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Tom Schall - Chairman, President & CEO


Eric Schmidt - Cowen & Company

ChemoCentryx, Inc. (CCXI) Cowen & Company 33rd Annual Health Care Conference Call March 5, 2013 10:00 AM ET


Eric Schmidt - Cowen & Company

Okay, good morning and welcome back to Cowen’s 33rd Annual Healthcare Conference. My name is Eric Schmidt, I am one of the Biotechnology Analyst with the firm and it’s my pleasure I think to welcome to the conference for the first time as a public company, ChemoCentryx. This is a stock, a company that we've been following privately and public now for a number of years; very, very promising biology in the chemokine arena and some very promising later stage products to do.

We are delighted to have with us the company's Chief Executive Officer, Tom Schall, who will be giving a presentation and Tom is joined by Susan Kanaya, here in the front row, who is the company's Chief Financial Officer. Tom?

Tom Schall

Thank you, Eric, for that gracious welcome, and thank you for the invitation to this wonderful conference. So I am delighted to be able to update everyone on the ChemoCentryx story today and behind all the forward-looking statements that I'll make is forward-looking question which is basically what can we expect from ChemoCentryx? And the answer to that is, I believe quite a bit and the reasons are we've got really a highly differentiated approach to our discovery and drug development based on something called the chemokine system which I will brief you on in a moment. That's allowed us to build a very nice pipeline of many experimental medicines and development. Those assets have allowed us, we have so many of them that we are able to risk balance the pipeline, some of them are partnered with big pharma, but many of them including our forward integration plans center piece are wholly independent and 100% owned by ChemoCentryx.

Lots of news flow this year, I'll tell you about three events to watch for later in the year, all of this is wrapped up in strong financial performance, a good cash position and I think that adds up to a very bright future indeed. I'll highlight two programs today, one is in Crohn's disease, those of you who followed us a little bit for few years know that we've been working in this for a while, it’s a very important area, lots of cases in the North America area, but some of you will be a little bit more surprised what the other program I highlight. This is our wholly owned program in chronic kidney disease, its absolutely vast area. We own it a 100% at this point and I'll tell you why our approach is novel and I think very, very important.

So what do we do and why it’s a different and why frankly do I think it’s better in terms of developing novel medicines? We work on something called the chemokine system. Chemokine system is a part of your body that drives a lot of processes, but most of them focused on inflammatory events. In this depiction of the chemokine system we have a blue sphere elaborated in a generic tissue. That blue sphere represents the chemokines. So the chemokine is a large family. But just like many large families we have different siblings in different rooms of the house, so we have different chemokines in different tissues and organ systems and some of those chemokines are problem children. They are delinquents that just cause a lot of trouble.

So for example if this were the gastrointestinal track, that blue sphere is a specialized chemokine known as TECK or TECK sometimes called CCL25 and in the TECK its elaborated only in inflammatory conditions, it gets turned on in inflammatory bowel disease and doesn't get turned off for reasons that we don't understand. TECK gets a secreted end of the circulatory vessel that forms little patchy signal there, so that if an inflammatory cell comes by that has a receptor that specifically recognizes TECK, that cell will stop circulating, it will stick to that signal and it will then start crawling into the tissue; its calling up a gradient of chemokine and that's what chemokine means, chemo-attractant cytokine. When it gets to the source it stops crawling, the cell becomes activated, it starts dividing, force a lot mediators and overtime that damages the tissue which is really the symptomatology we see overtime in autoimmune disease; in this case an inflammatory bowel disease.

Now in other tissues we have other probable chemokines and other receptors responding to those chemokines. So what we do is we identify the receptor of interest, that's driving the cell population causing the damage in that given tissue and we create through the miracles of medicinal chemistry, a very potent, very selective small molecule that binds up that receptor, makes it blind to it's chemokine signal, no matter where that signal is in the body without the receptor being able to see the signal, the inflammatory cells don’t go into the tissue, without the inflammatory cells, you don’t have the inflammatory response ongoing. And so these are orally active drug, we deliver them by pill or capsule formulations. We deliver them globally, but the action tends to be local, why because we're leveraging in the natural selective biology of the chemokine system.

Now that had some really pro-founded damages therapeutically. A lot of the diseases in which we work, things like Crohn’s disease which is a form of inflammatory bowel disease, arthritis which we’re working on and I won't talk too much about it today, but those are two great examples of where the standards of care are protein based therapeutics, mostly of the anti-TNF class. So they actually suppress the immune system to a great degree, which is how they control the autoimmune symptomatology. We're not doing that. We're very precisely controlling just one aspect of the inflammatory response, just when chemokine system. The rest of your immune system is intact. The rest of your chemokine system is working just fine and we're doing with orally active drugs. So in terms of compliance, we should be better. Complications of safety, a priority, we should be better we have evidence for that now and downstream, who knows, even with cost of manufacturing, that could be an advantage in the healthcare marketplace of the future.

Now one of the things we had to do with this fairly complicated family of molecules and receptors and cells, is map the system very, very carefully. Arguably, the most careful map that’s ever been assembled for this part of biology and we've done that over many years and in this depiction of the map, these open circle stations on the subway map of the human body are the drug targets of interest, those are chemokine receptors that drive inflammatory and other pathological cells into those tissues and organ systems in various diseases of those organ systems.

And I will focus on two of those today, both in the kidney and in the gut or gastrointestinal tract. But if you look at those open circle stations, you can see across our broad pipeline, we have targeted various of those chemokine receptors with different small molecule entities; these are novel drugs in experimental medicines discovered and developed at ChemoCentryx and we range from Phase III pivotal trials as you can see, three Phase II programs, two of which have already yielded some positive clinical data, a handful of earlier clinical development programs and late pre-clinical programs. All of these as I said developed at ChemoCentryx, discovered and developed at ChemoCentryx.

And by using those assets, we have been able to risk balance the pipeline three of them are now in a subject to partnership with large pharma and this is with GlaxoSmithKline, I will come back to that in a few minutes, but the large majority of those programs in experimental medicines, we own 100% including the center piece of our forward integration plan, a drug called CCX140 targeting an important chemokine receptor known as the CC Receptor Number Two, or CCR2 and we are working on that in kidney disease. And I will tell you about that program now because I think it's a very important part of what we are doing and what we intend to do and how we intend to grow.

So again the target as a chemokine receptor known as CCR2, the drug is known as CCX140, it is in Phase II testing as we speak for diabetic kidney disease or diabetic nephropathy; I will tell you why in a moment. We have already had some positive Phase IIa data in Type II diabetics without kidney disease and that helps us calibrate what we are doing in our current trial. We also have an earlier stage drug and a second generation if you will call CCX872 that is in Phase I testing. So we have a really nice CCR2 portfolio if you will and that allows us a lot of things, a lot of possibilities for the future.

Now we are really interested in chronic kidney disease or CKD. This is an absolutely vast area, I was stunned myself when we started working in this area a couple of years ago, just how big this problem is. At least 26 million people in the U.S., it’s about one in 12, some estimates put it as high as one in eight or one in nine, the problem with kidney disease per se is not necessarily the milder manifestations, in fact a lot of times you don't even realize you have this problem. The problem is that you inexorably progress to more advanced stages of the disease, you go up in the number scale, here the stage five or end stage renal disease, unless you unfortunately pass away of other causes, typically those causes can be cardiovascular complications of your kidney or renal dysfunction.

Now the standards of care today are mostly blood pressure medications, so called angiotensin pathway inhibitors; angiotensin converting enzyme inhibitor ACE or angiotensin receptor blockers arms. These tend to slow this progression, but they don't halt the progression at all. Once you are in stage five, that's when we have big problems, because there you don't need to transplant which you are not likely to get or more likely you are in dialysis, so this is a huge burden on the patient, on the caregivers, on society at large, the direct costs somewhere between $100,000 and $150,000 a year in the U.S., total rep round care costs two or three or four fold of that at least.

Medicare has the problem with this, because although the Medicare roles are represented only about 0.9% with end stage renal disease patients, Medicare budget is almost 10% just for end stage renal disease; massive economic problem and one which is not going away, in fact its increasing more than linearly. Last year almost 9% increase in end stage renal disease over the previous year; it used to be about 5.5%, traditionally it’s about 2% to 3% year-on-year increase, it’s increasing much more than just linearly. So if you run out the clock on this over a few years certainly well within the life of our patent and unless something is done to halt or slow the progression of ESRD, this will bankrupt healthcare systems around the world. So there's a great incentive on a number of parties to make sure that we are doing everything we can to make more efficient drugs for chronic kidney disease and particularly other preventing end-stage renal disease from recurring at the same rate.

The major causes of all chronic kidney disease comes from the diabetes spectrum both Type 1 and Type 2, most end-stage renal disease comes from Type 2 diabetics, probably explaining why the increase is more of the linear because as you all know Type 2 diabetes is on dramatic up rise, up tick in this country and in another western nations.

Second major cause comes from hypertension even in the absence of hyperglycemia and we have great literature for many independent laboratories and academics as well as private sector over the last decades showing that the chemokine receptor known as CCR2 is a bad actor and at least the diabetic and the hypertension part of kidney dysfunction and I'll show you some of our own data to substantiate that literature as well.

Now, we first got into this from the angle of diabetes but diabetes isn't the whole story. Diabetic kidney disease is a complication of diabetes but mechanistically it’s probably related but distinct from the glycemic non-control and that's just science that's been emerging over the last five to six, seven years.

It’s very clear and others have noticed this as well, when you make vertebrates obese, in this case a mouse which we made about three times the size of its brothers and sisters, they get a lot of inflammation in the expanding fat tissue in the belly and that's because they sent in a population of pro inflammatory cells called macrophages or Latin for big eaters actually Greek for big eaters and their job and they get there because CCR2 drives in there because the expanding fat tissue makes a signal, a chemokine signal for CCR2 known as MCP-1, macrophage chemoattractant protein-1.

Now why does that happen? Well, evolutionarily speaking, storing all that energy is non-physiologic. So the macrophages are supposed to come in and eat up all that non-physiologic tissue which of course they cannot do because the energy keeps coming in from dietary intake.

So that creates like a dysfunctional family, a smoldering inflation over many months and years which causes a breakdown of the entire system eventually leading to the inability to control blood sugar and becoming insulin insensitive over time because of the triggering of a whole inflammatory network that causes those things to occur over time and that has a lot of knockdown consequences as to all tissues in the body.

So when we take away CCR2 in this system, people have done it genetically, others have used antibodies and tool compounds and experiments in animals; we used our drug in animal experiments. We could control the fasting plasma glucose. We can control the blood sugar and we actually restore a lot of health to the systems we store insulin sensitivity, the pancreas etcetera. The question was whether this would translate to humans?

I'll stress we weren't entirely interested in developing a diabetes drug per se but we were interested in knowing how we could use this drug in Type 2 diabetes so that we could then go on to Type 2 diabetes with kidney disease. So we did a trial and phase 2 159 patients everyone was on a blood sugar and control agent metformin, we also used Actos or pioglitazone as a positive control 5 milligram or 10 milligram once a day dozing with our drug CCX140 that targets and inhibits CCR2 function therefore inhibiting the inflammatory macrophages.

And so, just like in the mice, we could control their fasting plasma glucose about as well as the Actos, the pioglitazone. In addition, another index of glycemic controlled, the lowering of something called hemoglobin A1c occurred very efficiently on 10 milligram once a day of this drug and the drug was really well tolerated.

So this was a great gateway to what we really wanted to do, wanting to work in Type 2 diabetes with chronic kidney disease because while we were doing those studies in diabetes, we are actually amassing a mountain of data about how CCR2 was a bad actor in kidney disease. I am going to show you that in a moment.

We're in the middle of this trial and this trial is enrolling originally a minimum of 135 patients that was our goal from last year. We hit that goal and we've gone up now to try to enroll the full 270 and I will tell you why in a moment. So originally, we wanted to look at 12 weeks dosing with protein in the urine as an endpoint.

If you have a protein in the urine that suggests your kidney is now working. Protein in the urine is also a bad thing because it causes progression to chronic kidney disease for reasons I will tell you in a moment and we're going to follow the reduction in hemoglobin A1c.

Now this year, we will return data on that 12 week dosing in Q3. So that’s one of the three news events I wanted to highlight but I will come back to this trial in just a moment. Meanwhile, let’s go to the laboratory and tell you why we're so excited that this thing should yield some interesting results in humans of chronic kidney disease.

The kidney is your major filter organ in your body obviously. It takes essentially in layman’s terms, the bad stuff out of the blood, metabolize toxins and so on. And it's supposed to leave the good stuff in the blood, large proteins and other things that have functions in the body that you want to retain.

It does this by filtering through a unit called the nephron. The nephron has two parts, the spherical head is the glomerulus, that actually takes the blood in and does a physical process of filtration using a number of specialized tissue filters themselves that do that work and then the filtrate is collected, filtrate is a liquid that takes out the bad stuff and that collects through the tubules and all those tubules come together and eventually all that filtrates collected in the urine and avoid it.

Now, this is a scanning electron micrograph on the right hand side here and I am showing you an exterior of the glomerulus and look at those beautiful articulated surfaces. Those are two glomerularized sort of budding up to each other but the zipper like structures are the foot processes of a very important and specialized cells called the podocyte, the podocyte means foot cell and you can see why and those mesh work zipper like structures are in part of the filtration unit of your kidney, on the bottom panel is what's happen when the kidney get sick, it's look like a bomb has been exploded and in part that bomb is the inflammatory response caused by inflammatory macrophages driven into the kidney by CCR2 and it's like a NCP-1.

And why are they there again because when the kidney starts the dysfunction, have a dysfunction it's non-physiologic, protein comes out of the serum goes into the urine and starts decorating all the tubules and that’s non-physiologic. So the macrophages are supposed to come in and clean that up, but again they can't do that.

So overtime, they just cause damage. So why CCR2 in kidney disease the original thesis was and there is a lot of literature on this independently, CCR2 is a bad actor, it causes dysinflammatory overtime, it can never resolve, and it destroys the kidney over the course of months and years.

So we were going to try to resolve that, that was the core of our anti-inflammatory hypothesis. Now, fascinatingly it's going beyond that because in addition to the inflammatory macrophages, there is good data now some of it in the publish literature that suggest that other elements that are non-inflammatory also makes CCR2 stress including possibly those podocytes themselves. And so when they make CCR2 understress they probably retract those zipper like structures allowing the protein to point through.

So, why CCR2 in the kidney? Here is a little film. So the podocytes are these great cells now they are supposed to just let out the bad germs from the blood into the filtrate I think it's stress may be just by stressing, with stretching in high blood pressure, they start to retract the foot processes, we know they start making MCP-1if we believe the literature reports, the protein start flooding through, the protein is now stud that interior surface of the nephrons, that non-physiologic MCP-1 gets made there as well, that inflammatory macrophages come flooding and try to create that but they can't, so we have ongoing inflammation.

The drug was designed to block CCR2 and resolve that so that we can lower the inflammatory index of the kidney but what we now think as well in addition to that happening, we think that the stress podocytes are probably making CCR2 or some other cells in that area. We relieve that stress, we close up those podocyte junctions again and that allows protein to be diminished, and that is a good thing as well, and then you have a more (inaudible) in kidney and other good things happen.

So that is like a mathematician showing you a serum, I am going to show you a couple of slides today approved, so we now we can get rid of the inflammatory macrophage the top side is the micro graphic section of inflammatory macrophages staying with an antibody and then we cover that stuff with brown.

So you can see the difference after two weeks treatment between the top panel and the bottom side panel is a lot less brown that means the lot less inflammatory macrophages by enlargements of the CCR2 positive cells. In addition, protein in the urine goes down immediately within a week before we clear out the inflammation hence our hypothesis for the CCR2 inhibitor is actually acting very quickly on the podocytes themselves, the protein goes down that is the good thing, it shows that your kidney is filtrating better, its also good thing to make sure eliminating that progressive insult to the kidney, the protein is no longer going to decorating the nephrons, that's going to allow to help to the kidney to be restored.

Now, another compound by (inaudible) until recently in Phase 3 no longer in Phase 3, if you worked entirely different mechanism by the way have nothing to do with chemokine division that never lowered proteinuria in our experiments and we used it and tested it side-by-side in our experiments.

Now, one thing I didn't show you on the film clip is the fact that if you look over time two, three, four weeks out, this is now a cross section of the glomerular. So the circular structure is just a cross section to that spherical shape, and I'm staining now the nuclei of those specialized cell supported sites. So you don't see the whole food processes thing but you do see the nuclei and you can see very clearly, we restore the number of [monocytes] in those glomerulus to almost a native state, a non-disease state. So there are restoration steps occurring in these, in-vivo models and we tried many, many models both in diabetic kidney disease as well as outside of the diabetic milieu.

CCR2 inhibition always leads to these benefits and these models that we seek. Now back to the clinic, where are we now? Originally we wanted to enroll 135 going up to 270, we will avail ourselves the 270, we will still return data this year in Q3 on proteinuria and HbA1c. Now why did we avail ourselves to the full 270, because during the course of this trial we actually completed longer term tox studies, we realized that we could extend the dosing regimen if the amendments were allowed to dose for up to 52 weeks and that would allow us to get other important measures of kidney function, things like blood urea nitrogen, serum creatinine, endpoints that will help to find directly the Phase 3 development path.

So we've done that and all of those amendments has about two to three weeks of development approved in all countries. So not only will we get some 12 week data this year we will have totally a cumulative data on 52 weeks of dosing as we go forward into the next year. So the key takeaways, a completely different approach to a massive clinical problem, indeed a massive economic problem chronic kidney disease. We already know in Phase 2A studies that we can move the needle pharmacologically and get some clinical benefit and now we are in the middle of this very exciting Phase 2 trial in diabetic nephropathy with some data coming out this year, Q3, I wish it were this week.

Now we also have a clear development path for this both for Phase 3 development. We know what the endpoints are likely to be and we have a development path in terms of business development, we want to control this drug, we want to hone it at least in North America for specialist, we will find the rest of the world partner to hopefully help us to phrase some of the Phase 3 development expenses and help us find the maximum utility around the world.

Just two minutes on our other program CCR9 which is in Phase 3 trial, CCR9 is the chemokine receptor that draws specialized inflammatory cells to the GI track, why? Because their chemokine signal is only elaborated in the GI track and that we have a drug now called vercirnon used to be called Traficet-EN CCX282 and its in Phase 3 trial. It’s in Phase 3 trials because we've had a number of successes clinically including a success in the large Phase 2B study called the PROTECT-1 trial, 436 patients with moderate to severe Crohn's disease, they come into the study in active flair and we attempt to do two things, we attempt to induce a clinical response, make them more quiescent, then we attempt to maintain them in a more quiescent state. So those are called the induction and maintenance periods and you will see this in any kind of Crohn's disease, development clinical trial back.

You know you are doing that because there's this index called the CDAI or Crohn's Disease Activity Index, it’s a sum of scores, you try to lower that score in the induction phase by at least 70 points historically more recently a 100 points which is a slightly higher barrier, so bring that score down and make them quiescent and then later you look at remission which by definition is an absolute score below a 150 where they are almost clinically asymptomatic. Vercirnon 500 mg, once a day oral dosing clearly could induce clinical response, we could make them more quiescent. This is the percentage patients at week 12 that have a 70 point of greater drop versus the so-called placebo, placebo is a misnomer, they are all getting active Crohn’s therapy or some sort in this trial and even the more stringent 100 point drop as you can see nicely statistically separated in the induction period.

So the drug clearly can induce some nice clinical response. What about maintenance? About half the responders actually got below that level of 150. They were in remission. So we asked the question, if we rerandomize all responders and give nine more months approximately of blind dosing, what happens. Well, about 50% were in remission at the start of that and if they stayed on drug, 50% stayed in remission. If they went back, their background medication, visit by visit, they lost their remitted state of very large separation at the end of that nine months. So we can maintain remission with the drug. That's generally, steroid free remission as well. So, a very important distinction from the other statements of care.

You can do that safely and unlike the standards of care, the anti-TNF, no serious infection over a year of dose, or aggregate year of dose. So based on the strength of that data, GlaxoSmithKline who under an agreement in 2006, had paid for an option right and paid some other money to support the program, they exercise their option, they took a license. They are responsible now for fully funding late stage development. We had wonderful downstream economics on this and the Shield 1 trial is the pivotal phase 3 trial on the induction of clinical response. It's very much like PROTECT 1 induction phase. So we believe this developmentally diminished in terms of risk and also financially diminished.

Look for Shield 1 data later this year, that’s a second news event I wanted to highlight, probably in Q4 sometime. And so the key takeaways again; a totally new approach to Crohn’s therapeutic, an orally active drug, GI specific mechanism, we can induce clinical response, we can maintain people in remission, we can do it safely and phase 3 pivotal trials are underway and that’s just allows me one moment to talk about the GSK relationship. There are only three programs in that relationship. Basically this is a compound focused deal. I just talked about vercirnon; they have the licensed for that now. They are responsible for fully funding, everything else going forward with excellent downstream economic to ChemoCentryx.

Our second program I haven’t talked about today, our CCR1 inhibitor called CCX354 returned to positive phase 2A result in rheumatoid arthritis. They also exercise their option that they are early paid for to license that drug and they are responsible for taking it forward. The third and final program comprises the final news event for this year that I want you to pay attention to CCX168, I didn’t talk about it today it's a C5A receptor inhibitor it's in phase II trial for an orphan disease called renal vasculitis and GSK is obligated to make an option decision later this year on that third and final program. So that will happen sometime in Q4.

If they take the option they will pay us a licensee and they are responsible for redeveloping the drug thereafter, if they don't we own the drug a 100%. This is a compound focused deal. Any other program, any day noble programs on these targets post option exercise, we own 100% at ChemoCentryx. There are no reach (inaudible). They don't have any rights to CCR2 program in chronic kidney disease by way of example.

So our clinical development past to date really validates the idea that you can inhibit a single chemokine receptor and get a good clinical result. We’ve shown it Crohn’s, we’ve shown it in phase 2A studies in arthritis, we’ve shown it in phase 2A studies in diabetes, and we’ve got some really exciting data coming up on diabetic nephropathy in a program that we own 100%.

Good management team, we worked together for many years, we’ve got a great background sort of experience is in biotech, big pharma, etcetera. We can really deliver on the promise, we are well funded for growth, we went public last year in February of last year. We have done quite well since then, got a lot of cash in the bank to execute on the program and we will be reporting our Q4 figures in a couple of well days, or weeks, at most. We gave guidance for greater than 115 million in cash at the end of the year and that guidance will be hit.

So again some news flow this year, some early stage step in the beginning of the year, I didn't touch on that, but certainly by second half Q3, data in diabetic neuropathy and data in pivotal phase 3 trial for Crohn’s disease and vercirnon in the Shield 1 trial and later but certainly by the end of the year the GSK option discussion in the third and final program program that they can opt in our relationship.

So I help to have proven with some data the fact that I think we’ve got a highly differentiated pipeline, pipeline is very deep, it’s quite broad and advanced. We’ve been fortunate having a fast to risk diminish the pipeline, three program with GlaxoSmithKline, the rest of them holding on by ChemoCentryx including the very program in chronic kidney disease and a good cash position.

And I thank you very much for your time and attention, and the opportunity to tell you about ChemoCentryx. So we have a breakout session next to our friend or who might have the time.

Question-and-Answer Session

[No Q&A Session for this event]

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