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ChemoCentryx (NASDAQ:CCXI)

Q4 2012 Earnings Conference Call

March 13, 2013 5:00 p.m. EST

Executives

Susan Kanaya – SVP, CFO

Thomas Schall – President and CEO

Analysts

Imran Babar – Cowen & Co.

[Mike] – JPMorgan

Brian Klein – Stifel Nicolaus

Yaron Werber – Citi

Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the ChemoCentryx Fourth Quarter and Yearend 2012 Financial Results Conference Call.

[Operator Instructions].

I would now like to turn the call over to Susan Kanaya, Senior Vice President and Chief Financial Officer at ChemoCentryx. Ms. Kanaya, please go ahead.

Susan Kanaya

Thank you. Good afternoon and welcome to the ChemoCentryx fourth quarter and yearend 2012 financial results conference call. This afternoon we issued a press release providing financial results and company highlights for the fourth quarter and year ended December 31, 2012. This press release is available on our website at www.chemocentryx.com.

Joining me on the call today is Dr. Thomas Schall, President and Chief Executive Officer of ChemoCentryx, who'll provide a corporate update and its outlook for 2013. Following his comments, I will provide an overview of the financial highlights from the fourth quarter, before turning the call back over to Tom for closing remarks.

As a reminder, during today's call we will be making certain forward-looking statements. These forward-looking statements are based on current information, assumptions and expectations that are subject to change and involve a number of risks and uncertainties that may cause actual results to differ materially from those contained in the forward-looking statements. These risks are described in our filings made with the Securities and Exchange Commission, including our annual report on Form 10-K to be filed on March 14, 2013, and subsequent quarterly reports on Form 10-Q. You are cautioned not to place undue reliance on these forward-looking statements and ChemoCentryx disclaims any obligation to update such statements.

In addition, this conference call contains time-sensitive information that is accurate only as of the date of this live broadcast, March 13, 2013. ChemoCentryx undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this conference call.

I will now turn the call over to Tom.

Thomas Schall

Thank you, Susan, and thank you to everyone for joining us on our first quarterly earnings conference call. During today's call, we will discuss our fourth quarter and full year 2012 financial results and share some key corporate highlights.

We have entered into an important period in the advancement of the company with key results expected from pivotal Phase 3 and also mid-stage clinical trials in 2013. We look forward to data from our lead independent clinical development program, a Phase 2 clinical trial for the treatment of diabetic nephropathy, with the drug CCX140, an inhibitor of the chemokine receptor known as CCR2. And also we look forward to Phase 3 data from the first four pivotal clinical trials of Vercirnon, a CCR9 inhibitor for the treatment of Crohn's disease. We believe that 2013 could prove to be a tremendously promising year with several key read-outs in both pivotal and mid-stage trials which I'll address in more detail later in the call.

We are very proud of our risk balance pipeline of partnered and wholly-owned programs and a strong balance sheet, and we look forward to the potential opportunities these can bring to the company, to its shareholders, and importantly, to the patients. I speak with the entire management team when I say we are grateful to our past and current investors for their support as we continue to focus on our mission. As most of you are well aware, at ChemoCentryx that mission is to focus on developing and commercializing orally-administered therapeutics, treat auto-immune diseases, inflammatory disorders, and cancer.

We have built a solid clinical development foundation based on multiple clinical and preclinical stage programs each targeting a distinct chemokine receptor or a related chemo-attractant receptor with different small molecule compounds. 2012 marked a critical year when we achieved considerable clinical progress, particularly in terms of our wholly-owned programs, while also judiciously preserving a substantial financial runway.

As most of you will recall, in February 2012, we completed our initial public offering of common stock. Also in 2012 we expanded our Board of Directors with the appointment of veteran industry thought leaders Dr. Joe Feczko and James Tyree. Their remarkable knowledge of the industry should be a significant value as we continue to advance in the clinic our pipeline of independent and partnered drug candidates.

Let's cover some of the pipeline highlights. In our CCR9 inhibitor franchise, we have the unique distinction of advancing multiple orally-administered therapeutics targeting this important chemokine receptor. The company's most advanced drug candidate is Vercirnon, a first-generation orally-administered CCR9 inhibitor currently in four pivotal Phase 3 trials and now partnered with GlaxoSmithKline.

We had previously completed a multinational clinical trial called PROTECT-1 in patients with moderate to severe Crohn's disease, and demonstrated the ability to do a clinical response and to maintain clinical remission. The Phase 3 clinical program is now being run by GSK and we expect data from the first of four pivotal trials, the so-called SHIELD-1 induction study, in the second half of 2013.

In the fourth quarter of 2012, we also initiated a Phase 1 clinical trial for a new generation of CCR9 inhibitors in experimental medicine called CCX507. We are delighted that our de novo discovery efforts have yielded this new generation of more potent CCR9 inhibitors exemplified by CCX507 which is wholly-owned by the company.

We're also very pleased to report on the ongoing progress of our wholly-owned lead independent drug candidate CCX140, a potent and selective inhibitor of the chemokine receptor known as CCR2. CCX140 is currently in Phase 2 clinical trial in patients with diabetic nephropathy. In 2012 we successfully completed enrollment of our baseline target of 135 patients with diabetic nephropathy and we remain on track to read-out 12-week data in the third quarter of this year. This 12-week data will primarily be focused on the effects of CCX140 on proteinuria and hemoglobin A1c of HbA1c.

We have expanded this trial to enroll up to 270 patients as allowed by the study's trial design, and successfully amended the study protocol in all countries to extend dosing up to 52 weeks. We believe that the expansion of the number of patients and the extended dosing period will allow us to help assess other potential benefits of CCX140 related to kidney function, such as glomerular filtration rate and changes in serum creatinine, which historically have taken longer than 12 weeks to see an effect.

Controlling the development and commercialization of CCX140 in North America is a key element of the company's corporate strategy to forward integrate into a commercial biopharmaceutical company. Our strategy for advancing both lead and our next-generation drug candidate in our independent program targeting CCR2 serves to both developmentally de-risk the program and strengthen it from a business development perspective as we seek to partner the program potentially in the rest of the world.

Adding to our franchise of CCR2 inhibitors is the next generation of orally-administered molecules targeting that important receptor for use in expanded indications in renal disease. We initiated Phase 1 clinical trials of that next-generation molecule, CCX872, in November of 2012.

Additionally, CCX168, an inhibitor of the complement receptor known as C5aR is the third and final drug candidate for which GSK may option to obtain an exclusive license. We anticipate GSK to make such a decision on this option by the end of 2013. When considering these programs, we anticipate the news flow in 2013 to be quite robust. It includes data from SHIELD-1, the pivotal Phase 3 induction trial for Vercirnon in Crohn's disease, also 12-week interim data from the ongoing 52-week Phase 2 clinical trial for CCX140 in diabetic nephropathy, and the GSK option decision on the final program under the alliance with GSK. This concerns the drug candidate CCX168 and this option decision should be due in the fourth quarter of 2013.

And now I would like to turn the call over to Susan Kanaya to discuss our financial results.

Susan Kanaya

Thank you, Tom. As mentioned earlier, our fourth quarter 2012 financial results were included in our press release which was provided earlier this afternoon.

The company reported a net loss of $9.8 million for the quarter ended December 31, 2012 compared to net income of $18.2 million during the same quarter in 2011. Net loss for the year ended December 31, 2012 was $39.9 million compared to $4.6 million in 2011. Cash, cash equivalents and investments totaled $119 million at December 31, 2012 compared to $96.1 million at December 31, 2011.

Revenues for the quarter and year ended December 31, 2012 were $2.1 million and $5.4 million, respectively, compared to $26.1 million and $31.7 million by the same period in 2011. The decreases in revenue from 2011 to 2012 for both the three and 12-month periods were primarily due to a $25 million option fee recognized in 2011 resulting from GSK's election to exercise its option to license our CCR1 inhibitor, CCX354.

Research and development expenses for quarter and year ended December 31, 2012 were $9.2 million and $34.6 million, respectively, compared to $5.4 million and $28.4 million for the same periods in 2011. The increases in research and development expenses from 2011 to 2012 for both the three and 12-month periods were primarily due to investing in our lead independent program targeting the chemokine receptor known as CCR2, including the advancement of CCX140 in Phase 2 studies in patients with diabetic nephropathy, and CCX872, our second-generation CCR2 inhibitor, into Phase 1 clinical development.

General and administrative expenses for the quarter and year ended December 31, 2012 were $2.8 million and $10.5 million, respectively, compared to $1.9 million and $7.6 million in the comparable periods in 2011. The increases from 2011 to 2012 for both the three and 12-month periods were primarily related to higher stock-based compensation expense along with higher costs associated with the first year of operating as a publicly-held company.

Cash, cash equivalents and investments totaled $119 million at December 31, 2012, and we expect 2013 cash utilization to range from $40 million to $45 million for the full year.

With that, I will turn the call back over to Tom.

Thomas Schall

Thank you, Susan.

In closing, I would like to highlight our key milestones anticipated in 2013. First, we expect 12-week interim data from the ongoing 52-week Phase 2 clinical trial of CCX140 in patients with diabetic nephropathy. These data are expected in the third quarter of 2013 and will primarily examine the effects of CCX140 on levels of protein in the urine, proteinuria, and also hemoglobin A1c. Second, the data from the first of the four pivotal Phase 3 clinical trials of Vercirnon, which is being conducted by partner GSK, the so-called SHIELD-1 induction study, are expected in the second half of 2013.

Third, an option decision will be made on the final program under the alliance with GSK. This concerns the drug candidate CCX168, which is currently in a Phase 2 clinical trial for the treatment of renal vasculitis. The option decision on CCX168 is anticipated in the fourth quarter of 2013. Finally, data from Phase 1 clinical trials of CCX872, which is the second-generation CCR2 inhibitor, and CCX507, the de novo CCR9 inhibitor, are expected in the first and second half of 2013, respectively.

I believe that we are ChemoCentryx have a highly-differentiated approach to drug discovery and drug development, and this approach has produced a robust pipeline. It has also allowed us to diversify risks in our pipeline within the majority of programs being wholly-owned by ChemoCentryx, including the centerpiece of our forward integration plan, CCX140, our drug candidate targeting the chemokine receptor known as CCR2.

We certainly anticipate a very busy and productive year ahead and we look forward to updating you on our progress in upcoming quarters. It has been a pleasure to host this call. And now I'd like to open up the call to questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions].

The first question comes from Imran Babar from Cowen.

Imran Babar – Cowen & Co.

Hey, guys. Thanks for taking my questions. Just curious if you guys could remind me what are you guys going to be looking for in the 12-week efficacy data, specifically what you will consider the threshold for success in terms of moving it forward into Phase 3?

Thomas Schall

Thank you, Imran, that's a great question. We are quite focused, as you know, on proteinuria in the 12-week data from the diabetic nephropathy study with CCX140. We'll also have a look at HbA1c.

We're anticipating a drop in proteinuria even by week 12, although it's not out of the question that that drop may take longer to manifest itself. It's one of the reasons we also extended the dosing of the trial to 52 weeks, so we could continue to look at proteinuria as well as other indices such as eGFR, which is mostly based on serum creatinine measurements, and we'll have some other important analytes as well that we'll examine at week 52.

I would say that if we see a drop at week 12, which is significant over the current standards of care which are built into the trial as well, we'll be quite encouraged, but certainly the 52-week data will add to the 12-week data set. However, some percentage bordering on 20% or more I think would be a great success in the lowering of proteinuria at 12 weeks.

Imran Babar – Cowen & Co.

Right, that's very helpful. Thank you. I guess my other question is just on the Phase 3 trial and do you have any more discussions with the FDA? And I think last time you were talking about doing an outcomes-based trial, and so whether that's -- is that still your plan both from a regulatory perspective as well as commercially, how necessary that would be?

Thomas Schall

Thank you, Imran. As you know, historically, Phase 3 trials in the kidney disease space, including diabetic nephropathy, have included typically a triple outcome based study where those three outcomes are typically time to end-stage renal disease, usually measured at time to dialysis, time to an increase in serum creatinine, typically a doubling of creatinine, and time to death, usually cardiac death. Those triple outcome studies had been more or less the standard for some time now.

Recently the FDA, in collaboration with the National Kidney Foundation, hosted a workshop in December of last year, and the question put to the workshop was, could increases in serum creatinine be used as the sole registration endpoint for Phase 3? I think the consensus from that meeting was that might be a very good idea indeed and I think there's going to be a publication forthcoming from the NKF with an accompanying commentary from the FDA on that in the next few months.

We are considering both the possibility of an increase in serum creatinine as the sole registration endpoint for Phase 3. That increase has been articulated as a 30% to 40% increase by the workshop. But I think for our planning purposes and for purposes of being conservative, we're also still considering the possibility that a triple outcome based study might be necessary or even desirable. I think economically -- financially rather, we're building that into our model. But I think we will really clarify the situation when we have our end of Phase 2 meeting with the FDA. And of course we'll bring all the data together at that time and discuss which is the more desirable of those two possibilities at that time.

Imran Babar – Cowen & Co.

Thanks so much, very helpful. Really appreciate it.

Operator

Your next question comes from Geoff Meacham from JPMorgan.

[Mike] – JPMorgan

Thanks. This is actually Mike in for Geoff. I have a question for you on CCX140, you mentioned about a potential partnership o-US. Just curious how you're thinking about that and what the triggers are. Is this something that you're already discussing or you're kind of waiting for a full Phase 2 data or potentially the 12-week data before you start looking for a partner? Thanks.

Thomas Schall

I think it's fair to say -- thanks, Mike. I think it's fair to say that the program's value increases with each data step we take. There are many interested parties where discussions are possible. And I think as we get more data, those discussions will intensify. So I'm not -- I don’t have any prognosis of timing about a potential at this point; however, I think it's fair to say that as more data accumulate, we will certainly be able to explore an appropriate partnership of appropriate economics for all parties.

[Mike] – JPMorgan

And then if I can ask a quick follow-up to an earlier question about Phase 3 trial design for 140. You kind of mentioned two options maybe focused on serum creatinine or the triple outcome study. Are there differences in sort of the duration of those studies? Is one shorter than the other? Are both approximately would take the same amount of time?

Thomas Schall

It's difficult to say. In theory, an outcome based solely on an increase in serum creatinine could be somewhat shorter potentially. It could include a broader swathe of the patient population, and it might even require fewer patients in that study. So those are all the theoreticals that certainly are supported by some of the data at hand, but I think we'll have -- it will remain to be seen as we go into those revised study designs in Phase 3 how that plays out. But certainly those are some of the potential advantages of using serum creatinine increased only as the Phase 3 endpoint.

[Mike] – JPMorgan

Great. Thanks for taking my questions.

Thomas Schall

Thank you.

Operator

Your next question comes from Brian Klein from Stifel.

Brian Klein – Stifel Nicolaus

Hi. Thanks for taking my question. First, on 140, I just wanted to confirm that the 12-week data we'll see will only from the first 135 patients, is that correct?

Thomas Schall

Brian, actually no, it will be from something more than 135. We'll take everyone that we have up to that point who has completed 12 weeks. I don’t have the exact number for you, but you can anticipate something on the order of between 175 and 200 perhaps. So we'll have more data than just the original baseline target of 135.

Brian Klein – Stifel Nicolaus

Great. Would you expect to press-release that or would that be presented at a medical meeting?

Thomas Schall

I think the exact timing of when that data become available to us will drive that in some ways. Suffice it to say that we'll make the disclosure as soon as we have the data analyzed. If we have a medical meeting at hand where we can give the full details of the data packet at that time, that would be great. But we'll just have to look at the calendar at that point.

Brian Klein – Stifel Nicolaus

Great. And when do you anticipate completely enrolling that trial, and could you forecast when we might see the full 52-week data for the entire patient population?

Thomas Schall

Yeah, I think the trials are enrolling very nicely now. In addition, after the extension, we added some sites as well. We hope to have the 270 fully enrolled by the end of the year certainly, sometime, say, early Q4 or so. And then obviously sometime in 2014 we'll be releasing the full 52-week data set.

Brian Klein – Stifel Nicolaus

Great. Thanks so much.

Thomas Schall

You're welcome.

Operator

Your next question comes from Yaron Werber from Citi.

Yaron Werber – Citi

Great. Thanks for taking my questions. I just have a couple on -- first, maybe just to start, Tom, on CCX168 for ANCA-associated renal vasculitis, so the study is in more than 60 patients, so first question, any sense when you're going to finish enrollment? And then second, it's sort of, I mean I guess it is placebo-controlled and it is on top of cyclophosphamide, and the endpoint is sort of 169 days. I'm just trying to kind of get a sense, help us understand a little bit, what are you hoping to see in that and kind of the timing on -- as to when you're going to have data internally. It sort of mentions potentially March 2013, that's what I'm asking.

Thomas Schall

Yes, Yaron. Thank you so much. So I'll just say that in this particular program, I believe that the news event we'll see first actually is an option decision from GSK. The trial is designed in three steps. We probably won't have all three steps done by the time GSK is obligated to make their option decision. They'll certainly look at the data we have at hand at that time. So that really the news piece for this year 2013 will be whether or not GSK says yea or nay on the option decision.

As you know, if they say yes, then obviously they pay us the fee and they go forward at their expense developing the drug, and they make other -- may make other decisions as to how take care of the rest of the study and when to release that data. I know that the -- if they say no, then of course we'll be making our decisions about how to go forward and how to pace the timing of the study and any data released subsequent to that.

We will be doing an 85-day analysis though on the data. So that's a little bit different from the idea that you mentioned of 160-plus-day analysis. So there will be data coming out of that upon which the option decision will be made certainly.

Yaron Werber – Citi

Okay. And with respect to -- how are 879 and 507 different from 140 and from Vercirnon?

Thomas Schall

Yes. So the first designator is -- CCX872 actually, Yaron. So these are different chemical entities, obviously, and in both cases the compounds are somewhat more potent than the original generations of the molecules that inhibit those two respective targets. So, potency is a big feature. Obviously they have their own patent stream and IP portfolio, and so also are different in those respects as well.

Yaron Werber – Citi

And does 872 change at all the way you think about 140? In other words, if 140 is successful, would you wait and take 872 forward instead potentially or?

Thomas Schall

No. No, I think that they're independent, really independent considerations. I think our main motivator around having an additional molecule to CCR2, for example, is that there are going to be multiple indications. These indications may all have different dosing regimens, will have different opportunities in the clinic, different ways that the -- obviously business opportunities, even commercial structures. So we fully intended to have more than one molecule for CCR2 really from the beginning of that program. That certainly helps us talk about a more robust business development set of discussions as well.

So I think it's really important to distinguish the fact that for different indications it would be really desirable for us to have different distinct molecules for CCR2. And so that was one of the major motivators.

We really don't see any deficiency in the properties of 140 that would suggest that if we have a successful result in the clinical trials, that we should wait for another molecule merely because it might have some potency advantage or something.

Yaron Werber – Citi

Great. Thank you.

Operator

At this time I'm showing no further questions. I would now like to turn the call back over to Dr. Thomas Schall for closing remarks.

Thomas Schall

Well, I wish to thank everybody for their great questions and I wish to thank everyone for joining us for our first earnings conference call, and I look forward to many productive and pleasant calls in the future. Thanks very much.

Operator

At this time, the question-and-answer session has concluded. Ladies and gentlemen, thank you for participating in today's conference call. You may all disconnect, and have a wonderful day.

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