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 endedDecember 31, 2021 , filed with theSecurities and Exchange Commission , orSEC , onMarch 1, 2022 . 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:
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the initiation, timing, progress and results of our preclinical studies and clinical trials, and our research and development programs;
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our ability to advance drug candidates into, and successfully complete, clinical trials;
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the anticipated impact of the ongoing pandemic of novel coronavirus disease 2019, or COVID-19, and its variants on our business, preclinical studies and clinical trials;
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the implementation of our business model, strategic plans for our business, drug candidates and technology;
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the scope of protection we are able to establish and maintain for intellectual property rights covering our drug candidates and technology;
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estimates of our expenses, future revenues, capital requirements and our needs for additional financing;
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the timing or likelihood of regulatory filings and approvals;
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our ability to maintain and establish collaborations or obtain additional government grant funding;
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the impact or outcome of putative shareholder class action or putative shareholder derivative litigation;
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the global economic and political environments;
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the global supply chain disruptions;
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the significant adverse effects of inflation and prices on our business;
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our financial performance; and
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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 herein and in "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 , filed with theSEC onMarch 1, 2022 . 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®, theChemoCentryx logo and TAVNEOSÒ are our trademarks inthe United States , the European Community,Australia andJapan . EnabaLink®and RAM® are our trademarks inthe 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 toChemoCentryx, Inc. , aDelaware corporation, and our subsidiaries taken as a whole unless otherwise noted. 22 --------------------------------------------------------------------------------
Overview
ChemoCentryx is a fully integratedUnited States biopharmaceutical company focused on the development and commercialization of new medications targeting inflammatory disorders, autoimmune diseases and cancer. We target the chemokine and chemoattractant systems to discover, develop and commercialize orally-administered therapies. In theU.S. , we market TAVNEOSÒ (avacopan) as an adjunctive treatment for adult patients with severe active anti-neutrophil cytoplasmic autoantibody-associated vasculitis, or ANCA-associated vasculitis, specifically granulomatosis with polyangiitis, or GPA, and microscopic polyangiitis, or MPA, the two main forms of ANCA-associated vasculitis, in combination with standard therapy including glucocorticoids, and not for the elimination of glucocorticoid use. InOctober 2021 , we obtained regulatory approval and launched TAVNEOS in theU.S. for the treatment of an orphan disease called ANCA-associated vasculitis, leading to the grant of orphan drug marketing exclusivity for a period of seven years discussed further below. TAVNEOS also obtained regulatory approval inJapan for the treatment of patients with MPA and GPA in 2021. InJanuary 2022 , theEuropean Commission approved TAVNEOS in combination with a rituximab or cyclophosphamide regimen for the treatment of adult patients with severe active GPA or MPA. TAVNEOS received marketing authorization in all member states of the EU, as well as inIceland ,Liechtenstein andNorway . Also, inJanuary 2022 , the FDA granted a seven-year orphan drug marketing exclusive approval for TAVNEOS which began onOctober 7, 2021 , the date of approval of the NDA. We are required to assure the availability of sufficient quantities of TAVNEOS to meet the needs of patients to maintain exclusivity. In addition, TAVNEOS was approved inCanada inApril 2022 and in theUnited Kingdom inMay 2022 . ANCA-associated vasculitis is a group of rare diseases that affect small-to-medium sized blood vessels in the patient's body. It involves inflammation of the blood vessels, which reduces blood flow and can result in organ damage and failure, with the kidney as the major target, and is often fatal if not treated. While a patient's genetics and environment are thought to be contributing causes of the disease, the exact cause is currently unknown. The two most common sub-types of ANCA-associated vasculitis are GPA and MPA. In GPA, small areas of inflammation called "granulomas" develop inside parts of the body. GPA typically involves the kidneys, lungs, ears, nose and throat. If a patient has GPA they may be at risk for serious complications, such as hearing loss, kidney damage, skin scarring, or blood clots. MPA also affects the lungs and kidneys. However, unlike GPA, a patient's ears, nose and throat are less likely to be affected, and there is no granuloma formation. We plan to capitalize on TAVNEOS's potential to address multiple disease areas in the coming years. We consider TAVNEOS to be a 'Pipeline in a Drug.' We plan to continue or initiate clinical development in additional rare diseases, including severe hidradenitis suppurativa, or HS, complement 3 glomerulopathy, or C3G, and lupus nephritis, or LN. Our goal is to change treatment paradigms in orphan and rare disease; specifically targeting the chronic inflammatory pathway while avoiding immuno-suppression. The majority of our drug candidates and our first commercial drug product, TAVNEOS, are designed to selectively block a specific chemoattractant receptor. Separately, in our cancer program, we use a novel, orally-administered drug candidate, CCX559, designed to inhibit programmed death-ligand 1/programmed death protein 1, or PD-L1/PD-1, which we are developing for the treatment of a variety of cancers. Small molecule checkpoint inhibitors may have advantageous properties compared to approved monoclonal antibodies, such as better penetration into solid tumors, reduced immunogenicity, lack of Fc-mediated side effects, and the convenience of oral administration.
Highlights from our development pipeline include:
TAVNEOSÒ (avacopan):
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We are also developing TAVNEOS for the treatment of severe HS. We reported initial topline data, including positive results in a subgroup analysis of patients with Hurley Stage III (considered to have severe HS) from the Phase II AURORA trial of TAVNEOS; however, the primary efficacy endpoint was not met in the overall study population. Pending interactions with regulatory agencies, we plan to advance TAVNEOS into Phase III clinical development for the treatment of severe HS in the second half of 2022.
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We plan to develop TAVNEOS in additional complement-mediated renal indications, such as LN. We plan to initiate a clinical development program for TAVNEOS in LN in the first quarter of 2023, pending interaction with regulatory agencies.
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We also reported initial topline data from the Phase II ACCOLADE trial of TAVNEOS for the treatment of patients with C3G. We plan to review data from the ACCOLADE trial with FDA in second half of 2022.
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Immuno-Oncology
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CCX559 is our orally-administered inhibitor for PD-L1/PD-1, which we are developing for the treatment of various cancers. This structurally novel small molecule displayed nanomolar potency and high selectivity for PD-L1. Results from in vitro studies suggested that CCX559 induced the dimerization and internalization of cell-surface PD-L1. CCX559, when orally administered in animal models, was observed to have anti-tumor activity, including the potential to induce complete responses. We plan to initiate a Phase Ib/II clinical study in selected patient populations in early 2023.
Our Strategy
The key elements to our commercial and scientific strategy are to:
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Commercialize TAVNEOS® (avacopan) inthe United States using our own resources, where we believe a company of our size can effectively compete in rare disease markets. We have deployed a specialty sales force primarily targeting that subset of nephrologists and rheumatologists treating ANCA-associated vasculitis patients inthe United States ;
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Continue to develop CCX559, our orally-administered inhibitor for PD-L1/PD-1 for various cancers;
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Develop and, if approved, commercialize TAVNEOS for additional indications, including C3G, severe HS, and additional complement-mediated renal indications, such as LN;
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Develop our drug candidates and establish collaborations with pharmaceutical and biotechnology companies to further develop and market certain drug candidates; and
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Discover and develop new drug candidates.
As ofJune 30, 2022 , we had an accumulated deficit of$687.4 million . We expect to continue to incur net losses as we continue to commercialize TAVNEOS inthe United States , develop our drug candidates, expand clinical trials for our drug candidates currently in clinical development, and expand our research and development activities, organization systems and facilities. Significant capital is required to commercialize a drug 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
InDecember 2019 , a disease caused by a novel strain of coronavirus, COVID-19, was identified inWuhan, China . This virus has spread globally, including countries 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, including disease resurgence and variants. 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 commercial production of TAVNEOS nor are we currently anticipating any material disruption in our clinical drug supply as a result of the pandemic. COVID-19 has also altered factors that impact the healthcare system, including patient appointments, safety precautions, healthcare practice staffing, and healthcare professional availability. These changes to the healthcare system may impact commercialization. However, the pandemic continues to be unpredictable, and impacts may not be foreseeable or expected.
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 six months endedJune 30, 2022 , 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 endedDecember 31, 2021 , filed with theSEC onMarch 1, 2022 . 24 --------------------------------------------------------------------------------
Results of Operations Revenue We launched TAVNEOS and began commercial sales during the quarter endedDecember 31, 2021 . We also earned revenue from selling TAVNEOS under our commercial supply agreement with Vifor. Total revenue for the three and six months endedJune 30, 2022 , as compared to the same periods in the prior year, was as follows (in thousands): Three Months Ended Six Months Ended June 30, June 30, 2022 2021 2022 2021 Product sales, net$ 9,093 $ -$ 14,446 $ - Product supply sales to related party 866 - 866 - Collaboration and license revenue from related party 1,804 1,699 1,910 11,922 Grant revenue - 114 - 244 Total revenue$ 11,763 $ 1,813 $ 17,222 $ 12,166 Dollar increase$ 9,950 $ 5,056 Percentage increase 549 % 42 % For the three and six months endedJune 30, 2022 , our revenue was primarily derived from TAVNEOS sales, as compared to the collaboration and license revenue generated in the same periods of 2021 related to the Avacopan Agreements and the CCX140 Agreement, in each case, as amended, and the related letter agreements. For the collaboration and license revenue, 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 consist primarily 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 decreases in collaboration and license revenue from 2021 to 2022 for the six months endedJune 30 was attributable to the$10.0 million milestone received in 2021 from Vifor for theFebruary 2021 acceptance of the Japanese NDA, for TAVNEOS in the treatment of ANCA-associated vasculitis, which subsequently led to theSeptember 2021 Japanese NDA approval of TAVNEOS. The impact of the increase in transaction price of the Avacopan Agreements from the$45.0 million non-refundable regulatory milestone received upon TAVNEOS approval inEurope during the first quarter of 2022 was offset by the impact of an increase in the estimated underlying development budget (which also occurred in the first quarter of 2022 but was unrelated to the increase in the transaction price) and therefore is currently estimated to be recognized over a four year period, subject to adjustment from time to time, as performance obligations under the Avacopan Agreements are fulfilled.
Research and development expenses
Research and development expenses represent costs incurred to conduct basic research, discovery and development of novel small molecule therapeutics, development of our suite of proprietary drug discovery technologies, preclinical studies and clinical trials of our drug candidates. We recognize all research and development expenses as they are incurred. These expenses consist primarily of salaries and related benefits, including stock-based compensation, third-party contract costs relating to research, formulation, manufacturing, preclinical study and clinical trial activities, laboratory consumables, and allocated facility costs. Total research and development expenses for the three and six months endedJune 30, 2022 , as compared to the same periods in the prior year, were as follows (in thousands): Three Months Ended Six Months Ended June 30, June 30, 2022 2021 2022 2021 Research and development expenses$ 14,355 $ 20,853 $ 31,831 $ 44,271 Dollar decrease$ (6,498 ) $ (12,440 ) Percentage decrease (31 %) (28 %) The decrease from 2021 to 2022 for the three and six months endedJune 30 was primarily attributable to the manufacturing costs arising from validation activities in support of NDA filing of TAVNEOS for the treatment of ANCA-associated vasculitis in 2021. Manufacturing validation costs and manufacturing costs associated with campaigns initiated prior to FDA approval of TAVNEOS were recorded as research and development expense. Lower Phase II related expenses due to the completion of the TAVNEOS AURORA Phase IIb clinical trial in patients with HS also contributed to the decrease in research and development 25 --------------------------------------------------------------------------------
expense in 2022. These decreases were partially offset by costs associated with the development of CCX559, our orally-available small molecule checkpoint (PD-L1/PD-1) inhibitor.
The following table summarizes our research and development expenses by stage of development (in thousands):
Three Months EndedJune 30 ,
Six Months Ended
2022 2021 Change % 2022 2021 Change % Phase I$ 2,354 $ 6,045 $ (3,691 ) (61 %)$ 5,025 $ 6,062 $ (1,037 ) (17 %) Phase II 1,371 3,475 (2,104 ) (61 %) 4,473 7,523 (3,050 ) (41 %) Phase III 5,643 8,477 (2,834 ) (33 %) 13,130 19,387 (6,257 ) (32 %) Research and drug discovery 4,987 2,856 2,131 75 % 9,203 11,299 (2,096 ) (19 %) Total research and development expenses$ 14,355 $ 20,853 $ (6,498 ) (31 %)$ 31,831 $ 44,271 $ (12,440 ) (28 %) 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 achieving marketing approval, as we did with TAVNEOS, 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 drug products. Completion dates and completion costs can vary significantly for each drug candidate and are difficult to predict for each drug 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 TAVNEOS, CCX559 and CCX507.
Selling, general and administrative expenses
Total selling, general and administrative expenses for the three and six months endedJune 30, 2022 , as compared to the same periods in the prior year, were as follows (in thousands): Three Months Ended Six Months Ended June 30, June 30, 2022 2021 2022 2021 Selling, general and administrative$ 28,179 $ 19,698 $ 54,190 $ 35,960 Dollar increase$ 8,481 $ 18,230 Percentage increase 43 % 51 % Selling, general and administrative expenses consist primarily of salaries and related benefits, including stock-based compensation and travel expenses, in executive, finance, commercial, business and corporate development and other administrative functions, as well as costs associated with the launch and commercialization of TAVNEOS. Other selling, general and administrative 26 -------------------------------------------------------------------------------- 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 2021 to 2022 for the three and six month periods endedJune 30 were primarily due to higher employee-related expenses and professional fees, including those associated with theU.S. launch and commercialization of TAVNEOS. We anticipate that our selling, general and administrative expenses will increase substantially in the future primarily due to commercialization-related activities and personnel costs to support the commercialization of TAVNEOS as an adjunctive treatment for adult patients with severe active ANCA-associated vasculitis inthe United States .
Other expense, net
Other expense, net primarily consists of interest income earned on our marketable securities and interest expense for our long-term debt. Total other expense, net for the three and six month periods endedJune 30, 2022 , as compared to the same periods in the prior year were as follows (in thousands): Three Months Ended Six Months Ended June 30, June 30, 2022 2021 2022 2021 Interest income$ 509 $ 224 $ 731 $ 529 Interest expense (586 ) (695 ) (1,183 ) (1,384 ) Total other expense, net$ (77 ) $ (471 ) $ (452 ) $ (855 ) Dollar decrease$ (394 ) $ (403 ) Percentage decrease (84 %) (47 %) The decrease from total other expense, net from 2021 to 2022 for the three and six months endedJune 30 were primarily due to lower interest expense and higher interest income earned from cash and investment at higher rate of return.
Liquidity and Capital Resources
As ofJune 30, 2022 , we had approximately$347.2 million in cash, cash equivalents, restricted cash and investments. The following table shows a summary of our cash flows for the six months endedJune 30, 2022 and 2021 (in thousands): Six Months Ended June 30, 2022 2021 Cash provided by (used in) Operating activities$ (17,295 ) $ (39,418 ) Investing activities$ 6,743 $ 86,434 Financing activities$ 4,970 $ (2,108 ) Operating activities. Net cash used in operating activities was$17.3 million for six months endedJune 30, 2022 , compared to$39.4 million for the same period in 2021. This decrease was primarily due to the milestone payment of$45.0 million received from our collaboration partner, Vifor, during the period, partially offset by changes to working capital items.
Investing activities. Net cash used in or 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.
Financing activities. Net cash provided by financing activities was$5.0 million for the six months endedJune 30, 2022 , compared to cash used in financing activities of$2.1 million for the same period in 2021. Net cash provided by financing activities for both periods presented included proceeds from the exercise of stock options and stock purchases from contributions to our amended and restated 2012 Employee Stock Purchase Plan, and cash used for tenderedChemoCentryx, Inc. common stock to satisfy employee tax withholding requirements upon vesting of restricted stock units. As ofJune 30, 2022 , we had borrowed$20.0 million under the Credit Facility with Hercules Capital, Inc., or Hercules. We made interest-only payments throughJune 2021 and the first principal and interest payment onJuly 1, 2021 . The Credit Facility was subsequently amended inJuly 2021 andDecember 2021 to extend the interest-only payment period throughAugust 2022 , at which point we will be obligated to repay the principal balance and interest on the advances in equal monthly installments throughDecember 2022 . InJanuary 2020 , we entered into the Restated Credit Facility, which provides for borrowings of up to an additional$100.0 27 -------------------------------------------------------------------------------- million in three tranches, subject to certain terms and conditions. As ofJune 30, 2022 , we had borrowed$5.0 million under the Restated Credit Facility. With the FDA approval of TAVNEOS inOctober 2021 , the interest-only payment period and the principal balance repayment period was extended throughMarch 1, 2023 andFebruary 1, 2025 , respectively. We are obligated to pay an end of term charge of$1.3 million inDecember 2022 . 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 ofJune 30, 2022 , we had approximately$346.2 million in cash, cash equivalents and investments. We believe that our available cash, cash equivalents and investments will be sufficient to fund our anticipated level of operations and capital expenditures for at least 12 months following issuance of our financial statement. 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:
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the continuing sales of TAVNEOS as an adjunctive treatment for adult patients with severe active ANCA-associated vasculitis;
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Vifor and any sublicensees' ability to successfully commercialize and launch TAVNEOS and royalties therefrom;
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the terms and timing of any other collaborative, licensing and other arrangements that we may establish;
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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;
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the number and characteristics of drug candidates that we pursue;
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the progress, costs and results of our clinical trials;
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the outcome, timing and cost of regulatory approvals;
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delays that may be caused by regulatory timelines and outcomes;
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the cost and timing of hiring new employees to support continued growth and expansion;
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the costs involved in filing and prosecuting patent applications and enforcing and defending patent claims;
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the cost and timing of procuring clinical and commercial supplies of our drug candidates and TAVNEOS;
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the cost and effectiveness of sales, marketing and distribution functions;
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significant adverse changes in inflation and prices; and
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the extent to which we acquire or invest in businesses, drug candidates or products or technologies.
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.
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