FibroGen Inc (FGEN) 2015 Q3 法說會逐字稿

Welcome to the FibroGen Quarter three 2015 Conference Call. My name is [Katie], and I will be your operator for today's call. (Operator Instructions) Please note that this conference is being recorded.

I will now turn the call over to Greg Mann, Executive Director of Investor Relations. Mr. Mann, you may begin.

Thank you, operator. Good afternoon, and thank you all for joining our call. On this call, we expect to make forward-looking statements regarding our business, including our collaborations with AstraZeneca and Astellas, financial guidance, the initiation enrollment, design conduct and results of clinical trials, research and development activities and certain other statements regarding the future of our business.

Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes that are difficult to predict, and many of which are outside of our control. We refer you to the Risk Factors section of our annual report on Form 10-K for the year ended December 31, 2014, our quarterly reports on Form 10-Q for the quarters ended March 31, 2015, and June 30, 2015, and our quarterly report on Form 10-Q for the quarter ended September 30, 2015, each of which has been filed with the SEC for risks and uncertainties regarding our business as well as the statements made on the call today. We undertake no obligation to update any forward-looking statement whether as a result of new information, future developments or otherwise.

A webcast of this conference call will be available for replay on the Investor Relations page at FibroGen's website www.fibrogen.com.

I'll now hand the call over to Tom Neff, Chief Executive Officer of FibroGen.

Thank you, Greg. Good afternoon. Thank you for joining us today. On today's call, we will review key updates in our programs, discuss recent accomplishments and highlight our most important near-term and longer-term goals.

Joining me for this discussion are Dr. Peony Yu, VP of Clinical Development; Dr. Frank Valone, Chief Medical Officer; and Pat Cotroneo, Chief Financial Officer.

Let me begin with comments on FibroGen's progress enrolling patients in our Phase III roxadustat studies and results of the latest roxadustat DSMB or data safety review.

As we announced in our press release and 10-Q this afternoon, our roxadustat time lines remain on track. We continue to expect to file regulatory submissions for roxadustat in 2016 for China and 2018 for the U.S. We and our partners, AstraZeneca and Astellas, are conducting a total of seven Phase III trials for registration in the U.S., EU and other territories. FibroGen is conducting three of these seven trials.

As stated in our last call to shareholders, the working assumption agreed with AstraZeneca was that FibroGen would meet target enrollment for its trials enrolled by March/April '16 as a base goal with a stretch goal of December 2015. We confirm our prior guidance in that one trial is meeting target enrollment within the stretch goal. Another trial will hit target between stretch and base goals, and we expect the third trial to hit the agreed-upon target of the base goal.

Last quarter, we said that on a combined basis, the three Phase III trials were 2/3 enrolled. Now they are more than 80% enrolled. An independent data safety monitoring board, or DSMB, is overseeing all of the roxadustat Phase III studies and convenes periodically to review the roxadustat safety data. During its October 2015 review, the DSMB held a face-to-face meeting pursuant to its charter. We received the required communication that day from the DSMB which directed us to proceed with current Phase III protocols without modification. Dr. Peony Yu will provide additional detail on the U.S./RoW roxadustat program later in the call.

The global scope of roxadustat program includes an agreement with our partner AstraZeneca for the development and commercialization of roxadustat in China. Subsequent to our last investor call on August 13, 2015, the CFDA formally approved our clinical trial application, and the program has advanced to Phase III. Overall, we intend to activate 30 to 35 sites to enroll a total of 450 patients, of which 300 patients will be in dialysis and 150 will be in non-dialysis. As of beginning of this week, we have obtained ethics approval for 13 sites and signed contracts at 11 sites. We expect to initiate 10 sites by the end of November with the majority of target sites being initiated by the end of the year. With the two- to three-week screening period, we expect subject enrollment to begin in mid-December. Our goal is to complete enrollment within six months from commencement of dosing.

On another front, from our last discussion with our regulators with respect to end of Phase II and beginning of Phase III, we have been exploring opportunities for expanding the development of roxadustat into additional indications in China. Specifically, we have been advised in China that the myelodysplastic syndrome, or MDS, and chemotherapy-induced anemia, or CIA, are disease areas where there is significant unmet medical need. Access to transfusions in chronic therapy is the rare exception in China, and the practice often involves the relatives of the patient who receive regulatory authorization to provide transfused blood. Thus, transfusion is not baseline standard of care as it is in the United States. We also believe that ESA use is very limited as it is not approved for MDS in China and has limited reimbursement in China in oncology.

Pursuant to these conversations, we are currently planning to file clinical trial applications in China in the first half of 2016. AstraZeneca is our commercialization partner in China. AstraZeneca paid for 50% of development costs, received 50% of profits by means of royalties and dividends. AstraZeneca has made a firm, positive commitment to the expanded development activity in anemia. We will provide additional information on the China CKD and ESRD Phase III programs in our next call.

In fibrosis, our second major clinical platform, FibroGen continues to make steady progress with FG-3019, a fully human antibody that blocks the biologic activity of connective tissue growth factor, or CTGF, the central mediator in chronic fibrotic conditions. I am going to touch briefly on our current studies in fibrosis. However, I will focus my comments today on the pancreatic cancer study. Dr. Frank Valone will review the current development plan for FG-3019 in more detail later in the call.

In idiopathic pulmonary fibrosis, or IPF, we are currently conducting a Phase II placebo-controlled trial of FG-3019 as first-line therapy in IPF. Over the next quarter, we have contracted with sites in Canada, New Zealand, Australia, South Africa and India in order to fully enroll the study.

In Duchenne muscular dystrophy, we are now contracting sites, and we expect to initiate patient dosing this quarter and a Phase II study of FG-3019 in nonambulatory patients with Duchenne muscular dystrophy.

In liver fibrosis, we held a pre-IND meeting with the U.S. FDA in early October to discuss study endpoints and potential regulatory pathways. We now expect to file an IND in the first quarter of 2016.

In pancreatic cancer, FibroGen is exploring the impact of altering or reducing fibrotic extracellular matrix on tumor growth and metastases. We are conducting a Phase II study in stage three pancreatic cancer who have been scored as not eligible for surgical resection.

According to a very recent article in the Journal of Clinical Oncology, of the estimated 47,000 new cases of pancreatic cancer in the United States, approximately 50% will be classified as clinically localized with 35 percentage points of these patients diagnosed with locally advanced pancreatic cancer that precludes surgical resection. 15 percentage points of patients are diagnosed with primary tumors that are potentially resectable. To put this in the market segment numbers of the annual incidence figure of 23,500 patients with localized tumors, 16,450 have localized advanced pancreatic cancer. Thus, we can frame this FG-3019 clinical program as potentially addressing about 1/3 of all newly diagnosed cases of pancreatic cancers.

Patients deemed ineligible for resection typically receive chemotherapy or chemotherapy plus radiation therapy. Our pilot study examines whether the combination of FG-3019 as a standard chemotherapy regimen of gemcitabine and ABRAXANE can convert these subject tumors from inoperable to operable state.

A public -- a published surgery study showed that patients with complete tumor resection have median survival of 20.1 months compared to median survival of 9.8 months for patients whose tumors cannot be completely removed. Because this is open-label, we are able to provide early data to investors.

Twelve subjects are currently enrolled in the FG-3019 study. Seven have finished the study. As of November 9, the update report is as follows: three of these seven patients were randomized to standard of care, meaning gemcitabine and ABRAXANE, and upon rescoring six months later, they are still not eligible for resection therapy. The other four patients were randomized to FG-3019 plus standard of care. Of these four, one discontinued therapy due to an SAE unrelated to study drug, and the other three have finished therapy. Each of the three on FG-3019 that have finished six months of therapy has been rescored as eligible for resection treatments success and two of the three have had R0 resections, clear margins and the other 1 has had an R1 resection.

There is no question the resection surgery is a potential major clinical benefit for patients. When we designed this trial, we assumed one to two patients would have resection with chemotherapy alone out of up to 20 control arm patients. Even though these early results are notable since the three 3019 resections out of four patients treated with 3019 are more than we expected for the entire control arm in a 40-patient trial, it is still too early to know what the outcome will be and what the next steps are. Dr. Valone will provide more details on this program later in the call. We plan to present our then-current data at the annual ASCO GI conference in San Francisco in January 2016.

Now turning briefly to our corneal implants program and FG-5200. We have successfully completed tech transfer of our corneal fabrication process from San Francisco to our manufacturing facility in Beijing, China. This enables us to start local production materials in the first quarter of 2016 and then to start China's required chronic toxicology study in the third quarter 2016.

Finally, I wish to mention a few items related to our financial position. At the end of Q3 or September 30, 2015, FibroGen has $365.6 million of cash, cash equivalents, investments and receivables. Under our 50-50 roxadustat cost share agreement with AstraZeneca, we expect to reach our cap of $116 million in mid- to late November, which is a week or two from now based on current projections. When we reach that cap, two changes take effect -- one, we will no longer share a portion of AZ's study cost; and two, AstraZeneca will cover 100% of the reported operating expenses for FibroGen's Phase III trials going forward.

To explain the financial impact of reaching the 50-50 cap, I will use actual numbers from the past two quarters and then annualize those numbers to create an example. In the second and third quarters of this year, the actual total spend between AstraZeneca and FibroGen was $80.5 million. The cost grew about 10% quarter-to-quarter. For purposes of this illustration, let me put aside the growth rate and instead assume that the $80.5 million annualizes to double that. And for purposes of this discussion, I will round it to $160 million for a full year.

Now what changes when this cap is reached? Of an assumed $160 million, AstraZeneca is currently responsible for 50% or $80 million and they bill half of their cost to FibroGen, which we record in our P&L for financial reporting purposes. So for a full year, when the 50-50 goes away, that effect would be a reduction of $40 million of operating expenses on FibroGen's income statement.

Currently, we pay half of AstraZeneca's portion of costs and half of our own portion of costs. Going forward, FibroGen will no longer pay 50% of AstraZeneca's expenses and AstraZeneca will pay 100% of FibroGen expenses. That means in our $160 million annualized example, that our cash burn rate would be reduced by $80 million for a full year. Thus, any year where total development costs are $160 million between the partners, after the elimination of the 50-50, AstraZeneca would no longer bill us 50%, reducing our operating expenses by $40 million on our GAAP P&L, and our cash burn rate would be reduced by $80 million.

Obviously, this example is for illustration purposes only, intended to show order of magnitude of changes and does not involve precise figures. In addition, given that 50-50 cost share in the U.S. and RoW is going away in the middle of the fourth quarter this year, we expect that these effects will be partially expressed in the fourth quarter numbers, approximately $5 million reduction in our GAAP operating expense P&L versus previous run rate and cash outflow reduced by about $10 million.

It is important to note that China is handled differently. China expense and costs are not affected by the elimination of U.S./RoW 50-50. During the development period, we will continue to have responsibility for 50% of the development cost for the China Phase III studies.

Based on current run rates and assuming the 50-50 goes away for the last half of the fourth quarter, at year-end 2015, we expect cash, cash equivalents, investments and receivables would be in the $330 million to $340 million range. Next year, or calendar year 2016, we will receive another noncontingent payment from AstraZeneca of $62 million in the second quarter, which completes the $402 million of noncontingent license payments that AZ made to us for the U.S. and China.

Under our preliminary 2016 budget, it appears we would end fiscal year 2016 with cash in the range of $295 million to $300 million. This may change slightly as budgets finalize and if so, we will update accordingly.

Now we will turn this call over to our lead clinicians, Dr. Peony Yu in the global anemia program and Dr. Frank Valone in our fibrosis program. Pat Cotroneo will then review our financial results, and we will conclude the session with a question-and-answer period.

Peony, please go ahead.

Thank you, Tom. I'd like to comment briefly on the profile of roxadustat and its potential for treating patients with anemia and then describe the Phase III clinical program design.

Roxadustat is our first-in-class hypoxia-inducible factor prolyl hydroxylase inhibitor in development for the treatment of anemia in patients with chronic kidney disease. In response to hypoxic conditions, such as high altitude or blood loss, a human body naturally makes more red blood cells to carry oxygen. Roxadustat pharmacologically turns on that response system to make red blood cells.

The current treatment of CKD anemia using ESA is associated with cardiovascular risks, which goes up with higher ESA growth. Iron is a necessary ingredient for making red blood cells, and hepcidin is a hormone which blocks up the body's iron stores and interferes with the bioavailability of iron. Information in patients with chronic kidney disease tends to lead to elevated hepcidin levels and higher ESA dose requirement.

One problem with current anemia care is when IV iron is used to overcome the block of iron bioavailability induced by hepcidin. IV iron in turn induces supraphysiologic hepcidin levels that blocks red blood cell reproduction. This creates a vicious cycle, increasing the need for more IV iron and more ESA. Both agents have dose association with worse patient outcome.

In contrast, roxadustat triggers the coordinated process for making red blood cells in the body -- reducing hepcidin, mobilizing iron, increasing iron transport proteins like transferrin, which makes iron available and with only a modest transient elevation of endogenous erythropoietin.

As reported in our manuscript on the Phase II incident dialysis study published in the October issue of the Journal of the American Society of Nephrology, hemoglobin responses were similar between patients on oral iron and IV iron supplement to roxadustat. In addition, roxadustat raised hemoglobin levels in hemodialysis patients regardless of the level of inflammation.

We have studied roxadustat in more than 1,100 subjects in Phase I and Phase II with consistent results across multiple studies. We have reported a 90% or higher hemoglobin response rate at the selected doses in four Phase II anemia correction studies in CKD patients on dialysis and those not on dialysis.

In addition, at the American Society of Nephrology Kidney Week meeting last week, we presented three posters and one oral presentation. three key results were reported from our six completed Phase II studies. One, roxadustat raises transferrin levels to transport iron effectively around the body. Two, roxadustat raises soluble transferrin receptor, a key marker of erythropoietic response. Three, roxadustat reduces hepcidin levels. At our ASN oral presentation, we also showed improvement in quality of life for CKD patients whose anemia is corrected with roxadustat.

Next, I would like to share our rationale for intermittent dosing. Roxadustat was carefully selected from our large library of HIF-PHI based on its biochemical profile to optimize potential safety and efficacy for anemia therapy. Its half-life is 10 to 12 hours. Roxadustat is dosed orally three times a week in dialysis, so there is enough time for complete reset of the HIF system between each dose. In non-dialysis, we have shown that twice a week and weekly dose can produce results similar to three times a week dosing.

In HIF biology, it is believed that some HIF target genes are induced very quickly after exposure to HIF-PHI, while the majority of HIF target genes require longer periods of HIF activation for significant reduction. We believe that increasing the intervals between HIF activation using an intermittent dosing regimen has the potential to limit the HIF responses to the early response target genes, such as those involved in erythrogenesis. This approach has the potential to reduce the risk of off-target effects due to continuous HIF activation, such as those in genetic models.

Another advantage of allowing full reset of HIF is avoiding attenuation of therapeutic effect. Our long-term safety studies have shown durability of roxadustat dose effect in patients for as long as four years.

Finally, I shall briefly describe our ongoing Phase III program. Our Phase III program is powered to demonstrate cardiovascular safety using major adverse cardiac events, or MACE, as the primary safety endpoint. MACE is being evaluated in two separate patient study pools: dialysis with 3,500 patients and non-dialysis with 3,800 patients. In the non-dialysis Phase III studies, roxadustat is being compared to placebo. The regulatory requirement is to show roxadustat to be superior on efficacy in anemia correction and noninferior on safety.

In our Phase III dialysis study, roxadustat is compared to epoetin alfa. While the regulatory requirement is to show noninferiority for both efficacy and safety, our studies are powered to show safety superiority over ESA in hemodialysis patients. As Tom mentioned, Phase III studies are progressing well.

I'll hand the call back to Tom now, and we'll be happy to address questions at the conclusion of the call.

Thank you, Peony. Now we'll turn to FG-3019. Dr. Frank Valone, Frank, go ahead please.

Thank you, Tom. I'd like to review briefly our second major clinical program that focuses on treatment of fibrotic diseases and fibrotic cancers. Our lead product candidate is FG-3019, a fully human monoclonal antibody that blocks biologic activity of CTGF, or connected tissue growth factor. CTGF has been shown to be a central mediator of fibrosis and to contribute to tumor growth and metastasis. A large body of preclinical and clinical data has led us to develop FG-3019 in four distinct areas: pancreatic cancer, idiopathic pulmonary fibrosis, or IPF, Duchenne muscular dystrophy and liver fibrosis.

As Tom reported, we are running a trial in patients with inoperable stage three pancreatic cancer. These patients have survival similar to patients with metastatic cancer. The study is showing only half of inoperable stage three patients are alive approximately 8 to 12 months after diagnosis. Survival is so poor, very few studies even report five-year survival.

The outlook for patients with resectable pancreatic cancer is considerably better. Studies show that half are alive between 17 and 27 months after diagnosis and approximately 20% are alive at five years. Tom presented data for our first seven subjects, with more subjects in the experimental arm containing FG-3019 converted to resectable status and underwent tumor removal. We intend to enroll up to approximately 40 subjects in this study. To accomplish this, we've expanded the study from where it started at Virginia Mason Clinic in Seattle to include Mayo Clinic and Georgetown University.

Our second area clinical development is IPF. We completed a dose-finding, single arm, open-label trial of FG-3019 in subjects with moderate IPF. The results of our study showed that 35% of subjects had stable or improved lung fibrosis after treatment with FG-3019 for 48 weeks. To our knowledge, no IPF clinical trial has shown improved lung fibrosis as measured by high-resolution CAT scans. This includes trials of the recently approved drugs, pirfenidone and nintedanib.

We are currently running study 067, which is a randomized, double-blind, placebo-controlled trial of FG-3019 for first-line therapy in subjects with mild to moderate IPF. Accrual to this trial has slowed substantially due to the U.S. launch of pirfenidone and nintedanib.

As we reported previously, our ability to complete this trial in a timely manner is dependent on opening the trial in countries where pirfenidone and nintedanib have not fully penetrated the markets. We are opening what is currently scheduled to be 23 new sites in Canada, New Zealand, South Africa and India with an additional nine sites in Australia, Romania and Bulgaria. We project enrollment to complete in the first half of 2016 and as such, we are moving the date for reporting top line data to first half of 2017. We also continue to evaluate a trial that combines FG-3019 with an approved therapy.

Duchenne muscular dystrophy has been a scientific and clinical interest to FibroGen for a number of years. DMD is characterized by extensive muscle fibrosis. We and our collaborators have obtained compelling preclinical data that supports developing FG-3019 in DMD. This is a high-priority program for us as FG-3019 has potential to treat all subjects with DMD regardless of the underlying genetic defect. And thus, FG-3019 is quite different than most products currently under development that target subsets of DMD patients with specific genetic defects.

In late July, we received FDA clearance for our IND for treatment of nonambulatory patients with DMD. The study's primary endpoint is changed in forced vital capacity. For nonambulatory patients, loss of lung function becomes a major health issue and ultimately results in full time use of ventilators. Other endpoints are change in arm function, which is critical to a patient's quality of life and MRI assessment of cardiac and arm muscle fibrosis. Since our IND cleared the FDA, we have begun opening clinical sites and are now starting to screen subjects for enrollment in this trial. We intend to expand our DMD program to include ambulatory boys with DMD, and we intend to meet with the FDA to discuss this plan next year.

On a final note, we've had a long-standing interest in treating liver fibrosis with FG-3019. In October, we met with the FDA to discuss developing FG-3019 for treatment of liver fibrosis due to NASH or hepatitis C. We are very encouraged by that meeting, and we are now working with our FDA reviewer to finalize plans for a Phase II trial in subjects who have liver fibrosis due to NASH. We plan to submit an IND for this indication in the first quarter of next year.

With this information, I'll now turn back to Tom.

Thank you, Frank. Now we'll turn to financial matters and Pat Cotroneo. Pat, please go ahead.

Thank you, Tom. As we announced in our press release today, total revenue for the quarter ended September 30, 2015, was $19.5 million. For the same period, operating expenses were $63.3 million and net loss was $45.1 million or $0.74 per basic and diluted share. Included in operating expenses for the quarter ended September 30, 2015, was an aggregate noncash portion totaling $8.3 million, of which $6.8 million was a result of stock-based compensation expense. In terms of our cash balances, we had $365.6 million in cash, cash equivalents, investments and receivables compared to $346.8 million at the end of 2014.

Our investments consist primarily of two- to three-year investment-grade corporate debt. In connection with the cost-sharing arrangement with AstraZeneca, FibroGen's total funding obligation for roxadustat, excluding China, are limited to $116.5 million, of which $104.7 million has been incurred and $11.8 million remained as of September 30, 2015.

As Tom just discussed, based on the current year projections, FibroGen expects to reach this $116.5 million cap before December 2015 on an accrual basis, at which time Astellas and AstraZeneca will be responsible for funding further roxadustat development in CKD through launch for all territories outside of China.

Looking to year-end 2015. We continue to anticipate that our cash, cash equivalents, investments and receivables will be approximately $330 million.

With that, I'll now turn the call back over to Tom.

Thank you very much, Pat.

Operator -- thank you. That concludes our prepared remarks. We'd like to begin the question-and-answer session, please.

(Operator Instructions) And it looks like our first question comes from Michael Yee from RBC Capital. Michael, please go ahead.

Hey, thanks. Good afternoon, Tom and Frank. A couple questions. Congrats on the 3019, I guess, initial data you talked about in pancreatic cancer. Pretty exciting, I guess. Can you describe, I guess, what do we do with that data going forward as you have to finish off that Phase II study? Is that endpoint a study you can do in Phase III? Maybe just walk through what the next steps are there because I think that's pretty new data that you just described.

Second question was on NASH, which is a new development. Can you explain what the study design you're thinking about would be? I mean, first, I'd like to see a placebo-controlled study. So can you talk a little bit about that?

And my last question is on roxadustat. There were some recent, I guess, noise or commentary made about GSK. They talked about their new anemia program. This has been off the radar, I think, for a lot of people. So can you describe a little bit of context about what you know there? Is there anything we should think about in terms of it versus roxadustat? Thanks.

Okay. Thank you, Michael. Let's see if we can get through this stuff. So I think I'll try to answer the question on pancreatic. This is a pilot study wherein we plan to enroll up to 40 patients with a proviso that once we were convinced of either efficacy and evidence enough to move forward or lack of efficacy, we'd either proceed or stop. So conceptually, we could anywhere from now until 40 patients make a decision to go to the next step as it were.

The data so far is certainly of note. The numbers are too small, however, to be sure and so we will continue looking at patients for a while. The feeling here is if what we've seen so far with the three 3019 patients that completed six months, doing as they did, if that pattern continues, we'll probably go talk to the agency about the endpoint and how they'd like to see this addressed as a next step.

We are quite willing to do whatever study is needed behind that. So there's no limitations in budget or anything else that would inhibit our ability to move forward. But I think that we need to understand exactly how FDA looks at this unmet need and how they look at this clinical benefit. I suspect that we'll need to make the judging process something that FDA is completely satisfied with. The rest of it, I think, looks very good right now. So we'll just be hoping for the next few patients.

Let's put it this way. Do you think you need to enroll the full 40-something patients? I'm just trying to think about timing here. Is this just, like, something we (multiple speakers) --

Michael, I don't -- yes, based on the data so far, if it continues, I don't think we need to enroll the 40 patients to draw a conclusion, but we need to see more of the same here. So I don't want to get ahead of ourselves. It could be -- with anything -- so this kind of statistics, for all we know, the next 15 patients on 3019 strike out. I mean, we have to see what happens.

But there's a point where it becomes apparent. And obviously right now when you're -- when we're expecting one or two patients in the control arm, at most, to have resection, your three out of three -- say, three out of four but arguably three out of three because the fourth patient discontinued early, at some point the difference there, that disparity will be one that everybody in their gut feels like we've got to act on, if and when the data come in along that line.

Okay.

So let me stop that line there and answer your next question about NASH, and I want to hand that to Frank to handle. And I think the questions were, do we have a plan for a study and will it be a placebo-controlled study?

Yes, that's a good question. We -- the answer about the placebo is yes. We do plan a placebo-controlled trial, and that was what we presented to the FDA was a standard randomized, double-blind, placebo-controlled trial. Much of our discussion with the FDA dealt with what endpoints we should use. There's still a bit of horse trading, but I think where we're going to end up is that they're going to ask us to make biopsy changes in fibrosis our primary endpoint.

We had already proposed that we'll be targeting patients who have advanced liver fibrosis, not looking at early-stage fibrosis, rather patients who are broad stage three and four, stage four being cirrhosis.

So we're targeting advanced fibrosis and asking can we make that better using FG-3019. Are there other endpoints? We're going to include a focus on liver function. We think we have some good ways to access liver function, and we'll probably be looking for signals both in changes in fibrosis and function to convince us to move forward into further trials.

And let me try the roxadustat question. GSK sort of got more visible recently on their program. They said some things that we found very odd. The one I'll focus on for now is this idea that collagen inhibition causes cardiovascular events. And so the way we process this stuff, one of the cofounders of the company, (inaudible - microphone inaccessible) was a leading expert on how prolyl hydroxylase causes triple helical collagen to form, and our view would be that in order to have any interference with collagen of meaningful magnitude, you have to have continuous inhibition of the prolyl hydroxylases that sit in the endoplasmic reticulum. So it's two membranes you got to get through.

And for our purposes of roxadustat, unlike everybody else, we are doing intermittent dosing. And so with intermittent dosing, you don't have continuous blockade of the collagen hydroxylases under any circumstances, and we've done all sorts of models to try to evaluate this. And at most, you might have a 1% effect on collagen in the most extreme stress example with intermittent dosing.

The companies that have daily dosing have a different problem, obviously, because they need to wait 12 to 14 hours to get to EPO Cmax. And when you think about that and the system resetting, it never really fully resets at a 24-hour period, and that's why we don't do daily dosing.

But I would also say this that we cannot find any examples of cardiovascular mortality, morbidity outcomes associated with blockade of the human prolyl hydroxylase enzymes and to try to prevent the collagen tetramer from assembling. And so we're mystified by the comments as a class effect. And I would instead suggest perhaps that it is compound series maybe GSK is looking at or something like that.

They have done a couple of studies that are very different than the ones that are required for anemia, and it might be that whatever they're worried about, whatever they're tilting the windmill at, is something there. But for us, we've talked to our expert group around collagen and everybody says there's nothing here at all to report. So we were mystified about that. As far as their program goes, they're in Phase II somewhere, and we don't know exactly what they're doing next, and I think that's all that we can say right now.

Understood. Thanks.

Okay. Thank you, Michael.

And our next question comes from Seamus Fernandez from Leerink. Seamus, you can go ahead.

Thanks very much for the questions. So Tom, I was just wondering given the structure of the contingent payments, your updates for how we should be thinking about cash burn, which I think if I had the comments right was basically by the end of 2016, your expectation for cash would be in the $295 million to $300 million range. With the contingent payment that's supposed to come in from AstraZeneca, as I look at that, $300 million at the end of 2016 just before we get to sort of the series of development and regulatory milestones, it would seem like upon the approval of roxadustat potentially in 2018, you would be operating with a very substantial cash balance. I'm just trying to get a better sense of what those -- what that cash balance could be potentially and how those development and regulatory milestones kind of shape up and how much of a ramp-up of what, I think, the $100 million estimated of just sort of cash burn would be in 2016 potentially on the basis of your comments. Would we see a substantial ramp in other programs in 2017 as we look forward? That's really just one long question, but I just wanted to get a better sense of how to think about the cash situation.

Yes, let me try to parse this out and answer it. First, you're correct in hearing and repeating that we said $295 million to $300 million of cash at the end of 2016. And I added the caveat that as we get to the point of doing final budgets next month for next year, if things change, we will inform the relevant investors as soon as we can. But right now, that's what we see.

The overall assumptions that we use in our planning are that we assume with respect to 3019 that as long as we're doing the proof-of-concept Phase II-type studies and we're not on to pivotal studies, that it would not require additional financing for the corporation. It changes, obviously, depending on what the -- when you have enough data that's compelling that you can act on a pivotal program what the cost structure is and what we're facing. And so that scenario is the only one that we've thought about as one that creates financing need.

We mentioned LCM in China and potentially, that's another factor as that whole thing plays out. But I'll say for the moment that we'll put that to the side and just focus on what we're dealing with. There are a lot of milestones certainly. It's on a $1-billion order going forward. A portion of them are pre-submission. I think a working assumption there is if you could get every milestone that's out there, maybe a quarter of it is pre-submission, maybe a little more, not quite sure what the denominator should be there but something like that.

And -- but for our purposes, we don't plan under the assumption that those things are automatic, and so we run the place pretty tightly in terms of cash management. And so as we look past 2016, we'll be paying a lot of attention to data on 3019 and implications for pivotal studies as a factor that would result in financing activity.

With regard to the anemia program, I think we described pretty well what's out there and what's potentially available. But I do not want to presuppose success and I don't want to presuppose how fast -- how long it's going to take to get there. So we're going to play it one step at a time past 2016. And if and when we're in a place that we're filing data and successful data, yes, there will be a lot of cash that comes in. I won't deny that. However, these things are all contingent milestones.

So let me correct one thing, and that is that in 2016, I mentioned a $62 million payment from AstraZeneca. That is a noncontingent payment, and so that's the last of the series of payments by AstraZeneca that total $402 million that was noncontingent payments that were agreed by us and AstraZeneca in 2013. So there are -- in addition to the contingent milestones, there are the agreements that cover the clinical trials. And as we've noted, except for China, we are now at a point with regard to any anemia indications that the sum of Astellas reimbursements and the AstraZeneca reimbursements will cover all of the reported costs, the costs that we submit to our partners. So I think that's the picture that we're looking at, and I don't think I should go any further than that because we don't really know right now what's going to happen next.

No, that's perfect. And maybe just as a separate question, can you just -- what's the -- at this point -- I think on the last conference call, Peony, you mentioned that the DMC at this point would be evaluating or really only looking for highly infrequent events. But I just wanted to get a sense of when did the last DMC occur? And at what frequency is it taking looks at this point? Are those occurring less frequently now, every six months and previously it was every three months? Or just any update on how the DMC is evaluating the studies.

So Seamus, let me try to handle that because the comment you referred to was actually mine from the last call. The DMC operates by a charter. The DMC, DSMB as we call it, began in 2009, and the core membership has continued from that time. We've added a few people, so seven in total now, but that's essentially how it's been operating. The charter provides for four meetings a year, and a couple of those are face-to-face, and we try to note that when it happens.

The focus of the group is it's wrong to say that it's looking for very rare events. The comment there was more along the lines that the patient years' exposure aren't quite far enough along that any real conclusions can be drawn with statistical power as it relates to the MACE endpoints. And so a lot of effort has gone into look for rare events at various times.

This past meeting, this was a company presentation of about three hours and of equal amount of time and a closed session. And I got the impression that there was a very strong consensus to continue with the studies with no modifications. We've got a lot of good feedback, but I think that that's about as far as I'm willing to discuss this.

We are -- because we are the holder of the statistical center point in this with two large partners, we're under some very extreme strictures about any disclosure going outside of clinical operations and safety up into the commercial side of the company. And so I think the perimeters have been imposed by others and I've agreed to them, and I just have to say that we observe these boundaries and I apologize if I can't offer you more information at the present time.

No, no. That's perfect. Thank you so much.

Thank you.

And our next question comes from Terence Flynn from Goldman Sachs. Mr. Flynn, please go ahead.

Thanks for taking the question. Maybe, Tom, you mentioned roxa for MDS and CIA in China. Maybe just give us an update on how you and your partners are thinking about plans for these indications in other geographies. And then on the 3019 Phase II IPF trial, I know you guys previously discussed that you could expand it to include some potential combination drug use. Is that -- in a current study. Is that still part of the plan, or would that be a separate study? Thanks a lot.

Okay. Thank you, Terence. So with regard to expansion of anemia activities, I think in the past we've indicated that AstraZeneca has considered a lot of different scenarios, and that still goes on. With regard to China, the circumstances were such that there was a discussion that happened between ourselves and the regulators that precipitated forward movement. And we want to make it very clear that we intend to follow through on the China pathway.

At the same time, this was a little bit unexpected for us and as a result, there wasn't any grand plan for the rest of the world. And so we have not, as of yet, formed a final plan in other geographies. And obviously, as it relates to the rest of the world, there are three parties involved. It's ourselves and AstraZeneca, but also Astellas, which holds the rights in Japan and Europe.

And so there needs to be meetings with -- three-sided meetings in the future for non-China territories. And as I said that it's the case that with China, we weren't expecting to be doing this at the time when we started doing it in August. But we have followed through and we have what are now becoming concrete plans there, and AstraZeneca has been outstanding in their role. And so we're -- that's the part I can report, and the rest of it just has to be for the future.

As it relates to the combination therapies with FG-3019, I'm going to let Dr. Frank Valone answer this question. The starting point is that we are indeed looking at combination therapies. But the specifics, go ahead, Frank, please.

Sure. That's a very good question. We still are looking very closely at combination therapy. We think that as we're looking forward to positive Phase II results and going on to Phase III, one route for approval would be an add-on. We're adding FG-3019 on top of one of the two approved drugs, either pirfenidone or nintedanib.

What we're looking at now is just the logistics doing that. We want to get this done as fast as we can, and we're really trying to figure out whether it's better to add it on to our current trial or do a separate study, and that's really just an active discussion in the group. We should resolve that soon and be able to move on in that area.

We'll report on that as soon as we have a firm plan in the form of a protocol agreement, an agreement on a protocol internally. And for the moment, you should assume we're just working away at the alternatives. So I think that's it for it, Terence.

Great. Thank you, guys.

Okay.

(Operator Instructions) And our next question comes from Tahel Noy with Stifel. Please go ahead.

Sorry, I couldn't hear you. Could you say that a little louder, please?

Tahel Noy from Stifel. Thank you for taking my question. So I have a quick question about the incident dialysis paper that was recently published. So the paper indicated that there were about six patients that show some hypertension signal as they had to readjust their antihypertensive medication. So this was one of the concerns with the ESAs. How significant it is for you guys? And how do you plan on treating it in the upcoming Phase III trials?

Okay. So this is Study 053, adjacent article, was publication of that study. So Peony, I'm going to ask you to take this one, please. Did you understand the question she asked?

Yes, yes. So we are -- so we have a patient population with chronic kidney disease, patients who are on dialysis who are undergoing fluid shift three times a week, and hypertension has been identified as an issue with the use of ESA. In multiple studies, when we look at the rate of hypertension in patients treated with roxadustat, in placebo-controlled trials, we have shown no difference between our drug and that of placebo. And we monitor patients' blood pressure very carefully throughout in Phase II and Phase III. We have not identified hypertension as a signal in controlled trials.

That's perfect. And I have an additional question. There were recent comments about changing the drug approval regulations in China. Basically, they're initiating a trial to allow marketing authorization independent of manufacturing authorization. How does it affect FibroGen?

Sorry, I didn't hear the question.

Could you just clarify that question? I think we had a bit of static here.

Yes, we're having a hard time hearing on the speaker. Can you say it one more time, please?

Yes, one moment. Can you hear me?

Yes. Hello?

And it looks like she did just get disconnected.

Okay.

I would suggest we follow up with her separately. We're at the end of the hour. So might be worthwhile to (multiple speakers) --

So yes, let me say thanks to everyone still on the call for participating today. We realize you have many things you can do with your time every day, and we appreciate that you're willing to listen to what's going on with FibroGen. We look forward to speaking with you again and providing future updates. Our next report will be in early March, 10-K filing end of February. Thank you very much.

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