Biotech General Discussion

Summary:

• FGEN stock has been on a long-term downward cycle since peaking in 2018, mainly because of complications/miscommunications related to its lead asset, Roxa's, clinical data

• FGEN has an important AdComm scheduled for July 15, 2021, for its lead asset, ROXA in treating anemia in kidney disease.

• BPIQ.com named this event a Big-Mover event and FGEN a company to watch, for July 2021.

• The Adcomm will likely focus on Roxa's cardiovascular safety data, and will likely result in some split Adcomm member votes.

• It is our view that FGEN is a good investment currently, and we plan to hold our positions as a top 10 holding through the Adcomm and into further readouts in 2021.

INTRO

FGEN has a huge regulatory event on July 15, 2021, with the FDA advisory committee (AdComm) meeting for Rox adustat (Roxa) for the treatment of anemia in dialysis dependent (DD) and non-dialysis dependent (NDD) patients with chronic kidney disease (CKD). We are especially interested in this event because we named it one of our July 2021 Big-Mover events (Subscribers see Big Mover page here). The current questions for investors are 1) whether FGEN has a reasonable chance of success and upside with respect to the FDA AdComm decision; and 2) whether the current FGEN enterprise value of roughly $2 billion presents a buying opportunity. Our view is that FGEN's current valuation remains attractive, which is why we continue to hold FGEN shares through the AdComm, as a top 10 holding in our Amp accounts*.

BACKGROUND

Before the MACE report-out in May 2019 (CITE) Roxa was an untarnished Rockstar asset for FGEN. In 2018, FGEN was riding high with a share price of over $67/share. However, starting with the infamous initial MACE readout conference call (CITE), and subsequent report outs from the MACE trial, especially the misleading data debacle, which was revealed earlier this year (CITE), ROXA and FGEN have been on long-term downward valuation to the current share price of about $26.50. In our view, the complexity of the statistical analysis, especially the MACE results, and FGEN’s confusing and arguably misleading messaging, has worked against them with respect to Roxa in these indications.

1. DOES FGEN HAVE A REASONABLE CHANCE OF UPSIDE SUCCESS IN THE UPCOMING ADCOMM

For investors who are into analyzing data, there is no shortage of complex data with respect to the upcoming AdComm for Roxa for the treatment of anemia in CKD. For data presented from the best perspective of FGEN, see Fibrogen June 2021 investor presentation. For data presented more critically, see the final opinion of the Institute for Clinical and Economic Review (ICER)(2021 Final Evidence Report – Anemia in Chronic Kidney Disease). Plus, there will be the AdComm meeting materials and importantly, the specific questions for the AdComm available from the FDA (July 15, 2021 Cardio Renal AdComm info/materials), which will be available no later than 7/13/21. From a retail investor standpoint, all this complex statistical data presents some huge challenges in trying to assess this catalyst event. And the results for most of the trials have been subject to some interpretation depending on which patients are included (e.g. all patients, including those that stopped taking Roxa). Plus, we have to analyze the data in both DD and NDD CKD (See BPIQ's Roxa in CKD anemia IQ card HERE).

There will be a set of questions presented by the FDA to the AdComm, that will likely include a question related to whether the benefits outweigh the risks for NDD patients, and a similar question for DD patients. Of course, the AdComm’s vote is only advisory - the FDA does not have to follow the vote of the AdComm (See FDA info on AdComms). And after the AdComm, we won’t know exactly when we will get an FDA decision, since the PDUFA date has past and already been extended twice, and thus, in our understanding, cannot be extended again.

As far as efficacy at improving hemoglobin levels, the data looks solid that Roxa is effective at increasing hemoglobin levels in both the DD and NDD indications from numerous Phase 3 trials in the U.S. and abroad (See e.g., FIGS. 1-2).

FIG. 1 - Roxa Ph3 hemoglobin data (From FGEN ASH '19 presentation http://bit.ly/36d136N)

Figure 2. Hemoglobin data from U.S. Phase 3 trial in NDD patients Roxa vs. exemplary ESA (See Ph3 DOMOMITES published data).

And FGEN has exhibited some advantages over ESAs in addition to the fact that it is orally administered without a huge increase in gastrointestinal side effects: Larger increase in hemoglobin than ESAs in some key populations; lower transfusion risk in key populations; possibly reduces LDL-C and less iron supplement is required than ESAs.

The questions for Roxa, and likely the reason the FDA called this adcomm, revolve around safety. It is important to note, and a bit counter-intuitive in our view, that MACE data is safety data and not efficacy data for Roxa. Our understanding is that this is because of the paradoxical finding that despite their effectiveness at controlling anemia and anemia’s association with higher mortality, ESAs actually have been found to increase mortality and cardiovascular events (See page 1 of ICER Roxa Executive Summary). It is our understanding that to pass its safety check, ROXA needed to perform in a manner that was indistinguishable from the controls, ESAs in dialysis dependent CKD and placebo in non-dialysis dependent CKD.

As far as Roxa’s safety data, we previously published a post about the significance of FGEN’s recent data “clarification (See our prior article here) that certain data was presented as a pre-specified population analysis, but actually was an ad-hoc analysis. We concluded that even with the actual pre-specified data, Roxa still looks statistically equivalent to the standard of care or placebo in the appropriate patient populations. However, it no longer looks statistically better in some key populations and gets closer to statistically inferior in some subpopulations (i.e. non-dialysis dependent) (See FIG. 3). The ICER report repeatedly concludes that the data is uncertain with respect to MACE-related safety measures, especially because conclusions swap (positive vs. negative) and can bias the results, when patients who stopped taking Roxa are included (See ICER Roxa Executive Summary). And AKBA’s similar oral HIF-prolyl hydroxylase (HIF-PH) inhibitor, VADA, recently failed its MACE safety trial (See below).

FIG. 3. FGEN's "clarification" PR - https://fibrogen.gcs-web.com/news-releases/news-release-details/fibrogen-provides-additional-information-roxadustat

So what’s our overall thoughts about FGEN’s chances of success with respect to the Roxa Adcomm? See our overall conclusions below.

1. IS FGEN A BUY AT ITS CURRENT VALUATION?

Regarding the second question, whether FGEN’s current valuation appears to be a buying opportunity, regardless of the FDA AdComm readout, FGEN has considerable value in ROXA for DD CKD and the Roxa ex-U.S. market, as well as in its second major asset, Pembrolizumab (Pembro). In fact, FGEN has an impressive late stage pipeline (FIG. 4). A detailed analysis of Pembro is outside the scope of this writeup. However, Pembro is in Phase 3 trials for 3 major indications, two of which are expected to read out in 2022 (See slides 57-58 of Fibrogen June 2021 investor presentation).

FIG. 4. FGEN Pipeline on BPIQ.com 7/11/21

With respect to the current value of Roxa, this drug (commercially named Evrenzo) is approved in China and Japan for the treatment of anemia in both DD and NDD CKD patients, and Roxa recently received a positive opinion in Europe from the Committee for Medicinal Products for Human Use (CHMP) (See June 21-24 CHMP meeting highlights). It is not disputed that treatment of anemia in CKD is a large multi-billion dollar market, with large sales of ESAs currently in these indications, and further substantiated by AZ and Astellas’ interest. The CHMP opinion mentioned above, was for both NDD and DD (See CHMP detailed opinion). The final decision of the European regulatory agency on Roxa is expected this summer. Finally, adoption of Roxa in China, where it was approved for both DD and DD, through the marketing efforts of AZ, has been impressive (See FIG. 5). Thus, even if ROXA gets a negative view of the AdComm on DD, FGEN in our view still is worth more than $1B and arguably could still be valued at $2 billion, given the ex-U.S. Roxa market and current Pembrolizumab (Phase 3 asset) value.

FIG. 5. Roxa China sales (Slide 40 of Fibrogen June 2021 investor presentation)

An important consideration when valuing FGEN is their partnerships with Astra Zeneca (AZ) and Astellas for Roxa. These partnerships not only validate the technology, but they increase the value of this technology because they make it more likely that it will be adopted more quickly and more widely and they provide potential acquirers in a future M&A of FGEN. Having a committed big-pharma partner with an established marketing team/machine for a given indication, makes it much more likely that a drug will be adopted more quickly and more widely. For example, Astra Zeneca, has a commitment to treatments for CKD and in fact recently had another drug, Farxiga, approved for this indication (See FDA’s press release on Farxiga’’s approval). Plus, with a 50/50 profit split in China, and royalty rates in the low 20s% in all other major jurisdictions (See slide 36 of Fibrogen June 2021 investor presentation), the economics seem pretty generous for Fibrogen. It is noteworthy that neither of the partners have pulled out even after the MACE data and the revelation of misleading data. Furthermore, as indicated above, Roxa has done very will commercially in China in its initial 5 quarters of launch.

FGEN’s delay in the FDA has provided some time for its major competitors, Vadadustat (Vada) from Akebia (Subscribers, see Vada in CKD IQ card here), Duvroq from GSK (GSK receives first regulatory approval for Duvroq (daprodustat) in Japan for patients with anaemia due to chronic kidney disease), and Bayer’s molidustat (Long-Term Efficacy and Safety of Molidustat for Anemia in Chronic Kidney Disease: DIALOGUE Extension Studies) to catch up. At a later time, we plan to analyze the patent landscape around oral HIF-PH inhibitors for treating anemia as one of the lead authors of this article is a PhD U.S. patent attorney. Vada is a drug candidate with the same mechanism of action as Roxa. AKBA recently announced that the FDA accepted for review, its NDA filing for vada for treatment of anemia both NDD (See our IQ card) and DD CKD patients (See our IQ card) with a PDUFA date of May 29, 2022. AKBA has big-pharma partners with Vifor Pharma and Otsuka in the U.S., and Otsuka in most of the world, although Akebia sold part of its royalty stream to HealthCare Royalty Management, LLC (See slide 14 of Akebia Q1 FY21 slide presentation). Vada failed its Phase 3 MACE trial (Akebia Therapeutics Announces Top-Line Results from its PRO2TECT Global Phase 3 Program of Vadadustat for Treatment of Anemia Due to Chronic Kidney Disease in Adult Patients Not on Dialysis), which crushed AKBA’s market cap, currently sitting at around $550M, with about ½ that in cash/equivalents. Vada was inferior to a control ESA for MACE outcomes in this NDD trial. It is noteworthy that although Roxa may or may not be as safe as placebo with respect to MACE in this NDD patient population, it appears equivalent to control ESA.

OVERALL CONCLUSIONS:

So what are our overall thoughts about FGEN’s chances of success with respect to the Roxa Adcomm? We are confident that the Adcomm will focus on MACE-related safety results. And in our view it is likely that the Adcomm will not be unanimously positive or negative with respect to questions around MACE-related safety measures in both DD and NDD CKD patients. With respect to questions about whether the benefits outweigh the risks, we think this too could likely be a mixed result. However, we feel that in the end the Adcomm, and eventually the FDA, will conclude that the benefits of Roxa, as established in numerous large clinical trials, outweigh the risks. Roxa effectively treats anemia with reduced transfusion burden, by an oral administration and without the need for supplemental iron. The safety data appears good enough to support Roxa’s eventual approval in DD and NDD CKD patients. However, it is a distinct possibility that FGEN and AZ, its partner in the U.S., will need to perform a post-approval study(s) to better assess long-term cardio-vascular and mortality risk.

So what are our current thoughts’ about FGEN’s current valuation? Overall, we see the current valuation as an attractive price point to own FGEN. We feel there is a good possibility that Roxa is approved to treat anemia in both NDD and DD CKD in both the U.S. and Europe. This would not only bring milestone payments to FGEN, but the start of royalty revenue to add to the current Chinese profit split revenue. Plus, with the upcoming data readout of Roxa in chemo-induced anemia by the end of the year, this could be the start of a long-term significant upward move for FGEN’s value and stock price. Thus, we will remain holders of FGEN as a top 10 holding, through the AdComm in our Amp tracking funds*.

This article is not investment, tax, or legal advice. Please do you own diligence and seek advice from professional advisors representing your interests.

Article history:

7/11/21 initial published at ~ 7PM Central

7/11/21 Added FGEN pipeline and comment re: Hif-PH inhibitor patents

7/16/21 Clarified that Roxa is a HIF-PH inhibitor, not a HIF inhibitor.

#Roxadustat #fibrogen #FGEN #AKBA #Vadadustat