ChemoCentryx, Inc.
Q3 2013 Earnings Call Transcript

Published: 8 Nov 2013

[Operator:]

Good day, ladies and gentlemen, and welcome to the ChemoCentryx Q3 Financial Results Conference Call. (Operator instructions.) As a reminder this conference is being recorded. I would now like to turn the conference over to your host, Susan Kanaya. Please begin.

[Susan Kanaya:]

Thank you. Good afternoon, and welcome to the ChemoCentryx Q3 2013 Financial Results Conference Call. This afternoon we issued a press release regarding financial results and company highlights for the three months ended September 30, 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 will provide a brief corporate update and review upcoming anticipated milestones for the remainder of 2013 and 2014. Following his comments I will provide an overview of the financial highlights for Q3 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 statement. 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 14, 2013, and Quarterly Report on Form 10(q) to be filed 12/20/13. 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, November 7, 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 taking the time to join us for our Q3 financial results conference call. We at ChemoCentryx are staunch believers in the virtue of building a company on the basis of a robust development pipeline and a productive discovery platform. This philosophy has been proven indeed to be particularly valuable in the last quarter in light of some disappointing news from our partner GlaxoSmithKline or GSK. In August we learned that GSK’s SHIELD-1 Phase III trial, which was intended to measure the induction of clinical response in patients with Crohn’s Disease using the drug candidate vercirnon, an inhibitor of the chemokine receptor CCR9 did not meet the primary endpoints in twelve weeks of dosing in that study. While this result was in contrast to earlier positive signals for induction of clinical response in previous trials, it’s also important to note that the GSK trial reported did not address the critical unmet need and large opportunity of maintenance of remission in Crohn’s Disease, for which the earlier PROTECT-1 clinical trial performed by ChemoCentryx had provided positive data over a dosing period of twelve months. All rights to vercirnon have now been returned to ChemoCentryx. We are undertaking the critical step of completing the asset transfer back to GSK in order to determine the potential future development path for vercirnon including possibly in the important area of maintenance of remission for Crohn’s Disease. We are working diligently to complete the transfer as efficiently as possible. Meanwhile other pipeline programs continue per plan. CCX140, our wholly-owned CCR2 inhibitor is progressing in an ongoing 52-week Phase II study in diabetic nephropathy. A top line interim 12-week data analysis was provided earlier this quarter. Those preliminary data show that CCX140 was well tolerated in both the 5mg and 10mg dosages, and also showed encouraging signs in reduction in proteinuria, a measure of kidney function. Also levels of hemoglobin A-1C, or HBA-1C, a measure of blood sugar control were also statistically significantly lower in the 10mg group versus the standard of care. We expect to report data from the full 52-week study of CCX140 in the second half of 2014. The study will continue to monitor protein levels in the urine, or proteinuria, as measured by urinary albumin creatinine ratio as well as assess additional markers related to kidney function including serum creatinine and estimated glomerular filtration rates. These measures historically take longer to be detected in clinical trials which is why they were not included in the interim analysis. We look forward to completing the full 52 weeks of dosing in the trial and reporting the data analysis from those in the second half of 2014. Looking ahead to other key events for the remainder of 2013 and into 2014, we note that our drug candidate known as CCX168, which is an inhibitor of the chemoattractant known as C5AR, or the complement C5A receptor has successfully completed the first two steps of a three-step Phase II clinical trial for the treatment of a devastating autoimmune disease known as antineutrophil cytoplasmic antibody or ANCA associated with renal vasculitis. We presented some interesting though still blinded observations from the first two steps of the Phase II trial with CCX168 at the 16th International Vasculitis and ANCA Workshop in Paris earlier this year where we examined the question of whether high dose steroids in the standard treatment regimen of ANCA-associated renal vasculitis could be significantly reduced or even eliminated in the presence of CCX168. We expect to report top line unblended data from the first two steps of this trial in the coming months. Pending upcoming clinical results, we believe that CCX168 may have the potential to receive breakthrough therapy and orphan drug designation from the FDA given the limited treatment options and high morbidity rates associated with the standard of care currently available to those patients. We are keen to explore how this compound might be advanced to the next stages of clinical development either in the context of our partnership with GSK, who have an option right to the CCX168 program upon which they need to make a decision by the end of this year, or in some other way. In addition to our CCX168 and CCX140 programs we look forward to continuing our progress with our earlier-stage programs as well and we expect to complete Phase I development of CCX507, our de novo CCR9 inhibitor in the first half of 2014. We are also exploring additional indications in more acute dosing regiments for CCX872, our next generation CCR2 inhibitor. We expect to complete Phase I development for 872 in the first half of 2014 and we will discuss Phase II proof of concept plans in future weeks. With that I’d like to turn the call back over to Susan.

[Susan Kanaya:]

Thank you, Tom. As mentioned, our Q3 financial results were included in our press release which was provided earlier this afternoon. Revenues for Q3 ended September 30, 2013, were $1.5 million compared to $1.1 million in the same period in 2012. The increase in revenues from 2012 to 2013 was primarily due to funding of clinical support from GSK for CCX168, our C5AR inhibitor for the treatment of ANCA-associated renal vasculitis. Research and development expenses for Q3 ended September 30, 2013, were $8.2 million compared to $8.7 million in the same period in 2012. The decrease in research and development expenses from 2012 to 2013 was primarily due to lower expenses associated with CCX168 as its Phase II study nears completion. Further, expenses associated with developing our second generation CCR2 inhibitor, CCX872, decreased due to the timing of Phase I related activities. Also lower expenses associated with drug discovery efforts targeting CXCR7 contributed to the decrease for the period. These decreases were partially offset by higher expenses associated with CCX140, our CCR2 inhibitor, as it further advanced in clinical development for the treatment of diabetic nephropathy and higher expenses in our early stage next generation programs. General and administrative expenses for Q3 ended September 30, 2013, were $2.9 million compared to $2.6 million for the same period in 2012. The increase in 2012 to 2013 was primarily due to increased stock-based compensation expense for stock option grants in addition to higher professional service fees related to fulfilling recording obligations at a public company. Cash, cash equivalents and investments totaled $157.3 million at September 30, 2013.

[Tom Schall:]

In closing, through a very considerate approach to mitigating the inevitable risks in our industry we continue to believe in the virtue of building a company on the basis of a unique and productive discovery platform and its ability to build a robust and sustainable clinical development pipeline. To underscore our near-term milestones I’d mention the following

[Operator:]

Thank you. (Operator instructions.) Our first question is from Brian Klein of Stifel. Your line is open.

[Brian Klein:]

Thank you, thanks for taking my questions. First on 168, Tom, you mentioned that you’re going to have data for steps 1 and 2 in the coming months and that GSK has to make a decision by year-end. Do you anticipate that GSK will make their decision prior to the trial data?

[Thomas Schall:]

Brian, thank you for the question. I’m also here with Pirow Bekker, the Head of our Medical and Regulatory Division at ChemoCentryx. We believe that GSK under our agreement will be making their decision about the option decision. We’ll be releasing data right around that time or shortly thereafter so those two events could be quite close. But under the terms of our ongoing arrangement with GSK we expect to have discussion and decision around the option decision first.

[Brian Klein:]

Great. A follow-up to that

[Thomas Schall:]

Yes Brian, that’s correct. So by the time they have to get to their final decision around the option they’ll have had the opportunity to look at all the data that we have up to that moment that’s unblended.

[Brian Klein:]

Great, thank you. And then just quickly moving over to vercirnon, I just had a question as to how you plan to prioritize development of that compound versus CCX507.

[Thomas Schall:]

That’s a great question. In large part the development plans for those two molecules may well be quite different, so we’ve always said that CCX507 which is the new generation we believe would be a great molecule to look at in ulcerative colitis – which although it’s an inflammatory bowel disease as is Crohn’s, really it’s an entirely different clinical development path, different patient population, different endpoints. So we’re still very keen at looking at 507 in UC. In terms of vercirnon obviously it’s a much more mature asset. It is a Phase III-ready program. And so in large part our decisions about what happens next with vercirnon will be dependent upon the very detailed look that we have at all the data and information and materials we get back from GSK. And that’s an ongoing process right now. As we continue to get that information and continue to analyze and evaluate it ourselves naturally we’ll have discussions not only among our own team but with KOLs in Crohn’s Disease as well as with regulatory authorities as well. And then we’ll decide if there’s a path forward. Again, I stress as I did in my opening comments that in the previous PROTECT-1 trial the maintenance of remission data was really quite striking, and I think got a lot of people interested in the GI space and elsewhere. That question remains totally unaddressed in the Phase III setting right now and depending again upon the totality of the information that we can analyze as we get the data back from GSK there may well be a path forward in the maintenance of remission in Crohn’s Disease with vercirnon.

[Brian Klein:]

Great. And then just to finish up with vercirnon, do you anticipate you’ll present any additional data or actually present all of the data at a medical meeting from the Phase III program?

[Thomas Schall:]

Well, we certainly intend to analyze the data in great depth and particularly try to understand why there were differences between the GSK SHIELD-1 trial and our earlier trial, PROTECT-1, which as you know did show a positive signal that the dose of 500 [mgs] a day even in the induction of clinical response – that’s in addition to the longer-term maintenance of remission data that we got over an additional nine months of dosing in that trial. So already we’ve begun to describe publicly some of the differences between SHIELD-1 and PROTECT-1 in the induction of response part, PROTECT-1 versus SHIELD-1 which was only an induction response trial. For example, we know the patient population was quite a bit different already. In SHIELD-1 there was almost a 70%, it’s about a 69% and something of the patients in SHIELD-1 were so-called “TNF experienced patients,” those who had been on TNF before and who had either failed or had to drop it for some other reason. That’s in stark contrast to our earlier PROTECT-1 trial which had only about 26% patients that had been experienced with TNF before. So already you can see there’s a profound difference just in the patient population. We’ve already discussed publicly a little bit other patient parameters, CRP was quite a bit lower in SHIELD-1 overall versus the earlier PROTECT-1 trial. There were differences even in mean and median CDAI scores – SHIELD-1 being lower than the previous PROTECT-1 study. All of those factors may have contributed to different results for a variety of reasons, and as you’re well aware the CDAI, the clinical trial instrument we use to read out Crohn’s measurements is pretty crude to begin with. So that’s why people take a great degree of care in how patient populations are selected going into the trial, particularly for a short-term twelve-week induction readout. So we’ll be discussing a lot more of those details to come at a major meeting. I will also say that GSK did present some of their findings recently at the American College of Gastroenterology, top line findings. But we’ll be doing a lot more of the compare and contrast as we go forward and certainly as we again try to decide the path forward for that particular drug candidate.

[Brian Klein:]

Great, thanks. And then just one final question on CCX140 – any opportunity for additional data readouts prior to the final 52-week data in the second half of next year?

[Thomas Schall:]

No, at this point I think that that dataset will be the full 52-week datasets so we decided not to do anymore data analysis until that time.

[Brian Klein:]

Great, thank you for taking my questions.

[Thomas Schall:]

Thank you very much.

[Operator:]

The next question is from Yaron Werber of Citi. Your line is open.

[Chris:]

Great, thanks for taking the question. This is Chris in for Yaron. I had a few questions on 168. You said the data for two of the three steps will be available. Can you comment a little bit more on what those steps actually are? And then the primary endpoint of that study is steroid reduction. What type of reduction of steroids do you believe will actually be meaningful if you had to take a guess? And then maybe the last question would be the milestone you might get if GSK exercises their option? Thanks.

[Thomas Schall:]

Thank you, Chris, those are all great questions. Questions one and two are very much related so I’ll first just generally frame an answer and then maybe Pirow will have more comments. So in steps 1 and 2 of the trial essentially the fundamental question was could we first in step 1 reduce the steroid load in the presence of 168 in a totally blinded fashion? So these patients all have standard of care when they come into the study or I should say the standard of care when patients come in and present with renal vasculitis is they get quite a large dose of cyclophosphamide and then a very high dose of steroid – typically around 1 mg per kg. So in our case the standard steroid dose in the trial was 60 mgs. So in step 1 the question was can we reduce that steroid dose by essentially two thirds? Can we take them down to 20 mgs if they’re also on CCX168? If we got through that step, and Pirow will describe what the selection criteria is to get through that step, we then ask the second step question. And step 2 was in a totally blinded fashion using a special blinding protocol can you actually get rid of the steroids entirely and replace it with 168 in that part of the protocol? Otherwise the cyclophosphamide in this trial remained as a constant, so it was merely trying to first reduce the steroid in step 1, eliminate it in step 2. So Pirow, why don’t you comment a little bit more about how we understood success in that way?

[Pirow Bekker:]

Yes, Chris, so success was defined based on safety firstly – so the number of patients who had serious suspected adverse reactions, so-called SUSARs; and the second was the incidence of the need for rescue cortical steroids. And so we have obviously successfully passed a hurdle following step 1 and we moved to step 2 where we actually also then completed the study. And I think the comments, when you look at the blinded data the number of cortical steroids, the rescue events were actually very low in this study. We had only one event in step 1 and that was during the 12-week follow-up period, so when patients had actually completed their 12-week treatment; and in step 2 we had only two steroid-based cure events. We don’t know because they are blinded as to whether they were in the control group or the active group and we’ll have those data obviously when we un-blind the data.

[Thomas Schall:]

So to the extent of what would be a clinically meaningful reduction, again Pirow can opine on this but given that many of the complications and consequences of high-dose cyclophosphamide and high-dose steroids lead to a lot of in fact, quite marked morbidity in the first five years after those therapies. One would entertain the idea that even a two thirds reduction of the steroid dose would be quite meaningful on a safety level, and if we could be no worse in efficacy then that would be I think quite interesting. If you can eliminate steroids entirely again, that would be profoundly interesting I would think at the clinical level. Pirow, do you have any additional comments to make on that?

[Pirow Bekker:]

No, I think, Tom, you’re absolutely correct. That is why we decided to have a two thirds reduced steroid dose in step 1 since that was considered by the key opinion leaders to be a meaningful reduction in steroid use.

[Chris:]

So the fact that you’ve gone to step 2, can we take that to mean anything in step 1 – that you’ve been able to reduce steroids? Or can you not say that?

[Pirow Bekker:]

Well, so like I said the two success criteria were number of suspected serious adverse reactions and we didn’t have any of those in the study in steps 1 or 2. So even though the data are blinded you can pull from that that the drug was relatively well tolerated from the steps that we’ve completed so far. And then the second point is as I’ve said the number of rescue steroid events also indicated that presumably patients receiving CCX168 must have been reasonably controlled in terms of their disease – otherwise you would have a large number of cortical steroid rescue events.

[Thomas Schall:]

And Chris, I’ll mention that this was a 12-week dosing regimen with a 12-week follow-up, so it was an overall six-month activation period for these patients. So inferentially, yes, it seems quite interesting and it’s certainly caught the attention of people in the vasculitis field – particular the ANCA renal vasculitis area.

[Chris:]

Great. And then my last question was if GSK does exercise the option what does that mean to you guys in terms of milestones?

[Thomas Schall:]

So if they were to exercise the option they have to pay us a license fee of $25 million on the program. That’s in addition to any other investments they’ve made so far. Downstream there would be filing and approval milestones and then of course royalties, all of which have been published in our filings. So but the immediate payment would be $25 million and then they would be responsible 100% to cover the development costs going forward. At that time as well we’d be able to work on the target again with the de novo efforts that surround the chemistry, so those are the nuts and bolts around the agreement.

[Chris:]

Great, thank you so much.

[Thomas Schall:]

You’re welcome.

[Operator:]

(Operator instructions.) Our next question is from Geoff Meacham of JP Morgan. Your line is open.

[Mike:]

Hi, it’s actually Mike in for Geoff. Thanks for taking the questions. You guys mentioned the potential for bringing vercirnon forward in a maintenance setting. I’m just wondering if you can give us a better sense of when you might be able to provide an update on the strategy and what the gating factors are for a decision like that; and then maybe other potential scenarios other than maintenance for a go-forward strategy? Thanks.

[Tomas Schall:]

Yeah, thank you, very good questions. So obviously the major gating item is just getting the totality of the data back from GSK. As you know they’ve been running this program for the better part or more than three years actually, so there’s been a lot of effort and information and knowhow as well as data generated during that time. So it’s a huge task just to get the information and material back from GSK. It is coming in. We’re working very hard, as they are, to get all of the material, the data and the knowhow transferred back to ChemoCentryx but it is a process that is much more complicated unfortunately than just the push of a button. But already we have been able to start analyzing some information we didn’t have before and it will provide some great information for us as to the best step forward. To give you an exact timing on it is going to be a little difficult, Mike, at this point. Suffice it to say that we’re working as very quickly as we can because it’s in our interest as well to understand whether there is a next step forward and how quickly to get there. I will say that again, we’ve looked very carefully at regulatory guidance. We know going back to the question of maintenance of remission, the EMA has addressed this specifically. They specifically envision in their guidance going back to 2008 paths forward for essentially maintenance of remission or prevention of relapse. And we’ve looked at that very carefully – it’s quite interesting. And we believe that even the FDA, although they haven’t specifically articulated on that particular matter may well also be open to trial designs that are solely maintenance of remission, prevention of relapse or prolongation to relapse time. So that’s really quite exciting to us. Now, are there other things that one might do with vercirnon that’s not just maintenance of remission in Crohn’s? Certainly. I mean you could envision going back to this idea of the trial design was so different why not do an induction and then a maintenance again? Our hesitation there is not just individual to us – it’s in the field. The CDAI, the Crohn’s Disease Activity Index, has become a really vexing tool to use in the short term to look at induction of response. And we see this in other people’s programs. Visilizumab, the antibody that’s in cicada recently completed two Phase III trials, one in Crohn’s disease. Visilizumab is an antibody that targets an adhesion molecule on gut-homing inflammatory cells; that adhesion molecule is called alpha 4 beta 7. Even in their induction of clinical response part of their Crohn’s trial their numbers for the so-called CDAI delta 100, that’s a 100 point drop in CDAI and trying to show a difference between background meds versus your test agent. They did not hit their stats on the CDAI 100. So and it’s widely believed that Visilizumab has an effect in Crohn’s Disease by the way. So CDAI is very difficult to work with and induction, I think a lot of people are expressing that frustration. It’s better for longer term to some degree for a couple reasons. One is you have a longer time for the patient self-reporting to really make sense over many months – that’s what CDAI is predominantly is patient self-reporting. And then the other reason is that you’re looking at an absolute number of thresholds in the CDAI below which you want to stay rather than just trying to show a reduction over time and a certain score going down 100 points. So it’s a little bit better for that and so that’s why I think most people are slightly more sanguine about the CDAI as a measurement in maintenance of remission. I will say this though – we’re going to talk about some new science in the not-too-distant future where CCR9 which is the target of our drug vercirnon may actually have an important role in some acute maladies associated with the GI system and associated organs. So it’s not impossible that there would be some very interesting, very acute dosing regiments where vercirnon might be quite important. So it’s a little too early to discuss that science, we’re still working on it but we’ve got some interesting clinical results that we’ll be talking about at major meetings over the course of the next two quarters most certainly.

[Mike:]

Great, thank you.

[Thomas Schall:]

You’re welcome.

[Operator:]

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

[Thomas Schall:]

Well thank you very much. It’s been a delight to be able to talk with you about our progress this quarter and our financial picture. I look forward to sharing even more information with you over the coming quarters and I appreciate everyone’s time. So have a very good afternoon.

[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.