1.	Description of Operations and Summary of Significant Accounting Policies

Description of Operations

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

On November 10, 2014, we effected a 1-for-2.5 reverse split of our common stock. Upon the effectiveness of the reverse stock split, (i) every 2.5 shares of outstanding common stock were combined into one share of common stock, (ii) the number of shares of common stock for which each outstanding option or warrant to purchase common stock is exercisable was proportionally decreased on a 1-for-2.5 basis, (iii) the exercise price of each outstanding option or warrant to purchase common stock was proportionately increased on a 1-for- 2.5 basis, (iv) the exchange ratio for each share of outstanding FibroGen Europe Oy (“FibroGen Europe”) share of stock which is exchangeable into our common stock was proportionately reduced on a 1-for-2.5 basis, and (v) the conversion ratio for each share of outstanding preferred stock which is convertible into our common stock was proportionately reduced on a 1-for-2.5 basis. All of the outstanding common stock share numbers (including shares of common stock which our outstanding preferred stock shares were convertible into), common stock warrants, share prices, exercise prices and per share amounts have been adjusted in these condensed consolidated financial statements, on a retroactive basis, to reflect this 1-for-2.5 reverse stock split for all periods presented. The par value per share and the authorized number of shares of common stock and preferred stock were not adjusted as a result of the reverse stock split.

On November 19, 2014, we closed the initial public offering (“IPO”) of our common stock. In our IPO, we sold 9,315,000 shares of our common stock at a public offering price of $18.00 per share. Net proceeds from our IPO and concurrent private placement were $171.8 million, after deducting underwriting discounts and commissions of $11.7 million and offering expenses of $4.1 million. Concurrent with the closing of our IPO, AstraZeneca AB (“AstraZeneca”), one of our collaboration partners, purchased shares of our common stock in a private placement at a price per share equal to the IPO price for an aggregate purchase price of $20.0 million. Upon the closing of our IPO, all outstanding shares of our convertible preferred stock automatically converted into 33,919,954 shares of common stock and 958,996 shares of FibroGen Europe convertible preferred stock were converted into shares of our common stock. Our proceeds from the sale of the common stock sold in the concurrent private placement were $20.0 million.

Basis of Presentation

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

The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial reporting and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) and, therefore, do not include all information and footnote disclosures normally included in the annual consolidated financial statements. The December 31, 2014 condensed consolidated balance sheet data contained within this Form 10-Q was derived from audited consolidated financial statements included in our Form 10-K for the year ended December 31, 2014, but does not include all disclosures required by accounting principles generally accepted in the United States.

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

Fair Value of Financial Instruments

We define fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

Our valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions. We classify these inputs into the following hierarchy:

Level 1—Quoted prices for identical instruments in active markets.

Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3—Unobservable inputs and little, if any, market activity for the assets.

The assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and considers factors specific to the asset or liability. In addition, the categories presented do not suggest how prices may be affected by the size of the purchases or sales, particularly with the largest highly liquid financial issuers who are in markets continuously with non-equity instruments, or how any such financial assets may be impacted by other factors such as U.S. government guarantees. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

Carrying amounts of certain of our financial instruments including cash equivalents, investments, receivables, accounts payable and accrued liabilities approximate fair value due to their short maturities.

Revenue Recognition

Substantially all of our revenues to date have been generated from our collaboration agreements.

Our collaboration agreements include multiple deliverables, and we, therefore, follow the guidance in Accounting Standards Codification (“ASC”) Topic 605-25, “Revenue Recognition–Multiple-Element Arrangements” (“ASC 605-25”). ASC 605-25:

provides guidance on how revenue arrangements with multiple deliverables should be separated and how the arrangement consideration should be allocated among the separate units of accounting;

requires an entity to determine the selling price of a separate deliverable using a hierarchy of (i) vendor-specific objective evidence (“VSOE”), (ii) third-party evidence (“TPE”), or (iii) best estimate of selling price (“BESP”); and

requires the allocation of the arrangement consideration, at the inception of the arrangement, to the separate units of accounting based on relative selling price.

We evaluate all deliverables within an arrangement to determine whether or not they provide value on a stand-alone basis. Based on this evaluation, the deliverables are separated into units of accounting. The arrangement consideration that is fixed or determinable at the inception of the arrangement is allocated to the separate units of accounting based on their relative selling prices. Significant judgment may be required in determining whether a deliverable provides stand-alone value, determining the amount of arrangement consideration that is fixed or determinable, and estimating the stand-alone selling price of each unit of accounting.

To date, we have determined that the selling price for the deliverables within our collaboration agreements should be determined using BESP, as neither VSOE nor TPE is available. The process for determining BESP involves significant judgment on our part and includes consideration of multiple factors, including assumptions related to the market opportunity and the time needed to commercialize a product candidate pursuant to the relevant license, estimated direct expenses and other costs, which include the rates normally charged by contract research and contract manufacturing organizations for development and manufacturing obligations, and rates that would be charged by qualified outsiders for committee services.

For each unit of accounting identified within an arrangement, we determine the period over which the deliverables are provided and the performance obligation is satisfied. Service revenue is recognized using a proportional performance method. Direct labor hours or full time equivalents are typically used as the measurement of performance. Revenue may be recognized using a straight line method when performance is expected to occur roughly consistently over a period of time.

Payments or reimbursements resulting from our research and development efforts for those arrangements where such efforts are considered as deliverables are recognized as the services are performed and are presented on a gross basis. To the extent payments are required to be made to the collaboration partners pursuant to research and development efforts, those costs are charged to research and development using the guidance pursuant to ASC Topic 605-250, “Customer Payments and Incentives”, which states that cash consideration given by a vendor to a customer is presumed to be a reduction of the selling prices unless the vendor receives an identifiable benefit in exchange for the consideration that is sufficiently separable from the recipient’s purchase of the vendor’s products, and the vendor can reasonably estimate the fair value of the benefit.

Each of our collaboration agreements includes milestones for which we follow ASC Topic 605-28, “Revenue Recognition—Milestone Method” (“ASC 605-28”). ASC 605-28 establishes the milestone method as an acceptable method of revenue recognition for certain contingent event-based payments under research and development arrangements. Under the milestone method, a payment that is contingent upon the achievement of a substantive milestone is recognized in its entirety in the period in which the milestone is achieved. A milestone is an event (i) that can only be achieved based in whole or in part on either our performance or on the occurrence of a specific outcome resulting from our performance, (ii) for which there is substantive uncertainty at the date the arrangement is entered into that the event will be achieved and (iii) that would result in additional payments being due to us. Determining whether a milestone is substantive is a matter of judgment and that assessment must be made at the inception of the arrangement. Milestones are considered substantive when the consideration earned from the achievement of the milestone is (i) commensurate with either our performance to achieve the milestone or the enhancement of the value of the item delivered as a result of a specific outcome resulting from our performance to achieve the milestone, (ii) relates solely to past performance and (iii) is reasonable relative to all deliverables and payment terms in the arrangement. Payments for achieving milestones which are not considered substantive are treated as additional arrangement consideration and are allocated following the relative selling price method previously described.

Net Income (Loss) per Share

Immediately prior to the IPO, the Company had authorized 125,000,000 shares of Preferred Stock with a par value of $0.01 per share. The Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, Royalty Acquisition Preferred Stock and Series G-1 Preferred Stock are collectively referred to as the “Junior Preferred Stock”. The Series E Redeemable Convertible Preferred Stock and Series F Redeemable Convertible Preferred Stock are collectively referred to as the “Senior Preferred Stock”. As of December 31, 2014, there was no outstanding convertible preferred stock as all issued and outstanding preferred stock were converted to common stock at the closing of the Company’s IPO in November 2014.

Prior to the IPO, we applied the two-class method to calculate basic and diluted net income (loss) per share of common stock. The two-class method is an earnings allocation method under which earnings per share is calculated for common stock considering a participating security’s rights to undistributed earnings as if all such earnings had been distributed during the period. The Junior Preferred Stock were participating securities due to their dividend rights and the Senior Preferred Stock had stated dividend rates. During periods of net income, the calculation of basic net income per share was reclassified to exclude the income attributable to all participating securities from the numerator and exclude the dilutive impact of those shares from the denominator. During periods of net loss, all participating securities were not included in the calculation of net loss per share because the preferred stockholders had no contractual obligation to participate in losses.

Diluted net loss per share does not include the effect of 15.0 million and 48.0 million securities for the quarter ended September 30, 2015 and 2014 and 15.0 million and 48.0 million securities for the nine months ended September 30, 2015 and 2014 because their effect would have been anti-dilutive.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. ASU 2014-09 is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The effective date for ASU 2014-09 was initially for fiscal years beginning after December 15, 2016. In July 2015, the FASB approved a one year deferral of this standard with a new effective date for fiscal years beginning after December 15, 2017. The new guidelines can be implemented using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption. We are currently evaluating the impact of this guidance on our consolidated financial statements.