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CCXI > SEC Filings for CCXI > Form 10-Q on 8-Aug-2014All Recent SEC Filings

Show all filings for CHEMOCENTRYX, INC.

Form 10-Q for CHEMOCENTRYX, INC.


8-Aug-2014

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our financial statements and accompanying notes included in this Quarterly Report on Form 10-Q and the financial statements and accompanying notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013, filed with the Securities and Exchange Commission, or SEC, on March 14, 2014.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "may," "could," "will," "would," "should," "expect," "plan," "aim," "anticipate," "believe," "estimate," "intend," "predict," "seek," "contemplate," "potential" or "continue" or the negative of these terms or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:

• the initiation, timing, progress and results of our preclinical studies and clinical trials, and our research and development programs;

• our ability to advance drug candidates into, and successfully complete, clinical trials;

• the commercialization of our drug candidates;

• the implementation of our business model, strategic plans for our business, drug candidates and technology;

• the scope of protection we are able to establish and maintain for intellectual property rights covering our drug candidates and technology;

• estimates of our expenses, future revenues, capital requirements and our needs for additional financing;

• the timing or likelihood of regulatory filings and approvals;

• our ability to maintain and establish collaborations or obtain additional government grant funding;

• our financial performance; and

• developments relating to our competitors and our industry.

These statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those included in "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013, filed with the SEC on March 14, 2014.

Any forward-looking statement in this Quarterly Report on Form 10-Q reflects our current views with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, industry and future growth. Given these uncertainties, you should not place undue reliance on these forward-looking statements. For all forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

ChemoCentryx®, the ChemoCentryx logo, Traficet™ and Traficet-EN™ are our trademarks in the United States, the European Community, Australia and Japan. EnabaLink® and RAM® are our trademarks in the United States. Each of the other trademarks, trade names or service marks appearing in this Quarterly Report on Form 10-Q belongs to its respective holder.

Unless the context requires otherwise, in this Quarterly Report on Form 10-Q the terms "ChemoCentryx," "we," "us" and "our" refer to ChemoCentryx, Inc., a Delaware corporation, and our subsidiary taken as a whole.


Table of Contents

Overview

ChemoCentryx is a biopharmaceutical company focused on discovering, developing and commercializing orally-administered chemoattractant receptor-based therapeutics to treat autoimmune diseases, inflammatory disorders and cancer. We currently have five drug candidates in clinical development. Our pipeline comprises the following programs:

C5aR Program:

• CCX168 - Targeting the chemoattractant receptor known as C5aR (which binds the complement fragment C5a), CCX168 has successfully completed and reported positive clinical data from the first two steps of a three-step Phase II clinical trial in patients with anti-neutrophil cytoplasmic antibody, or ANCA, associated vasculitis, or AAV. C5aR is also believed to play a role in other renal disease settings such as IgA nephropathy, atypical hemolytic uremic syndrome, or aHUS, and lupus nephritis. We are exploring clinical trials in one or more additional renal indications over the next 12 months;

CCR2 Program:

• CCX140 - Targeting the chemokine receptor known as CCR2, CCX140 is currently in Phase II clinical development in patients with diabetic nephropathy, a form of kidney disease. Data from an ongoing 52-week clinical trial in approximately 200 patients are expected in the fourth quarter of 2014;

• CCX872 - Our second generation orally administered inhibitor targeting CCR2, CCX872, is currently in Phase I clinical development. We are exploring the potential use of CCX872 in the cancer setting in the second half of this year;

CCR9 Program:

• Vercirnon (also known as Traficet-EN, or CCX282) -Targeting the chemokine receptor known as CCR9, vercirnon is our drug candidate for the treatment of patients with moderate-to-severe Crohn's disease. In September 2013, we regained all rights to this program from our former partner Glaxo Group Limited, or GSK, an affiliate of GlaxoSmithKline. The asset is being transferred back to us and we expect to outline next steps in the second half of 2014; and

• CCX507 - Our second generation CCR9 inhibitor for the treatment of inflammatory bowel disease, or IBD, CCX507 has successfully completed Phase I clinical development. We plan to present such data along with preclinical data in combination with protein biologics at medical meetings in the second half of 2014.

Early Stage Programs in Immuno/Oncology and Autoimmune Diseases:

• Chemoattractant Receptor Targets -CCR1, CCR4, CCR5, CCR6, CXCR6, CXCR7 - We are exploring potential opportunities in immuno/oncology, in which such chemoattractant receptor modulators have been reported to play a significant role.

All of our drug candidates are wholly owned and being developed independently by us. Our strategy also includes identification of next generation compounds related to our drug candidates. All of our drug candidates have been internally discovered.

Since commencing our operations in 1997, our efforts have focused on research, development and the advancement of our drug candidates into and through clinical trials. As a result, we have incurred significant losses. We have funded our operations primarily through the sale of convertible preferred and common stock, contract revenue under our collaborations, government contracts and grants and borrowings under equipment financing arrangements. In February 2012, we completed our initial public offering, or IPO, pursuant to which we received net proceeds of $45.0 million, after underwriting discounts, commissions and offering expenses. We also received gross proceeds of $12.0 million from concurrent private placements of common stock at the IPO price of $10.00 per share. In addition, the outstanding principal amount of $10.0 million and accrued interest under a convertible note we had issued to Techne Corporation, or Techne, one of our principal stockholders, automatically converted into shares of our common stock in connection with our IPO at a conversion price equal to the IPO price.

In April 2013, we completed our first follow-on public offering of 5,750,000 shares of our common stock at $12.00 per share. We received net proceeds of $64.4 million, after deducting underwriting discounts, commissions and offering expenses. As of June 30, 2014, we had an accumulated deficit of $196.7 million. We expect to continue to incur net losses as we develop our drug candidates, expand clinical trials for our drug candidates currently in clinical development, expand our research and development activities, expand our systems and facilities, seek regulatory approvals and engage in commercialization preparation activities in anticipation of U.S. Food and Drug Administration, or FDA, approval of our drug candidates. In addition, if a product is approved for commercialization, we will need to expand our organization. Significant capital is required to launch a product and many expenses are incurred before revenues are received. We are unable to predict the extent of any future losses or when we will become profitable, if at all.


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Recent Developments

CCX168 Granted Orphan Drug Designation in ANCA-Associated Diseases by the FDA

In June 2014, we reported that the FDA has granted orphan drug designation for CCX168 ("antagonist of the complement 5a receptor"). The designation is for the treatment of AAVs, including granulomatosis with polyangiitis or Wegener's granulomatosis, microscopic polyangiitis, and Churg-Strauss syndrome. CCX168 is currently in a Phase II trial, named the CLEAR trial, in patients with AAV.

CCX168 Shows Benefit in AAV Based on Birmingham Vasculitis Activity Score and Renal Disease Measurements

In June 2014, we reported additional Phase II data related to CCX168. Data from the first two steps of the CLEAR trial show that patients receiving CCX168 showed improvements in the Birmingham Vasculitis Activity Score, or BVAS, an overall disease activity index, including efficacy observed in both the renal and the non-renal components of the BVAS. Additionally, as previously reported, patients treated with CCX168 as compared to standard of care showed greater improvements in renal function based on renal disease activity measurements including estimated glomerular filtration rate, or eGFR, urinary albumin:creatinine ratio, or ACR, and urinary monocyte chemoattractant protein-1, or MCP-1:creatinine ratio.

Study Results



                                   CCX168 + Cyclophosphamide   CCX168 + CYC +No      Standard of Care:
Mean (SEM) % Change in BVAS from   (CYC) + Low-Dose Steroids       Steroids       CYC + High-Dose Steroids
Start of Study to Week 12                    (N=8)                  (N=8)                  (N=9)
BVAS Total                                -71 +/- 9%             -65 +/- 11%            -26 +/- 25%
BVAS Renal                                -64 +/- 10%            -50 +/- 15%            -16 +/- 26%
BVAS Non-renal                            -81 +/- 33%            -83 +/- 29%             -15 +/- 6%

JOBS Act

In April 2012, the JOBS Act was enacted. Section 107 of the JOBS Act provides that an emerging growth company can utilize the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for implementing new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to delay such adoption of new or revised accounting standards, and as a result, we may not implement new or revised accounting standards on the relevant dates on which adoption of such standards is required for other companies.

Subject to certain conditions set forth in the JOBS Act, as an emerging growth company, we intend to rely on certain of these exemptions, including without limitation, providing an auditor's attestation report on our system of internal controls over financial reporting pursuant to Section 404 and implementing any requirement that may be adopted regarding mandatory audit firm rotation or a supplement to the auditor's report providing additional information about the audit and the financial statements (auditor discussion and analysis). These exemptions will apply for a period of five years following the completion of our IPO although if the market value of our common stock that is held by nonaffiliates exceeds $700 million as of any June 30 before that time, we would cease to be an emerging growth company as of the following December 31.

Critical Accounting Policies and Significant Judgments and Estimates

There have been no material changes in our critical accounting policies during the six months ended June 30, 2014, as compared to those disclosed in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Significant Judgments and Estimates" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013, filed with the SEC on March 14, 2014.


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Results of Operations

Revenues

We have not generated any revenue from product sales. Total revenues for the
three and six months ended June 30, 2014 and 2013, were as follows (in
thousands):



                                         Three Months Ended           Six Months Ended
                                              June 30,                    June 30,
                                         2014           2013         2014          2013
    GSK:
    Contract revenue                   $      -        $   758     $     -        $ 1,557
    Recognition of up-front payments          -          1,128           -          2,256

    Total revenues                     $      -        $ 1,886     $     -        $ 3,813

    Dollar decrease                    $  (1,886 )                 $ (3,813 )
    Percentage decrease                     (100 %)                    (100 %)

The decreases in revenues from 2013 to 2014 for the three and six month periods were primarily due to funding of clinical support in 2013 from our former partner, GSK, an affiliate of GlaxoSmithKline, for CCX168, our C5aR inhibitor, for the treatment of ANCA-associated vasculitis. Our product development and commercialization agreement with GSK ended in November 2013, and therefore no revenue was recorded in 2014.

Research and development expenses

Research and development expenses represent costs incurred to conduct basic research, discovery and development of novel small molecule therapeutics, development of our suite of proprietary drug discovery technologies, preclinical studies and clinical trials of our drug candidates. We expense all research and development expenses as they are incurred. These expenses consist primarily of salaries and related benefits, including stock-based compensation, third-party contract costs relating to research, formulation, manufacturing, preclinical study and clinical trial activities, laboratory consumables, and allocated facility costs. Total research and development expenses for the three and six month periods, as compared to the same periods in the prior year, were as follows (in thousands):

                                         Three Months Ended           Six Months Ended
                                              June 30,                    June 30,
                                         2014           2013         2014           2013
   Research and development expenses   $   9,002       $ 8,676     $ 17,151       $ 17,931
   Dollar increase (decrease)          $     326                   $   (780 )
   Percentage increase (decrease)              4 %                       (4 %)

The increase in research and development expenses from 2013 to 2014 for the three month period was primarily attributed to higher expenses associated with CCX168, as this program advanced into the third step of a three-step Phase II clinical trial for the treatment of AAV in the fourth quarter of 2013, and higher expenses associated with CCX507, as this program has completed Phase I clinical development in the second quarter of 2014. These increases were partially offset by lower expenses associated with CCX140, as the Phase II clinical trial in patients with diabetic nephropathy nears completion, and lower expenses associated with developing CCX872, due to the timing of Phase I related activities.

The decrease in research and development expenses from 2013 to 2014 for the six month period was primarily attributed to lower expenses associated with CCX140 as the Phase II clinical trial in patients with diabetic nephropathy nears completion, and lower expenses associated with developing CCX872 due to the timing of Phase I related activities. These decreases were partially offset by higher expenses associated with CCX168 and CCX507 as described above.


Table of Contents

The following table summarizes our research and development expenses by project (in thousands):

                                                     Three Months Ended            Six Months Ended
                                                          June 30,                     June 30,
                                                     2014           2013          2014          2013
Development candidate (Target)
CCX168 (C5aR)                                     $    2,876       $   933      $  5,688      $  1,911
CCX140 (CCR2)                                          1,043         3,494         2,531         6,216
CCX872 (CCR2 2G)                                         284           666           579         2,329
CCX507 (CCR9)                                          1,278           564         1,892         1,323
Other (C5aR 2G, CCR2 3G, CCR9 3G, CCR4, CCR6,
CXCR7, CCR1 2G, others)                                3,521         3,019         6,461         6,152

Total research and development                    $    9,002       $ 8,676      $ 17,151      $ 17,931

We track specific project expenses that are directly attributable to our preclinical and clinical development candidates that have been nominated and selected for further development. Such project specific expenses include third-party contract costs relating to formulation, manufacturing, preclinical studies and clinical trial activities. Unlike our early stage research and drug discovery programs, we allocate research and development salaries, benefits or indirect costs to our development candidates and we have included such costs in the project specific expenses. All remaining research and development expenses are reflected in "Other" which represents early stage drug discovery programs. Such expenses include unallocated employee salaries and related benefits, stock-based compensation, consulting and contracted services to supplement our in-house laboratory activities, laboratory consumables and allocated facility costs associated with these earlier stage programs.

At any given time, we typically have several active early stage research and drug discovery projects. Our internal resources, employees and infrastructure are not directly tied to any individual research or drug discovery project and are typically deployed across multiple projects. As such, we do not maintain information regarding these costs incurred for our early stage research and drug discovery programs on a project specific basis. We expect our research and development expenses to increase as we advance our development programs further and increase the number and size of our clinical trials. The process of conducting preclinical studies and clinical trials necessary to obtain regulatory approval is costly and time consuming. We or our partners may never succeed in achieving marketing approval for any of our drug candidates. The probability of success for each drug candidate may be affected by numerous factors, including preclinical data, clinical data, competition, manufacturing capability and commercial viability. Our strategy includes entering into additional partnerships with third parties for the development and commercialization of some of our independent drug candidates.

Most of our product development programs are at an early-to-mid-stage; therefore the successful development of our drug candidates is highly uncertain and may not result in approved products. Completion dates and completion costs can vary significantly for each drug candidate and are difficult to predict for each product. Given the uncertainty associated with clinical trial enrollments and the risks inherent in the development process, we are unable to determine the duration and completion costs of the current or future clinical trials of our drug candidates or if, or to what extent, we will generate revenues from the commercialization and sale of any of our drug candidates. We anticipate we will make determinations as to which programs to pursue and how much funding to direct to each program on an ongoing basis in response to the scientific and clinical success of each drug candidate, as well as ongoing assessment as to each drug candidate's commercial potential. We will need to raise additional capital or may seek additional strategic alliances in the future in order to complete the development and commercialization of our drug candidates, including CCX168, CCX140, and vercirnon.


Table of Contents

General and administrative expenses

Total general and administrative expenses were as follows (in thousands):

                                           Three Months Ended          Six Months Ended
                                                June 30,                   June 30,
                                           2014           2013         2014         2013
   General and administrative expenses   $   3,382       $ 2,809     $  6,905      $ 5,773
   Dollar increase                       $     573                   $  1,132
   Percentage increase                          20 %                       20 %

General and administrative expenses consist primarily of salaries and related benefits, including stock-based compensation and travel expenses, in executive, finance, business and corporate development and other administrative functions. Other general and administrative expenses include allocated facility-related costs not otherwise included in research and development expenses, legal costs of pursuing patent protection of our intellectual property, and professional fees for auditing, tax, and legal services.

The increases from 2013 to 2014 for the three and six month periods were primarily due to increased employment related expenses, including stock based compensation expense for stock option grants and restricted stock unit awards, and higher intellectual property related expenses and professional service fees relating to our business development efforts. We expect that general and administrative expenses will increase in the future as we expand our operating activities and incur additional costs associated with being a public company. These public company related increases will likely include investor and public relations expenses and legal and accounting related fees and expenses associated with preparing to meet the requirements pursuant to the Sarbanes-Oxley Act of 2002.

Other income (expense)

Other income (expense) primarily consists of interest income earned on our marketable securities and interest expense incurred on our equipment financing obligations. Total other income (expense), net, as compared to the prior year was as follows (in thousands):

                                     Three Months Ended           Six Months Ended
                                          June 30,                    June 30,
                                     2014            2013         2014          2013
        Interest income            $    129         $  110      $    275        $ 226
        Interest expense                 (6 )          (15 )         (17 )        (32 )

        Total other income , net   $    123         $   95      $    258        $ 194

        Dollar increase                  28                           64
        Percentage increase              29 %                         33 %

The increases in total other income, net from 2013 to 2014 for the three and six month periods were primarily due to higher interest income earned on higher rate of return, which was partially offset by lower average cash balance following our follow-on public offering in April 2013.


Table of Contents

Liquidity and Capital Resources

As of June 30, 2014, we had approximately $133.2 million in cash, cash
equivalents and investments. The following table shows a summary of our cash
flows for the six months ended June 30, 2014 and 2013 (in thousands):



                                                 Six Months Ended
                                                     June 30,
                                               2014           2013
                Cash provided by (used in)
                Operating activities         $ (16,433 )    $ (18,280 )
                Investing activities            17,859         (6,595 )
                Financing activities             1,423         66,693

Operating activities. Net cash used in operating activities was $16.4 million for the six months ended June 30, 2014, compared to net cash used of $18.3 million for the same period in 2013. This change was primarily due to changes in working capital items.

Investing activities. Net cash provided by investing activities for periods presented primarily relate to the purchase and maturity of investments used to fund the day-to-day needs of our business. Following our February 2012 IPO and our follow-on public offering in April 2013, we invested the majority of our net proceeds received in short-term and long-term investments. We finance property and equipment purchases through equipment financing facilities. Proceeds from collaboration agreements and common stock issuances are used for general working capital purposes, such as research and development activities and other general corporate purposes.

Financing activities. Net cash provided by financing activities was $1.4 million for the six months ended June 30, 2014 and was primarily derived from proceeds from the exercise of stock options and purchases from contributions to our 2012 Employee Stock Purchase Plan. Net cash provided of $66.7 million for the same period in 2013 was primarily due to $64.4 million in net proceeds from the issuance of common stock as a result of our follow-on offering in April 2013.

We believe that our existing cash, cash equivalents and investments as of June 30, 2014 will be sufficient to meet our anticipated cash requirements for at least the next 12 months. However, our forecast of the period of time through . . .

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