMENT OF ANEMIA IN CHRONIC KIDNEY DISEASE IN CHINA

We believe there is a particularly significant unmet medical need for the treatment of anemia in CKD in China. Specifically, anemia is undertreated in the rapidly growing population of dialysis patients. In the non-dialysis population, only a small percentage receive any anemia treatment, and those who do, do so only at a minimal level, including patients who are eligible for dialysis and are severely anemic. In the context of the rapidly growing Chinese pharmaceutical market, we believe that the demand for anemia therapy will continue to grow as a result of an expanding CKD population, as well as the central government’s mandate to make dialysis, which is still in the early stages of infrastructure development, more available through expansion of government reimbursement and build-out of dialysis facilities. We believe that roxadustat is a particularly promising product candidate for this market. China’s approved generic drug name for roxadustat (also referred to as FG-4592) is 罗沙司他.

Phase 3 Studies in China

In January 2017, we reported topline results from our two China Phase 3 studies of roxadustat in CKD anemia. In October 2017, the CFDA accepted for review our NDA submission for the registration of roxadustat to treat anemia in DD-CKD and NDD-CKD patients. We currently anticipate a market approval decision for our CKD anemia NDA in China by the end of 2018.

Study 4592-808: Eight-Week Placebo-Controlled Portion of 26-Week Correction in China NDD-CKD Patients

In the double-blind, placebo-controlled eight-week portion of the 26-week NDD-CKD clinical trial in China, 151 anemia patients were randomized 2:1 to receive roxadustat (n=101) or placebo (n=50). Roxadustat met its primary efficacy endpoint of correcting anemia, by achieving a statistically significant increase in Hb levels compared to placebo over eight weeks. Furthermore, the secondary endpoint of Hb response was met as Hb response was achieved by a higher proportion of patients in the roxadustat arm than in the placebo arm.

Roxadustat-treated patients achieved a mean Hb increase of 1.9g/dL from baseline (8.9g/dL) over eight weeks of treatment vs. a mean change in Hb of -0.4g/dL (from 8.9 g/dL baseline) in the placebo arm; the least square mean (“LS Mean”) difference of the two arms is significant, p<0.000000000000001.

A significantly higher proportion of roxadustat patients achieved Hb response (an increase ≥1g/dL from baseline) after eight weeks vs. placebo patients, 84.2% compared to 0.0% (p<0.000000000000001). 67% of the roxadustat treated patients vs 6% of placebo- patients achieved Hb correction to be at or above the desired range of Hb≥10 g/dL within eight weeks, p=0.000000000000077.

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There was a significant increase in Hb level from baseline at every weekly measurement between weeks two to eight per figure below.

FGCL-4592-808: Mean (+/- SE) Change from Baseline in Hemoglobin (Hb)

After week eight, placebo patients were converted to roxadustat treatment and patients originally in the roxadustat arm continued treatment through week 26. Anemia correction and hemoglobin maintenance were observed up to week 27.

FGCL-4592-808: Mean Change in Hemoglobin over Time in Phase 3 China Non-Dialysis CKD Patients (26 Weeks) Including Placebo Crossover to Roxadustat

In the 26-week portion of this China Phase 3 non-dialysis study, 97.6 % of patients who received up to 26 weeks of roxadustat achieved anemia correction with Hb ≥10.0g/dL. For patients who crossed over from placebo to roxadustat, there was an increase in mean hemoglobin levels over 18 weeks of roxadustat treatment, with mean hemoglobin increasing from 8.6 g/dL (averaged over weeks seven to nine) to 10.8 g/dL (averaged over weeks 23 to 27); a statistically significant increase (p <0.0001). Hemoglobin levels declined after week 27 when patients were no longer receiving roxadustat, as illustrated by the figure above.

In the 26-week portion of this non-dialysis study, roxadustat was shown to increase hemoglobin regardless of baseline inflammation status: both in patients with inflammation (CRP >4.9 mg/L) and patients without inflammation (CRP ≤4.9 mg/L).

The durability of roxadustat’s effect on hemoglobin levels was further supported by data from the subset of patients (n=23) who participated in the 52-week safety extension of this non-dialysis China Phase 3 study. Approximately 95% of the non-dialysis patients who completed the 52-week safety extension period maintained Hb ≥10.0g/dL at the end of treatment.

In addition, in the eight-week portion of this non-dialysis study, roxadustat led to significant reduction in serum hepcidin levels (-56.1 ng/mL for roxadustat patients vs -15.1 ng/mL for placebo, p=0.00000005). Anemia treatment with roxadustat was effective without the use of IV iron and there was no iron parameter (ferritin or TSAT) requirement for patients at study entry.

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Study 4592-806: 26-Week Maintenance in China DD-CKD Patients

In the Phase 3 DD-CKD study, 304 patients (271 HD and 33 PD patients) previously on epoetin alfa were randomized to and treated with roxadustat (n=204) or epoetin alfa (n=100) for 26 weeks. Prior to randomization, patients in this study were previously treated with stable doses of EPO: 7% patients were treated with 利血宝® (“Li Xue Bao”) epoetin alfa, manufactured in Japan and marketed in China by Kyowa Hakko Kirin China Pharmaceutical Co., Ltd. (“Kirin EPO”) and 93% of patients were treated with one of eight other brands of EPO commercially available in China. All the patients randomized to the active comparator arm were treated with Kirin EPO.

The primary endpoint was mean change in Hb from baseline to the average level during the final five weeks of the 26-week treatment period. Roxadustat met the predefined non-inferiority criterion for this primary endpoint in comparison to Kirin EPO in both full analysis set and per protocol set (“PPS”) analysis. In a pre-specified sequential analysis, roxadustat also showed statistical superiority over Kirin EPO for the primary endpoint, the mean Hb increase observed in the roxadustat arm was higher than in the Kirin EPO arm, 0.75g/dL vs. 0.46g/dL, with a significant difference in the LS Mean Hb change in the two treatment arms, p=0.037, in PPS analysis; baseline Hb was 10.4 g/dL in both treatment arms.

Anemia in patients treated with roxadustat was corrected earlier than in Kirin EPO patients and roxadustat maintained Hb levels at a higher level (between 10-12 g/dL) than those receiving Kirin EPO despite the increase in average dose of Kirin EPO (relative to average baseline EPO dose) received by patients in the comparator arm (as shown in the inflammation figures below).

FGCL-4592-806: Mean (+/- SE) Change from Baseline in Hemoglobin (Hb)

We performed a subgroup analysis based on patients’ levels of inflammation, a common co-morbidity with CKD patients. Roxadustat raised and maintained hemoglobin levels in patients with inflammation (defined as having baseline CRP levels > ULN 4.9 µg/L) at doses that were equal to or lower than those received by the patients without inflammation. In contrast, patients with inflammation in the Kirin EPO arm realized lower Hb levels than patients with normal CRP levels (despite receiving higher doses of EPO than patients without inflammation), reflecting roxadustat’s potential to overcome the hyporesponsiveness seen in ESA treatment, as discussed in the section above titled “Limitations of the Current Standard of Care for Anemia in CKD”. The two figures below show mean change in Hb with mean patient dose, and mean Hb levels with mean patient dose, in patients with and without inflammation.

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FGCL-4592-806: Mean (+/- SE) Change in Hemoglobin (Hb) from Baseline and

Mean (+/- SE) Dose for Patients with and without Inflammation

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FGCL-4592-806: Mean (+/- SE) Hemoglobin (Hb) and

Mean (+/- SE) Dose for Patients with and without Inflammation

112 roxadustat patients continued treatment in a safety extension study for a total of 52 weeks. Approximately 96% of the dialysis patients who completed the 52-week safety extension period maintained Hb ≥10.0 g/dL at the end of treatment.

Hepcidin, the key hormone that regulates iron metabolism, is generally elevated and contributory to EPO hyporesponsiveness in patients with inflammation. Consistent with previously reported Phase 2 CKD data from the U.S. and China, a reduction of serum hepcidin levels was observed in our two China Phase 3 studies of roxadustat in CKD. In the Phase 3 dialysis study, the mean decrease in serum hepcidin levels from baseline to the end of 26 weeks of treatment was 30.2 ng/mL in the roxadustat arm vs 2.2 ng/mL in the EPO comparator arm. In the Phase 3 non-dialysis study, the mean decrease in hepcidin levels at the end of 8-week double-blind treatment period was 56.1 ng/mL in roxadustat arm vs 15.1 ng/mL in the placebo arm (p=0.00000005).

Roxadustat was generally well tolerated and there were no safety signals observed in the China Phase 3 clinical trials, including through the 52-week safety extension periods. There were no study drug-related deaths. The AEs and SAEs reported in the Phase 3 studies were generally representative of the underlying patient population and associated co-morbidities. Treatment of anemia with roxadustat in these Phase 3 clinical trials did not lead to an increase in blood pressure.

China Phase 2 Studies

We performed two Phase 2 studies in China, one trial in NDD-CKD patients, and another trial in DD-CKD patients. In these trials, Hb correction in NDD-CKD patients and Hb maintenance in DD-CKD patients replicated the results seen in the U.S. trials. SAEs were progression of CKD, infection and high potassium levels and the most common adverse events were infections, high potassium levels, nausea and dizziness. There were no dose-related trends or imbalances in the nature of adverse events between patients treated with roxadustat compared to patients treated with either placebo (study 047) or epoetin alfa control (study 048) groups.

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Study 047: Eight-Week Placebo-Controlled Correction in China NDD-CKD Patients

In this multi-center, double-blind, placebo-controlled study, 91 anemic CKD patients were randomized 2:1 to roxadustat or placebo treatment groups, respectively, in two sequential dose cohorts or placebo. Results from this study were published in the August 2015 Journal of Nephrology Dialysis Transplantation. Iron repletion at baseline was not required and IV iron supplementation was prohibited during the trial; oral iron supplementation was allowed during the trial, similar to the corresponding U.S. Study 041. The study used tier-weight starting dose for four weeks after which the roxadustat dose was adjusted, depending upon the initial response to treatment. Study 047 met its primary endpoint of a mean maximum increase from baseline Hb at the end of week 8. The mean Hb increases at the end of eight weeks of treatment were 1.6 g/dL and 2.4 g/dL in the low-dose and the high dose cohort, respectively, compared to 0.4 g/dL for placebo, p <0.0001 for each cohort compared to placebo.

FGCL-4592-047: Hb over Time (g/dL) in Chinese NDD-CKD Patients

n at baseline

For Study 047, which had a treatment period of eight weeks, for 61 subjects on roxadustat, and 30 subjects on placebo, we observed TSAEs in eight patients on roxadustat (13.1%), with zero cardiovascular SAEs, and zero SAEs for the composite safety endpoint, and TSAEs in four patients on placebo (13.3%), including one cardiovascular SAE (3.3%), and one SAE (3.3%) for the composite safety endpoint. TSAEs observed in patients treated with roxadustat were chronic renal failure (4), upper respiratory tract infection (1), hyperkalaemia (2) and urinary tract infection (1). TSAEs observed in patients treated with placebo were unstable angina (1), anemia (1), retinal detachment (1), pneumonia (1) and gastritis (1).

Study 048: Six-Week Conversion in China DD-CKD Patients

In this multi-center, open-label, ESA-controlled study, 87 HD patients (of which 82 were efficacy evaluable) with Hb 9 to 12 g/dL previously maintained with ESAs were randomized 3:1 to roxadustat or epoetin alfa treatment groups, respectively, in three sequential dose cohorts of increasing starting doses of roxadustat. Results from this study were published in the February 2016 American Journal of Kidney Disease. This study design was similar to Part 1 of Study 040. Study 048, an exploratory study, achieved its objective of number (%) of patients with successful dose conversion whose Hb levels are maintained at no lower than 0.5 g/dL below their mean baseline value at the end of weeks five and six (59.1% for the low-dose, 88.9% for the mid-dose, and 100% for the high dose). The Hb responses to the roxadustat treatment of Chinese dialysis patients, with the low dose cohort were numerically similar to epoetin alfa, while the mid-dose and the high-dose cohorts each had a statistically significantly higher Hb response rate than epoetin alfa. Hb responses to the roxadustat treatment of Chinese dialysis patients (as shown in the figure below) were similar to Part 1 of Study 040 in the U.S.

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FGCL-4592-048: Hb over Time in Chinese Stable Dialysis Patients

For Study 048 which had a treatment period of six weeks, for 74 subjects on roxadustat, and 22 subjects on ESAs, we observed zero TSAEs in patients on roxadustat, including cardiovascular SAEs and for the composite safety endpoint. There were also zero TSAEs in the patients taking ESAs.

Phase 1 Trials

We completed Phase 1 trials of single and multiple ascending doses of roxadustat. Key findings were:

Addressable Patient Populations in China

Based on a large-scale cross-sectional survey performed between September 2009 and September 2010 published in the Lancet (Zhang, et al. Lancet (2012)), there are an estimated 119.5 million CKD patients in China. Based on the prevalence ratios, there were approximately 19 million patients in CKD stage 3, stage 4, and stage 5 which we have grouped into three categories: DD-CKD patients; Dialysis Eligible patients who need dialysis under treatment guidelines but are not dialyzed (“Dialysis Eligible NDD-CKD”); and stages 3 and 4 patients as well as stage 5 patients who are not eligible for dialysis (“Other NDD-CKD”).

DD-CKD (Dialysis)

Dialysis can be delivered in the form of HD or PD. In China, HD is mostly performed at dialysis clinics within hospitals, not at freestanding dialysis centers outside of hospitals which is the common practice in the U.S. PD is self-administered at home by patients, and they visit their nephrologists on a monthly basis at the hospital for monitoring and follow-up.

Dialysis Eligible NDD-CKD

Dialysis Eligible NDD-CKD refers to patients who need dialysis under Chinese treatment guidelines but are not dialyzed. The Chinese treatment guidelines recommend initiation of dialysis at eGFR<10 mL/min/1.73 m ² (and eGFR<15 mL/min/1.73m ² for diabetic nephropathy patients). The then Minister of Health estimated that one to two million people in China were eligible for dialysis in 2011. Of the Chinese population potentially eligible for dialysis, however, we believe that only 500,000 were on dialysis as of 2016. While the size of the dialysis population in China is similar to that of the U.S. (the second largest dialysis population in the world), it nevertheless falls far short of the number who require dialysis treatment. We believe that this Dialysis Eligible NDD-CKD population is characteristic of developing markets like China and is at risk for severe anemia.

Other NDD-CKD

Other NDD-CKD refers to the other sub-groups of CKD patients within non-dialysis who are earlier stage: CKD patients in stage 3 and stage 4, as well as stage 5 who are not eligible for dialysis. Some of these patients receive medical care in endocrinology, cardiology or internal medicine clinics outside of nephrology where they are treated for their primary disease.

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Unmet Medical Need

DD-CKD Patients are Under-Treated for Anemia

We believe there is chronic under-treatment for anemia within the DD-CKD patient population, as many patients do not reach target Hb levels despite ESA therapy. The consensus opinion of the expert panel assembled by the Chinese Journal of Nephrology in 2013 advocated treating to Hb 11.0 g/dL to 13.0 g/dL, whereas we believe, based on our discussions with key opinion leaders, that in clinical practice, nephrologists generally target Hb 10.0 g/dL. However, according to the 2012 Shanghai Dialysis Registry, approximately 50% of patients in Shanghai did not exceed a Hb level of 10.0 g/dL and approximately 75% did not exceed Hb 11.0 g/dL. Over 19% of dialysis patients failed to reach a severely low Hb level of 8.0 g/dL. The Chinese Renal Data System reported that in 2015, the most recently reported data, the average Hb level of DD-CKD patients in the registry was approximately 10.0 g/dL.

We believe there are a number of factors that have led to under-treatment of anemia in the dialysis population, including:

Dialysis Eligible NDD-CKD and Other NDD-CKD Patients are Largely Un-Treated for Anemia

Apart from the ESAs used by the dialysis patients in China, we believe that there is a low level of use of ESAs in the non-dialysis population. Based on our clinical trial experience in China, we believe use of ESAs in this population is generally limited to “CKD Clinics” at major research hospitals in top cities where CKD patients are admitted into programs for academic research purposes. We believe there are a number of significant impediments that inhibit the use of ESAs in the outpatient setting, for patients who are not already visiting the hospital for dialysis treatment on a regular basis.

We believe that these impediments have contributed to a low rate of ESA use in the NDD-CKD population in China, and that roxadustat, as an oral agent triggering the HIF mechanism of action, has the potential to make this population accessible for effective anemia treatment in CKD.

Growing Market Opportunity

China is the second largest pharmaceutical market after the U.S. Healthcare expenditures in China have been estimated to be approximately $640 billion in 2015. We believe several factors will continue to drive the growth of the overall pharmaceutical market in China as well as the market for the treatment of anemia in CKD. These factors include continuing urbanization, an aging population and the increasing prevalence of chronic diseases (particularly diabetes and hypertension which are common causes of CKD), and income growth. We also believe that the increasing standard of living will drive higher rates of disease awareness, leading to greater rates of diagnosis and treatment.

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Current ESA Market Size and Drivers of Market Growth in China

Total ESA sales in China were approximately $330 million in 2017, of which an estimated 80%, or approximately $275 million, is derived from CKD sales, based on data from IMS Health China. The ESA market in China has grown at a 12% compound annual growth rate between 2013 and 2017 based on data from IMS Health China.

We believe that given the limited availability of dialysis in China, the dialysis market is still in the early stages of development relative to the U.S., and has the potential for sustained long-term growth. We believe growth of dialysis will be driven by the expansion of reimbursement and expansion of dialysis facilities. We further believe that the growing pipeline of CKD patients and expansion of reimbursement will drive growth in demand for anemia treatment in CKD patients.

Our China Solution

We believe that roxadustat, if approved, has the potential to address the unmet medical need for the treatment of anemia in each of the three categories of CKD patients in China. Several of the safety, efficacy, reimbursement and convenience advantages that roxadustat, our oral therapeutic, potentially offers over ESAs (refer to “— Our Solution — Roxadustat — A Novel, Orally Administered Treatment for Anemia”) are particularly applicable in the China market.

Roxadustat May Address Chronic Under-Treatment in DD-CKD Patients

We expect roxadustat to be viewed as more attractive than ESAs, and particularly attractive within certain categories of the dialysis population — patients who are not treated to target Hb levels for any reason, patients who are hyporesponsive to ESAs, patients on PD, which is home-based, and DD-CKD patients who have not previously received ESA treatment.

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Roxadustat May Address Lack of Access of ESA Treatment in NDD-CKD Patients

We view NDD-CKD as the segment where roxadustat, with the benefits of the HIF mechanism of action and being an orally administered small molecule, could potentially represent the only viable treatment solution for this patient population.

Roxadustat May Add Value in Both the NDD-CKD and DD-CKD Patient Populations

Commercialization

Regulatory Strategy

We are committed to bringing first-in-class innovative medicines to China on an accelerated basis, and consistent with this commitment, roxadustat is being advanced in China as a Domestic Class 1 applicant under the CFDA designations. Innovation by domestic companies has become a top priority for the Chinese government. “Domestic” means that all clinical data for approval is generated from within China, and manufacturing for both drug substance and drug product is conducted in China. Whereas any new chemical entity (“NCE”) that has not yet been approved anywhere in the world can be designated as Class 1, roxadustat is also first-in-class, defined as the first NCE for a brand new mechanism of action.

The NDA that was accepted by the CFDA in October 2017 is the first NDA filing of any HIF-PHI worldwide. China could become the first in-world approval country for a first-in-class drug. Upon NDA approval, we expect to be granted a license through the Marketing Authorization Holder (“MAH”) pilot program, described further in the Manufacturing Certification section below.

Manufacturing Certification

As a Domestic Class 1 applicant, FibroGen will be performing commercial manufacturing for both drug substance and drug product in China. FibroGen Beijing has been operating a 4,800 square meter manufacturing facility in Beijing after we received a Pharmaceutical Production Permit (“PPP”) from the Beijing CFDA in August 2014. The PPP is a general certification by the CFDA that the facility is deemed ready for current good manufacturing practices (“cGMP”) production. We expect to be granted the Manufacturing License for Drug Substance and Drug Product for roxadustat at the time of NDA approval, and will become the sole licensed manufacturer for each in China.

Under the current regulatory system in China, it is the manufacturer, not the sponsor, who has the right to sell the manufactured product to the market. A recently implemented CFDA regulation has opened up manufacturing and supply chain options that were previously not possible. In November 2015, China announced the three-year MAH pilot program in certain regions, and implemented the program in August 2016. Under this system, a sponsor of a compound such as roxadustat has the right to obtain additional drug supply from contract manufacturing organizations without giving up its manufacturing license. We intend to participate in this program and if accepted, we may be able to outsource drug product or active pharmaceutical ingredient (“API”) manufacturing to third parties to support commercialization.

We submitted an application to be designated MAH at NDA approval. Considering that FibroGen is both the sponsor and the manufacturer, FibroGen would have the right to market and sell even without MAH. However, under MAH, we may also have the ability to contract for additional supply (for redundancy and to meet capacity needs) from contract manufacturing organizations without giving up our manufacturing license.

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There are evolving environmental and manufacturing regulations in China which would limit chemical manufacturing in large cities such as Beijing. In order to prevent or mitigate delay in commercialization, we are establishing a 5,500 square meter commercial API manufacturing facility in Cangzhou, China, and expect it to be operational shortly after NDA approval.

Market Segmentation

We believe DD-CKD market in China is readily addressable in the near term, and we believe roxadustat has the potential to deliver a compelling value proposition in particular to certain subgroups within DD-CKD: patients who are not treated to target Hb levels for any reason, patients who are hypo-responsive to ESAs, and patients on PD, which is performed at home. In addition, we believe that roxadustat, if approved, would have the potential to be the preferred anemia treatment for newly-initiated dialysis patients who have not been previously treated with ESA. With the expected expansion of Severe Disease reimbursement, we believe that the number of DD-CKD patients will increase steadily. We believe that it could require more than a decade for China to address the treatment gap between patients who need dialysis and those who are actually dialyzed.

If roxadustat is approved, we believe the Dialysis Eligible NDD-CKD population could represent another readily accessible and potentially new market segment for anemia therapy. There is an urgent and severe unmet medical need for these very sick patients, and the current low rate of treatment within this patient group could be addressed by an approved anemia treatment such as roxadustat. We view the Other NDD-CKD population as a longer term market opportunity where the potential number of patients could be substantial.

We believe the hospital-based nature of the China healthcare system is a very attractive feature of this market as it lends itself to rapid adoption of roxadustat within nephrology practices and across specialties, unlike in the U.S. where dialysis is performed separately at freestanding dialysis centers and CKD is treated at widely dispersed clinics and primary care offices across the country. In China, within nephrology, the same physicians care for dialysis, Dialysis Eligible NDD-CKD and Other NDD-CKD patients. Moreover, cardiologists and endocrinologists are located at the same hospitals as nephrologists, and prescriptions from all specialties are often filled at the same hospital pharmacy; as a result, the points of sale are highly concentrated.

Reimbursement

As roxadustat is potentially a chronic use drug that addresses an unmet medical need and is intended to benefit large numbers of Chinese patients, we intend to apply for reimbursement by the Chinese government. Pricing for drugs sold without reimbursement is determined by the drug manufacturer, whereas pricing for drugs under reimbursement is negotiated with the government. We believe the compelling pharmaco-economic value proposition will support fair pricing for roxadustat.

AstraZeneca

We have entered into an agreement with AstraZeneca relating to roxadustat in China. Under the agreement, FibroGen Beijing will hold all of the regulatory licenses issued by China regulatory authorities at NDA approval, including the New Drug License, the Drug Approval Code, and the GMP License. During development, FibroGen is primarily responsible for regulatory, clinical and development-stage manufacturing activities. After NDA approval, FibroGen will be responsible for commercial manufacturing, pharmacovigilance, and medical affairs.

AstraZeneca will conduct commercialization activities as well as serve as the national distributor for roxadustat, sourcing the distribution of roxadustat to a network of regional and local distributors.

We believe that the collaboration will not only help to accelerate market access and patient adoption, but also reduce our risks associated with roxadustat launch in China, as AstraZeneca has significant experience with the China market and will be paying for launch-related commercialization costs in advance and recouping 50% of these expenses from initial roxadustat profits.

Planned Phase 4 Studies

The CFDA imposes a five-year monitoring surveillance period after NDA approval on all Class 1 innovative drugs like roxadustat. Based on current CFDA guidelines, we believe we will need to conduct a 2,000 subject post-approval safety study to demonstrate the long-term safety of roxadustat, as well as provide additional information related to the quality of the manufacturing process for roxadustat. The study design and patient size will be determined after Phase 3 data become available, in consultation with the CFDA as part of NDA review.

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ROXADUSTAT FOR THE TREATMENT OF ANEMIA IN CHRONIC KIDNEY DISEASE IN JAPAN

In Japan, Astellas has completed three of its six Phase 3 studies of roxadustat for the treatment of anemia in DD-CKD and NDD-CKD patients. Astellas anticipates topline results from its long-term ESA conversion Phase 3 study in patients on HD and its Phase 3 correction (ESA-naïve) study in the first quarter of 2018.

Phase 3 Study 1517-CL-0302: 24-Week Trial in Peritoneal Dialysis (PD) Patients in Japan

In 2017, Astellas and FibroGen reported results from Astellas’ multi-center, open-label Phase 3 study of roxadustat in PD CKD patients with anemia. This 24-week study enrolled a total of 56 PD patients, of whom 43 patients had previously received ESAs (ESA-conversion patients), and 13 patients had not previously received ESAs (ESA-naïve patients). Roxadustat was well tolerated and shown to correct hemoglobin levels in ESA-naïve patients and maintain hemoglobin levels within the target range in both ESA-conversion patients and ESA-naïve patients.

The Hb maintenance rate, as measured by the proportion of subjects with average Hb levels within the target Hb range of 10.0 g/dL to 12.0 g/dL for weeks 18 to 24, was 92% in ESA-naïve patients who were corrected from baseline hemoglobin levels and 74% in ESA-conversion patients. The preliminary safety analysis for this trial is consistent with the safety profile of roxadustat in previous clinical trials.

Japan Phase 2 Studies

In 2016 we, along with our partner, announced positive data from Astellas’ two Phase 2 studies in Japan of DD-CKD and NDD-CKD patients. Roxadustat was well tolerated and met the primary objective of demonstrating dose-related rates of Hb increase measured over the first six weeks of treatment, as well as anemia correction and Hb maintenance over the 24-week treatment period.

Study 1517-CL-0303: 24-Week Placebo-Controlled Correction in Japan NDD-CKD Patients

In this multi-center, randomized, parallel-group, placebo-controlled, double-blind study over 24 weeks, 107 NDD-CKD patients were randomized to one of three roxadustat treatment arms (50 mg, 70 mg, 100 mg) or to a placebo arm, with roxadustat orally administered TIW for the first six weeks of the study to evaluate dose response of efficacy and safety. This was followed by dose titration every four weeks until Hb response was achieved, at which point Hb was maintained with patients randomized to one of two dosing regimens (continuation of TIW dosing or a change to weekly dosing). Results showed achievement in the full analysis set of dose response in the three roxadustat treatment arms, with a mean rate of Hb increase of 0.200, 0.453, and 0.570 g/dL per week (50 mg, 70 mg, 100 mg, respectively), as measured over the first six weeks of the study, compared to a mean Hb decrease of 0.052 g/dL per week in subjects receiving placebo. Of note, 93.8% of roxadustat-treated subjects achieved Hb correction as measured by Hb response defined as Hb more than or equal to 10 g/dL and Hb increase of at least 1 g/dL from baseline. In the placebo arm, Hb response was achieved in 14.8% of the subjects. Results were presented at the American Society of Nephrology Kidney Week in November 2016.

Study 1517-CL-0304: 24-Week Trial in Japan DD-CKD Patients

This was a multi-center, randomized, parallel-group, darbepoetin-controlled, double-blind (roxadustat arms)/open-label (darbepoetin) study over 24 weeks in DD-CKD patients on chronic stable dialysis. The 120 subjects discontinued previous standard-of-care therapy (erythropoiesis-stimulating agents) to reach Hb levels of <9.5 g/dL and were then randomized to one of three roxadustat arms (administered orally TIW at a fixed dose) or to the darbepoetin arm (darbepoetin administered intravenously QW) over the first six weeks of the study to evaluate dose response of efficacy and safety, followed by dose titration to the desired Hb level every four weeks. During weeks 18 to 24, average Hb levels achieved (a secondary endpoint) in the full analysis set were 10.31 g/dL (1.33 g/dL Hb increase), 10.20 g/dL (1.37 g/dL Hb increase), and 10.53 g/dL (1.57 g/dL Hb increase), respectively, in the roxadustat treatment arms, compared to 10.25 g/dL (1.42 g/dL Hb increase) in the darbepoetin arm.

Status with Regulatory Agencies

In the last five years, we and our collaboration partners have had interactions with regulatory agencies in multiple territories regarding the planned development and potential path to approval of roxadustat.

We met with the FDA in May, June and July of 2014 to discuss the overall scope of our Phase 3 development program. In order to comply with FDA’s recommendation, we have designed and sized our Phase 3 program for, and have included MACE composite safety endpoints that we believe will be required for approval in the U.S. for all new anemia therapies.

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We have also discussed our Phase 3 clinical development program with three National Health Authorities in the EU and obtained scientific advice from the European Medicines Agency, which was confirmed in writing in January 2014 with respect to the adequacy of our current clinical development program to support the indication for the treatment of anemia in NDD-CKD and DD-CKD patients. We expect the Marketing Authorization Application submission in Europe to precede our NDA filing in the U.S.

Between 2014 and 2016, we and our partner Astellas also met with the Pharmaceuticals and Medical Devices Agency and reached agreement on the Phase 3 program required for roxadustat for the treatment of DD-CKD anemia and NDD-CKD in Japan.

Investigational New Drug and Clinical Trial Applications

Roxadustat is being studied under one Investigational New Drug Application (“IND”), and several Clinical Trial Applications (“CTAs”), all with a specified indication of treatment of anemia in CKD. We originally submitted the IND in the U.S. to the FDA in April 2006. Our collaboration partner, Astellas, submitted the CTA in Japan to the Pharmaceuticals and Medical Devices Agency in June 2009. We and our collaboration partners Astellas and AstraZeneca have also submitted CTAs in Europe, Latin America, Canada, Russia, and Asia, beginning in 2013.

ROXADUSTAT FOR THE TREATMENT OF ANEMIA ASSOCIATED WITH MYELODYSPLASTIC SYNDROMES

Based on roxadustat’s safety and efficacy profile to date and its mechanism of action, we believe that in addition to treating anemia in CKD, roxadustat has the potential to treat anemia associated with many other conditions, including MDS.

Background of Anemia in MDS

MDS are a group of disorders characterized by poorly formed or dysfunctional blood cells, leading to anemia in most cases. Anemia, a serious medical condition, is associated with increased risks of hospitalization, cardiovascular complications, need for blood transfusions, exacerbation of other serious medical conditions, and death, and frequently leads to significant fatigue, cognitive dysfunction, and decreased quality of life.

Incidence and prevalence of MDS are not yet well understood, and may be greatly underestimated. MDS diagnosis became reportable under the World Health Organization oncology classification system only in 2001. According to its latest available data, the National Cancer Institute estimates approximately 4.9/100,000 people in the U.S. general population were diagnosed with MDS annually for the period of 2007 to 2011, increased from 3.3/100,000 annually for 2001 to 2003. The incident rate increases with older populations, to 30.2/100,000 people among those 70 and 79 years of age, and further to 59.8/100,000 among those 80 years of age and older. The population-based registries are believed to have underestimated the incidence of MDS due to under diagnosis. It has been reported, using Medicare billing claims data, that the incidence of MDS in patients aged 65 years and older was approximately 162/100,000 as of 2003. The prevalence of MDS in the U.S. is estimated to be between 60,000 and 170,000, and continues to rise as more MDS therapies become available and patients are living longer with MDS.

In China, the incidence of MDS has been estimated to be 1.51/100,000 in the adult population. This is lower than those seen in other major markets such as the U.S., Western Europe, and Japan, and we believe that under diagnosis may be a contributing factor to the lower estimate in China.

Anemia is the most common clinical presentation in MDS, which results in red blood cell transfusions and related risks such as iron overload and significant impairment of the quality of life in affected patients. Dependency on red blood cell transfusions has also been associated with shorter life expectancy in patients with MDS.

Limitations of the Current Standard of Care for MDS and Anemia Associated with MDS

As a bone marrow disorder, anemia treatment options are limited and MDS patients often rely on repeated blood transfusions. Currently, there is no drug approved for the treatment of anemia in MDS patients in China or in the U.S., and transfusions are not readily accessible in China due to limited blood supply.

Stem cell transplantation is the only treatment that can cure MDS, but is available to only a small fraction of higher risk young MDS patients who are eligible for bone marrow transplant, for whom the treatment is often delayed until the disease progresses because of the known risks associated with transplantation itself and low success rates. This treatment option is unavailable to the majority of MDS patients who are older or who are deemed low risk.

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There are very limited approved pharmacologic treatments for MDS. The FDA-approved treatments for MDS include the aza‑nucleosides (HMA) 5-azacitidine and decitabine which are typically used for treating intermediate or higher risk patients (based on the International Prognostic Scoring System). These therapies are not approved for lower risk MDS patients because of their significant undesirable effects on bone marrow. These hypomethylating agents can achieve remission in a minority of the treated patients for a short duration of time before progression to acute myeloid leukemia, and are associated with significant levels of neutropenia and thrombocytopenia on top of those caused by MDS. Revlimid ^® (lenalidomide) is approved in the U.S. and in the EU only for treating MDS patients with 5q (del) (a condition present in only 7% to 15% of MDS patients in whom a region of DNA has been deleted on one of the pair of chromosome 5 in the patient’s immature red blood cells), and has a 61% to 67% responder rate in this sub-population, along with significant side effects such as neutropenia (55% to 75%) and thrombocytopenia (41% to 44%).

While there are no approved therapies for anemia of MDS in the U.S., treatment guidelines recommend the use of ESAs to address anemia in lower risk MDS patients that have a low EPO level. ESA doses used for MDS anemia are generally five times the doses typically used for treating anemia in CKD patients, and the response rates are as low as 20% to 32% in lower risk MDS patients. Reasons for the high ESA dose requirement in MDS include inflammation contributing to ESA-resistance, which is associated with elevated hepcidin levels and functional iron deficiency, and the underlying progressive dysfunction of the bone marrow. Even patients who initially respond to ESAs generally will develop resistance to ESAs as their MDS progresses and become dependent on blood transfusions once they stop responding to ESAs.

Red blood cell transfusion is generally reserved for severe anemia in MDS patients. Red blood cell transfusions are usually used when Hb <9.0 g/dL or lower in the U.S. The hemoglobin threshold for red blood cell transfusion is as low as <6.0 g/dL in MDS patients in China, where transfusions are not readily accessible due to limited blood supply. Frequent red blood cell transfusions impose both financial and time burdens on patients and payors since frequent visits to the hospital for blood tests and transfusions are required. More importantly, transfusions are associated with risks of development of alloantibodies, which is related to the number of prior transfusions, and the transmission of infectious agents, which is a significant concern especially in MDS patients, some of whom are already immunocompromised due to neutropenia as part of their bone marrow dysplasia. Most notably, chronic red blood cell transfusions result in iron overload where iron can damage the heart, liver and other organs, as well as have a negative impact on clonal evolution and on hematopoietic stem cell therapy outcome. Iron overload from red blood cell transfusions is thought to be inhibitory on erythropoiesis and excess iron impacts hepcidin regulation causing a self-reinforcing feedback loop on erythropoiesis. For these reasons, patients with iron overload are treated with iron chelating agent in an attempt to reduce iron toxicity, but gastrointestinal and renal side effects lead to 1‑year discontinuation rate of iron chelator as high as 49%. Given these risk factors, red blood cell transfusion dependency is a strong non-favorable prognostic factor for survival of MDS patients.

The disease burden of anemia in MDS is high. Severe anemia interferes with MDS patients’ quality of life and their ability to work, in addition to imparting a negative effect on the function of other organ systems due to insufficient oxygen delivery to tissues. When red blood cell transfusions become necessary to sustain bodily functions, the risk of transfusion-related complications can further threaten MDS patients’ lives and well-being.

Our Solution

We believe there is a significant need for a safer, more effective, and more convenient approach to address anemia in patients with lower-risk MDS. Roxadustat, our orally administered small molecule HIF-PH inhibitor, stimulates the body’s natural mechanism of red blood cell production and iron hemostasis based on cellular-level oxygen-sensing and iron-regulation mechanisms. Roxadustat activates a coordinated erythropoietic response in the body that includes the stimulation of red blood cell progenitors, an increase in the body’s production of endogenous EPO, and an increase in iron availability for hemoglobin synthesis. Moreover, in anemia of CKD, roxadustat has demonstrated the ability in clinical trials to increase and maintain hemoglobin levels in the presence of inflammation as measured by C-reactive protein, where ESAs have shown limited effect. We believe that we may be able to replicate this result in MDS anemia patients, where inflammation is a significant contributing factor.

Clinical Development of Roxadustat in MDS

For the U.S. and Europe, we have begun enrolling patients for our Phase 3 clinical trial to evaluate the safety and efficacy of roxadustat for treatment of anemia in MDS. This is a global multi-center Phase 3 study in transfusion-dependent, lower risk MDS patients with up to 24 patients in the open-label, lead-in portion which precedes the 160 patient randomized, double-blind, placebo-controlled part of the study, in which subjects will be randomized 3:2 to receive roxadustat or placebo three-times-weekly for 28 weeks, with safety extension to one year. The primary endpoint is the proportion of patients who achieve transfusion independence.

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In March 2017, we received approval from the CFDA on our Phase 2/3 MDS clinical trial application to evaluate roxadustat for the treatment of anemia in patients with MDS. This Phase 2/3 clinical trial will evaluate the safety and efficacy of roxadustat in non-transfusion dependent, lower risk MDS patients with anemia. The initial open-label portion of the study is expected to enroll up to 40 patients, with 135 patients planned for the randomized, double-blind, placebo-controlled Phase 3 portion of the study, in which subjects will be randomized 2:1 to receive roxadustat or placebo three-times weekly for 26 weeks. The primary endpoint for this study is percentage of patients with Hb response. This Phase 2/3 study is expected to initiate in the first half of 2018.

HIF-PH Inhibitor Platform

We have been a world leader in prolyl hydroxylase inhibition since the mid-nineties. Over the past two decades, we have built a robust drug discovery platform based on our deep understanding of the inhibition of prolyl hydroxylase enzymes using small molecules. Our platform is supported not only by internal research but also by numerous academic collaborations, including a long-standing funded collaboration with a research group at the University of Oulu, Finland, headed for many years by our scientific co-founder, Dr. Kari I. Kivirikko. Dr. Kivirikko is one of the world’s leading experts in collagen prolyl hydroxylases, and he remains an advisor to us.

Prior to the discovery of HIF regulation by prolyl hydroxylase activity, we had acquired compound collections from several pharmaceutical companies and assembled a diverse library of prolyl hydroxylase inhibitors to target collagen prolyl hydroxylase enzymes for fibrosis. Consequently, we were particularly well positioned to rapidly generate proof-of-concept for a number of aspects of HIF biology, and to direct medicinal chemistry efforts towards increasing potency and selectivity for the newly identified HIF-PH enzymes.

We have applied our expertise in the field of HIF-PH inhibition to develop an understanding, not only of the role of HIF in erythropoiesis, but also of other areas of HIF biology with important therapeutic implications. This consistent progression of discovery has led to findings relating to HIF-mediated effects associated with inflammatory pathways, various aspects of iron metabolism, insulin sensitivity and glucose and fat metabolism, neurological disease, and stroke. The extensive patent portfolio covering our discoveries represents an important competitive advantage.

The strength of our platform capitalizes on these internal discoveries, as well as some of the complexities of HIF biology that we and the scientific community have uncovered over the past decade. There are at least three different HIF-PH enzymes that are known to regulate the stability of HIF — these enzymes are commonly referred to in the scientific literature as PHD1, PHD2 and PHD3. Studies of genetically modified mice, in which the individual HIF-PH enzymes have been deleted, have revealed that PHD2 plays a major role in the regulation of erythropoiesis by HIF. In contrast, PHD1 and PHD3 appear to play less important roles in HIF-mediated erythropoiesis, but instead have been implicated in other important biological pathways.

We believe that inhibitors selectively targeting certain prolyl hydroxylases could have important therapeutic applications beyond anemia. For example, as PHD1 has been implicated in ischemic tissue injury, it has been proposed that PHD1 inhibitors may provide a novel therapeutic approach to protect organs and tissues from ischemic damage. PHD3 on the other hand has been implicated in insulin signaling, raising the possibility that PHD3 inhibitors may have therapeutic utility in the treatment of diabetes. Despite the challenges associated with selectively inhibiting just one enzyme from a closely related family, we have made important advances in the identification of selective HIF-PH inhibitors.

We currently have active research programs focused on exploring the therapeutic utility of selective prolyl hydroxylase inhibitors.

PAMREVLUMAB FOR THE TREATMENT OF FIBROSIS AND CANCER

We were founded to discover and develop therapeutics for fibrosis. We began studying CTGF shortly after its discovery. Our ongoing internal research, efforts with collaboration partners and the work of other investigators have consistently demonstrated elevated CTGF levels in pathologic fibrotic conditions characterized by sustained production of extracellular matrix (“ECM”), elements that are key molecular components of fibrosis. Our accumulated discovery research efforts indicate that CTGF is a critical common element in the progression of serious diseases associated with fibrosis.

From our library of fully-human monoclonal antibodies that bind to different parts of the CTGF protein and block various aspects of CTGF biological activity, we selected pamrevlumab, for which we have exclusive worldwide rights. We believe that pamrevlumab blocks CTGF and inhibits its central role in causing diseases associated with fibrosis. Our data to date indicate that pamrevlumab is a promising and highly differentiated product with broad potential to treat a number of fibrotic diseases and cancers. We are currently conducting Phase 2 trials in pancreatic cancer and DMD. In 2017, we completed the double-blind and comparator portions of our Phase 2 trial in IPF. Pamrevlumab has received orphan drug designation in IPF in the U.S.

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Based on its ability to block CTGF, pamrevlumab may be a treatment for a broad array of fibrotic disorders of nearly every organ system. In animal studies, such as radiation-induced pulmonary fibrosis in mice, we have demonstrated that pamrevlumab is capable of reversing fibrosis. In clinical trials, we have used advanced medical imaging technology to quantify changes in fibrosis throughout the lungs. Our data to date using these measures demonstrate that pamrevlumab may stabilize and in some instances reverse pulmonary fibrosis and improve pulmonary function in IPF patients.

Certain cancers have a prominent ECM component that contributes to metastasis and progressive disease. Specifically, ECM is the connective tissue framework of an organ or tissue; all tumors have ECM. In the case of fibrotic tumors, ECM is more pronounced and there is more fibrosis than in other tumor types. In mouse models of pancreatic cancer, pamrevlumab treatment has demonstrated reduction of tumor mass, slowing of metastasis and improvement in survival. In an open-label Phase 2 study of pamrevlumab plus gemcitabine and erlotinib, pamrevlumab demonstrated a dose-dependent improvement in one year survival rate. We are also currently conducting a randomized, active-control, neoadjuvant clinical trial combining pamrevlumab with nab-paclitaxel plus gemcitabine in patients with locally advanced pancreatic cancer.

DMD is an inherited disorder of the dystrophin gene that leads to progressive muscle loss and results in early death due to pulmonary or cardiac failure. Numerous pre-clinical studies including those in the mdx model of DMD suggest that CTGF contributes to the process by which muscle is replaced by fibrosis and fat and that CTGF may also impair muscle cell differentiation during muscle repair after injury. pamrevlumab treatment has improved muscle strength and exercise endurance in the mdx model of DMD. In December 2015, we began an open label single arm trial in non-ambulatory boys with DMD.

Results to date indicate that pamrevlumab has broad potential to address unmet needs for the treatment of fibrotic diseases and cancers. Specifically, given our preclinical and clinical data to date, our primary focus for clinical development of pamrevlumab is in IPF, pancreatic cancer and DMD.

Overview of Fibrosis

Fibrosis is an aberrant response of the body to tissue injury that may be caused by trauma, inflammation, infection, cell injury, or cancer. The normal response to injury involves the activation of cells that produce collagen and other components of the ECM that are part of the healing process. This healing process helps to fill in tissue voids created by the injury or damage, segregate infections or cancer, and provide strength to the recovering tissue. Under normal circumstances, where the cause of the tissue injury is limited, the scarring process is self-limited and the scar resolves to approximate normal tissue architecture. However, in certain disease states, this process is prolonged and excessive and results in progressive tissue scarring, or fibrosis, which can cause organ dysfunction and failure as well as, in the case of certain cancers, promote cancer progression.

Excess CTGF Causes Fibrosis. Pamrevlumab Blocks CTGF and Can Reverse Fibrosis

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Excess CTGF levels are associated with fibrosis. CTGF increases the abundance of myofibroblasts, a cell type that drives wound healing, and stimulates them to deposit ECM proteins such as collagen at the site of tissue injury. In the case of normal healing of a limited tissue injury, myofibroblasts eventually die by programmed cell death, or apoptosis, and the fibrous scarring process recedes. In fibrotic conditions, excess CTGF results in chronic activation of myofibroblasts, which leads to chronic ECM deposition and fibrosis (refer to figure above).

Multiple biological agents and pathways have been implicated in the fibrotic process (Wynn J Pathol (2008)). Many fibrosis pathways converge on CTGF (refer to figure below), which the scientific literature demonstrates to be a central mediator of fibrosis (Oliver et al., J Inv Derm (2010)). In the case of cancer, the sustained tumor-associated fibrotic tissue promotes tumor cell survival and metastasis. The figure below shows the commonality of cellular mechanisms that may result in fibrosis and cancer.

Most Biological Factors Implicated in Fibrosis Work Through CTGF

CTGF is a secreted glycoprotein produced by fibroblasts, endothelium, mesangial cells and other cell types, including cancers, and is induced by a variety of regulatory modulators, including TGF-ß and VEGF. CTGF expression has been demonstrated to be up-regulated in fibrotic tissues. Thus, we believe that targeting CTGF to block or inhibit its activity could stop or reverse tissue fibrosis. In addition, since CTGF is implicated in nearly all forms of fibrosis, we believe pamrevlumab has the potential to provide clinical benefit in a wide range of clinical indications that are characterized by fibrosis.

Until recently, it was believed that fibrosis was an irreversible process. It is now generally understood that the process is dynamic and potentially amenable to reversal. Based on studies in animal models of fibrosis of the liver, kidney, muscle and cardiovascular system, it has been shown that fibrosis can be reversed. It has also been demonstrated in humans that fibrosis caused by hepatitis virus can be reversed (Chang et al. Hepatology (2010)). Additionally, we have generated data in human and animal studies that lung fibrosis can be reversed in some instances upon treatment with pamrevlumab. We do not believe that there is clinical evidence that therapies currently on the market directly prevent or reverse fibrosis in IPF. While certain other companies are working on topical inhibition of CTGF, we are not aware of other products in development that target CTGF inhibition for deep organ fibrosis and cancer.

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Clinical Development of Pamrevlumab — Overview

We have performed clinical trials of pamrevlumab in IPF, pancreatic cancer, liver fibrosis and diabetic kidney disease. In eleven Phase 1 and Phase 2 clinical studies involving pamrevlumab to date, including more than 450 patients who were treated with pamrevlumab (about half of patients dosed for more than six months), pamrevlumab has been well-tolerated across the range of doses studied, and there have been no dose-limiting toxicities seen thus far.

In IPF, we completed the double-blind portion and the comparator sub-study of our randomized, placebo-controlled Phase 2 trial of pamrevlumab for first-line treatment of IPF in patients with mild-to-moderate disease. The sub-study examined the safety of pamrevlumab in combination with approved therapies. We reported topline pulmonary function and safety data from the study in the third quarter of 2017 and presented these results at the 2017 European Respiratory Society meeting.

In pancreatic cancer, we are currently conducting a randomized, active-control, neoadjuvant Phase 2 trial combining pamrevlumab with nab-paclitaxel plus gemcitabine in 37 patients with locally advanced pancreatic cancer. Interim results were reported at ASCO 2017 Gastrointestinal Cancers Symposium in San Francisco, showing an improvement in survival among patients in the combination arm, as compared to chemotherapy alone. In addition, a greater proportion of subjects treated on the combination arm containing pamrevlumab were converted from unresectable to fully resectable status. We completed enrollment in the first half of 2017 and completed the six-month treatment period at the end of 2017. Previously we performed an open-label, dose-finding Phase 2 trial in a total of 75 patients with advanced pancreatic cancer.

We are continuing to enroll patients in an exploratory single arm trial of the safety and efficacy of pamrevlumab in non-ambulatory subjects with DMD. The primary endpoint is change in forced vital capacity; other endpoints include changes in arm function and in muscle and heart fibrosis.

Actual dates depend on a variety of factors and are subject to numerous risks and uncertainties, including with respect to patient enrollment, safety results, manufacturing, third party contractors, and government regulators, some of which are out of our control. Also refer to “Risk Factors,” and particularly those risk factors under the heading “Risks Related to the Development and Commercialization of Our Product Candidates.”

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The table below provides a summary of our clinical trials involving pamrevlumab.

Completed and Ongoing Pamrevlumab Clinical Trials

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Idiopathic Pulmonary Fibrosis

Understanding IPF and the Limitations of Current Therapies

IPF is a form of progressive pulmonary fibrosis, or abnormal scarring, which destroys the structure and function of the lungs. As tissue scarring progresses in the lungs, transfer of oxygen into the bloodstream is increasingly impaired. Average life expectancy at the time of confirmed diagnosis of IPF is estimated to be between three to five years, with approximately two-thirds of patients dying within five years of diagnosis. Thus, the survival rates are comparable to some of the most deadly cancers. The cause of IPF is unknown but is believed to be related to unregulated cycles of injury, inflammation and fibrosis.

Patients with IPF experience debilitating symptoms, including shortness of breath and difficulty performing routine functions, such as walking and talking. Other symptoms include chronic dry, hacking cough, fatigue, weakness, discomfort in the chest, loss of appetite, and weight loss. Over the last decade, refinements in diagnosis criteria and enhancements in high-resolution computed tomography imaging technology (“quantitative HRCT”) have enabled more reliable diagnosis of IPF without the need for a lung biopsy more clear distinction from other interstitial lung diseases.

The U.S. prevalence and incidence of IPF are estimated to be 44,000 to 135,000 cases, and 21,000 new cases per year, respectively, based on Raghu et al. (Am J Respir Crit Care Med (2006)) and on data from the United Nations Population Division. We believe that with the availability of technology to enable more accurate diagnoses, the number of individuals diagnosed per year with IPF will continue to increase. In 2011, Decision Resources Group estimated that there will be approximately $4.6 billion in sales of IPF drugs in the U.S. and Europe in 2020.

There are currently two therapies approved to treat IPF in Europe and the U.S., pirfenidone and nintedanib. The approvals and subsequent launches of pirfenidone and nintedanib have clearly shown the commercial potential in IPF. Hoffmann-La Roche (“Roche”) reported worldwide sales of pirfenidone for 2016 of approximately $770 million, and approximately $930 million for 2017. Similarly, Boehringer Ingelheim Pharma GmbH & Co. KG (“Boehringer Ingelheim”) reported total sales of approximately $660 million for nintedanib in 2016, and approximately $527 million in the first half of 2017.

We believe that pamrevlumab has the potential to have a measurable and significant effect on lung fibrosis and if approved, improve the prognosis for patients with IPF. We expect to receive feedback from the FDA on our Phase 3 plan in IPF in mid-2018.

Study 067 – Randomized, Double-Blind, Placebo-Controlled Phase 2 Trial of Pamrevlumab in IPF

In August 2017, we reported positive topline results from our randomized, double-blind, placebo-controlled Phase 2 clinical trial (Study 067) designed to evaluate the safety and efficacy of pamrevlumab in patients with mild-to-moderate IPF (baseline forced vital capacity (“FVC”) percentage predicted between 55% and 90%), as well as topline results from two sub-studies that were added to evaluate the safety of combining pamrevlumab with recently approved IPF therapies.

In the double-blind, placebo-controlled 48-week portion of this study, one hundred-three (103) patients were randomized (1:1) to receive either 30mg/kg of pamrevlumab or placebo intravenously every three weeks. Lung function assessments were conducted at baseline and at weeks 12, 24, 36 and 48. Quantitative HRCT assessments were performed at baseline and on weeks 24 and 48.

Pamrevlumab met the primary efficacy endpoint of change of FVC percent predicted, a measure of a patient’s lung volume as a percentage of what would be expected for such patient’s age, race, sex and height. The average decline (least squares mean) in FVC percent predicted from baseline to week 48 was 2.85 in the pamrevlumab arm (n=50) as compared to an average decline of 7.17 in the placebo arm (n=51), a statistically significant difference of 4.33 (p=0.0331, using a linear slope analysis in the Intent to Treat (“ITT”) population).

Pamrevlumab-treated patients had an average decrease (least squares mean) in FVC of 129 ml at week 48 compared to an average decrease of 308 ml in patients receiving placebo, a statistically significant difference of 178 ml (p=0.0249, using a linear slope analysis in the ITT population). This represents a 57.9% relative difference. In addition, the pamrevlumab-treated arm had a lower proportion of patients (10%) who experienced disease progression (defined by a decline in FVC percent predicted of greater than or equal to 10%) or death, than did the placebo arm (31.4%) at week 48 (p=0.0103). The percentage of pamrevlumab patients who experienced disease progression and discontinued therapy was less than 15% of that in the placebo arm.

In this study, we measured change in quantitative lung fibrosis from baseline to week 24 and week 48 using quantitative HRCT. This analysis showed a statistically significant attenuation of lung fibrosis in the pamrevlumab-treated group as compared to the placebo-treated group at week 24 and week 48. Missing or unreadable 24 or 48-week data were imputed using the multiple imputation method. As in our previous open label Phase 2 study, a correlation between FVC percent predicted and quantitative lung fibrosis was confirmed at both week 24 and 48 in this study.

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We are not aware of any IPF therapies that have shown a statistically significant effect on lung fibrosis as measured by quantitative HRCT analysis.

The treatment effects of pamrevlumab were demonstrated not only on change in FVC, a measure of pulmonary function and IPF disease progression, and change in fibrosis using quantitative HRCT, but pamrevlumab treated patients also showed a trend of clinically meaningful improvement in a measure of health-related quality of life using the St. George’s Respiratory Questionnaire (SGRQ) vs a reduction in quality of life seen in placebo patients over the 48 weeks of treatment. The SGRQ quality of life measurement has been validated in chronic obstructive pulmonary disease. In the patients that were evaluated by the UCSD Shortness of Breath Questionnaire, pamrevlumab treated patients had a significant attenuation of their worsening dyspnea in comparison to placebo.

Pamrevlumab was well tolerated in the placebo-controlled study. The TEAEs were comparable between the pamrevlumab and placebo arms and the adverse events in the pamrevlumab arm were consistent with the known safety profile of pamrevlumab. In this study, as compared with the placebo group, fewer pamrevlumab patients were hospitalized, following an IPF-related or respiratory TEAE, or died for any reason.

The double-blind, active-controlled combination sub-studies were designed to assess the safety of combining pamrevlumab with standard of care medication in IPF patients. Study subjects were on stable doses of pirfenidone or nintedanib for at least three months and were randomized 2:1 to receive 30 mg/kg of pamrevlumab or placebo every three weeks for 24 weeks. Thirty-six patients were enrolled in the pirfenidone sub-study and 21 patients were enrolled in the nintedanib sub-study. Pamrevlumab appeared to be well tolerated when given in combination with either pirfenidone or nintedanib.

Study 049 – Open-Label Phase 2 Trial of Pamrevlumab in IPF

We completed the open-label extension of Study 049, a Phase 2 open-label, dose-escalation study to evaluate the safety, tolerability, and efficacy of pamrevlumab in 89 patients with IPF. During the initial one-year treatment period, pamrevlumab was administered at a dose of 15 mg/kg in Cohort 1 (53 patients) and 30 mg/kg in Cohort 2 (36 patients) by IV infusion every three weeks for 45 weeks. After 45 weeks of dosing, subjects whose FVC declined less than predicted were allowed to continue dosing in an extension study until they had disease progression. Nineteen patients from Cohort 1 (35.8%) and 18 patients from Cohort 2 (50.0%) entered the extension study. Efficacy endpoints were pulmonary function assessments, extent of pulmonary fibrosis as measured by quantitative imaging and measures of health-related quality of life. We presented data from our open-label Phase 2 IPF extension study (049) at the International Colloquium on Lung and Airway Fibrosis in November 2016, reporting that no safety issues were observed during prolonged treatment with pamrevlumab. Some of the 37 patients who enrolled in the extension study were treated with pamrevlumab for up to five years. Trends regarding improved or stable pulmonary function and stable fibrosis observed during the initial one-year study were also observed in the extension study.

HRCT is typically used to diagnose IPF based on visual assessments of computed tomography (“CT”), images of lung fibrosis. We used quantitative HRCT to measure changes in fibrosis in this Study 049 using software to quantify whole lung fibrosis from the compilation of 1 mm HRCT sections of the entire lung. The computer algorithm, which has been validated by the clinical research organization used for the study, provides an overall determination of the percentage of the lung that contains individually the three characteristic forms of IPF fibrosis, including reticular IPF fibrosis which is expected to make the most dynamic contribution to overall lung fibrosis.

The extent of lung fibrosis as measured by quantitative HRCT has been shown to be accurate and reproducible (Kim et al. Eur Radiol (2011)). Recent publications based on similar quantitative HRCT methods have identified an association between worsening pulmonary fibrosis and mortality in IPF (Maldonado et al. Eur Resp J (2014); Oda et al. Respiratory Research (2014)). However, HRCT has not been used by the FDA to establish efficacy in IPF.

Eighty-nine patients in this Phase 2 open label study received at least one dose of pamrevlumab. We defined disease severity in terms of baseline pulmonary function, measured as the FVC percent of the predicted value for a healthy matched person of the same age, or FVC percent predicted. Severe disease was FVC percent predicted < 55%, moderate disease was FVC percent predicted between 55% and 80%, and mild disease was FVC percent predicted >80%.

In Cohort 1, we enrolled patients with a wide range of disease severity to assess safety and efficacy. Baseline FVC percent predicted for Cohort 1 was 43% to 90%, with a mean of 62.8%. In contrast, other IPF clinical trials, such as those for pirfenidone and nintedanib, have enrolled patients who on average had mild to moderate disease (mean FVC percent predicted 73.1% to 85.5%). Fourteen patients in Cohort 1 withdrew, and ten of the 14 had severe disease.

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In order to enroll IPF patients similar to those in other IPF trials, we amended the protocol for Cohort 2 to include only patients with mild to moderate disease (FVC ≥ 55% predicted). Baseline FVC percent predicted for Cohort 2 was 53% to 112%, with a mean of 72.7%. Based on this definition of disease severity, 37 patients in Cohort 1 and 32 patients in Cohort 2 had mild to moderate disease.

Disease Severity in Enrolled and Evaluated Patients Treated with Pamrevlumab in FGCL-3019-049

The table below provides a summary of the observed quantitative change in fibrosis for mild to moderate patients in Cohorts 1 and 2 as measured by quantitative HRCT. Twenty-four percent of these patients had improved fibrosis at week 48. We believe that this is the first trial to demonstrate reversal of fibrosis in a subset of IPF patients. Stable fibrosis has been considered the only achievable favorable outcome in IPF. The table below sets forth the number of patients who showed stable or improved fibrosis at weeks 24 and 48 compared to the amount of fibrosis at the start of the trial.

Changes in Fibrosis in Patients with Mild to Moderate IPF Treated with Pamrevlumab in FGCL-3019-049

Fibrosis improvement or stabilization in patients with mild to moderate disease as measured as reticular fibrosis by quantitative HRCT correlated with improvement or stabilization of pulmonary function measured by FVC (p<0.0001; r=-0.59 Cohorts 1 and 2 combined). The figure below shows FVC changes up to week 48 for mild to moderate patients with stable or improved fibrosis versus patients with worsening fibrosis. Patients with stable or improved fibrosis showed improved pulmonary function, on average, which was significantly different or better than patients with worsening fibrosis who showed a substantial decline in FVC (p= 0.0001, Cohorts 1 and 2 combined). Patients with worsening fibrosis had pulmonary function that was similar to the annual decline in pulmonary function for typical IPF patients.

Categorical Analysis of FVC Change from Baseline (BL) (mean ±SE) in FGCL-3019-049

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Eighty-nine patients had at least one adverse event. The most common reported events were cough, fatigue, shortness of breath, upper respiratory tract infection, sore throat, bronchitis, nausea, dizziness, and urinary tract infection. To date, including the open-label extension, there have been 45 SAEs in 31 patients, four of which were considered possibly related by the principal investigator to study treatment. During the first year of treatment there were 38 TSAEs in 24 patients. Adverse events observed to date are consistent with typical conditions observed in this patient population.

In aggregate, the data from the Phase 2 open-label, dose-escalation study indicate that a subset of pamrevlumab treated IPF patients experienced improvements in lung fibrosis with commensurate improvement in pulmonary function and a potential for prolonged benefit with continued treatment. These results are consistent with the mouse disease model results which showed that pamrevlumab treatment can reverse lung fibrosis and result in improved pulmonary function. We believe that our patient data showing correlated improvements in both fibrosis and lung function in some patients have not been seen in previously published IPF clinical studies.

Open-Label Phase 1 Trial of Pamrevlumab in IPF

Study 002 was a Phase 1 open-label study to determine the safety and pharmacokinetics of escalating single doses of pamrevlumab. Patients with a diagnosis of IPF by clinical features and surgical lung biopsy received a single IV dose of pamrevlumab at 1, 3, or 10 mg/kg. A total of 21 patients were enrolled in the study; six patients received a dose of 1 mg/kg, nine patients received 3 mg/kg, and six patients received 10 mg/kg. Pamrevlumab was well tolerated across the range of doses studied; and there were no dose-limiting toxicities. TEAE that were considered to be possibly related by the principal investigator to pamrevlumab were mild and self-limited, consisting of pyrexia, cough and headache.

Pancreatic Cancer

Understanding Pancreatic Cancer and the Limitations of Current Therapies

Pancreatic ductal adenocarcinoma, or pancreatic cancer, is the fourth leading cause of cancer deaths in the U.S. According to the World Health Organization, and based on data from the United Nations Population Division, there were approximately 79,000 new cases of pancreatic cancer and approximately 78,000 deaths in the EU in 2012. The National Cancer Center of Japan estimated that in 2010 (latest year available) there were 32,330 new cases of pancreatic cancer. In 2013, Decision Resources Group estimated that there will be approximately $1.3 billion in sales of pancreatic cancer drugs in 2022. According to the U.S. National Cancer Institute, in 2016, there were approximately 53,000 new cases of pancreatic cancer projected in the U.S. Fifty percent of new cases are metastatic. Another 15-20% have localized resectable tumors. The remaining 30-35% have localized but unresectable tumors. For those with non-resectable tumors, median survival is eight to 12 months post-diagnosis, and about 7% realize five years of survival; similar to metastatic cases. For those with resectable tumors, 50% survive 17 to 27 months post-diagnosis and ~20% report five-year survival.

Pancreatic cancer is aggressive and typically not diagnosed until it is largely incurable. Most patients are diagnosed after the age of 45, and according to the American Cancer Society, 94% of patients die within five years from diagnosis. The majority of patients are treated with chemotherapy, but pancreatic cancer is highly resistant to chemotherapy. Approximately 15% to 20% of patients are treated with surgery; however, even for those with successful surgical resection, the median survival is approximately two years, with a five year survival rate of 15% to 20% (Neesse et al. Gut (2011)). Radiation treatment may be used for locally advanced diseases, but it is not curative.

The duration of effect of approved anti-cancer agents to treat pancreatic cancer is limited. Gemcitabine demonstrated improvement in median overall survival from approximately four to six months, and erlotinib in combination with gemcitabine demonstrated an additional ten days of survival. Nab-paclitaxel in combination with gemcitabine was approved by the FDA in 2013 for the treatment of pancreatic cancer, having demonstrated median survival of 8.5 months. The combination of folinic acid, 5-fluorouracil, irinotecan and oxaliplatin (FOLFIRINOX) was reported to increase survival to 11.1 months from 6.8 months with gemcitabine. These drugs illustrate that progress in treatment for pancreatic cancer has been modest, and there remains a need for substantial improvement in patient survival and quality of life.

The approved chemotherapeutic treatments for pancreatic cancer target the cancer cells themselves. Tumors are composed of cancer cells and associated non-cancer tissue, or stroma, of which ECM is a major component. In certain cancers such as pancreatic cancer, both the stroma and tumor cells produce CTGF which in turn promotes the proliferation and survival of stromal and tumor cells. CTGF also induces ECM deposition that provides advantageous conditions for tumor cell adherence and proliferation, promotes blood vessel formation, or angiogenesis, and promotes metastasis, or tumor cell migration, to other parts of the body.

Pancreatic cancers are generally resistant to powerful chemotherapeutic agents, and there is now growing interest in the use of an anti-fibrotic agent to diminish the supportive role of stroma in tumor cell growth and metastasis. The anti-tumor effects observed with pamrevlumab in preclinical models indicate that it has the potential to inhibit tumor expansion through effects on tumor cell proliferation and apoptosis as well as reduce metastasis.

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Clinical Development of Pamrevlumab in Pancreatic Cancer

We continue to follow patients in our ongoing open-label, randomized (2:1) Phase 1/2 trial (FGC004C-3019-069) of pamrevlumab combined with gemcitabine plus nab-paclitaxel chemotherapy versus the chemotherapy regimen alone in patients with inoperable locally advanced pancreatic cancer that has not been previously treated. We enrolled 37 patients in this study and completed the six-month treatment period and surgical assessment at the end of 2017. The overall goal of the trial is to determine whether the pamrevlumab combination can convert inoperable pancreatic cancer to operable, or resectable, cancer. Tumor removal is the only chance for cure of pancreatic cancer, but only approximately 15% to 20% of patients are eligible for surgery.

We have continued to see a majority of pamrevlumab treated patients converted from unresectable to resectable cancer, consistent with what we reported at the 2017 American Society of Clinical Oncology GastroIntestinal Cancer Meeting (“ASCO-GI”). The patients continue to be followed for disease progression and overall survival. Our goal is to reach agreement with the FDA on a pivotal trial design by mid-2018.

We reported on 23 evaluable patients at the 2017 ASCO-GI. Of the 22 patients randomized to pamrevlumab plus standard of care (gemcitabine and nab-paclitaxel), 10 continue on treatment, three discontinued therapy due to SAEs unrelated to study drug and seven were reassessed as eligible for resection based on standard scoring criteria set forth in the protocol; three having complete resection (R0) and one having an R1 resection (microscopic evidence of residual tumor cells at the resection margins), while the remaining patients’ tumors were not resected due to the presence of metastatic disease observed during surgery. Of the eleven patients randomized to gemcitabine and nab-paclitaxel alone, five experienced progressive disease, as defined in the protocol, prior to completing treatment, five remained inoperable and one was converted to operable cancer having an R0 resection. After six cycles of treatment, plasma levels of CA19.9, a non-specific tumor marker, showed a mean reduction of 78.3% with pamrevlumab plus chemotherapy compared to 48.7% with chemotherapy alone. In addition, this interim data showed improvement in survival among patients in the combination arm, as compared to chemotherapy alone. Patients with locally advanced unresectable pancreatic cancer have median survival of less than 12 months, only slightly better than patients with metastatic pancreatic cancer, whereas patients with resectable pancreatic cancer have a much better prognosis with median survival of approximately 23 months and some patients being cured. If pamrevlumab in combination with chemotherapy continues to demonstrate an enhanced rate of conversion from unresectable cancer to resectable cancer, it may support the possibility that pamrevlumab could provide a substantial survival benefit for locally advanced pancreatic cancer patients.

Completed Clinical Trials of Pamrevlumab in Pancreatic Cancer

We completed an open-label Phase 1/2 (FGCL-MC3019-028) dose finding trial of pamrevlumab combined with gemcitabine plus erlotinib in patients with previously untreated locally advanced (stage 3) or metastatic (stage 4) pancreatic cancer. These study results were published in the Journal of Cancer Clinical Trials (Picozzi et al., J Cancer Clin Trials 2017, 2:123). The trial tested pamrevlumab doses of 3 mg/kg, 10 mg/kg, 15 mg/kg, 25 mg/kg, 35 mg/kg and 45 mg/kg administered every two weeks, and pamrevlumab doses of 17.5 mg/kg and 22.5 mg/kg administered weekly after a double loading dose. On Day 15, treatment began with gemcitabine 1000 mg/m 2 weekly for three weeks in a four week cycle and erlotinib 100 mg daily. Treatment continued until progression of the cancer or the patient withdrew for other reasons. Patients were then followed until death. Tumor status was evaluated by CT imaging every eight weeks until disease progression to assess changes in tumor mass.

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Seventy-five patients were enrolled in this study with 66 (88%) having stage 4 metastatic cancer. The study demonstrated a dose-related increase in survival, as described in the figure below. At the lowest doses, no patients survived for even one year while at the highest doses up to 31% of patients survived one year.

Effect of Pamrevlumab Dose on One Year Survival in Pancreatic Cancer

A post-hoc analysis found that there was a significant relationship between survival and trough levels of plasma pamrevlumab measured immediately before the second dose (Cmin), as illustrated below. Cmin greater than or equal to 150 µg/mL was associated with significantly improved progression-free survival (p=0.01) and overall survival (p=0.03) versus those patients with Cmin less than 150 µg/mL. For patients with Cmin >150 µg/mL median survival was 9.0 months compared to median survival of 4.4 months for patients with Cmin <150 µg/mL. Similarly, 34.2% of patients with Cmin >150 µg/mL survived for longer than one year compared to 10.8% for patients with Cmin <150 µg/mL. These data suggest that sufficient blockade of CTGF requires pamrevlumab threshold blood levels of approximately 150 µg/mL in order to improve survival in patients with advanced pancreatic cancer.

Increased Pancreatic Cancer Survival Associated with Increased Plasma Levels of Pamrevlumab

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The Kaplan-Meier plot provides a representation of survival of all patients in the clinical trial. Each vertical drop in the curve represents a recorded event (death) of one or more patients. When a patient’s event cannot be determined either because he or she has withdrawn from the study or because the analysis is completed before the event has occurred, that patient is “censored” and denoted by a symbol (●) on the curve at the time of the last reliable assessment of that patient.

In the study, the majority of adverse events were mild to moderate, and were consistent with those observed for erlotinib plus gemcitabine treatment without pamrevlumab. There were 99 TSAEs; six of which were assessed as possibly related by the principal investigator, and 93 as not related to study treatment. We did not identify any evolving dose-dependent pattern, and higher doses of pamrevlumab were not associated with higher numbers of SAEs or greater severity of the SAEs observed.

In both the KPC mouse study and in this clinical trial, pamrevlumab treatment had a substantial effect on survival with no apparent increase to the toxicity of the chemotherapeutic regimen.

Pamrevlumab for Duchenne Muscular Dystrophy

Understanding DMD and the Limitations of Current Therapies

In the U.S., one in 3,500 boys have DMD, and there are currently no approved disease-modifying treatments. Most children, despite taking steroids to mitigate progressive muscle loss, are wheelchair bound by age 12, and median survival is age 25. DMD is caused by absence of the dystrophin protein resulting in abnormal muscle structure and function and buildup of fibrosis in muscle, leading to diminished mobility, pulmonary function and cardiac function. Constant myofiber breakdown results in persistent activation of myofibroblasts and altered production of ECM resulting in extensive fibrosis in skeletal muscles of DMD patients. Desguerre et al. (2009) showed that muscle fibrosis was the only myo-pathologic parameter that significantly correlated with poor motor outcome as assessed by quadriceps muscle strength, manual muscle testing of upper and lower limbs, and age at ambulation loss.

Clinical Development of Pamrevlumab for DMD

We continue to enroll patients in our Phase 2 open-label trial of pamrevlumab in non-ambulatory DMD patients. We have enrolled 18 of the 22 patients targeted for enrollment in this study. The primary endpoint is change in pulmonary function compared to each individual subject’s historical decline in lung function. Other endpoints include assessments of cardiac fibrosis and function assessed by magnetic resonance imaging (“MRI”), arm muscle fibrosis and fat assessed by MRI and upper body strength. We have amended our protocol and inclusion criteria with the aim of increasing enrollment.

Other Potential Indications for Pamrevlumab

We believe that pamrevlumab has potential to be a treatment for cancers and a broad array of fibrotic disorders, including:

Investigational New Drug and Clinical Trial Applications

Pamrevlumab is being studied in the U.S. for the treatment of IPF under an IND that we submitted to the FDA in August 2003. Pamrevlumab is being studied in the U.S. for the treatment of locally advanced or metastatic pancreatic cancer under an IND that we submitted to the FDA in September 2004. Pamrevlumab is being studied in the U.S. for the treatment of DMD under an IND that we submitted to the FDA in June 2015.

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Commercialization Strategy for Pamrevlumab

Our goal, if pamrevlumab is successful, is to be a leader in the development and commercialization of novel approaches for inhibiting deep organ fibrosis and treating some forms of cancer. To date, we have retained exclusive worldwide rights for pamrevlumab. We plan to retain commercial rights to pamrevlumab in North America and will also continue to evaluate the opportunities to establish co-development partnerships for pamrevlumab as well as commercialization collaborations for territories outside of North America.

FG-5200 FOR THE TREATMENT OF CORNEAL BLINDNESS IN CHINA

Corneal blindness, defined as visual acuity of 3/60 or less, is caused by various factors, including scarring resulting from infections, such as herpes simplex, physical trauma, chemical injury and genetic diseases affecting the function of the cornea. In countries with sufficient tissue banks and skilled surgeons, the treatment for corneal blindness is the replacement of the damaged cornea with a corneal graft from donor corneas from human cadavers. Despite use of immunosuppressive drugs, graft rejection remains a serious problem, resulting in graft failure within five years in approximately 35% of cases in the U.S. We are developing FG-5200 for the treatment of corneal blindness resulting from partial thickness corneal damage.

In China, there are ethical or religious beliefs, cultural norms and significant infrastructure barriers that limit organ donation or tissue banking possibilities, resulting in an extreme shortage of cadaver corneas. In September 2017, the Chinese State Council issued a regulation banning the importation of human tissue which is expected to further diminish the availability of cadaver corneas for implantation in China. In April 2015, a subsidiary of China Regenerative Medicine International Limited received approval for their acellular porcine cornea stroma medical device for the indication of repair of corneal ulcers in China. However, alternatives to cadaver corneas, such as synthetic corneas using collagen derived from porcine tissue or fish scales, are either experimental or to our knowledge, have not yielded satisfactory results for restoration of vision in patients with corneal blindness. In many cases of corneal blindness, infection and other factors lead to serious risks to the patient.

Market Opportunity

Approximately 40,000 corneal grafts were performed in the U.S. in 2011 using tissue from human cadavers. In contrast, while there are approximately four to five million patients in China with corneal blindness and an incidence of 100,000 cases of corneal blindness each year, there were only about 3,000 corneal grafts performed in China in 2007 using tissue from human cadavers. We believe the number of corneal grafts using cadaver tissue in China may decrease significantly due to recent changes in government policy.

FG-5200 as a Potential Solution to This Unmet Medical Need

FG-5200 Corneal Implant

Our expertise in fibrosis and ECM proteins has allowed us to develop processes for producing human collagen types I, II and III, as well as coordinate expression of several enzymes involved in assembly of collagen. We have successfully produced a proprietary version of recombinant human collagen III that is suitable for use in cornea repair.

FG-5200, a corneal implant medical device we are developing in China, is designed to serve as an immediately functional replacement cornea as well as a scaffold to allow for regeneration of the native corneal tissue for the primary purpose of restoration of vision. In contrast, cadaver graft tissue is never “turned over” in fact, only limited integration occurs over the life of the graft. Our FG-5200 implant is made of recombinant human collagen that has been formed into a highly concentrated fibrillar matrix to provide physical characteristics optimal for corneal implantation.

In animal models, FG-5200 allows for native tissue to completely regrow in less than one year, including both epithelium (the outer cell layer of the cornea) and stroma. The stroma in these animal models is seen to be infiltrated with nerve fibers, leading to the reacquisition of the touch response critical to the avoidance of additional corneal damage.

Corneal implants using human donor tissue are currently being reimbursed by the government, and similar to many other implantable Class III devices in China (including stents and bone grafts), we would expect that FG-5200 could be added to the reimbursement list for medical devices, if approved.

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Clinical Testing of FG-5200

An initial clinical study outside of China has been conducted to test the safety and feasibility of using a biosynthetic implant composed of our recombinant human collagen, and substantially similar to FG-5200, for the treatment of severe corneal damage as an alternative to human donor tissue. Ten patients with advanced keratoconus, or severe corneal scarring, were implanted with the recombinant collagen implants and have been followed for more than five years. Two-year follow-up data were reported in Science Translational Medicine (Fagerholm et al., (2010)) and four-year follow-up data were reported in Biomaterials (Fagerholm et al., Biomaterials (2014)). Key clinical findings include the following:

FG-5200 Strategy

In January 2016, our subsidiary FibroGen Beijing received CFDA’s written notice of classification of our FG-5200 corneal implant as a Domestic Class III medical device. This allows FibroGen to develop, and if approved, to market FG-5200 corneal implants fabricated in China without any prior reference approval outside of China.

We currently plan to manufacture FG-5200 preclinical and clinical trial material in our aseptic good manufacturing practices production suite located at our Beijing manufacturing plant. We completed the process technology transfer and the registration campaign in 2017. Materials from this campaign are being used in preclinical studies that we expect to complete in 2018 or early 2019. We expect to file a CTA for a pivotal clinical trial after final results of the preclinical studies and discussion with the CFDA.

We plan to develop FG-5200 in China first. If FG-5200 is successful in China, we believe there is a future opportunity to develop FG-5200 in other Asian countries where cadaver materials are in short supply, in part because cultural norms and infrastructure and other challenges in tissue banking limit tissue donations. We also believe there is an opportunity to obtain CE Marking to facilitate entry into other markets, such as Latin America. We may develop FG-5200 in the U.S. and Europe as well, where cadaver corneas are available but the required immunosuppressive therapy may make FG-5200 a potentially attractive alternative.

COLLABORATIONS

Our Collaboration Partnerships for Roxadustat

Astellas

We have two agreements with Astellas for the development and commercialization of roxadustat, one for Japan, and one for Europe, the Commonwealth of Independent States, the Middle East and South Africa. Under these agreements we provided Astellas the right to develop and commercialize roxadustat for anemia in these territories.

We share responsibility with Astellas for clinical development activities required for U.S. and EU regulatory approval of roxadustat, and share equally those development costs under the agreed development plan for such activities. Astellas will be responsible for clinical development activities and all associated costs required for regulatory approval in all other countries in the Astellas territories. Astellas will own and have responsibility for regulatory filings in its territories. We are responsible, either directly or through our contract manufacturers, for the manufacture and supply of all quantities of roxadustat to be used in development and commercialization under the agreements.

The Astellas agreements will continue in effect until terminated. Either party may terminate the agreements for certain material breaches by the other party. In addition, Astellas will have the right to terminate the agreements for certain specified technical product failures, upon generic sales reaching a particular threshold, upon certain regulatory actions, or upon our entering into a settlement admitting the invalidity or unenforceability of our licensed patents. Astellas may also terminate the agreements for convenience upon advance written notice to us. In the event of any termination of the agreements, Astellas will transfer and assign to us the regulatory filings for roxadustat and will assign or license us the relevant trademarks used with the products in the Astellas territories. Under certain terminations, Astellas is also obligated to pay us a termination fee.

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Consideration under these agreements includes a total of $360.1 million in upfront and non-contingent payments, and milestone payments totaling $557.5 million, of which $542.5 million are development and regulatory milestones, and $15.0 million are commercial-based milestones. Total consideration, excluding development cost reimbursement and product sales-related payments, could reach $917.6 million. During the second quarter of 2016, we 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 CKD in patients on dialysis. The amount was received in early July 2016. The aggregate amount of such consideration received through December 31, 2017 totals $472.6 million.

Additionally, under these agreements, Astellas pays 100% of the commercialization costs in their territories. Astellas will pay us a transfer price for our manufacture and delivery of roxadustat based on a calculation based on net sales of roxadustat in the low 20% range.

In addition, Astellas has separately invested $80.5 million in the equity of FibroGen, Inc. to date.

AstraZeneca

We also have two agreements with AstraZeneca for the development and commercialization of roxadustat for anemia, one for China (the “China Agreement”), and one for the U.S. and all other countries not previously licensed to Astellas (the “U.S./RoW Agreement”). Under these agreements we provided AstraZeneca the right to develop and commercialize roxadustat for anemia in these territories. We share responsibility with AstraZeneca for clinical development activities required for U.S. regulatory approval of roxadustat.

Now that we have reached the $116.5 million cap on our initial funding obligations (under which we shared 50% of the initial development costs), all future development and commercialization costs for roxadustat for the treatment of anemia in CKD in the U.S., Europe, Japan and all other markets outside of China will be paid by Astellas and AstraZeneca.

In China, our subsidiary FibroGen Beijing will conduct the development work for CKD anemia and will hold all of the regulatory licenses issued by China regulatory authorities and be primarily responsible for regulatory, clinical and manufacturing. China development costs are shared 50/50. AstraZeneca is also responsible for 100% of development expenses in all other licensed territories outside of China. We are responsible, through our contract manufacturers, for the manufacture and supply of all quantities of roxadustat to be used in development and commercialization under the agreements.

Under the AstraZeneca agreements, we receive upfront and subsequent non-contingent payments totaling $402.2 million. Potential milestone payments under the agreements total $1.2 billion, of which $571.0 million are development and regulatory milestones, and $652.5 million are commercial-based milestones. Total consideration under the agreements, excluding development cost reimbursement, transfer price payments, royalties and profit share, could reach $1.6 billion. During the second quarter of 2016, we received an upfront payment of $62.0 million time based development milestone. In October 2017, the CFDA accepted our recently submitted NDA for registration of roxadustat for anemia in DD CKD and NDD-CKD patients. This NDA submission triggered a $15.0 million milestone payment to FibroGen by AstraZeneca, which was received and fully recognized under our revenue recognition policy as license and milestone revenue in the fourth quarter of 2017. The aggregate amount of such consideration received through December 31, 2017 totals 432.2 million.

Payments under these agreements include over $500 million in upfront, non-contingent and other payments received or expected to be received prior to the first U.S. approval, excluding development expense reimbursement.

AstraZeneca purchased 1,111,111 shares of our common stock at the initial public offering (“IPO”) price for an aggregate purchase price of $20.0 million in a private placement concurrent with our IPO. In connection with the purchase of our shares of common stock in the private placement, AstraZeneca has also entered into a standstill agreement which provides that, until November 2019, neither AstraZeneca nor its representatives will, directly or indirectly, among other things, acquire any additional securities or assets of ours, solicit proxies for our securities, participate in a business combination involving us, or seek to influence our management or policies, except with the prior consent of our board of directors and in certain other specified circumstances involving a change of control of our company. In addition, AstraZeneca has agreed to vote its shares in favor of nominees to our board of directors, increases in the authorized capital stock of the company and amendments to our equity plans approved by the board of directors, in each case as recommended by a majority of our board of directors. AstraZeneca has also agreed, subject to specified exceptions, not to sell shares purchased by it in the private placement for the two-year period following such purchase and to limitations on the volume of its sales of such shares thereafter.

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Under the U.S./RoW Agreement, AstraZeneca will pay for all commercialization costs in the U.S. and RoW, AstraZeneca will be responsible for the U.S. commercialization of roxadustat, with FibroGen undertaking specified promotional activities in the ESRD segment in the U.S. In addition, we will receive a transfer price for delivery of commercial product based on a percentage of net sales in the low- to mid-single digit range and AstraZeneca will pay us a tiered royalty on net sales of roxadustat in the low 20% range.

Under the China Agreement, which is conducted through FibroGen China Anemia Holdings, Ltd. (“FibroGen China”), the commercial collaboration is structured as a 50/50 profit share. AstraZeneca will conduct commercialization activities in China as well as serve as the master distributor for roxadustat and will fund roxadustat launch costs in China until FibroGen Beijing has achieved profitability. At that time, AstraZeneca will recoup 50% of their historical launch costs out of initial roxadustat profits in China.

AstraZeneca may terminate the U.S./RoW Agreement upon specified events, including our bankruptcy or insolvency, our uncured material breach, technical product failure, or upon 180 days prior written notice at will. If AstraZeneca terminates the U.S/RoW Agreement at will, in addition to any unpaid non-contingent payments, it will be responsible to pay for a substantial portion of the post-termination development costs under the agreed development plan until regulatory approval.

AstraZeneca may terminate the China Agreement upon specified events, including our bankruptcy or insolvency, our uncured material breach, technical product failure, or upon advance prior written notice at will. If AstraZeneca terminates our China Agreement at will, it will be responsible to pay for transition costs as well as make a specified payment to FibroGen China.

In the event of any termination of the agreements, but subject to modification upon termination for technical product failure, AstraZeneca will transfer and assign to us any regulatory filings and approvals for roxadustat in the affected territories that they may hold under our agreements, grant us licenses and conduct certain transition activities.

Additional Information Related to Collaboration Agreements

Of the $1,113.5 million in development and regulatory milestones payable in the aggregate under our Astellas and AstraZeneca collaboration agreements, $425.0 million is payable upon achievement of milestones relating to the submission and approval of roxadustat in DD-CKD and NDD-CKD in the U.S. and Europe.

Information about collaboration partners that accounted for more than 10% of our total revenue or accounts receivable for the last three fiscal years is set forth in Note 14 to our consolidated financial statements under Item 8 of this Annual Report.

COMPETITION

The pharmaceutical and biotechnology industries are highly competitive, particularly in some of the indications we are developing drug candidates, including anemia in CKD, IPF, pancreatic cancer, and DMD. We face competition from multiple other pharmaceutical and biotechnology companies, many of which have significantly greater financial, technical and human resources and experience in product development, manufacturing and marketing. These potential advantages of our competitors are particularly a risk in IPF, pancreatic cancer, and DMD, where we do not currently have a development or commercialization partner.

We expect any products that we develop and commercialize to compete on the basis of, among other things, efficacy, safety, convenience of administration and delivery, price, the level of generic competition and the availability of reimbursement from government and other third party payors.

If either of our lead product candidates is approved, they will compete with currently marketed products, and product candidates that may be approved for marketing in the future, for treatment of the following indications:

Roxadustat — Anemia in CKD

If roxadustat is approved for the treatment of anemia in patients with CKD and launched commercially, competing drugs are expected to include ESAs, particularly in those patient segments where ESAs are used. Currently available ESAs include epoetin alfa (EPOGEN ^® marketed by Amgen Inc. in the U.S., Procrit ^® and Erypo ^®/Eprex ^®, marketed by Johnson & Johnson, Inc. and Espo ^® marketed by Kyowa Hakko Kirin in Japan and China), darbepoetin (Amgen/Kyowa Hakko Kirin’s Aranesp ^® and NESP ^® ) and Mircera ^® marketed by Roche outside the U.S. and by Vifor Pharma (formerly a company of Galenica Group (“Vifor”)), a Roche licensee, in the U.S. and Puerto Rico, as well as biosimilar versions of these currently marketed ESA products. ESAs have been used in the treatment of anemia in CKD for more than 20 years, serving a significant majority of dialysis patients. While NDD-CKD patients who are not under the care of nephrologists, including those with diabetes and hypertension, do not typically receive ESAs and are often left untreated, some patients under nephrology care may be receiving ESA therapy. It may be difficult to encourage healthcare providers and patients to switch to roxadustat from products with which they have become familiar.

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We may also face competition from potential new anemia therapies currently in clinical development, including in those patients segments not currently addressed by ESAs. Companies such as GlaxoSmithKline plc (“GSK”), Bayer Corporation (“Bayer”), Akebia Therapeutics, Inc. (“Akebia”), and Japan Tobacco, who are currently developing HIF-PH inhibitors for anemia in CKD indications. We may face competition for patient recruitment and enrollment for clinical trials and potentially in commercial sales. Akebia is currently conducting two Phase 3 studies in NDD-CKD, one started in December 2015 and the other in February 2016, as well as two Phase 3 studies in DD-CKD, one started in July 2016 and the other in August 2016. Akebia also started a Phase 2 study in May 2017 with 20-week dosing initially in ESA-hyporesponsive DD-CKD patients but recently announced that is now modified to include non-hyporesponsive DD-CKD patients. More recently, Akebia announced an updated plan for a Phase 3 study with three-times a week dosing versus once a day dosing in DD-CKD population, which is expected to start in 2018. In September 2017, Mitsubishi Tanabe Pharmaceutical Corporation, Akebia’s collaboration partner, announced topline results from a vadadustat Japan Phase 2 study in 51 NDD patients, and its plan to start a Japan Phase 3 development program, rather than including Japan sites in their global Phase 3 program. GSK started Phase 3 studies in NDD-CKD and DD-CKD in the U.S. in September 2016, and in Japan in June 2016. Bayer has completed global Phase 2 studies and announced in May 2017 its HIF-PH inhibitor is now in continued development in Japan only, and started Japan Phase 3 studies in NDD-CKD and DD-CKD in December 2017. As of September 2017, Japan Tobacco is currently conducting four Phase 3 studies in NDD-CKD and DD-CKD in Japan. Some of these product candidates may enter the market prior to roxadustat.

In addition, there are other companies developing biologic therapies for the treatment of other anemia indications that we may also seek to pursue in the future, including anemia of MDS. For example, Acceleron Pharma Inc., in partnership with Celgene Corporation, is in Phase 3 development of protein therapeutic candidates to treat anemia and associated complications in patients with ß-thalassemia and MDS, and has received orphan drug status from the EMA and FDA for these indications. We have begun enrolling for our Phase 3 trial in the U.S. and EU and we received approval from the CFDA for our Phase 2/3 Clinical Trial Application in China. There may also be new therapies for renal-related diseases that could limit the market or level of reimbursement available for roxadustat if and when it is commercialized.

In China, biosimilars of epoetin alfa are offered by Chinese pharmaceutical companies such as EPIAO marketed by 3SBio Inc. as well as more than 15 other local manufacturers. We may also face competition by HIF-PH inhibitors from other companies such as Akebia, Bayer, and GSK, which was authorized by the CFDA to conduct trials in China to support its ex-China regulatory filings. Akebia announced in December 2015 that it has entered into a development and commercialization partnership with Mitsubishi Tanabe Pharmaceutical Corporation for its HIF-PH inhibitor vadadustat in Japan, Taiwan, South Korea, India and certain other countries in Asia, and announced in April 2017 an expansion of their U.S. collaboration with Otsuka to add markets, including China. 3SBio Inc. announced in 2016 its plan on beginning a Phase 1 clinical trial of a HIF-PH inhibitor for the China market.

The introduction of biosimilar ESAs into the U.S. market may occur by the time roxadustat enters the market and may alter the competitive and pricing landscape of anemia therapy in DD-CKD patients under the ESRD bundle. The patents for Amgen’s epoetin alfa (EPOGEN) expired in 2004 in the EU, and the final material patents in the U.S. expired in May 2015. Several biosimilar versions of currently marketed ESAs are available for sale in the EU, China and other territories. In the U.S., a few ESA biosimilars are currently under development or regulatory review, including Retacrit® (epoetin zeta), marketed by Pfizer in Europe, and for which Pfizer resubmitted a Biologics License Application (“BLA”) after receiving a complete response letter (“CRL”) from the FDA denying approval of its BLA submitted in October 2015. While the FDA’s Advisory Committee recommended approving the BLA in May 2017, the FDA issued another CRL on June 22, 2017. Sandoz, a division of Novartis, markets Binocrit® (epoetin alfa) in Europe and plans to file a biosimilar BLA in 2017 in the U.S.

The majority of the current CKD anemia market focuses on dialysis patients, who visit dialysis centers on a regular basis, typically three-times a week, and anemia therapies are administered as part of the visit. Two of the largest operators of dialysis clinics in the U.S., DaVita Healthcare Partners Inc. (“DaVita”), and Fresenius Medical Care AG & Co. KGaA (“Fresenius”), collectively provide dialysis care to approximately 70% of U.S. dialysis patients, and therefore have historically won long-term contracts including rebate terms with Amgen. DaVita recently entered into a new 6-year sourcing and supply agreement with Amgen effective through 2022. Fresenius’ contract with Amgen expired in 2015, and Fresenius is now administering Mircera® in a significant portion of its U.S. dialysis patients since Mircera was made available by Vifor. Successful penetration in this market may require a significant agreement with Fresenius or DaVita, on favorable terms and on a timely basis.

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Pamrevlumab

We are currently in Phase 2 development of pamrevlumab to treat DMD, IPF, and pancreatic cancer. Most of our competitors have significantly more resources and expertise in development, commercialization and manufacturing, particularly due to the fact that we have not yet established a co-development partnership for pamrevlumab. For example, both Roche (through its acquisition of InterMune) and Boehringer Ingelheim , who have received approval for product candidates for the treatment of IPF in the U.S., have successfully developed and commercialized drugs in various indications and have built sales organizations that we do not currently have; both have more resources and more established relationships when competing with us for patient recruitment and enrollment for clinical trials or, if we are approved, in the market.

Idiopathic Pulmonary Fibrosis

If approved to treat IPF, pamrevlumab would compete with pirfenidone, which is approved for marketing in Europe, Canada and Japan. As of October 2014, Roche (through its acquisition of InterMune) has obtained approval in the U.S. for pirfenidone for the treatment of IPF and Boehringer Ingelheim has obtained approval in the U.S. and the EU for nintedanib for the treatment of IPF. We believe that if pamrevlumab can be shown to safely stabilize or reverse lung fibrosis in a subset of IPF patients, and thus stabilize or improve lung function, it can compete with pirfenidone and nintedanib for market share in IPF. However, it may be difficult to encourage treatment providers and patients to switch to pamrevlumab from a product they are already familiar with. We will also likely face competition from potential new IPF therapies.

Pamrevlumab is an injectable protein, which may be more expensive and less convenient than small molecules such as nintedanib and pirfenidone. Other potential competitive product candidates in various stages of Phase 2 development for IPF include Promedior, Inc.’s PRM-151, Biogen-Idec’s STX-100, Prometic Life Sciences Inc.’s PBI-4050, and Kadmon Holdings, Inc.’s KD025.

Pancreatic Cancer

We are developing pamrevlumab to be used in combination with Abraxane^® (nab-paclitaxel) and gemcitabine in pancreatic cancer. Celgene’s Abraxane was launched in the U.S. and Europe in 2013 and 2014, respectively, and was the first drug approved in this disease in nearly a decade. In 2015, Merrimack Pharmaceuticals Inc. (“Merrimack”) received FDA approval for the use of ONIVYDE (irinotecan liposome injection) for the treatment of patients with metastatic adenocarcinoma of the pancreas after disease progression following gemcitabine-based therapy. In addition, treatments for cancer are often used in combination instead of as monotherapy; thus, we also face competition for pamrevlumab from other agents seeking approval in conjunction with gemcitabine and Abraxane. NewLink Genetics Corporation’s Indoximod and Merrimack’s MM-141 are examples.

There are a number of other product candidates in clinical trials for pancreatic cancer, many of which are in combination with existing chemotherapies, as both first-line and second-line therapy for metastatic pancreatic cancer. We will not only face a large number of product candidates competing for patient recruitment and enrollment for our clinical trials, but we could also face a substantial number of competitors if pamrevlumab is approved for the treatment of pancreatic cancer.

Duchenne Muscular Dystrophy

If approved and launched commercially to treat DMD in the U.S., pamrevlumab will face competition from two recently approved drugs.

On September 19, 2016 the FDA approved Sarepta Therapeutics Inc.’s (“Sarepta”) Exondys 51 (eteplirsen). This was the first drug approved to treat DMD. Exondys 51 is approved to treat patients who have a mutation of the dystrophin gene amenable to exon 51 skipping therapy. This mutation represents a subset of approximately 13% of patients with DMD.

On February 9, 2017, the FDA approved Marathon Pharmaceuticals’ (“Marathon”) corticosteroid Emflaza (deflazacort) for the treatment of patients five years and older with DMD. Although approved for other indications outside of the US, this was the first approval for deflazacort in the U.S. and the first approval in the U.S. for the use of a corticosteroid to treat DMD. On March 16, 2016, Marathon announced it had sold the commercialization rights of Emflaza to PTC Therapeutics.

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If approved and launched commercially in Europe, pamrevlumab will face competition from PTC Therapeutics’ product ataluren (Translarna ^TM ). Ataluren received conditional approval in Europe in 2014 and a CRL from the FDA in October 2017 stating that the FDA is unable to approve the application in its current form. Translarna targets a different set of DMD patients from those targeted by Sarepta’s drug; however, it is also limited to a subset of patients who carry a specific mutation. Conversely, pamrevlumab is intended to treat DMD patients without limitation to type of mutation. Pavrevlumab may also face competition from other drugs currently in clinical development which have filed regulatory approval in Europe, including Santhera Pharmaceuticals’ drug idebenone (Raxone ^® /Catena ^® ) and Sarepta’s Exondys-51 which has not yet been approved in Europe. Pamrevlumab could also face competition from other drugs in clinical development including drugs from Catabasis Pharmaceuticals, Pfizer, Summit Therapeutics plc (“Summit”), and Tivorsan Pharmaceuticals. Catabasis Pharmaceuticals recently reported positive Phase 2 data from its clinical trial candidate edasalonexent. Edasalonexent was reported to have preserved muscle function and slowed the progression of DMD compared to rates of change in the control period prior to treatment with edasalonexent. The company plans to start a placebo controlled phase 3 trial in 2018. Pfizer’s product candidate, which is in Phase 2 development, is an antibody targeting myostatin which is a protein that regulates muscle growth. The goal of the program is to increase muscle growth and muscle strength in patients with DMD. Summit and Tivorsan Pharmaceuticals are both working on drugs involving the utrophin pathway. The goal of these programs is to increase the production of the utrophin protein to compensate for the nonfunctional dystrophin protein produced by DMD patients. Utrophin is a protein similar to dystrophin that is potentially implicated in all DMD patients. Summit is conducting a Phase 2 trial and reported positive interim results from this Phase 2 trial on January 25, 2018. Summit expects to report topline results from this trial in the third quarter of 2018.

In October 2016, Summit and Sarepta announced a collaboration in which the companies have agreed to collaborate on Summit’s utrophin modulator pipeline including its lead candidate ezutromid. The companies will co-develop the pipeline and Sarepta will receive the rights to the compounds in Europe, Turkey, and the Commonwealth of Independent States. Sarepta also has an option on the rights to the program for Latin America. Summit will retain commercialization rights in all other countries including the U.S.

MANUFACTURE AND SUPPLY

We have historically and in the future plan to continue to enter into contractual arrangements with qualified third-party manufacturers to manufacture and package our products and product candidates for territories outside of China. We believe that this manufacturing strategy enables us to more efficiently direct financial resources to the research, development and commercialization of product candidates rather than diverting resources to establishing a significant internal manufacturing infrastructure, unless there is additional strategic value for establishing manufacturing capabilities, such as in China. As our product candidates proceed through development, we are discussing the timing of entry into longer term commercial supply agreements with key suppliers and manufacturers in order to meet the ongoing and planned clinical and commercial supply needs for ourselves and our partners. Our timing of entry into these agreements is based on the current development plans for roxadustat, pamrevlumab and FG-5200.

Roxadustat

Roxadustat is a small-molecule drug manufactured from generally available commercial starting materials and chemical technologies and multi-purpose equipment available from many third party contract manufacturers. Our third party manufacturers of roxadustat Phase 3 study material include Shanghai SynTheAll Pharmaceutical Co., Ltd. and STA Pharmaceutical Hong Kong Limited and their respective affiliates (collectively “WuXi STA”) and Catalent, Inc. (“Catalent”). WuXi STA is located in China and currently supplies our API, and intermediate needs for those materials used in our Phase 3 clinical trials. WuXi STA has passed inspections by several regulatory agencies, including the FDA and CFDA, and is cGMP compliant. Catalent is located in the U.S. and supplies our Phase 3 tablet materials and provides tablet development services. Catalent has passed several regulatory inspections, including by the FDA, and manufactures commercial products for other clients.

To date, we believe that roxadustat has been manufactured under cGMP and in compliance with applicable regulatory requirements for the manufacture of drug substance and drug product used in clinical trials and we and Astellas have performed audits of the existing roxadustat manufacturers. The intended commercial manufacturing route outside of China has been successfully scaled up to multiple hundred kilogram scale and produced several metric tons of roxadustat drug substance. We are in discussions with multiple parties regarding longer term commercial supply arrangements.

In China, we plan to use the clinical material from WuXi STA and will conduct bioequivalence tests before NDA product is manufactured at the FibroGen Beijing manufacturing facility. Until our FibroGen Beijing manufacturing facility is qualified and licensed for manufacture of roxadustat for the China market, we will continue to rely on external contract manufacturers for both API and drug product manufacturing. We plan to use drug product from our FibroGen Beijing manufacturing facility upon commercialization. We plan on using API from contract manufacturers or our own facility for commercial supply, depending on evolving manufacturing and environmental regulations.

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Irix Pharmaceuticals, Inc.

In July 2002, we and IRIX Pharmaceuticals, Inc. (“IRIX”), a third party manufacturer, entered into a Letter of Agreement for IRIX Pharmaceuticals Single Source Manufacturing Agreement (the “Letter of Agreement”), in connection with a contract manufacturing arrangement for clinical supplies of HIF-PH inhibitors, including roxadustat. The Letter of Agreement contained a service agreement that included terms and schedule for the delivery of clinical materials, and also included a term sheet for a single source agreement for the cGMP manufacture of HIF-PH inhibitors, including roxadustat. Specifically, pursuant to the Letter of Agreement, we and IRIX agreed to negotiate a single source manufacturing agreement that included a first right to negotiate a manufacturing contract for HIF-PH inhibitors, including roxadustat, provided that IRIX is able to match any third party bids within 5%, and the exclusive right to manufacture extends for five years after approval of an NDA. Any agreement would provide that no minimum amounts would be specified until appropriate by forecast, that we and our commercialization partner would have the rights to contract with independent third parties that exceed IRIX’s internal capabilities or in the event that we or our commercialization partner determines for reasons of continuity and security that such a need exists, provided that IRIX would supply a majority of the product if it is able to meet the requirements and the schedule required by us and our partner. Subsequent to the Letter of Agreement, we and IRIX have entered into several additional service agreements. IRIX has requested in writing that we honor the Letter of Agreement with respect to the single source manufacturing agreement. To date, we have offered to IRIX opportunities to bid for the manufacture of HIF-PH inhibitors, including roxadustat. In 2015, Patheon Pharmaceuticals Inc., a business unit of DPx Holdings B.V., acquired IRIX.

Pamrevlumab

To date, pamrevlumab has been manufactured using specialized biopharmaceutical process techniques under an agreement with a qualified third party contract manufacturer, Boehringer Ingelheim. Our contract manufacturer is the sole source for the current clinical supply of the drug substance and drug product for pamrevlumab. Our contract manufacturer is only obligated to supply the amounts of pamrevlumab as agreed on pursuant to work orders that are executed from time to time under our agreement as we determine need for clinical material, and we are not required to make fixed or minimum annual purchases. Our existing agreement allows us to transfer the cell line manufacturing process to another third party manufacturer at our expense, and our contractor is obligated to provide reasonable technology transfer assistance in the event of such a transfer.

FG-5200

The manufacture of FG-5200 requires three distinct steps under cGMP and involves three parties in three locations. Our proprietary recombinant human collagen is produced under contract by a third party in Finland. After quality assurance release, we freeze-dry the material in our U.S. facility. We are still determining any facility licensing requirements for this step. The final step is the production of FG-5200, which will be done in a qualified aseptic manufacturing suite at the FibroGen Beijing manufacturing facility. After completion of the final validation of the sterile process (currently in progress), implants will be manufactured there for product registration testing, clinical testing, as well as for commercial use in the future.

GOVERNMENT REGULATION

The clinical testing, manufacturing, labeling, storage, distribution, record keeping, advertising, promotion, import, export and marketing, among other things, of our product candidates are subject to extensive regulation by governmental authorities in the U.S. and other countries. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations, including in Europe and China, requires the expenditure of substantial time and financial resources. Failure to comply with the applicable requirements at any time during the product development process, approval process or after approval may subject an applicant and/or sponsor to a variety of administrative or judicial sanctions, including refusal by the applicable regulatory authority to approve pending applications, withdrawal of an approval, imposition of a clinical hold, issuance of warning letters and other types of letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement of profits, or civil or criminal investigations and penalties brought by FDA and the Department of Justice, or other governmental entities.

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U.S. Product Approval Process

In the U.S., the FDA regulates drugs and biological products, or biologics, under the Public Health Service Act, as well as the FDCA which is the primary law for regulation of drug products. Both drugs and biologics are subject to the regulations and guidance implementing these laws. Pharmaceutical products are also subject to regulation by other governmental agencies, such as the Federal Trade Commission, the Office of Inspector General of the U.S. Department of Health and Human Services, the Consumer Product Safety Commission and the Environmental Protection Agency. The clinical testing, manufacturing, labeling, storage, distribution, record keeping, advertising, promotion, import, export and marketing, among other things, of our product candidates are subject to extensive regulation by governmental authorities in the U.S. and other countries. The steps required before a drug or biologic may be approved for marketing in the U.S. generally include:

The testing and approval process requires substantial time, effort and financial resources, and the receipt and timing of any approval is uncertain. The FDA may suspend clinical trials at any time on various grounds, including a finding that the subjects or patients are being exposed to a potentially unacceptable health risk.

Preclinical studies include laboratory evaluations of the product candidate, as well as animal studies to assess the potential safety and efficacy of the product candidate. Preclinical studies must be conducted in compliance with FDA regulations regarding GLPs. The results of the preclinical studies, together with manufacturing information and analytical data, are submitted to the FDA as part of the IND, which includes the results of preclinical testing and a protocol detailing, among other things, the objectives of the clinical trial, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated if the first phase or phases of the clinical trial lends themselves to an efficacy determination. The IND will become effective automatically 30 days after receipt by the FDA, unless the FDA raises concerns or questions about the conduct of the trials as outlined in the IND prior to that time. In this case, the IND sponsor and the FDA must resolve any outstanding concerns before clinical trials can proceed. The IND must become effective before clinical trials may be commenced.

Clinical trials involve the administration of the product candidates to healthy volunteers, or subjects, or patients with the disease to be treated under the supervision of a qualified principal investigator. Clinical trials must be conducted under the supervision of one or more qualified principal investigators in accordance with GCPs and in accordance with protocols detailing the objectives of the applicable phase of the trial, dosing procedures, research subject selection and exclusion criteria and the safety and effectiveness criteria to be evaluated. Progress reports detailing the status of clinical trials must be submitted to the FDA annually. Sponsors must also timely report to the FDA serious and unexpected adverse events, any clinically important increase in the rate of a serious suspected adverse event over that listed in the protocol or investigator’s brochure, or any findings from other studies or tests that suggest a significant risk in humans exposed to the product candidate. Further, the protocol for each clinical trial must be reviewed and approved by an independent institutional review board (“IRB”), either centrally or individually at each institution at which the clinical trial will be conducted. The IRB will consider, among other things, ethical factors, and the safety of human subjects and the possible liability of the institution.

Clinical trials are typically conducted in three sequential phases prior to approval, but the phases may overlap and different trials may be initiated with the same drug candidate within the same phase of development in similar or different patient populations. These phases generally include the following:

Phase 1. Phase 1 clinical trials represent the initial introduction of a product candidate into human subjects, frequently healthy volunteers. In Phase 1, the product candidate is usually tested for pharmacodynamic and pharmacokinetic properties such as safety, including adverse effects, dosage tolerance, absorption, distribution, metabolism and excretion.

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Phase 2. Phase 2 clinical trials usually involve studies in a limited patient population to (1) evaluate the efficacy of the product candidate for specific indications, (2) determine dosage tolerance and optimal dosage and (3) identify possible adverse effects and safety risks.

Phase 3. If a product candidate is found to be potentially effective and to have an acceptable safety profile in Phase 2 studies, the clinical trial program will be expanded to Phase 3 clinical trials to further evaluate clinical efficacy, optimal dosage and safety within an expanded patient population at geographically dispersed clinical study sites.

Phase 4. Phase 4 clinical trials are conducted after approval to gain additional experience from the treatment of patients in the intended therapeutic indication and to document a clinical benefit in the case of drugs approved under accelerated approval regulations, or when otherwise requested by the FDA in the form of post-market requirements or commitments. Failure to promptly conduct any required Phase 4 clinical trials could result in withdrawal of approval.

The results of preclinical studies and clinical trials, together with detailed information on the manufacture, composition and quality of the product candidate, are submitted to the FDA in the form of an NDA (for a drug) or BLA (for a biologic), requesting approval to market the product. The application must be accompanied by a significant user fee payment. The FDA has substantial discretion in the approval process and may refuse to accept any application or decide that the data is insufficient for approval and require additional preclinical, clinical or other studies.

Review of Application

Once the NDA or BLA submission has been accepted for filing, which occurs, if at all, 60 days after submission, the FDA informs the applicant of the specific date by which the FDA intends to complete its review. This is typically 12 months from the date of submission. The review process is often extended by FDA requests for additional information or clarification. The FDA reviews NDAs and BLAs to determine, among other things, whether the proposed product is safe and effective for its intended use, and whether the product is being manufactured in accordance with cGMP to assure and preserve the product’s identity, strength, quality and purity. Before approving an NDA or BLA, the FDA may inspect the facilities at which the product is manufactured and will not approve the product unless the manufacturing facility complies with cGMPs and will also inspect clinical trial sites for integrity of data supporting safety and efficacy. During the approval process, the FDA also will determine whether a risk evaluation and mitigation strategy (“REMS”), is necessary to assure the safe use of the product. If the FDA concludes a REMS is needed, the sponsor of the application must submit a proposed REMS; the FDA will not approve the application without an approved REMS, if required. A REMS can substantially increase the costs of obtaining approval. The FDA may also convene an advisory committee of external experts to provide input on certain review issues relating to risk, benefit and interpretation of clinical trial data. The FDA may delay approval of an NDA if applicable regulatory criteria are not satisfied and/or the FDA requires additional testing or information. The FDA may require post-marketing testing and surveillance to monitor safety or efficacy of a product. FDA will issue either an approval of the NDA or BLA or a CRL detailing the deficiencies and information required in order for reconsideration of the application.

Pediatric Exclusivity and Pediatric Use

Under the Best Pharmaceuticals for Children Act, certain drugs or biologics may obtain an additional six months of exclusivity in an indication, if the sponsor submits information requested in writing by the FDA (“Written Request”), relating to the use of the active moiety of the drug or biologic in children. The FDA may not issue a Written Request for studies on unapproved or approved indications or where it determines that information relating to the use of a drug or biologic in a pediatric population, or part of the pediatric population, may not produce health benefits in that population.

We have not received a Written Request for such pediatric studies with respect to our product candidates, although we may ask the FDA to issue a Written Request for studies in the future. To receive the six-month pediatric market exclusivity, we would have to receive a Written Request from the FDA, conduct the requested studies in accordance with a written agreement with the FDA or, if there is no written agreement, in accordance with commonly accepted scientific principles, and submit reports of the studies. A Written Request may include studies for indications that are not currently in the labeling if the FDA determines that such information will benefit the public health. The FDA will accept the reports upon its determination that the studies were conducted in accordance with and are responsive to the original Written Request, agreement, or commonly accepted scientific principles, as appropriate, and that the reports comply with the FDA’s filing requirements.

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In addition, the Pediatric Research Equity Act (“PREA”) requires a sponsor to conduct pediatric studies for most drugs and biologicals, for a new active ingredient, new indication, new dosage form, new dosing regimen or new route of administration. Under PREA, original NDAs, BLAs and supplements thereto must contain a pediatric assessment unless the sponsor has received a deferral or waiver. The required assessment must include the evaluation of the safety and effectiveness of the product for the claimed indications in all relevant pediatric subpopulations and support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The FDA, on its own initiative or at the request of the sponsor, may request a deferral of pediatric studies for some or all of the pediatric subpopulations. A deferral may be granted by FDA if they believe that additional safety or effectiveness data in the adult population needs to be collected before the pediatric studies begin. After April 2013, the FDA must send a non-compliance letter to any sponsor that fails to submit the required assessment, keep a deferral current or fails to submit a request for approval of a pediatric formulation.

Post-Approval Requirements

Even after approval, drugs and biologics manufactured or distributed pursuant to FDA approvals are subject to continuous regulation by the FDA, including, among other things, requirements relating to recordkeeping, periodic reporting, product distribution, advertising and promotion and reporting of adverse experiences with the product. After approval, most changes to the approved product, such as adding new indications or other labeling claims are subject to prior FDA review and approval. There also are continuing, annual user fee requirements for any marketed products and the establishments at which such products are manufactured, as well as new application fees for supplemental applications with clinical data.

The FDA may impose a number of post-approval requirements as a condition of approval of an NDA or BLA. For example, the FDA may require post-marketing testing, including Phase 4 clinical trials, and surveillance to further assess and monitor the product’s safety and effectiveness after commercialization.

In addition, entities involved in the manufacture and distribution of approved drugs and biologics are required to register their establishments with the FDA and state agencies, and are subject to periodic unannounced inspections by the FDA and these state agencies for compliance with cGMP requirements. Changes to the manufacturing process are strictly regulated and often require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting and documentation requirements upon the sponsor and any third-party manufacturers that the sponsor may decide to use. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance.

Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may also result in revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical trials to assess new safety risks; or imposition of distribution or other restrictions under a REMS program. Other potential consequences include, among other things:

The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Drugs may be promoted only for the approved indications and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability.

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Prescription Drug Marketing Act

The distribution of pharmaceutical products is subject to the Prescription Drug Marketing Act (“PDMA”), which regulates the distribution of drugs and drug samples at the federal level and sets minimum standards for the registration and regulation of drug distributors at the state level. Under the PDMA and state law, states require the registration of manufacturers and distributors who provide pharmaceuticals in that state, including in certain states manufacturers and distributors who ship pharmaceuticals into the state even if such manufacturers or distributors have no place of business within the state. The PDMA and state laws impose requirements and limitations upon drug sampling to ensure accountability in the distribution of samples. The PDMA sets forth civil and criminal penalties for violations of these and other provisions.

Federal and State Fraud and Abuse and Data Privacy and Security and Transparency Laws and Regulations

In addition to FDA restrictions on marketing of pharmaceutical products, federal and state healthcare laws restrict certain business practices in the biopharmaceutical industry. These laws include, but are not limited to, anti-kickback, false claims, data privacy and security, and transparency statutes and regulations.

The federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration, directly or indirectly, to induce, or in return for, purchasing, leasing, ordering or arranging for the purchase, lease or order of any good, facility, item or service reimbursable under Medicare, Medicaid or other federal healthcare programs. The term “remuneration” has been broadly interpreted to include anything of value, including for example, gifts, discounts, the furnishing of supplies or equipment, credit arrangements, payments of cash, waivers of payment, ownership interests and providing anything at less than its fair market value. The Anti-Kickback Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on one hand and prescribers, purchasers and formulary managers on the other. Although there are a number of statutory exemptions and regulatory safe harbors protecting certain common activities from prosecution, the exemptions and safe harbors are drawn narrowly, and our practices may not in all cases meet all of the criteria for a statutory exception or safe harbor protection. Practices that involve remuneration that may be alleged to be intended to induce prescribing, purchases or recommendations may be subject to scrutiny if they do not qualify for an exception or safe harbor. Failure to meet all of the requirements of a particular applicable statutory exception or regulatory safe harbor does not make the conduct per se illegal under the Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of all of its facts and circumstances. Several courts have interpreted the statute’s intent requirement to mean that if any one purpose of an arrangement involving remuneration is to induce referrals of federal healthcare covered business, the statute has been violated. The intent standard under the Anti-Kickback Statute was amended by the Patient Protection and Affordable Care Act as amended by the Health Care and Education Reconciliation Act of 2010 (collectively “PPACA”), to a stricter intent standard such that a person or entity no longer needs to have actual knowledge of this statute or the specific intent to violate it in order to have committed a violation. In addition, PPACA codified case law that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act (discussed below). Further, civil monetary penalties statute imposes penalties against any person or entity who, among other things, is determined to have presented or caused to be presented a claim to a federal health program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent.

The federal false claims laws prohibit, among other things, any person or entity from knowingly presenting, or causing to be presented, a false or fraudulent claim for payment or approval to the federal government or knowingly making, using or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government. As a result of a modification made by the Fraud Enforcement and Recovery Act of 2009, a claim includes “any request or demand” for money or property presented to the U.S. government. Recently, several pharmaceutical and other healthcare companies have been prosecuted under these laws for, among other things, allegedly providing free product to customers with the expectation that the customers would bill federal programs for the product. Other companies have been prosecuted for causing false claims to be submitted because of the companies’ marketing of the product for unapproved, and thus non-reimbursable, uses. The federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), created new federal criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payers and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of, or payment for, healthcare benefits, items or services.

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In addition, we may be subject to data privacy and security regulation by both the federal government and the states in which we conduct our business. HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act (“HITECH”), and its implementing regulations, imposes certain requirements relating to the privacy, security and transmission of individually identifiable health information. Among other things, HITECH makes HIPAA’s privacy and security standards directly applicable to business associates — independent contractors or agents of covered entities that receive or obtain protected health information in connection with providing a service on behalf of a covered entity. HITECH also created four new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney’s fees and costs associated with pursuing federal civil actions. In addition, state laws govern the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.

Additionally, the federal Physician Payments Sunshine Act within the PPACA, and its implementing regulations, require that certain manufacturers of drugs, devices, biologicals and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report information related to certain payments or other transfers of value made or distributed to physicians and teaching hospitals, or to entities or individuals at the request of, or designated on behalf of, the physicians and teaching hospitals and to report annually certain ownership and investment interests held by physicians and their immediate family members.

Also, many states have similar healthcare statutes or regulations that apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payer. Some states require the posting of information relating to clinical studies. In addition, California requires pharmaceutical companies to implement a comprehensive compliance program that includes a limit on expenditures for, or payments to, individual medical or health professionals. If our operations are found to be in violation of any of the health regulatory laws described above or any other laws that apply to us, we may be subject to penalties, including potentially significant criminal, civil and/or administrative penalties, damages, fines, disgorgement, individual imprisonment, exclusion of products from reimbursement under government programs, contractual damages, reputational harm, administrative burdens, diminished profits and future earnings and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations. To the extent that any of our products will be sold in a foreign country, we may be subject to similar foreign laws and regulations, which may include, for instance, applicable post-marketing requirements, including safety surveillance, anti-fraud and abuse laws and implementation of corporate compliance programs and reporting of payments or transfers of value to healthcare professionals.

Pharmaceutical Coverage, Pricing and Reimbursement

In both domestic and foreign markets, our sales of any approved products will depend in part on the availability of coverage and adequate reimbursement from third-party payers. Third-party payers include government health administrative authorities, managed care providers, private health insurers and other organizations. Patients who are prescribed treatments for their conditions and providers performing the prescribed services generally rely on third-party payers to reimburse all or part of the associated healthcare costs. Patients are unlikely to use our products unless coverage is provided and reimbursement is adequate to cover a significant portion of the cost of our products. Sales of our products will therefore depend substantially, both domestically and abroad, on the extent to which the costs of our products will be paid by third-party payers. These third-party payers are increasingly focused on containing healthcare costs by challenging the price and examining the cost-effectiveness of medical products and services. In addition, significant uncertainty exists as to the coverage and reimbursement status of newly approved healthcare product candidates. The market for our products and product candidates for which we may receive regulatory approval will depend significantly on access to third-party payers’ drug formularies, or lists of medications for which third-party payers provide coverage and reimbursement. The industry competition to be included in such formularies often leads to downward pricing pressures on pharmaceutical companies. Also, third-party payers may refuse to include a particular branded drug in their formularies or otherwise restrict patient access to a branded drug when a less costly generic equivalent or other alternative is available.

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Because each third-party payer individually approves coverage and reimbursement levels, obtaining coverage and adequate reimbursement is a time-consuming, costly and sometimes unpredictable process. We may be required to provide scientific and clinical support for the use of any product to each third-party payer separately with no assurance that approval would be obtained, and we may need to conduct expensive pharmacoeconomic studies in order to demonstrate the cost-effectiveness of our products. This process could delay the market acceptance of any product and could have a negative effect on our future revenues and operating results. We cannot be certain that our products and our product candidates will be considered cost-effective. Because coverage and reimbursement determinations are made on a payer-by-payer basis, obtaining acceptable coverage and reimbursement from one payer does not guarantee that we will obtain similar acceptable coverage or reimbursement from another payer. If we are unable to obtain coverage of, and adequate reimbursement and payment levels for, our product candidates from third-party payers, physicians may limit how much or under what circumstances they will prescribe or administer them and patients may decline to purchase them. This in turn could affect our ability to successfully commercialize our products and impact our profitability, results of operations, financial condition and future success.

In addition, in many foreign countries, particularly the countries of the EU and China, the pricing of prescription drugs is subject to government control. In some non-U.S. jurisdictions, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug pricing vary widely from country to country. For example, the EU provides options for its member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product or it may instead adopt a system of direct or indirect controls on the profitability of a company placing the medicinal product on the market. We may face competition for our product candidates from lower-priced products in foreign countries that have placed price controls on pharmaceutical products. In addition, there may be importation of foreign products that compete with our own products, which could negatively impact our profitability.

Healthcare Reform

In the U.S. and foreign jurisdictions, there have been, and we expect there will continue to be, a number of legislative and regulatory changes to the healthcare system that could affect our future results of operations as we begin to directly commercialize our products. In particular, there have been and continue to be a number of initiatives at the U.S. federal and state level that seek to reduce healthcare costs. If a drug product is reimbursed by Medicare or Medicaid, pricing and rebate programs must comply with, as applicable, the Medicaid rebate requirements of the Omnibus Budget Reconciliation Act of 1990, as amended, and the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (“MMA”). The MMA imposed new requirements for the distribution and pricing of prescription drugs for Medicare beneficiaries. Under Part D, Medicare beneficiaries may enroll in prescription drug plans offered by private entities that provide coverage of outpatient prescription drugs. Part D plans include both stand-alone prescription drug benefit plans and prescription drug coverage as a supplement to Medicare Advantage plans. Unlike Medicare Part A and B, Part D coverage is not standardized. Part D prescription drug plan sponsors are not required to pay for all covered Part D drugs, and each drug plan can develop its own drug formulary that identifies which drugs it will cover and at what tier or level. However, Part D prescription drug formularies must include drugs within each therapeutic category and class of covered Part D drugs, though not necessarily all the drugs in each category or class. Any formulary used by a Part D prescription drug plan must be developed and reviewed by a pharmacy and therapeutic committee. Government payment for some of the costs of prescription drugs may increase demand for our products for which we receive marketing approval. However, any negotiated prices for our future products covered by a Part D prescription drug plan will likely be lower than the prices we might otherwise obtain from non-governmental payers. Moreover, while the MMA applies only to drug benefits for Medicare beneficiaries, private payers often follow Medicare coverage policy and payment limitations in setting their own payment rates. Any reduction in payment that results from Medicare Part D may result in a similar reduction in payments from non-governmental payers.

Moreover, on November 27, 2013, the federal Drug Supply Chain Security Act was signed into law, which imposes new obligations on manufacturers of pharmaceutical products, among others, related to product tracking and tracing. Among the requirements of this new federal legislation, manufacturers will be required to provide certain information regarding the drug product to individuals and entities to which product ownership is transferred, label drug product with a product identifier, and keep certain records regarding the drug product. Further, under this new legislation, manufacturers will have drug product investigation, quarantine, disposition, and notification responsibilities related to counterfeit, diverted, stolen, and intentionally adulterated products, as well as products that are the subject of fraudulent transactions or which are otherwise unfit for distribution such that they would be reasonably likely to result in serious health consequences or death.

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Furthermore, political, economic and regulatory influences are subjecting the healthcare industry in the U.S. to fundamental change. Initiatives to reduce the federal budget and debt and to reform healthcare coverage are increasing cost-containment efforts. We anticipate that Congress, state legislatures and the private sector will continue to review and assess alternative healthcare benefits, controls on healthcare spending through limitations on the growth of private health insurance premiums and Medicare and Medicaid spending, the creation of large insurance purchasing groups, price controls on pharmaceuticals and other fundamental changes to the healthcare delivery system. Any proposed or actual changes could limit or eliminate our spending on development projects and affect our ultimate profitability. In March 2010, PPACA was signed into law. PPACA has the potential to substantially change the way healthcare is financed by both governmental and private insurers. Among other cost containment measures, PPACA established: an annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drugs and biologic agents; revised the methodology by which rebates owed by manufacturers to the state and federal government for covered outpatient drugs under the Medicaid Drug Rebate Program are calculated; increased the minimum Medicaid rebates owed by most manufacturers under the Medicaid Drug Rebate Program; and extended the Medicaid Drug Rebate program to utilization of prescriptions of individuals enrolled in Medicaid managed care organizations. In the future, there may continue to be additional proposals relating to the reform of the U.S. healthcare system, some of which could further limit the prices we are able to charge for our products, or the amounts of reimbursement available for our products. If future legislation were to impose direct governmental price controls and access restrictions, it could have a significant adverse impact on our business. Managed care organizations, as well as Medicaid and other government agencies, continue to seek price discounts. Some states have implemented, and other states are considering, price controls or patient access constraints under the Medicaid program, and some states are considering price-control regimes that would apply to broader segments of their populations that are not Medicaid-eligible. Due to the volatility in the current economic and market dynamics, we are unable to predict the impact of any unforeseen or unknown legislative, regulatory, payer or policy actions, which may include cost containment and healthcare reform measures. Such policy actions could have a material adverse impact on our profitability.

Regulation in China

The pharmaceutical industry in China is highly regulated. The primary regulatory authority is the CFDA, including its provincial and local branches. As a developer, manufacturer and supplier of drugs, we are subject to regulation and oversight by the CFDA and its provincial and local branches. The Drug Administration Law of China provides the basic legal framework for the administration of the production and sale of pharmaceuticals in China and covers the manufacturing, distributing, packaging, pricing and advertising of pharmaceutical products. Its implementing regulations set forth detailed rules with respect to the administration of pharmaceuticals in China. In addition, we are, and we will be, subject to other Chinese laws and regulations that are applicable to business operators, manufacturers and distributors in general.

Pharmaceutical Clinical Development

A new drug must be registered and approved by the CFDA before it can be manufactured and marketed for sale. To obtain CFDA approval, the applicant must conduct clinical trials, which must be approved by the CFDA and are subject to the CFDA’s supervision and inspection. There are four phases of clinical trials. Application for registration of new drugs requires completion of Phase 1, 2 and 3 of clinical trials, similar to the U.S. In addition, the CFDA may require the conduct of Phase 4 studies as a condition to approval.

Phase 4 studies are post-marketing studies to assess the therapeutic effectiveness of and adverse reactions to the new drug, including an evaluation of the benefits and risks, when used among the general population or specific groups, with findings used to inform adjustments to dosage, among other things.

NDA and Approval to Market

China requires approval of the NDA as well as the manufacturing facility before a drug can be marketed in China. Approval and oversight are performed at a national and provincial levels of the CFDA, involve multiple agencies and consist of various stages of approval.

Under the applicable drug registration regulations, drug registration applications are divided into three different types, namely Domestic NDA, Domestic Generic Drug Application, and Imported Drug Application. Drugs fall into one of three categories, namely chemical medicine, biological product or traditional Chinese or natural medicine.

FibroGen Beijing as a domestic entity has submitted a Domestic NDA under the Domestic Class 1 designation which refers to a new drug which has never been marketed in any country.

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In order to obtain market authorization, FibroGen Beijing has submitted to the CFDA an NDA package that contains information similar to what is necessary for a U.S. NDA, including preclinical data, clinical data, technical data on API and drug product, and related stability data. The stability data has been generated from a three-batch registration campaign that was conducted at our Beijing facility, from which samples will be tested by the CFDA.

If the NDA package is acceptable, FibroGen Beijing will be granted a New Drug License confirming the drug as suitable for marketing. In addition, FibroGen Beijing will be granted a Manufacturing License which lists the Drug Approval Code as well as the name and address of the Manufacturing License holder. Manufacturing further requires a PPP as well as cGMP certification. In 2014, we received a PPP certifying that our manufacturing facility and manufacturing process in that facility are suitable for the manufacture of a drug for clinical or commercial purposes, but we will need to apply for another PPP for our Cangzhou manufacturing facility currently under construction. A PPP requires demonstration that the facility has: (i) legally qualified pharmaceutical and engineering professionals and necessary technical workers; (ii) the premises, facilities and hygienic environment required for drug manufacturing; (iii) institutions, personnel, instruments and equipment necessary to conduct quality control and testing for drugs to be produced; and (iv) rules and regulations to ensure the quality of drugs. The PPP is required prior to conducting the registration campaign for stability and other data for the NDA.

After NDA approval, FibroGen Beijing will be required to conduct a three-batch validation campaign, one of which will be observed onsite by the CFDA. At the successful completion of the validation campaign and associated inspection, FibroGen Beijing will be granted a cGMP certification for the commercial production of roxadustat at our Beijing manufacturing facility. Only after the issuance of the cGMP license can roxadustat be manufactured and sold commercially to the China market.

Drug Price Controls

The administration of price control of pharmaceutical products is vested in the national and provincial price administration authorities. Depending on the categories of pharmaceutical products in question, the prices of pharmaceutical products listed in the Medical Insurance Catalogs, drugs with patents and other drugs whose production or trading may constitute monopolies, are subject to the control of the National Development and Reform Commission of China and the relevant provincial or local price administration authorities. With respect to pharmaceutical products manufactured in China, the national price administration authority from time to time publishes price control lists setting out the names of pharmaceutical products and their respective price ceilings. The provincial price administration authorities also publish price control lists in respect of the pharmaceutical products which are manufactured within their respective areas. The main purpose of the price control policy is to set an upper limit to the prices of pharmaceutical products to prevent excessive increases in the prices of such products. Price controls on medicines are determined based on profit margins that the relevant authority deems acceptable, the type and quality of the medicine, its production costs, the prices of substitutes and the manufacturer’s compliance with applicable cGMP standards. Drug companies may apply for an increase in the retail price of their drug to the relevant national or provincial authority if their product has superior effectiveness or other advantages.

Tendering Process for Hospital Purchases of Medicines

Provincial and municipal government agencies such as provincial or municipal health departments also operate a mandatory tender process for purchases by hospitals of a medicine included in provincial medicine catalogs. These government agencies organize tenders in their province or city and typically invite manufacturers of provincial catalog medicines that are on the hospitals’ formularies and are in demand by these hospitals to participate in the tender process. A government-approved committee consisting of physicians, experts and officials is delegated by these government agencies the power to review bids and select one or more medicines for the treatment of a particular medical condition. The selection is based on a number of factors, including bid price, quality and a manufacturer’s reputation and service. The bidding price of a wining medicine will become the price required for purchases of that medicine by all hospitals in that province or city. This price, however, is effective only until the next tender, where the manufacturer of the winning medicine must submit a new bid. Increasingly, large hospitals are forming purchasing networks in order to increase their purchasing power. In addition, hospitals of certain provinces have begun to implement collective tender processes through online bidding, which is expected to increase the transparency and competitiveness of the tendering system and allow greater access to new entrants.

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Device Regulation

In China, medical devices are classified into three different categories, Class I, Class II and Class III, depending on the degree of risk associated with each medical device and the extent of control needed to ensure safety and effectiveness. Classification of a medical device is important because the class to which a medical device is assigned determines, among other things, whether a manufacturer needs to obtain a production permit and whether clinical trials are required. Classification of a medical device also determines the types of registration required and the level of regulatory authority involved in effecting the product registration. In January 2016, we received CFDA’s approval of our device classification application to designate FG-5200 corneal implants as a Domestic Class III medical device. Class III devices also require product registration and are regulated by the CFDA under the strictest regulatory control.

Before a Class III medical device can be manufactured for commercial distribution, a manufacturer must effect medical device registration by proving the safety and effectiveness of the medical device to the satisfaction of respective levels of the food and drug administration and clinical trials are required for registration of Class III medical devices. In order to conduct a clinical trial on a Class III medical device, the CFDA requires manufacturers to apply for and obtain in advance a favorable inspection result for the device from an inspection center jointly recognized by the CFDA and the State Administration of Quality Supervision, Inspection and Quarantine. The application for clinical trials involving a Class III medical device with high risk must be approved by the CFDA before the manufacturer may begin clinical trials. A registration application for a Class III medical device must provide required pre-clinical and clinical trial data and information about the medical device and its components regarding, among other things, device design, manufacturing and labeling. The CFDA must provide the application data to the technical evaluation institute for an evaluation opinion within three working days after its acceptance of the application package and decide, within twenty business days after its receipt of the evaluation opinion, whether the application for registration is approved. However, the time for conducting any detection, expert review and hearing process, if necessary, will not be counted in the abovementioned time limit. If the CFDA requires supplemental information, the approval process may take much longer. The registration is valid for five years and application is required for renewal upon expiration of the existing registration certificate. Once a device is approved, a manufacturer must possess a production permit from the provincial level food and drug administration before manufacturing Class III medical devices.

Foreign Regulation Outside of China

We are planning on seeking approval for roxadustat, and potentially for our other product candidates, in Europe, Japan and China as well as other countries. In order to market any product outside of the U.S., we would need to comply with numerous and varying regulatory requirements of other countries and jurisdictions regarding quality, safety and efficacy and governing, among other things, clinical trials, manufacturing, marketing authorization, commercial sales and distribution of our products. Whether or not we obtain FDA approval for a product, we would need to obtain the necessary approvals by the comparable foreign regulatory authorities before we can commence clinical trials or marketing of the product in foreign countries and jurisdictions. Although many of the issues discussed above with respect to the U.S. apply similarly in the context of other countries we are seeking approval in, including Europe and China, the approval process varies between countries and jurisdictions and can involve different amounts of product testing and additional administrative review periods. For example, in Europe, a sponsor must submit a CTA, much like an IND prior to the commencement of human clinical trials. A CTA must be submitted to each national health authority and an independent ethics committee.

For other countries outside of the EU, such as China and the countries in Eastern Europe, Latin America or Asia, the requirements governing the conduct of clinical trials, product licensing, pricing, and reimbursement vary from country to country. The time required to obtain approval in other countries and jurisdictions might differ from or be longer than that required to obtain FDA approval. Regulatory approval in one country or jurisdiction does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country or jurisdiction may negatively impact the regulatory approval process in other countries.

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Regulatory Exclusivity for Approved Products

U.S. Patent Term Restoration

Depending upon the timing, duration, and specifics of the FDA approval of our product candidates, some of our U.S. patents may be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, commonly referred to as the Hatch-Waxman Act. The Hatch-Waxman Act permits a patent restoration term of up to five years as compensation for patent term lost during product development and the FDA regulatory review process. The patent term restoration period is generally one-half the time between the effective date of an initial IND and the submission date of an NDA or BLA, plus the time between the submission date of the NDA or BLA and the approval of that product candidate application. Patent term restoration cannot, however, extend the remaining term of a patent beyond a total of 14 years from the product’s approval date. In addition, only one patent applicable to an approved product is eligible for the extension and the application for the extension must be submitted prior to the expiration of the patent. The U.S. Patent and Trademark Office, in consultation with the FDA, reviews and approves applications for any patent term extension or restoration. In the future, we expect to apply for restoration of patent term for patents relating to each of our product candidates in order to add patent life beyond the current expiration date of such patents, depending on the length of the clinical trials and other factors involved in the filing of the relevant NDA or BLA.

Market exclusivity provisions under the FDCA can also delay the submission or the approval of certain applications of companies seeking to reference another company’s NDA or BLA. The Hatch-Waxman Act provides a 5-year period of exclusivity to any approved NDA for a product containing a NCE never previously approved by FDA either alone or in combination with another active moiety. No application or abbreviated NDA directed to the same NCE may be submitted during the 5-year exclusivity period, except that such applications may be submitted after four years if they contain a certification of patent invalidity or non-infringement of the patents listed with the FDA by the innovator NDA.

Biologic Price Competition and Innovation Act

The Biologics Price Competition and Innovation Act of 2009 (“BPCIA”), established an abbreviated pathway for the approval of biosimilar and interchangeable biological products. The abbreviated regulatory approval pathway establishes legal authority for the FDA to review and approve biosimilar biologics, including the possible designation of a biosimilar as “interchangeable” based on similarity to an existing branded product. Under the BPCIA, an application for a biosimilar product cannot be approved by the FDA until 12 years after the original branded product was approved under a BLA. However, an application may be submitted after four years if it contains a certification of patent invalidity or non-infringement to one of the patents listed with the FDA by the innovator BLA holder. The BPCIA is complex and is only beginning to be interpreted and implemented by the FDA. As a result, its ultimate impact, implementation, and interpretation are subject to uncertainty.

Orphan Drug Act

Pamrevlumab has received orphan drug designation in IPF in the U.S. Under the Orphan Drug Act, the FDA may grant orphan designation to a drug or biological product intended to treat a rare disease or condition, which is a disease or condition that affects fewer than 200,000 individuals in the U.S., or if it affects more than 200,000 individuals in the U.S. there is no reasonable expectation that the cost of developing and making a drug product available in the U.S. for this type of disease or condition will be recovered from sales of the product. Orphan product designation must be requested before submitting an NDA. After the FDA grants orphan product designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan product designation does not convey any advantage in or shorten the duration of the regulatory review and approval process.

If a product that has orphan designation subsequently receives the first FDA approval for the disease or condition for which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications to market the same drug or biological product for the same indication for seven years, except in limited circumstances, such as a showing of clinical superiority to the product with orphan exclusivity. The designation of such drug also entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages and user-fee waivers. Competitors, however, may receive approval of different products for the indication for which the orphan product has exclusivity or obtain approval for the same product but for a different indication for which the orphan product has exclusivity. Orphan product exclusivity also could block the approval of one of our products for seven years if a competitor obtains approval of the same drug or biological product as defined by the FDA or if our drug candidate is determined to be contained within the competitor’s product for the same indication or disease. If a drug product designated as an orphan product receives marketing approval for an indication broader than what is designated, it may not be entitled to orphan product exclusivity in any indication.

Orphan designation status in the EU has similar but not identical benefits in that jurisdiction.

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Products receiving orphan designation in the EU can receive ten years of market exclusivity, during which time no similar medicinal product for the same indication may be placed on the market. The ten-year market exclusivity may be reduced to six years if, at the end of the fifth year, it is established that the product no longer meets the criteria for orphan designation; for example, if the product is sufficiently profitable not to justify maintenance of market exclusivity. Additionally, marketing authorization may be granted to a similar product for the same indication at any time if the second applicant can establish that its product, although similar, is safer, more effective or otherwise clinically superior; the initial applicant consents to a second orphan medicinal product application; or the initial applicant cannot supply enough orphan medicinal product. An orphan product can also obtain an additional two years of market exclusivity in the EU for pediatric studies. No extension to any supplementary protection certificate can be granted on the basis of pediatric studies for orphan indications.

Foreign Country Data Exclusivity

The EU also provides opportunities for additional market exclusivity. For example, in the EU, upon receiving marketing authorization, an NCE generally receives eight years of data exclusivity and an additional two years of market exclusivity. If granted, data exclusivity prevents regulatory authorities in the EU from referencing the innovator’s data to assess a generic application. During the additional two-year period of market exclusivity, a generic marketing authorization can be submitted, and the innovator’s data may be referenced, but no generic product can be marketed until the expiration of the market exclusivity.

In China, there is also an opportunity for data exclusivity for a period of six years for data included in an NDA applicable to a NCE. According to the Provisions for Drug Registration, the Chinese government protects undisclosed data from drug studies and prevents the approval of an application made by another company that uses the undisclosed data for the approved drug. In addition, if an approved drug manufactured in China qualifies as an innovative drug, such as Domestic Class 1, and the CFDA determines that it is appropriate to protect public health with respect to the safety and efficacy of the approved drug, the CFDA may elect to monitor such drug for up to five years. During this post-marketing observation period, the CFDA will not grant approval to another company to produce, change dosage form of or import the drug while the innovative drug is under observation. The approved manufacturer is required to provide an annual report to the regulatory department of the province, autonomous region or municipality directly under the central government where it is located. Each of the data exclusivity period and the observation period runs from the date of approval for production of the NCE or innovative drug, as the case may be.

INTELLECTUAL PROPERTY

Our success depends in part upon our ability to obtain and maintain patent and other intellectual property protection for our product candidates including compositions-of-matter, dosages, and formulations, manufacturing methods, and novel applications, uses and technological innovations related to our product candidates and core technologies. We also rely on trade secrets, know-how and continuing technological innovation to further develop and maintain our competitive position.

Our policy is to seek to protect our proprietary position by, among other methods, filing U.S. and foreign patent applications related to our proprietary technologies, inventions and any improvements that we consider important to the development and implementation of our business and strategy. Our ability to maintain and solidify our proprietary position for our products and technologies will depend, in part, on our success in obtaining and enforcing valid patent claims. Additionally, we may benefit from a variety of regulatory frameworks in the U.S., Europe, China, and other territories that provide periods of non-patent-based exclusivity for qualifying drug products. Refer to “Government Regulation — Regulatory Exclusivity for Approved Products.”

We cannot ensure that patents will be granted with respect to any of our pending patent applications or with respect to any patent applications that may be filed by us in the future, nor can we ensure that any of our existing or subsequently granted patents will be useful in protecting our drug candidates, technological innovations, and processes. Additionally, any existing or subsequently granted patents may be challenged, invalidated, circumvented or infringed. We cannot guarantee that our intellectual property rights or proprietary position will be sufficient to permit us to take advantage of current market trends or otherwise to provide or protect competitive advantages. Furthermore, our competitors may be able to independently develop and commercialize similar products, or may be able to duplicate our technologies, business model, or strategy, without infringing our patents or otherwise using our intellectual property.

Our extensive worldwide patent portfolio includes multiple granted and pending patent applications relating to roxadustat and pamrevlumab. Currently granted patents relating to composition-of-matter for roxadustat and for pamrevlumab are expected, for each product candidate, to expire in 2024 or 2025, in each case exclusive of any patent term extension that may be available. U.S. and foreign patents relating to crystalline forms of roxadustat are expected to expire in 2033, exclusive of any extension. Additional patents and patent applications relating to manufacturing processes, formulations, and various therapeutic uses, including treatment of specific indications and improvement of clinical parameters, provide further protection for product candidates.

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The protection afforded by any particular patent depends upon many factors, including the type of patent, scope of coverage encompassed by the granted claims, availability of extensions of patent term, availability of legal remedies in the particular territory in which the patent is granted, and validity and enforceability of the patent. Changes in either patent laws or in the interpretation of patent laws in the U.S. and other countries could diminish our ability to protect our inventions and to enforce our intellectual property rights. Accordingly, we cannot predict with certainty the enforceability of any granted patent claims or of any claims that may be granted from our patent applications.

The biotechnology and pharmaceutical industries are characterized by extensive litigation regarding patents and other intellectual property rights. Our ability to maintain and solidify our proprietary position for our products and core technologies will depend on our success in obtaining effective claims and enforcing those claims once granted. We have been in the past and are currently involved in various administrative proceedings with respect to our patents and patent applications and may, as a result of our extensive portfolio, be involved in such proceedings in the future. Additionally, in the future, we may claim that a third party infringes our intellectual property or a third party may claim that we infringe its intellectual property. In any of the administrative proceedings or in litigation, we may incur significant expenses, damages, attorneys’ fees, costs of proceedings and experts’ fees, and management and employees may be required to spend significant time in connection with these actions.

Because of the extensive time required for clinical development and regulatory review of a product candidate we may develop, it is possible that any patent related to our product candidates may expire before any of our product candidates can be commercialized, or may remain in force for only a short period of time following commercialization, thereby reducing the advantage afforded by any such patent.

The patent positions for our most advanced programs are summarized below.

Roxadustat Patent Portfolio

Our roxadustat patent portfolio includes multiple granted U.S. patents offering protection for roxadustat, including protection for roxadustat composition-of-matter, for pharmaceutical compositions containing roxadustat, and for methods for treating anemia using roxadustat or its analogs. Exclusive of any patent term extension, the granted U.S. patents relating to the composition-of-matter of roxadustat are due to expire in 2024 or 2025, and granted foreign patents are due to expire in 2024. U.S. and foreign patents relating to crystalline forms of roxadustat are due to expire in 2033.

We believe that, if roxadustat is approved, a full five-year patent term extension under the Hatch-Waxman act will be available for a granted U.S. patent relating to roxadustat, which extension would expire in 2029 or 2030, depending on the patent extended. Refer to “Government Regulation — Regulatory Exclusivity for Approved Products — U.S. Patent Term Restoration.”

We also hold various U.S. and foreign granted patents and pending patent applications directed to manufacturing processes, formulations, and methods for use of roxadustat.

Roxadustat China Patent Portfolio

Our roxadustat China patent portfolio includes granted patents covering roxadustat composition-of-matter, pharmaceutical compositions, methods of use, and manufacturing processes for roxadustat, as well as medicaments containing roxadustat for treating anemia and other conditions. Patents relating to roxadustat composition-of-matter and crystalline forms are due to expire in 2024 and 2033, respectively.

We believe that roxadustat, as a new chemical entity, would be eligible for six years of data exclusivity in China. Furthermore, upon approval as a new drug, roxadustat may receive up to five years of market exclusivity under a CFDA-imposed new drug monitoring period. Refer to “Government Regulation — Regulatory Exclusivity for Approved Products — Foreign Country Data Exclusivity.”

HIF Anemia-related Technologies Patent Portfolio

We also have an extensive worldwide patent portfolio providing broad protection for proprietary technologies relating to the treatment of anemia and associated conditions. This portfolio currently contains granted patents and pending patent applications providing exclusivity for use of compounds falling within various and overlapping classes of HIF-PH inhibitors to achieve various therapeutic effects.

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This portfolio reflects a series of discoveries we made from the initial days of our HIF program through the present time. Our research efforts have resulted in progressive innovation, and the corresponding patents and patent applications reflect the success of our HIF program. Such discoveries include the ability of HIF-PH inhibitors:

The table below sets forth representative granted U.S. patents relating to these and other inventions, including the projected expiration dates of these patents.

In addition to the U.S. patents listed above, our HIF anemia-related technologies portfolio includes corresponding foreign patents granted and patent applications pending in various territories worldwide.

On June 30, 2016, GSK filed with the U.S. Patent and Trademark Office petitions for inter partes review (“IPR”) of six of the above-listed U.S. patents (U.S. Patent Nos. 8,466,172; 8,614,204; 8,629,131; 8,604,012; 8,609,646; and 8,604,013). IPR is a process through which a third party can challenge the validity of an issued U.S. patent. Each of these petitions was denied in final and non-appealable decisions by the Patent Trial and Appeal Board of the U.S. Patent and Trademark Office. We previously stated that, even in the case that these patents are narrowed in scope or revoked in their entirety, these actions do not challenge FibroGen’s exclusivity or freedom-to-operate for roxadustat.

Akebia and others have filed oppositions against certain European patents corresponding to some of the above-listed cases. In three of these proceedings, for FibroGen European Patent Nos. 1463823, 1633333, and 2322155, the European Patent Office has handed down decisions unfavorable to FibroGen. In the fourth of these proceedings, the European Patent Office issued a decision favorable to FibroGen, maintaining FibroGen European Patent No. 2322153. These decisions are currently under appeal, and these four patents are valid and enforceable pending resolution of the appeals. The ultimate outcomes of such proceedings remain uncertain, and ultimate resolution of such may take two to four years or longer. While we believe these FibroGen patents will be upheld in relevant part, we note that narrowing or even revocation of any of these patents would not affect our exclusivity for roxadustat or our freedom-to-operate with respect to use of roxadustat for the treatment of anemia.

Pamrevlumab Patent Portfolio

Our pamrevlumab patent portfolio includes U.S. patents providing composition-of-matter protection for pamrevlumab and related antibodies, and for methods of using such in the treatment of fibroproliferative disorders, including IPF, liver fibrosis, and pancreatic cancer. Exclusive of any patent term extension, U.S. patents relating to pamrevlumab composition-of-matter are due to expire in 2024 or 2025. Corresponding foreign patents are due to expire, exclusive of any patent term extension, in 2024.

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We believe that, if pamrevlumab is approved, a full five-year patent term extension under the Hatch-Waxman act will be available for a granted patent relating to pamrevlumab, which extension would expire in 2029 or 2030, depending on the patent extended . In addition, we believe that pamrevlumab, if approved under a BLA, should qualify for the 12-year period of exclusivity currently permitted by the BPCIA. Refer to “Government Regulation — Regulatory Exclusivity for Approved Products.”

We also hold additional granted U.S. and foreign patents and pending patent applications directed to the use of pamrevlumab to treat IPF, DMD, pancreatic cancer, liver fibrosis, and other disorders.

Trade Secrets and Know-How

In addition to patents, we rely upon proprietary trade secrets and know-how and continuing technological innovation to develop and maintain our competitive position. We seek to protect our proprietary information, in part, using confidentiality and other terms in agreements with our commercial partners, collaboration partners, consultants and employees. Such agreements are designed to protect our proprietary information, and may also grant us ownership of technologies that are developed through a relationship with a third party, such as through invention assignment provisions. Agreements may expire and we could lose the benefit of confidentiality, or our agreements may be breached and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or be independently discovered by competitors.

To the extent that our commercial partners, collaboration partners, employees and consultants use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions.

In-Licenses

Dana-Farber Cancer Institute

Effective March 2006, we entered into a license agreement with the Dana-Farber Cancer Institute (“DFCI”), under which we obtained an exclusive license to certain patent applications, patents and biological materials for all uses. The patent rights relate to inhibition of prolyl hydroxylation of the alpha subunit of hypoxia-inducible factor (HIFα), and include granted U.S. and foreign patents due to expire in 2022, exclusive of possible patent term extension. The licensed patents relate to use of HIF-PH inhibitors such as roxadustat.

Under the DFCI agreement, we are obligated to pay DFCI for past and ongoing patent prosecution expenses for the licensed patents. We are also obligated to pay DFCI annual maintenance fees, development milestone payments of up to $425,000, sales milestone payments of up to $3 million, and a sub-single digit royalty on net sales by us or our affiliates or sublicensees of products that are covered by the licensed patents or incorporate the licensed biological materials. In addition, each sublicense we grant is subject to a one-time fixed amount payment to DFCI.

Unless earlier terminated, the agreement will continue in effect, on a country-by-country basis, until the expiration of all licensed patents in a country or, if there is no patent covering a licensed product incorporating the licensed biological materials, until 20 years after the effective date of the agreement. DFCI may terminate the agreement for our uncured material breach, if we cease to carry on our business and development activities with respect to all licensed products, if we fail to comply with our insurance obligations, or if we are convicted of a felony related to the manufacture, use, sale or importation of licensed products. We may terminate the agreement at any time on prior written notice to DFCI.

University of Miami

In May 1997, we entered into a license agreement with the University of Miami (the “University”), amended in July 1999, under which we obtained an exclusive, worldwide license to certain patent applications and patents for all uses. The current patent rights include U.S. and foreign patents that relate to biologically active fragments of CTGF, and corresponding nucleic acids, proteins, and antibodies, and are due to expire in 2019, exclusive of any patent term extension that may be available. The licensed patents relate to pamrevlumab and related products.

Under the University agreement, we are obligated to pay for all ongoing patent prosecution expenses for the licensed patents. We are also obligated to pay an upfront licensing fee of $21,500, all of which has been paid, and development milestone payments of up to $450,000, of which $50,000 has been paid, as well as an additional milestone payment, in the low hundreds of thousands of dollars, for each new indication for which we obtain approval for a licensed product, and a single digit royalty, subject to certain reductions, on net sales of licensed products by us or our affiliates or sublicensees.

Unless earlier terminated, the agreement will continue in effect, on a country-by-country basis, until the expiration of all licensed patents in a country. The University may terminate the agreement for our uncured material breach or bankruptcy. We may terminate the agreement for the University’s uncured material breach or at any time on prior written notice to the University.

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Bristol-Myers Squibb Company (Medarex, Inc.)

Effective July 9, 1998 and as amended on June 30, 2001 and January 28, 2002, we entered into a research and commercialization agreement with Medarex, Inc. and its wholly-owned subsidiary GenPharm International, Inc. (now, collectively, part of Bristol-Myers Squibb Company (“Medarex”)) to develop fully human monoclonal antibodies for potential anti-fibrotic therapies. Under the agreement, Medarex was responsible for using its proprietary immunizable transgenic mice (“HuMAb-Mouse technology”) during a specified research period (“the Research Period”), to produce fully human antibodies against our proprietary antigen targets, including CTGF, for our exclusive use.

The agreement granted us an option to obtain an exclusive worldwide, royalty-bearing, commercial license to develop antibodies derived from Medarex’s HuMAb-Mouse technology, for use in the development and commercialization of diagnostic and therapeutic products. In December 2002, we exercised that option with respect to twelve antibodies inclusive of the antibody from which pamrevlumab is derived. We granted back to Medarex an exclusive, worldwide, royalty-free, perpetual, irrevocable license, with the right to sublicense, to certain inventions created during the parties’ research collaboration, with such license limited to use by Medarex outside the scope of our licensed antibodies.

As a result of the exercise of our option to obtain the commercial license, Medarex is precluded from (i) knowingly using any technology involving immunizable transgenic mice containing unrearranged human immunoglobulin genes with any of our antigen targets that were the subject of the agreement, (ii) granting to a third party a commercial license that covers such antigen targets or those antibodies derived by Medarex during the Research Period, and (iii) using any antibodies derived by Medarex during the Research Period, except as permitted under the agreement for our benefit or to prosecute patent applications in accordance with the agreement.

Medarex retained ownership of the patent rights relating to certain mice, mice materials, antibodies and hybridoma cell lines used by Medarex in connection with its activities under the agreement, and Medarex also owns certain claims in patents covering inventions that arise during the Research Period, which claims are directed to (i) compositions of matter (e.g., an antibody) except formulations of antibodies for therapeutic or diagnostic use, or (ii) methods of production. We own the patent rights to any inventions that arise during the Research Period that relate to antigens, as well as claims in patents covering inventions directed to (a) methods of use of an antibody, or (b) formulations of antibodies for therapeutic or diagnostic use. Upon exercise of our option to obtain the commercial license, we obtained the sole right but not obligation to control prosecution of patents relating solely to the licensed antibodies or products. Medarex has back-up patent prosecution rights in the event we decline to further prosecute or maintain such patents.

In addition to research support payments by us to Medarex during the Research Period, and an upfront commercial license fee in the form of 181,819 shares of FibroGen Series D Convertible Preferred Stock paid upon exercise of our option, we committed development-related milestone payments of up to $11 million per therapeutic product containing a licensed antibody, and we have paid a $1 million development-related milestone, in the form of 133,333 shares of FibroGen Series G Convertible Preferred Stock, for pamrevlumab to date. At our election, the remaining milestone payments may be paid in common stock of FibroGen, Inc., or cash.

With respect to our sales and sales by our affiliates, the agreement also requires us to pay Medarex low single-digit royalties for licensed therapeutic products and low double-digit royalties plus certain capped sales-based bonus royalties for licensed diagnostic products. With respect to sales of licensed products by a sublicensee, we may elect to pay the foregoing royalties based on our sublicensee’s sales, or a percentage (in the high-teens) of all payments received by us from such sublicensee. We are also required to reimburse Medarex any pass-through royalties, if any, payable under Medarex’s upstream license agreements with Medical Research Council and DNX. Royalties payable by us under the agreement are on a licensed product-by-licensed product and country-by-country basis and subject to reductions in specified circumstances, and royalties are payable for a period until either expiration of patents covering the applicable licensed product or a specified number of years following the first commercial sale of such product in the applicable country.

Unless earlier terminated, the agreement will continue in effect for as long as there are royalty payment obligations by us or our sublicensees. Either party may terminate the agreement for certain material breaches by the other party, or for bankruptcy, insolvency or similar circumstances. In addition, we may also terminate the agreement for convenience upon written notice.

Third Party Filings

Numerous U.S. and foreign issued patents and pending patent applications, which are owned by third parties, exist in the fields in which we are developing products. Because patent applications can take many years to issue, there may be currently pending applications, unknown to us, which may later result in granted patents that use of our product candidates or proprietary technologies may infringe.

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If a third party claims that we infringe its intellectual property rights, we may face a number of issues, including but not limited to, litigation expenses, substantial damages, attorney fees, injunction, royalty payments, cross-licensing of our patents, redesign of our products, or processes and related fees and costs.

We may be exposed to, or threatened with, future litigation by third parties having patent or other intellectual property rights alleging that our products, product candidates, and/or proprietary technologies infringe their intellectual property rights. If one of these patents were to be found to cover our products, product candidates, proprietary technologies, or their uses, we could be required to pay damages and could be restricted from commercializing our products, product candidates or using our proprietary technologies unless we obtain a license to the patent. A license may not be available to us on acceptable terms, if at all. In addition, during litigation, the patent holder might obtain a preliminary injunction or other equitable right, which could prohibit us from making, using or selling our products, technologies, or methods.

EMPLOYEES

As of January 31, 2018, we had 423 full-time employees, 103 of whom held Ph.D. or M.D. degrees, 330 of whom were engaged in research and development and 93 of whom were engaged in business development, finance, information systems, facilities, human resources or administrative support. None of our U.S. employees are represented by a labor union. The employees of FibroGen Beijing are represented by a labor union under the China Labor Union Law. None of our employees have entered into a collective agreement with us. We consider our employee relations to be good.

FACILITIES

Our corporate and research and development operations are located in San Francisco, California, where we lease approximately 234,000 square feet of office and laboratory space with approximately 35,000 square feet subleased. The lease for our San Francisco headquarters expires in 2023. We also lease approximately 67,000 square feet of office and manufacturing space in Beijing, China. Our lease in China expires in 2021. We are constructing a commercial manufacturing facility of approximately 5,500 square meters in Cangzhou, China, on approximately 33,000 square meters of land. Our right to use such land expires in 2068. We believe our facilities are adequate for our current needs and that suitable additional or substitute space would be available if needed.

LEGAL PROCEEDINGS

We are not currently a party to any material legal proceedings.

FINANCIAL INFORMATION

Information regarding our revenues, net loss and total assets is contained in our consolidated financial statements under Item 8 of this Annual Report, which information is incorporated by reference here. For the specifics of our segment and geographic revenue, refer to Note 14 to our consolidated financial statements.

Research and development expenses for fiscal years ended December 31, 2017, 2016 and 2015 were $196.5 million, $187.2 million and $214.1 million, respectively. We expect our research and development expenses to continue to increase in the future as we advance our product candidates through clinical trials and expand our product candidate portfolio.

Our revenue to date has been generated primarily from our collaboration agreements with Astellas and AstraZeneca for the development and commercialization of roxadustat. For fiscal years ended December 31, 2017, 2016 and 2015, substantially all of our revenue was related to our collaboration agreements.

AVAILABLE INFORMATION

Our internet website address is www.fibrogen.com. In addition to the information about us and our subsidiaries contained in this Annual Report, information about us can be found on our website. Our website and information included in or linked to our website are not part of this Annual Report.

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Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are available free of charge through our website as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission (“SEC”). The public may read and copy the materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Additionally the SEC maintains an internet site that contains reports, proxy and information statements and other information. The address of the SEC’s website is www.sec.gov.

CORPORATE INFORMATION

We were incorporated in 1993 in Delaware. Our headquarters are located at 409 Illinois Street, San Francisco, California 94158 and our telephone number is (415) 978-1200. Our website address is www.FibroGen.com. The information contained on, or that can be accessed through, our website is not part of, and is not incorporated into, this Annual Report.

Our subsidiaries consist of the following: 1) FibroGen Europe Oy (“FibroGen Europe”), a majority owned entity incorporated in Finland in 1996; 2) Skin Sciences, Inc., a majority owned entity incorporated in the State of Delaware in 1995; 3) FibroGen International (Cayman) Limited, a wholly owned entity incorporated in the Cayman Islands in 2011; 4) FibroGen China Anemia Holdings Ltd., a majority owned entity incorporated in the Cayman Islands in 2012; 5) FibroGen International (Hong Kong) Limited, a majority owned entity incorporated in Hong Kong in 2011; and 6) FibroGen (China) Medical Technology Development Co., Ltd., a majority owned entity incorporated in China in 2011.

“FibroGen,” the FibroGen logo and other trademarks or service marks of FibroGen, Inc. appearing in this Annual Report are the property of FibroGen, Inc. This Annual Report contains additional trade names, trademarks and service marks of others, which are the property of their respective owners. We do not intend our use of display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, these other companies.

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ITEM 1A. RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the risks described below in addition to the other information included or incorporated by reference in this Annual Report on Form 10-K, including our consolidated financial statements and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” before deciding whether to invest in our common stock. The occurrence of any of the events or developments described below could harm our business, financial condition, results of operations and growth prospects. In such an event, the market price of our common stock could decline, and you may lose all or part of your investment. Although we have discussed all known material risks, the risks described below are not the only ones that we may face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations.

Risks Related to Our Financial Condition and History of Operating Losses

We have incurred significant losses since our inception and anticipate that we will continue to incur losses for the foreseeable future and may never achieve or sustain profitability. We may require additional financings in order to fund our operations.

We are a clinical-stage biopharmaceutical company with two lead product candidates in clinical development, roxadustat in anemia in chronic kidney disease (“CKD”) and pamrevlumab (FG-3019), in idiopathic pulmonary fibrosis (“IPF”), pancreatic cancer, and Duchenne muscular dystrophy (“DMD”). Pharmaceutical product development is a highly risky undertaking. To date, we have focused our efforts and most of our resources on hypoxia-inducible factor (“HIF”), and fibrosis biology research, as well as developing our lead product candidates. We are not profitable and, other than in 2006 and 2007 due to income received from our Astellas Pharma Inc. (“Astellas”) collaboration, have incurred losses in each year since our inception. We have not generated any significant revenue based on product sales to date. We continue to incur significant research and development and other expenses related to our ongoing operations. Our net loss for the years ended December 31, 2017, 2016 and 2015 was approximately $126.2 million, $61.7 million and $85.8 million, respectively. As of December 31, 2017, we had an accumulated deficit of $595.9 million. As of December 31, 2017, we had capital resources consisting of cash, cash equivalents and short-term investments of $735.7 million plus $10.5 million of long-term investments classified as available for sale securities. Despite contractual development and cost coverage commitments from our collaboration partners, AstraZeneca AB (“AstraZeneca”) and Astellas, and the potential to receive milestone and other payments from these partners, we anticipate we will continue to incur losses for the foreseeable future, and we anticipate these losses will increase as we continue our development of, and seek regulatory approval for our product candidates. If we do not successfully develop and obtain regulatory approval for our existing or any future product candidates and effectively manufacture, market and sell any product candidates that are approved, we may never generate product sales, and even if we do generate product sales, we may never achieve or sustain profitability on a quarterly or annual basis. Our prior losses, combined with expected future losses, have had and will continue to have an adverse effect on our stockholders’ equity and working capital. Our failure to become and remain profitable would depress the market price of our common stock and could impair our ability to raise capital, expand our business, diversify our product offerings or continue our operations.

We believe that we will continue to expend substantial resources for the foreseeable future as we continue late-stage clinical development of roxadustat, grow our operations in the People’s Republic of China (“China”), expand our clinical development efforts on pamrevlumab, seek regulatory approval, prepare for the commercialization of our product candidates, and pursue additional indications. These expenditures will include costs associated with research and development, conducting preclinical trials and clinical trials, obtaining regulatory approvals in various jurisdictions, and manufacturing and supplying products and product candidates for ourselves and our partners. In particular, in our planned Phase 3 clinical trial program for roxadustat, which we believe will be the largest Phase 3 program ever conducted for an anemia product candidate, we are expecting to enroll more than 8,000 patients for our U.S. and European programs alone. We are conducting this Phase 3 program in conjunction with Astellas and AstraZeneca, and we are substantially dependent on Astellas and AstraZeneca for the funding of this large program. The outcome of any clinical trial and/or regulatory approval process is highly uncertain and we are unable to fully estimate the actual costs necessary to successfully complete the development and regulatory approval process for our compounds in development and any future product candidates. We believe that the net proceeds from our 2017 public offerings, our existing cash and cash equivalents, short-term and long-term investments and accounts receivable, and expected third party collaboration revenues will allow us to fund our operating plans through at least the next 12 months. Our operating plans or third party collaborations may change as a result of many factors, which are discussed in more detail below, and other factors that may not currently be known to us, and we therefore may need to seek additional funds sooner than planned, through offerings of public or private securities, debt financings or other sources, such as royalty monetization or other structured financings. Such financings may result in dilution to stockholders, imposition of debt covenants and repayment obligations, or other restrictions that may adversely affect our business. We may also seek additional capital due to favorable market conditions or strategic considerations even if we currently believe that we have sufficient funds for our current or future operating plans.

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Our future funding requirements will depend on many factors, including, but not limited to:

Additional funds may not be available when we require them, or on terms that are acceptable to us. If adequate funds are not available to us on a timely basis, we may be required to delay, limit, reduce or terminate our research and development efforts or other operations or activities that may be necessary to commercialize our product candidates.

All of our recent revenue has been earned from collaboration partners for our product candidates under development.

During the years ended December 2017, 2016 and 2015, substantially all of our revenues recognized were from our collaboration partners.

We will require substantial additional capital to achieve our development and commercialization goals, which for our lead product candidate, roxadustat, is currently contemplated to be provided under our existing third party collaborations with Astellas and AstraZeneca.

If either or both of these collaborations were to be terminated, we could require significant additional capital in order to proceed with development and commercialization of our product candidates, or we may require additional partnering in order to help fund such development and commercialization. If adequate funds or partners are not available to us on a timely basis or on favorable terms, we may be required to delay, limit, reduce or terminate our research and development efforts or other operations.

If we are unable to continue to progress our development efforts and achieve milestones under our collaboration agreements, our revenues may decrease and our activities may fail to lead to commercial products.

Substantially all of our revenues to date have been, and a significant portion of our future revenues are expected to be, derived from our existing collaboration agreements. Revenues from research and development collaborations depend upon continuation of the collaborations, reimbursement of development costs, the achievement of milestones and royalties and profits from our product sales, if any, derived from future products developed from our research. If we are unable to successfully advance the development of our product candidates or achieve milestones, revenues under our collaboration agreements will be substantially less than expected.

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Risks Related to the Development and Commercialization of Our Product Candidates

We are substantially dependent on the success of our lead product candidate, roxadustat, and our second compound in development, pamrevlumab.

To date, we have invested a substantial portion of our efforts and financial resources in the research and development of roxadustat, which is currently our lead product candidate. Roxadustat is our only product candidate that has advanced into a potentially pivotal trial, and it may be years before the studies required for its approval are completed, if ever. Our other product candidates are less advanced in development and may never enter into pivotal studies. We have completed 26 Phase 1 and 2 clinical studies with roxadustat in North America, Europe and Asia, in which more than 1,400 subjects have participated and for which we reported favorable primary and secondary safety and efficacy endpoint results. Based on our discussions with regulatory authorities, we believe that we have an acceptable plan for the conduct of our Phase 3 clinical programs to support NDA submissions in the U.S. and China. We have discussed our Phase 3 clinical development program with three national health authorities in the EU and obtained scientific advice from the European Medicines Agency. Our near-term prospects, including maintaining our existing collaborations with Astellas and AstraZeneca, will depend heavily on successful Phase 3 development and commercialization of roxadustat.

Our other lead product candidate, pamrevlumab, is currently in clinical development for IPF, pancreatic cancer and DMD. Pamrevlumab requires substantial further development and investment. We do not have a collaboration partner for support of this compound, and, while we have promising open-label safety data and potential signals of efficacy, we would need to complete larger and more extensive controlled clinical trials to validate the results to date in order to continue further development of this product candidate. In addition, although there are many potentially promising indications beyond IPF, pancreatic cancer and DMD, we are still exploring indications for which further development of, and investment for, pamrevlumab may be appropriate. Accordingly, the costs and time to complete development and related risks are currently unknown. Moreover, pamrevlumab is a monoclonal antibody, which may require experience and expertise that we may not currently possess as well as financial resources that are potentially greater than those required for our small molecule lead compound, roxadustat.

The clinical and commercial success of roxadustat and pamrevlumab will depend on a number of factors, many of which are beyond our control, and we may be unable to complete the development or commercialization of roxadustat or pamrevlumab.

The clinical and commercial success of roxadustat and pamrevlumab will depend on a number of factors, including the following:

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Many of these factors are beyond our control. Accordingly, we cannot assure you that we will ever be able to achieve profitability through the sale of, or royalties from, our product candidates. If we or our collaboration partners are not successful in obtaining approval for and commercializing our product candidates, or are delayed in completing those efforts, our business and operations would be adversely affected.

We may be unable to obtain regulatory approval for our product candidates, or such approval may be delayed or limited, due to a number of factors, many of which are beyond our control.

The clinical trials and the manufacturing of our product candidates are and will continue to be, and the marketing of our product candidates will be, subject to extensive and rigorous review and regulation by numerous government authorities in the U.S. and in other countries where we intend to develop and, if approved, market any product candidates. Before obtaining regulatory approval for the commercial sale of any product candidate, we must demonstrate through extensive preclinical trials and clinical trials that the product candidate is safe and effective for use in each indication for which approval is sought. The regulatory review and approval process is expensive and requires substantial resources and time, and in general very few product candidates that enter development receive regulatory approval. In addition, our collaboration partners for roxadustat have final control over development decisions in their respective territories and they may make decisions with respect to development or regulatory authorities that delay or limit the potential approval of roxadustat, or increase the cost of development or commercialization. Accordingly, we may be unable to successfully develop or commercialize roxadustat or pamrevlumab or any of our other product candidates.

We have not obtained regulatory approval for any of our product candidates and it is possible that roxadustat and pamrevlumab will never receive regulatory approval in any country. Regulatory authorities may take actions or impose requirements that delay, limit or deny approval of roxadustat or pamrevlumab for many reasons, including, among others:

Any of these factors, many of which are beyond our control, could jeopardize our or our collaboration partners’ abilities to obtain regulatory approval for and successfully market roxadustat. Because our business and operations in the near-term are almost entirely dependent upon roxadustat, any significant delays or impediments to regulatory approval could have a material adverse effect on our business and prospects.

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Furthermore, in both the U.S. and China, we also expect to be required to perform additional clinical trials in order to obtain approval or as a condition to maintaining approval due to post-marketing requirements. If the FDA requires a risk evaluation and mitigation strategy (“REMS”), for any of our product candidates if approved, the substantial cost and expense of complying with a REMS or other post-marketing requirements may limit our ability to successfully commercialize our product candidates.

Preclinical, Phase 1 and Phase 2 clinical trial results may not be indicative of the results that may be obtained in larger, controlled Phase 3 clinical trials required for approval.

Clinical development is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. Success in preclinical and early clinical trials, which are often highly variable and use small sample sizes, may not be predictive of similar results in humans or in larger, controlled clinical trials, and successful results from early or small clinical trials may not be replicated or show as favorable an outcome, even if successful.

We have conducted only a limited number of Phase 2 clinical trials with pamrevlumab. We have conducted a randomized placebo-controlled study in 103 IPF patients with substudies in 57 IPF patients comparing pamrevlumab to one of two standards of care, an open-label Phase 2 dose escalation study of pamrevlumab for IPF in 89 patients, a Phase 2 dose finding trial of pamrevlumab combined with gemcitabine plus erlotinib in 75 patients with pancreatic cancer and a randomized double-blind placebo controlled study for liver fibrosis in subjects with hepatitis B, and we are currently conducting an open-label randomized, active-control, neoadjuvant Phase 2 trial in pancreatic cancer combining pamrevlumab with nab-paclitaxel plus gemcitabine in 37 patients. We cannot be sure that the results we have received to date from these trials will be substantiated in double-blinded pivotal trials with larger numbers of patients, that larger trials will demonstrate the efficacy of pamrevlumab for these or other indications, or that safety issues will not be uncovered in further trials. In the Phase 2 clinical trial for IPF, we used quantitative high-resolution computed tomography (“quantitative HRCT”), to measure the extent of lung fibrosis. While we believe that quantitative HRCT is an accurate measure of lung fibrosis, it is a novel technology that has not yet been accepted by the FDA as a primary endpoint in pivotal clinical trials. In addition, while we believe that the limited animal and human studies conducted to date suggest that pamrevlumab has the potential to arrest or reverse fibrosis and reduce tumor mass in some patients or diseases, we cannot be sure that these results will be indicative of the effects of pamrevlumab in larger human trials. In addition, the IPF and pancreatic cancer patient populations are extremely ill and routinely experience SAEs, including death, which may be attributed to pamrevlumab in a manner that negatively impacts the safety profile of our product candidate. If the additional clinical trials that we are planning or are currently conducting for pamrevlumab do not show favorable efficacy results or result in safety concerns, or if we do not meet our clinical endpoints with statistical significance, or demonstrate an acceptable risk-benefit profile, we may be prevented from or delayed in obtaining marketing approval for pamrevlumab in one or both of these indications.

In the past we developed an earlier generation product candidate aimed at treating anemia in CKD that resulted in a clinical hold for a safety signal seen in that product in Phase 2 clinical trials. The clinical hold applied to that product candidate and roxadustat was lifted for both product candidates after submission of the requested information to the FDA. While we have not seen similar safety concerns involving roxadustat to date, our Phase 2 clinical trials have involved a relatively small number of patients exposed to roxadustat for a relatively short period of time compared to the Phase 3 clinical trials that we are conducting, and only a fraction of the patients in the Phase 2 clinical trials were randomized to placebo. Accordingly, the Phase 2 clinical trials that we have conducted may not have uncovered safety issues, even if they exist. Some of the safety concerns associated with the treatment of patients with anemia in CKD using erythropoiesis stimulating agents (“ESAs”) did not emerge for many years until placebo-controlled studies had been conducted in large numbers of patients. And while the data monitoring committee for our global Phase 3 anemia trials has consistently determined that our trials should continue without modification to the protocol, safety issues may still be discovered upon review of unblinded data when studies are completed. The biochemical pathways that we believe are affected by roxadustat are implicated in a variety of biological processes and disease conditions, and it is possible that the use of roxadustat to treat larger numbers of patients will demonstrate unanticipated adverse effects, including possible drug interactions, which may negatively impact the safety profile, use and market acceptance of roxadustat. We studied the potential interaction between roxadustat and three statins (atorvastatin, rosuvastatin, and simvastatin), which are used to lower levels of lipids in the blood. An adverse effect associated with increased statin plasma concentration is myopathy, which typically presents in a form of myalgia. The studies indicated the potential for increased exposure to those statins when roxadustat is taken simultaneously with those statins and suggested the need for statin dose reductions for patients receiving higher statin doses. We performed additional clinical pharmacology studies to evaluate if the effect of any such interaction could be minimized or eliminated by a modification of the dosing schedule that would separate the administration of roxadustat and the statin, however, such studies showed no minimization of effect. It is possible that the potential for interaction between roxadustat and statins could lead to label provisions for statins or roxadustat relating, for example, to dose scheduling or recommended statin dose limitations. In CKD patients, statin therapy is often initiated earlier than treatment for anemia, and risks of myopathy have been shown to decrease with increased time on drug. While we believe the prior statin treatment history of such patients at established doses may reduce the risk of adverse effects from any interaction with roxadustat and facilitate any appropriate dose adjustments, we cannot be sure that this will be the case.

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Our Phase 3 trials include a major adverse cardiac event (“MACE”) safety endpoint, which is a composite endpoint designed to identify major safety concerns, in particular relating to cardiovascular events such as cardiovascular death, myocardial infarction and stroke. In addition, we expect that our Phase 3 clinical trials supporting approval in Europe will be required to include MACE+ as a safety endpoint which, in addition to the MACE endpoints, also incorporates measurements of hospitalization rates due to heart failure or unstable angina. As a result, our ongoing Phase 3 clinical trials may identify unanticipated safety concerns in the patient population under study. The FDA has also informed us that the MACE endpoint will need to be evaluated separately for our Phase 3 trials in non-dialysis dependent (“NDD”)-CKD patients and our Phase 3 trials in dialysis dependent (“DD”)-CKD patients. The MACE endpoint will be evaluated in pooled analysis across Phase 3 studies of similar study populations and requires demonstration of non-inferiority relative to comparator, which means that the MACE event rate in roxadustat-treated patients must have less than a specified probability of exceeding the rate in the comparator trial by a specified hazard ratio. The number of patients necessary in order to permit a statistical analysis with adequate ability to detect the relative risk of MACE or MACE+ events in different arms of the trial, referred to as statistical power, depends on a number of factors, including the rate at which MACE or MACE+ events occur per patient-year in the trial, treatment duration of the patients, the required hazard ratio, and the required statistical power and confidence intervals.

In addition, we cannot be sure that the potential advantages we believe roxadustat may have for treatment of patients with anemia in CKD, as compared to the use of ESAs, will be substantiated by our larger U.S. and European Phase 3 clinical trials, or that we will be able to include a discussion of such advantages in our labeling should we obtain approval. We believe that roxadustat may have certain benefits as compared to ESAs based on the data from our Phase 2 clinical trials and China Phase 3 trials conducted to date, including safety benefits, the absence of a hypertensive effect, the potential to lower cholesterol levels and the potential to correct anemia without the use of IV iron. However, our belief that roxadustat may offer those benefits is based on a limited amount of data from our clinical trials to date, and our understanding of the likely mechanisms of action for roxadustat. Some of these benefits, such as those associated with the apparent effects on blood pressure and cholesterol, are not fully understood and, even if roxadustat receives marketing approval, we do not expect that it will be approved for the treatment of high blood pressure or high cholesterol based on the data from our Phase 3 trials, and we may not be able to refer to any such benefits in the labeling. While the data from our Phase 2 trials suggests roxadustat may reduce low-density lipoprotein (“LDL”), and reduce the ratio of LDL to high-density lipoprotein (“HDL”), the data show it may also reduce HDL, which may be a risk to patients. In addition, causes of the safety concerns associated with the use of ESAs to achieve specified target Hb levels have not been fully elucidated. While we believe that the issues giving rise to these concerns with ESAs are likely due to factors other than the Hb levels achieved, we cannot be certain that roxadustat will not be associated with similar, or more severe, safety concerns.

Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials after achieving positive results in early-stage development, and we may face similar setbacks. In addition, the CKD patient population has many afflictions that may cause severe illness or death, which may be attributed to roxadustat in a manner that negatively impacts the safety profile of our product candidate. If the results of our ongoing or future clinical trials for roxadustat are inconclusive with respect to efficacy, if we do not meet our clinical endpoints with statistical significance, or if there are unanticipated safety concerns or adverse events that emerge during clinical trials, we may be prevented from or delayed in obtaining marketing approval for roxadustat, and even if we obtain marketing approval, any sales of roxadustat may suffer.

We do not know whether our ongoing or planned Phase 3 clinical trials in roxadustat or Phase 2 clinical trials in pamrevlumab will need to be redesigned based on interim results, be able to achieve sufficient enrollment or be completed on schedule, if at all.

Clinical trials can be delayed or terminated for a variety of reasons, including delay or failure to:

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In addition, we could encounter delays if a clinical trial is suspended or terminated by us, by the relevant IRBs at the sites at which such trials are being conducted, or by the FDA or other regulatory authorities. A suspension or termination of clinical trials may result from any number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, changes in laws or regulations, or a principal investigator’s determination that a serious adverse event could be related to our product candidates. Any delays in completing our clinical trials will increase the costs of the trial, delay the product candidate development and approval process and jeopardize our ability to commence marketing and generate revenues. Any of these occurrences may materially and adversely harm our business and operations and prospects.

Our product candidates may cause or have attributed to them undesirable side effects or have other properties that delay or prevent their regulatory approval or limit their commercial potential.

Undesirable side effects caused by our product candidates or that may be identified as related to our product candidates by physician investigators conducting our clinical trials or even competing products in development that utilize a similar mechanism of action or act through a similar biological disease pathway could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in the delay or denial of regulatory approval by the FDA or other regulatory authorities and potential product liability claims. Adverse events and SAEs that emerge during treatment with our product candidates or other compounds acting through similar biological pathways may be deemed to be related to our product candidate and may result in:

The occurrence of any or all of these events may cause the development of our product candidates to be delayed or terminated, which could materially and adversely affect our business and prospects. Refer to “Business — Our Development Program for Roxadustat” and “Business — Pamrevlumab for the Treatment of Fibrosis and Cancer” for a discussion of the adverse events and SAEs that have emerged in clinical trials of roxadustat and pamrevlumab.

Clinical trials of our product candidates may not uncover all possible adverse effects that patients may experience.

Clinical trials are conducted in representative samples of the potential patient population, which may have significant variability. Clinical trials are by design based on a limited number of subjects and of limited duration for exposure to the product used to determine whether, on a potentially statistically significant basis, the planned safety and efficacy of any product candidate can be achieved. As with the results of any statistical sampling, we cannot be sure that all side effects of our product candidates may be uncovered, and it may be the case that only with a significantly larger number of patients exposed to the product candidate for a longer duration, may a more complete safety profile be identified. Further, even larger clinical trials may not identify rare serious adverse effects or the duration of such studies may not be sufficient to identify when those events may occur. There have been other products, including ESAs, for which safety concerns have been uncovered following approval by regulatory authorities. Such safety concerns have led to labeling changes or withdrawal of ESAs products from the market. While our most advanced product candidate is chemically unique from ESAs, it or any of our product candidates may be subject to similar risks. For example, roxadustat for use in anemia in CKD is being developed to address a very diverse patient population expected to have many serious health conditions at the time of administration of roxadustat, including diabetes, high blood pressure and declining kidney function.

To date we have not seen evidence of significant safety concerns with our product candidates currently in clinical trials, patients treated with our products, if approved, may experience adverse reactions and it is possible that the FDA or other regulatory authorities may ask for additional safety data as a condition of, or in connection with, our efforts to obtain approval of our product candidates. If safety problems occur or are identified after our product candidates reach the market, we may, or regulatory authorities may require us to amend the labeling of our products, recall our products or even withdraw approval for our products.

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We may fail to enroll a sufficient number of patients in our clinical trials in a timely manner, which could delay or prevent clinical trials of our product candidates.

Identifying and qualifying patients to participate in clinical trials of our product candidates is critical to our success. The timing of our clinical trials depends on the rate at which we can recruit and enroll patients in testing our product candidates. Patients may be unwilling to participate in clinical trials of our product candidates for a variety of reasons, some of which may be beyond our control:

Patients may be unwilling to participate in our clinical trials for roxadustat due to adverse events observed in other drug treatments of anemia in CKD, and patients currently controlling their disease with existing ESAs may be reluctant to participate in a clinical trial with an investigational drug. We may not be able to successfully initiate or continue clinical trials if we cannot rapidly enroll a sufficient number of eligible patients to participate in the clinical trials required by regulatory agencies. If we have difficulty enrolling a sufficient number of patients to conduct our clinical trials as planned, we may need to delay, limit or terminate on-going or planned clinical trials, any of which could have a material and adverse effect on our business and prospects.

If we or third party manufacturers on which we rely cannot manufacture sufficient quantities of our product candidates, or at sufficient quality, we may experience delays in development, regulatory approval, launch or commercialization.

Completion of our clinical trials and commercialization of our product candidates require access to, or development of, facilities to manufacture our product candidates at sufficient yields and at commercial scale. We have not yet entered into any commercial supply agreements with third-party manufacturers. We have limited experience manufacturing, or managing third parties in manufacturing any of our product candidates in the volumes that are expected to be necessary to support large-scale clinical trials and sales. In addition, we have limited experience forecasting or coordinating forecasting supply for launch or commercialization, which is a complex process involving our third-party manufacturers and for roxadustat our collaboration partners. We may not be able to sufficiently forecast supplies for commercial launch, or do so in a timely manner and our efforts to establish these manufacturing capabilities may not meet our requirements as to quantities, scale-up, yield, cost, potency or quality in compliance with cGMP.

We have a limited amount of roxadustat and pamrevlumab in storage, limited capacity reserved at our third-party manufacturers, and there are long lead times required to manufacture and scale-up the manufacture of additional supply, as required for both late-stage clinical trials and commercial supply. If we are unable to forecast, order or manufacture sufficient quantities of roxadustat or pamrevlumab on a timely basis, it may delay our development, launch or commercialization in some or all indications we are currently pursuing. For example, prior to agreement with regulatory authorities on the scope of our Phase 3 IPF trial design, there is uncertainty as to whether our supply plans will meet our clinical requirements in a timely manner. Any delay or interruption in the supply of our product candidates or products could have a material adverse effect on our business and operations.

Our clinical trials must be conducted with product produced under applicable cGMP regulations. Failure to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process. We and even an experienced third party manufacturer may encounter difficulties in production, which difficulties may include:

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Even if we are able to obtain regulatory approval of our product candidates, the label we obtain may limit the indicated uses for which our product candidates may be marketed.

With respect to roxadustat, we expect that regulatory approvals, if obtained at all, will limit the approved indicated uses for which roxadustat may be marketed, as ESAs have been subject to significant safety limitations on usage as directed by the “Black Box” warnings included in their labels. Refer to “Business — Roxadustat for the Treatment of Anemia in Chronic Kidney Disease — Limitations of the Current Standard of Care for Anemia in CKD”. In addition, in the past, an approved ESA was voluntarily withdrawn due to serious safety issues discovered after approval. The safety concerns relating to ESAs may result in labeling for roxadustat containing similar warnings even if our Phase 3 clinical trials do not suggest that roxadustat has similar safety issues. Even if the label for roxadustat does not contain all of the warnings contained in the Black Box warning for ESAs, the label for roxadustat may contain other warnings that limit the market opportunity for roxadustat. These warnings could include warnings against exceeding specified Hb targets and other warnings that derive from the lack of clarity regarding the basis for the safety issues associated with ESAs, even if our Phase 3 clinical trials do not themselves raise safety concerns.

As an organization, we have never completed a Phase 3 clinical trial or received approval for a New Drug Application (“NDA”) before, and may be unable to do so efficiently or at all for roxadustat or any product candidate we are developing.

We are currently conducting Phase 2 clinical trials for pamrevlumab and plan on initiating Phase 3 clinical trials for pamrevlumab in the future. We have initiated Phase 3 clinical trials of roxadustat. The conduct of Phase 3 clinical trials and the submission of a successful NDA is a complicated process. As an organization, we have not completed a Phase 3 clinical trial before, have limited experience in preparing, submitting and prosecuting regulatory filings, and have not received approval for an NDA before. Consequently, we may be unable to successfully and efficiently execute and complete necessary clinical trials in a way that leads to NDA submission and approval of roxadustat or for any other product candidate we are developing, even if our earlier stage clinical trials are successful. We may require more time and incur greater costs than our competitors and may not succeed in obtaining regulatory approvals of product candidates that we develop. Failure to commence or complete, or delays in, our planned clinical trials would prevent us from or delay us in commercializing roxadustat or any other product candidate we are developing.

In addition, in order for any Phase 3 clinical trial to support an NDA submission for approval, the FDA and foreign regulatory authorities require compliance with regulations and standards, including good clinical practices (“GCP”) requirements for designing, conducting, monitoring, recording, analyzing and reporting the results of clinical trials to ensure that the data and results from trials are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected. Although we rely on third parties to conduct our clinical trials, we as the sponsor remain responsible for ensuring that each of these clinical trials is conducted in accordance with its general investigational plan and protocol under legal and regulatory requirements, including GCP. Regulatory authorities enforce these GCP requirements through periodic inspections of trial sponsors, principal investigators and trial sites. If we or any of our CROs, trial sites, principal investigators or other third parties fail to comply with applicable GCP requirements, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or other regulatory authorities may require us to exclude the use of patient data from our clinical trials not conducted in compliance with GCP or perform additional clinical trials before approving our marketing applications. They may even reject our application for approval or refuse to accept our future applications for an extended time period. For example in China, the China Food and Drug Administration (“CFDA”) issued guidance in March 2016 related to its clinical trial data integrity regulations. While trial sites and CROs bear liability for the accuracy and authenticity of data they are directly responsible for, the sponsor ultimately bears full responsibility for submitted clinical data and the drug application dossier. Fraudulent clinical data could result in a ban in China of a sponsor’s product-related NDA applications for three years and other NDA applications for one year. We have taken extensive steps to ensure the integrity of our China clinical data. However, we cannot assure you that upon inspection by a regulatory authority, such regulatory authority will determine that any of our clinical trials comply with GCP requirements or that our results will be deemed authentic or may be used in support of our regulatory submissions.

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If we are unable to establish sales, marketing and distribution capabilities or enter into or maintain agreements with third parties to market and sell our product candidates, we may not be successful in commercializing our product candidates if and when they are approved.

We do not have a sales or marketing infrastructure and have no experience in the sales, marketing or distribution of pharmaceutical products in any country. To achieve commercial success for any product for which we obtain marketing approval, we will need to establish sales and marketing capabilities or make and maintain our existing arrangements with third parties to perform these services at a level sufficient to support our commercialization efforts.

To the extent that we would undertake sales and marketing of any of our products directly, there are risks involved with establishing our own sales, marketing and distribution capabilities. Factors that may inhibit our efforts to commercialize our products on our own include:

With respect to roxadustat, we are dependent on the commercialization capabilities of our collaboration partners, AstraZeneca and Astellas. If either such partner were to terminate its agreement with us, we would have to commercialize on our own or with another third party. We will have limited or little control over the commercialization efforts of such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our products, if any, effectively. If they are not successful in commercializing our product candidates, our business and financial condition would suffer.

We face substantial competition, which may result in others discovering, developing or commercializing products before, or more successfully, than we do.

The development and commercialization of new pharmaceutical products is highly competitive. Our future success depends on our ability to achieve and maintain a competitive advantage with respect to the development and commercialization of our product candidates. Our objective is to discover, develop and commercialize new products with superior efficacy, convenience, tolerability and safety. We expect that in many cases, the products that we commercialize will compete with existing, market-leading products of companies that have large, established commercial organizations.

If roxadustat is approved and launched commercially, competing drugs are expected to include ESAs, particularly in those patient segments where ESAs are used. Currently available ESAs include epoetin alfa (EPOGEN ^®, marketed by Amgen Inc. in the U.S., Procrit ^® and Erypo ^®/Eprex ^®, marketed by Johnson & Johnson Inc., and Espo ^® marketed by Kyowa Hakko Kirin in Japan and China), darbepoetin (Amgen/Kyowa Hakko Kirin’s Aranesp ^® and NESP ^®) and Mircera ^® marketed by Hoffmann-La Roche (“Roche”) outside of the U.S. and by Vifor Pharma (formerly a company of Galenica Group (“Vifor”)), a Roche licensee, in the U.S. and Puerto Rico, as well as biosimilar versions of these currently marketed ESA products. ESAs have been used in the treatment of anemia in CKD for more than 20 years, serving a significant majority of DD-CKD patients. While NDD-CKD patients who are not under the care of nephrologists, including those with diabetes and hypertension, do not typically receive ESAs and are often left untreated, some patients under nephrology care may be receiving ESA therapy. It may be difficult to encourage healthcare providers and patients to switch to roxadustat from products with which they have become familiar.

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We may also face competition from potential new anemia therapies currently in clinical development, including in those patient segments not currently addressed by ESAs. Companies such as GlaxoSmithKline plc (“GSK”), Bayer Corporation (“Bayer”), Akebia Therapeutics, Inc. (“Akebia”), and Japan Tobacco, who are currently developing HIF prolyl hydroxylase (“HIF-PH”) inhibitors for anemia in CKD indications. We may face competition for patient recruitment and enrollment for clinical trials and potentially in commercial sales. Akebia is currently conducting two Phase 3 studies in NDD–CKD, one started in December 2015 and the other in February 2016, and initiated two Phase 3 studies in DD-CKD, one started in July 2016 and the other in August 2016. Akebia also started a Phase 2 study in May 2017 with 20-week dosing initially in ESA-hyporesponsive DD-CKD patients but recently announced that is now modified to include non-hyporesponsive DD-CKD patients. More recently, Akebia announced an updated plan for a Phase 3 study with three-times a week dosing versus once a day dosing in DD-CKD population, which is expected to start in 2018. In September 2017, Mitsubishi Tanabe Pharmaceutical Corporation, Akebia’s collaboration partner, announced topline results from a vadadustat Japan Phase 2 study in 51 NDD patients, and its plan to start a Japan Phase 3 development program, rather than including Japan sites in their global Phase 3 program. GSK started Phase 3 studies in NDD-CKD and DD-CKD in the U.S. in September 2016, and in Japan in June 2016. Bayer has completed global Phase 2 studies and announced in May 2017 its HIF-PH inhibitor is now in continued development in Japan only, and started Japan Phase 3 studies in NDD-CKD and DD-CKD in December 2017. Beginning in September 2017, Japan Tobacco is currently conducting four Phase 3 open label studies in NDD-CKD and DD-CKD in Japan. Some of these product candidates may enter the market prior to roxadustat.

In addition, there are other companies developing biologic therapies for the treatment of other anemia indications that we may also seek to pursue in the future, including anemia of myelodysplastic syndromes (“MDS”), for which we received approval from the CFDA for our Phase 2/3 clinical trial application in China and acceptance of our Investigational New Drug Application (“IND”) and the Phase 3 pivotal study protocol from the FDA, and expect to start additional studies in the first half of 2018. For example, Acceleron Pharma Inc., in partnership with Celgene Corporation, is in Phase 3 development of protein therapeutic candidates to treat anemia and associated complications in patients with ß-thalassemia and MDS, and has received orphan drug status from the EMA and FDA for these indications. There may also be new therapies for renal-related diseases that could limit the market or level of reimbursement available for roxadustat if and when it is commercialized.

In China, biosimilars of epoetin alfa are offered by Chinese pharmaceutical companies such as EPIAO marketed by 3SBio Inc. as well as more than 15 other local manufacturers. We may also face competition by HIF-PH inhibitors from other companies such as Akebia, Bayer, and GSK, which was authorized by the CFDA to conduct trials in China to support its ex-China regulatory filings. Akebia announced in December 2015 that it has entered into a development and commercialization partnership with Mitsubishi Tanabe Pharmaceutical Corporation for its HIF-PH inhibitor vadadustat in Japan, Taiwan, South Korea, India, and certain other countries in Asia, and announced in April 2017 an expansion of their U.S. collaboration with Otsuka to add markets, including China. 3SBio Inc. also announced in 2016 its plan on beginning a Phase 1 clinical trial of a HIF-PH inhibitor for the China market.

The introduction of biosimilar ESAs into the market in the U.S. may occur by the time roxadustat enters the market and may alter the competitive and pricing landscape of anemia therapy in DD-CKD patients under the end stage renal disease bundle. The patents for Amgen’s epoetin alfa, EPOGEN, expired in 2004 in the European Union (“EU”), and the final material patents in the U.S. expired in May 2015. Several biosimilar versions of currently marketed ESAs are available for sale in the EU, China and other territories. In the U.S., a few ESA biosimilars are currently under development or regulatory review, including Retacrit® (epoetin zeta), marketed by Pfizer in Europe and for which Pfizer resubmitted a Biologics License Application (“BLA”) after receiving a complete response letter (“CRL”) from the FDA denying approval of its BLA submitted in October 2015. While FDA’s Advisory Committee recommended approving the BLA in May 2017, FDA issued another CRL on June 22, 2017. Sandoz, a division of Novartis, markets Binocrit ^® (epoetin alfa) in Europe and plans to file a biosimilar BLA in 2017 in the U.S.

The majority of the current CKD anemia market focuses on dialysis patients, who visit dialysis centers on a regular basis, typically three-times a week, and anemia therapies are administered as part of the visit. Two of the largest operators of dialysis clinics in the U.S., DaVita Healthcare Partners Inc. (“DaVita”) and Fresenius Medical Care AG & Co. KGaA (“Fresenius”), collectively provide dialysis care to approximately 70% of U.S. dialysis patients, and therefore have historically won long-term contracts including rebate terms with Amgen. DaVita recently entered into a new 6-year sourcing and supply agreement with Amgen effective through 2022. Fresenius’ contract with Amgen expired in 2015, and Fresenius is now administering Mircera^® in a significant portion of its U.S. dialysis patients since Mircera was made available by Vifor. Successful penetration of this market may require a significant agreement with Fresenius or DaVita on favorable terms and on a timely basis.

If pamrevlumab is approved and launched commercially to treat IPF, competing drugs are expected to include Roche’s pirfenidone, which is approved for marketing in Europe, Canada, Japan and the U.S., and Boehringer Ingelheim Pharma GmbH & Co. KG’s nintedanib which has been approved in the U.S. and EU. Nintedanib is also in development for non-small cell lung cancer and ovarian cancer. Other potential competitive product candidates in various stages of Phase 2 development for IPF include Promedior Inc.’s PRM-151, Biogen-Idec’s STX-100, Prometic Life Sciences Inc.’s PBI-4050, and Kadmon Holdings, Inc.’s KD025.

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If pamrevlumab is approved and launched commercially to treat pancreatic cancer, we expect it to be used in combination instead of as monotherapy, and, likely competition for pamrevlumab would be from other agents also seeking approval in combination with gemcitibine and nab-paclitaxel from companies such as NewLink Genetics Corporation, Merrimack Pharmaceuticals, Inc. (“Merrimack”) and Halozyme Therapeutics, Inc. Gemcitabine and/or nab-paclitaxel are the current standard of care in the first-line treatment of metastatic pancreatic cancer. Celgene Corporation’s Abraxane ^® (nab-paclitaxel) was launched in the U.S. and Europe in 2013 and 2014, and was the first drug approved in this disease in nearly a decade. In 2015, Merrimack received FDA approval for the use of ONIVYDE (irinotecan liposome injection) for the treatment of patients with metastatic adenocarcinoma of the pancreas after disease progression following gemcitabine-based therapy.

If pamrevlumab is approved and launched commercially to treat DMD, pamrevlumab may face competition for some patients from Sarepta Therapeutics, Inc. (“Sarepta”), as well as PTC Therapeutics, Santhera Pharmaceuticals, Catabasis Pharmaceuticals, Pfizer, Summit Therapeutics plc (“Summit”) and Tivorsan Pharmaceuticals. Sarepta is researching and developing clinical candidates for many of the specific mutations in the dystrophin gene and recently received accelerated approval in the U.S. for its first drug Exondys 51 (eteplirsen). The approval is limited to patients who have a confirmed mutation in the DMD gene that is amenable to exon 51 skipping. This mutation represents a subset of approximately 13% of patients with DMD. Marathon Pharmaceuticals received approval for its drug Emflaza (deflazacort) on February 9, 2017 and on March 16, 2017 announced that it had sold the commercialization rights to Emflaza to PTC Therapeutics. PTC Therapeutics’ product ataluren (Translarna ^TM) received conditional approval in Europe in 2014 and a complete response letter from the FDA in October of 2017 stating that the FDA is unable to approve the application in its current form. Translarna targets a different set of DMD patients from those being targeted by Sarepta’s existing exon-skipping therapeutic candidate; however it is also limited to a subset of patients who carry a specific mutation.

Conversely, pamrevlumab and some other potential competitors are intended to treat DMD patients regardless of the specific mutation. For example, Santhera Pharmaceuticals recently reported positive Phase 3 data with its drug idebenone (Raxone ^®/Catena ^®) in a trial measuring changes in lung function for DMD patients, however the FDA has asked for additional data from an ongoing trial prior to considering Raxone for approval. Previously we had expected this additional trial to be confirmatory rather than necessary for submission. Idebenone is a synthetic short-chain benzoquinone and a cofactor for the enzyme NAD(P)H:quinone oxidoreductase (NQO1). Pfizer’s product candidate, which is in Phase 2 development to treat DMD, is an antibody targeting myostatin which is a protein that regulates muscle growth. The goal of the program is to increase muscle growth and muscle strength in patients with DMD. Summit and Tivorsan Pharmaceuticals are both working on drugs involving the utrophin pathway. Utrophin is a protein similar to dystrophin that is potentially implicated in all DMD patients. Summit is conducting a Phase 2 trial and reported positive interim data from this trial on January 25, 2018. Summit anticipates reporting topline data in the third quarter of 2018.

In October 2016, Summit and Sarepta announced a collaboration in which the companies have agreed to collaborate on Summit’s utrophin modulator pipeline including its lead candidate ezutromid. The companies will co-develop the pipeline and Sarepta will receive the rights to the compounds in Europe, Turkey, and the Commonwealth of Independent States. Sarepta also has an option on the rights to the program for Latin America. Summit will retain commercialization rights in all other countries including the U.S.

Catabasis Pharmaceuticals recently reported positive Phase 2 data from its clinical trial candidate edasalonexent. Edasalonexent was reported to have preserved muscle function and slowed the progression of DMD compared to rates of change in the control period prior to treatment with edasalonexent. The company plans to start a placebo controlled Phase 3 trial in 2018.

If FG-5200 is approved and launched to treat corneal blindness resulting from partial thickness corneal damage without active inflammation and infection in China, it is likely to compete with other products designed to treat corneal damage. For example, in April 2015, a subsidiary of China Regenerative Medicine International Limited received approval for their acellular porcine cornea stroma medical device to treat patients in China with corneal ulcers and in April 2016, Guangzhou Yourvision Biotech Co. Ltd, a subsidiary of Guanhao Biotech, received approval for their acellular porcine cornea medical device to treat patients in China with infectious keratitis that does not respond to drug treatment.

The success of any or all of these potential competitive products may negatively impact the development and potential for success of pamrevlumab. In addition, any competitive products that are on the market or in development may compete with pamrevlumab for patient recruitment and enrollment for clinical trials or may force us to change our clinical trial comparators, whether placebo or active, in order to compare pamrevlumab against another drug, which may be the new standard of care.

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Moreover, many of our competitors have significantly greater resources than we do. Large pharmaceutical companies, in particular, have extensive experience in clinical testing, obtaining regulatory approvals, recruiting patients, manufacturing pharmaceutical products, and commercialization. In the potential anemia market for roxadustat, for example, large and established companies such as Amgen and Roche, among others, compete aggressively to maintain their market shares. In particular, the currently marketed ESA products are supported by large pharmaceutical companies have greater experience and expertise in commercialization in the anemia market, including in securing reimbursement, government contracts and relationships with key opinion leaders; conducting testing and clinical trials; obtaining and maintaining regulatory approvals and distribution relationships to market products; and marketing approved products. These companies also have significantly greater scale research and marketing capabilities than we do and may also have products that have been approved or are in later stages of development, and have collaboration agreements in our target markets with leading dialysis companies and research institutions. These competitors have in the past successfully prevented new and competing products from entering into the anemia market, and we expect that their resources will represent challenges for us and our collaboration partners, AstraZeneca and Astellas. If we and our collaboration partners are not able to compete effectively against existing and potential competitors, our business and financial condition may be materially and adversely affected.

Our future commercial success depends upon attaining significant market acceptance of our product candidates, if approved, among physicians, patients, third party payors and others in the health care community.

Even if we obtain marketing approval for roxadustat, pamrevlumab or any other product candidates that we may develop or acquire in the future, these product candidates may not gain market acceptance among physicians, third party payors, patients and others in the health care community. Market acceptance of any approved product depends on a number of other factors, including:

No or limited reimbursement or insurance coverage of our approved products, if any, by third party payors may render our products less attractive to patients and healthcare providers.

Market acceptance and sales of any approved products will depend significantly on reimbursement or coverage of our products by the Chinese government or third party payors, and may be affected by existing and future healthcare reform measures or prices of related products for which the government or third party reimbursement applies. Coverage and reimbursement by the government or a third party payor may depend upon a number of factors, including the payor’s determination that use of a product is:

The cycle for the Chinese government to update their reimbursement lists (national or provincial) is unpredictable and is beyond the control of companies.

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Obtaining coverage and reimbursement approval for a product from a government or other third party payor is a time consuming and costly process that could require us to provide supporting scientific, clinical and cost-effectiveness data for the use of our products to the payor, which we may not be able to provide. Furthermore, the reimbursement policies of third party payors may significantly change in a manner that renders our clinical data insufficient for adequate reimbursement or otherwise limits the successful marketing of our products. Even if we obtain coverage for our product candidates, third party payors may not establish adequate reimbursement amounts, which may reduce the demand for, or the price of, our products. If reimbursement is not available or is available only to limited levels, we may not be able to commercialize certain of our products.

Price controls may limit the price at which products such as roxadustat, if approved, are sold. For example, reference pricing is used by various EU member states and parallel distribution, or arbitrage between low-priced and high-priced member states, can further reduce prices. In some countries, we or our partner may be required to conduct a clinical trial or other studies that compare the cost-effectiveness of our product candidates to other available products in order to obtain or maintain reimbursement or pricing approval. Publication of discounts by third party payors or authorities may lead to further pressure on the prices or reimbursement levels within the country of publication and other countries. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unacceptable levels, we or our partner may elect not to commercialize our products in such countries, and our business and financial condition could be adversely affected.

Risks Related to Our Reliance on Third Parties

If our collaborations with Astellas or AstraZeneca were terminated, or if Astellas or AstraZeneca were to prioritize other initiatives over their collaborations with us, whether as a result of a change of control or otherwise, our ability to successfully develop and commercialize our lead product candidate, roxadustat, would suffer.

We have entered into collaboration agreements with respect to the development and commercialization of our lead product candidate, roxadustat, with Astellas and AstraZeneca. These agreements provide for reimbursement of our development costs by our collaboration partners and also provide for commercialization of roxadustat throughout the major territories of the world.

Our agreements with Astellas and AstraZeneca provide each of them with the right to terminate their respective agreements with us, upon the occurrence of negative clinical results, delays in the development and commercialization of our product candidates or adverse regulatory requirements or guidance. The termination of any of our collaboration agreements would require us to fund and perform the further development and commercialization of roxadustat in the affected territory, or pursue another collaboration, which we may be unable to do, either of which could have an adverse effect on our business and operations. In addition, each of those agreements provides our respective partners the right to terminate any of those agreements upon written notice for convenience. Moreover, if Astellas or AstraZeneca, or any successor entity, were to determine that their collaborations with us are no longer a strategic priority, or if either of them or a successor were to reduce their level of commitment to their collaborations with us, our ability to develop and commercialize roxadustat could suffer. In addition, some of our collaborations are exclusive and preclude us from entering into additional collaboration agreements with other parties in the area or field of exclusivity.

If we fail to establish and maintain strategic collaborations related to our product candidates, we will bear all of the risk and costs related to the development and commercialization of any such product candidate, and we may need to seek additional financing, hire additional employees and otherwise develop expertise at significant cost. This in turn may negatively affect the development of our other product candidates as we direct resources to our most advanced product candidates.

Conflicts with our collaboration partners could jeopardize our collaboration agreements and our ability to commercialize product candidates.

Our collaboration partners have certain rights to control decisions regarding the development and commercialization of our product candidates with respect to which they are providing funding. If we have a disagreement over strategy and activities, our plans for obtaining approval may be revised and negatively affect the anticipated timing and potential for success of our product candidates. Even if a product under a collaboration agreement is approved, we will remain substantially dependent on the commercialization strategy and efforts of our collaboration partners, and neither of our collaboration partners has experience in commercialization of a novel drug such as roxadustat in the dialysis market.

With respect to our collaboration agreements for roxadustat, there are additional complexities in that we and our collaboration partners, Astellas and AstraZeneca, must reach consensus on our Phase 3 development program. Multi-party decision-making is complex and involves significant time and effort, and there can be no assurance that the parties will cooperate or reach consensus, or that one or both of our partners will not ask to proceed independently in some or all of their respective territories or functional areas of responsibility in which the applicable collaboration partner would otherwise be obligated to cooperate with us. Any disputes or lack of cooperation with us by either Astellas or AstraZeneca may negatively impact the timing or success of our planned Phase 3 clinical studies.

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We intend to conduct proprietary research programs in specific disease areas that are not covered by our collaboration agreements. Our pursuit of such opportunities could, however, result in conflicts with our collaboration partners in the event that any of our collaboration partners takes the position that our internal activities overlap with those areas that are exclusive to our collaboration agreements, and we should be precluded from such internal activities. Moreover, disagreements with our collaboration partners could develop over rights to our intellectual property. In addition, our collaboration agreements may have provisions that give rise to disputes regarding the rights and obligations of the parties. Any conflict with our collaboration partners could lead to the termination of our collaboration agreements, delay collaborative activities, reduce our ability to renew agreements or obtain future collaboration agreements or result in litigation or arbitration and would negatively impact our relationship with existing collaboration partners.

Certain of our collaboration partners could also become our competitors in the future. If our collaboration partners develop competing products, fail to obtain necessary regulatory approvals, terminate their agreements with us prematurely or fail to devote sufficient resources to the development and commercialization of our product candidates, the development and commercialization of our product candidates and products could be delayed.

We rely on third parties for the conduct of most of our preclinical and clinical trials for our product candidates, and if our third party contractors do not properly and successfully perform their obligations under our agreements with them, we may not be able to obtain or may be delayed in receiving regulatory approvals for our product candidates.

We rely heavily on university, hospital, dialysis centers and other institutions and third parties, including the principal investigators and their staff, to carry out our clinical trials in accordance with our clinical protocols and designs. We also rely on a number of third party CROs to assist in undertaking, managing, monitoring and executing our ongoing clinical trials, including those for roxadustat. We expect to continue to rely on CROs, clinical data management organizations, medical institutions and clinical investigators to conduct our development efforts in the future, including our Phase 3 development program for roxadustat. We compete with many other companies for the resources of these third parties, and large pharmaceutical companies often have significantly more extensive agreements and relationships with such third party providers, and such third party providers may prioritize the requirements of such large pharmaceutical companies over ours. The third parties on whom we rely may terminate their engagements with us at any time, which may cause delay in the development and commercialization of our product candidates. If any such third party terminates its engagement with us or fails to perform as agreed, we may be required to enter into alternative arrangements, which would result in significant cost and delay to our product development program. Moreover, our agreements with such third parties generally do not provide assurances regarding employee turnover and availability, which may cause interruptions in the research on our product candidates by such third parties.

Moreover, while our reliance on these third parties for certain development and management activities will reduce our control over these activities, it will not relieve us of our responsibilities. For example, the FDA and foreign regulatory authorities require compliance with regulations and standards, including GCP requirements for designing, conducting, monitoring, recording, analyzing and reporting the results of clinical trials to ensure that the data and results from trials are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected. Although we rely on third parties to conduct our clinical trials, we, as the sponsor, remain responsible for ensuring that each of these clinical trials is conducted in accordance with its general investigational plan and protocol under legal and regulatory requirements, including GCP. Regulatory authorities enforce these GCP requirements through periodic inspections of trial sponsors, principal investigators and trial sites.

If any of our CROs, trial sites, principal investigators or other third parties fail to comply with applicable GCP requirements, other regulations, trial protocol or other requirements under their agreements with us, the quality or accuracy of the data they obtain may be compromised or unreliable, and the trials of our product candidates may not meet regulatory requirements. If trials do not meet regulatory requirements or if these third parties need to be replaced, the development of our product candidates may be delayed, suspended or terminated, regulatory authorities may require us to exclude the use of patient data from our approval applications or perform additional clinical trials before approving our marketing applications. Regulatory authorities may even reject our application for approval or refuse to accept our future applications for an extended time period. We cannot assure you that upon inspection by a regulatory authority, such regulatory authority will determine that any of our clinical trials comply with GCP requirements or that our results may be used in support of our regulatory submissions. If any of these events occur, we may not be able to obtain regulatory approval for our product candidates on a timely basis, at a reasonable cost, or at all.

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We currently rely, and expect to continue to rely, on third parties to conduct many aspects of our clinical studies and product manufacturing, and these third parties may not perform satisfactorily.

We do not have any operating manufacturing facilities at this time other than our roxadustat and FG-5200 manufacturing facility in China, and our current commercial manufacturing facility plans in China are not expected to satisfy the requirements necessary to support development and commercialization outside of China. Other than in and for China specifically, we do not expect to independently manufacture our products. We currently rely, and expect to continue to rely, on third parties to scale-up, manufacture and supply roxadustat and our other product candidates outside of China. Risks arising from our reliance on third party manufacturers include:

Any of these events could lead to development delays or failure to obtain regulatory approval, or affect our ability to successfully commercialize our product candidates. Some of these events could be the basis for action by the FDA or another regulatory authority, including injunction, recall, seizure or total or partial suspension of production.

The facilities used by our contract manufacturers to manufacture our product candidates must pass inspections by the FDA and other regulatory authorities. Although, except for China, we do not control the manufacturing operations of, and expect to remain completely dependent on, our contract manufacturers for manufacture of drug substance and finished drug product, we are ultimately responsible for ensuring that our product candidates are manufactured in compliance with cGMP requirements. If our contract manufacturers cannot successfully manufacture material that conforms to our or our collaboration partners’ specifications, or the regulatory requirements of the FDA or other regulatory authorities, we may not be able to secure and/or maintain regulatory approval for our product candidates and our development or commercialization plans may be delayed. In addition, we have no control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. In addition, although our longer-term agreements are expected to provide for requirements to meet our quantity and quality requirements to manufacture our products candidates for clinical studies and commercial sale, we will have minimal direct control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel and we expect to rely on our audit rights to ensure that those qualifications are maintained to meet our requirements. If our contract manufacturers’ facilities do not pass inspection by regulatory authorities, or if regulatory authorities do not approve these facilities for the manufacture of our products, or withdraw any such approval in the future, we would need to identify and qualify alternative manufacturing facilities, which would significantly impact our ability to develop, obtain regulatory approval for or market our products, if approved. Moreover, any failure of our third party manufacturers, to comply with applicable regulations could result in sanctions being imposed on us or adverse regulatory consequences, including clinical holds, warnings or untitled letters, fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of product candidates or products, operating restrictions and criminal prosecutions, any of which would be expected to significantly and adversely affect supplies of our products to us and our collaboration partners.

Any of our third party manufacturers may terminate their engagement with us at any time and we have not yet entered into any commercial supply agreements for the manufacture of active pharmaceutical ingredients (“APIs”) or drug products. With respect to roxadustat, AstraZeneca and Astellas have certain rights to assume manufacturing of roxadustat and the existence of those rights may limit our ability to enter into favorable long-term supply agreements, if at all, with other third party manufacturers. In addition, our product candidates and any products that we may develop may compete with other product candidates and products for access and prioritization to manufacture. Certain third party manufacturers may be contractually prohibited from manufacturing our product due to non-compete agreements with our competitors or a commitment to grant another party priority relative to our products. There are a limited number of third party manufacturers that operate under cGMP and that might be capable of manufacturing to meet our requirements. Due to the limited number of third party manufacturers with the contractual freedom, expertise, required regulatory approvals and facilities to manufacture our products on a commercial scale, identifying and qualifying a replacement third party manufacturer would be expensive and time-consuming and may cause delay or interruptions in the production of our product candidates or products, which in turn may delay, prevent or impair our development and commercialization efforts.

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We have a letter agreement with IRIX Pharmaceuticals, Inc. (“IRIX”), a third party manufacturer that we have used in the past, pursuant to which we agreed to negotiate a single source manufacturing agreement that included a right of first negotiation for the cGMP manufacture of HIF-PH inhibitors, including roxadustat, provided that IRIX is able to match any third party bids within 5%. The exclusive right to manufacture extends for five years after approval of an NDA for those compounds, and any agreement would provide that no minimum amounts would be specified until appropriate by forecast and that we and a commercialization partner would have the rights to contract with independent third parties that exceed IRIX’s internal manufacturing capabilities or in the event that we or our commercialization partner determines for reasons of continuity of supply and security that such a need exists, provided that IRIX would supply no less than 65% of the product if it is able to provide this level of supply. Subsequent to the letter agreement, we and IRIX have entered into several additional service agreements. IRIX has requested in writing that we honor the letter agreement with respect to the single source manufacturing agreement, and if we were to enter into any such exclusive manufacturing agreement, there can be no assurance that IRIX will not assert a claim for right to manufacture roxadustat or that IRIX could manufacture roxadustat successfully and in accordance with applicable regulations for a commercial product and the specifications of our collaboration partners. In 2015, Patheon Pharmaceuticals Inc., a business unit of DPx Holdings B.V. (“Patheon”), acquired IRIX, and in 2017 ThermoFisher Scientific Inc. acquired Patheon.

If any third party manufacturer terminates its engagement with us or fails to perform as agreed, we may be required to find replacement manufacturers, which would result in significant cost and delay to our development programs. Although we believe that there are several potential alternative manufacturers who could manufacture our product candidates, we may incur significant delays and added costs in identifying, qualifying and contracting with any such third party or potential second source manufacturer. In any event, with any third party manufacturer we expect to enter into technical transfer agreements and share our know-how with the third party manufacturer, which can be time-consuming and may result in delays. These delays could result in a suspension or delay of our Phase 3 clinical trials or, if roxadustat is approved and marketed, a failure to satisfy patient demand.

Certain of the components of our product candidates are acquired from single-source suppliers and have been purchased without long-term supply agreements. The loss of any of these suppliers, or their failure to supply us with supplies of sufficient quantity and quality to complete our drug substance or finished drug product of acceptable quality and an acceptable price, would materially and adversely affect our business.

We do not have an alternative supplier of certain components of our product candidates. To date, we have used purchase orders for the supply of materials that we use in our product candidates. We may be unable to enter into long-term commercial supply arrangements with our vendors, or do so on commercially reasonable terms, which could have a material adverse impact upon our business. In addition, we currently rely on our contract manufacturers to purchase from third-party suppliers some of the materials necessary to produce our product candidates. We do not have direct control over the acquisition of those materials by our contract manufacturers. Moreover, we currently do not have any agreements for the commercial production of those materials.

The logistics of our supply chain, which include shipment of materials and intermediates from countries such as China and India add additional time and risk to the manufacture of our product candidates. While we have in the past maintained sufficient inventory of materials, API, and drug product to meet our and our collaboration partners’ needs for roxadustat to date, the lead time and regulatory approvals required to source from and into countries outside of the U.S. increase the risk of delay and potential shortages of supply.

Risks Related to Our Intellectual Property

If our efforts to protect our proprietary technologies are not adequate, we may not be able to compete effectively in our market.

We rely upon a combination of patents, trade secret protection and contractual arrangements to protect the intellectual property related to our technologies. We will only be able to protect our products and proprietary information and technology by preventing unauthorized use by third parties to the extent that our patents, trade secrets, and contractual position allow us to do so. Any disclosure to or misappropriation by third parties of our trade secrets or confidential information could compromise our competitive position. Moreover, we are involved in, have in the past been involved in, and may in the future be involved in legal or administrative proceedings involving our intellectual property initiated by third parties, and which proceedings can result in significant costs and commitment of management time and attention. As our product candidates continue in development, third parties may attempt to challenge the validity and enforceability of our patents and proprietary information and technologies.

We also are involved in, have in the past been involved in, and may in the future be involved in initiating legal or administrative proceedings involving the product candidates and intellectual property of our competitors. These proceedings can result in significant costs and commitment of management time and attention, and there can be no assurance that our efforts would be successful in preventing or limiting the ability of our competitors to market competing products.

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Composition-of-matter patents relating to the API are generally considered to be the strongest form of intellectual property protection for pharmaceutical products, as such patents provide protection not limited to any one method of use. Method-of-use patents protect the use of a product for the specified method(s), and do not prevent a competitor from making and marketing a product that is identical to our product for an indication that is outside the scope of the patented method. We rely on a combination of these and other types of patents to protect our product candidates, and there can be no assurance that our intellectual property will create and sustain the competitive position of our product candidates.

Biotechnology and pharmaceutical product patents involve highly complex legal and scientific questions and can be uncertain. Any patent applications that we own or license may fail to result in issued patents. Even if patents do successfully issue from our applications, third parties may challenge their validity or enforceability, which may result in such patents being narrowed, invalidated, or held unenforceable. Even if our patents and patent applications are not challenged by third parties, those patents and patent applications may not prevent others from designing around our claims and may not otherwise adequately protect our product candidates. If the breadth or strength of protection provided by the patents and patent applications we hold with respect to our product candidates is threatened, competitors with significantly greater resources could threaten our ability to commercialize our product candidates. Discoveries are generally published in the scientific literature well after their actual development, and patent applications in the U.S. and other countries are typically not published until 18 months after their filing, and in some cases are never published. Therefore, we cannot be certain that we or our licensors were the first to make the inventions claimed in our owned and licensed patents or patent applications, or that we or our licensors were the first to file for patent protection covering such inventions. Subject to meeting other requirements for patentability, for U.S. patent applications filed prior to March 16, 2013, the first to invent the claimed invention is entitled to receive patent protection for that invention while, outside the U.S., the first to file a patent application encompassing the invention is entitled to patent protection for the invention. The U.S. moved to a “first to file” system under the Leahy-Smith America Invents Act (“AIA”), effective March 16, 2013. This system also includes procedures for challenging issued patents and pending patent applications, which creates additional uncertainty. We may become involved in opposition or interference proceedings challenging our patents and patent applications or the patents and patent applications of others, and the outcome of any such proceedings are highly uncertain. An unfavorable outcome in any such proceedings could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our technology and compete directly with us, or result in our inability to manufacture, develop or commercialize our product candidates without infringing the patent rights of others.

In addition to the protection afforded by patents, we seek to rely on trade secret protection and confidentiality agreements to protect proprietary know-how, information, or technology that is not covered by our patents. Although our agreements require all of our employees to assign their inventions to us, and we require all of our employees, consultants, advisors and any third parties who have access to our trade secrets, proprietary know-how and other confidential information and technology to enter into appropriate confidentiality agreements, we cannot be certain that our trade secrets, proprietary know-how and other confidential information and technology will not be subject to unauthorized disclosure or that our competitors will not otherwise gain access to or independently develop substantially equivalent trade secrets, proprietary know-how and other information and technology. Furthermore, the laws of some foreign countries, in particular, China, where we have operations, do not protect proprietary rights to the same extent or in the same manner as the laws of the U.S. As a result, we may encounter significant problems in protecting and defending our intellectual property globally. If we are unable to prevent unauthorized disclosure of our intellectual property related to our product candidates and technology to third parties, we may not be able to establish or maintain a competitive advantage in our market, which could materially adversely affect our business and operations.

Intellectual property disputes with third parties and competitors may be costly and time consuming, and may negatively affect our competitive position.

Our commercial success may depend on our avoiding infringement of the patents and other proprietary rights of third parties as well as on enforcing our patents and other proprietary rights against third parties. Pharmaceutical and biotechnology intellectual property disputes are characterized by complex, lengthy and expensive litigation over patents and other intellectual property rights. We may initiate or become party to, or be threatened with, future litigation or other proceedings regarding intellectual property rights with respect to our product candidates and competing products.

As our product candidates progress toward commercialization, we or our collaboration partners may be subject to patent infringement claims from third parties. We attempt to ensure that our product candidates do not infringe third party patents and other proprietary rights. However, the patent landscape in competitive product areas is highly complex, and there may be patents of third parties of which we are unaware that may result in claims of infringement. Accordingly, there can be no assurance that our product candidates do not infringe proprietary rights of third parties, and parties making claims against us may seek and obtain injunctive or other equitable relief, which could potentially block further efforts to develop and commercialize our product candidates including roxadustat or pamrevlumab. Any litigation involving defense against claims of infringement, regardless of the merit of such claims, would involve substantial litigation expense and would be a substantial diversion of management time.

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We intend, if necessary, to vigorously enforce our intellectual property in order to protect the proprietary position of our product candidates, including roxadustat and pamrevlumab. Active efforts to enforce our patents may include litigation, administrative proceedings, or both, depending on the potential benefits that might be available from those actions and the costs associated with undertaking those efforts against third parties. We carefully review and monitor publicly available information regarding products that may be competitive with our product candidates and assert our intellectual property rights where appropriate. We previously prevailed in an administrative challenge initiated by a major biopharmaceutical company regarding our intellectual property rights, maintaining our intellectual property in all relevant scope, and will continue to protect and enforce our intellectual property rights. Moreover, third parties may continue to initiate new proceedings in the U.S. and foreign jurisdictions to challenge our patents from time to time.

We may consider administrative proceedings and other means for challenging third party patents and patent applications. Third parties may also challenge our patents and patent applications, through interference, reexamination, IPR, and post-grant review proceedings before the U.S. Patent and Trademark Office (“USPTO”) or through other comparable proceedings, such as oppositions or invalidation proceedings, before foreign patent offices. An unfavorable outcome in any such challenge could require us to cease using the related technology and to attempt to license rights to it from the prevailing third party, which may not be available on commercially reasonable terms, if at all, in which case our business could be harmed. Even if we are successful, participation in administrative proceedings before the USPTO or a foreign patent office may result in substantial costs and time on the part of our management and other employees. For example, oppositions have been filed against four FibroGen European patents (European Patent Nos. 1463823, 1633333, 2322155, and 2322153) within our HIF Anemia-related Technologies Patent Portfolio.

Furthermore, there is a risk that any public announcements concerning the status or outcomes of intellectual property litigation or administrative proceedings may adversely affect the price of our stock. If securities analysts or our investors interpret such status or outcomes as negative or otherwise creating uncertainty, our common stock price may be adversely affected.

Our reliance on third parties and agreements with collaboration partners requires us to share our trade secrets, which increases the possibility that a competitor may discover them or that our trade secrets will be misappropriated or disclosed.

Our reliance on third party contractors to develop and manufacture our product candidates is based upon agreements that limit the rights of the third parties to use or disclose our confidential information, including our trade secrets and know-how. Despite the contractual provisions, the need to share trade secrets and other confidential information increases the risk that such trade secrets and information are disclosed or used, even if unintentionally, in violation of these agreements. In the highly competitive markets in which our product candidates are expected to compete, protecting our trade secrets, including our strategies for addressing competing products, is imperative, and any unauthorized use or disclosure could impair our competitive position and may have a material adverse effect on our business and operations.

In addition, our collaboration partners are larger, more complex organizations than ours, and the risk of inadvertent disclosure of our proprietary information may be increased despite their internal procedures and contractual obligations in place with our collaboration partners. Despite our efforts to protect our trade secrets and other confidential information, a competitor’s discovery of such trade secrets and information could impair our competitive position and have an adverse impact on our business.

We have an extensive worldwide patent portfolio. The cost of maintaining our patent protection is high and maintaining our patent protection requires continuous review and compliance in order to maintain worldwide patent protection. We may not be able to effectively maintain our intellectual property position throughout the major markets of the world.

The USPTO and foreign patent authorities require maintenance fees and payments as well as continued compliance with a number of procedural and documentary requirements. Noncompliance may result in abandonment or lapse of the subject patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance may result in reduced royalty payments for lack of patent coverage in a particular jurisdiction from our collaboration partners or may result in competition, either of which could have a material adverse effect on our business.

We have made, and will continue to make, certain strategic decisions in balancing costs and the potential protection afforded by the patent laws of certain countries. As a result, we may not be able to prevent third parties from practicing our inventions in all countries throughout the world, or from selling or importing products made using our inventions in and into the U.S. or other countries. Third parties may use our technologies in territories in which we have not obtained patent protection to develop their own products and, further, may infringe our patents in territories which provide inadequate enforcement mechanisms, even if we have patent protection. Such third party products may compete with our product candidates, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.

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The laws of some foreign countries do not protect proprietary rights to the same extent as do the laws of the U.S., and we may encounter significant problems in securing and defending our intellectual property rights outside the U.S.

Many companies have encountered significant problems in protecting and defending intellectual property rights in certain countries. The legal systems of certain countries, particularly certain developing countries such as China, do not always favor the enforcement of patents, trade secrets, and other intellectual property rights, particularly those relating to pharmaceutical and biotechnology products, which could make it difficult for us to stop infringement of our patents, misappropriation of our trade secrets, or marketing of competing products in violation of our proprietary rights. In China, our intended establishment of significant operations will depend in substantial part on our ability to effectively enforce our intellectual property rights in that country. Proceedings to enforce our intellectual property rights in foreign countries could result in substantial costs and divert our efforts and attention from other aspects of our business, and could put our patents in these territories at risk of being invalidated or interpreted narrowly, or our patent applications at risk of not being granted, and could provoke third parties to assert claims against us. We may not prevail in all legal or other proceedings that we may initiate and, if we were to prevail, the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.

Intellectual property rights do not address all potential threats to any competitive advantage we may have.

The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and intellectual property rights may not adequately protect our business or permit us to maintain our competitive advantage. The following examples are illustrative:

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The existence of counterfeit pharmaceutical products in pharmaceutical markets may compromise our brand and reputation and have a material adverse effect on our business, operations and prospects.

Counterfeit products, including counterfeit pharmaceutical products, are a significant problem, particularly in China. Counterfeit pharmaceuticals are products sold or used for research under the same or similar names, or similar mechanism of action or product class, but which are sold without proper licenses or approvals. Such products may be used for indications or purposes that are not recommended or approved or for which there is no data or inadequate data with regard to safety or efficacy. Such products divert sales from genuine products, often are of lower cost, often are of lower quality (having different ingredients or formulations, for example), and have the potential to damage the reputation for quality and effectiveness of the genuine product. If counterfeit pharmaceuticals illegally sold or used for research result in adverse events or side effects to consumers, we may be associated with any negative publicity resulting from such incidents. Consumers may buy counterfeit pharmaceuticals that are in direct competition with our pharmaceuticals, which could have an adverse impact on our revenues, business and results of operations. In addition, the use of counterfeit products could be used in non-clinical or clinical studies, or could otherwise produce undesirable side effects or adverse events that may be attributed to our products as well, which could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in the delay or denial of regulatory approval by the FDA or other regulatory authorities and potential product liability claims. With respect to China, although the government has recently been increasingly active in policing counterfeit pharmaceuticals, there is not yet an effective counterfeit pharmaceutical regulation control and enforcement system in China. As a result, we may not be able to prevent third parties from selling or purporting to sell our products in China. The proliferation of counterfeit pharmaceuticals has grown in recent years and may continue to grow in the future. The existence of and any increase in the sales and production of counterfeit pharmaceuticals, or the technological capabilities of counterfeiters, could negatively impact our revenues, brand reputation, business and results of operations.

Risks Related to Government Regulation

The regulatory approval process is highly uncertain and we may not obtain regulatory approval for the commercialization of our product candidates.

The time required to obtain approval by the FDA and comparable foreign regulatory authorities is unpredictable, but typically takes many years following the commencement of preclinical studies and clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions. We have not obtained regulatory approval for any product candidate, and it is possible that neither roxadustat nor pamrevlumab, nor any future product candidates we may discover, in-license or acquire and seek to develop in the future, will ever obtain regulatory approval.

Our product candidates could fail to receive regulatory approval from the FDA or other regulatory authorities for many reasons, including:

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The FDA or other regulatory authorities may require more information, including additional preclinical or clinical data to support approval, which may delay or prevent approval and our commercialization plans, or we may decide to abandon the development program altogether. Even if we do obtain regulatory approval, our product candidates may be approved for fewer or more limited indications than we request, approval may be contingent on the performance of costly post-marketing clinical trials, or approval may require labeling that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate. In addition, if our product candidates produce undesirable side effects or safety issues, the FDA may require the establishment of REMS or other regulatory authorities may require the establishment of a similar strategy, that may, restrict distribution of our approved products, if any, and impose burdensome implementation requirements on us. Any of the foregoing scenarios could materially harm the commercial prospects for our product candidates.

Even if we believe our current or planned clinical trials are successful, regulatory authorities may not agree that our completed clinical trials provide adequate data on safety or efficacy. Approval by one regulatory authority does not ensure approval by any other regulatory authority. However, a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in others. We may not be able to file for regulatory approvals and even if we file we may not receive the necessary approvals to commercialize our product candidates in any market.

If our product candidates obtain marketing approval, we will be subject to more extensive healthcare laws, regulation and enforcement and our failure to comply with those laws could have a material adverse effect on our results of operations and financial condition.

If we obtain approval for any of our product candidates, the regulatory requirements applicable to our operations, in particular our sales and marketing efforts, will increase significantly with respect to our operations and the potential for civil and criminal enforcement by the federal government and the states and foreign governments will increase with respect to the conduct of our business. The laws that may affect our operations in the U.S. include:

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The scope of these laws and our lack of experience in establishing the compliance programs necessary to comply with this complex and evolving regulatory environment increases the risks that we may violate the applicable laws and regulations. If our operations are found to be in violation of any of such laws or any other governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, the curtailment or restructuring of our operations, the exclusion from participation in federal and state healthcare programs and imprisonment, any of which could materially adversely affect our ability to operate our business and our financial results.

The impact of recent U.S. healthcare reform, its potential partial or full repeal, and other changes in the healthcare industry and in healthcare spending is currently unknown, and may adversely affect our business model.

The commercial potential for our approved products, if any, could be affected by changes in healthcare spending and policy in the U.S. and abroad. We operate in a highly regulated industry and new laws, regulations or judicial decisions, or new interpretations of existing laws, regulations or decisions, related to healthcare availability, the method of delivery or payment for healthcare products and services could negatively impact our business, operations and financial condition.

In the U.S., the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (“MMA”) altered Medicare coverage and payments for pharmaceutical products. The legislation expanded Medicare coverage for drug purchases by the elderly and introduced a new reimbursement methodology based on average sales prices for physician-administered drugs. The MMA also provided authority for limiting the number of drugs that will be covered in any therapeutic class and as a result, we expect that there will be additional pressure to reduce costs. For example, the CMS in implementing the MMA has enacted regulations that reduced capitated payments to dialysis providers. These cost reduction initiatives and other provisions of the MMA could decrease the scope of coverage and the price that may be received for any approved dialysis products and could seriously harm our business and financial condition. While the MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policies and payment limitations in setting their own reimbursement rates, and any reduction in reimbursement that results from the MMA may cause a similar reduction in payments from private payors. Similar regulations or reimbursement policies have been enacted in many international markets which could similarly impact the commercial potential for our products.

Under the Medicare Improvements for Patients and Providers Act (“MIPPA”), a basic case-mix adjusted composite, or bundled, payment system commenced in January 2011 and transitioned fully by January 2014 to a single reimbursement rate for drugs and all services furnished by renal dialysis centers for Medicare beneficiaries with end-stage renal disease. Specifically, under MIPPA the bundle now covers drugs, services, lab tests and supplies under a single treatment base rate for reimbursement by the Centers for Medicare and Medicaid Services (“CMS”) based on the average cost per treatment, including the cost of ESAs and IV iron doses, typically without adjustment for usage. It is unknown whether roxadustat, if approved, will be included in the payment bundle. Under MIPPA, agents that have no IV equivalent in the bundle are currently expected to be excluded from the bundle until 2025. If roxadustat were included in the bundle, it may reduce the price that could be charged for roxadustat, and therefore potentially limit our profitability. Based on roxadustat’s differentiated mechanism of action and therapeutic effects, and discussions with our collaboration partner, we currently believe that roxadustat might not be included in the bundle. If roxadustat is reimbursed outside of the bundle, it may potentially limit or delay market penetration of roxadustat.

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More recently, the PPACA was enacted in 2010 with a goal of reducing the cost of healthcare and substantially changing the way healthcare is financed by both government and private insurers. The PPACA, among other things, increases the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extends the rebate program to individuals enrolled in Medicaid managed care organizations, establishes annual fees and taxes on manufacturers of certain branded prescription drugs, and creates a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D. In addition, other legislative changes have been proposed and adopted in the U.S. since the PPACA was enacted. On August 2, 2011, the Budget Control Act of 2011 created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions of Medicare payments to providers of up to 2% per fiscal year, which went into effect on April 1, 2013.

It is likely that federal and state legislatures within the U.S. and foreign governments will continue to consider changes to existing healthcare legislation. We cannot predict the reform initiatives that may be adopted in the future or whether initiatives that have been adopted will be repealed or modified. The continuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to contain or reduce costs of healthcare may adversely affect:

Some of the provisions of the PPACA have yet to be fully implemented, while certain provisions have been subject to judicial and Congressional challenges. In January 2017, Congress voted to adopt a budget resolution for fiscal year 2017, that while not a law, is widely viewed as the first step toward the passage of legislation that would repeal certain aspects of the PPACA. Further, on January 20, 2017, President Trump signed an Executive Order directing federal agencies with authorities and responsibilities under the Affordable Care Act to waive, defer, grant exemptions from, or delay the implementation of any provision of the Affordable Care Act that would impose a fiscal burden on states or a cost, fee, tax, penalty or regulatory burden on individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. Congress also could consider subsequent legislation to replace elements of the Affordable Care Act that are repealed. Given these possibilities and others we may not anticipate, the full extent to which our business, results of operations and financial condition could be adversely affected by the recent proposed legislation and the Executive Order is uncertain. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our drugs.

Furthermore, legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We cannot be sure whether additional legislative changes will be enacted, or whether FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the regulatory approvals of our product candidates, if any, may be. In addition, increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay or prevent regulatory approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements.

We may not be able to conduct, or contract others to conduct, animal testing in the future, which could harm our research and development activities.

Certain laws and regulations relating to drug development require us to test our product candidates on animals before initiating clinical trials involving humans. Animal testing activities have been the subject of controversy and adverse publicity. Animal rights groups and other organizations and individuals have attempted to stop animal testing activities by pressing for legislation and regulation in these areas and by disrupting these activities through protests and other means. To the extent the activities of these groups are successful, our research and development activities may be interrupted or delayed.

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Our employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could result in significant liability for us and harm our reputation.

We are exposed to the risk of employee fraud or other misconduct, including intentional failure to:

Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions, delays in clinical trials, or serious harm to our reputation. We have adopted a code of conduct for our directors, officers and employees, but it is not always possible to identify and deter employee misconduct. The precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could harm our business, results of operations, financial condition and cash flows, including through the imposition of significant fines or other sanctions.

If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could harm our business.

We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable materials, including chemicals and biological materials. Our operations also produce hazardous waste products. We contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties for failure to comply with such laws and regulations. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us in connection with our storage or disposal of biological, hazardous or radioactive materials.

In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations applicable to our operations in the U.S. and foreign countries. These current or future laws and regulations may impair our research, development or manufacturing efforts. Our failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.

Risks Related to Our International Operations

We are establishing international operations and seeking approval to commercialize our product candidates outside of the U.S., in particular in China, and a number of risks associated with international operations could materially and adversely affect our business.

We expect to be subject to a number of risks related with our international operations, many of which may be beyond our control. These risks include:

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The pharmaceutical industry in China is highly regulated and such regulations are subject to change.

The pharmaceutical industry in China is subject to comprehensive government regulation and supervision, encompassing the approval, registration, manufacturing, packaging, licensing and marketing of new drugs. Refer to “Business — Government Regulation — Regulation in China” for a discussion of the regulatory requirements that are applicable to our current and planned business activities in China. In recent years, the regulatory framework in China regarding the pharmaceutical industry has undergone significant changes, and we expect that it will continue to undergo significant changes. Any such changes or amendments may result in increased compliance costs on our business or cause delays in or prevent the successful development or commercialization of our product candidates in China. Chinese authorities have become increasingly vigilant in enforcing laws in the pharmaceutical industry, in some cases launching industry-wide investigations, oftentimes appearing to focus on foreign companies. The costs and time necessary to respond to an investigation can be material. Any failure by us or our partners to maintain compliance with applicable laws and regulations or obtain and maintain required licenses and permits may result in the suspension or termination of our business activities in China.

Patients’ use of traditional Chinese medicine in violation of study protocols in our China studies may lead the CFDA and regulators in other jurisdictions in which we are seeking approval to suspend our studies, reject our study data and withhold approval for roxadustat.

A common issue encountered in conducting clinical studies in China is patients’ use of traditional Chinese medicine in violation of study protocols. We believe that many patients with anemia in CKD are currently being treated with traditional Chinese medicine, and it is possible that such patients may continue their use of traditional Chinese medicine after enrollment in our studies and in violation of study protocols. If the patients participating in our China clinical studies do not comply with study protocols and continue to use traditional Chinese medicine, adverse events may emerge in our studies that are due to such traditional Chinese medicine or the interaction between such traditional Chinese medicine and roxadustat. In addition, the use of traditional Chinese medicine by patients in our studies may confound our study results. The occurrence of such adverse events or the confounding of our study results may lead the CFDA and regulators in other jurisdictions in which we are seeking approval to, among other things, suspend our studies, reject our study data and withhold approval for roxadustat.

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We are planning on using our own manufacturing facilities in China to produce roxadustat drug product, roxadustat API, and FG-5200 corneal implants. As an organization, we have limited experience in the construction, licensure, or operation of a manufacturing plant, and, accordingly we cannot assure you we will be able to meet regulatory requirements to operate our plant and to sell our products.

In 2014, we received a Pharmaceutical Production Permit (“PPP”) for our facility in Beijing, and are currently building a manufacturing facility in Cangzhou, Hebei, in which we intend to manufacture roxadustat API for commercial use. The PPP allowed us to produce the NDA registration campaign of roxadustat in the Beijing facility according to cGMP. However, we will not receive a license for commercial manufacture of roxadustat in either facility until after NDA approval. For Cangzhou, we will first need to obtain a PPP and secure manufacturing site change approval. As an organization, we have limited experience building and licensing manufacturing facilities which must be constructed, licensed and operated in conformity with applicable cGMP, building and other requirements. There can be no assurance that we will be successful or timely in receiving licensure in Cangzhou or Beijing, either of which would be expected to delay or preclude our ability to develop and commercialize roxadustat in China and may materially adversely affect our business and operations and prospects in China.

We will be obligated to comply with continuing cGMP requirements and there can be no assurance that we will receive and maintain all of the appropriate licenses required to manufacture our product candidates for clinical and commercial use in China. In addition, we and our product suppliers must continually spend time, money and effort in production, record-keeping and quality assurance and appropriate controls in order to ensure that any products manufactured in our facilities meet applicable specifications and other requirements for product safety, efficacy and quality and there can be no assurance that our efforts will succeed for licensure or continue to be successful in meeting these requirements.

We would require separate approval for the manufacture of FG-5200. In addition, we may convert our existing manufacturing process of FG-5200 to a semi-automated process which may require us to show that implants from our new manufacturing process are comparable to the implants from our existing manufacturing process. There can be no assurance that we will successfully receive licensure and maintain approval for the manufacture of FG-5200, either of which would be expected to delay or preclude our ability to develop FG-5200 in China and may materially adversely affect our business and operations and prospects in China.

Manufacturing facilities in China are subject to periodic unannounced inspections by the CFDA and other regulatory authorities. We expect to depend on these facilities for our product candidates and business operations in China. Natural disasters or other unanticipated catastrophic events, including power interruptions, water shortages, storms, fires, earthquakes, terrorist attacks, government appropriation of our facilities, and wars, could significantly impair our ability to operate our manufacturing facilities. Certain equipment, records and other materials located in these facilities would be difficult to replace or would require substantial replacement lead time that would impact our ability to successfully commercialize our product candidates in China. The occurrence of any such event could materially and adversely affect our business, financial condition, results of operations, cash flows and prospects.

Our decision to seek approval in China for roxadustat prior to approval in the U.S. or Europe is largely unprecedented and could be subject to significant risk, delay and expense.

Our subsidiary FibroGen (China) Medical Technology Development Co., Ltd. (“FibroGen Beijing”), is currently seeking approval for roxadustat in China as a Domestic Class 1 Drug, which we believe, if approved, would be the first CFDA approval of a first in class drug candidate while Phase 3 trials are ongoing in the U.S. and Europe. Because of this largely novel regulatory pathway, the CFDA approval process may take longer than we currently expect, or the CFDA may require us to submit additional data including data from the U.S. or European Phase 3 trials. In addition, negative data from the U.S. or European Phase 3 trials could impact the CFDA approval process. Any such development delays would result in significant delay in our commercialization plans for roxadustat in China. Elements of our plan for approval of roxadustat and other product candidates in China are based on communications with the CFDA, some of which are not reflected in formal written communications, regulations, findings or determinations. Accordingly, while we believe we have understandings with the CFDA regarding the domestic drug approval process and the clinical and manufacturing (including bio-equivalency) data currently required for approval and the timing and process of a potential approval, the regulatory authorities may later determine that changes are required in the drug approval process, or that additional or different clinical or manufacturing data must be generated, any of which could significantly delay approval of roxadustat or any of our other product candidates, and materially and adversely affect our plans and operations in China. It is possible that other unforeseen delays in the China regulatory process could have a material adverse effect on our development and commercialization of roxadustat in China.

For example, prior to enrolling our Phase 3 studies, the Ministry of Science and Technology established a new approval process to obtain routine blood and urine samples that contain genetic information. Our Phase 3 CKD clinical trial sites have received such approval, but applications are reviewed only on a quarterly basis, thus new studies or work at additional clinical trial sites could be delayed until they receive such approval.

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In addition, there are new and evolving environmental and manufacturing regulations in China. The application thereof may impact our API manufacturing location or strategy. In order to prevent or mitigate any delay in commercialization, we are establishing a 5,500 square meter commercial API manufacturing facility in Cangzhou, Hebei, with the intention of being operational shortly after NDA approval. We have limited experience building and licensing manufacturing facilities which must be constructed, licensed and operated in conformity with applicable cGMP, building and other requirements. Any delays related to these regulations or our new manufacturing facility could adversely affect the cost timing of our commercialization in China.

In May 2016, China announced implementation of a three-year pilot program for the Marketing Authorization Holder System (“MAH”) in certain piloted regions. We have applied to participate in this program, and if accepted, we may be able to outsource drug product or API manufacturing to third parties. However, we cannot know if we will be accepted into the MAH program, or how long such program will be available.

Even if roxadustat is approved in China, we and our collaboration partner in China, AstraZeneca, may experience difficulties in successfully generating sales of roxadustat in China.

We and AstraZeneca have a profit sharing arrangement with respect to roxadustat in China. Even if roxadustat is approved for sale in China, we and AstraZeneca may experience difficulties in our marketing, commercialization and sales efforts in China, and our business and operations could be adversely affected. In particular, sales of roxadustat in China may be limited due to the complex nature of the healthcare system, low average personal income, lack of patient cost reimbursement, pricing controls, poorly developed infrastructure and potentially rapid competition from other products.

The market for treatments of anemia in CKD in China is highly competitive.

Even if roxadustat is approved in China, it will face intense competition in the market for treatments of anemia in CKD. Roxadustat would compete with ESAs, which are offered by established multinational pharmaceutical companies such as Kyowa Hakko Kirin China Pharmaceutical Co., Ltd. and Roche and Chinese pharmaceutical companies such as 3SBio Inc. and Di’ao Group Chengdu Diao Jiuhong Pharmaceutical Factory. Many of these competitors have substantially greater name recognition, scientific, financial and marketing resources as well as established distribution capabilities than we do. Many of our competitors have more resources to develop or acquire, and more experience in developing or acquiring, new products and in creating market awareness for those products. Many of these competitors have significantly more experience than we have in navigating the Chinese regulatory framework regarding the development, manufacturing and marketing of drugs in China, as well as in marketing and selling anemia products in China. Additionally, we believe that most patients with anemia in CKD in China are currently being treated with traditional Chinese medicine, which is widely accepted and highly prevalent in China. Traditional Chinese medicine treatments are often oral and thus convenient and low-cost, and practitioners of traditional Chinese medicine are numerous and accessible in China. As a result, it may be difficult to persuade patients with anemia in CKD to switch from traditional Chinese medicine to roxadustat.

The Chinese government is implementing a new “Two Invoices” regulation which could impact the way we structure our distributorship relationships for roxadustat in China.

The Chinese government is expected to implement a regulation for implementation in the 31 Chinese provinces. Although we expect interpretation to vary the impact of this regulation across provinces, there may be a negative impact on our current distribution plans. For example, if the new policy is implemented in its entirety as proposed, and adhered to strictly by a local province, the restrictions on pricing and invoicing and how pharmaceutical product distribution compensation in China is implemented might negatively affect the structure of the FibroGen-AstraZeneca commercial distribution plan by imposing higher costs or slowing our ability under the agreement to sell products to our principal customers. Any change in distribution would be expected to have an adverse impact on the cost of delivery of product to the end user customer, potentially raising cost of operations through the chain of distribution and potentially delaying launch or initial sales. Although we have time to prepare to some degree in advance of our commercial launch, we may not have sufficient visibility and understanding of the implementation across some or all of the various provinces, the result of which may be a delay in the planned distribution efforts and near-term potential for sales growth in China for roxadustat as we and our distribution partners understand and adjust our distribution plans in response to the new regulation.

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There is no assurance that roxadustat will be included in the Medical Insurance Catalogs.

Eligible participants in the national basic medical insurance program in China, which consists of mostly urban residents, are entitled to reimbursement from the social medical insurance fund for up to the entire cost of medicines that are included in the Medical Insurance Catalogs. Refer to “Business — Government Regulation — Regulation in China.” We believe that the inclusion of a drug in the Medical Insurance Catalogs can substantially improve the sales of a drug. The Ministry of Labor and Social Security in China (“MLSS”) together with other government authorities, select medicines to be included in the Medical Insurance Catalogs based on a variety of factors, including treatment requirements, frequency of use, effectiveness and price. The MLSS also occasionally removes medicines from such catalogs. There can be no assurance that roxadustat will be included, and once included, remain in the Medical Insurance Catalogs. The exclusion or removal of roxadustat from the Medical Insurance Catalogs may materially and adversely affect sales of roxadustat.

We may not be successful in the tender processes for the purchase of medicines by state-owned and state-controlled hospitals.

Most hospitals in China participate in collective tender processes for the purchase of medicines listed in the Medical Insurance Catalogs and medicines that are consumed in large volumes and commonly prescribed for clinical uses. During a collective tender process, the hospitals will establish a committee consisting of recognized pharmaceutical experts. The committee will assess the bids submitted by the various participating pharmaceutical manufacturers, taking into consideration, among other things, the quality and price of the drug product and the service and reputation of the manufacturer. Only drug products that have been selected in the collective tender processes may be purchased by participating hospitals. If we are unable to win purchase contracts through the collective tender processes in which we decide to participate, there will be limited demand for roxadustat, and sales revenues from roxadustat will be materially and adversely affected.