PART I. FINANCIAL INFORMATION
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, 2020, filed with the Securities and Exchange Commission, or SEC, on March 1, 2021.
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 anticipated impact of the novel coronavirus disease 2019, or COVID-19, pandemic on our business, preclinical studies, clinical trials and ability to commercialize any of our drug candidates;
|
|
•
|
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, including whether the U.S. Food and Drug Administration, or FDA, will act by the Prescription Drug User Fee Act, or PDUFA, target goal date for a decision of July 7, 2021 for the avacopan New Drug Application, or NDA;
|
|
•
|
the anticipated outcome of our Advisory Committee meeting with the FDA, currently scheduled for May 6, 2021;
|
|
•
|
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, 2020, filed with the SEC on March 1, 2021.
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® and the ChemoCentryx logo 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 subsidiaries taken as a whole unless otherwise noted.
19
Overview
ChemoCentryx is a biopharmaceutical company focused on the development and commercialization of new medications targeting inflammatory disorders, autoimmune diseases and cancer. Our drug candidates are designed to selectively block a specific chemoattractant receptor, leaving the rest of the immune system intact. Our check point inhibitor drug candidate, CCX559, is an exception, which targets PD-1/PD-L1. Our drug candidates are small molecules, which are orally administered, and, if approved, could address unmet medical needs, including improved efficacy, and offer significant quality of life benefits. Since patients swallow a capsule or pill instead of having to visit a clinic for an infusion or undergo an injection, our drug candidates may improve patient compliance.
We are preparing for the potential commercial launch of avacopan, an orally-administered selective complement 5a receptor inhibitor, for the treatment of patients with anti-neutrophil cytoplasmic autoantibody-associated vasculitis, or ANCA vasculitis. In November 2019, we announced positive topline data from the pivotal Phase III ADVOCATE trial of avacopan for the treatment of patients with ANCA vasculitis. In February 2021, results from our Phase III ADVOCATE trial were published as a peer reviewed journal article in The New England Journal of Medicine, or NEJM.
In September 2020, we announced that the FDA had accepted for review the avacopan New Drug Application, or NDA, for the treatment of ANCA vasculitis in the United States and had set July 7, 2021 as the Prescription Drug User Fee Act, or PDUFA, target goal date for the avacopan NDA. If the NDA is approved, we plan to commercialize avacopan in the United States on our own. We also plan to commercialize avacopan internationally through our kidney health alliance with Vifor Fresenius Medical Care Renal Pharma Ltd. and its affiliates and sublicensees, or collectively, Vifor. In November 2020, Vifor announced that the Marketing Authorisation Application, or MAA, for avacopan in the treatment of ANCA vasculitis was accepted for review (validated) by the European Medicines Agency, or EMA. In February 2021, Vifor and Kissei filed the Japanese NDA, or JNDA, for avacopan in the treatment of ANCA vasculitis with the Japanese Pharmaceuticals and Medical Device Agency, or PMDA. Decisions on the MAA and JNDA filings are expected in the second half of 2021. Our pipeline includes the following programs:
Avacopan:
|
•
|
We are also developing avacopan for the treatment of severe (Hurley Stage III) hidradenitis suppurativa, or HS. In October 2020, we announced positive topline data in severe HS patients from the Phase II AURORA trial of avacopan. We plan to advance avacopan into a Phase III clinical trial for the treatment of severe HS in the second half of 2021.
|
|
•
|
In December 2020, we announced topline data from the Phase II ACCOLADE trial of avacopan for the treatment of patients with complement 3 glomerulopathy, or C3G. We plan to discuss the evidence of clinical benefit of avacopan in C3G with the FDA in 2021.
|
|
•
|
Based on the renal improvement results observed with avacopan treatment in both the ADVOCATE trial in ANCA vasculitis and the ACCOLADE trial in C3G, as measured by an increase in estimated glomerular filtration rate, we plan to develop avacopan in additional complement-mediated renal indications such as lupus nephritis, or LN. We plan to initiate a registrational clinical trial of avacopan for the treatment of LN in the second half of 2021.
|
Immuno-Oncology:
|
•
|
CCX559 is our orally-administered inhibitor for programmed death protein 1/programmed death-ligand 1, or PD-1/PD-L1, which we are developing for the treatment of various cancers. We plan to initiate a Phase I clinical trial of CCX559 in the first half of 2021.
|
Our Strategy
The key elements to our commercial and scientific strategy are to:
|
•
|
Obtain regulatory approval of avacopan for the treatment of ANCA vasculitis in the United States on our own, and support our international commercialization partner Vifor and its Japanese sublicensee Kissei Pharmaceutical, Co., Ltd., or Kissei, in their regulatory approval applications;
|
|
•
|
Commercialize avacopan in the United States on our own, where we believe a company of our size can effectively compete in rare disease markets. If our avacopan NDA is approved by the FDA, we plan to deploy a specialty sales force primarily targeting that subset of nephrologists and rheumatologists treating ANCA vasculitis patients in the United States;
|
20
|
•
|
Develop and commercialize avacopan for additional indications, including C3G, severe HS, and additional complement-mediated renal indications such as LN;
|
|
•
|
Develop our other drug candidates and establish collaborations with pharmaceutical and biotechnology companies to further develop and market our drug candidates; and
|
|
•
|
Discover and validate new drug candidates.
|
As of March 31, 2021, we had an accumulated deficit of $515.1 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.
COVID-19
In December 2019, a disease caused by a novel strain of coronavirus, COVID-19, was identified in Wuhan, China. This virus continues to spread globally and has spread to nearly every country and region in the world, including those in which we have active clinical trial sites or contract manufacturing sites. The length of the pandemic and its related restrictions and their consequences for us remain subject to a number of risks and uncertainties. We experienced a delay in topline clinical data from our ongoing AURORA trial to the fourth quarter of 2020 due to COVID-19 impacting certain sites where the trial was being conducted. We do not currently anticipate any material delays in our preparation for commercial readiness to launch avacopan for the treatment of ANCA vasculitis, if approved, nor are we currently anticipating any material disruption in our clinical drug supply as a result of the pandemic.
Critical Accounting Policies and Significant Judgments and Estimates
There have been no material changes in significant judgments and estimates for our critical accounting policies during the three months ended March 31, 2021, 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, 2020, filed with the SEC on March 1, 2021.
Results of Operations
Revenue
We have not generated any revenue from product sales. For the periods presented, our revenues were derived from collaboration and license revenue related to the Avacopan Agreement, the Avacopan Commercial Supply Agreement and the CCX140 Agreement, in each case, as amended, and the related letter agreements. Total revenue for the three months ended March 31, 2021, as compared to the same period in the prior year, was as follows (in thousands):
|
|
Three Months Ended
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Collaboration and license revenue from
related party
|
|
$
|
10,223
|
|
|
$
|
5,855
|
|
Grant revenue
|
|
|
130
|
|
|
|
153
|
|
Total revenue
|
|
$
|
10,353
|
|
|
$
|
6,008
|
|
Dollar increase (decrease)
|
|
$
|
4,345
|
|
|
|
|
|
Percentage increase (decrease)
|
|
|
72
|
%
|
|
|
|
|
21
We use a cost-based input method to measure proportional performance and to calculate the corresponding amount of revenue to recognize. In applying the cost-based input method of revenue recognition, we measure actual costs incurred relative to budgeted costs to fulfill the combined performance obligation. These costs primarily consist of third-party contract costs. Revenue is recognized based on actual costs incurred as a percentage of total budgeted costs as we complete our performance obligations. The increase in total revenue from 2020 to 2021 for the three month period ended March 31 was primarily attributable to the $10.0 million milestone from Vifor for the February 2021 acceptance of the JNDA by the PMDA, for avacopan in the treatment of ANCA vasculitis. In addition, we recognized $0.8 million of collaboration and license revenue related to sales of avacopan drug product to Vifor for anticipated commercial use outside of the United States. These increases were partially offset by a decrease in revenue associated with the CCX140 Agreement, reflecting the decision to discontinue development of CCX140 in FSGS in the second quarter of 2020.
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 recognize 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 month period ended March 31, 2021, as compared to the same period in the prior year, were as follows (in thousands):
|
|
Three Months Ended
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Research and development expenses
|
|
$
|
23,418
|
|
|
$
|
19,311
|
|
Dollar increase
|
|
$
|
4,107
|
|
|
|
|
|
Percentage increase
|
|
|
21
|
%
|
|
|
|
|
The increase from 2020 to 2021 for the three month periods ended March 31 was primarily attributable to the manufacture of commercial drug supply in anticipation of the launch of avacopan for the treatment of ANCA vasculitis and higher research and drug discovery expenses, including those associated with the development of CCX559, our orally-available small molecule checkpoint (PD-1/PD-L1) inhibitor. These increases were partially offset by lower Phase II related expenses due to the completion of patient enrollment of the avacopan AURORA Phase IIb clinical trial in patients with HS and the discontinuation of further clinical development of CCX140 in FSGS in 2020.
The following table summarizes our research and development expenses by project (in thousands):
|
|
Three Months Ended
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Phase I
|
|
$
|
17
|
|
|
$
|
394
|
|
Phase II
|
|
|
4,048
|
|
|
|
7,945
|
|
Phase III
|
|
|
10,910
|
|
|
|
6,611
|
|
Research and drug discovery
|
|
|
8,443
|
|
|
|
4,361
|
|
Total research and development expenses
|
|
$
|
23,418
|
|
|
$
|
19,311
|
|
We track development expenses that are directly attributable to our clinical development candidates by phase of clinical development. Such development expenses include third-party contract costs relating to formulation, manufacturing, preclinical studies and clinical trial activities. We allocate research and development salaries, benefits or indirect costs to our development candidates and we have included such costs in research and development expenses. All remaining research and development expenses are reflected in “Research and drug discovery” which represents early stage drug discovery programs. Such expenses include allocated 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
22
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.
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 may 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, CCX559 and CCX507.
General and administrative expenses
Total general and administrative expenses for the three months ended March 31, 2021, as compared to the same period in the prior year, were as follows (in thousands):
|
|
Three Months Ended
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
General and administrative expenses
|
|
$
|
16,262
|
|
|
$
|
8,820
|
|
Dollar increase
|
|
$
|
7,442
|
|
|
|
|
|
Percentage increase
|
|
|
84
|
%
|
|
|
|
|
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 increase from 2020 to 2021 for the three month periods ended March 31 was primarily due to higher employee-related expenses, including those associated with our commercialization planning efforts, and higher professional fees. We anticipate that our general and administrative expenses will increase substantially in the future primarily due to commercialization-related activities and personnel costs to support the anticipated launch of avacopan for the treatment of ANCA vasculitis in the United States.
Other income (expense), net
Other income (expense), net primarily consists of interest income earned on our marketable securities and interest expense for our long-term debt. Total other income (expense), net for the three month period ended March 31, 2021, as compared to the same period in the prior year was as follows (in thousands):
|
|
Three Months Ended
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Interest income
|
|
$
|
305
|
|
|
$
|
984
|
|
Interest expense
|
|
|
(689
|
)
|
|
|
(548
|
)
|
Total other income (expense), net
|
|
$
|
(384
|
)
|
|
$
|
436
|
|
Dollar decrease
|
|
$
|
(820
|
)
|
|
|
|
|
Percentage decrease
|
|
|
(188
|
%)
|
|
|
|
|
23
The decrease in total other income (expense), net from 2020 to 2021 for the three month period was primarily due to less interest income earned from our investment portfolio during the continued low interest rate environment during the current COVID-19 pandemic and increased interest expense due to additional borrowings under the Credit Facility and the Restated Credit Facility (as defined below), partially offset by interest income from higher cash and investment balances.
Liquidity and Capital Resources
As of March 31, 2021, we had approximately $425.2 million in cash, cash equivalents, restricted cash and investments. The following table shows a summary of our cash flows for the three months ended March 31, 2021 and 2020 (in thousands):
|
|
Three Months Ended
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Cash provided by (used in)
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
(21,567
|
)
|
|
$
|
(27,446
|
)
|
Investing activities
|
|
$
|
60,668
|
|
|
$
|
32,028
|
|
Financing activities
|
|
$
|
(2,850
|
)
|
|
$
|
15,675
|
|
Operating activities. Net cash used in operating activities was $21.6 million for the three months ended March 31, 2021, compared to $27.4 million for the same period in 2020. This decrease 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, sale and maturity of investments used to fund the day-to-day needs of our business. Following our equity follow-on offering in June 2020, we invested the majority of our net proceeds received in short and long term investments.
Financing activities. Net cash used in financing activities was $2.9 million for the three months ended March 31, 2021, compared to cash provided of $15.7 million for the same period in 2020. Net cash provided by financing activities for the three months ended March 31, 2020 included net proceeds of $4.4 million received under the Restated Credit Facility. Net cash provided by financing activities for both periods presented included proceeds from the exercise of stock options and cash used for tendered ChemoCentryx, Inc. common stock to satisfy employee tax withholding requirements upon vesting of restricted stock units.
As of March 31, 2021, we had borrowed $20.0 million under the loan and security agreement, or Credit Facility, with Hercules Capital, Inc., or Hercules. In January 2020, we entered into an amended and restated credit facility with Hercules, or the Restated Credit Facility, which provides for borrowings of up to an additional $100.0 million in three tranches, subject to certain terms and conditions. As of March 31, 2021, we had borrowed $5.0 million under the Restated Credit Facility. See “Note 6. Long-term Debt” in the Notes to Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q for additional information regarding our borrowings.
As of March 31, 2021, we had approximately $425.2 million in cash, cash equivalents, restricted cash and investments. We believe that our available cash, cash equivalents and investments will be sufficient to fund our anticipated level of operations for at least 12 months following our financial statement issuance date, April 30, 2021. 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, including any delays as a result of the COVID-19 pandemic on our business, preclinical studies or clinical trials;
|
|
•
|
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;
|
24
|
•
|
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.
|
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, 2020, filed with the SEC on March 1, 2021.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements (as defined by applicable SEC regulations) that are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources, except warrants and stock options.
Recent Accounting Pronouncements
See “Note 2. Summary of Significant Accounting Policies” in the Notes to Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q for a full description of recently issued accounting pronouncements, including the respective expected dates of adoption and effects on our consolidated financial position and results of operations.