Item 1.
|
Financial Statements
|
CHEMOCENTRYX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands except share data)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
Assets
|
|
(unaudited)
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
13,867
|
|
|
$
|
12,823
|
|
Short-term investments
|
|
|
107,728
|
|
|
|
58,455
|
|
Accounts receivable
|
|
|
120
|
|
|
|
|
|
Prepaid expenses and other current assets
|
|
|
953
|
|
|
|
757
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
122,668
|
|
|
|
72,035
|
|
Property and equipment, net
|
|
|
778
|
|
|
|
949
|
|
Long-term investments
|
|
|
10,016
|
|
|
|
5,011
|
|
Other assets
|
|
|
285
|
|
|
|
160
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
133,747
|
|
|
$
|
78,155
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders Equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
840
|
|
|
$
|
675
|
|
Accrued liabilities
|
|
|
7,188
|
|
|
|
4,819
|
|
Deferred revenue
|
|
|
18,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
26,194
|
|
|
|
5,494
|
|
Non-current deferred revenue
|
|
|
53,083
|
|
|
|
|
|
Other non-current liabilities
|
|
|
116
|
|
|
|
154
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
79,393
|
|
|
|
5,648
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value, 10,000,000 shares authorized; no shares issued and
outstanding;
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value, 200,000,000 shares authorized at September 30, 2016 and December
31, 2015; 47,793,612 shares and 44,185,506 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively.
|
|
|
48
|
|
|
|
44
|
|
Additional paid-in capital
|
|
|
353,720
|
|
|
|
339,615
|
|
Note receivable
|
|
|
(16
|
)
|
|
|
(16
|
)
|
Accumulated other comprehensive income (loss)
|
|
|
(4
|
)
|
|
|
(40
|
)
|
Accumulated deficit
|
|
|
(299,394
|
)
|
|
|
(267,096
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
54,354
|
|
|
|
72,507
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
133,747
|
|
|
$
|
78,155
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
3
CHEMOCENTRYX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collaboration and license revenue
|
|
$
|
4,131
|
|
|
$
|
|
|
|
$
|
6,751
|
|
|
$
|
|
|
Grant revenue
|
|
|
120
|
|
|
|
|
|
|
|
295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
4,251
|
|
|
|
|
|
|
|
7,046
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
8,389
|
|
|
|
7,931
|
|
|
|
28,696
|
|
|
|
24,953
|
|
General and administrative
|
|
|
3,193
|
|
|
|
3,811
|
|
|
|
11,154
|
|
|
|
11,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
11,582
|
|
|
|
11,742
|
|
|
|
39,850
|
|
|
|
36,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(7,331
|
)
|
|
|
(11,742
|
)
|
|
|
(32,804
|
)
|
|
|
(36,029
|
)
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
259
|
|
|
|
95
|
|
|
|
506
|
|
|
|
298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income, net
|
|
|
259
|
|
|
|
95
|
|
|
|
506
|
|
|
|
298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(7,072
|
)
|
|
$
|
(11,647
|
)
|
|
$
|
(32,298
|
)
|
|
$
|
(35,731
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per common share
|
|
$
|
(0.15
|
)
|
|
$
|
(0.26
|
)
|
|
$
|
(0.70
|
)
|
|
$
|
(0.82
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used to compute basic and diluted net loss per common share
|
|
|
47,763
|
|
|
|
44,070
|
|
|
|
45,942
|
|
|
|
43,804
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
4
CHEMOCENTRYX, INC.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE LOSS
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Net loss
|
|
$
|
(7,072
|
)
|
|
$
|
(11,647
|
)
|
|
$
|
(32,298
|
)
|
|
$
|
(35,731
|
)
|
Unrealized gain (loss) on available-for-sale securities
|
|
|
(84
|
)
|
|
|
33
|
|
|
|
36
|
|
|
|
114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(7,156
|
)
|
|
$
|
(11,614
|
)
|
|
$
|
(32,262
|
)
|
|
$
|
(35,617
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
5
CHEMOCENTRYX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
Operating activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(32,298
|
)
|
|
$
|
(35,731
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation of property and equipment
|
|
|
260
|
|
|
|
375
|
|
Stock-based compensation
|
|
|
6,488
|
|
|
|
6,865
|
|
Noncash interest expense, net
|
|
|
142
|
|
|
|
902
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(120
|
)
|
|
|
|
|
Prepaids and other current assets
|
|
|
(196
|
)
|
|
|
208
|
|
Other assets
|
|
|
(125
|
)
|
|
|
|
|
Accounts payable
|
|
|
165
|
|
|
|
(133
|
)
|
Deferred revenue
|
|
|
71,249
|
|
|
|
|
|
Other liabilities
|
|
|
2,331
|
|
|
|
(2,545
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
47,896
|
|
|
|
(30,059
|
)
|
Investing activities
|
|
|
|
|
|
|
|
|
Purchases of property and equipment, net
|
|
|
(89
|
)
|
|
|
(178
|
)
|
Purchases of investments
|
|
|
(116,958
|
)
|
|
|
(20,383
|
)
|
Maturities of investments
|
|
|
62,574
|
|
|
|
43,423
|
|
Sales of investments
|
|
|
|
|
|
|
4,051
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
(54,473
|
)
|
|
|
26,913
|
|
Financing activities
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
7,000
|
|
|
|
|
|
Proceeds from exercise of stock options and employee stock purchase plan
|
|
|
621
|
|
|
|
1,643
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
7,621
|
|
|
|
1,643
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
1,044
|
|
|
|
(1,503
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
12,823
|
|
|
|
16,075
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
13,867
|
|
|
$
|
14,572
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
6
CHEMOCENTRYX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016
(unaudited)
1.
|
|
Description of Business
|
ChemoCentryx, Inc. (the Company) commenced operations in 1997.
The Company is a clinical-stage biopharmaceutical company focused on discovering, developing and commercializing orally-administered therapeutics to treat orphan and rare diseases, autoimmune diseases, inflammatory disorders and cancer. The
Companys principal operations are in the United States and it operates in one segment.
Unaudited Interim Financial Information
The financial information filed is unaudited. The Condensed Consolidated Financial Statements included in this report reflect all adjustments
(consisting only of normal recurring adjustments) that the Company considers necessary for the fair statement of the results of operations for the interim periods covered and of the financial condition of the Company at the date of the interim
balance sheet. The December 31, 2015 Condensed Consolidated Balance Sheet was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles in the United States of America
(GAAP). The results for interim periods are not necessarily indicative of the results for the entire year or any other interim period. The Condensed Consolidated Financial Statements should be read in conjunction with the Companys financial
statements and the notes thereto included in the Companys annual report on Form 10-K for the year ended December 31, 2015 filed with the Securities and Exchange Commission (SEC) on March 14, 2016.
2.
|
|
Summary of Significant Accounting Policies
|
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying notes. Actual results could differ from these estimates. On an ongoing basis, management evaluates its estimates including, but not limited to, those related to revenue recognition,
the period of performance, identification of deliverables and evaluation of milestones with respect to collaborations.
Concentration of Credit Risk
The Company invests in a variety of financial instruments and, by its policy, limits the amount of credit exposure with any one
issuer, industry or geographic area.
Accounts receivable are typically unsecured and are concentrated in the pharmaceutical industry and
government sector. Accordingly, the Company may be exposed to credit risk generally associated with pharmaceutical companies and government funded entities. The Company has not historically experienced any significant losses. At September 30, 2016,
accounts receivable consisted of amounts due from the U.S. Food and Drug Administration under an Orphan Products Development grant and the Company believes that the associated credit risks are not significant.
Net Loss Per Share
Basic net loss per
common share is computed by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period, without consideration for common stock equivalents.
Diluted net loss per share is computed by dividing net loss attributable to common stockholders by the sum of the weighted-average number of
common shares outstanding and dilutive common stock equivalent shares outstanding for the period. The Companys potentially dilutive common stock equivalent shares, which include incremental common shares issuable upon (i) the exercise of
outstanding stock options and warrants, (ii) vesting of restricted stock units (RSUs), and (iii) the purchase from contributions to the 2012 Employee Stock Purchase Plan (the ESPP), (calculated based on the treasury stock method), are only included
in the calculation of diluted net loss per share when their effect is dilutive.
7
For the nine months ended September 30, 2016 and 2015, the following potentially dilutive
securities were excluded from the calculation of diluted net loss per share due to their anti-dilutive effect:
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
Options to purchase common stock, including purchases from contributions to ESPP
|
|
|
9,363,696
|
|
|
|
7,947,677
|
|
Restricted stock units
|
|
|
340,344
|
|
|
|
67,481
|
|
Warrants to purchase common stock
|
|
|
150,000
|
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,854,040
|
|
|
|
8,165,158
|
|
|
|
|
|
|
|
|
|
|
Revenue Recognition
The Company enters into corporate collaborations under which the Company may obtain upfront license fees, research and development funding,
contingent milestones and royalty payments. The Companys deliverables under these arrangements typically consist of intellectual property rights and research and development services. The Company evaluates whether the delivered elements under
these arrangements have value to the collaboration partners on a stand-alone basis and whether objective and reliable evidence of fair value of the undelivered item exists. If the Company determines that multiple deliverables exist, the
consideration is allocated to one or more units of accounting based upon the best estimate of the selling price of each deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence, if available,
third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific or third-party evidence is available. A delivered item or items that do not qualify as a separate unit of accounting
within the arrangement shall be combined with the other applicable undelivered items within the arrangement. The allocation of arrangement consideration and the recognition of revenue then shall be determined for those combined deliverables as a
single unit of accounting. A delivered item or items that do not have stand-alone value to the Companys collaboration partner shall be combined with the other applicable undelivered items within the arrangement. The allocation of arrangement
consideration and the recognition of revenue then shall be determined for those combined deliverables as a single unit of accounting. For a combined unit of accounting, non-refundable upfront fees and milestones are recognized in a manner consistent
with the final deliverable, which has generally been ratably over the period of performance obligation.
Contingency payments (received
upon the achievement of certain events by the Companys collaborators) and milestone payments (received upon the achievement of certain events by the Company) are non-refundable and recognized as revenues over the period of the collaboration
arrangement. This typically results in a portion of the payments being recognized at the date the contingency or milestone is achieved, which portion is equal to the applicable percentage of the performance period that has elapsed at the date of
achievement, and the balance being recognized over the remaining performance period of the agreement. In certain situations, the Company may receive contingent payments after the end of the Companys period of continued involvement.
In such circumstances, the Company would recognize the full amount of the contingent revenues when the contingency is achieved. Contingency and milestones payments, when recognized as revenue, are classified as collaboration and license
revenues in the Condensed Consolidated Statements of Operations.
Revenue from government and private agency grants are recognized as the
related research and development expenses are incurred and to the extent that funding is approved.
Comprehensive Loss
Comprehensive loss comprises net loss and other comprehensive income (loss). For the periods presented other comprehensive income (loss)
consists of unrealized gains (losses) on the Companys available-for-sale securities. For the three and nine months ended September 30, 2016, there were no sales of investments, and therefore there were no reclassifications. For the same
periods ended September 30, 2015, amounts reclassified from accumulated other income to net income for unrealized gains (losses) on available-for-sale securities were not significant, and were recorded as part of other income (expense), net in the
Condensed Consolidated Statements of Operations.
Recent Accounting Pronouncements
In August 2014, the Financial Accounting Standards Boards (FASB) issued Accounting Standards Updates (ASU) No. 2014-15 (Subtopic
205-40)Presentation of Financial StatementsGoing Concern: Disclosure of Uncertainties about an Entitys Ability to Continue as a Going Concern (ASU 2014-15) which provides guidance about managements responsibility to evaluate
whether or not
8
there is substantial doubt about the Companys ability to continue as a going concern and to provide related footnote disclosure. ASU 2014-15 is effective for the Company the year ending
December 31, 2016. Early application is permitted. The adoption of this standard is not expected to have an impact on its financial statements.
In May 2015, the FASB issued a comprehensive new standard on revenue from contracts with customers. The standards core principle is that
a reporting entity will recognize revenue when it transfers promised 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. On July 9,
2015, the FASB voted to delay the effective date of the new standard by one year. The standard would become effective for the Company beginning in the first quarter of 2018. Early application would be permitted in 2017. Entities would have the
option of using either a full retrospective or a modified retrospective approach to adopt this new guidance. The Company is currently evaluating the impact of its adoption of this standard on its financial statements.
In February 2016, the FASB issued a new standard that requires all lessees recognize the assets and liabilities that arise from leases on the
balance sheet and disclose qualitative and quantitative information about its leasing arrangements. The new standard will be effective for the Company on January 1, 2019. The Company is currently evaluating the impact of this standard on its
financial statements.
In March 2016, FASB issued guidance that changes the accounting for certain aspects of share-based payments to
employees. The guidance requires the recognition of the income tax effects of awards in the income statement when the awards vest or are settled, thus eliminating additional paid in capital pools. The guidance also allows for the employer to
repurchase more of an employees shares for tax withholding purposes without triggering liability accounting. In addition, the guidance allows for a policy election to account for forfeitures as they occur rather than on an estimated basis. The
guidance is effective in 2017 with early adoption permitted. The Company is currently evaluating the impact of this guidance on its financial statements.
9
3.
|
|
Cash Equivalents and Investments
|
The amortized cost and fair value of cash equivalents
and investments at September 30, 2016 and December 31, 2015 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
|
|
Amortized
Cost
|
|
|
Gross Unrealized
|
|
|
Fair
Value
|
|
|
|
|
Gains
|
|
|
Losses
|
|
|
Money market fund
|
|
$
|
12,553
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
12,553
|
|
U.S. treasury securities
|
|
|
38,168
|
|
|
|
23
|
|
|
|
(3
|
)
|
|
|
38,188
|
|
Government-sponsored agencies
|
|
|
6,824
|
|
|
|
1
|
|
|
|
|
|
|
|
6,825
|
|
Commercial paper
|
|
|
18,367
|
|
|
|
|
|
|
|
|
|
|
|
18,367
|
|
Corporate debt securities
|
|
|
54,390
|
|
|
|
2
|
|
|
|
(28
|
)
|
|
|
54,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale securities
|
|
$
|
130,302
|
|
|
$
|
26
|
|
|
$
|
(31
|
)
|
|
$
|
130,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classified as:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12,553
|
|
Short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107,728
|
|
Long-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
130,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
|
Amortized
Cost
|
|
|
Gross Unrealized
|
|
|
Fair
Value
|
|
|
|
|
Gains
|
|
|
Losses
|
|
|
Money market fund
|
|
$
|
11,340
|
|
|
|
|
|
|
|
|
|
|
$
|
11,340
|
|
U.S. treasury securities
|
|
|
14,027
|
|
|
|
1
|
|
|
|
(2
|
)
|
|
|
14,026
|
|
Government-sponsored agencies
|
|
|
30,959
|
|
|
|
|
|
|
|
(25
|
)
|
|
|
30,934
|
|
Commercial paper
|
|
|
3,992
|
|
|
|
|
|
|
|
|
|
|
|
3,992
|
|
Corporate debt securities
|
|
|
14,528
|
|
|
|
|
|
|
|
(14
|
)
|
|
|
14,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale securities
|
|
$
|
74,846
|
|
|
$
|
1
|
|
|
$
|
(41
|
)
|
|
$
|
74,806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classified as:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,340
|
|
Short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58,455
|
|
Long-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
74,806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents in the tables above exclude cash of $1.3 million and $1.5 million as of September 30, 2016
and December 31, 2015, respectively. All available-for-sale securities held as of September 30, 2016 had contractual maturities of less than two years. There have been no significant realized gains or losses on available-for-sale securities for the
periods presented. No available-for-sale securities held as of September 30, 2016 have been in a continuous unrealized loss position for more than 12 months. As of September 30, 2016, unrealized losses on available-for-sale investments are not
attributed to credit risk and are considered to be temporary. The Company believes that it is more-likely-than-not that investments in an unrealized loss position will be held until maturity or the recovery of the cost basis of the investment. The
Company believes it has no other-than-temporary impairments on its securities because it does not intend to sell these securities and it believes it is not more likely than not that it will be required to sell these securities before the recovery of
their amortized cost basis. To date, the Company has not recorded any impairment charges on marketable securities related to other-than-temporary declines in market value.
10
4.
|
|
Fair Value Measurements
|
The Company determines the fair value of financial assets and
liabilities using three levels of inputs as follows:
Level 1Inputs which include quoted prices in active markets for identical
assets and liabilities.
Level 2Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices
for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or
liabilities.
The Companys financial assets and liabilities subject to fair value measurements on a recurring basis and the level of
inputs used in such measurements are as follows as of September 30, 2016 and December 31, 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Money market fund
|
|
$
|
12,553
|
|
|
$
|
|
|
|
$
|
|
|
|
|
12,553
|
|
U.S. treasury securities
|
|
|
|
|
|
|
38,188
|
|
|
|
|
|
|
|
38,188
|
|
Government-sponsored agencies
|
|
|
|
|
|
|
6,825
|
|
|
|
|
|
|
|
6,825
|
|
Commercial paper
|
|
|
|
|
|
|
18,367
|
|
|
|
|
|
|
|
18,367
|
|
Corporate debt securities
|
|
|
|
|
|
|
54,364
|
|
|
|
|
|
|
|
54,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
12,553
|
|
|
$
|
117,744
|
|
|
$
|
|
|
|
$
|
130,297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
Money market fund
|
|
$
|
11,340
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
11,340
|
|
U.S. treasury securities
|
|
|
|
|
|
|
14,026
|
|
|
|
|
|
|
|
14,026
|
|
Government-sponsored agencies
|
|
|
|
|
|
|
30,934
|
|
|
|
|
|
|
|
30,934
|
|
Commercial paper
|
|
|
|
|
|
|
3,992
|
|
|
|
|
|
|
|
3,992
|
|
Corporate debt securities
|
|
|
|
|
|
|
14,514
|
|
|
|
|
|
|
|
14,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
11,340
|
|
|
$
|
63,466
|
|
|
$
|
|
|
|
$
|
74,806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the nine months ended September 30, 2016, there were no transfers between Level 1 and Level 2 financial
assets. When the Company uses observable market prices for identical securities that are traded in less active markets, the Company classifies its marketable debt instruments as Level 2. When observable market prices for identical securities are not
available, the Company prices its marketable debt instruments using non-binding market consensus prices that are corroborated with observable market data; quoted market prices for similar instruments; or pricing models, such as a discounted cash
flow model, with all significant inputs derived from or corroborated with observable market data. Non-binding market consensus prices are based on the proprietary valuation models of pricing providers or brokers. These valuation models incorporate a
number of inputs, including non-binding and binding broker quotes; observable market prices for identical or similar securities; and the internal assumptions of pricing providers or brokers that use observable market inputs and, to a lesser degree,
unobservable market inputs. The Company corroborates non-binding market consensus prices with observable market data using statistical models when observable market data exists. The discounted cash flow model uses observable market inputs, such as
LIBOR-based yield curves, currency spot and forward rates, and credit ratings.
11
Accrued liabilities consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
Research and development related
|
|
$
|
4,470
|
|
|
$
|
2,223
|
|
Compensation related
|
|
|
1,808
|
|
|
|
1,908
|
|
Consulting and professional services
|
|
|
456
|
|
|
|
454
|
|
Other
|
|
|
454
|
|
|
|
234
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,188
|
|
|
$
|
4,819
|
|
|
|
|
|
|
|
|
|
|
6.
|
|
Related-Party Transactions
|
Bio-Techne
Bio-Techne Corporation, formerly Techne Corporation, is one of the Companys principal stockholders. In connection with the Companys
initial public offering (IPO) in February 2012, Bio-Techne received a warrant with a ten-year term to purchase 150,000 shares of the Companys common stock at an exercise price per share equal to $20.00 per share, or 200% of the IPO price of
its common stock, which was outstanding as of September 30, 2016. The Company had an accounts payable balance due to Bio-Techne for the purchases of research materials of $2,000 and zero as of September 30, 2016 and December 31, 2015, respectively.
7.
|
|
Collaboration and License Agreement
|
In May 2016, the Company entered into an exclusive
collaboration and license agreement with Vifor (International) Ltd., (Vifor) pursuant to which the Company granted Vifor exclusive rights to commercialize CCX168 (avacopan) in Europe and certain other markets (the Avacopan Agreement). Avacopan
is the Companys lead drug candidate for the treatment of patients with anti-neutrophil cytoplasmic auto-antibody associated vasculitis and other rare diseases. The Company retained control of ongoing and future development of avacopan
(other than country-specific development in the licensed territories) and all commercialization rights to avacopan in the United States and other countries not licensed to Vifor. The Avacopan Agreement also provides Vifor with an exclusive
option to negotiate during 2016 a worldwide license agreement for one of the Companys other drug candidates, CCX140, an orally administered inhibitor of the chemokine receptor known as CCR2.
In connection with the Avacopan Agreement, the Company received a non-refundable upfront payment of $85.0 million, comprising $60.0 million in
cash and $25.0 million in the form of an equity investment to purchase 3,333,333 shares of the Companys common stock at a price of $7.50 per share. The $85.0 million upfront consideration was initially allocated as of June 2016 as follows:
|
|
|
$7.0 million for the issuance of 3,333,333 shares of the Companys common stock valued at $2.10 per share, the closing stock price on the effective date of the agreement, May 9, 2016.
|
|
|
|
$12.5 million, which may be credited against an upfront fee payable by Vifor, should the parties enter into a worldwide license agreement for CCX140. The amount creditable decreases ratably into the fourth quarter of
2016. As of June 30, 2016, the Company recorded the $12.5 million non-refundable, potential advance payment as noncurrent deferred revenue on the Companys Condensed Consolidated Balance Sheets.
|
|
|
|
The remaining upfront consideration of $65.5 million will be recognized over the estimated period of performance under the Avacopan Agreement, which approximates 4.2 years, ending in June 2020. The deliverables
under the Avacopan Agreement consist of intellectual property licenses, development and regulatory services for the submission of the Marketing Authorization Application (MAA). The Company considered the provisions of the revenue
recognition multiple-element arrangement guidance and concluded that the license and the development and regulatory activities for the submission of the MAA do not have stand-alone value because the rights conveyed to do not permit
Vifor to perform all efforts necessary to use the Companys technology to bring the compound through development and, upon regulatory approval, commercialization of the compound. Accordingly, the Company combined these deliverables and
allocated the remaining upfront consideration of $65.5 million into a single unit of accounting.
|
As of September 30, 2016,
$9.4 million of the $12.5 million potentially creditable towards a CCX140 license agreement expired and was reclassified to the amortizable portion of deferred revenue, which continues to be recognized over the estimated period of performance under
the Avacopan Agreement ending in June 2020. As of September 30, 2016, $3.1 million remained as potentially creditable and was classified as noncurrent deferred revenue on the Companys Condensed Consolidated Balance Sheets. For the three and
nine months ended September 30, 2016, the Company recognized $4.1 million and $6.8 million, respectively, of collaboration and license revenue under the Avacopan Agreement.
12
Upon achievement of certain regulatory and commercial milestones with avacopan, the Company will
receive additional payments of up to $510.0 million under the Avacopan Agreement. In addition, the Company will receive royalties, with rates ranging between the teens and mid-twenties, on future potential net sales of avacopan by Vifor in the
licensed territories.
The Company determined that future contingent payments related to regulatory milestones meet the definition of a
substantive milestone under the accounting guidance. Accordingly, revenue for the achievement of these milestones will be recognized in the period when the milestone is achieved. The Company will be eligible to receive contingent payments related to
commercial milestones based on the performance of Vifor and these payments are not considered to be milestones under the accounting guidance. These contingent commercial milestone payments will be included in the allocation of arrangement
consideration if and when achieved, resulting in an accounting treatment similar to the upfront payment. As of September 30, 2016, the Company has not received any milestone payments under the Avacopan Agreement. The Company expects to
recognize royalty revenue in the period of sale of the related product, based on the underlying contract terms.
In April 2016, the Company was awarded an Orphan Products Development
grant by the U.S. Food and Drug Administration in the amount of $500,000 to support the clinical development of avacopan. The term of the grant expires in May 2017. During the three and nine months ended September 30, 2016, the Company
recognized $120,000 and $295,000, respectively, of grant revenue. As of September 30, 2016, $120,000 was recorded as accounts receivable.
9.
|
|
Equity Incentive Plans
|
Stock Options
During the nine months ended September 30, 2016, the Company had the following option activities under its equity incentive plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Options
|
|
|
|
Available
for Grant
|
|
|
Shares
|
|
|
Weighted Average
Exercise Price
|
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
|
Aggregate
Intrinsic
Value
|
|
Balance at December 31, 2015
|
|
|
2,157,641
|
|
|
|
7,847,449
|
|
|
$
|
8.52
|
|
|
|
|
|
|
|
|
|
Shares authorized
|
|
|
1,750,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
(1)
|
|
|
(2,070,910
|
)
|
|
|
1,744,100
|
|
|
|
3.45
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
(138,750
|
)
|
|
|
2.56
|
|
|
|
|
|
|
|
|
|
Forfeited and expired
|
|
|
146,670
|
|
|
|
(146,670
|
)
|
|
|
7.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2016
|
|
|
1,983,401
|
|
|
|
9,306,129
|
|
|
$
|
7.68
|
|
|
|
6.71
|
|
|
$
|
4,803,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The difference between shares granted in the number of shares available for grant and outstanding options represents the RSUs granted for the period.
|
Stock-based Compensation
Total
stock-based compensation expense was $1.8 million and $6.5 million during the three and nine months ended September 30, 2016, respectively, and $2.1 million and $6.9 million, respectively, during the same period ended September 30,
2015. As of September 30, 2016, $10.1 million, $0.9 million, and $0.1 million of total unrecognized compensation expenses associated with outstanding stock options, unvested RSUs, and the ESPP, net of estimated forfeitures, were expected to be
recognized over a weighted-average period of 2.40, 1.75, and 0.12 years, respectively.
13
Item 2. Managements 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 Managements 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, 2015, filed with the Securities and Exchange Commission, or SEC, on March 14, 2016.
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, 2015, filed with the SEC on March 14, 2016 and our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2016, filed with the SEC on August 9,
2016.
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.
14
Overview
ChemoCentryx is a biopharmaceutical company focused on discovering, developing and commercializing orally-administered therapeutics to treat
orphan and rare diseases, autoimmune diseases, inflammatory disorders and cancer. Our pipeline comprises the following programs:
Orphan and Rare
Diseases:
|
|
|
CCX168 (avacopan) is an orally-administered complement inhibitor targeting the C5a receptor (C5aR) and is being developed for orphan and rare diseases, including anti-neutrophil cytoplasmic auto-antibody associated
vasculitis (AAV), atypical hemolytic uremic syndrome (aHUS), and complement 3 glomerulopathy (C3G). Avacopan has been granted orphan drug designation for the treatment of AAV in the United States and European Union and has been granted PRIority
MEdicines, or PRIME, designation from the European Medicines Agency, or EMA, for the treatment of AAV. The PRIME initiative is designed to enhance supports for the accelerated assessment of investigational therapies addressing unmet medical need.
|
Avacopan has successfully completed and reported positive clinical data from two Phase II clinical trials in patients with
AAV, known as the CLEAR and CLASSIC trials. The CLEAR study met its primary endpoint whereby treatment with avacopan demonstrated numerical superiority and statistical non-inferiority in Birmingham Vasculitis Activity Score, or BVAS response
relative to standard of care, or SOC. Whereas the CLEAR trial was focused on efficacy outcomes, the CLASSIC study was designed to assess the safety profile of avacopan when added to the current SOC therapy. The CLASSIC safety study successfully met
its objectives; the addition of avacopan to SOC therapy did not add safety concerns beyond those seen with SOC alone. We are finalizing our Phase III plan following our end-of-Phase II and scientific advice meetings with regulatory agencies and plan
to initiate the Phase III development program in patients with AAV by the end of 2016. In addition, we plan to initiate clinical endpoint studies in patients with C3G and aHUS in 2017.
Immuno-Oncology and Other Therapeutic Indications:
|
|
|
CCX872 is being evaluated in patients with non-resectable pancreatic cancer, and is an inhibitor of the chemokine receptor known as CCR2. CCX872 completed Phase I clinical development in healthy volunteers. A Phase Ib
clinical trial in patients with advanced pancreatic cancer is ongoing. We recently reported initial 12 week overall response rate, or ORR data from this clinical trial and plan to report initial progression free survival data in early 2017.
|
|
|
|
In other indications, treatment with CCX872 reduced hepatic inflammation, steatosis, and scarring in models of non-alcoholic steatohepatitis, or NASH. We recently reported that treatment with CCX872 achieved a
statistically significant reduction in liver fibrosis as compared to placebo control in two murine models of NASH. In addition, CCX872 was more efficacious than a CCR2/CCR5 dual inhibitor, elsewhere in clinical development, in reducing liver
fibrosis in a murine methionine-choline deficient diet model which is known to induce NASH. We are evaluating further development of CCX872 for the treatment of NASH.
|
|
|
|
Chemoattractant Receptor TargetsCCR1, CCR2, CCR4, CCR5, CCR6, CXCR2, CXCR7We believe these chemokine and chemoattractant receptors play an important role in establishing a tumor microenvironment that
suppresses a cytotoxic immune response. We have discovered small molecule inhibitors targeting these chemoattractant receptors, which may be developed in certain oncology indications targeting both solid and liquid tumors. We believe that such
immunotherapeutic agents could be administered as stand-alone therapies or result in a synergistic effect when given in combination with traditional chemotherapies or other immunotherapies, such as anti-programmed cell death protein 1, or
anti-PD-1/programmed death ligand 1, or PD-L1 antibodies.
|
Chronic Kidney Disease:
|
|
|
CCX140 is an inhibitor of the chemokine receptor known as CCR2 (distinct from CCX872 above) and is being developed as an orally administered therapy for the treatment of diabetic nephropathy, or DN, a form of chronic
kidney disease. We have successfully completed and reported positive data from a Phase II clinical trial in patients with DN. The trial met its primary endpoint by demonstrating that treatment with 5mg of CCX140 given orally once daily added to an
SOC angiotensin converting enzyme inhibitor or angiotensin II receptor blocker treatment resulted in a statistically significant improvement in urinary albumin to creatinine ratio beyond that achieved with SOC alone. Further development of CCX140 in
DN would be conducted in the context of a partnership. We are also evaluating CCX140 for the treatment of other orphan and rare diseases.
|
15
Other Inflammatory and Autoimmune Diseases:
|
|
|
Th17 cell-driven inflammation and CCR6Th17 driven cells have been implicated in a variety of autoimmune and inflammatory diseases such as psoriasis, rheumatoid arthritis, and asthma. Th17 cells express high levels
of the chemokine receptor known as CCR6, which induces their migration to and activation within disease sites. We have a preclinical program in the inhibition of CCR6 which has produced several unique CCR6 inhibitor leads that are now being
optimized through medicinal chemistry approaches, which we plan to advance to a clinical candidate.
|
|
|
|
Vercirnon (also known as Traficet-EN, or CCX282) is an inhibitor of the chemokine receptor known as CCR9, has be in development as an orally administered therapy for the treatment of patients with
moderate-to-severe Crohns disease. Vercirnon is ready to continue development in Phase III with a partner, should an alliance partner be identified for this program.
|
|
|
|
CCX507 is our second generation CCR9 inhibitor for the treatment of inflammatory bowel disease, or IBD. CCX507 has successfully completed Phase I clinical development, which demonstrated that CCX507 was safe and
well-tolerated, and blocked CCR9 on circulating leukocytes. We also presented preclinical data with CCX507 in combination with an
anti-
a
4ß7 or anti-TNF
antibody showing combined treatment reduced the severity of colitis better than monotherapy with either drug alone.
|
All of
our drug candidates are wholly owned and being developed independently by us, other than pursuant to our exclusive collaboration and license agreement with Vifor (International) Ltd., or Vifor, which provides Vifor exclusive rights to commercialize
avacopan in Europe and certain other markets, or the Avacopan Agreement. Our strategy also includes identification of next generation compounds related to our drug candidates, all of which have been internally discovered.
Business Highlights and Recent Developments
In October 2016, we announced that we will present positive data from a Phase II proof-of-concept study with avacopan, to assess the effects of
orally-administered avacopan (30 mg twice daily for two weeks) on thrombus formation ex vivo from aHUS patients with end-stage renal disease, at the American Society of Nephrology Kidney Week 2016 Annual Meeting. Five patients have been treated to
date. After 14 days of dosing in aHUS patients, the mean decrease in thrombus size was 83%. Treatment appeared to be mechanism specific, as the thrombus size returned to baseline levels when avacopan treatment was stopped. There was one serious
adverse event, not considered related to avacopan use, in a patient with long-standing cardiovascular and renal disease of cardiac asystole. Two patients in the study had low platelet counts which improved on avacopan treatment.
In October 2016, we announced that avacopan has shown a beneficial effect on disease in a patient with C3G. C3G is a rare disease of the
kidney characterized by deposition of the protein known as C3 (a component of the bodys complement system) in the filtration units (the glomeruli) of the kidney, leading to profound kidney damage and eventual renal failure. There is currently
no approved effective standard therapy for C3G. Under the Special Needs program in the United Kingdom (similar to compassionate use protocols in the United States), a C3G renal transplant recipient with deteriorating kidney function has
responded well to treatment with the orally administered complement inhibitor avacopan. After only one month of initial treatment with avacopan, renal function (based on estimated glomerular filtration rate or eGFR) stabilized. Moreover,
sequential kidney biopsies taken after the patient had been on avacopan for 2 and 7 months showed continued improvement in kidney histology based on a decrease in glomerular endocapillary proliferation and a marked reduction in the number of
glomerular inflammatory macrophages, as compared to the pre-treatment biopsy. Based on these findings, we plan to initiate a multi-center clinical endpoint study to further investigate avacopan in the treatment of C3G in the first half of 2017.
In another program targeting CCR2, in September 2016, we announced positive 12 week ORR results from an ongoing open label, single arm
Phase Ib clinical trial with CCX872, which aims to evaluate the safety and effects of orally administered CCX872 when added to standard of care FOLFIRINOX (5-fluorouracil, leucovorin, irinotecan and oxaliplatin) treatment in patients with advanced
non-resectable pancreatic cancer. CCX872 was well-tolerated and demonstrated a safety profile consistent with FOLFIRINOX alone. We expect to report progression-free survival in early 2017.
Also in our CCR2 program, in October 2016, we announced the presentation of data from in vivo models of NASH with CCX872, a selective orally
administered inhibitor of the chemokine receptor known as CCR2, at the October 2016 American College of Gastroenterology Annual Meeting. CCX872 demonstrated significant reductions in liver fibrosis when compared to either placebo or a separate
compound which is a dual inhibitor of the chemokine receptors CCR2 and CCR5 currently in clinical development by another party. The data suggest a potential application of CCX872 for the treatment of patients with NASH, a severe type of
non-alcoholic fatty liver disease caused by chronic inflammation that can lead to fibrosis (scarring) of the liver. NASH affects three to five percent of the U.S. population.
16
In October 2016, we appointed Henry A. McKinnell, Jr., Ph.D., retired chief executive officer and
chairman of the board of directors of Pfizer, Inc. to our board of directors.
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. As of September 30, 2016, we had an accumulated deficit of $299.4 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 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.
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 auditors 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 auditors 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 September 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 three months ended September 30, 2016, as compared to
those disclosed in Item 7. Managements Discussion and Analysis of Financial Condition and Results of OperationsCritical Accounting Policies and Significant Judgments and Estimates in our Annual Report on Form 10-K for the
fiscal year ended December 31, 2015, filed with the SEC on March 14, 2016, other than the following.
Revenue Recognition
We enter into corporate collaboration and license agreements under which we may obtain upfront license fees, research and development funding,
contingent milestone and royalty payments. Our deliverables under these arrangements may include intellectual property rights, distribution rights, delivery of manufactured product, participation on joint steering committees and/or research and
development services. In order to account for the multiple-element arrangements, we identify the deliverables included within the arrangement and evaluate whether the delivered elements under these arrangements have value to our collaboration
partner on a stand-alone basis and represent separate units of accounting. Analyzing the arrangement to identify deliverables requires the use of judgment, and each deliverable may be an obligation to deliver future goods or services, a right or
license to use an asset, or another performance obligation. If we determine that multiple deliverables exist, the consideration is allocated to one or more units of accounting based upon the best estimate of the selling price of each deliverable.
The selling price used for each deliverable will be based on vendor-specific objective evidence, if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific or
third-party evidence is available. A delivered item or items that do not qualify as a separate unit of accounting within the arrangement shall be combined with the other applicable undelivered items within the arrangement. The allocation of
arrangement consideration and the recognition of revenue then shall be determined for those combined deliverables as a single unit of accounting. For a combined unit of accounting, non-refundable upfront fees are recognized in a manner consistent
with the final deliverable, which has generally been ratably over the estimated period of continued involvement. We periodically review the basis for our estimates, and we may change the estimates if circumstances change. These changes can
significantly increase or decrease the amount of revenue recognized. Amounts received in advance of performance are recorded as deferred revenue. Upfront fees are classified as collaboration and license revenue in our consolidated statements of
operations.
17
We consider sales-based contingent payments to be royalty revenue which is generally recognized
at the date the contingency is achieved. Royalties are classified as license revenues in our consolidated statements of operations.
For
certain contingent payments under collaboration and license arrangements, we recognize revenue using the milestone method. 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 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. The determination that a milestone is
substantive requires estimation and judgment and is 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 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) reasonable
relative to all deliverables and payment terms in the arrangement. In making the determination as to whether a milestone is substantive or not, we consider all facts and circumstances relevant to the arrangement, including factors such as the
scientific, regulatory, commercial and other risks that must be overcome to achieve the respective milestone, the level of effort and investment required to achieve the respective milestone and whether any portion of the milestone consideration is
related to future performance or deliverables.
Results of Operations
Revenue
We have not generated any revenue from product sales. For the three and nine months ended September 30, 2016, our revenue was derived from
the recognition of the upfront payment related to the Avacopan Agreement, as well as grant revenue from the FDA Orphan Products Development grant to support the clinical development of avacopan for the treatment of patients with AAV. Total revenue
for the periods, as compared to the same periods in the prior year, were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Collaboration and license revenue
|
|
$
|
4,131
|
|
|
$
|
|
|
|
$
|
6,751
|
|
|
$
|
|
|
Grant revenue
|
|
|
120
|
|
|
|
|
|
|
|
295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
4,251
|
|
|
$
|
|
|
|
$
|
7,046
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar increase
|
|
$
|
4,251
|
|
|
|
|
|
|
$
|
7,046
|
|
|
|
|
|
Percentage increase
|
|
|
100
|
%
|
|
|
|
|
|
|
100
|
%
|
|
|
|
|
The increases in revenue from 2015 to 2016 for the three and nine month periods were primarily due to:
(i) amortization of the upfront payment from Vifor pursuant to the Avacopan Agreement and (ii) grant revenue from the FDA to support the clinical development of avacopan for the treatment of patients with AAV.
18
Research and development expenses
Research and development expenses represent costs incurred to conduct basic research, the 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 nine months ended September 30, 2016, as compared to the same period in the prior year, were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Research and development expenses
|
|
$
|
8,389
|
|
|
$
|
7,931
|
|
|
$
|
28,696
|
|
|
$
|
24,953
|
|
Dollar increase
|
|
$
|
458
|
|
|
|
|
|
|
$
|
3,743
|
|
|
|
|
|
Percentage increase
|
|
|
6
|
%
|
|
|
|
|
|
|
15
|
%
|
|
|
|
|
The increase in research and development expenses from 2015 to 2016 for the three month period was primarily
attributable to higher expenses associated with avacopan, our C5aR inhibitor, for start-up activities related to the Phase III development program in patients with AAV. These increases were partially offset by lower expenses associated with Phase II
development of avacopan, due to the completion of the CLEAR and CLASSIC Phase II clinical trials in the 2016 period.
The increase in
research and development expenses from 2015 to 2016 for the nine month period was primarily attributable to higher expenses associated with avacopan for start-up activities related to the Phase III development program in patients with AAV, as well
as the completion of ancillary Phase I clinical trials in support of end of Phase II meetings with regulatory agencies for the same, as well as higher expenses associated with CCX872 for our ongoing clinical trial in patients with advanced
pancreatic cancer. These increases were partially offset by lower expenses associated with Phase II development of avacopan, due to the completion of the CLEAR and CLASSIC Phase II clinical trials in the 2016 period.
The following table summarizes our research and development expenses by project (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Development candidate (Target)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Avacopan (C5aR)
|
|
$
|
4,132
|
|
|
$
|
3,285
|
|
|
$
|
13,402
|
|
|
$
|
11,247
|
|
CCX872 (CCR2 2G)
|
|
|
808
|
|
|
|
592
|
|
|
|
4,031
|
|
|
|
1,964
|
|
CCX140 (CCR2)
|
|
|
317
|
|
|
|
648
|
|
|
|
1,177
|
|
|
|
1,585
|
|
CCX507 (CCR9)
|
|
|
22
|
|
|
|
12
|
|
|
|
71
|
|
|
|
87
|
|
Other (CCR6, C5aR 2G, CCR2 3G, CXCR2, CCR1, CCR9 3G, CCR4, CXCR7, Others)
|
|
|
3,110
|
|
|
|
3,394
|
|
|
|
10,015
|
|
|
|
10,070
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total research and development
|
|
$
|
8,389
|
|
|
$
|
7,931
|
|
|
$
|
28,696
|
|
|
$
|
24,953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
19
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 candidates 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 avacopan, CCX140, CCX872 and vercirnon.
General and administrative expenses
Total general and administrative expenses for the three and nine month periods, as compared to the same periods in the prior year were as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
General and administrative expenses
|
|
$
|
3,193
|
|
|
$
|
3,811
|
|
|
$
|
11,154
|
|
|
$
|
11,076
|
|
Dollar increase (decrease)
|
|
$
|
(618
|
)
|
|
|
|
|
|
$
|
78
|
|
|
|
|
|
Percentage increase
|
|
|
-16
|
%
|
|
|
|
|
|
|
1
|
%
|
|
|
|
|
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 decrease from 2015 to 2016 for the three month period was primarily due to a decrease in stock compensation expense and intellectual
property filing expenses. The increase from 2015 to 2016 for the nine month period was primarily due to increase in professional 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, but not be limited to, investor and public relations expenses, legal and accounting related fees, and expenses associated with preparing to
meet the requirements pursuant to the Sarbanes-Oxley Act of 2002, including in connection with the expiration of our status as an emerging growth company, expected to occur in 2017.
20
Other income, net
Other income, net primarily consists of interest income earned on our marketable securities. Total other income, net, for the three and nine
month periods, as compared to the same periods in the prior year was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Interest income
|
|
$
|
259
|
|
|
$
|
95
|
|
|
$
|
506
|
|
|
$
|
298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income, net
|
|
$
|
259
|
|
|
$
|
95
|
|
|
$
|
506
|
|
|
$
|
298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar decrease
|
|
$
|
164
|
|
|
|
|
|
|
$
|
208
|
|
|
|
|
|
Percentage decrease
|
|
|
173
|
%
|
|
|
|
|
|
|
70
|
%
|
|
|
|
|
The increase in total other income, net from 2015 to 2016 for the three and nine month periods were primarily
due to higher cash and investment balances in the 2016 periods due to the receipt of $85.0 million in connection with the Avacopan Agreement.
21
Liquidity and Capital Resources
As of September 30, 2016, we had approximately $131.6 million in cash, cash equivalents and investments. The following table shows a
summary of our cash flows for the nine months ended September 30, 2016 and 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2016
|
|
|
2015
|
|
Cash provided by (used in)
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
47,896
|
|
|
$
|
(30,059
|
)
|
Investing activities
|
|
|
(54,473
|
)
|
|
|
26,913
|
|
Financing activities
|
|
|
7,621
|
|
|
|
1,643
|
|
Operating activities.
Net cash provided by operating activities was $47.9 million for the nine
months ended September 30, 2016, compared to cash used of $30.1 million for the same period in 2015. This change was primarily due to changes in working capital items. For the nine months ended September 2016, changes in working capital
included $71.2 million of deferred revenue in connection with the Avacopan Agreement.
Investing activities.
Net cash provided
by or used in 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.
Financing activities.
Net cash provided by financing activities was $7.6 million for the nine months ended September 30,
2016, which was primarily due to the receipt of $7.0 million in net proceeds from the issuance of 3,333,333 shares of our common stock in connection with the Avacopan Agreement. Net cash provided by financing activities for both periods presented
also included proceeds from the exercise of stock options and purchases from contributions to our 2012 Employee Stock Purchase Plan.
We
believe that our existing cash, cash equivalents and investments as of September 30, 2016, 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 which
our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially.
Our future capital requirements are difficult to forecast and will depend on many factors, including:
|
|
|
the terms and timing of any other collaborative, licensing and other arrangements that we may establish;
|
|
|
|
the initiation, progress, timing and completion of preclinical studies and clinical trials for our drug candidates and potential drug candidates;
|
|
|
|
the number and characteristics of drug candidates that we pursue;
|
|
|
|
the progress, costs and results of our clinical trials;
|
|
|
|
the outcome, timing and cost of regulatory approvals;
|
|
|
|
delays that may be caused by changing regulatory approvals;
|
|
|
|
the cost and timing of hiring new employees to support continued growth;
|
|
|
|
the costs involved in filing and prosecuting patent applications and enforcing and defending patent claims;
|
|
|
|
the cost and timing of procuring clinical and commercial supplies of our drug candidates;
|
|
|
|
the cost and timing of establishing sales, marketing and distribution capabilities; and
|
|
|
|
the extent to which we acquire or invest in businesses, products or technologies.
|
22
Contractual Obligations and Commitments
There have been no material changes outside the ordinary course of our business to the contractual obligations we reported in our Annual Report
on Form 10-K for the fiscal year ended December 31, 2015, filed with the SEC on March 14, 2016.
Recent Accounting Pronouncements
In August 2014, the Financial Accounting Standards Boards, or FASB, issued Accounting Standards Updates, or ASU, No. 2014-15 (Subtopic
205-40)Presentation of Financial StatementsGoing Concern: Disclosure of Uncertainties about an Entitys Ability to Continue as a Going Concern (ASU 2014-15) which provides guidance about managements responsibility to evaluate
whether or not there is substantial doubt about our ability to continue as a going concern and to provide related footnote disclosure. ASU 2014-15 is effective for us the year ending December 31, 2016. Early application is permitted. The
adoption of this standard is not expected to have an impact on our financial statements.
In May 2015, the FASB issued a comprehensive new
standard on revenue from contracts with customers. The standards core principle is that a reporting entity will recognize revenue when it transfers promised 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. On July 9, 2015, the FASB voted to delay the effective date of the new standard by one year. The standard would become effective for us beginning in the first quarter of
2018. Early application would be permitted in 2017. Entities would have the option of using either a full retrospective or a modified retrospective approach to adopt this new guidance. We are currently evaluating the impact of our adoption of this
standard on our financial statements.
In February 2016, the FASB issued a new standard that requires all lessees recognize the assets and
liabilities that arise from leases on the balance sheet and disclose qualitative and quantitative information about its leasing arrangements. The new standard will be effective for us on January 1, 2019. We are currently evaluating the impact
of this standard on its financial statements.
In March 2016, FASB issued guidance that changes the accounting for certain aspects of
share-based payments to employees. The guidance requires the recognition of the income tax effects of awards in the income statement when the awards vest or are settled, thus eliminating additional paid in capital pools. The guidance also allows for
the employer to repurchase more of an employees shares for tax withholding purposes without triggering liability accounting. In addition, the guidance allows for a policy election to account for forfeitures as they occur rather than on an
estimated basis. The guidance is effective in 2017 with early adoption permitted. We are currently evaluating the impact of this guidance on our financial statements.