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Acquisition and Variable Interest Entity | 12 Months Ended
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Dec. 31, 2020
Acquisition And Variable Interest Entity [Abstract] |
Acquisition and Variable Interest Entity |
3. | Acquisition and Variable Interest Entity
On July 8, 2020, FibroGen Cayman, FibroGen Beijing, and FibroGen International (Hong Kong) Limited (collectively, “FibroGen China”) and AstraZeneca entered into an amendment, effective July 1, 2020, to the collaboration agreement for the development and commercialization (but not manufacture) of roxadustat for the treatment of anemia in China (“China Agreement”), relating to the development and commercialization of roxadustat in China (the “China Amendment”). The China Amendment provides for the establishment of a jointly owned entity that will perform roxadustat distribution, as well as conduct sales and marketing through AstraZeneca. To prepare for the establishment of this jointly owned entity, in July 2020, FibroGen Beijing acquired 100% of the outstanding shares of Beijing Kangda Yongfu Pharmaceutical Co., LTD (“Kangda”) in exchange for cash consideration of CNY15.0 million (approximately $2.1 million). The purpose of the acquisition was to acquire a distribution license owned by Kangda for commercializing and distributing roxadustat in China. FibroGen Beijing continues to hold all of the regulatory licenses issued by China regulatory authorities and continues to be primarily responsible for regulatory, clinical, manufacturing, medical affairs and pharmacovigilance. The transaction costs related to the execution of the acquisition, primarily legal expenses, totaled CNY5.0 million and were shared equally with AstraZeneca. Therefore, the acquisition costs for FibroGen Beijing were CNY2.5 million (approximately $0.4 million). Under the ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, the Company determined that the all of the value of Kangda was attributable to the acquired license, and therefore the transaction was accounted for as an asset acquisition. The Company allocated the entire purchase price of $2.5 million to the acquired license that was recorded as an intangible asset, to be amortized over the duration of expected sales of roxadustat. There was no excess consideration over the estimated fair value. Through September 15, 2020, Kangda was consolidated as a wholly owned subsidiary of the Company. The amortization of the license was immaterial during the short period of time before Kangda was deconsolidated upon the establishment of the jointly owned entity described below. On September 15, 2020, FibroGen Beijing and AstraZeneca entered into an equity transfer agreement and shareholders agreement, under which FibroGen Beijing sold 48.9% of the outstanding shares of Kangda to AstraZeneca in exchange for cash consideration of CNY7.3 million (approximately $1.0 million). Concurrently with the equity transfer, the two parties renamed Kangda to Beijing Falikang Pharmaceutical Co. Ltd. (“Falikang”). Following the sale, FibroGen Beijing owns 51.1% of the outstanding shares of Falikang. The gain (loss) resulting from the equity transfer was immaterial. In addition, based on the shareholders’ resolutions of Falikang, in December 2020, FibroGen Beijing made cash contribution of CNY8.9 million (approximately $1.4 million) to Falikang, representing 51.1% of Falikang’s registered capital of CNY17.5 million. AstraZeneca completed its cash contribution of 48.9% of Falikang’s registered capital in December 2020 as well. Pursuant to the guidance under ASC 810, the Company concluded that Falikang qualifies as a VIE. As Falikang is a distribution entity for roxadustat and AstraZeneca is the final decision maker for all the roxadustat commercialization activities, the Company lacks the power criterion while AstraZeneca meets both the power and economic criteria under ASC 810, to direct the activities of Falikang that most significantly impact its performance. Therefore, the Company is not the primary beneficiary of this VIE. As a result, the Company accounted for its investment in Falikang under the equity method, and Falikang is not consolidated into the Company’s consolidated financial statements. Accordingly, The Company recorded its total investments in Falikang of CNY19.2 million (approximately $2.8 million), which is the total of the 51.1% of Falikang’s equity and the acquisition costs, as an investment in unconsolidated subsidiary in other assets in the consolidated balance sheet. In addition, the Company recognized its proportionate share of the reported profits or losses of Falikang, beginning September 15, 2020, as other income (loss) in the consolidated statement of operations, and as an adjustment to its investment in unconsolidated subsidiary in the consolidated balance sheet. Falikang has not incurred material profit or loss to date. The Company may be required to provide shareholder loans to Falikang to meet necessary financial obligations as part of its operations. To date, these loans have been immaterial. The Company’s equity method investment in Falikang was as follows for the year ended December 31, 2020 (in thousands):
Entity |  | Ownership Percentage |  |  | Balance at December 31, 2019 |  |  | Additions |  |  | Share of Net Loss |  |  | Currency Translation |  |  | Balance at December 31, 2020 |
Falikang |  |  | 51.1 | % |  | $ | — |  |  | $ | 2,825 |  |  | $ | (202 | ) |  | $ | 105 |  |  | $ | 2,728 |
Falikang is considered as a related party to the Company. See Note 14, Related Party Transactions, for related disclosures. On an ongoing basis, the Company will re-evaluate the VIE assessment based on changes in facts and circumstances, including but not limited to, the shareholder loans received by Falikang and the execution of any future significant agreements between Falikang and its shareholders and/or other third parties. The Company will assess the impairment of its equity method investment whenever events or changes in circumstances indicate that a decrease in value of the investment has occurred that is other than temporary.

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