FibroGen Faces An Uphill Battle In Idiopathic Pulmonary Fibrosis

Introduction

FibroGen (NASDAQ:FGEN) is a biopharmaceutical company that specializes in discovering, developing, and commercializing a range of innovative therapeutic products. The company's lead products are pamrevlumab and roxadustat, which are currently in clinical development for the treatment of idiopathic pulmonary fibrosis, pancreatic cancer, and Duchenne muscular dystrophy. FibroGen is well-positioned to report topline results from seven pivotal clinical studies with two different drug candidates over the next 18 months. Additionally, the company is advancing the development of pamrevlumab, its first-in-class antibody developed to inhibit the activity of connective tissue growth factor, for potential launches in IPF, LAPC, and DMD. FibroGen's ultimate goal is to build a diverse pipeline of novel drugs that can address unmet patient needs in oncology, immunology, and fibrosis.

The following article will focus on pamrevlumab's prospects for the treatment of Idiopathic Pulmonary Fibrosis.

Financials

Let's first review the company's most recent financial report. FibroGen's total revenue for Q4 2022 was $34.4 million, compared to $16.5 million for the same period in 2021. However, the total revenue for 2022 was $140.7 million, a decrease from $235.3 million in 2021, which included milestone payments from Astellas. The net loss for Q4 2022 was $66.2 million, a significant improvement from the $134.1 million loss in Q4 2021. The net loss for the entire year was $293.7 million, compared to $290.0 million in 2021. FibroGen had $442.7 million in cash, cash equivalents, investments, and accounts receivable at the end of 2022. The company expects that their current cash position will be sufficient to fund their operating plans through the second half of 2024, even without additional financing.

Overview of IPF: Causes, Symptoms, and Treatment Options

Idiopathic Pulmonary Fibrosis [IPF] is a lung disease that causes scarring and damage to the lung tissue, and it is a chronic and progressive condition. The cause of IPF is not known, and it is more commonly diagnosed in individuals who are over 50 years old. Common symptoms of IPF include shortness of breath, coughing, and feeling tired. IPF can lead to irreversible scarring, respiratory failure, and death.

At present, there are two drugs that have been approved by the FDA for the treatment of IPF. These drugs, nintedanib and pirfenidone, are used depending on factors like patient preference and availability. Although these medications can slow down the progression of the disease, they do not cure it. Additionally, both drugs are associated with significant side effects and potential toxicity.

Pamrevlumab: A Novel Drug with Potential for IPF Treatment and Market Growth

IPF affects roughly three million people across the globe. It is estimated that nearly 100,000 individuals in the United States are affected by IPF, with 30,000 to 40,000 new cases being diagnosed each year. As the global population continues to age, the prevalence of IPF is expected to increase, leading to a growing demand for effective treatments.

Currently, pirfenidone and nintedanib are the leading drugs in the IPF market, with both generating over $1 billion in sales in 2021. However, there remains a significant unmet need for safe and effective IPF therapies.

FibroGen's drug, pamrevlumab, possesses a novel mechanism of action and has the potential to provide a new treatment option for IPF patients. As a result, the market potential for pamrevlumab in IPF treatment is substantial, offering the possibility to capture a share of the multi-billion dollar IPF drug market.

CTGF Inhibition and Pamrevlumab's Efficacy in IPF Treatment

Connective tissue growth factor (CTGF) is a protein that plays a crucial role in the development and progression of IPF. CTGF is involved in the regulation of many cellular processes, including cell growth, differentiation, and extracellular matrix production. In IPF, CTGF levels are increased, leading to the accumulation of excess scar tissue in the lungs. This excessive scarring can cause irreversible damage to the lung tissue and impair lung function. Pamrevlumab, a human monoclonal antibody developed to inhibit CTGF activity, is currently in Phase 3 clinical trials for the treatment of IPF. By targeting CTGF, pamrevlumab may help slow or even reverse the progression of IPF by reducing the accumulation of scar tissue in the lungs.

CTGF inhibition in IPF has potential benefits and risks:

Benefits:

• Reduces fibrosis progression by reducing ECM proteins accumulation, leading to less scarring and potential improvement in lung function.
• Improves lung function by slowing fibrosis progression, potentially extending survival.
• Targeted therapy that addresses the underlying disease mechanism.

Risks:

• Potential side effects due to CTGF's involvement in various biological processes.
• Incomplete disease targeting as IPF is complex and multifactorial, requiring additional treatments.
• Possibility of resistance or reduced effectiveness over time, limiting long-term benefits.

PRAISE Study Shows Pamrevlumab's Efficacy and Safety in IPF Treatment

The PRAISE study was a phase 2 clinical trial that aimed to evaluate the safety and efficacy of pamrevlumab in patients with mild-to-moderate IPF. A total of 103 patients (median predicted FVC was 70.3%) were randomized to receive either pamrevlumab or a placebo, and their lung function was assessed over 48 weeks. The primary endpoint of the study was the change in FVC percent predicted, which measures lung volume as a percentage of what would be expected for a patient's age, race, sex, and height.

Pamrevlumab met its primary efficacy endpoint in a clinical trial, showing a statistically significant difference in the change of forced vital capacity percent predicted between the treatment group (n=50) and placebo group (n=51). The average decline in FVC percent predicted from baseline to Week 48 was 2.9 in the pamrevlumab arm compared to 7.2 in the placebo arm, with a significant difference of 4.33 (p=0.033). Additionally, pamrevlumab showed a significant reduction in the rate of lung fibrosis progression compared to placebo, as measured by quantitative HRCT.

Pamrevlumab-treated patients exhibited a trend of improved health-related quality of life compared to placebo patients, as assessed by the St. George's Respiratory Questionnaire. Furthermore, pamrevlumab was well-tolerated, with comparable treatment-emergent adverse events between the pamrevlumab and placebo groups. The study's results were consistent with those from a previous open-label phase 2 trial.

Zephyrus I: Phase 3 Trial of Pamrevlumab for IPF Treatment

Zephyrus I is designed to evaluate the efficacy and safety of pamrevlumab, administered via intravenous infusions (30 mg/kg) every three weeks, compared to a placebo in participants with IPF. The trial is randomized, double-blind, placebo-controlled, and multi-center in nature. Participants not currently treated with approved IPF therapies, such as nintedanib or pirfenidone, may be eligible for screening.

The study consists of a main phase, including a screening period (up to 6 weeks) and a treatment period (48 weeks), as well as an optional open-label extension phase, providing access to pamrevlumab until certain conditions are met. A follow-up period for safety assessments is also included.

The co-administration of an approved IPF therapy is acceptable during the treatment period if clinically indicated.

Patients can be either treatment naive at baseline or experienced in the past. We do allow patients to initiate standard of care on the trial. If their physician deems as appropriate (...) We don't believe this will be a very common event.

FibroGen (February 2023)

Participants who complete the 48-week treatment in the main study are eligible to participate in the optional open-label extension phase, regardless of the number of study drug infusions received.

The study enrolled 356 participants, with primary outcome measures focusing on changes in forced vital capacity [FVC] from baseline to week 48. Secondary outcome measures include time to disease progression, changes in quantitative lung fibrosis (QLF) volume, and other factors related to disease progression and mortality. FibroGen anticipates data in mid-2023.

Differences in Forced Vital Capacity Criteria in IPF Trials: Implications for Drug Efficacy Assessment

Forced Vital Capacity [FVC] is a lung function parameter that measures the total volume of air a person can forcefully exhale after taking a deep breath. It is an important parameter for assessing lung function and is widely used in the diagnosis and management of pulmonary diseases, including IPF.

FVC is crucial in IPF as it helps indicate disease severity, monitors its progression, and evaluates response to treatment. A decline in FVC suggests worsening lung function and disease progression.

Now, let's discuss the differences in FVC criteria between the two trials:

The Zephyrus I trial has a lower FVC threshold for patient enrollment (≥45% predicted FVC value) compared to the PRAISE trial (≥55% predicted FVC value). In a trial enrolling IPF patients with FVC equal to or greater than 45%, the median predicted FVC will be lower than the median predicted FVC of 70.3% observed in the trial enrolling patients with FVC equal to or greater than 55%. This difference in patient enrollment criteria could make it more difficult for the drug to achieve the primary endpoint in the Zephyrus I trial for several reasons:

1. Disease severity: Patients with a lower FVC threshold (≥45% predicted FVC value) may have more advanced or severe lung disease than those with a higher FVC threshold (≥55% predicted FVC value). Consequently, patients in the Zephyrus I trial might have a worse prognosis and faster decline in lung function, making it more challenging for the drug to slow down or halt the progression of the disease.
2. Heterogeneity in patient population: The Zephyrus I trial may include a more heterogeneous patient population due to the broader range of FVC values. This increased variability in disease severity and patient characteristics could make it more difficult to detect a significant treatment effect.
3. Baseline lung function: In the Zephyrus I trial, patients have a lower FVC at baseline compared to those in the PRAISE trial. This difference could make it harder for the drug to show a significant improvement in FVC since patients with more advanced lung disease might have a faster decline in lung function, and the drug might not be as effective in these patients.
4. Ceiling effect: There might be a ceiling effect in the Zephyrus I trial, where patients with lower baseline FVC values have less room for improvement in their FVC, making it more difficult for the drug to demonstrate significant changes.

Although the PRAISE trial yielded positive results, indicating that pamrevlumab could potentially have a positive impact on lung function in the Zephyrus I trial, there may be a decrease in the magnitude of the effect or an increase in the variability of response. I am particularly concerned about the limited margin of error in Zephyrus I, given that the p-value for PRAISE was greater than 0.03.

Considering the positive results observed in the PRAISE trial, one might initially speculate that there is at least a 60% chance of the Zephyrus I trial meeting its primary endpoint. However, when accounting for the difference in FVC threshold between the PRAISE trial (≥55% predicted value) and the Zephyrus I trial (≥45% predicted value), the likelihood of the Zephyrus I trial achieving its primary endpoint could be lower, possibly in the range of 40-50%. This revised estimate of mine acknowledges the potential challenges stemming from a more heterogeneous patient population with more advanced lung disease in the Zephyrus I trial. There is more information on this below.

The Efficacy of Drugs in Treating IPF: A Focus on Pirfenidone and Nintedanib for Mild-to-Moderate Cases

In the past, drugs have exhibited potential in treating mild-to-moderate IPF, but have not been as efficacious in severe cases. Although both drugs have "blanket" label indications for IPF, pirfenidone and nintedanib are typically only recommended for mild-to-moderate disease, and due to their dominance in this particular market for IPF, it is common for biotechnology companies to focus their later-stage efforts on more advanced disease.

Pirfenidone has been demonstrated in some clinical trials to be effective in slowing the decline of lung function and enhancing progression-free survival in patients with mild-to-moderate IPF. However, its benefits in severe IPF cases are less certain, and it may be less effective in patients with advanced IPF due to the extensive fibrotic scarring in their lungs.

Nintedanib, a tyrosine kinase inhibitor that targets multiple pathways involved in fibrosis, has shown promise in slowing the decline of lung function and reducing the risk of acute exacerbations in patients with mild-to-moderate IPF, similar to pirfenidone. However, its effectiveness in more severe cases has not been well-established.

Pamrevlumab has the potential to decelerate the progression of IPF by hindering the connective tissue growth factor. However, it is improbable to reverse the extensive fibrotic scarring that causes lower FVCs in patients with advanced stages of the disease. Therefore, the Zephyrus I trial is expected to be more arduous than the PRAISE trial.

My Analysis & Recommendation

Pamrevlumab, developed by FibroGen, holds promise as a treatment for IPF, and may capture a notable portion of the expanding multi-billion dollar IPF drug market, considering the shortcomings of current treatments. FibroGen's robust financial situation, with assets totaling $442.7 million, and its prospects beyond IPF, could offer support in the event that pamrevlumab encounters obstacles in the Zephyrus I trial.

The main concern for investors is the uncertainty surrounding the Zephyrus I trial results due to differences in FVC thresholds compared to the PRAISE trial, with a 40-50% chance of success. This presents a significant risk for investing in FibroGen based on pamrevlumab alone.

Despite these concerns, FibroGen's $1.8 billion valuation and diverse drug pipeline targeting unmet patient needs may still offer long-term growth potential, even if pamrevlumab fails in the Zephyrus I trial. Investors should weigh the upcoming trial results and the company's broader product pipeline when evaluating investment potential.

To summarize, FibroGen's potential investment opportunity offers both high risk and high reward. The success of pamrevlumab in the IPF market could significantly increase the company's value, but the uncertainties surrounding the Zephyrus I trial and the challenges with a more diverse patient population should be taken into account. As for my recommendation, FibroGen is considered a "Sell." Although FibroGen's current valuation appears reasonable, I am not enamored by pamrevlumab's clinical prospects.

Risks to Thesis

"When the facts change, I change my mind." - Paul Samuelson, economist

Investors should carefully consider the following factors that may change my bearish outlook on FibroGen:

1. Positive trial results: If pamrevlumab proves to be significantly effective and safe in the Zephyrus I trial, even with a more diverse patient population and a lower FVC threshold, it may attain regulatory approval and be introduced into the IPF market, resulting in substantial growth potential for FibroGen. Furthermore, FibroGen's prospects could be enhanced if pamrevlumab succeeds in clinical trials for pancreatic cancer and/or Duchenne muscular dystrophy.
2. Stronger-than-expected financials: FibroGen's financial position could improve more than expected, providing the company with increased resources to fund ongoing trials and product launches. This could lead to a more optimistic outlook on the company's future growth.
3. Expanded pipeline: FibroGen's drug pipeline could expand beyond pamrevlumab and roxadustat, with new and promising therapeutic candidates addressing various unmet patient needs. This diversification could reduce the company's reliance on pamrevlumab's success in IPF and provide more avenues for growth.
4. Partnerships and collaborations: FibroGen could establish strategic partnerships or collaborations with other companies or research institutions, which could expedite the development of its pipeline products, reduce costs, and increase the likelihood of success.