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ChemoCentryx, Inc. (NASDAQ:CCXI)

Q1 2013 Earnings Call

May 13, 2013 5:00 pm ET

Executives

Susan M. Kanaya – Senior Vice President, Finance, Chief Financial Officer and Secretary

Thomas J. Schall, Ph.D. – President, Chief Executive Officer and Chairman of the Board

Petrus (Pirow) Bekker, M.D., Ph.D. – Senior Vice President of Medical and Clinical Affairs

Analysts

Eric Schmidt – Cowen & Co. LLC

Brian Klein – Stifel Nicolaus

Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the ChemoCentryx’s First Quarter 2013 Financial Results Conference Call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. As a reminder, this conference call will be recorded.

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 M. Kanaya

Thank you. Good afternoon and welcome to the ChemoCentryx first quarter 2013 financial results conference call. This afternoon we issued a press release providing financial results and company highlights for the three months ended March 31, 2013. 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 review upcoming milestones for 2013. Following his comments, I will provide an overview of the financial highlights from the first 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 involving 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 filed on March 13, 2013, and subsequent Quarterly Report on Form 10-Q to be filed on May 14, 2013. 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, May 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 over the call to Tom.

Thomas J. Schall

Thank you, Susan, and thank you to everyone for taking the time to join us for our first quarter earnings conference call. We are pleased to report strong progress on all fronts as we head into the second half of 2013. As you know, ChemoCentryx is focused on discovering, developing, and commercializing novel, orally available drugs that target the chemokine system, which plays a key role in directing the inflammatory response.

Consisting of both chemokine’s and related chemoattractant and the receptors that bind to them, the chemokine system has been implicated in numerous disease processes. ChemoCentryx has built a diverse pipeline with both wholly-owned assets and partnered programs. These assets are new medicines in clinical trials, drug candidates that inhibit different chemokine receptors in a range of medical indications and therapeutic areas.

These areas include autoimmune diseases, inflammatory disorders, and cancer. Our scientific expertise in the chemokine field is the foundation of a robust discovery effort largely fueling this rich clinical portfolio.

I would now like to review a few highlights from the first quarter of 2013. This past quarter, we were successful in patient recruitment efforts in both the Phase II trial and diabetic kidney disease or diabetic nephropathy with CCX140, our lead independent clinical program that targets the chemokine receptor known as CCR2, and we were also successful in recruitment in the SHIELD-1 clinical trial, which is a Phase III pivotal trial for the induction of clinical response in Crohn’s disease with our lead drug candidate called Vercirnon, now partnered with GlaxoSmithKline.

Vercirnon is a drug that targets the chemokine receptor known as CCR9, a receptor that guides a specialized population of inflammatory cells to the gastrointestinal tract. Because of the successful recreating efforts, we expect to announce pivotal data in the Vercirnon trial, as well as top line data from the CCX140 trial in kidney disease later this year, which I will discuss in more detail shortly.

In addition, ChemoCentryx recently completed its first follow-on offering in April of 2013 of 5,750,000 shares of common stock resulting in net proceeds of $64.4 million in cash. The proceeds will enable us to accelerate our CCX140 program and expand clinical work in renal disease, including exploring a potential indication in acute kidney injury, as well as developing a backup compound to CCX140. Our balance sheet also puts us firmly in a position of strength when considering strategic partnerships.

Now, let’s look forward to key milestone events for the rest of 2013. First, we remain on track to report top line data in the third quarter of 2013 from our lead independent program, CCX140 currently in Phase II trials in diabetic nephropathy. As mentioned earlier, this trial is recreating very well and we expect to report 12-week data from approximately 200 patients. The data will primarily be focused on the effects of CCX140 on protein levels in the year end or proteinuria and also on hemoglobin A1c or HbA1c levels.

As you may remember, we expanded the number of patients to 270 from the original 135, and revised the protocol at the end of 2012, to also extend dosing to 52 weeks in order to subsequently assess additional markers related to kidney function. With each additional data set generated, we believe the value of this program only increases as is our ability to explore potential partnerships with favorable terms.

Secondly, we expect top line data in the second half of 2013 from our most advanced partner drug candidate Vercirnon in the SHIELD-1 Phase III clinical trial in Crohn’s disease. This trial is the first of four pivotal trials with Vercirnon, which are being run and fully funded by our partner GSK.

Third, we expect GSK’s option decision on CCX168, an inhibitor of the complement receptor known as the C5aR by the end of the year. This is the third and final drug candidate subject to option within our GSK partnership. And finally, the company’s two wholly-owned independent Phase I programs CCX872, our second generation CCR2 inhibitor and CCX507, a de novo CCR9 inhibitor have progressed well with patient enrollment completed and data expected from both trials this year.

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

Susan M. Kanaya

Thank you, Tom. As mentioned earlier, our first quarter 2013 financial results were included in our press release, which was provided earlier this afternoon.

Revenues for the first quarter ended March 31, 2013 were $1.9 million, compared to $1 million for the same period in 2012. The increase in revenues from 2012 to 2013 for the three months period is primarily due to funding of clinical support from GSK for CCX168 and to a lesser extent an increase in revenue relating to the upfront payment from GSK.

Following the company and GSK’s decision not to advance CCX832, a ChemR23 antagonist, the term of the company’s performance obligation under the alliance and associated period in which the upfront payment is recognized was shortened.

Research and development expenses for the first quarter of 2013 were $9.3 million, compared to $6.9 million in the same period in 2012. The increase in expense from 2012 to 2013 for the three months period was primarily due to the advancement of CCX872, the Phase 1 clinical development, and CCX140 to Phase II studies and patients with diabetic nephropathy.

In addition, CCX168 associated expenses increased primarily due to the continued patient enrollment and the Phase II clinical trial for the treatment of ANCA vasculitis. These increases were partially offset by a decrease in expense associated with drug discovery efforts targeting CXCR7.

General and administrative expenses for the first quarter of 2013 was $3 million compared to $2.6 million in the same period in 2012. The increase from 2012 to 2013 for the three-month period was primarily due to increased stock-based compensation expenses for stock option grants in addition to higher professional service fees relating to fulfilling the company’s reporting obligations as a public company. Cash, cash equivalents and investments totaled $109.7 million at March 31, 2013, excluding the $64.4 million in net proceeds from the company’s April 2013 follow-on offering of common stock.

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

Thomas J. Schall

Thank you, Susan. Before we move forward into the Q&A portion of today’s call, I want to briefly revisit the company’s milestones on the horizon.

In the third quarter, we expect the 12-week data readout from the ongoing Phase II clinical trial of CCX140, which we consider to be a centerpiece of our forward integration plan to become an integrated pharmaceutical company. We also look forward to data from the first of four pivotal Phase III clinical trials of Vercirnon, the SHIELD-1 induction study being conducted by GSK is expected to readout in the second half of 2013. CCX168, the final program under the GSK alliance is currently in a Phase II clinical trial for the treatment of ANCA vasculitis. We anticipate an option decision on CCX168 in the fourth quarter of this year.

Lastly, the company’s two independent Phase I programs; CCX872, a second generation CCR2 inhibitor, and CCX507, a de novo CCR9 inhibitor, are fully enrolled, and we expect data from both in the first and second half of 2013. This is quite a busy week for our team as we will be presenting tomorrow afternoon at the Bank of America Merrill Lynch Healthcare Conference in Las Vegas and ending the week in New York City with our first Annual R&D Analyst Day.

In closing, ChemoCentryx continues to build a broad and robust pipeline while focusing on long-term corporate strategy, including evaluating potential alliances and securing sufficient capitalization to execute our mission. As always, our prime focus at ChemoCentryx remains creating maximum value for our shareholders while bringing important new medicines to patients in need as quickly as possible.

It’s been a pleasure to host this call, and now I would like to open up the call to questions. Operator?

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Geoff Meacham with JPMorgan. Your line is open.

Unidentified Analyst

Yeah, hi, it’s actually Mike in for Geoff. Thanks for taking the question. I had a question on CCX140, just curious if the Phase II 12-week interim analysis that’s coming up here, if that’s positive could you potentially start discussion with the FDA regarding the Phase III design and potentially start that before you get the final 52-week data?

And then secondly just having a partner OUS kind of a requirement prior to starting Phase III? Thanks.

Thomas J. Schall

Thanks, Mike, great question. So, in fact, depending on the strength of the data 12 weeks, you are quite right, if that data looks robustly positive, I think we here at the company are very prepared to continue our planning and began rolling out our ideas for Phase III inheritance that might include a discussion with the FDA at that time.

I don’t think again, depending on the strength of the data, we would necessarily have to wait for the 52-week data readout. We could certainly begin planning for Phase III and understanding what that plan looks like.

Having an ex-U.S. partner is not a requirement to move forward with that plan. Part of the reason that we did the first follow-on funding that we reported is that, that will allow us to aggressively pursue our plans for Phase III development with CCX140, and not necessarily have to wait for consummating our partnership on that in order to do so.

Unidentified Analyst

All right. Thank you.

Thomas J. Schall

Welcome.

Operator

Our next question comes from Eric Schmidt with Cowen & Co. Your line is open.

Eric Schmidt – Cowen & Co. LLC

Good afternoon. A couple of traditional questions on CCX140 if I may, Tom, is there a form that you have in mind for presenting the 12-week data or would that be press released?

Thomas J. Schall

Well, it depends, yeah, Eric, and thanks for the question. It depends on the actual timing of when we have that data, we anticipate that will be out sometime in Q3 as we mentioned late Q3. There maybe a couple of forms that will allow us to present the data in some detail. I think the first step there would be a top line view of data in the press release. I have a great pleasure here today of also being accompanied by Pirow Bekker, who is the Head of our Medical and Regulatory Division. And Pirow, I don’t know if you have any other thoughts on that about the detail form by which we might present the data?

Petrus Bekker

Yes, so obviously, also we’d be interested in scientific event to essentially present the data. This would typically be at a renal event. So it is possible that we might be able to have a late-breaking aspects submitted to the ASN Meeting depending again on when the data will be available or otherwise early next year.

Eric Schmidt – Cowen & Co. LLC

Okay. And now maybe jumping the gun on this in terms of your discussions with the FDA on CCX140, but I guess, given that you are going after diabetic CKD, do you know if there is any requirement on the part of regulators to conduct a large safety evaluation to ensure there is no increase in cardiovascular or other events.

Petrus Bekker

Eric, my understanding is that the FDA does not consider diabetic nephropathy as diabetes development. But that’s certainly something we will be discussing with them in the Phase II meeting.

Eric Schmidt – Cowen & Co. LLC

And last question, go ahead Tom.

Thomas J. Schall

I would just say historically Eric, as you know, the endpoints for diabetic kidney diseases with other chronic kidney diseases are essentially triple outcome studies including…

Eric Schmidt – Cowen & Co. LLC

Yes.

Thomas J. Schall

Time to cardiovascular death typically, as well as time to dialysis or end-stage renal disease and time to doubling a creatinine. And in point of fact the diabetic nephropathy patient population seems to have 2.5 to 3-fold incidence of cardiovascular problems to begin with over just diabetic population. So in point of fact, the traditional outcome studies of the scale they’ve been run seem to be able to capture enough data even if there were to be sort of a safety…

Eric Schmidt – Cowen & Co. LLC

Interesting, okay.

Thomas J. Schall

Consideration built-in.

Eric Schmidt – Cowen & Co. LLC

Okay, got it. And last question also on 140 you mentioned Tom, maybe taking some of your recent financing funds and moving into acute kidney injury, is there a timeline or type of trial that you have in mind there?

Thomas J. Schall

For developing those plants now Eric, I can only say that we’ve got some really interesting off-clinical and pre-clinical sign supporting this view. ome of that’s been independently published by other groups as well, implicating CCR2 as being a major negative player in AKI. We’re certainly looking at how the trials could most expeditious be planned, set up and run and I’ll – suggest that you will have some more news in the coming quarters.

Eric Schmidt – Cowen & Co. LLC

Great. Thank you.

Thomas J. Schall

Thank you, Eric.

Operator

The next question comes from Brian Klein with Stifel Nicolaus. Your line is open.

Brian Klein – Stifel Nicolaus

Hi, guys, thanks for taking my question and nice progress.

Thomas J. Schall

Thank you.

Brian Klein – Stifel Nicolaus

Just building on the last question, regarding CCX140 and acute renal disease, is that trial initiation dependent on the 12-week data?

Petrus Bekker

Not too exactly, Brian, I mean, certainly we would like the 12-week data to inform us and to confirm that we’ve got dose selection in the renal indication somewhat scoped out as we already know and have good data from the Phase IIa study and Type 2 diabetic patients. So, we are certainly looking, we wouldn’t launch the AKI study before the 12-week data, but the 12-week data in diabetic nephropathy as you know is going to be due out in a few short months anyway. So now by the time we get our AKI plan flushed out and ready to launch, we’ll have that data in hand at that time in any case.

Brian Klein – Stifel Nicolaus

Great. And then on 507, can you discuss maybe lesson that you’ve learned from the Vercirnon clinical program in terms of both dosing selection and trial design that might expedite that drug’s development?

Petrus Bekker

Well, in point of fact, when we think about 507, Brian, we are thinking about GI indications, possibly outside of the Crohn’s disease space, which as you know Vercirnon is exclusively being tested in Crohn’s right now. Obviously, ulcerative colitis remains a very interesting and attractive target we believe for CCR9 inhibitor therapy certainly as we’ve run through going back to Vercirnon, which is to be called CCX282 as you know or Traficet-EN.

We’ve learned a lot of lessons about how to work in the GI space efficiently I believe. We’ve learned a lot of science around PKPD relationships, and the coverage of CCR9 as a chemokine receptor in gut disease in particular, but even chemokine receptors in general, I think we’ve been able to integrate all of those learnings today as we move forward with our planning for CCX507 in a GI indication again, you see it’s something we’re quite interested in. At this point, could be something else, but that’s something we’re focusing on at the moment.

Unidentified Analyst

Great. And then lastly with the recent financing, are there any preclinical compound that you’re extremely enthusiastic about moving forward more rapidly into the clinic?

Petrus Bekker

Well, there are a small handful actually, I think, what we’ve decided to do is differ some of those discussions for another couple of months, as we continue to build our database in some of these preclinical compounds. But when you look at things across that earlier part of our pipeline things like CCR6, which drives Th17 cells, Th17 cells are really bad actors in a handful of really important disease indications, we think that’s a very, very interesting program actually. As you know, CXCR7 has got some fascinating aspects of oncology, biology built into it, there is any one of the number and I think we’ll be developing that theme for you a lot more fully in the next quarter or so.

Unidentified Analyst

Great. Thanks so much.

Petrus Bekker

Certainly

Operator

(Operator Instructions). Our next question comes from Yaron Werber with Citi. Your line is open.

Chris - Citi

Great, thanks for taking the question. It’s actually Chris in for Yaron. I have two questions on CCR9. First, if SHIELD-1 is positive, can you comment on whether GSK may plan to file for induction or is there a possibility they might wait for some of the other maintenance studies to readout? And then secondly, can you remind us what components of the CDAI drove Vercirnon efficacy in Phase II? Thanks.

Thomas J. Schall

Thank you, good question. So typically filings are done on both induction and maintenance data in Crohn’s. And maybe some of that is pragmatic and historical, because typically the agencies like to see a year plus worth of safety data as well. So by that time you certainly have some efficacy of indication or indication of efficacy in the longer-term maintenance study. So our expectation is that GSK would have both SHIELD-1 and SHIELD-2 data at the time of their NDA filing, and of course, we would have to appeal to GSK for more specifics on that, but certainly that would be in line with past practices.

In terms of what drove Vercirnon in the past in terms of its ability to induce a clinical response both at a 70 point or greater reduction in the Crohn’s disease activity and also CDAI and also the 100 point or greater reduction in CDAI in patients on Vercirnon versus those who were not taking Vercirnon. The CDAI has a sum of scores and I don’t believe we’ve actually discussed publicly about which of the scores all moved in concert, but the CDAI as those sum of scores certainly did budge in the correct direction. And in fact, I find – I don’t think many of the studies do dissect, which of the components are most moved by a drug.

Petrus Bekker

The most studies would not publish that but I can say so abdominal pain, well-being and number of loose stools are certainly the main components of the CDAI, and I can just state, we’ve seen a fix on all three of those components in the study.

Thomas J. Schall

In the protect one study we are talking about, now…

Petrus Bekker

Yes.

Thomas J. Schall

The previous study that we completed.

Unidentified Analyst

Great. Thank you.

Thomas J. Schall

Certainly.

Operator

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

Thomas J. Schall

Well, thank you all for joining us on this afternoon. This afternoon’s call it has been great to entertain your questions and answer them and I am wishing everyone a very nice day and looking forward to our next discussion next quarter.

Operator

At this time, the program 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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