UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Form10-K
(Mark One)
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20172019
or
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number:001-35420
ChemoCentryx, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware | ||
94-3254365 | ||
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |
850 Maude Avenue Mountain View, California | 94043 | |
(Address of Principal Executive Offices) | (Zip Code) |
(650)210-2900
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | ||
Common Stock, par value $0.001 per share | CCXI | The Nasdaq Stock Market LLC |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of RegulationS-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ Yes ☐ No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of RegulationS-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form10-K or any amendment to this Form10-K. ☒No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, a smaller reporting company, or emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule12b-2 of the Exchange Act. (Check one):
Large accelerated filer☐ | Accelerated filer☒ | |||||
Non-accelerated filer☐ | Smaller reporting company | ☐ | ||||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Securities Exchange Act of 1934). Yes ☐ No ☒
The aggregate market value of the registrant’s common stock held bynon-affiliates of the registrant as of the last business day of the registrant’s most recently completed second fiscal quarter was approximately $197.3$286.4 million, based on the closing price of the registrant’s common stock on the Nasdaq Global Select Market of $9.36$9.30 per share.
The number of outstanding shares of the registrant’s common stock, par value $0.001 per share, as of February 28, 20182020 was 48,920,715.61,644,571.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A in connection with the registrant’s 20182020 Annual Meeting of Stockholders, which will be filed subsequent to the date hereof, are incorporated by reference into Part III of this Annual Report on Form10-K. Such proxy statement will be filed with the Securities and Exchange Commission not later than 120 days following the end of the registrant’s fiscal year ended December 31, 2017.2019.
FORM10-K — ANNUAL REPORT
For the Fiscal Year Ended December 31, 20172019
| |||||||
| Page | ||||||
Item 1. | 4 | ||||||
Item | 30 | ||||||
Item | 62 | ||||||
Item | 62 | ||||||
Item | 62 | ||||||
Item | |||||||
62 | |||||||
Item | 63 | ||||||
Item | 65 | ||||||
Item | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 66 | |||||
Item | 76 | ||||||
Item | 76 | ||||||
Item | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 76 | |||||
Item | 76 | ||||||
Item | |||||||
77 | |||||||
Item | 78 | ||||||
Item | 78 | ||||||
Item | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 78 | |||||
Item | Certain Relationships and Related Transactions, and Director Independence | 78 | |||||
Item | |||||||
78 | |||||||
Item | |||||||
79 | |||||||
Item 16. | 79 | ||||||
i
Forward-Looking Statements and Market Data
This Annual Report on Form10-K contains forward-looking statements that involve risks and uncertainties. All statements other than statements of historical facts contained in this Annual Report on Form10-K 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:
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 listed under “Item 1A. Risk Factors” and elsewhere in this Annual Report on Form10-K.
Any forward-looking statement in this Annual Report on Form10-K 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.
This Annual Report on Form10-K also contains estimates, projections and other information concerning our industry, our business, and the markets for certain drugs, including data regarding the estimated size of those markets, their projected growth rates, the incidence of certain medical conditions, statements that certain drugs, classes of drugs or dosages are the most widely prescribed in the United States or other markets, the perceptions and preferences of patients and physicians regarding certain therapies and other prescription, prescriber and patient data, as well as data regarding market research, estimates and forecasts prepared by our management. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and
circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources. In particular, unless otherwise specified, all prescription, prescriber and patient data in this Annual Report on Form10-K is from Datamonitor or Global Data. In some cases, we do not expressly refer to the sources from which this data is derived. In that regard, when we refer to one or more sources of this type of data in any paragraph, you should assume that other data of this type appearing in the same paragraph is derived from the same sources, unless otherwise expressly stated or the context otherwise requires.
2
ChemoCentryx®, and the ChemoCentryx logo Traficet™ andTraficet-EN™ are our trademarks in the United States, the European Community, Australia and Japan. EnabaLink® and RAM® are our trademarks in the United States. Each of the other trademarks, trade names or service marks appearing in this Annual Report on Form10-K belongs to its respective holder.
Unless the context requires otherwise, in this Annual Report on Form10-K the terms “ChemoCentryx,” “we,” “us” and “our” refer to ChemoCentryx, Inc., a Delaware corporation, and our subsidiarysubsidiaries taken as a whole unless otherwise noted.
3
Overview
ChemoCentryx is a biopharmaceutical company developingfocused on the development and commercialization of new medications targeted at inflammatory disorders, autoimmune diseases and cancer. Each of our drug candidates is designed to selectively blocksblock a specific chemoattractant receptor, leaving the rest of the immune system intact. Our drug candidates are small molecules, which are orally administered, offeringand, if approved, could address unmet medical needs, including improved efficacy, and offer significant quality of life benefits, since patients swallow a capsule or pill instead of having to visit a clinic for an infusion or undergo an injection.
In 2016,November 2019, we executed onannounced positive topline data from the pivotal Phase III ADVOCATE trial of avacopan, our strategylead drug candidate that is an orally-administered selective complement 5a receptor inhibitor, for the treatment of patients with anti-neutrophil cytoplasmic antibody-associated vasculitis, or ANCA vasculitis. The ADVOCATE trial compared avacopan with the currently used glucocorticoid (most commonly prednisone) active comparator containing standard of care, or SOC. Subjects in both study arms received background therapy with rituximab or cyclophosphamide. The trial met both of its primary endpoints, showing that avacopan therapy without the need for daily prednisone could achieve disease remission at 26 weeks and sustained remission at 52 weeks, as assessed by the Birmingham Vasculitis Activity Score, or BVAS. BVAS remission at week 26 in the avacopan treated subjects was numerically superior and statistically non-inferior to form an alliancethe prednisone active comparator SOC control group, where BVAS remission was achieved in 72.3% of the avacopan treated subjects vs. 70.1% of subjects in the prednisone active comparator SOC control group (p<0.0001 for non-inferiority). Sustained remission at 52 weeks was observed in 65.7% of the avacopan treated subjects vs. 54.9% in the prednisone active comparator SOC control group, achieving both non-inferiority and superiority to prednisone active comparator SOC (p=0.0066 for superiority of avacopan). Reduction in overall burden of disease management and improvement in quality of life was also demonstrated through key secondary endpoints, including improved kidney function and reduction of adverse events and illnesses associated with steroids, such as prednisone.
We plan to file a partner that could provide upfront commitmentsNew Drug Application, or NDA, with the U.S. Food and milestonesDrug Administration, or FDA, in mid-2020 and, if the NDA is approved, to support the clinical development of our leading two drug candidates,commercialize avacopan and CCX140, to registration and pay us royalties upon sales in international markets, while we develop our own commercial infrastructure to sell directly in the United States.States on our own and internationally through our kidney health alliance with Vifor Fresenius Medical Care Renal Pharma Ltd. and its affiliates and sublicensees, or collectively, Vifor. We are also developing avacopan in other indications, including complement 3 glomerulopathy, or C3G, and hidradenitis suppurativa, or HS.
To help communicateOur next most advanced drug candidate is CCX140, an orally-administered inhibitor of the breadthC-C chemokine receptor known as CCR2. CCX140 is being developed for focal segmental glomerulosclerosis, or FSGS, a rare renal disease characterized by progressive proteinuria (excess protein in the urine) and impaired renal function. We have two ongoing Phase II clinical trials to evaluate CCX140 for the treatment of primary or genetic FSGS, the LUMINA trials, with the LUMINA-1 trial for patients with sub-nephrotic proteinuria, and the LUMINA-2 trial for patients with nephrotic syndrome, for which there are currently no FDA-approved treatments. We expect to report topline data from the LUMINA-1 trial in the second quarter of 2020 and the LUMINA-2 trial in the second half of 2020.
Our Strategy
The key elements to our commercial and scientific strategy are to:
Obtain regulatory approval of avacopan for the treatment of ANCA vasculitis. In the United States, we are currently preparing an NDA for avacopan, which we plan to file with the FDA in mid-2020. We will also support our international commercialization partner Vifor and its Japanese sublicensee Kissei Pharmaceutical, Co., Ltd. in their regulatory approval applications;
Commercialize avacopan in the United States on our own, where we believe a company of our size can effectively compete in rare disease markets. If our avacopan NDA is approved by the FDA, we plan to deploy a specialty sales force primarily targeting that subset of nephrologists and rheumatologists treating ANCA vasculitis patients;
Develop and commercialize avacopan for possible additional indications, including C3G, HS, and potentially other complement-mediated renal diseases;
Develop our other drug discovery platform, we have segmentedcandidates and establish collaborations with pharmaceutical and biotechnology companies to further develop and market our pipeline into early stagedrug candidates; and late stage
Discover and validate new drug candidates.
Late Stage Drug Candidates4
Product Development Programs
Our product development portfolio features multiple novel, targeted drug candidates in the therapeutic areas of immunology, oncology and immuno-oncology.
We have chosen to focus initially on kidney disease, particularly on orphan indications, where drug candidates tend to enjoy a faster path to market and better reimbursement. Our leading drug candidates, avacopan and CCX140, address areas of clear unmet need in kidney and dermatological disease, where the current standard of care, or SOC is insufficient to halt progression of the disease and/or where today’s treatment options come with serious side effects, such as those which accompany the prolonged use of steroids:
Avacopan (CCX168) — Complement Inhibition in Orphan Diseases
Avacopan (formerly CCX168) is an orally-administered complement inhibitor targeting the C5a receptor, or C5aR, and is being developed for orphan diseases, including (i) anti-neutrophil cytoplasmic auto-antibody associated vasculitis, or AAV, a devastating autoimmune disease that damages blood vessels and can lead to kidney failure; (ii) complement 3 glomerulopathy, or C3G, a debilitating disease that can lead to kidney failure; and (iii) atypical hemolytic uremic syndrome, or aHUS, a rare, life threatening disease.
Avacopan has been granted orphan drug designation by the U.S. Food and Drug Administration, or FDA, for the treatment of AAV, C3G and aHUS and by the European Medicines Agency, or EMA, for the treatment of C3G and microscopic polyangiitis and granulomatosis with polyangiitis, both forms of AAV. Additionally, avacopan has been granted PRIority MEdicines, or PRIME, designation from the EMA, to expedite its clinical development, and to potentially accelerate its marketing authorization.
Following completion of two Phase II clinical trials in patients with AAV, in which avacopan was well-tolerated and provided effective steroid-free control of the disease, we launched the Phase III ADVOCATE trial in December 2016. The FDA and the EMA concurred with the design of the study. ADVOCATE is a randomized, double-blindtwo-arm study enrolling approximately 300 patients at approximately 200 sites in the United States, Canada, Europe, Australia, and New Zealand. We expect to complete patient enrollment of the Phase III ADVOCATE trial inmid-2018. We recently launched a registration-supporting clinical trial to study avacopan for the treatment of patients with C3G and plan to initiate clinical studies for the treatment of patients with hidradenitis suppurativa, or HS, in 2018. Meanwhile, we are actively dosing aHUS patients under compassionate use protocols as we explore appropriate doses and dosing regimen for that indication.
In December 2017, our Conditional Marketing Authorization, or CMA, application for avacopan in the treatment of patients with AAV was accepted for review by the EMA’s Committee for Medicinal Products for Human Use, or CHMP. Under the terms of our kidney health alliance with Vifor (International) Ltd., this
validation of the avacopan CMA application by the EMA resulted in a $50.0 million milestone (see “Kidney Health Alliance with Vifor”).
CCX140 — Chronic and Orphan Kidney Diseases
CCX140, an orally-administered inhibitor of the chemokine receptor known as CCR2, has been in development for diabetic nephropathy, or DN, a form of chronic kidney disease, or CKD, and is now being developed for focal segmental glomerulosclerosis, or FSGS, a rare renal disease characterized by progressive proteinuria, excess protein in the urine, and impaired renal function.
A global Phase II clinical trial of CCX140 in patients with DN met its primary endpoint by demonstrating that CCX140 given orally once daily added to a SOC renin-angiotensin-aldosterone system inhibitor treatment resulted in a statistically significant reduction in proteinuria, beyond that achieved with SOC alone, with the most pronounced effect shown in the highest proteinuric patients. Based on the safety and efficacy data related to reduction in proteinuria observed in the Phase II trial in DN, we launched our clinical development program of CCX140 for the treatment of patients with primary FSGS, for which there are currently noFDA-approved treatments.
Kidney Health Alliance with Vifor
In May 2016, we announced a partnership, which we refer to as the Avacopan Agreement, with Vifor (International) Ltd., and/or its affiliates, or collectively, Vifor, a European-based world leader specializing in kidney disease. While under this agreement we retained all rights to the United States and China, we granted Vifor commercial rights to avacopan in Europe and certain other international markets. In December 2016, we entered into an additional agreement with Vifor, which we refer to as the CCX140 Agreement, relating to CCX140, our other late stage drug candidate. Under this second agreement, we again retained all rights to the United States and China and we granted Vifor worldwide rights outside of the United States and China. In February 2017, we announced a further agreement with Vifor that harmonized the geographic commercialization rights underlying the agreements for both drug candidates, which we refer to as the Avacopan Amendment.
We have secured $205 million in upfront cash payments and commitments and milestones pursuant to our agreements with Vifor and are eligible for additional substantial milestone payments. Through our alliance, we maintain the commercial rights to avacopan and CCX140 in the United States and China, and also retain control of the clinical development programs for orphan renal disease. Vifor gained the commercial rights for all other international markets, and is obligated to pay us tiered royalties, with rates ranging from ten to themid-twenties, on potential net sales.
At a future time defined in the contract, Vifor has an option to solely develop and commercialize CCX140 in more prevalent forms of CKD. Should Vifor later exercise the CKD option, we would receiveco-promotion rights for CKD in the United States, and we estimate that the clinical development and registration process for CKD would end at approximately the same time as Orphan Drug exclusivity.
Early Stage Drug Candidatessteroids.
While the science has led us to focuswe have focused initially on kidney disease, ourtargetspecificand dermatological diseases, our target-specific and selective approach designed to stop the spread of inflammatory disease-inducing cells shows promise in other disease areas. Over time we plan to bring forward drug candidates to treat othera range of inflammatory and autoimmune disorders, as well as cancer, where our drug candidate CCX872 has shown promise in a Phase Ib trial for advanced pancreatic cancer. We expect that our ability to do so will grow as we increase our scale and to the extent that we start to earn revenues and royalties from the commercialization of our late stage kidney disease franchise.
Our Drug Candidate Pipeline
CCXI Late Stage: Kidney Disease Franchise
CCXI Early Stage Drug Candidates
Late Stage Drug Candidates
Avacopan (Formerly CCX168)— Complement(CCX168) – Inhibition of Complement-Mediated Pathways in Orphan Diseases
In our complement inhibition orphan disease program, our lead drug candidate is avacopan.
Avacopan is a small molecule that selectively blocks the chemoattractant receptor known as C5aR, and is being developed for inflammatory and autoimmune diseases. Avacopan inhibits the activity of complement C5a, a component of the complement system and the natural ligand for C5aR. The complement system is a group of proteins that work together to regulate aspects of host defense against bacteria and viruses, trigger inflammation, and remove debris from cells and tissues. The complement system must be carefully regulated so it targets only unwanted materials and does not attack the body’s healthy cells. In certain autoimmune diseases (including those in which we are engaged in clinical trials), components of the complement system have become dysregulated.
The FDA has granted avacopan orphan-drug designation for AAV, C3G and aHUS. The European Commission has grantedIn our complement inhibition orphan medicinal product designation for avacopan fordisease program, our lead drug candidate is avacopan. Avacopan is a potential first-in-class, orally-administered molecule that employs a novel, highly targeted mode of action in the treatment of two forms of AAV: microscopic polyangiitisANCA vasculitis and granulomatosis with polyangiitis (formerlyother complement-driven autoimmune and inflammatory diseases. Avacopan precisely blocks a specific receptor (C5aR) for the pro-inflammatory complement system fragment known as Wegener’s granulomatosis),C5a on destructive inflammatory cells such as wellblood neutrophils. Avacopan thereby arrests the ability of those cells to do damage in response to C5a activation, which is known to be the driver of ANCA vasculitis and other complement-driven autoimmune and inflammatory diseases. Current therapies for such diseases typically include broad immunosuppression with high doses of glucocorticoids (steroids) such as prednisone or methylprednisone, which may cause significant illness and even death. Avacopan therapy was designed to prevent these outcomes. Avacopan does not affect formation of the C5b-9 terminal complement complex, or MAC, unlike the anti-C5-antibody, eculizumab (Soliris®). Therefore, we believe avacopan does not increase the susceptibility to infections for C3G.which
In April 2016, we announced5
MAC is important in host defense. Moreover, there are two distinct receptors for C5a: the award of an FDA Orphan Products Development grant of $500,000 to supportpro-inflammatory C5a receptor known as C5aR, the clinical developmenttarget of avacopan, forand the treatmentanti-inflammatory C5a-like receptor, or C5L2, which plays an important role in homeostasis. Accordingly, precisely inhibiting C5a at the level of patientsC5aR is thought to block the pro-inflammatory effects of C5a, while leaving the protective effects of C5L2 functional. Avacopan does not bind into C5L2, thereby not interfering with AAVthe protective effects of C5L2.
We have successfully completed and reported positive clinical data from our pivotal Phase III clinical trial known as ADVOCATE in the United States.
Avacopan isANCA vasculitis, and we are currently evaluating avacopan in Phase III development for the treatment of patients with AAV in a pivotal trial called ADVOCATE. We recently also launched a clinical trial to study avacopan for the treatment of patients with C3G and plan to initiateII clinical studies for the treatment of patients with HS in 2018. Meanwhile, we are actively dosing aHUS patients under compassionate use protocols as we explore appropriate doses and dosing regimen for that indication. All of these activities are designed to potentially support registration of avacopan in these indications. In May 2016, pursuant to the Avacopan Agreement, Vifor licensed the rights to commercialize avacopan for orphan renal diseases in
Europe, certain other markets outside the United States and most of Asia. In February 2017, we entered into the Avacopan Amendment to expand the Vifor territories to include all markets outside the United States and China. We retain all rights to commercialize avacopan in the United States and China and also retain control of the clinical development programs for orphan renal diseases.
AAV, C3G and aHUS are all orphan autoimmune diseases that are characterized by inflammation that often affects the kidneys, among other major organs.HS.
ANCA-AssociatedANCA Vasculitis (AAV)
AAVANCA vasculitis is an orphan, severe, and often fatal autoimmune disease that is causedcharacterized by elevated levels of autoantibodies called anti-neutrophil cytoplasmic autoantibodies and is characterized by inflammation that can affect many different organ systems, and commonly involves the kidneys. AAVANCA vasculitis affects approximately 40,000 to 75,000 people in the United States, with approximately 4,000 new cases each year, and more than 75,000year; similarly, ANCA vasculitis affects approximately 50,000 to 100,000 people in Europe, with at least 7,500approximately 5,000 new cases each year.
Limitations of Current Therapies
AAVANCA vasculitis is currently treated with courses of immuno-suppressants (cyclophosphamide, or CYC, or rituximab, or RTX) combined with high-dose glucocorticoid (steroid)prednisone administration. Complete remission is achieved in only 60-80% of patients and relapse is common. Following initial treatment, up to 30% of patients relapse within six to 18 months, and approximatelyup to 50% of all patients will relapse within three to five years.
The current SOC for AAVANCA vasculitis is associated with significant safety risks.risks due to general immunosuppression including increased infection rates and dose-related increases in hematological and solid organ malignancies, as well as metabolic and other toxicities associated with glucocorticoids. First year mortality is approximately 11% to 18%. The, with the single greatest cause of this premature mortality isbeing not disease related, adverse events, but rather infection and other side effects that are thought largely to be a consequence of steroidprednisone administration. The multiple adverse effects of courses of steroidacute and chronic prednisone treatment (both initial courses and those that are repeated as a consequence of relapse)often required in the treatment plan are major causes of both short-term and long-term disease and death. Suchmorbidity including the increased infection risk. Glucocorticoid therapy-related adverse events contribute significantly to patient care costs, as well as to the diminution of quality of life for patients.
Role of C5a and C5aR in AAVANCA Vasculitis
Complement 5a, or C5a, acting through its receptor C5aR, sometimes called C5aR1 or CD88, is thought to play apro-inflammatory role in AAV.ANCA vasculitis. Autoantibodies against neutrophil enzymes lead to the priming and activation of neutrophils.neutrophils and activation of the complement cascade. Activation of the complement pathway occurs withcascade leads to production of C5a, one of the most potentpro-inflammatory mediators of the complement system. C5a, through binding to its receptor C5aR, induces expression of adhesion molecules and chemotactic migration of neutrophils and other white blood cells. These accumulating adhering neutrophils initiate an inflammatory cascade in the small blood vessels by secretingpro-inflammatory cytokines and chemoattractants that lead to necrotizing vasculitis.
Importantly, there are two distinct receptors for C5a: thepro-inflammatory C5a receptor known as C5aR, the target of avacopan, and the anti-inflammatoryC5a-like receptor, or C5L2, which plays an important role in homeostatis. Accordingly, precisely inhibiting C5a at the level of the C5aR receptor is thought to block thepro-inflammatory effects of C5a, while leaving the protective effects of C5L2 functional. Avacopan does not bind into C5L2, thereby not interfering with the protective effects of C5L2.
Avacopan — A Novel C5a Receptor Inhibitor
Avacopan is a potent and highly specific inhibitor of C5aR, is orally bioavailable and has demonstrated an excellent preclinical safety profile, consistent with its intended chronic use in patients. Avacopan does not affect formation of theC5b-9 terminal complement complex (or MAC), unlike theanti-C5-antibody, eculizumab (Soliris®). Therefore, avacopan is believed not to increase the susceptibility to infections such asNeisseria meningitidis.
The efficacy of avacopan was demonstrated in a mouse model of the renal manifestations of AAV, which closely mimics many of the histological features of the human disease. In these studies, oral doses of avacopan completely blocked the glomerulonephritis induced by intravenous injection of anti-myeloperoxidase antibodies (one of the anti-neutrophil cytoplasmic antibodies that are implicated in AAV in humans). Levels of avacopan in the blood of these mice were comparable to levels in the blood of AAV patients who participated in our Phase II CLEAR and CLASSIC clinical trials with avacopan.
Clinical Development in AAV
Avacopan Phase IIII Clinical TrialsTrial in ANCA Vasculitis
We have completed four Phase I clinical trials with avacopan in a total of 102 healthy subjects. These studies evaluated the safety and tolerability, pharmacokinetic, or PK, and pharmacodynamic, or PD, profiles of avacopan, given orally at doses ranging from a single dose of 1 mg up to 100 mg given twice daily for five days. Avacopan was well-tolerated and appeared to be safe in these studies. No serious adverse events or dropouts due to adverse events were observed in these studies. The most commonly reported adverse events in subjects receiving avacopan in these studies were headache, diarrhea, dizziness, sore throat, upper respiratory tract infections and decrease in white blood cells. These adverse events typically were mild and dosing was not stopped as a result.
Avacopan Phase II Clinical Trials
We havesuccessfully completed and reported positive topline clinical data from twoour pivotal Phase IIIII clinical trials,trial of avacopan for the treatment of ANCA vasculitis, known as the CLEAR and CLASSIC trials, with avacopan in patients with AAV.
CLEARADVOCATE trial. ADVOCATE was a randomized, double-blind, placebo-controlled clinical trial in 67 patients with AAV in Europe. The aim of this trial was to provide effective therapy for AAV with an inhibitor of the C5a receptor while reducing toxicity associated with SOC therapy by eliminating or reducing exposure to high-dose systemic steroid use. The primary safety objective of this clinical trial was to evaluate the safety and tolerability of avacopan in patients with AAV on background cyclophosphamide, or CYC, or rituximab, or RTX, treatment. The primary efficacy objective was to evaluate the effect of avacopan based on the Birmingham Vasculitis Activity Score, or BVAS. BVAS measures AAV disease activity across all organ systems and is the most widely used and clinically validated outcome measure in AAV clinical trials. The higher the BVAS score, the higher the level of disease activity. The greater the reduction in BVAS score with treatment, the greater the disease improvement. The secondary objectives of this clinical trial included assessment of the feasibility of reducing or eliminating the use of steroids in the treatment of patients with AAV without the need for rescue steroid measures, assessment of changes in renal function based on estimated glomerular filtration rate, or eGFR, hematuria, and proteinuria with avacopan compared to SOC treatment, assessment of the effect of avacopan on health-related quality of life measurements, and evaluation of the PK and PD profiles of avacopan in patients with AAV.
The CLEAR trial met its primary endpoint based on the BVAS response at week 12 in patients receiving avacopan, compared to those patients receiving the high-dose steroid-containing SOC. Specifically, all treatment groups receiving avacopan demonstrated a statistically significant (P=0.002)non-inferior clinical efficacy outcome when compared to SOC. The study contained two avacopan-treated groups. One group received avacopan with a low dose of steroids (one third the steroid in the SOC group), in which the BVAS response was 86% at week 12 versus 70% for SOC (P=0.002 fornon-inferiority). A separate group received avacopan without steroids; in this group the BVAS response was 81% (P=0.01 fornon-inferiority). SOC treatment included a standard background immunosuppressant (CYC or RTX) given to all patients. The primary endpoint of BVAS response was prospectively defined as the proportion of patients with a decrease from baseline of at least 50% in BVAS plus no worsening in any body system.
Other beneficial changes were noted, including inpre-specified secondary endpoints:
|
CLASSIC was a randomized, double-blind, placebo-controlled Phase II clinical trial in patients in the United States and Canada with either newly diagnosed or relapsing AAV who required either CYC or RTX treatment. Eligible patients were randomized in a 1:1:1 ratio to receive either placebo plus CYC or RTX plus full dose starting steroids; 10mg avacopan twice daily plus CYC or RTX plus full dose starting steroids; or 30mg avacopan twice daily plus CYC or RTX plus full dose starting steroids. The treatment period was 12 weeks, with a12-weekfollow-up period. The aim of the CLASSIC trial was different from the CLEAR trial. The CLASSIC trial was mainly a regulatory and safety trial. As such, the main goal of CLASSIC was to evaluate the safety of avacopan when given with high-dose steroid-containing SOC treatment, which also includes CYC or RTX. Therefore, the primary safety objective of this clinical trial was to evaluate the safety and tolerability of avacopan in patients with AAV on background CYC or RTX treatment. The primary efficacy objective was to evaluate the efficacy of avacopan based on BVAS. The study was not sized to formally evaluate efficacy. A total of 42 patients were enrolled in this trial.
The CLASSIC safety study met its objectives. Avacopan was shown to be well-tolerated in patients with AAV when added to the current SOC regimen. The incidence of serious adverse events was similar across treatment groups in the study. While the CLASSIC safety study was not designed or powered for inferential statistical analyses on efficacy, treatment response for each cohort was assessed at week 12 using the BVAS. Results showed that the BVAS response was numerically higher in patients receiving avacopan compared to control. The 30mg avacopan dose appeared to be most effective, based on a higher number of patients achieving early remission (based on BVAS of 0) at week four. The renal function, measured by eGRF appeared to improve most in the 30mg avacopan group, and renal response (based on improvement in hematuria, albuminuria, and eGFR) appeared to be highest in the 30mg avacopan group.
Taken together, these results suggest that avacopan, a target-specific C5aR inhibitor, may provide effective control of the disease while eliminating chronic steroids in the treatment of AAV. Avacopan also appeared safe and well-tolerated in the trials. There were no observations that would prevent further clinical development of avacopan. We also completed the long-term toxicology program with avacopan. The results provide support for chronic dosing of avacopan in future clinical trials.
We heldEnd-of-Phase II meetings with the FDA and Protocol Assistance/Scientific Advice meetings with the EMA in 2016. Both the FDA and the EMA concurred with the design and scope of the Phase III registration clinical trial in AAV.
Avacopan Phase III Clinical Trial
In December 2016, we initiated the ADVOCATE, or Avacopan Development in Vasculitis to Obtain Corticosteroid elimination and Therapeutic Efficacy, Phase III clinical trial. ADVOCATE is a randomized, double-blind, placebo-controlledactive-controlled worldwide clinical trial to enroll approximately 300which enrolled 331 patients with newly diagnosed or relapsing AAVANCA vasculitis at approximatelyover 200 sites in the United States, Canada, Europe, Australia, New Zealand and New Zealand.Japan. The aim of the trial iswas to assess the safety and efficacy of avacopan in inducing and sustaining remission in patients with AAV.ANCA vasculitis. The study includesincluded two treatment arms: the test arm contains 30mgcontained 30 mg twice-daily oral doses of avacopan and eliminates corticosteroids,eliminated prednisone, and the prednisone active comparator control arm containscontained an avacopan-matching placebo and maintainsmaintained a standard regimen of high-dose chronic steroids.prednisone. All patients will also receivereceived a standard background
6
immunosuppressant, either CYC or RTX. PrimaryThe pre-specified primary endpoints will be measured by BVAS, assessing diseasewere remission of acute vasculitis activity at week 26 and sustained remission at week 52, where avacopan therapy was at least statistically non-inferior to the prednisone active comparator SOC. The two primary endpoints were tested sequentially using a gatekeeping procedure to preserve the Type I error.
BVAS remission at week 26 was achieved in 72.3% of the avacopan treated subjects vs. 70.1% of subjects in the prednisone active comparator SOC control group (p<0.0001 for non-inferiority). Sustained remission at 52 weeks was observed in 65.7% of the avacopan treated subjects vs. 54.9% in the prednisone active comparator SOC control group, achieving both non-inferiority and superiority to prednisone active comparator SOC (p=0.0066 for superiority of avacopan).
Subjects who received avacopan experienced additional benefits compared to those in the prednisone active comparator SOC control group. These benefits, assessed as pre-specified secondary endpoints, include:
1. Significant reduction in glucocorticoid-related toxicity
In the Glucocorticoid Toxicity Index (GTI version 2), the avacopan therapy arm vs. the prednisone active comparator SOC control group was statistically significantly improved for:
o | The GTI Cumulative Worsening Score: avacopan therapy 39.7 vs. 56.6 for prednisone active comparator SOC (p=0.0002 for avacopan superiority), and for |
o | The GTI Aggregate Improvement Score: avacopan therapy 11.2 vs. 23.4 for prednisone active comparator SOC (p=0.0082 for avacopan superiority). |
Other measures of glucocorticoid-related adverse event assessments (i.e., those based on European League Against Rheumatism-recommended adverse event terms and those based on Investigator Assessment of causality) also showed statistically significantly fewer events in the avacopan therapy arm vs. the prednisone active comparator SOC control group.
2. Significant improvement in kidney function in patients with renal disease
The avacopan group exhibited a statistically significant improvement in estimated glomerular filtration rate, or eGFR, from baseline to week 26 and 52. Other key endpoints include early remission (BVAS of 0 atto week 4),52 compared to the prednisone active comparator SOC control group:
o | Mean change from baseline to week 26 in eGFR: avacopan treated subjects had an increase of 5.8 mL/min/1.732 vs. an increase of 2.8 mL/min/1.732 in the prednisone active comparator SOC control group (p=0.0413). |
o | Mean change from baseline to week 52 in eGFR: avacopan treated subjects had an increase of 7.3 mL/min/1.732 vs. an increase in eGFR of 4.0 mL/min/1.732 in the prednisone active comparator SOC control group (p=0.0259). |
o | Marked improvement in kidney function particularly in patients with a baseline eGFR of < 30 mL/min/1.73 m2. Those patients showed a mean improvement of 14 units at week 52 which was highly statistically significant (p < 0.01). |
3. Improvements in health-related quality of life metrics
The avacopan group demonstrated statistically significant improvements in the majority of domains measured by the validated quality of life instrument SF-36 version 2 at week 26 and corticosteroid-related toxicities. We expect to complete patient enrollment52.
The avacopan group reported statistically significantly better outcomes on the EuroQOL-5D-5L instrument (both Visual Analogue Scale and EQ Index).
The topline safety results revealed an acceptable safety profile in this serious and life-threatening disease, with fewer subjects having serious adverse events, or SAEs, in the avacopan group than in the prednisone active comparator SOC control group. A full analysis of the Phase III ADVOCATE trialdata is underway and expanded results are expected be presented at upcoming medical meetings and inmid-2018 a future publication.
7
Avacopan Regulatory Matters in ANCA Vasculitis
Based on the success of the avacopan clinical studies in ANCA vasculitis, we plan to file an NDA with the FDA in mid-2020 and believe, if successful, could formwill support our alliance partner, Vifor, with their filing of applications for regulatory approval internationally.
Avacopan has been granted orphan drug designation by the basis of avacopan’s registrationFDA for the treatment of AAV in EuropeANCA-associated vasculitides (granulomatosis with polyangiitis or Wegener’s granulomatosis), microscopic polyangiitis, and in the United States.
Avacopan Regulatory Matters
In addition to the earlier referenced orphan drug designations granted to avacopanChurg-Strauss syndrome, and by the FDA and the European Medicines Agency, or EMA, avacopan was also granted access to the EMA’s PRIME initiative, which supports accelerated assessment of investigational therapies addressing unmet medical need. This was based on the assessment by the EMA that (i) AAV is a highly severe disease with high mortality; (ii) current standard therapies (including steroids) have partial efficacy and severe toxicity, indicating a high unmet medical need in AAV; and (iii) avacopan provides a new mechanism of action for the treatment of AAVmicroscopic polyangiitis and has the potential to significantly address the unmet medical need based on nonclinical and clinical data.
We filed a CMA application for avacopan in the treatmentgranulomatosis with polyangiitis, both forms of patients with AAV with the EMA which was validated by the EMA in December 2017 and is currently under review by the EMA’s CHMP.ANCA vasculitis.
Complement 3 Glomerulopathy (C3G)
C3G disease is an ultra-rare disease of the kidney that is characterized by deposition of the complement fragment known as C3 in the glomeruli, or filtration units of the kidney, leading to inflammatory cell accumulation, profoundpotentially leading to significant kidney damage and eventual renal failure. The prevalence of C3G is estimated at two to three per million people or approximately 800 patients in the United States and aboutapproximately 2,000 in Europe.
There is currently no approved effective standard therapy for C3G. Typically, patients receive one or more non-specific immunosuppressants. Without treatment, C3G may lead to kidney failure, and the current array of unapproved therapies at best only delays end stage renal disease, or ESRD. Kidney transplant is frequently the only option, and even after transplantation, the disease returns in a significant number of affected individuals.
Role of C5a and C5aR in C3G
While the disease name refers to complement 3, it is well known that the C5a receptor pathway, which is further downstream of C3 in the complement cascade and the target of avacopan, is an essential part of the disease causing pathology. Hence, C3 is a marker of more general complement activation.
Limitations of Current Therapies
There is currently no approved effective standard therapy for C3G. Typically, patients receive one or morenon-specific immunosuppressants. Without treatment, C3G invariably leads to kidney failure, and the current array of unapproved therapies at best only delays end stage renal disease, or ESRD. Kidney transplant is frequently the only option, and even after transplantation, the disease invariably returns.
Clinical Development in C3G
Avacopan Phase II Clinical Trial in C3G
We recently launched a registration-supporting clinical trial to study avacopan for the treatment of patients with C3G.C3G, the so-called ACCOLADE trial. The clinical trial will include approximately 44is expected to enroll up to 88 patients with C3G, including both C3 Glomerulomephritis, or C3GN,Glomerulonephritis and Dense Deposit Disease. The primary objective is to evaluate the efficacy of avacopan compared to placebo based on histologic changes in kidney biopsies taken at baseline and after 26 weeks of treatment. The primary endpoint will be based on the percent change from baseline in the C3G Histologic Index for disease activity.
The secondary objectives of this trial include evaluation of: (i) the safety of avacopan compared to placebo based on the incidence of adverse events, changes in clinical laboratory measurements, and vital signs; (ii) changes in laboratory parameters of renal disease including eGFR, proteinuria, and urinary excretion of
MCP-1 with avacopan compared to placebo; (iii) health-relatedquality-of-life changes based on ShortForm-36 version 2, orSF-36 v2, andEuroQOL-5D-5L, orEQ-5D-5L, with avacopan compared to placebo; and (iv) the PK profile of avacopan in patients with C3G.
Patients meeting inclusion criteria will start study drug treatment on Day 1. Patients will takereceive avacopan 30mg30 mg or matching placebo orally twice daily.twice-daily. The placebo-controlled treatment period is 26 weeks (182 days). This will be followed by 26 weeks study period during which time all patients will receive avacopan. Thereafter, all patients will be followed for eight weeks (56 days) without study drug treatment.
Avacopan “Special Needs” Protocol We expect to report topline data from the ACCOLADE trial in the United Kingdomsecond half of 2020.
One patient with treatment refractory C3GN, one8
A biopsy of the patient’s kidney that was done before avacopan treatment showed severe inflammation. After two months on treatment with avacopan, a repeat biopsy showed the inflammation had decreased, and by six months a biopsy appeared close to normal. Before treatment, the patient’s kidney function was declining rapidly; during treatment the kidney function stabilized. The patient’s quality of life improved markedly, and he was able to attend college and participate in social activities.
Based on the results in this and the Phase II study in AAV, we launched our clinical development program in C3G.Financial Statements
Hidradenitis Suppurativa (HS)
Hidradenitis suppurativa, or HS is a chronic, inflammatory,inflammatory, debilitating skin disease characterized by recurrent, painful, nodules and abscesses, ultimately leading to the formation of draining fistulas (also known as sinus tracts) as well as scarring. The diseasesdisease originates from inflammation and occlusion of the hair follicle. Apart from pain, the nodules may rupture, and often extrude a purulent, foul-smelling discharge leading to substantial social embarrassment for these patients. Due to its chronic nature and frequently occurring relapses of the skin lesions, HS has a great impact on the patient’s quality of life, deeply affecting social, working, and psychological aspects.
In the United States, moderate to severe HS has orphan designation with anthe estimated prevalence of moderate-to-severe HS is up to 200,000 patients. In Europe, the number of affected patients is believed to be greater, with higher prevalence.
Depending on the severity of disease, the current SOC for HS patients includes topical, oral or intravenous antibiotic treatment, as well as surgery. Adalimumab, an anti-TNF-alpha monoclonal antibody, is the only drug indicated for the treatment of patients with moderate-to-severe HS. Two pivotal adalimumab trials showed that approximately 50% of the patients who were treated with adalimumab achieved an improvement in their skin lesion, as measured by the widely accepted HiSCR (Hidradenitis Suppurativa Clinical Response) assessment instrument. There remains a high unmet medical need, however, as a very large proportion of the patients with moderate-to-severe HS do not adequately respond to adalimumab or other therapies used in the SOC.
Role of C5a and C5aR in HS
Neutrophils are believed to play an important disease-promoting role, as well as certain cytokines and mediators commonly found in autoimmune diseases, such as TNF-alpha, IL-17, IL-1 and others such as C5a. C5a promotes inflammatory mediators and is a strong activator of neutrophils. HS is a neutrophil-driven skin disease and C5a has been found activated and significantly elevated in plasma of HS patients, as compared to healthy controls. In an open label Phase IIa study in 12 patients with moderate and severe HS, a specific intravenous anti-C5a antibody was shown to improve skin lesion in patients with moderate to severe HS.
With the role of C5a in HS, our C5aR antagonistinhibitor avacopan could be effective in mediating the disease course of HS. Avacopan is a small molecule that is conveniently administered as an oral medication and could present itself as advantageous over intravenous or subcutaneous injections treatments for this condition.
Limitations of Current Therapies
Depending on the severity of disease, the current standard of care for HS patients includes topical, oral or intravenous antibiotic treatment, as well as surgery.
Adalimumab, an anti-TNF-alpha monoclonal antibody, is the only drug indicated for the treatment of patients with moderate to severe HS. Two pivotal adalimumab trials showed that approximately 50% of the patients who were treated with adalimumab achieved an improvementAvacopan Phase IIb Clinical Trial in their skin lesion, as measured by the widely accepted HiSCR (Hidradenitis Suppurativa Clinical Response) assessment instrument. There remains a high unmet medical need, however, as a very large proportion of the patients with moderate to severe HS do not adequately respond to adalimumab or other therapies used in the standard of care.
Avacopan Clinical Development in HS
Based on the role of C5aneutrophils and complement activation in the pathogenesis of HS, we believe that there is significant interest in the medical-scientific community to develop avacopan for the treatment of patients in HS. We plan to initiatehave an ongoing Phase IIb clinical studiestrial, the AURORA trial, of avacopan in HS by the end of 2018.patients with moderate-to-severe HS.
Atypical Hemolytic Uremic Syndrome (aHUS)
aHUSThe AURORA trial is a genetic, chronic, rare disease thatrandomized, double-blind, placebo-controlled, three arm Phase IIb trial in approximately 390 subjects with moderate-to-severe HS (Hurley stage II or III). Subjects will be randomized 1:1:1 to a treatment of 10 mg avacopan twice-daily, 30 mg avacopan twice-daily or placebo for 12 weeks. Subjects treated with 10 mg or 30 mg twice-daily during the blinded, placebo-controlled 12-week treatment period will be followed by an additional 24-week, active treatment period during which they will continue to receive the same dose regimen, either 10 mg or 30 mg avacopan twice-daily. Subjects on placebo who complete the blinded, placebo-controlled 12-week period will be re-randomized 1:1 to receive 10 mg or 30 mg avacopan twice-daily during the 24-week active treatment period. Thereafter, all subjects will be followed without study drug for eight weeks before they exit the study.
The primary efficacy objective is caused bybased on subjects achieving a HiSCR after 12 weeks of treatment. HiSCR is defined as at least a 50% reduction in abscess and inflammatory nodule count and no increase in abscess count and no increase in draining fistula count at Week 12 relative to baseline. The primary safety objective is to evaluate the formationsafety of blood clots within small blood vessels,avacopan compared to placebo based on the adverse event incidence, changes from baseline in laboratory parameters, and vital signs. Secondary objectives include the evaluation of International Hidradenitis Suppurativa Severity Score System, or thrombosis, throughoutIHS4, individual inflammatory lesion counts, the body. aHUS affects both adultssubject’s global assessment of skin pain numeric rating scale, the Sartorius score, Hidradenitis Suppurativa-Physician’s Global Assessment, and childrenthe proportion of subjects who experienced flare or who received rescue therapy, and can progressively damage vital organs,the duration of flare. Other secondary objectives include the assessment of subject reported outcomes including health-related quality-of-life changes based on the kidneys, but also other organs suchSF-36 v2, the EQ-5D-5L, and the Hidradenitis Suppurativa Quality of Life Index as well as the brain, heart, lungs, gastrointestinal tract, and pancreas. These clots can cause serious medical problems if they restrict or block blood flow.
As a result of clot formation in small blood vessels, people with aHUS experience kidney damage and acute kidney failure that lead to ESRD in about half of all cases. These life-threatening complications prevent the kidneys from filtering plasma and eliminating waste products from the body effectively.
Role of C5a and C5aR in aHUS
aHUS often results from a combination of environmental and genetic factors. The genes associated with aHUS provide instructions for making proteins involved in regulating the complement system. In aHUS, the regulatory proteins that prevent uncontrolled activationevaluation of the complement system are defective duepharmacokinetic profile of avacopan in subjects with HS. We expect to gene mutations. The resulting uncontrolled activation of the complement system, including uncontrolled production of the anaphylatoxin C5a, results in damage to the vasculature and organs such as the kidneys.
The fact that C5a and its receptor C5aR play a rolereport topline data from AURORA trial in the pathogenesisthird quarter of aHUS is supported by studies in mice. Mice deficient in complement factor H, or CFH, develop proliferative glomerulonephritis, which is improved in mice where both the CFH and C5aR genes are deleted. Mice lacking C5aR were significantly protected from functional renal disease as assessed by blood urea nitrogen levels. This is relevant asloss-of-function CFH mutations are relatively common in humans with aHUS. In addition, C5a can prime neutrophils and enhance neutrophil activation. C5a, acting on C5aR, is a potent neutrophil chemoattractant and agonist, which triggers neutrophil aggregation. Further, C5a activates endothelial cells, promoting retraction and increased permeability.2020.
Avacopan, as a potent and specific inhibitor9
Limitations of Current Therapies
Current aHUS treatment has limited efficacy or is very expensive, and as a result, is not a practical option for many patients with aHUS.
Plasma exchange or infusion has decreased mortality from 50% to 25% in patients with aHUS. In patients with CFH mutations, leading tode-regulation of complement activation, plasma exchange or infusion resulted in partial or complete remission in approximately 60% of patients. Plasma exchange with immunosuppressive therapy such as steroids and azathioprine or mycophenolate mofetil and RTX resulted in long-term dialysis-free survival in 60% to 70% of patients. Patients may becomenon-responsive to plasma exchange or infusion. It is also debatable whether renal transplantation is appropriate for patients with aHUS with ESRD, as the disease recurs in approximately 50% of patients after transplantation, and graft failure occurs in 80% to 90% with recurrent disease.
Eculizumab has been approved by the FDA for treatment of patients with aHUS to inhibit complement-mediated thrombotic microangiopathy. Eculizumab treatment improves the disease activity based on improvement in platelet count, lactate dehydrogenase, hemoglobin, and serum creatinine levels, and need for plasma exchange, infusion, or dialysis. Eculizumab is ananti-C5 antibody, designed to block the conversion of C5 to C5a and C5b. Eculizumab needs to be administered by frequent intravenous infusion, is associated with an increased risk ofNeisseria infections, and currently can cost approximately $500,000 per year in the United States.
Clinical Development in aHUS
Patients with aHUS have increased activity of the complement system, leading to increased conversion of complement component C5 to two active components: C5a and C5b. C5a binds to its receptor, C5aR, leading topro-inflammatory activation of vascular endothelial cells and neutrophils.Ex vivo studies demonstrate that in the presence of increased C5a, neutrophils bind to vascular endothelial, followed by accumulation of platelets and formation of microscopic thrombi (clots) and damage to the vessel. This microscopic thromboangiopathy is characteristic of aHUS flares, and leads to damage to tissue and organ systems.
Eculizumab, a monoclonal antibody that binds to C5 and prevents conversion of C5 to C5a and C5b, prevents formation of microscopic thrombiex vivo, and is effective and indicated for treatment of aHUS. To test the hypothesis that avacopan should also be tested in aHUS,ex vivo studies were performed at an expert center by external scientists. Specifically, vascular endothelial cells were exposed to blood from patients with aHUS and examined for microscopic thrombi. Then the patients with aHUS were treated with avacopan, and the study was repeated. The results demonstrated that avacopan reduced the number and size of thrombi. The positive effect of avacopan was similar to that observed with eculizumab, or with soluble C5aR1, which also binds to C5a.
Based on these encouraging in vitro findings, we performed a Phase II pilot clinical trial with avacopan in six patients with aHUS who were on dialysis. The primary efficacy objective of the trial was to evaluate whether treatment with avacopan may reduce thrombosis formation in chronic dialysis patients with aHUS. In 2016, we reported positive data from five patients from this clinical trial. After 14 days of dosing in aHUS patients, the mean decrease in thrombus size was 83%, with 100% inhibition in three of these patients. Treatment appeared to be mechanism specific, as the thrombus size returned to baseline levels when avacopan treatment was stopped. There was one serious adverse event, not considered related to avacopan use, in a patient with long-standing cardiovascular and renal disease of cardiac asystole. Two patients in the study had relatively low platelet counts which appeared to improve on avacopan treatment. We are actively dosing aHUS patients under compassionate use protocols as we explore appropriate doses and dosing regimen for that indication.
Avacopan Commercialization Strategy
We plan on building a salescommercial infrastructure and deploying an appropriately sized specialty field force in the United States to commercialize our orphan disease drug candidates, including avacopan. Given that all three orphan indications for which avacopan is being developed may have significant renal involvement, wein ANCA vasculitis. We expect that our future salesfield force will focus primarily on nephrologists. Other physician specialists such asa subset of rheumatologists involved in the diagnosis and treatment of those diseases would also be targeted by our sales forces.nephrologists who treat this disease. In territories outside of the United States, and China, our partner Vifor would be responsible for the commercialization of avacopan.
Kidney Health Alliance with Vifor
In May 2016, we entered into a collaboration and license agreement with Vifor, which we refer to as the Avacopan Agreement, with Vifor to commercialize avacopan for orphan renal diseases in Europe and certain other markets. In connection with the Avacopan Agreement, we received anon-refundable upfront payment of $85.0 million, comprising $60.0 million in cash and $25.0 million in the form of an equity investment to purchase 3,333,333 shares of our common stock at a price of $7.50 per share. In February 2017, we and Vifor entered into the Avacopan Amendment to expand the licensed territory to include all markets outside the United States and China and we received an additional $20.0 million upfront cash commitment. We retain control of ongoing and future development of avacopan (other than country-specific development in the licensed territories) and all commercialization rights to avacopan in the United States and China. Upon achievement of certain regulatory and sales based milestones with avacopan, we will receive additional payments under this agreement. In addition, we will receive royalties, with rates ranging from the teens tomid-twenties, on future potential net sales of avacopan by Vifor in the licensed territories. In December 2017, we achieved the first regulatory milestone under the Avacopan Agreement in the amount of $50.0 million, following the EMA’s validation of the conditional marketing authorizatoin, or CMA, application for avacopan for the treatment of patients with AAV.ANCA vasculitis. In June 2018, we and Vifor entered into the Avacopan Letter Agreement to further expand the Vifor territories under the Avacopan Agreement to provide Vifor with exclusive commercialization rights in China and we received a $5.0 million payment for the expanded rights. We retain control of ongoing and future development of avacopan (other than country-specific development in the licensed territories) and all commercialization rights to avacopan in the United States.
Under a prior development and commercialization agreement with Glaxo Group Limited, or GSK, an affiliate of GlaxoSmithKline, which ended in 2013, we are subject to reverse royalties to GSK of 3% on annual worldwide net sales of avacopan, not to exceed $50.0 million in total royalties.
CCX140 —- Chronic and Orphan Kidney Diseases
Our second drug candidate in the orphan disease space is CCX140, an inhibitor of the chemokine receptor known as CCR2. CCX140 is an orally-administered small molecule that is a highly potent and selective inhibitor of the chemokine receptor known as CCR2. CCX140 has an excellent preclinical and clinical profile, including good safety and tolerability demonstrated in hundreds of healthy volunteers or patients with diabetes or diabetic nephropathy, or DN, across seven clinical trials. These clinical studiestrials include a successfully completedone-year dosing of CCX140 in a Phase II trial in chronic kidney disease, or CKD, associated with diabetes. Preclinical data to date suggestssuggest CCR2 inhibition involves a unique mechanism of action in the kidney including a novel element of renal cellular protection at the level of the podocyte leading to rapid improvement in proteinuria. CCX140 has been granted orphan drug designation by the FDA for the treatment of FSGS.
Focal Segmental Glomerulosclerosis (FSGS)
FSGS is a histologic lesion that is associated with the clinical presentation, in children or adults, of proteinuria, nephrotic syndrome and progressive renal insufficiency. Nephrotic syndrome is the combination of nephrotic-range proteinuria (loss of more than three grams of protein per day into the urine) with a low serum albumin level and edema. Each kidney is made up of approximately one million tiny filters called “glomeruli.” Glomeruli filter blood, taking out the water-like part that becomes urine and leaving protein in the blood. When glomeruli or sections of the glomeruli become damaged or scarred (sclerosis), proteins leak into the urine (proteinuria). FSGS is understood to start with damage to podocytes, cells that wrap around capillaries of the glomerulus. Podocytes form part of the barrier that enable the glomerulus to filter the blood in a manner that retains large molecules such as proteins, while smaller molecules such as water, salts, and sugars are filtered as the first step in the formation of urine.
10
FSGS is classified as primary or idiopathic when the cause is not known, and secondary when it occurs in the setting of recognized genetic mutations or associated disease. The distinction between primary and secondary
FSGS can be difficult, but it has been estimated that in 80% of the cases the etiology is unknown. Primary or idiopathic FSGS often presents with the nephrotic syndrome. Secondary FSGS, which most often presents withnon-nephrotic proteinuria and some degree of renal insufficiency, can occur in the setting of genetic vulnerability, podocyte injury due to toxins or infections, or as an adaptive response to glomerular hypertrophy or hyper-filtration.
Symptoms or signs of FSGS may not be noticeable early in the course of disease, presenting only when sufficiently advanced to cause edema, or when physical examination and laboratory assessment reveal proteinuria, low blood albumin levels, high cholesterol and/or high blood pressure. FSGS is a disease characterized by progressive glomerular scarring and is life-threatening. In 20% of children and in 40% of adults, it is the underlying cause of nephrotic syndrome. When accompanied by high levels of proteinuria at the time of presentation, 50% of patients with FSGS will progress to ESRD within three to eight years. FSGS is causal for 4% of all ESRD cases. Furthermore, after kidney transplantation for primary FSGS, the recurrence rate is 40%.
FSGS is a rare form of CKD that affects approximately 80,000 patients in the United States, with 5,500 to 9,500 new cases each year. FSGS attacks the glomeruli causing scarring which leads to permanent kidney damage. Progressive FSGS can lead to ESRD, ultimately requiring kidney transplant or renal dialysis and total health expenditures of hundreds of thousands of dollars each year per patient.
Current Treatment Approaches in FSGS
There are no approved drugs for the treatment of FSGS. Moreover, current treatment approaches are not very effective in halting the disease. Usually, treatments for FSGS include renin-angiotensin-aldosterone, or RAAS, system blockers, corticosteroids, immunosuppressive drugs, diuretics and diet change (reducing sodium and protein intake).
RAAS blockade reduces proteinuria and slows progression in proteinuric kidney diseases, and is commonly used for treatment of secondary FSGS. Whether or not this is effective in primary FSGS is unknown. Patients with histologic evidence of primary FSGS who have nephrotic syndrome are usually offered disease-modifying therapy with glucocorticoids and other immunosuppressive drugs. However, in the absence of nephrotic range proteinuria (>3.5 g/day), administration of steroids or other immunosuppressive drugs is generally not recommended. In many cases, an overall course of treatment of at least six months is required and complete remission may not be attained for 12 months or longer. Shorter courses (two months or less) result in much lower remission rates (20% to 30%).
Patients with little or no reduction in protein excretion at 12 to 16 weeks are considered steroid resistant. Initial therapy of steroid-dependent or steroid-resistant FSGS consists of a calcineurin inhibitor (cyclosporine or tacrolimus) with or withoutlow-dose prednisone. Among those unresponsive to this combination, or among those with substantially reduced eGFR (<40 mL/min per 1.73 m2)m2), mycophenolate mofetil in combination with glucocorticoids is recommended. In addition, in patients at increased risk for glucocorticoid-associated toxicity (e.g., obese patients, diabetic patients, patients with severe osteoporosis, patients >70 years of age), cyclosporine or tacrolimus with or withoutlow-dose prednisone has been recommended, although data evaluating this strategy are limited. Calcineurin inhibitors must be used with caution in patients with impaired renal function because of the nephrotoxicity of these drugs, and some authors recommend avoiding these in subjects whose kidney function approaches renal failure, i.e., subjects with an eGFR of <30 mL/min/1.73 m2.m2.
Limitations of Current Therapies in FSGS
As described above, there are no effective therapies available for FSGS. Control of hypertension, particularly with angiotensin inhibitors, is supportive but does not address the underlying pathology. Glucocorticoids and immunosuppressants are also used, but the results have been inconsistent. The increased risk of infection associated with these agents is a significant concern. Histologic recurrence in renal transplants is high, with high levels of proteinuria portending a poor renal prognosis.
11
Role of CCR2 inhibition in FSGS
There is evidence that the C-C chemokine receptor known as CCR2 plays a role in the pathogenesis of FSGS. CCR2 is a major driver of monocyte migration and activation, and has been shown to mediate renal interstitial inflammation and tubular atrophy in a number of chronic renal diseases by recruiting monocytes to the renal interstitium. Further, studies have shown that the degree of protein excretion correlates with urineMCP-1 levels, one of the signature ligands of CCR2 and a biomarker of inflammation, and the infiltration of immune cells called macrophages into the kidney in patients with CKD. Experiments performed in vitro have added to the mechanistic rationale for the notion that CCR2 is an important driver of FSGS. Proteinuria is the hallmark characteristic of FSGS, and in vitro experiments have found that tubular epithelial cells releaseMCP-1 when exposed to serum proteins on the inside of the tubules. Clinically, in children with FSGS, urinaryMCP-1 levels correlate with the degree of proteinuria.
Blocking CCR2 provided significant and rapid renal protection in two distinct models of FSGS, as measured both by reduction in proteinuria and improvement in multiple histological parameters, and it thus represents a novel and mechanistically-distinct approach for the treatment of FSGS.
In the 5/6 remnant kidney model, mice had a rapid reduction in protein excretionproteinuria when treated with a CCR2 inhibitor and a RAAS inhibitor. Combining a CCR2 inhibitor with a RAAS inhibitor reduced the protein excretionproteinuria by 91%. The protective effects were evident within one week of treatment and were maintained for the duration of the study (six weeks). The same renal protective effects of CCR2 blockade were seen in the adriamycin nephropathy model. Administration of adriamycin caused significant proteinuria, which was significantly reduced by the combination of a CCR2 inhibitor and a RAAS inhibitor after two weeks of treatment. Histological parameters also improved with the combination of the CCR2 inhibitor and a RAAS inhibitor; these included reduced glomerular hypertrophy, glomerular sclerosis, kidney fibrosis, and mesangial expansion and increased podocyte density. Further, we demonstrated marked histological improvements in an FSGS animal model through inhibition of CCR2, including increased density of podocytes. The data suggest CCR2 inhibition involves a unique mechanism of action in the kidney includingmay provide a novel elementapproach for the treatment of renal cellular protection at the level of the podocyte.chronic kidney diseases.
CCX140 Clinical Development
Our clinical development strategy was to first assess the safety and tolerability of CCX140 in healthy subjects, then in patients with type 2 diabetes and normal renal function, and finally to evaluate the drug in patients with DN. As a precursor to our clinical trials in patients with DN, we completed a159-patient randomized Phase II clinical trial to assess the safety and tolerability of CCX140 in patients with type 2 diabetes, one of the most common causes of nephropathy. We also subsequently completed a332-patient randomized Phase II clinical trial to assess the efficacy, safety, and tolerability of CCX140 in patients with DN.
Based on safety and encouraging efficacy signals related to reduction in proteinuria and stabilization/improvement of renal function observed in the Phase II study in patients with DN, we launched our clinical-development program of CCX140 for the treatment of patients with FSGS.
CCX140 Phase I Clinical Trials
We completed four Phase I clinical trials in 118 healthy volunteers. A CCX140 dose range of 0.05 to 15mg15 mg was studied. CCX140 was generally well-tolerated with no serious adverse events observed in these Phase I clinical trials. The PK profile was supportive of once-daily oral dosing of CCX140 in the Phase II clinical trials in patients with type 2 diabetes and in patients with DN.
CCX140 Phase II Clinical Trial in Type 2 Diabetes
Our Phase II clinical trial was designed to demonstrate safety of CCX140 in patients with type 2 diabetes and normal renal function, and to examine the effect of CCX140 on glycemic indices. We conducted a
randomized, double-blind, placebo and active controlled clinical trial in 159 patients with type 2 diabetes on a stable dose of metformin for at least eight weeks, with 32 patients receiving placebo, 32 receiving pioglitazone hydrochloride (an approved therapeutic for type 2 diabetes serving as the active control), 63 receiving 5mg5 mg of CCX140 and 32 receiving 10mg10 mg of CCX140 orally once-daily for 28 days.
The clinical trial met its primary objective by demonstrating the safety and tolerability of CCX140 in these patients. In addition, CCX140 showed encouraging signs of biological activity based on a statistically significant decrease in HbA1c, a marker of glycemic control, for the 10mg10 mg dose group.
12
CCX140 Phase II Clinical Trial in Diabetic NephropathyDN
We completed a Phase II clinical trial in patients with DN. A total of 332 patients were enrolled in a randomized, double-blind, placebo-controlled clinical trial. The goals of this clinical trial were to evaluate the efficacy, safety and tolerability of CCX140 in patients with DN. The primary efficacy objective was evaluation of the effect of CCX140 on albuminuria. Secondary efficacy objectives were evaluation of the effect of CCX140 on HbA1c and eGFR. The three treatment groups consisted of (i) SOC, (ii) a RAAS inhibitor, plus placebo (control group), and (iii) 5mg5 mg and 10mg10 mg of CCX140 once-daily plus SOC. The treatment duration was up to 52 weeks, with a four-weekfollow-up period. Patients with residual albuminuria, despite being on a stable therapeutic dose of a RAAS inhibitor, were included in this clinical trial. The key efficacy endpoint was a change from baseline in first morning UACR, a major indicator of renal health.
The Phase II trial met its primary endpoint by demonstrating that treatment with 5mg5 mg of CCX140 given orally once dailyonce-daily added to a SOC regimen of RAAS inhibitor treatment resulted in a statistically significant (p=0.01) improvement in UACR, beyond that achieved with SOC alone. The maximum treatment effect (24% reduction) was reached at 12 weeks, and sustained reduction in albuminuria induced by CCX140 relative to SOC alone was observed over the full year (UACR at each one of the ten time points over the52-week treatment period in the patients who received 5mg5 mg CCX140 continuously for 52 weeks, were below those of the SOC alone group). A dose of 10mg10 mg CCX140 per day did not provide more improvement in albuminuria as compared to the 5mg5 mg dose. CCX140 did not affect systematic blood pressure, suggesting that the beneficial effect of CCX140 is mediated locally in the kidney micro-environment, possibly through a beneficial reduction in renal inflammation. CCX140 was well-tolerated with a low overall dropout rate over the52-week treatment period (10%). No safety issues were observed that would prevent further clinical development of CCX140 in DN.
CCX140 Phase II Clinical Trials in Primary Focal Segmental Glomerulosclerosisor Genetic FSGS
The successfully completed CCX140 Phase II clinical trial in DN, which demonstrated a statistically significant reduction in proteinuria compared to SOC, showed the most pronounced effect in the highest proteinuric patients. In addition, preclinical data to date suggest CCR2 inhibition involves a unique mechanism of action in the kidney including a novel element of renal cellular protection at the level of the podocyte, leading to rapid improvement in proteinuria. Building upon our orphan kidney disease franchise, we launched our clinical development program of CCX140 in patients with primary or genetic FSGS. Our clinical development program will comprise two populations of patients:
federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation; the federal Physician Sunshine Act, which the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, and their respective implementing regulations, which impose requirements on certain covered healthcare providers, health plans and healthcare clearinghouses as well as their business associates that perform services for them that involve individually identifiable health information, relating to the privacy, security and transmission of individually identifiable health information without appropriate authorization, including mandatory contractual terms as well as directly applicable privacy and security standards and requirements. Failure to comply with the HIPAA privacy and security standards can result in significant civil monetary penalties, 28 state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers; state laws that require pharmaceutical companies to comply with the industry’s voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts. International Regulation In addition to regulations in the United States, we will be subject to a variety of foreign regulations governing clinical trials and commercial sales and distribution of our future drugs. Whether or not we obtain
|
|
federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm consumers; and
56
In addition, certain states mandate that we comply with a state code of conduct, adopt a company code of conduct under state criteria, disclose marketing payments made to physicians and other healthcare providers, and/or report compliance information to the state authorities. The shifting compliance environment and the need to build and maintain robust and expandable systems to comply in multiple jurisdictions with different compliance and reporting requirements increases the possibility that a pharmaceutical company may run afoul of one or more of the requirements.
If our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, the exclusion from participation in U.S. federal or state health care programs and the curtailment or restructuring of our operations. Any penalties, damages, fines, curtailment or restructuring of our operations could adversely affect our ability to operate our business and our financial results. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. Moreover, achieving
Changes in and failures to comply with U.S. and foreign privacy and data protection laws, regulations and standards may adversely affect our business, operations and financial performance.
We may be subject to U.S. federal and state and foreign health information privacy, security and data breach notification laws, which may govern the collection, use, disclosure and protection of health-related and other personal information. In the U.S., HIPAA imposes privacy, security and breach reporting obligations with respect to individually identifiable health information upon “covered entities” (health plans, health care clearinghouses and certain health care providers), and their respective business associates, individuals or entities that create, received, maintain or transmit protected health information in connection with providing a service for or on behalf of a covered entity. HIPAA mandates the reporting of certain breaches of health information to the United States Department of Health and Human Services, or HHS, affected individuals and if the breach is large enough, the media. Entities that are found to be in violation of HIPAA as the result of a breach of unsecured protected health information, a complaint about privacy practices or an audit by HHS, may be subject to significant civil, criminal and administrative fines and penalties and/or additional reporting and oversight obligations if required to enter into a resolution agreement and corrective action plan with HHS to settle allegations of HIPAA non-compliance. Even when HIPAA does not apply, according to the Federal Trade Commission, or FTC, failing to take appropriate steps to keep consumers’ personal information secure constitutes unfair acts or practices in or affecting commerce in violation of Section 5(a) of the Federal Trade Commission Act, 15 U.S.C. § 45(a). The FTC expects a company’s data security measures to be reasonable and appropriate in light of the sensitivity and volume of consumer information it holds, the size and complexity of its business, and the cost of available tools to improve security and reduce vulnerabilities. Individually identifiable health information is considered sensitive data that merits stronger safeguards. The FTC’s guidance for appropriately securing consumers’ personal information is similar to what is required by the HIPAA Security Rule.
In addition, certain state laws govern the privacy and security of health information in certain circumstances, some of which are more stringent than HIPAA and many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts. Failure to comply with these laws, where applicable, can result in the imposition of significant civil and/or criminal penalties and private litigation. For example, California recently enacted legislation, the California Consumer Privacy Act, or CCPA, which went into effect January 1, 2020. The CCPA, among other things, creates new data privacy obligations for covered companies and provides new privacy rights to California residents, including the right to opt out of certain disclosures of their information. The CCPA also creates a private right of action with statutory damages for certain data breaches, thereby potentially increasing risks associated with a data breach. Although the law includes limited exceptions, including for “protected health information” maintained by a covered entity or business associate, it may regulate or impact our processing of personal information depending on the context.
In Europe, the European Union General Data Protection Regulation 2016/679, or GDPR, went into effect in May 2018 and introduces strict requirements for processing the personal data of European Union data subjects. Companies that must comply with the GDPR face increased compliance obligations and risk, including more robust regulatory enforcement of data protection requirements. We are also subject to evolving EU laws on data export, as we may transfer personal data from the EU to other jurisdictions. Following Brexit, we will have to comply with the GDPR and the UK GDPR, each regime having the ability to fine up to the greater of €20 million/ £17 million or 4% of global turnover. The relationship between the UK and the EU in relation to certain aspects of data protection law remains unclear, e.g. how data transfers between EU member states. These changes will lead to additional costs and increase our overall risk. Achieving and sustaining compliance with applicable federal, state and stateforeign privacy security and fraudsecurity laws may prove costly.
57
Risks Related to the Securities Markets and an Investment in Our Stock
There may not be a viable market for our common stock or the price of our common stock may be volatile, and stockholders may not be able to sell their shares at prices that are attractive to them.
There was no public market for our common stock prior to our initial public offering in February 2012, the trading volume of our common stock on the Nasdaq Global Select Market has been limited and there can be no assurance that an active and liquid trading market for our common stock will develop or be sustained. We cannot predict the extent to which investor interest in our company will lead to the development or maintenance of an active trading market on the Nasdaq Global Select Market or otherwise or how liquid that market might become. If an active public market does not develop or is not sustained, it may be difficult for stockholders to sell their shares of common stock at prices that are attractive to them, or at all. Further, an inactive market may also impair our ability to raise capital by selling shares of our common stock and may impair our ability to enter into strategic partnerships or acquire companies or drugs, drug candidates or technologies by using our shares of common stock as consideration.
Stockholders may also be unable to sell their shares of common stock at prices that are attractive to them due to fluctuations in the market price of our common stock. The market prices for securities of biotechnology and pharmaceutical companies have historically been highly volatile. Since the commencement of trading in connection with our initial public offering in February 2012, the publicly traded shares of our common stock have themselves experienced significant price and volume fluctuations. During the year ended December 31, 2017,2019, the price per share for our common stock on the Nasdaq Global Select Market ranged from a low sale price of $5.42$6.16 to a high sale price of $10.80.$39.75. This market volatility is likely to continue. These and other factors could reduce the market price of our common stock, regardless of our operating performance. In addition, the trading price of our common stock could change significantly, both over short periods of time and the longer term, due to many factors, including, but not limited to, those described elsewhere in this “Risk Factors” section and the following:
actual and anticipated fluctuations in our quarterly operating results;
58
FDA, EMA or other U.S. or foreign regulatory actions affecting us or our industry;
In addition, the stock markets in general, and the markets for pharmaceutical, biopharmaceutical and biotechnology stocks in particular, have experienced extreme volatility that have been often unrelated to the operating performance of the issuer. These broad market fluctuations may adversely affect the trading price or liquidity of our common stock. In the past, when the market price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against the issuer. If any of our stockholders were to bring such a lawsuit against us, we could incur substantial costs defending the lawsuit and the attention of our management would be diverted from the operation of our business.
The ownership of our common stock is highly concentrated, and these stockholders could delay or prevent a change of control.
As of February 28, 2018,December 31, 2019, our officers and directors, together with holders of 5% or more of our outstanding common stock and their respective affiliates, beneficially owned approximately 65%64% of our outstanding common stock. Accordingly, these stockholders, acting as a group, have significant influence over the outcome of corporate actions requiring stockholder approval, including the election of directors, any merger, consolidation or sale of all or substantially all of our assets or any other significant corporate transaction. The interests of these stockholders may not be the same as or may even conflict with the interests of our other stockholders. For example, these stockholders could delay or prevent a change of control of our company, even if such a change of control would benefit our other stockholders, which could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company or our assets and might affect the prevailing market price of our common stock. The significant concentration of stock ownership may adversely affect the trading price of our common stock due to investors’ perception that conflicts of interest may exist or arise.
Future sales of our common stock or securities convertible or exchangeable for our common stock may depress our stock price.
Persons who were our stockholders prior to the sale of shares in our initial public offering continue to hold a substantial number of shares of our common stock that they are able to sell in the public market, subject in some
cases to certain legal restrictions. If our stockholders or holders of our options or warrants sell, or indicate an intention to sell, substantial amounts of our common stock in the public market, the trading price of our common stock could decline. The perception in the market that these sales may occur could also cause the trading price of our common stock to decline. As of December 31, 2017,2019, we had 48,837,06060,234,784 shares of common stock outstanding. Of these shares, approximately 36,510,31937,800,624 are freely tradeable, without restriction, in the public market. In addition, approximately 16,104,53319,311,612 of the outstanding shares of common stock and an additional 150,000 shares of common stock issuable upon exercise of outstanding warrants that we issued toBio-Techne Corporation (formerly Techne Corporation), orBio-Techne, in connection with our initial public offering, are eligible for sale in the public market, subject to volume limitations under Rule 144 under the Securities Act of 1933, as amended, or the Securities Act, with respect to shares held by directors, executive officers and other affiliates. In addition, shares of common stock that are either subject to outstanding options or reserved for future issuance under our employee benefit plans are eligible for sale in the public market to the extent permitted by the provisions of various vesting schedules and Rule 144 and Rule 701 under the Securities Act and, in any event, we have filed a registration statement permitting shares of common stock issued on exercise of options to be freely sold in the public market. If these additional shares of common stock are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline.
59
Certain of our directors and executive officers have established, programmed selling plans underRule 10b5-1 of the Exchange Act, for the purpose of effecting sales of our common stock. Any sales of securities by these stockholders, or the perception that those sales may occur, including the entry into such programmed selling plans, could have a material adverse effect on the trading price of our common stock.
If we sell shares of our common stock in future financings, common stockholders may experience immediate dilution and, as a result, our stock price may decline.
We may from time to time issue additional shares of common stock at a discount from the current trading price of our common stock. As a result, our common stockholders would experience immediate dilution upon the purchase of any shares of our common stock sold at such discount. In addition, as opportunities present themselves, we may enter into financing or similar arrangements in the future, including the issuance of debt securities, preferred stock or common stock. For example, in connection with our initial public offering, in February 2012, we issuedBio-Techne a warrant with aten-year term to purchase up to 150,000 shares of our common stock at an exercise per share equal to 200% of the initial public offering price of a share of our common stock and such warrant, if exercised, would likely be exercised at a time when the exercise price of such warrant represented a discount to the trading price of our common stock. In addition, pursuant to our collaboration and license agreement with Vifor in May 2016 for the commercialization of avacopan, we entered into a stock purchase agreement with Vifor for the purchase of 3,333,333 unregistered shares of our common stock at a price of $7.50 per share. In 2019, we sold 6,491,196 shares of our common stock pursuant to an equity distribution agreement for net proceeds of $73.3 million. If we issue common stock or securities convertible into common stock, our common stockholders would experience additional dilution and, as a result, our stock price may decline.
Our quarterly operating results may fluctuate significantly or may fall below the expectations of investors or securities analysts, each of which may cause our stock price to fluctuate or decline.
We expect our operating results to be subject to quarterly fluctuations. Our net loss and other operating results will be affected by numerous factors, including:
any intellectual property infringement lawsuit in which we may become involved;
If our quarterly operating results fall below the expectations of investors or securities analysts, the price of our common stock could decline substantially. Furthermore, any quarterly fluctuations in our operating results may, in turn, cause the price of our stock to fluctuate substantially. We believe that quarterly comparisons of our financial results are not necessarily meaningful and should not be relied upon as an indication of our future performance.
We have broad discretion in the use of our cash and may not use it effectively.
Our management has broad discretion over the use of our cash. Because of the number and variability of factors that will determine our use of cash, stockholders may not agree with how we allocate or spend our cash. We may pursue collaborations or clinical trials that do not result in an increase in the market value of our common stock and that may increase our losses, or we may place our cash in investments that do not produce significant investment returns or that may lose value. Our failure to allocate and spend our cash effectively would have a material adverse effect on our financial condition and business and could cause our stock price to decline.
60
Provisions of our charter documents or Delaware law could delay or prevent an acquisition of our company, even if the acquisition would be beneficial to our stockholders, and could make it more difficult for our stockholders to change management.
Provisions of our amended and restated certificate of incorporation and amended and restated bylaws may discourage, delay or prevent a merger, acquisition or other change in control that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares. In addition, these provisions may frustrate or prevent any attempt by our stockholders to replace or remove our current management by making it more difficult to replace or remove our board of directors. These provisions include:
In addition, Delaware law prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder, generally a person who, together with its affiliates, owns or within the last three years has owned 15% of our voting stock, for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner. Accordingly, Delaware law may discourage, delay or prevent a change in control of our company.
Our employment agreements with certain of our named executive officers may require us to pay severance benefits to any of those persons who are terminated in connection with a change of control of us, which could harm our financial condition or results.
Our namedCertain of our executive officers are parties to employment agreements providing for aggregate cash payments of up to approximately $4.0$4.8 million for severance and other benefits and acceleration of vesting of stock awards with an intrinsic value of $3.4$45.2 million as of December 31, 20172019 in the event of a termination of employment in connection with a change of control of us. The accelerated vesting of options could result in dilution to our stockholders and harm the market price of our common stock. The payment of these severance benefits could harm our financial condition and results. In addition, these potential severance payments may discourage or prevent third parties from seeking a business combination with us.
We do not anticipate paying any cash dividends on our capital stock in the foreseeable future, therefore capital appreciation, if any, of our common stock will be our stockholders’ sole source of gain for the foreseeable future.
We have never declared or paid cash dividends on our capital stock. We do not anticipate paying any cash dividends on our capital stock in the foreseeable future. In addition, our ability to pay dividends is currently restricted by the terms of our credit facility with Hercules. We currently intend to retain all available funds and any future earnings to fund the development and growth of our business. Further, any future debt financing arrangement may contain additional terms prohibiting or limiting the amount of dividends that may be declared or paid on our common stock. As a result, capital appreciation, if any, of our common stock will be our stockholders’ sole source of gain for the foreseeable future.
61
If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, our stock price and trading volume could decline.
The trading market for our common stock depends, in part, on the research and reports that securities or industry analysts publish about us or our business. As of January 2018,2020, we had research coverage by only twosix securities analysts. In the event one or more of the analysts who covers us downgrades our stock or publishes inaccurate or unfavorable research about our business, our stock price would likely decline. In addition, if our operating results fail to meet the forecast of analysts, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline.
The results of the United Kingdom’s referendum on withdrawal from the European Union may have a negative effect on global economic conditions, financial markets and our business.
In June 2016, a majority of voters inOn January 31, 2020, the United Kingdom elected to withdrawwithdrew from the European Union, following its referendum in June 2016. The terms of the United Kingdom’s withdrawal from the EU provide for a national referendum. The referendum was advisory,transitional period until December 31, 2020, during which the status quo is maintained and the UK government will attempt to negotiate the terms of any withdrawal are subject to a negotiation period that could last at least two years afterits future relationship with the government of the United Kingdom formally initiates a withdrawal process.EU. Nevertheless, the referendumwithdrawal has created significant uncertainty about the future relationship between the United Kingdom and the European Union,EU, including with respect to the laws and regulations that will apply as the United Kingdom determines which European UnionEU laws to replace or replicate in the event of a withdrawal.replicate. The referendumwithdrawal has also given rise to calls for the governments of other European UnionEU member states to consider withdrawal. These developments, or the perception that any of them could occur, have had and may continue to have a material adverse effect on global economic conditions and the stability of global financial markets, and may significantly reduce global market liquidity and restrict the ability of key market participants to operate in certain financial markets. Any of these factors could depress economic activity and restrict our access to capital, which could have a material adverse effect on our business, financial condition and results of operations and reduce the price of our common stock.
Item 1B. Unresolved Staff Comments.
Not applicable.
Our corporate headquarters are located in Mountain View, California, where we lease 35,755 square feet of office and laboratory space. In April 2004,May 2019, we entered into aten-year lease agreement for that facility. In August 2012, we entered into an third amendment to the lease agreement for the same facility to extend the term of the lease through April 2019. In April 2017, we entered into a second amendment to the lease agreement for the same facility to extend the term of the lease through April 2020.
2021. We believe that our existing facilities are adequate for our current needs, as the facility has sufficient laboratory space to house additional scientists to be hired as we expand. When
In July 2019, we entered into a ten-year operating lease for a 96,463 square foot facility in San Carlos, California to replace our leases expire,current headquarters located in Mountain View, California. Subject to landlord consent, we may exercise our renewal options or lookhave the right to sublease the facility. After the initial lease term, we also have the option to extend the lease for additional or alternate space for our operations and we believe that suitable additional or alternative space will be available in the future on commercially reasonable terms.five years.
We are not currently a party to any legal proceedings.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our common stock has beenis traded on the Nasdaq Global Select Market since February 8, 2012 under the symbol “CCXI.” Prior to such time, there was no public market for our common stock. The following table sets forth the high and low sales prices per share of our common stock on the Nasdaq Global Select Market for the quarterly periods indicated.
Sales Price of Common Shares | ||||||||
High | Low | |||||||
Fiscal 2017 | ||||||||
First Quarter | $ | 8.58 | $ | 6.13 | ||||
Second Quarter | $ | 9.47 | $ | 6.51 | ||||
Third Quarter | $ | 10.80 | $ | 6.41 | ||||
Fourth Quarter | $ | 8.60 | $ | 5.42 | ||||
Sales Price of Common Shares | ||||||||
High | Low | |||||||
Fiscal 2016 | ||||||||
First Quarter | $ | 7.96 | $ | 2.16 | ||||
Second Quarter | $ | 5.69 | $ | 1.92 | ||||
Third Quarter | $ | 6.20 | $ | 3.95 | ||||
Fourth Quarter | $ | 9.10 | $ | 5.19 |
Holders of Common Stock
As of February 28, 2018,2020, there were approximately 4436 holders of record of our common stock. Certain shares are held in “street” name and accordingly, the number of beneficial owners of such shares is not known or included in the foregoing number.
Dividend Policy
We have never declared or paid cash dividends on our capital stock. We intend to retain all available funds and any future earnings, if any, to fund the development and expansion of our business and we do not anticipate paying any cash dividends in the foreseeable future. Any future determination related to dividend policy will be made at the discretion of our board of directors. In addition, our ability to pay dividends is currently restricted by the terms of our credit facility with Hercules.
Equity Compensation Plan Information
The following table summarizes securities available under our equity compensation plans as of December 31, 2017.2019:
Plan Category | Shares Issuable Upon Exercise of Outstanding Options, Warrants and Rights(2) | Weighted Average Exercise Price of Outstanding Options, Warrants and Rights(3) | Number of Securities Available for Future Issuance(4) |
| Shares Issuable Upon Exercise of Outstanding Options, Warrants and Rights(2) |
|
| Weighted- Average Exercise Price of Outstanding Options, Warrants and Rights(3) |
|
| Number of Securities Available for Future Issuance(4) |
| ||||||||||||
Equity compensation plans approved by security holders: (1) | 10,626,584 | $ | 7.68 | 2,362,215 |
|
| 9,656,828 |
|
| $ | 9.44 |
|
|
| 2,815,443 |
| ||||||||
Equity compensation plans not approved by security holders: | — | — | — |
|
| — |
|
|
| — |
|
|
| — |
| |||||||||
|
|
| ||||||||||||||||||||||
Total | 10,626,584 | $ | 7.68 | 2,362,215 |
|
| 9,656,828 |
|
| $ | 9.44 |
|
|
| 2,815,443 |
| ||||||||
|
|
|
(1) | Consists of our Amended and Restated 1997 Stock Option/Stock Issuance Plan, our Amended and Restated 2002 Equity Incentive Plan and our 2012 Equity Incentive Award Plan, ourNon-Employee Director Compensation Policy and our Employee Stock Purchase Plan, or ESPP. |
(2) | Includes |
(3) | Calculated exclusive of outstanding restricted stock unit awards. |
(4) | Of these shares, |
63
Performance Graph
The information contained in this Performance Graph section shall not be deemed “soliciting material” or to be “filed” with the SEC, for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of ChemoCentryx, Inc. under the Securities Act of 1933, as amended, or the Exchange Act.
The following graph shows a comparison from December 31, 20122014 (the date our common stock commenced trading on the Nasdaq Global Select Market) through December 31, 20172019 of cumulative total return for our common stock, the Nasdaq Composite Index and the Nasdaq Biotechnology Index. Such returns are based on historical results and are not intended to suggest future performance. Data for the Nasdaq Composite Index and the Nasdaq Biotechnology Index assume reinvestment of dividends.
12/12 | 12/13 | 12/14 | 12/15 | 12/16 | 12/17 |
| 12/14 |
| 12/15 |
| 12/16 |
| 12/17 |
| 12/18 |
| 12/19 | |||||||||||||||||||
ChemoCentryx Inc. | 100.00 | 52.93 | 62.43 | 74.04 | 67.64 | 54.39 |
| 100.00 |
| 118.59 |
| 108.35 |
| 87.12 |
| 159.74 |
| 579.06 | ||||||||||||||||||
Nasdaq Composite | 100.00 | 141.63 | 162.09 | 173.33 | 187.19 | 242.29 |
| 100.00 |
| 106.96 |
| 116.45 |
| 150.96 |
| 146.67 |
| 200.49 | ||||||||||||||||||
Nasdaq Biotechnology | 100.00 | 174.05 | 230.33 | 244.29 | 194.95 | 228.29 |
| 100.00 |
| 111.77 |
| 87.91 |
| 106.92 |
| 97.45 |
| 121.92 |
Item 6. Selected Financial Data.
The following selected financial data have been derived from our audited financial statements. The information set forth below is not necessarily indicative of future results and should be read in conjunction with “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 8. Financial Statements and Supplementary Data” included elsewhere in this Annual Report on Form10-K.
Year Ended December 31, |
| Year Ended December 31, |
| |||||||||||||||||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 |
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||||||||||||||||||||
(in thousands, except share and per share data) |
| (in thousands, except share and per share data) |
| |||||||||||||||||||||||||||||||||||||
Consolidated Statements of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Collaboration and license revenue | $ | 82,497 | $ | 11,435 | $ | — | $ | — | $ | 6,060 | ||||||||||||||||||||||||||||||
Collaboration and license revenue from related party |
| $ | 35,952 |
|
| $ | 42,875 |
|
| $ | 82,497 |
|
| $ | 11,435 |
|
| $ | — |
| ||||||||||||||||||||
Grant revenue | — | 500 | — | — | — |
|
| 176 |
|
|
| — |
|
|
| — |
|
|
| 500 |
|
|
| — |
| |||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Total revenue | 82,497 | 11,935 | — | — | 6,060 |
|
| 36,128 |
|
|
| 42,875 |
|
|
| 82,497 |
|
|
| 11,935 |
|
|
| — |
| |||||||||||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Research and development | 49,495 | 37,945 | 33,183 | 33,815 | 33,541 |
|
| 70,276 |
|
|
| 62,736 |
|
|
| 49,495 |
|
|
| 37,945 |
|
|
| 33,183 |
| |||||||||||||||
General and administrative | 16,509 | 14,710 | 14,506 | 13,584 | 11,634 |
|
| 24,155 |
|
|
| 20,409 |
|
|
| 16,509 |
|
|
| 14,710 |
|
|
| 14,506 |
| |||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Total operating expenses | 66,004 | 52,655 | 47,689 | 47,399 | 45,175 |
|
| 94,431 |
|
|
| 83,145 |
|
|
| 66,004 |
|
|
| 52,655 |
|
|
| 47,689 |
| |||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Income (loss) from operations | 16,493 | (40,720 | ) | (47,689 | ) | (47,399 | ) | (39,115 | ) | |||||||||||||||||||||||||||||||
(Loss) income from operations |
|
| (58,303 | ) |
|
| (40,270 | ) |
|
| 16,493 |
|
|
| (40,720 | ) |
|
| (47,689 | ) | ||||||||||||||||||||
Interest income | 1,370 | 757 | 384 | 494 | 501 |
|
| 4,963 |
|
|
| 3,528 |
|
|
| 1,370 |
|
|
| 757 |
|
|
| 384 |
| |||||||||||||||
Interest expense | (4 | ) | — | — | (24 | ) | (59 | ) |
|
| (2,149 | ) |
|
| (1,224 | ) |
|
| (4 | ) |
|
| — |
|
|
| — |
| ||||||||||||
Net (loss) income |
| $ | (55,489 | ) |
| $ | (37,966 | ) |
| $ | 17,859 |
|
| $ | (39,963 | ) |
| $ | (47,305 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net income (loss) | $ | 17,859 | $ | (39,963 | ) | $ | (47,305 | ) | $ | (46,929 | ) | $ | (38,673 | ) | ||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Net income (loss) per share, basic(1) | $ | 0.37 | $ | (0.86 | ) | $ | (1.08 | ) | $ | (1.08 | ) | $ | (0.95 | ) | ||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Net income (loss) per share, diluted(1) | $ | 0.36 | $ | (0.86 | ) | $ | (1.08 | ) | $ | (1.08 | ) | $ | (0.95 | ) | ||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Shares used to compute net income (loss) per share, basic | 48,412,531 | 46,431,501 | 43,889,677 | 43,275,276 | 40,916,138 | |||||||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Shares used to compute net income (loss) per share, diluted | 49,615,406 | 46,431,501 | 43,889,677 | 43,275,276 | 40,916,138 | |||||||||||||||||||||||||||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Net (loss) income per share, basic (1) |
| $ | (0.98 | ) |
| $ | (0.76 | ) |
| $ | 0.37 |
|
| $ | (0.86 | ) |
| $ | (1.08 | ) | ||||||||||||||||||||
Net (loss) income per share, diluted (1) |
| $ | (0.98 | ) |
| $ | (0.76 | ) |
| $ | 0.36 |
|
| $ | (0.86 | ) |
| $ | (1.08 | ) | ||||||||||||||||||||
Shares used to compute net (loss) income per share, basic |
|
| 56,898,478 |
|
|
| 49,814,162 |
|
|
| 48,412,531 |
|
|
| 46,431,501 |
|
|
| 43,889,677 |
| ||||||||||||||||||||
Shares used to compute net (loss) income per share, diluted |
|
| 56,898,478 |
|
|
| 49,814,162 |
|
|
| 49,615,406 |
|
|
| 46,431,501 |
|
|
| 43,889,677 |
|
(1) | See Note 2 within the notes to our audited consolidated financial statements appearing elsewhere in this Annual Report on Form10-K for a description of the method used to compute basic and diluted net (loss) income |
As of December 31, |
| As of December 31, |
| |||||||||||||||||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 |
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||||||||||||||||||||
(in thousands) |
| (in thousands) |
| |||||||||||||||||||||||||||||||||||||
Consolidated Balance Sheets Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
Cash, cash equivalents and investments | $ | 135,220 | $ | 123,761 | $ | 76,289 | $ | 114,620 | $ | 149,874 | ||||||||||||||||||||||||||||||
Accounts receivable(2) | 51,090 | 30,205 | — | — | 393 | |||||||||||||||||||||||||||||||||||
Cash, cash equivalents, restricted cash and investments(2) |
| $ | 203,320 |
|
| $ | 176,984 |
|
| $ | 135,220 |
|
| $ | 123,761 |
|
| $ | 76,289 |
| ||||||||||||||||||||
Accounts receivable from related party |
|
| — |
|
|
| 2,058 |
|
|
| 51,090 |
|
|
| 30,205 |
|
|
| — |
| ||||||||||||||||||||
Working capital | 146,893 | 110,356 | 66,541 | 66,139 | 127,430 |
|
| 115,282 |
|
|
| 116,988 |
|
|
| 146,893 |
|
|
| 110,356 |
|
|
| 66,541 |
| |||||||||||||||
Total assets | 189,328 | 155,872 | 78,155 | 116,981 | 152,422 |
|
| 209,083 |
|
|
| 183,310 |
|
|
| 189,328 |
|
|
| 155,872 |
|
|
| 78,155 |
| |||||||||||||||
Long-term debt, net | 4,676 | — | — | — | 16 |
|
| 19,786 |
|
|
| 19,689 |
|
|
| 4,676 |
|
|
| — |
|
|
| — |
| |||||||||||||||
Accumulated deficit | (289,200 | ) | (307,059 | ) | (267,096 | ) | (219,791 | ) | (172,862 | ) |
|
| (429,986 | ) |
|
| (374,497 | ) |
|
| (289,200 | ) |
|
| (307,059 | ) |
|
| (267,096 | ) | ||||||||||
Total stockholders’ equity | 79,267 | 49,889 | 72,507 | 108,606 | 145,308 |
|
| 66,000 |
|
|
| 14,738 |
|
|
| 79,267 |
|
|
| 49,889 |
|
|
| 72,507 |
|
(2) | As of December 31, |
65
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of financial condition and results of operations together with “Item 6. Selected Financial Data” and our financial statements and related notes included elsewhere in this Annual Report on Form10-K. This discussion and other parts of this Annual Report on Form10-K contain forward-looking statements that involve risk and uncertainties, such as statements of our plans, objectives, expectations and intentions. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in “Item 1A. Risk Factors” of this Annual Report on Form10-K.
Overview
ChemoCentryx is a biopharmaceutical company developingfocused on the development and commercialization of new medications targeted at inflammatory disorders, autoimmune diseases and cancer. Each of our drug candidates is designed to selectively blocksblock a specific chemoattractant receptor, leaving the rest of the immune system intact. Our drug candidates are small molecules, which are orally administered, offeringand, if approved, could address unmet medical needs, including improved efficacy, and offer significant quality of life benefits, since patients swallow a capsule or pill instead of having to visit a clinic for an infusion or undergo an injection.
In 2016,November 2019, we executed onannounced positive topline data from the pivotal Phase III ADVOCATE trial of avacopan, our strategy to formlead drug candidate that is an allianceorally-administered selective complement 5a receptor inhibitor, for the treatment of patients with a partner that could provide upfront commitments and milestones to supportanti-neutrophil cytoplasmic antibody-associated vasculitis, or ANCA vasculitis. The ADVOCATE trial compared avacopan with the clinical development of our leading two drug candidates, avacopan and CCX140, to registration and pay us royalties upon sales in international markets, while we develop our own commercial infrastructure to sell directly in the United States.
To help communicate the breadth of our drug discovery platform, we have segmented our pipeline into early stage and late stage drug candidates.
Late Stage Drug Candidates
We have chosen to focus initially on kidney disease, particularly on orphan indications, where drug candidates tend to enjoy a faster path to market and better reimbursement. Our leading drug candidates address areas of clear unmet need, where the currentcurrently used glucocorticoid (most commonly prednisone) active comparator containing standard of care, or SOC. Subjects in both study arms received background therapy with rituximab or cyclophosphamide. The trial met both of its primary endpoints, showing that avacopan therapy without the need for daily prednisone could achieve disease remission at 26 weeks and sustained remission at 52 weeks, as assessed by the Birmingham Vasculitis Activity Score, or BVAS. BVAS remission at week 26 in the avacopan treated subjects was numerically superior and statistically non-inferior to the prednisone active comparator SOC is insufficient to halt progressioncontrol group, where BVAS remission was achieved in 72.3% of the avacopan treated subjects vs. 70.1% of subjects in the prednisone active comparator SOC control group (p<0.0001 for non-inferiority). Sustained remission at 52 weeks was observed in 65.7% of the avacopan treated subjects vs. 54.9% in the prednisone active comparator SOC control group, achieving both non-inferiority and superiority to prednisone active comparator SOC (p=0.0066 for superiority of avacopan). Reduction in overall burden of disease and/or where today’s treatment options comemanagement and improvement in quality of life was also demonstrated through key secondary endpoints, including improved kidney function and reduction of adverse events and illnesses associated with serious side effects,steroids, such as those which accompany the prolonged use of steroids:prednisone.
Avacopan (CCX168) — Complement Inhibition in Orphan Diseases
Avacopan (formerly CCX168) is an orally-administered complement inhibitor targeting the C5a receptor,We plan to file a New Drug Application, or C5aR, and is being developed for orphan diseases, including (i) anti-neutrophil cytoplasmic auto-antibody associated vasculitis, or AAV, a devastating autoimmune disease that damages blood vessels and can lead to kidney failure; (ii) complement 3 glomerulopathy, or C3G, a debilitating disease that can lead to kidney failure; and (iii) atypical hemolytic uremic syndrome, or aHUS, a rare, life threatening disease.
Avacopan has been granted orphan drug designation byNDA, with the U.S. Food and Drug Administration, or FDA, forin mid-2020 and, if the treatment of AAV, C3G and aHUS and by the European Medicines Agency, or EMA, for the treatment of C3G and microscopic polyangiitis and granulomatosis with polyangiitis, both forms of AAV. Additionally,NDA is approved, to commercialize avacopan has been granted PRIority MEdicines, or PRIME, designation from the EMA, to expedite its clinical development, and to potentially accelerate its marketing authorization.
Following completion of two Phase II clinical trials in patients with AAV, in which avacopan was well-tolerated and provided effective steroid-free control of the disease, we launched the Phase III ADVOCATE trial in December 2016. The FDA and the EMA concurred with the design of the study. ADVOCATE is a randomized, double-blindtwo-arm study enrolling approximately 300 patients at approximately 200 sites in the United States Canada, Europe, Australiaon our own and New Zealand.internationally through our kidney health alliance with Vifor Fresenius Medical Care Renal Pharma Ltd. and its affiliates and sublicensees, or collectively, Vifor. We expect to complete patient enrollment of
the Phase III ADVOCATE trialare also developing avacopan inmid-2018. We recently launched a registration-supporting clinical trial to study avacopan for the treatment of patients with other indications, including complement 3 glomerulopathy, or C3G, and plan to initiate clinical studies for the treatment of patients with hidradenitis suppurativa, or HS, in 2018. Meanwhile, we are actively dosing aHUS patients under compassionate use protocols as we explore appropriate doses and dosing regimen for that indication.HS.
CCX140 — Chronic and Orphan Kidney Diseases
Our next most advanced drug candidate is CCX140, an orally-administered inhibitor of the C-C chemokine receptor known as CCR2, has been in development for diabetic nephropathy, or DN, a form of chronic kidney disease, or CKD, andCCR2. CCX140 is now being developed for focal segmental glomerulosclerosis, or FSGS, a rare renal disease characterized by progressive proteinuria excess(excess protein in the urine,urine) and impaired renal function.
A global We have two ongoing Phase II clinical trials to evaluate CCX140 for the treatment of primary or genetic FSGS, the LUMINA trials, with the LUMINA-1 trial for patients with sub-nephrotic proteinuria, and the LUMINA-2 trial for patients with nephrotic syndrome, for which there are currently no FDA-approved treatments. We expect to report topline data from the LUMINA-1 trial in the second quarter of 2020 and the LUMINA-2 trial in the second half of 2020.
66
Avacopan (CCX168) - Inhibition of Complement-Mediated Pathways in Orphan Diseases
Avacopan (formerly CCX168) is our lead drug candidate. It is a potential first-in-class, orally-administered molecule that employs a novel, highly targeted mode of action in the treatment of ANCA vasculitis and other complement-driven autoimmune and inflammatory diseases. ANCA vasculitis is an orphan, severe, and often fatal autoimmune disease that is characterized by elevated levels of autoantibodies called anti-neutrophil cytoplasmic autoantibodies and by inflammation that can affect many different organ systems, and commonly involves the kidneys. ANCA vasculitis affects approximately 40,000 to 75,000 people in the United States, with approximately 4,000 new cases each year; similarly, ANCA vasculitis affects approximately 50,000 to 100,000 people in Europe, with approximately 5,000 new cases each year.
We have successfully completed and reported positive topline clinical data from our pivotal Phase III clinical trial of CCX140 inavacopan for the treatment of ANCA vasculitis, known as the ADVOCATE trial. ADVOCATE was a randomized, double-blind, active-controlled worldwide clinical trial which enrolled 331 patients with DN met its primary endpoint by demonstrating that CCX140 given orally once daily added to a SOC renin-angiotensin-aldosterone system inhibitor treatment resulted in a statistically significant reduction in proteinuria, beyond that achieved with SOC alone, with the most pronounced effect shownnewly diagnosed or relapsing ANCA vasculitis at over 200 sites in the highest proteinuric patients. Based onUnited States, Canada, Europe, Australia, New Zealand and Japan. The aim of the trial was to assess the safety and efficacy data relatedof avacopan in inducing and sustaining remission in patients with ANCA vasculitis.
Avacopan has been granted orphan drug designation by the FDA for the treatment of ANCA vasculitis and by the European Medicines Agency, or EMA, for the treatment of microscopic polyangiitis and granulomatosis with polyangiitis, both forms of ANCA vasculitis. Based on the success of the avacopan clinical studies in ANCA vasculitis, we plan to reductionfile an NDA with the FDA in proteinuria observedmid-2020 and will support our alliance partner, Vifor, with their filing of applications for regulatory approval internationally.
We plan on building a commercial infrastructure and deploying an appropriately sized specialty field force in the United States to commercialize avacopan in ANCA vasculitis. We expect that our future field force will focus primarily on a subset of rheumatologists and nephrologists who treat this disease. In territories outside of the United States, our partner Vifor would be responsible for the commercialization of avacopan.
Additionally, we launched a registration-supporting clinical trial, the ACCOLADE trial, to study avacopan for the treatment of patients with C3G. C3G disease is an ultra-rare disease of the kidney that is characterized by deposition of the complement fragment known as C3 in the glomeruli, or filtration units of the kidney, leading to inflammatory cell accumulation, potentially leading to significant kidney damage and eventual renal failure. The prevalence of C3G is estimated at two to three per million people or approximately 800 patients in the United States and approximately 2,000 in Europe. We expect to report topline data from the ACCOLADE trial in the second half of 2020.
We also initiated a large placebo-controlled Phase IIb clinical trial, the AURORA trial, for the treatment of patients with moderate-to-severe HS. HS is a chronic, inflammatory, debilitating skin disease characterized by recurrent, painful, nodules and abscesses, ultimately leading to the formation of draining fistulas (also known as sinus tracts) as well as scarring. The disease originates from inflammation and occlusion of the hair follicle. Apart from pain, the nodules may rupture, and often extrude a purulent, foul-smelling discharge leading to substantial social embarrassment for these patients. Due to its chronic nature and frequently occurring relapses of the skin lesions, HS has a great impact on the patient’s quality of life, deeply affecting social, working, and psychological aspects. In the United States, the estimated prevalence of moderate-to-severe HS is up to 200,000 patients. In Europe, the number of affected patients is believed to be greater, with higher prevalence. We expect to report topline data from AURORA trial in the third quarter of 2020.
CCX140 - Chronic and Orphan Kidney Diseases
Our second drug candidate in the orphan disease space is CCX140, an inhibitor of the chemokine receptor known as CCR2. CCX140 is an orally-administered small molecule that is highly potent and selective inhibitor of the chemokine receptor known as CCR2. CCX140 has been granted orphan drug designation by the FDA for the treatment of focal segmental glomerulosclerosis, or FSGS. FSGS is a histologic lesion that is associated with the clinical presentation, in children or adults, of proteinuria, nephrotic syndrome and progressive renal insufficiency. We have two ongoing Phase II trial in DN, we launched our clinical development programtrials to evaluate the use of CCX140 for the treatment of primary or genetic FSGS that are known as the LUMINA trials, with the LUMINA-1 trial for patients with FSGS,sub-nephrotic range proteinuria and the LUMINA-2 trial for patients with nephrotic syndrome, for which there are currently noFDA-approved treatments. Patient enrollment of LUMINA-1 was completed in August 2019, and we expect to report topline data in the first half of 2020.
67
Kidney Health Alliance with Vifor
In May 2016, we announced a partnership, which we refer to as the Avacopan Agreement, with Vifor (International) Ltd., and/or its affiliates, or collectively, Vifor, a European-based world leader specializing in kidney disease.Vifor. While under this agreement we retained all rights to the United States and China, we granted Vifor commercialexclusive commercialization rights to avacopan in Europe and certain other international markets. In December 2016, we entered into an additional agreement with Vifor, which we refer to as the CCX140 Agreement, relating to CCX140, our other late stage drug candidate. Under this second agreement,the CCX140 Agreement, we again retained all rights to the United States and China and we granted Vifor exclusive worldwide commercialization rights outside of the United States and China. In February 2017, we announced a further agreement with Vifor that harmonized the geographic commercialization rights underlying the agreements for both drug candidates, which we refer to as the Avacopan Amendment. In June 2018, we entered into additional agreements with Vifor to further expand Vifor’s exclusive commercialization rights to include China under the Avacopan Agreement (the Avacopan Letter Agreement) and the CCX140 Agreement (the CCX140 Letter Agreement).
We have secured $205$215 million in upfront cash payments and commitments and milestonesmilestone payments pursuant to our agreements with Vifor and are eligible for additional substantial milestone payments. Through our alliance, we maintain the commercialcommercialization rights to avacopan and CCX140 in the United States, and China, and also retain control of the clinical development programs for orphan renal disease. Vifor gained the commercialexclusive commercialization rights for all other international markets, and is obligated to pay us tiered royalties, with rates ranging from ten to themid-twenties, on potential net sales.
At a future time defined in the CCX140 Agreement, Vifor has an option to solely develop and commercialize CCX140 in more prevalent forms of chronic kidney disease, or CKD. Should Vifor later exercise the CKD option, we would receiveco-promotion rights for CKD in the United States, and we estimate that the clinical development and registration process for CKD would end at approximately the same time as Orphan Drug exclusivity.
Early Stage Drug Candidates
While the science has led us to focuswe have focused initially on kidney disease, ourtarget specificand dermatological diseases, ourtarget-specific and selective approach designed to stop the spread of inflammatory disease-inducing cells shows promise in other disease areas. Over time we plan to bring forward drug candidates to treat othera range of inflammatory and autoimmune disorders, as well as cancer, where our drug candidate CCX872 has shown promise in a Phase Ib trial for advanced pancreatic cancer. We expect that our ability to do so will grow as we increase our scale and to the extent that we start to earn revenues and royalties from the commercialization of our late stage kidney disease franchise.
SinceWe have incurred significant losses since commencing our operations in 1997, our efforts have focused on research, development and the advancement of our drug candidates into and through clinical trials. As a result, we have incurred significant losses.1997. We have funded our operations primarily through the sale of convertible preferred and common stock, contract revenue under our collaborations, government contracts and grants and borrowings under loan and equipment financing arrangements.
As of December 31, 2017,2019, we had an accumulated deficit of $289.2$430.0 million. We expect to continue to incur net losses as we develop our drug candidates, expand clinical trials for our drug candidates currently in clinical development, expand our research and development activities, expand our systems and facilities, seek regulatory approvals and engage in commercialization preparation activities in anticipation of FDA approval of our drug candidates. In addition, if a product is approved for commercialization, we will need to expand our organization. Significant capital is required to launch a 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.
Recent Developments and Corporate Highlights
Appointment of William J. Fairey Jr. as Executive Vice President and Chief Operating Officer
In January 2018, we announced the appointment of William J. Fairey, Jr. as Executive Vice President and Chief Operating Officer. Mr. Fairey will lead our commercial strategy, including the development and execution of our commercialization plans for our orphan disease drug candidates avacopan and CCX140, as well as oversee other key operational functions.
Avacopan Conditional Marketing Authorization Application Accepted for Review by the European Medicines Agency
In December 2017, our CMA application for avacopan in the treatment of patients with AAV was accepted for review by the EMA’s CHMP. Under the terms of our kidney health alliance with Vifor, this validation of the avacopan CMA application by the EMA resulted in a $50.0 million milestone.
CCX872 Positive Overall Survival Results for Second CCR2 Inhibitor in the Treatment of Locally Advanced/Metastatic Pancreatic Cancer
In January 2018, we announced positive overall survival, or OS, results from an ongoing Phase Ib clinical trial of CCX872, our second CCR2 inhibitor, in the treatment of locally advanced/metastatic pancreatic cancer. The study reported OS of 29% at 18 months with CCX872 and FOLFIRINOX combination therapy in all randomized patients treated. This result compares favorably with previously published data of OS of 18.6% at 18 months using FOLFIRINOX regimen alone to treat pancreatic cancer patients with metastatic disease.
$50 Million Loan and Security Agreement with Hercules Capital, Inc.
In December 2017, we entered into a $50 million growth capital financing agreement with Hercules Capital, Inc., or Hercules. The borrowings under this facility are available in three tranches through June 15, 2019, subject to certain conditions. Advances under the financing agreement will bear an interest rate equal to the greater of either (i) 8.05% plus the prime rate as reported from time to time in The Wall Street Journal minus 4.75%, and (ii) 8.05%. The financing agreement has a24-month interest-only period from initial funding, which is extendable to 30 months upon satisfaction of certain milestones and matures in 48 months.
Critical Accounting Policies and Significant Judgments and Estimates
The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the
date of our financial statements as well as the reported revenues and expenses during the reported periods. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
68
While our significant accounting policies are described in the Notes to our consolidated financial statements appearing elsewhere in this Annual Report on Form10-K, we believe that the following critical accounting policies relating to revenue recognition, clinical trial expenses and stock-based compensation are most important to understanding and evaluating our reported financial results.
Revenue Recognition
Effective January 1, 2018, we adopted Accounting Standards Codification, or ASC, Topic 606, Revenue from Contracts with Customers, or ASC 606, using the modified retrospective transition method. This standard applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. Under ASC 606, we recognize revenue when our customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. To determine revenue recognition for arrangements that we determine are within the scope of ASC 606, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy a performance obligation. We only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within each contract and determine those that are performance obligations and assess whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
We enter into corporate collaboration and license agreementscollaborations under which we may obtain upfront license fees, research and development funding and contingentdevelopment and regulatory and commercial milestone payments and royalty payments. Our deliverablesperformance obligations under these arrangements may include licenses of intellectual property, rights, distribution rights, research and development services, delivery of manufactured product, and/or participation on joint steering committees and/or research and development services. In ordercommittees.
Licenses of intellectual property: If the license to account forour intellectual property is determined to be distinct from the multiple-element arrangements, we identify the deliverables included withinother performance obligations identified in the arrangement, we recognize revenue from upfront license fees allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license. For licenses that are bundled with other promises, we utilize judgement to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring proportional performance for purposes of recognizing revenue from non-refundable, up-front fees. We evaluate the measure of proportional performance each reporting period and, if necessary, adjust the measure of performance and related revenue recognition.
Milestone payments: At the inception of each arrangement that includes development, regulatory or commercial milestone payments, we evaluate whether the delivered elements under these arrangements have valuemilestones are considered probable of being reached and estimate the amount to our collaboration partner on a stand-alone basis and represent separate units of accounting. Analyzingbe included in the arrangement to identify deliverables requires the use of judgment, and each deliverable may be an obligation to deliver future goods or services, a right or licensetransaction price. ASC 606 suggests two alternatives to use an asset, or another performance obligation. If we determine that multiple deliverables exist,when estimating the consideration is allocated to one or more unitsamount of accounting based uponvariable consideration: the best estimate of the selling price of each deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence, if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific or third-party evidence is available. A delivered item or items that do not qualify as a separate unit of accounting within the arrangement shall be combined with the other applicable undelivered items within the arrangement. The allocation of arrangement considerationexpected value method and the recognition of revenue then shall be determined for those combined deliverables as a single unit of accounting. For a combined unit of accounting,non-refundable upfront fees are recognized in a manner consistent with the final deliverable, which has generally been ratably over the estimated period of continued involvement. We periodically review the basis for our estimates, and we may change the estimates if circumstances change. These changes can significantly change the timing of revenue recognized. Amounts received in advance of performance are recorded as deferred revenue. Revenues derived from funding of development costs are recognized when the related costs are incurred and when collectability is reasonably assured. Revenues from upfront fees and development services are classified as collaboration and license revenue in our Consolidated Statements of Operations.
We consider sales-based contingent payments to be royalty revenue which is generally recognized at the date the contingency is achieved. Research and development funding related to collaborative research and development efforts is recognized as revenue as the related services are performed or delivered, in accordance with contract terms.
For certain contingent payments under collaboration and license arrangements, we recognize revenue using the milestonemost likely amount method. Under the expected value method, an entity considers the sum of probability-weighted amounts in a range of possible consideration amounts. Under the most likely amount method, an entity considers the single most likely amount in a range of possible consideration amounts. Whichever method is used, it should be consistently applied throughout the life of the contract; however, it is not necessary for us to use the same approach for all contracts. We expect to use the most likely amount method for development and regulatory milestone method,payments. If it is probable that a paymentsignificant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within our or the licensee’s control, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. The transaction price is contingent uponthen allocated to each performance obligation on a relative stand-alone selling price basis. We recognize revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, we re-evaluate the probability of achievement of each such milestone and any related constraint, and if necessary, adjust our estimates of the overall transaction price. Any such adjustments are recorded on a substantive milestone is recognized in its entiretycumulative catch-up basis, which would affect revenues and earnings in the period in which the milestone is achieved. A milestone is an event: (i) that can be achieved based in whole or in part on either our performance or on the occurrence of a specific outcome resulting from our performance, (ii) for which there is substantive uncertainty at the date the arrangement is entered into that the event will be achieved and (iii) that would result in additional payments being due to us. The determination that a milestone is substantive requires estimation and judgment and is made at the inceptionadjustment.
69
to achieve theCommercial milestones and royalties: For arrangements that include sales-based royalties, including milestone (ii) related solely to past performance and (iii) reasonable relative to all deliverables and payment terms in the arrangement. In making the determination as to whether a milestone is substantive or not, we consider all facts and circumstances relevant to the arrangement, including factors such as the scientific, regulatory, commercial and other risks that must be overcome to achieve the respective milestone,payments based on the level of effortsales, and investment requiredin which the license is deemed to achievebe the respective milestonepredominant item to which the royalties relate, we recognize revenue when the related sales occur. To date, we have not recognized any royalty revenue resulting from our collaboration arrangements.
Up-front payments and whether any portionfees are recorded as deferred revenue upon receipt or when due, and may require deferral of the milestonerevenue recognition to a future period until we perform our obligations under these arrangements. Amounts payable to us are recorded as accounts receivable when our right to consideration is related to future performance or deliverables. Contingency and milestones payments, when recognized as revenue, are classified as collaboration and license revenues in our Consolidated Statements of Operations.unconditional.
Clinical Trial Accruals and Related Expenses
We accrue and recognize expenses for clinical trial activities performed by third parties, including clinical research organizations, or CROs, and clinical investigators, based upon estimates made as of the reporting date of the work completed over the life of the individual trial in accordance with agreements established with CROs and clinical trial sites. Some CROs invoice us on a monthly basis, while others invoice upon milestones achieved and the expense is recorded as services are rendered. We determine the estimates of clinical activities incurred at the end of each reporting period through discussion with internal personnel and outside service providers as to the progress or stage of completion of trials or services, as of the end of each reporting period, pursuant to contracts with numerous clinical trial centers and CROs and the agreed upon fee to be paid for such services. The significant factors considered in estimating accruals include the number of patients enrolled and the percentage of work completed to date. Costs of setting up clinical trial sites for participation in the trials that are paid for in advance are expensed over the estimatedset-up period. While theset-up periods vary from one arrangement to another, suchset-up periods generally take from two to six months. Suchset-up activities include clinical site identification, local ethics committee submissions, regulatory submissions, clinical investigatorkick-off meetings andpre-study site visits. Clinical trial site costs related to patient enrollments are accrued as patients are entered into the trial.
To date, we have not experienced significant changes in our estimates of clinical trial accruals after a reporting period. However, due Due to the nature of estimates, we cannot assure you that we will not make changes to our estimates in the future as we become aware of additional information about the status or conduct of our clinical trials.
Stock-Based Compensation
Stock-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the employee’s requisite service period on a straight line basis. The fair value of the stock options is estimated using the Black-Scholes valuation model. We recordednon-cash stock-based compensation expense of $8.7$11.6 million, $8.5$10.8 million and $9.0$8.7 million for the years ended December 31, 2017, 2016,2019, 2018 and 2015,2017, respectively. At December 31, 20172019 and 2016,2018, we had $8.2$18.4 million and $9.6$15.0 million, respectively, of total unrecognized stock-based compensation expense, net of estimated forfeitures, related to employee stock options that will be recognized over a weighted-average period of 2.5 years and 2.4 years, respectively.for both years. We expect to continue to grant stock options in the future, and to the extent that we do, our actual stock-based compensation expense recognized in future periods will likely increase. Determining an estimate of the fair value of equity awards using the Black-Scholes valuation model requires that use of subjective assumptions related to expected stock price volatility, term, risk-free interest rate and dividend yield.
70
Results of Operations
Revenue
We have not generated any revenue from product sales. For the yearyears ended December 31, 2019, 2018 and 2017, our revenues were derived from (i) the recognition of the milestone payment related to the Avacopan Agreement;
(ii) the recognition of the upfront paymentscollaboration and license revenue related to the Avacopan Agreement Avacopan Amendment and CCX140 Agreement, in each case, as amended, and (iii) collaboration revenue under the CCX140 Agreement.related letter agreements. For the year ended December 31, 2016, our revenues were derived from the Avacopan Agreement, as well as2019, we also have grant revenue derived from the FDA Orphan Products Development grant to support the clinical development of avacopan for the treatment of patients with AAV. No revenue was recorded in 2015.C3G.
Total revenuerevenues were as follows (in thousands):
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Collaboration and license revenue | $ | 82,497 | $ | 11,435 | $ | — | ||||||
Grant revenue | — | 500 | — | |||||||||
|
|
|
|
|
| |||||||
Total revenue | $ | 82,497 | $ | 11,935 | $ | — | ||||||
|
|
|
|
|
| |||||||
Dollar increase | $ | 70,562 | $ | 11,935 | $ | — | ||||||
Percentage increase | 591 | % | 100 | % | 0 | % |
|
| Year Ended December 31, |
| |||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
Collaboration and license revenue from related party |
| $ | 35,952 |
|
| $ | 42,875 |
|
| $ | 82,497 |
|
Grant revenue |
|
| 176 |
|
|
| — |
|
|
| — |
|
Total revenue |
| $ | 36,128 |
|
| $ | 42,875 |
|
| $ | 82,497 |
|
Dollar decrease |
| $ | (6,747 | ) |
| $ | (39,622 | ) |
|
|
|
|
Percentage decrease |
|
| -16 | % |
|
| -48 | % |
|
|
|
|
On January 1, 2018, we adopted ASC 606 under the modified retrospective transition method and recognized the cumulative effect of initially applying the new revenue standard of $47.3 million as an adjustment to the opening balance of accumulated deficit and an increase in deferred revenue. Revenue recognized prior to January 1, 2018 has not been restated and continues to be reported under the accounting standards in effect for 2017.
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 increasedecrease in revenue from 20162018 to 2019 was primarily due to the full enrollment of the avacopan ADVOCATE Phase III pivotal trial in 2018. Revenue in 2019 also included $176,000 of grant revenue from the FDA to support the clinical development of avacopan in patients with C3G.
Before the adoption of ASC 606, we recognized upfront fees on a straight-line basis under ASC 605 over the estimated performance period and recognized milestones when earned under the milestone method of accounting. In 2017, revenue recognized represents amortization of the upfront license fee commitments from Vifor pursuant to the Avacopan Agreement and CCX140 Agreement, in each case, as amended. Revenue in 2017 was due to:comprised of: (i) recognition of a milestone payment related to the Avacopan Agreement; (ii) amortization of the upfront license fee commitments from Vifor pursuant to the Avacopan Agreement, Avacopan Amendment and CCX140 Agreement, as well as (iii) collaboration revenue for development services under the CCX140 Agreement in 2017. These increases were partially offset by a decrease in grant revenue from the FDA to support the clinical development of avacopan for the treatment of patients with AAV.
The revenue in 2016 was due to: (i) amortization of the upfront payment from Vifor pursuant to the Avacopan Agreement over the service period, which began in May 2016 and (ii) grant revenue from the FDA to support the clinical development of avacopan for the treatment of patients with AAV.
Research and development expenses
Research and development expenses represent costs incurred to conduct basic research, the 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, as compared to the prior years, were as follows (in thousands):
Year Ended December 31, |
| Year Ended December 31, |
| |||||||||||||||||||||
2017 | 2016 | 2015 |
| 2019 |
|
| 2018 |
|
| 2017 |
| |||||||||||||
Research and development expenses | $ | 49,495 | $ | 37,945 | $ | 33,183 |
| $ | 70,276 |
|
| $ | 62,736 |
|
| $ | 49,495 |
| ||||||
Dollar increase | $ | 11,550 | $ | 4,762 |
| $ | 7,540 |
|
| $ | 13,241 |
|
|
|
|
| ||||||||
Percentage increase | 30 | % | 14 | % |
|
| 12 | % |
|
| 27 | % |
|
|
|
|
The increase in research and development expenses from 2016
71
The increase in research and development expenses from 20152018 to 20162019 was primarily attributable to higher Phase I and Phase III clinical development expenses in 2016 partially offset by a decrease in Phase II
development expenses. The(i) an increase in Phase III developmentII clinical study expense wasdriven by patient enrollment of the avacopan AURORA trial in patients with HS and the two CCX140 LUMINA trials in patients with FSGS, and (ii) an increase in Phase I clinical study expense due to the initiation of the avacopan ancillary studies. These increases were partially offset by decreases in 2019 in research and drug discovery expenses and expenses for the avacopan ADVOCATE Phase III development program for avacopanpivotal trial as the study was fully enrolled in patients with AAV in 2016. 2018.
The increase in research and development expenses from 2017 to 2018 was primarily due to the advancement of the avacopan ADVOCATE Phase I development expense was driven byIII pivotal trial which completed enrollment in July 2018, initiation and patient enrollment of the completion of ancillary Phase I clinical trials for avacopan in support of end of Phase II meetings with regulatory agencies, as well as higher expenses associated with CCX872 for our ongoing Phase I clinicalACCOLADE trial in patients with advanced pancreatic cancer. The decrease in Phase II development expense was due to the completionC3G and start-up, initiation and patient enrollment of the CLEARavacopan AURORA trial in patients with HS and CLASSIC clinicalthe CCX140 LUMINA trials for avacopan for the treatment of AAV in 2016.patients with FSGS.
The following table summarizes our research and development expenses by project (in thousands):
Year Ended December 31, |
| Year Ended December 31, |
| |||||||||||||||||||||
2017 | 2016 | 2015 |
| 2019 |
|
| 2018 |
|
| 2017 |
| |||||||||||||
Phase I | $ | 785 | $ | 5,959 | $ | 3,686 |
| $ | 2,515 |
|
| $ | 1,168 |
|
| $ | 785 |
| ||||||
Phase II | 8,854 | 10,866 | 16,151 |
|
| 24,777 |
|
|
| 13,895 |
|
|
| 8,854 |
| |||||||||
Phase III | 26,198 | 8,019 | — |
|
| 29,495 |
|
|
| 32,876 |
|
|
| 26,198 |
| |||||||||
Research and drug discovery | 13,658 | 13,101 | 13,346 |
|
| 13,489 |
|
|
| 14,797 |
|
|
| 13,658 |
| |||||||||
|
|
| ||||||||||||||||||||||
Total R&D | $ | 49,495 | $ | 37,945 | $ | 33,183 |
| $ | 70,276 |
|
| $ | 62,736 |
|
| $ | 49,495 |
| ||||||
|
|
|
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 ourin-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 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 products. Completion dates and completion costs can vary significantly for each drug candidate and are difficult to predict for each 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 will 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 avacopan, CCX140 and CCX872.
72
General and administrative expenses
Total general and administrative expenses were as follows (in thousands):
Year Ended December 31, |
| Year Ended December 31, |
| |||||||||||||||||||||
2017 | 2016 | 2015 |
| 2019 |
|
| 2018 |
|
| 2017 |
| |||||||||||||
General and administrative expenses | $ | 16,509 | $ | 14,710 | $ | 14,506 |
| $ | 24,155 |
|
| $ | 20,409 |
|
| $ | 16,509 |
| ||||||
Dollar increase | $ | 1,799 | $ | 204 |
| $ | 3,746 |
|
| $ | 3,900 |
|
|
|
|
| ||||||||
Percentage increase | 12 | % | 1 | % |
|
| 18 | % |
|
| 24 | % |
|
|
|
|
General and administrative expenses consist primarily of salaries and related benefits, including stock-based compensation and travel expenses, in executive, finance, business and corporate development and other administrative functions. Other general and administrative 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 increaseincreases from 20162018 to 2019 and from 2017 wasto 2018 were primarily due to higher intellectual property relatedemployee-related expenses, and accounting related feesincluding those associated with preparing to meet the requirements pursuant to the Sarbanes-Oxley Act of 2002 partially offset by lower travel expenses. The increase from 2015 to 2016 was primarily due to increase inour commercialization planning efforts, and higher professional fees relating to our business development efforts.fees.
We expectanticipate that our general and administrative expenses will increase substantially in the future as we expand our operatingprimarily due to pre-commercial activities and incur additionalpersonnel costs associated with being a public company. These public company related increases will likely include, but not be limited to investor and public relations expenses and legal and accounting related fees. We also expect that general and administrative expenses will increase as we plan to commercialize our orphan disease drug candidates such assupport the potential launch of avacopan for the treatment of ANCA vasculitis in the United States.
Other income, (expense), net
Other income, (expense), net primarily consists of interest income earned on our marketable securities. Total other income, (expense), net as compared to prior years was as follows (in thousands):
Year Ended December 31, |
| Year Ended December 31, |
| |||||||||||||||||||||
2017 | 2016 | 2015 |
| 2019 |
|
| 2018 |
|
| 2017 |
| |||||||||||||
Interest income | $ | 1,370 | $ | 757 | $ | 384 |
| $ | 4,963 |
|
| $ | 3,528 |
|
| $ | 1,370 |
| ||||||
Interest expense | (4 | ) | — | — |
|
| (2,149 | ) |
|
| (1,224 | ) |
|
| (4 | ) | ||||||||
|
|
| ||||||||||||||||||||||
Total other income, net | $ | 1,366 | $ | 757 | $ | 384 |
| $ | 2,814 |
|
| $ | 2,304 |
|
| $ | 1,366 |
| ||||||
|
|
| ||||||||||||||||||||||
Dollar increase | $ | 609 | $ | 373 |
| $ | 510 |
|
| $ | 938 |
|
|
|
|
| ||||||||
Percentage increase | 80 | % | 97 | % |
|
| 22 | % |
|
| 69 | % |
|
|
|
|
The increaseincreases in total other income, (expense), net from 20162018 to 2019 and from 2017 wasto 2018 were primarily due to increased interest income resulting from higher cash and investment balances in 2017and rate of return on the investment portfolio, partially offset by increased interest expense due to the upfront payments totaling $145.0 million from Vifor in connection with the Avacopan Agreement, Avacopan Amendment and CCX140 Agreement.
The increase in total other income from 2015 to 2016 was primarily due to higher cash and investment balances in 2016 due to the $85.0 million upfront payment received from Vifor in connection with the Avacopan Agreement.
We expect that interest expense will increase in the future due to our advances fromadditional borrowings under the loan and security agreement, or Credit Agreement,Facility, with Hercules Capital, Inc., or Hercules.
Liquidity and Capital Resources
As of December 31, 2017,2019, we had approximately $135.2$203.3 million in cash, cash equivalents, restricted cash and investments. Such amounts excludeinvestments, excluding the $50.0$100.0 million milestone payment in connection withwe may borrow under the Avacopan Agreement and $10.0 million in remaining upfront commitment in connection with the February 2017 Avacopan Amendment, which is due on the first anniversary of the agreement.Restated Credit Facility. The following table shows a summary of our cash flows for each of the three years ended December 31, 2017, 2016,2019, 2018 and 20152017 (in thousands):
| Year Ended December 31, |
| ||||||||||||||||||||||
2017 | 2016 | 2015 |
| 2019 |
|
| 2018 |
|
| 2017 |
| |||||||||||||
Cash provided by (used in) |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Operating activities | $ | 4,878 | $ | 39,145 | $ | (39,327 | ) |
| $ | (70,123 | ) |
| $ | 16,436 |
|
| $ | 4,878 |
| |||||
Investing activities | $ | 15,602 | $ | (48,764 | ) | $ | 33,884 |
| $ | (12,526 | ) |
| $ | (53,068 | ) |
| $ | 15,602 |
| |||||
Financing activities | $ | 7,516 | $ | 8,820 | $ | 2,191 |
| $ | 94,820 |
|
| $ | 24,700 |
|
| $ | 7,516 |
|
73
Operating activities. Net cash provided byused in operating activities was $4.9$70.1 million for the year ended December 31, 2017,2019, compared to $39.2$16.4 million provided by operating activities for the same period in 2016.2018. This change was primarily due to a higher net loss and changes in working capital items which was partially offsetdriven by an increasethe receipt of a $50.0 million milestone payment in net income.connection with the Avacopan Agreement, a $10.0 million upfront commitment under the Avacopan Amendment, a $10.0 million of aggregate payments under the June 2018 Avacopan Letter Agreement and the CCX140 Letter Agreement and a $11.5 million payment for CCX140 development funding by Vifor in the 2018 period. For the year ended December 31, 2017, net cash provided by operating activities included the receipt of $60.0 million from collaboration agreements, of which $50.0 million was the upfront payment under the CCX140 Agreement and $10.0 million for the first installment of the upfront commitment under the Avacopan Amendment. In 2016, net cash provided by operating activities included $78.0 million in connection with the Avacopan Agreement. Net cash provided by operating activities was $39.2 million for the year ended December 31, 2016, compared to cash used of $39.3 million for the same period in 2015. This change was primarily due to changes in working capital items in 2016 primarily due to $78.0 million in connection with the Avacopan Agreement, as well as a lower net loss.
Investing activities. Net cash provided by or used in investing activities for periods presented primarily relate to the purchase, sale and maturity of investments used to fund theday-to-day needs of our business. Following the March 2019 issuance of common stock through our Equity Distribution Agreement, or EDA, with Piper Jaffray & Co., we invested the majority of our net proceeds received in short and long-term investments. The use of cash in investing activities in 2016 representsall periods presented also includes the investment of funds received under the Avacopan Agreement.Agreement and CCX140 Agreement, in each case, as amended, and the related letter agreements. We expect cash used in investing activities in 2020 to increase substantially as we plan to build out our new headquarters in San Carols, California. See “Note 8. Commitments” for a detailed discussion.
Financing activities.Net cash provided by financing activities was $7.5$94.8 million for the year ended December 31, 2017, which included net proceeds of $4.7 million received under our credit facility (discussed below), partially offset by cash used of $0.4 million (the value of withheld shares) for tendered ChemoCentryx, Inc. common stock2019, compared to satisfy employee tax withholding requirements upon vesting of restricted stock units. Net cash provided by financing activities was $8.8$24.7 million for the year ended December 31, 2016, which was primarily due to $7.0 million in net proceeds from the issuance of 3,333,333 shares of our common stock in connection with the Avacopan Agreement.2018. Net cash provided by financing activities was $2.2 million for the year ended December 31, 2015.2019 included net proceeds of $73.3 million from the issuance of common stock under our EDA. For the years ended December 31, 2018 and 2017, net cash provided by financing activities included $15.0 million and $5.0 million received under the Credit Facility, respectively. Net cash provided by financing activities for the years presented included proceeds from the exercise of stock options and stock purchases from employee purchases of stock undercontributions to our 2012 Employee Stock Purchase Plan.Plan and cash used for tendered ChemoCentryx, Inc. common stock to satisfy employee tax withholding requirements upon vesting of restricted stock units.
As of December 31, 2019, we borrowed $20.0 million under the Credit Facility with Hercules. In December 2017,January 2020, we entered into aamended and restated the original Credit AgreementFacility with Hercules, underor the Restated Credit Facility, which we may borrowprovided for borrowings of up to $50.0an additional $100.0 million in three tranches, subject to certain terms and conditions, which we refer to as the Credit Facility. Under the first tranche, we may borrow up to $15.0 million, of which we advanced $5.0 million in December 2017. Upon satisfaction of certain milestones, the second tranche is available under the Credit Facility, which would allow us to borrow an additional amount up to $10.0 million through December 15, 2018. The third tranche, which would allow us to borrow an additional $25.0 million, will be available upon Hercules’ approval through June 15, 2019. We intend to use the net proceeds from the Credit Facility for general corporate purposes, which may include the repayment of debt and working capital. We were in compliance with all loan covenants as of December 31, 2017.conditions. See “Note 7. Long-term Debt” and “Note 15. Subsequent Event” in the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form10-K for additional information regarding our borrowings.
As of December 31, 2017,2019, we had approximately $135.2$203.3 million in cash, cash equivalents, restricted cash and investments, excluding the $50.0$100.0 million milestone payment in connection withwe may borrow under the Avacopan Agreement and $10.0 million in remaining upfront commitment in connection with the February 2017 Avacopan Amendment.Restated Credit Facility. We believe that our available cash, cash equivalents, restricted cash and investments will be sufficient to fund our anticipated level of operations for at least 12 months following our financial statement issuance date, March 12, 2018.10, 2020. 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:
74
the cost and timing of procuring clinical and commercial supplies of our drug candidates;
Contractual Obligations and Commitments
The following is a summary of our long-term contractual cash obligations as of December 31, 20172019 (in thousands):
Payments Due by Period |
| Payments Due by Period |
| |||||||||||||||||||||||||||||||||||||
Total | Less than One Year | 1-3 Years | 3-5 Years | More than 5 Years |
| Total |
|
| Less than One Year |
|
| 1-3 Years |
|
| 3-5 Years |
|
| More than 5 Years |
| |||||||||||||||||||||
Long-term debt(1) | $ | 5,000 | $ | — | $ | 2,394 | $ | 2,606 | $ | — |
| $ | 20,000 |
|
| $ | — |
|
| $ | 20,000 |
|
| $ | — |
|
| $ | — |
| ||||||||||
Aggregate interest obligation (2) |
|
| 5,021 |
|
|
| 1,637 |
|
|
| 3,384 |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||
Operating lease | $ | 2,753 | $ | 937 | $ | 1,816 | $ | — | $ | — |
|
| 2,238 |
|
|
| 1,659 |
|
|
| 579 |
|
|
| — |
|
|
| — |
| ||||||||||
|
|
|
|
| ||||||||||||||||||||||||||||||||||||
Total contractual obligations | $ | 7,753 | $ | 937 | $ | 4,210 | $ | 2,606 | $ | — |
| $ | 27,259 |
|
| $ | 3,296 |
|
| $ | 23,963 |
|
| $ | — |
|
| $ | — |
| ||||||||||
|
|
|
|
|
(1) | These amounts represent the future principal payments, excluding the end of the term charge, of the Credit |
(2) | These amounts represent the estimated interest for our outstanding debt obligations that are payable in cash and the end of term charge, excluding non-cash amortization of debt discount. See “Note 7. Long-term Debt” in the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for additional information. |
(3) | We lease our facility in Mountain View, California. The lease expires in |
In July 2019, we entered into a new facility lease agreement in San Carlos, California to replace our current headquarters located in Mountain View, California. See “Note 8. Commitments” in the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for details.
We enter into contracts in the normal course of business with CROs for clinical trials and clinical supply manufacturing and with vendors for preclinical research studies, research supplies and other services and products for operating purposes. These contracts generally provide for termination on notice, and therefore are cancelable contracts and not included in the table of contractual obligations and commitments.
Off-Balance Sheet Arrangements
We do not have anyoff-balance sheet arrangements (as defined by applicable SEC regulations) that are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources, except warrants and stock options.
Recent Accounting Pronouncements
See “Note 2. Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements of this Annual Report on Form10-K for a full description of recently issued accounting pronouncements, including the respective expected dates of adoption and effects on our consolidated financial position and results of operations.
75
Item 7A. Quantitative and QualitativeQualitative Disclosures About Market Risk.
The primary objectives of our investment activities are to ensure liquidity and to preserve principal while at the same time maximizing the income we receive from our marketable securities without significantly increasing risk. Some of the securities that we invest in may have market risk. This means that a change in prevailing interest rates may cause the principal amount of the marketable securities to fluctuate. To minimize the risk in the future, we intend to maintain our portfolio of cash equivalents and short-term investments in a variety of securities, including commercial paper, money market funds, government andnon-government debt securities and corporate obligations. Because of the short-term maturities of our cash equivalents and marketable securities, we do not believe that an increase or decrease in marketinterest rates would have any significant impact on the realized value of our marketable securities.
We are affected by market risk exposure primarily through the effect of changes in interest rates on amounts payable under the Credit Facility and Restated Credit Facility. At December 31, 2019, borrowings under the Credit Facility totaled $20.0 million with an interest rate of 8.05%. Advances under the Credit Facility bear an interest rate equal to the greater of (i) 8.05% plus the prime rate as reported from time to time in The Wall Street Journal minus 4.75%, and (ii) 8.05%. In addition, advances under the Restated Credit Facility will bear an interest rate equal to the greater of (i) 8.50% plus the prime rate as reported from time to time in The Wall Street Journal minus 5.25%, and (ii) 8.50%, which may be reduced upon the Company achieving certain cumulative net avacopan revenue levels. We are obligated to make interest-only payments through July 1, 2021, at which point we will then be obligated to repay the principal balance and interest on the advances in equal monthly installments after the interest-only period and continuing through December 1, 2022. If the amount outstanding under the Credit Facility remained at this level for an entire year and the interest rate increased by 1%, our annual interest expense would increase by an additional $200,000. See “Note 7. Long-term Debt” and “Note 15. Subsequent Event” in the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for additional information regarding our borrowings.
Item 8. Financial Statements and Supplementary Data.
Our consolidated financial statements and the reports of our independent registered public accounting firm are included in this Annual Report on Form10-K on pagesF-1 throughF-31 F-33 and are incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.None.
Item 9A. Controls and Procedures.
Conclusions Regarding the Effectiveness of Disclosure Controls and Procedures
As of December 31, 2017,2019, management, with the participation of our Disclosure Committee, performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules13a-15(e) and15d-15(e) of the Exchange Act. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including the Chief Executive Officer and the Chief Financial and Administrative Officer, to allow timely decisions regarding required disclosures.
Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objective. Based on this evaluation, our Chief Executive Officer and Chief Financial and Administrative Officer concluded that, as of December 31, 2017,2019, the design and operation of our disclosure controls and procedures were effective.
76
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rules13a-15(f) and15d-15(f) of the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles, or GAAP. Our internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial and Administrative Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 20172019 based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO (the 2013 Framework). Based on our evaluation under the criteria set forth in Internal Control - Integrated Framework issued by the COSO, our management concluded our internal control over financial reporting was effective as of December 31, 2017.2019.
Our independent registered public accounting firm, Ernst & Young LLP, has audited our Consolidated Financial Statements included in Item 8 of this Annual Report on Form10-K and has issued aan attestion report on our internal control over financial reporting as of December 31, 2017,2019, which appears below.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting during the quarter ended December 31, 2017,2019, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
None.
77
Item 10. Directors, Executive Officers and Corporate Governance.
Information required by this item will be contained in our Definitive Proxy Statement to be filed with the Securities and Exchange Commission in connection with our 20182020 Annual Meeting of Stockholders, or the Definitive Proxy Statement, which is expected to be filed not later than 120 days after the end of our fiscal year ended December 31, 2017,2019, under the headings “Election of Directors,” “Corporate Governance,” “Our Executive Officers,” and “Section 16(a) Beneficial Ownership Reporting Compliance,” and is incorporated herein by reference.
We have adopted a Code of Business Conduct and Ethics that applies to our officers, directors and employees which is available on our website at www.chemocentryx.com. The Code of Business Conduct and Ethics contains general guidelines for conducting the business of our company consistent with the highest standards of business ethics, and is intended to qualify as a “code of ethics” within the meaning of Section 406 of the Sarbanes-Oxley Act of 2002 and Item 406 of RegulationS-K. In addition, we intend to promptly disclose (1) the nature of any amendment to our Code of Business Conduct and Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions and (2) the nature of any waiver, including an implicit waiver, from a provision of our code of ethics that is granted to one of these specified officers, the name of such person who is granted the waiver and the date of the waiver on our website in the future.
Item 11. Executive Compensation.
Information required by this item will be contained in our Definitive Proxy Statement under the heading “Executive Compensation and Other Information,” and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information under the heading “Equity Compensation Plan Information” in Part II, Item 5, “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” is incorporated herein by reference. Additional information required by this item will be contained in our Definitive Proxy Statement under the heading “Security Ownership of Certain Beneficial Owners and Management” and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Information required by this item will be contained in our Definitive Proxy Statement under the headings “Certain Relationships and Related Party Transactions,” “Board Independence” and “Committees of the Board of Directors” and is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services.
Information required by this item will be contained in our Definitive Proxy Statement under the heading “Independent Registered Public Accountants’ Fees,” and is incorporated herein by reference.
78
Item 15. Exhibits, Financial Statement SchedulesSchedules.
(a) Documents filed as part of this Annual Report on Form10-K:
1. Financial Statements.
The following consolidated financial statements of ChemoCentryx, Inc., together with the reports thereon of Ernst & Young LLP, an independent registered public accounting firm, are included in this Annual Report on Form10-K:
Page | ||||
F-2 | ||||
Audited Consolidated Financial Statements | ||||
F-4 | ||||
F-5 | ||||
Consolidated Statements of Comprehensive (Loss) Income | F-6 | |||
F-7 | ||||
F-8 | ||||
F-9 |
2. Financial Statement Schedules.
All schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
3. Exhibits.
A list of exhibits is set forth on the Exhibit Index immediately preceding the signature page of this Annual Report on Form 10‑10-K,K, and is incorporated herein by reference.
79
ChemoCentryx, Inc.
Consolidated Financial Statements
As of December 31, 20172019 and 20162018
and for each of the three years in the period ended December 31, 20172019
Page | ||||
F-2 | ||||
Audited Consolidated Financial Statements | ||||
F-4 | ||||
F-5 | ||||
Consolidated Statements of Comprehensive (Loss) Income | F-6 | |||
F-7 | ||||
F-8 | ||||
F-9 |
Report of Independent RegisteredRegistered Public Accounting Firm
The Stockholders and Board of Directors of ChemoCentryx, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of ChemoCentryx, Inc. (the Company) as of December 31, 20172019 and 2016, and2018, the related consolidated statements of operations, comprehensive (loss) income, (loss), stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2017,2019, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 20172019 and 2016,2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2019, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’sCompany's internal control over financial reporting as of December 31, 2017,2019, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) and our report dated March 12, 201810, 2020 expressed an unqualified opinion thereon.
Adoption of New Accounting Standard
As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for the recognition of revenue in 2018.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on thesethe Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’sCompany's auditor since 2000.
Redwood City, California
March 12, 2018
Report of Independent Registered Public Accounting Firm
The Stockholders and Board of Directors of ChemoCentryx, Inc.
Opinion on Internal Control over Financial Reporting
We have audited ChemoCentryx, Inc.’s internal control over financial reporting as of December 31, 2017,2019, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, ChemoCentryx, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2019, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 20172019 and 2016,2018, and the related consolidated statements of operations, comprehensive (loss) income, (loss), stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2017,2019, and the related notes of the Company and our report dated March 12, 201810, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’sCompany's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Redwood City, California
March 12, 2018
CHEMOCENTRYX, INC.
(In thousands, except share and par value data)
December 31, |
| December 31, |
| |||||||||||||||
2017 | 2016 |
| 2019 |
|
| 2018 |
| |||||||||||
Assets |
|
|
|
|
|
| ||||||||||||
Current assets: |
|
|
|
|
|
|
|
|
|
| ||||||||
Cash and cash equivalents | $ | 40,020 | $ | 12,024 |
| $ |
| 39,179 |
|
| $ |
| 28,088 |
| ||||
Short-term investments | 87,271 | 105,740 |
|
|
| 133,607 |
|
|
|
| 148,896 |
| ||||||
Accounts receivable | 51,090 | 30,205 | ||||||||||||||||
Accounts receivable, other |
|
|
| 176 |
|
|
|
| — |
| ||||||||
Accounts receivable from related party |
|
|
| — |
|
|
|
| 2,058 |
| ||||||||
Prepaid expenses and other current assets | 1,449 | 722 |
|
|
| 1,400 |
|
|
|
| 2,342 |
| ||||||
|
| |||||||||||||||||
Total current assets | 179,830 | 148,691 |
|
|
| 174,362 |
|
|
|
| 181,384 |
| ||||||
Property and equipment, net | 1,210 | 905 |
|
|
| 2,154 |
|
|
|
| 1,536 |
| ||||||
Long-term investments | 7,929 | 5,997 |
|
|
| 29,454 |
|
|
|
| — |
| ||||||
Operating lease right-of-use assets |
|
|
| 1,704 |
|
|
|
| — |
| ||||||||
Other assets | 359 | 279 |
|
|
| 1,409 |
|
|
|
| 390 |
| ||||||
|
| |||||||||||||||||
Total assets | $ | 189,328 | $ | 155,872 |
| $ |
| 209,083 |
|
| $ |
| 183,310 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
|
| ||||||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
| ||||||||
Accounts payable | $ | 1,400 | $ | 671 |
| $ |
| 1,532 |
|
| $ |
| 966 |
| ||||
Accrued liabilities | 8,575 | 8,645 |
|
|
| 19,806 |
|
|
|
| 12,969 |
| ||||||
Deferred revenue | 22,962 | 29,019 | ||||||||||||||||
|
| |||||||||||||||||
Deferred revenue from related party |
|
|
| 37,742 |
|
|
|
| 50,461 |
| ||||||||
Total current liabilities | 32,937 | 38,335 |
|
|
| 59,080 |
|
|
|
| 64,396 |
| ||||||
Long-term debt, net | 4,676 | — |
|
|
| 19,786 |
|
|
|
| 19,689 |
| ||||||
Noncurrent deferred revenue | 72,197 | 67,547 | ||||||||||||||||
Non-current deferred revenue from related party |
|
|
| 63,095 |
|
|
|
| 84,100 |
| ||||||||
Othernon-current liabilities | 251 | 101 |
|
|
| 1,122 |
|
|
|
| 387 |
| ||||||
|
| |||||||||||||||||
Total liabilities | 110,061 | 105,983 |
|
|
| 143,083 |
|
|
|
| 168,572 |
| ||||||
Commitments (Note 8) |
|
|
|
|
|
|
|
|
|
| ||||||||
Stockholders’ equity: |
|
|
|
|
|
|
|
|
|
| ||||||||
Preferred stock, $0.001 par value, 10,000,000 shares authorized; no shares issued and outstanding | — | — |
|
|
| — |
|
|
|
| — |
| ||||||
Common stock, $0.001 par value, 200,000,000 shares authorized; 48,837,060shares and 48,057,920 shares issued and outstanding at December 31, 2017 and December 31, 2016, respectively | 49 | 48 | ||||||||||||||||
Common stock, $0.001 par value, 200,000,000 shares authorized; 60,234,784 and 50,652,238 shares issued and outstanding at December 31, 2019 and 2018, respectively |
|
|
| 60 |
|
|
|
| 51 |
| ||||||||
Additionalpaid-in capital | 368,553 | 356,966 |
|
|
| 495,624 |
|
|
|
| 389,398 |
| ||||||
Note receivable | (16 | ) | (16 | ) |
|
|
| (16 | ) |
|
|
| (16 | ) | ||||
Accumulated other comprehensive loss | (119 | ) | (50 | ) | ||||||||||||||
Accumulated other comprehensive income (loss) |
|
|
| 318 |
|
|
|
| (198 | ) | ||||||||
Accumulated deficit | (289,200 | ) | (307,059 | ) |
|
|
| (429,986 | ) |
|
|
| (374,497 | ) | ||||
|
| |||||||||||||||||
Total stockholders’ equity | 79,267 | 49,889 |
|
|
| 66,000 |
|
|
|
| 14,738 |
| ||||||
|
| |||||||||||||||||
Total liabilities and stockholders’ equity | $ | 189,328 | $ | 155,872 |
| $ |
| 209,083 |
|
| $ |
| 183,310 |
| ||||
|
|
See accompanying notes.
F-4
CHEMOCENTRYX, INC.
Consolidated Statements of Operations
(In thousands, except per share data)
Year Ended December 31, |
| Year Ended December 31, |
| |||||||||||||||||||||
2017 | 2016 | 2015 |
| 2019 |
|
| 2018 |
|
| 2017 |
| |||||||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Collaboration and license revenue | $ | 82,497 | $ | 11,435 | $ | — | ||||||||||||||||||
Collaboration and license revenue from related party |
| $ | 35,952 |
|
| $ | 42,875 |
|
| $ | 82,497 |
| ||||||||||||
Grant revenue | — | 500 | — |
|
| 176 |
|
|
| — |
|
|
| — |
| |||||||||
|
|
| ||||||||||||||||||||||
Total revenue | 82,497 | 11,935 | — |
|
| 36,128 |
|
|
| 42,875 |
|
|
| 82,497 |
| |||||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Research and development | 49,495 | 37,945 | 33,183 |
|
| 70,276 |
|
|
| 62,736 |
|
|
| 49,495 |
| |||||||||
General and administrative | 16,509 | 14,710 | 14,506 |
|
| 24,155 |
|
|
| 20,409 |
|
|
| 16,509 |
| |||||||||
|
|
| ||||||||||||||||||||||
Total operating expenses | 66,004 | 52,655 | 47,689 |
|
| 94,431 |
|
|
| 83,145 |
|
|
| 66,004 |
| |||||||||
|
|
| ||||||||||||||||||||||
Income (loss) from operations | 16,493 | (40,720 | ) | (47,689 | ) | |||||||||||||||||||
(Loss) income from operations |
|
| (58,303 | ) |
|
| (40,270 | ) |
|
| 16,493 |
| ||||||||||||
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Interest income | 1,370 | 757 | 384 |
|
| 4,963 |
|
|
| 3,528 |
|
|
| 1,370 |
| |||||||||
Interest expense | (4 | ) | — | — |
|
| (2,149 | ) |
|
| (1,224 | ) |
|
| (4 | ) | ||||||||
|
|
| ||||||||||||||||||||||
Total other income, net | 1,366 | 757 | 384 |
|
| 2,814 |
|
|
| 2,304 |
|
|
| 1,366 |
| |||||||||
|
|
| ||||||||||||||||||||||
Net income (loss) | $ | 17,859 | $ | (39,963 | ) | $ | (47,305 | ) | ||||||||||||||||
|
|
| ||||||||||||||||||||||
Net income (loss) per common share | ||||||||||||||||||||||||
Net (loss) income |
| $ | (55,489 | ) |
| $ | (37,966 | ) |
| $ | 17,859 |
| ||||||||||||
Net (loss) income per common share |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Basic | $ | 0.37 | $ | (0.86 | ) | $ | (1.08 | ) |
| $ | (0.98 | ) |
| $ | (0.76 | ) |
| $ | 0.37 |
| ||||
|
|
| ||||||||||||||||||||||
Diluted | $ | 0.36 | $ | (0.86 | ) | $ | (1.08 | ) |
| $ | (0.98 | ) |
| $ | (0.76 | ) |
| $ | 0.36 |
| ||||
|
|
| ||||||||||||||||||||||
Shares used to compute net income (loss) per common share | ||||||||||||||||||||||||
Shares used to compute net (loss) income per common share |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Basic | 48,413 | 46,432 | 43,890 |
|
| 56,898 |
|
|
| 49,814 |
|
|
| 48,413 |
| |||||||||
|
|
| ||||||||||||||||||||||
Diluted | 49,615 | 46,432 | 43,890 |
|
| 56,898 |
|
|
| 49,814 |
|
|
| 49,615 |
| |||||||||
|
|
|
See accompanying notes.
CHEMOCENTRYX, INC.
Consolidated Statements of Comprehensive (Loss) Income (Loss)
(In thousands)
Year Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Net income (loss) | $ | 17,859 | $ | (39,963 | ) | $ | (47,305 | ) | ||||
Unrealized (loss) gain onavailable-for-sale securities | (69 | ) | (10 | ) | 30 | |||||||
|
|
|
|
|
| |||||||
Comprehensive income (loss) | $ | 17,790 | $ | (39,973 | ) | $ | (47,275 | ) | ||||
|
|
|
|
|
|
|
| Year Ended December 31, |
| |||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
Net (loss) income |
| $ | (55,489 | ) |
| $ | (37,966 | ) |
| $ | 17,859 |
|
Unrealized gain (loss) on available-for-sale securities |
|
| 516 |
|
|
| (79 | ) |
|
| (69 | ) |
Comprehensive (loss) income |
| $ | (54,973 | ) |
| $ | (38,045 | ) |
| $ | 17,790 |
|
See accompanying notes.
F-6
CHEMOCENTRYX, INC.
Consolidated Statements of Stockholders’ Equity
(In thousands, except share data)
Common Stock | Additional Paid-In Capital |
Note | Accumulated Other Comprehensive Loss |
Accumulated |
Total | |||||||||||||||||||||||
Shares | Amount | |||||||||||||||||||||||||||
Balance as of December 31, 2014 | 43,446,096 | $ | 43 | $ | 328,440 | $ | (16 | ) | $ | (70 | ) | $ | (219,791 | ) | $ | 108,606 | ||||||||||||
Net loss | — | — | — | — | — | (47,305 | ) | (47,305 | ) | |||||||||||||||||||
Unrealized gain / (loss) on investments | — | — | — | — | 30 | — | 30 | |||||||||||||||||||||
Issuance of common stock under equity incentive and employee stock purchase plans | 739,410 | 1 | 2,190 | — | — | — | 2,191 | |||||||||||||||||||||
Employee stock-based compensation | — | — | 8,860 | — | — | — | 8,860 | |||||||||||||||||||||
Compensation expense related to options granted to consultants | — | — | 125 | — | — | — | 125 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Balance as of December 31, 2015 | 44,185,506 | 44 | 339,615 | (16 | ) | (40 | ) | (267,096 | ) | 72,507 | ||||||||||||||||||
Net loss | — | — | — | — | — | (39,963 | ) | (39,963 | ) | |||||||||||||||||||
Unrealized gain / (loss) on investments | — | — | — | — | (10 | ) | — | (10 | ) | |||||||||||||||||||
Issuance of common stock pursuant to collaboration and licensing agreement | 3,333,333 | 3 | 6,997 | — | — | — | 7,000 | |||||||||||||||||||||
Issuance of common stock under equity incentive and employee stock purchase plans | 539,081 | 1 | 1,819 | — | — | — | 1,820 | |||||||||||||||||||||
Employee stock-based compensation | — | — | 8,222 | — | — | — | 8,222 | |||||||||||||||||||||
Compensation expense related to options granted to consultants | — | — | 313 | — | — | — | 313 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Balance as of December 31, 2016 | 48,057,920 | 48 | 356,966 | (16 | ) | (50 | ) | (307,059 | ) | 49,889 | ||||||||||||||||||
Net income | — | — | — | — | — | 17,859 | 17,859 | |||||||||||||||||||||
Unrealized gain / (loss) on investments | — | — | — | — | (69 | ) | — | (69 | ) | |||||||||||||||||||
Issuance of common stock under equity incentive and employee stock purchase plans | 838,107 | 1 | 3,268 | — | — | — | 3,269 | |||||||||||||||||||||
Repurchased shares upon vesting of restricted stock units for tax withholdings | (58,967 | ) | — | (429 | ) | — | — | — | (429 | ) | ||||||||||||||||||
Employee stock-based compensation | — | — | 8,119 | — | — | — | 8,119 | |||||||||||||||||||||
Compensation expense related to options granted to consultants | — | — | 629 | — | — | — | 629 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Balance as of December 31, 2017 | 48,837,060 | $ | 49 | $ | 368,553 | $ | (16 | ) | $ | (119 | ) | $ | (289,200 | ) | $ | 79,267 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Common Stock |
|
| Additional Paid-In |
|
| Note |
|
| Accumulated Other Comprehensive |
|
| Accumulated |
|
| Total Stockholders' |
| ||||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Receivable |
|
| Income (Loss) |
|
| Deficit |
|
| Equity |
| |||||||
Balance as of December 31, 2016 |
|
| 48,057,920 |
|
| $ | 48 |
|
| $ | 356,966 |
|
| $ | (16 | ) |
| $ | (50 | ) |
| $ | (307,059 | ) |
| $ | 49,889 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 17,859 |
|
|
| 17,859 |
|
Unrealized loss on investments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (69 | ) |
|
| — |
|
|
| (69 | ) |
Issuance of common stock under equity incentive and employee stock purchase plans |
|
| 838,107 |
|
|
| 1 |
|
|
| 3,268 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,269 |
|
Repurchased shares upon vesting of restricted stock units for tax withholdings |
|
| (58,967 | ) |
|
| — |
|
|
| (429 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (429 | ) |
Employee stock-based compensation |
|
| — |
|
|
| — |
|
|
| 8,119 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8,119 |
|
Compensation expense related to options granted to consultants |
|
| — |
|
|
| — |
|
|
| 629 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 629 |
|
Balance as of December 31, 2017 |
|
| 48,837,060 |
|
|
| 49 |
|
|
| 368,553 |
|
|
| (16 | ) |
|
| (119 | ) |
|
| (289,200 | ) |
|
| 79,267 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (37,966 | ) |
|
| (37,966 | ) |
Adoption of accounting standards (Note 2) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (47,331 | ) |
|
| (47,331 | ) |
Unrealized loss on investments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (79 | ) |
|
| — |
|
|
| (79 | ) |
Issuance of common stock under equity incentive and employee stock purchase plans |
|
| 1,912,703 |
|
|
| 2 |
|
|
| 10,690 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 10,692 |
|
Repurchased shares upon vesting of restricted stock units for tax withholdings |
|
| (97,525 | ) |
|
| — |
|
|
| (678 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (678 | ) |
Employee stock-based compensation |
|
| — |
|
|
| — |
|
|
| 9,971 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 9,971 |
|
Compensation expense related to options granted to consultants |
|
| — |
|
|
| — |
|
|
| 862 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 862 |
|
Balance as of December 31, 2018 |
|
| 50,652,238 |
|
|
| 51 |
|
|
| 389,398 |
|
|
| (16 | ) |
|
| (198 | ) |
|
| (374,497 | ) |
|
| 14,738 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (55,489 | ) |
|
| (55,489 | ) |
Unrealized gain on investments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 516 |
|
|
| — |
|
|
| 516 |
|
Issuance of common stock through Equity Distribution Agreement, net of issuance costs (Note 11) |
|
| 6,491,196 |
|
|
| 6 |
|
|
| 73,270 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 73,276 |
|
Issuance of common stock under equity incentive and employee stock purchase plans |
|
| 3,216,876 |
|
|
| 3 |
|
|
| 22,631 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 22,634 |
|
Repurchased shares upon vesting of restricted stock units for tax withholdings |
|
| (125,526 | ) |
|
| — |
|
|
| (1,313 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,313 | ) |
Employee stock-based compensation |
|
| — |
|
|
| — |
|
|
| 11,349 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 11,349 |
|
Compensation expense related to options granted to consultants |
|
| — |
|
|
| — |
|
|
| 289 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 289 |
|
Balance as of December 31, 2019 |
|
| 60,234,784 |
|
| $ | 60 |
|
| $ | 495,624 |
|
| $ | (16 | ) |
| $ | 318 |
|
| $ | (429,986 | ) |
| $ | 66,000 |
|
See accompanying notes.
F-7
CHEMOCENTRYX, INC.
Consolidated Statements of Cash Flows
(In thousands)
Year Ended December 31, |
| Year Ended December 31, |
| |||||||||||||||||||||
2017 | 2016 | 2015 |
| 2019 |
|
| 2018 |
|
| 2017 |
| |||||||||||||
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Net income (loss) | $ | 17,859 | $ | (39,963 | ) | $ | (47,305 | ) | ||||||||||||||||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||||||||||||||||||
Net (loss) income |
| $ | (55,489 | ) |
| $ | (37,966 | ) |
| $ | 17,859 |
| ||||||||||||
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Stock-based compensation |
|
| 11,638 |
|
|
| 10,833 |
|
|
| 8,748 |
| ||||||||||||
Depreciation of property and equipment | 418 | 348 | 477 |
|
| 550 |
|
|
| 512 |
|
|
| 418 |
| |||||||||
Stock-based compensation | 8,748 | 8,535 | 8,985 | |||||||||||||||||||||
Noncash interest expense, net | 143 | 179 | 1,007 | |||||||||||||||||||||
Amortization of right-of-use assets |
|
| 1,092 |
|
|
| — |
|
|
| — |
| ||||||||||||
Noncash interest (income) expense, net |
|
| (1,499 | ) |
|
| (1,071 | ) |
|
| 143 |
| ||||||||||||
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Accounts receivable | (20,885 | ) | (30,205 | ) | — | |||||||||||||||||||
Accounts receivable, other |
|
| (176 | ) |
|
| — |
|
|
| — |
| ||||||||||||
Accounts receivable from related party |
|
| 2,058 |
|
|
| 49,032 |
|
|
| (20,885 | ) | ||||||||||||
Prepaids and other current assets | (727 | ) | 35 | 236 |
|
| 719 |
|
|
| (668 | ) |
|
| (727 | ) | ||||||||
Other assets | (80 | ) | (119 | ) | — |
|
| 61 |
|
|
| (31 | ) |
|
| (80 | ) | |||||||
Accounts payable | 729 | (4 | ) | (73 | ) |
|
| 188 |
|
|
| (434 | ) |
|
| 729 |
| |||||||
Other liabilities | 80 | 3,773 | (2,654 | ) |
|
| 4,459 |
|
|
| 4,158 |
|
|
| 80 |
| ||||||||
Deferred revenue | (1,407 | ) | 96,566 | — | ||||||||||||||||||||
|
|
| ||||||||||||||||||||||
Net cash provided by (used in) operating activities | 4,878 | 39,145 | (39,327 | ) | ||||||||||||||||||||
Deferred revenue from related party |
|
| (33,724 | ) |
|
| (7,929 | ) |
|
| (1,407 | ) | ||||||||||||
Net cash (used in) provided by operating activities |
|
| (70,123 | ) |
|
| 16,436 |
|
|
| 4,878 |
| ||||||||||||
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Purchases of property and equipment, net | (723 | ) | (304 | ) | (218 | ) |
|
| (790 | ) |
|
| (838 | ) |
|
| (723 | ) | ||||||
Purchases of investments | (133,845 | ) | (136,234 | ) | (24,372 | ) |
|
| (211,973 | ) |
|
| (192,480 | ) |
|
| (133,845 | ) | ||||||
Sales of investments | — | — | 4,051 |
|
| 4,967 |
|
|
| — |
|
|
| — |
| |||||||||
Maturities of investments | 150,170 | 87,774 | 54,423 |
|
| 195,270 |
|
|
| 140,250 |
|
|
| 150,170 |
| |||||||||
|
|
| ||||||||||||||||||||||
Net cash provided by (used in) investing activities | 15,602 | (48,764 | ) | 33,884 | ||||||||||||||||||||
Net cash (used in) provided by investing activities |
|
| (12,526 | ) |
|
| (53,068 | ) |
|
| 15,602 |
| ||||||||||||
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Proceeds from issuance of common stock | — | 7,000 | — |
|
| 73,276 |
|
|
| — |
|
|
| — |
| |||||||||
Proceeds from exercise of stock options and employee stock purchase plan | 3,269 | 1,820 | 2,191 |
|
| 22,857 |
|
|
| 10,467 |
|
|
| 3,269 |
| |||||||||
Employees’ tax withheld and paid for restricted stock units | (429 | ) | — | — | ||||||||||||||||||||
Employees' tax withheld and paid for restricted stock units |
|
| (1,313 | ) |
|
| (678 | ) |
|
| (429 | ) | ||||||||||||
Borrowings under credit facility agreement, net of issuance costs | 4,676 | — | — |
|
| — |
|
|
| 14,911 |
|
|
| 4,676 |
| |||||||||
|
|
| ||||||||||||||||||||||
Net cash provided by financing activities | 7,516 | 8,820 | 2,191 |
|
| 94,820 |
|
|
| 24,700 |
|
|
| 7,516 |
| |||||||||
|
|
| ||||||||||||||||||||||
Net increase (decrease) in cash and cash equivalents | 27,996 | (799 | ) | (3,252 | ) | |||||||||||||||||||
Cash and cash equivalents at beginning of period | 12,024 | 12,823 | 16,075 | |||||||||||||||||||||
|
|
| ||||||||||||||||||||||
Cash and cash equivalents at end of period | $ | 40,020 | $ | 12,024 | $ | 12,823 | ||||||||||||||||||
|
|
| ||||||||||||||||||||||
Net increase (decrease) in cash, cash equivalents and restricted cash |
|
| 12,171 |
|
|
| (11,932 | ) |
|
| 27,996 |
| ||||||||||||
Cash, cash equivalents and restricted cash at beginning of period |
|
| 28,088 |
|
|
| 40,020 |
|
|
| 12,024 |
| ||||||||||||
Cash, cash equivalents and restricted cash at end of period |
| $ | 40,259 |
|
| $ | 28,088 |
|
| $ | 40,020 |
| ||||||||||||
Supplemental disclosures of cash flow information |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Cash paid for interest |
| $ | 1,735 |
|
| $ | 748 |
|
| $ | — |
| ||||||||||||
Right-of-use assets obtained in exchange for lease obligations (1) |
| $ | 2,796 |
|
| $ | — |
|
| $ | — |
| ||||||||||||
Purchases of property and equipment, net recorded in accounts payable |
| $ | 378 |
|
| $ | — |
|
| $ | — |
|
(1) | Amounts for the year ended December 31, 2019 include the transition adjustment of $1,301 for the adoption of Topic 842. |
See accompanying notes.
F-8
CHEMOCENTRYX, INC.
Notes to Consolidated Financial Statements
December 31, 20172019
1. | Description of Business |
ChemoCentryx, Inc. (the Company) commenced operations in 1997. The Company is a clinical-stage biopharmaceutical company focused on developingthe development and commercialization of new medications targeted at inflammatory disorders, autoimmune diseases and cancer. The Company’s principal operations are in the United States and it operates in one segment.
2. | Summary of Significant Accounting Policies |
Consolidation
The consolidated financial statements include the Company’s accounts and those of its wholly owned subsidiary,subsidiaries, ChemoCentryx Ireland Limited and ChemoCentryx Limited. The operations of ChemoCentryx Ireland Limited and ChemoCentryx Limited have been immaterial to date. All intercompany amounts have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (GAAP) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from these estimates.
Basis of Presentation
The financial statements are prepared in conformity with GAAP. The Company has made estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Cash Equivalents and Investments
The Company considers all highly liquid investments with an original maturity at the date of purchase of three months or less to be cash equivalents. The Company limits its concentration of risk by diversifying its investments among a variety of issuers. All investments are classified as available for sale and are recorded at fair value based on quoted prices in active markets or based upon other observable inputs, with unrealized gains and losses excluded from earnings and reported in other comprehensive income (loss). Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Realized gains and losses and unrealized declines in fair value that are deemed to be other than temporary are reflected in the statement of operations. The cost of securities sold is based on the specific-identification method.
Fair Value of Financial Instruments
The carrying amounts of certain of the Company’s financial instruments, including cash and cash equivalents, short-term investments, accounts receivable and accounts payable, approximate their fair value due to their short maturities.
Fair value is considered to be the price at which an asset could be exchanged or a liability transferred (an exit price) in an orderly transaction between knowledgeable, willing parties in the principal or most advantageous market for the asset or liability. Where available, fair value is based on or derived from observable market prices or other observable inputs. Where observable prices or inputs are not available, valuation models are applied. The valuation techniques involve management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity.
F-9
CHEMOCENTRYX, INC.
Notes to Consolidated Financial Statements (continued)
2. | Summary of Significant Accounting Policies (continued) |
Concentration of Credit Risk
The Company invests in a variety of financial instruments and, by its policy, limits the amount of credit exposure with any one issuer, industry or geographic area.
For the years ended December 31, 2019, 2018 and 2017, and 2016,99.5%, 100% and 96%100%, respectively, of the Company’s total revenue werewas derived from the Company’s collaboration with Vifor (International) Ltd., and/or its affiliates, or collectively, Vifor. The Company did not generate any revenue in 2015. Accounts receivable are typically unsecured and are concentrated in the pharmaceutical industry and government sector. Accordingly, the Company may be exposed to credit risk generally associated with pharmaceutical companies and government funded entities. The Company has not historically experienced any significant losses due to concentration of credit risk.
Accounts receivable consists of the following (in thousands):
| December 31, |
| ||||||||||||||
December 31, |
| 2019 |
|
| 2018 |
| ||||||||||
2017 | 2016 | |||||||||||||||
Vifor(1) | $ | 51,090 | $ | 30,000 | ||||||||||||
Vifor |
| $ | — |
|
| $ | 2,058 |
| ||||||||
U.S. Food and Drug Administration | — | 205 |
|
| 176 |
|
|
| — |
| ||||||
|
|
| $ | 176 |
|
| $ | 2,058 |
| |||||||
$51,090 | $30,205 | |||||||||||||||
|
|
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, which range from five to seven years. Tenant improvements are depreciated over the lesser of the estimated useful life or the remaining life of the lease at the time the asset is placed into service.
Impairment of Long-Lived Assets
The Company reviews long-lived assets, including property and equipment, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of an asset are less than its carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset over its respective fair value. To date, the Company has not recorded any impairment losses.
Leases
The Company determines if an arrangement includes a lease at inception. Operating leases are included in operating lease right-of-use (ROU) assets, accrued and other current liabilities and other non-current liabilities on the Company’s Condensed Consolidated Balance Sheets. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. The Company uses the incremental borrowing rate based on the information available at lease commencement date in determining the present value of future payments. The operating lease ROU asset also excludes lease incentives. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise any such options. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. The Company has elected not to apply the recognition requirements for short-term leases. For lease agreements with lease and non-lease components, the Company generally accounts for them separately.
F-10
2. | Summary of Significant Accounting Policies (continued) |
Revenue Recognition
Effective January 1, 2018, the Company adopted Accounting Standards Codification (ASC) Topic 606, Revenue Recognitionfrom Contracts with Customers (ASC 606) using the modified retrospective transition method. This standard applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. Under ASC 606, the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
The Company enters into corporate collaborations under which it may obtain upfront license fees, research and development funding and contingent milestonesdevelopment and regulatory and commercial milestone payments and royalty payments. The Company’s deliverablesperformance obligations under
Milestone payments: At the inception of each arrangement that includes development, regulatory or commercial milestone payments, the Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price. There are two alternatives to use when estimating the amount of variable consideration: the expected value method and the most likely amount method. Under the expected value method, an entity considers the sum of probability-weighted amounts in a range of possible consideration amounts. Under the most likely amount method, an entity considers the single most likely amount in a range of possible consideration amounts. Whichever method is used, it should be consistently applied throughout the life of the contract; however, it is not necessary for the Company to use the same approach for all contracts. The Company expects to use the most likely amount method for development and regulatory milestone payments. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the Company’s or the licensee’s control, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. The transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis. The Company recognizes revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of each such milestone and any related constraint, and if necessary, adjusts its estimates of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment.
F-11
CHEMOCENTRYX, INC.
Notes to Consolidated Financial Statements (continued)
2. | Summary of Significant Accounting Policies (continued) |
theseCommercial milestones and royalties: For arrangements maythat include intellectual property rights, distribution rights, deliverysales-based royalties, including milestone payments based on the level of manufactured product, participation on joint steering committees and/or researchsales, and development services. In orderin which the license is deemed to account forbe the multiple-element arrangements,predominant item to which the royalties relate, the Company identifiesrecognizes revenue when the deliverables included withinrelated sales occur. To date, the arrangement and evaluate whether the delivered elements under these arrangements have value toCompany has not recognized any royalty revenue resulting from its collaboration partner on a stand-alone basisarrangements.
Up-front payments and represent separate units of accounting. If the Company determines that multiple deliverables exist, the consideration is allocated to one or more units of accounting based upon the best estimate of the selling price of each deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence, if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific nor third-party evidence is available. A delivered item or items that do not qualify as a separate unit of accounting within the arrangement shall be combined with the other applicable undelivered items within the arrangement. The allocation of arrangement consideration and the recognition of revenue then shall be determined for those combined deliverables as a single unit of accounting. For a combined unit of accounting,non-refundable upfront fees are recognized in a manner consistent with the final deliverable, which has generally been ratably over the period of the performance obligation. Amounts received in advance of performance are recorded as deferred revenue. Revenues derived from fundingrevenue upon receipt or when due, and may require deferral of development costsrevenue recognition to a future period until the Company performs its obligations under these arrangements. Amounts payable to the Company are recognizedrecorded as accounts receivable when the related costs are incurredCompany’s right to consideration is unconditional.
Upon adoption of ASC 606 under the modified retrospective transition method, the Company recognized the cumulative effect of initially applying the new revenue standard of $47.3 million as an adjustment to the opening balance of accumulated deficit and when collectability is reasonably assured. Revenues froman increase in deferred revenue. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. Before the adoption of ASC 606, the Company recognized upfront fees straight-line under ASC 605 over the estimated performance period and development services are classified as collaboration and license revenue in the Consolidated Statements of Operations.
The Company considers sales-based contingent payments to be royalty revenue which is generally recognized at the date the contingency is achieved. Research and development funding related to collaborative research and development efforts is recognized as revenue as the related services are performed or delivered, in accordance with contract terms.
For certain contingent paymentsmilestones when earned under collaboration and license arrangements, the Company recognizes revenue using the milestone method. Under the milestone method a payment that is contingent upon the achievement of a substantive milestone is recognized in its entiretyaccounting. See “Note 2. Summary of Significant Accounting Policies – Revenue Recognition” in the period in whichCompany’s Annual Report on Form 10-K for the milestone is achieved. A milestone is an event: (i) that can be achieved based in whole or in partfiscal year ended December 31, 2017, filed with the SEC on either the Company’s performance or on the occurrence ofMarch 12, 2018 for a specific outcome resulting from the Company’s performance, (ii) for which there is substantive uncertainty at the date the arrangement is entered into that the event will be achieved and (iii) that would result in additional payments being due to the Company. Milestones are considered substantive when the consideration earned from the achievement of the milestone is: (i) commensurate with either the Company’s performance to achieve the milestone or the enhancement of value of the item delivered as a result of a specific outcome resulting from the Company’s performance to achieve the milestone, (ii) related solely to past performance and (iii) reasonable relative to all deliverables and payment terms in the arrangement. In making the determination as to whether a milestone is substantive or not, the Company considers all facts and circumstances relevant to the arrangement, including factors such as the scientific, regulatory, commercial and other risks that must be overcome to achieve the respective milestone, the level of effort and investment required to achieve the respective milestone and whether any portion of the milestone consideration is related to future performance or deliverables. Contingency and milestones payments, when recognized as revenue, are classified as collaboration and license revenues in the Consolidated Statements of Operations.detailed discussion.
Revenue from government and private agency grants areis recognized as the related research and development expenses are incurred and to the extent that funding is approved.
CHEMOCENTRYX, INC.
Notes to Consolidated Financial Statements (continued)
Research and Development Expenses
All research and development expenses are recognized as incurred. Research and development expenses include, but are not limited to, 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.
Clinical Trial Accruals
Clinical trial costs are a component of research and development expenses. The Company accrues and expenses clinical trial activities performed by third parties based upon estimates of the percentage of work completed over the life of the individual study in accordance with agreements established with clinical research organizations and clinical trial sites. The Company determines the estimates through discussions with internal clinical personnel and external service providers as to the progress or stage of completion of trials or services and the agreed-upon fee to be paid for such services.
Nonrefundable advance payments for goods and services that will be used or rendered in future research and development activities, are deferred and recognized as expense in the period that the related goods are delivered or services are performed.
Stock-Based Compensation
The Company measures stock-based compensation cost at the grant date based on the fair value of the award, and recognizes the expense over the award’s vesting periods on a straight-line basis. The fair value of a stock option is estimated using the Black-Scholes valuation model, which requires that, at the date of grant, assumptions are made with respect to the expected life of the option, the volatility of the fair value of the Company’s common stock, the risk-free interest rate and the expected dividend yield of the Company’s common stock. The fair value of a restricted stock unit (RSU) and restricted stock award (RSA) is valued at the closing price of the Company’s common stock on the date of the grant. Because stock compensation expense is based on awards ultimately expected to vest, it has been reduced by an estimate for future forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
F-12
2. | Summary of Significant Accounting Policies (continued) |
On January 1, 2019 the Company adopted Accounting Standards Update (ASU) No. 2018-07, Compensation – Stock Compensation (Topic 718), which simplifies the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. For the year ended December 31, 2019, the measurement of nonemployee stock-based compensation is fixed at the grant date. Prior to the adoption of ASU No. 2018-07, the measurement of nonemployee stock-based compensation was subject to periodic adjustment as the underlying equity instruments vested.
Comprehensive (Loss) Income
Comprehensive (loss) income is comprised of net (loss) income and other comprehensive income (loss). For the periods presented, other comprehensive income (loss) consists of unrealized gains and losses on the Company’s available-for-sale securities. For the year ended December 31, 2019, amounts reclassified from accumulated other comprehensive income (loss) to net loss for unrealized gains (losses) on available-for-sale securities were not significant, and were recorded as part of other income, net in the Condensed Consolidated Statements of Operations. For the years ended December 31, 2018 and 2017, there were no sales of investments, and therefore there were no reclassifications.
Income Taxes
The Company uses the liability method for income taxes, whereby deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax reporting bases of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. Valuation allowances are provided when the expected realization for the deferred tax assets does not meet themore-likely-than-not criteria.
The Company accounts for uncertain tax positions in the financial statements when it is not more likely than not that the position will be sustained upon examination by the tax authorities. Such tax positions must initially and subsequently be measured at the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts. The Company’s policy is to recognize any interest and penalties related to unrecognized tax benefits in income tax expense.
ComprehensiveNet (Loss) Income (loss)
Comprehensive income (loss) comprises net income (loss) and other comprehensive income (loss). For the periods presented, other comprehensive income (loss) consists of unrealized gains and losses on the Company’savailable-for-sale securities. For the year ended December 31, 2015, amounts reclassified from accumulated other income to net loss for unrealized gains (losses) onavailable-for-sale securities were not significant, and were recorded as part of other income (expense), net in the Consolidated Statements of Operations. For the years ended December 31, 2017 and 2016, there were no sales of investments, and therefore there were no reclassifications.
CHEMOCENTRYX, INC.
Notes to Consolidated Financial Statements (continued)
Stock-Based Compensation
The Company accounts for employee stock-based compensation using a fair-value-based method, which measures stock-based compensation cost at the grant date based on the fair value of the award, and recognizes as an expense over the award’s vesting periods on a straight-line basis. Because stock compensation expense is based on awards ultimately expected to vest, it has been reduced by an estimate for future forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
The Company accounts for stock-based compensation arrangements with nonemployees using a fair-value approach. For stock options granted to nonemployees, the fair value of the stock options is estimated using the Black-Scholes valuation model. This model utilizes the estimated fair value of common stock and requires that, at the date of grant, assumptions are made with respect to the remaining contractual term of the option, the volatility of the fair value of its common stock, the risk-free interest rates and the expected dividend yields of its common stock. The measurement of nonemployee stock-based compensation is subject to periodic adjustment as the underlying equity instruments vest.
The Company accounts for restricted stock compensation arrangements with nonemployee directors using a fair-value approach. For restricted stock units (RSUs) and restricted stock awards (RSAs) granted to nonemployee directors, the fair value of a RSU or RSA is valued at the closing price of the Company’s common stock on the date of the grant. The Company recognizes stock-based compensation expense associated with these RSUs and RSAs over the requisite service period, with no adjustment in future periods based on the Company’s actual stock price over the vesting period.
Net Income (Loss) Per Share
Basic net (loss) income (loss) per common share is computed by dividing net (loss) income (loss) attributable to common stockholders by the weighted-average number of common shares outstanding during the period, without consideration for common stock equivalents.
Diluted net (loss) income (loss) per share is computed by dividing net (loss) income (loss) attributable to common stockholders by the sum of the weighted-average number of common shares outstanding and dilutive common stock equivalent shares outstanding for the period. The Company’s potentially dilutive common stock equivalent shares, which include incremental common shares issuable upon (i) the exercise of outstanding stock options and warrants, (ii) vesting of RSUs and RSAs, and (iii) the purchase from contributions to the 2012 Employee Stock Purchase Plan (the ESPP) (calculated based on the treasury stock method), are only included in the calculation of diluted net (loss) income (loss) per share when their effect is dilutive.
F-13
CHEMOCENTRYX, INC.
Notes to Consolidated Financial Statements (continued)
2. | Summary of Significant Accounting Policies (continued) |
The following table is a reconciliation of the numerator and denominator used in the calculation of basic and diluted net (loss) income (loss) per share.share:
Year Ended December 31, |
| Year Ended December 31, |
| |||||||||||||||||||||
2017 | 2016 | 2015 |
| 2019 |
|
| 2018 |
|
| 2017 |
| |||||||||||||
(in thousands, except per share data) |
| (in thousands, except per share data) |
| |||||||||||||||||||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Net income (loss) | $ | 17,859 | $ | (39,963 | ) | $ | (47,305 | ) | ||||||||||||||||
|
|
| ||||||||||||||||||||||
Net (loss) income |
| $ | (55,489 | ) |
| $ | (37,966 | ) |
| $ | 17,859 |
| ||||||||||||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Weighted average shares outstanding - basic | 48,413 | 46,432 | 43,890 |
|
| 56,898 |
|
|
| 49,814 |
|
|
| 48,413 |
| |||||||||
Dilutive stock options, RSUs and RSAs | 1,202 | — | — |
|
| — |
|
|
| — |
|
|
| 1,202 |
| |||||||||
|
|
| ||||||||||||||||||||||
Weighted average shares outstanding - diluted | 49,615 | 46,432 | 43,890 |
|
| 56,898 |
|
|
| 49,814 |
|
|
| 49,615 |
| |||||||||
Net income (loss) per common share | ||||||||||||||||||||||||
Net (loss) income per common share |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Basic | $ | 0.37 | $ | (0.86 | ) | $ | (1.08 | ) |
| $ | (0.98 | ) |
| $ | (0.76 | ) |
| $ | 0.37 |
| ||||
|
|
| ||||||||||||||||||||||
Diluted | $ | 0.36 | $ | (0.86 | ) | $ | (1.08 | ) |
| $ | (0.98 | ) |
| $ | (0.76 | ) |
| $ | 0.36 |
| ||||
|
|
|
The following potentially dilutive securities were excluded from the calculation of diluted net (loss) income (loss) per share due to their anti-dilutive effect:
Year Ended December 31, |
| Year Ended December 31, |
| |||||||||||||||||||||
2017 | 2016 | 2015 |
| 2019 |
|
| 2018 |
|
| 2017 |
| |||||||||||||
Options to purchase common stock, including purchases from contributions to ESPP | 6,320,038 | 9,358,389 | 7,861,953 |
|
| 9,304,018 |
|
|
| 10,731,164 |
|
|
| 6,320,038 |
| |||||||||
Restricted stock units | — | 440,344 | 67,481 |
|
| 368,927 |
|
|
| 440,354 |
|
|
| — |
| |||||||||
Restricted stock awards | — | 31,306 | — |
|
| 30,896 |
|
|
| 27,278 |
|
|
| — |
| |||||||||
Warrants to purchase common stock | 150,000 | 150,000 | 150,000 | |||||||||||||||||||||
Warrants to purchase common stock(1) |
|
| 150,000 |
|
|
| 150,000 |
|
|
| 150,000 |
| ||||||||||||
|
|
|
|
| 9,853,841 |
|
|
| 11,348,796 |
|
|
| 6,470,038 |
| ||||||||||
6,470,038 | 9,980,039 | 8,079,434 | ||||||||||||||||||||||
|
| �� |
|
(1) | In 2012, the Company issued a warrant with a ten-year term to purchase 150,000 shares of its common stock at an exercise price of $20.00 per share. |
Recent Accounting Pronouncements
In May 2014,February 2016, the Financial Accounting StandardStandards Board (FASB) issued Accounting Standards Update (ASU)No. 2014-09, which supersedes the revenue recognition requirements in ASC Topic 605, Revenue Recognition, and creates a new Topic 606, Revenue from Contracts with Customers. The new standard’s core principle is that a reporting entity will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. On July 9, 2015, the FASB voted to delay the effective date of the new standard by one year. The standard would become effective for the Company beginning in the first quarter of 2018. Early application would be permitted in 2017. Entities would have the option of using either a full retrospective or a modified retrospective approach to adopt this new guidance. In 2016, the FASB updated the guidance for reporting revenue gross versus net to improve the implementation guidance on principal versus agent considerations, and for identifying performance obligations and the accounting of intellectual property licenses. In addition, the FASB introduced practical expedients and made narrow scope improvements to the new accounting guidance.
CHEMOCENTRYX, INC.
Notes to Consolidated Financial Statements (continued)
During 2016, the Company entered into two license and collaboration agreements. During 2017 and 2016, the Company primarily derived its revenue from license and collaboration agreements. The consideration the Company is eligible to receive under these agreements includes upfront payments, research and development funding, milestone payments, and royalties. The Company assessed each collaboration agreement under the five-step process under the new standard. The Company reviewed the guidance as it relates to the selection of a measure of progress on the complete satisfaction of performance obligation as this may impact the estimation of, and the determination of the timing of revenue recognition. ASC 606 notes the objective when measuring progress is to depict an entity’s performance in transferring control of goods or services promised to a customer.
The Company recognized upfront fees straight-line under ASC 605 over the estimated performance period and recognized milestone when earned under the Milestone Method of accounting. Under ASC 606, the Company’s upfront fees and milestones will be recognized using an input method to measure its progress toward the completion of its performance obligations. The Company determined that external R&D costs are a reasonable measure of progress to measure the value that will be transferred to Vifor. These factors will yield the material changes in the Company’s revenue recognition between ASC 605 and 606.
On January 1, 2018, the Company adopted the accounting standard update using the modified retrospective approach. Management is finalizing the measure of progress calculations related to the Company’s two license and collaboration agreements. Given the factors discussed above, the impact upon adoption is anticipated to increase accumulated deficit in a range of $45 million to $50 million. The actual, final quantitative effect of the adoption of Topic 606 will be completed in the first quarter of 2018.
Finally, Topic 606 requires more robust disclosures than required by previous guidance, including disclosures related to disaggregation of revenue into appropriate categories, performance obligations, the judgments made in revenue recognition determinations, adjustments to revenue which relate to activities from previous quarters or years, any significant reversals of revenue, and costs to obtain or fulfill contracts. The Company plans to address these disclosure requirements in itsForm 10-Q for the three-month period ending March 31, 2018.
In February 2016, the FASB issued ASUNo. 2016-12,2016-02, Leases (Topic 842). The new standard requires all lesseesthe Company to recognize the assets and liabilities that arise from leases on the balance sheet and disclose qualitative and quantitative information about its leasing arrangements. On January 1, 2019, the Company adopted this new standard using the modified retrospective approach in accordance with Leases – Targeted Improvements (ASU No. 2018-11). The Company elected the package of practical expedients permitted under the transition guidance within ASU No. 2018-11, which among other things, allowed the Company to carry forward the historical lease classification of those leases in place as of January 1, 2019. Results for the year ended December 31, 2019 are presented under Topic 842. Prior period amounts have not been adjusted and continue to be reported in accordance with the Company’s historical accounting under previous lease guidance, ASC Topic 840, Leases (Topic 840).
F-14
2. | Summary of Significant Accounting Policies (continued) |
The impact of the adoption of Topic 842 on the accompanying Consolidated Balance Sheet as of January 1, 2019 was as follows (in thousands):
|
| December 31, 2018 |
|
| Adjustments Due to the Adoption of Topic 842 |
|
| January 1, 2019 |
| |||
Balance Sheet |
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease right-of-use assets |
| $ | — |
|
| $ | 1,301 |
|
| $ | 1,301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accrued and other current liabilities (1) |
|
| 12,969 |
|
|
| 955 |
|
|
| 13,924 |
|
Other non-current liabilities (2) |
|
| 387 |
|
|
| 346 |
|
|
| 733 |
|
(1) | Includes deferred rent and current portion of operating lease liabilities. |
(2) | Includes deferred rent and non-current portion of operating lease liabilities. |
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments. The new standard replaces the incurred loss impairment methodology under the current standard with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The Company is required to use a forward-looking expected credit loss model for accounts receivable and other financial instruments. Credit losses relating to available-for-sale debt securities will also be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. The new standard was effective for the Company on January 1, 2019.2020. The Company is currently evaluating the impact of theCompany’s adoption of this standard on its financial statements. However, the Company expects the adoption of this accounting guidance to result in an increase in lease assets and a corresponding increase in lease liabilities on its balance sheets.
In March 2016, the FASB issued ASUNo. 2016-09, Improvements to Employee Share-Based Payment Accounting, which is intended to simplify several aspects of the accounting for share-based payment award transactions, including the income tax consequences, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. Under this guidance, on a prospective basis, companies will no longer record excess tax benefits and tax deficiencies from stock option exercises in additionalpaid-in capital (APIC). Instead, they will record all excess tax benefits and tax deficiencies as income tax expense or benefit in the statement of operations. In addition, the guidance eliminates the requirement that excess tax benefits be realized before companies can recognize them. The ASU requires a cumulative-effect adjustment for previously unrecognized excess tax benefits in opening retained earnings in the annual period of adoption. The Company adopted ASUNo. 2016-09 on January 1, 2017. Upon adoption, the Company recognized the excess tax benefit balance of $2.1 million as of January 1, 2017 as a deferred tax asset with a corresponding increase to the Company’s deferred tax asset valuation allowance.
CHEMOCENTRYX, INC.
Notes to Consolidated Financial Statements (continued)
Additionally, as provided for under this new guidance, the Company elected to continue to estimate forfeitures. The adoption of this aspect of the guidance2020 did not have a material impact on the Company’sconsolidated financial statements.
The Company has reviewed other recent accounting pronouncements and concluded they are either not applicable to the business or that no material effect is expected on the consolidated financial statements as a result of future adoption.
3. | Cash Equivalents, Restricted Cash and Investments |
Cash, Cash Equivalents and Restricted Cash
The following table provides a reconciliation of cash, cash equivalents and restricted cash shown in the Condensed Consolidated Statements of Cash Flows (in thousands):
|
| December 31, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
Cash and cash equivalents |
| $ | 39,179 |
|
| $ | 28,088 |
|
Restricted cash included in Other assets |
|
| 1,080 |
|
|
| — |
|
Total cash, cash equivalents and restricted cash |
| $ | 40,259 |
|
| $ | 28,088 |
|
Restricted cash as of December 31, 2019 was held as collateral for a stand-by letter of credit issued by the Company to its landlord in connection with the lease of the Company’s facility in San Carlos, California. See “Note 8. Commitments” for additional information of this lease.
F-15
3. | Cash Equivalents, Restricted Cash and Investments (continued) |
Cash Equivalents and Investments
The amortized cost and fair value of cash equivalents and investments at December 31, 20172019 and 20162018 were as follows (in thousands):
December 31, 2017 |
| December 31, 2019 |
| |||||||||||||||||||||||||||||
Amortized | Gross Unrealized | Fair |
| Amortized |
|
| Gross Unrealized |
|
| Fair |
| |||||||||||||||||||||
Cost | Gains | Losses | Value |
| Cost |
|
| Gains |
|
| Losses |
|
| Value |
| |||||||||||||||||
Money market fund | $ | 29,848 | $ | — | $ | — | $ | 29,848 |
| $ | 30,353 |
|
| $ | — |
|
| $ | — |
|
| $ | 30,353 |
| ||||||||
U.S. treasury securities | 29,005 | — | (52 | ) | 28,953 |
|
| 40,245 |
|
|
| 47 |
|
|
| — |
|
|
| 40,292 |
| |||||||||||
Commercial paper | 46,184 | — | — | 46,184 |
|
| 12,429 |
|
|
| — |
|
|
| — |
|
|
| 12,429 |
| ||||||||||||
Asset-backed securities |
|
| 25,436 |
|
|
| 50 |
|
|
| — |
|
|
| 25,486 |
| ||||||||||||||||
Corporate debt securities | 27,095 | — | (67 | ) | 27,028 |
|
| 84,605 |
|
|
| 225 |
|
|
| (4 | ) |
|
| 84,826 |
| |||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Totalavailable-for-sale securities | $ | 132,132 | $ | — | $ | (119 | ) | $ | 132,013 |
| $ | 193,068 |
|
| $ | 322 |
|
| $ | (4 | ) |
| $ | 193,386 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Classified as: Cash equivalents | $ | 36,813 | ||||||||||||||||||||||||||||||
Classified as: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 30,325 |
| ||||||||||||||||
Short-term investments | 87,271 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 133,607 |
| |||||||||||||||
Long-term investments | 7,929 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 29,454 |
| |||||||||||||||
| ||||||||||||||||||||||||||||||||
Totalavailable-for-sale securities | $ | 132,013 |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 193,386 |
| ||||||||||||||
|
December 31, 2016 |
| December 31, 2018 |
| |||||||||||||||||||||||||||||
Amortized | Gross Unrealized | Fair |
| Amortized |
|
| Gross Unrealized |
|
| Fair |
| |||||||||||||||||||||
Cost | Gains | Losses | Value |
| Cost |
|
| Gains |
|
| Losses |
|
| Value |
| |||||||||||||||||
Money market fund | $ | 9,746 | $ | — | $ | — | $ | 9,746 |
| $ | 22,073 |
|
| $ | — |
|
| $ | — |
|
| $ | 22,073 |
| ||||||||
U.S. treasury securities | 49,693 | 1 | (22 | ) | 49,672 |
|
| 23,013 |
|
|
| — |
|
|
| (13 | ) |
|
| 23,000 |
| |||||||||||
Commercial paper | 16,183 | — | — | 16,183 |
|
| 45,683 |
|
|
| — |
|
|
| — |
|
|
| 45,683 |
| ||||||||||||
Asset-backed securities |
|
| 29,127 |
|
|
| — |
|
|
| (34 | ) |
|
| 29,093 |
| ||||||||||||||||
Corporate debt securities | 45,911 | — | (29 | ) | 45,882 |
|
| 55,228 |
|
|
| — |
|
|
| (151 | ) |
|
| 55,077 |
| |||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Totalavailable-for-sale securities | $ | 121,533 | $ | 1 | $ | (51 | ) | $ | 121,483 |
| $ | 175,124 |
|
| $ | — |
|
| $ | (198 | ) |
| $ | 174,926 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Classified as: Cash equivalents | $ | 9,746 | ||||||||||||||||||||||||||||||
Classified as: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 26,030 |
| ||||||||||||||||
Short-term investments | 105,740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 148,896 |
| |||||||||||||||
Long-term investments | 5,997 | |||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||
Totalavailable-for-sale securities | $ | 121,483 |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 174,926 |
| ||||||||||||||
|
CHEMOCENTRYX, INC.
Notes to Consolidated Financial Statements (continued)
Cash equivalents in the tables above exclude cash of $3.2$8.9 million and $2.3$2.1 million as of December 31, 20172019 and 2016,2018, respectively. Allavailable-for-sale securities held as of December 31, 2017,2019 had contractual maturities of less than two years. There have been no significant realized gains or losses onavailable-for-sale securities for the periods presented. The Company applies the specific identification method to determine the cost basis of the securities sold. Noavailable-for-sale securities held as of December 31, 20172019 have been in a continuous unrealized loss position for more than 12 months. As of December 31, 2017,2019, unrealized losses onavailable-for-sale investments are not attributed to credit risk and are considered to be temporary. The Company believes that it ismore-likely-than-not that investments in an unrealized loss position will be held until maturity or the recovery of the cost basis of the investment. The Company believes it has no other-than-temporary impairments on its securities because it does not intend to sell these securities and it believes it is not more likely than not that it will be required to sell these securities before the recovery of their amortized cost basis. To date, the Company has not recorded any impairment charges on marketable securities related to other-than-temporary declines in market value.
F-16
4. | Fair Value Measurements |
The Company determines the fair value of financial assets and liabilities using three levels of inputs as follows:
Level 1—Inputs which include quoted prices in active markets for identical assets and liabilities.
Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The Company’s financial assets and liabilities subject to fair value measurements on a recurring basis and the level of inputs used in such measurements arewere as follows as of December 31, 20172019 and 20162018 (in thousands):
December 31, 2017 | ||||||||||||||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total |
| December 31, 2019 |
| ||||||||||||||||||||||||||
Description |
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||||||||||||||||||
Money market fund | $ | 29,848 | $ | — | $ | — | $ | 29,848 |
| $ | 30,353 |
|
| $ | — |
|
| $ | — |
|
| $ | 30,353 |
| ||||||||
U.S. treasury securities | — | 28,953 | — | 28,953 |
|
| — |
|
|
| 40,292 |
|
|
| — |
|
|
| 40,292 |
| ||||||||||||
Commercial paper | — | 46,184 | — | 46,184 |
|
| — |
|
|
| 12,429 |
|
|
| — |
|
|
| 12,429 |
| ||||||||||||
Asset-backed securities |
|
| — |
|
|
| 25,486 |
|
|
| — |
|
|
| 25,486 |
| ||||||||||||||||
Corporate debt securities | — | 27,028 | — | 27,028 |
|
| — |
|
|
| 84,826 |
|
|
| — |
|
|
| 84,826 |
| ||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Total assets | $ | 29,848 | $ | 102,165 | $ | — | $ | 132,013 |
| $ | 30,353 |
|
| $ | 163,033 |
|
| $ | — |
|
| $ | 193,386 |
| ||||||||
|
|
|
| |||||||||||||||||||||||||||||
December 31, 2016 | ||||||||||||||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||||||||||||
Description | ||||||||||||||||||||||||||||||||
Money market fund | $ | 9,746 | $ | — | $ | — | $ | 9,746 | ||||||||||||||||||||||||
U.S. treasury securities | — | 49,672 | — | 49,672 | ||||||||||||||||||||||||||||
Commercial paper | — | 16,183 | — | 16,183 | ||||||||||||||||||||||||||||
Corporate debt securities | — | 45,882 | — | 45,882 | ||||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
Total assets | $ | 9,746 | $ | 111,737 | $ | — | $ | 121,483 | ||||||||||||||||||||||||
|
|
|
|
CHEMOCENTRYX, INC.
Notes to Consolidated Financial Statements (continued)
|
| December 31, 2018 |
| |||||||||||||
Description |
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Money market fund |
| $ | 22,073 |
|
| $ | — |
|
| $ | — |
|
| $ | 22,073 |
|
U.S. treasury securities |
|
| — |
|
|
| 23,000 |
|
|
| — |
|
|
| 23,000 |
|
Commercial paper |
|
| — |
|
|
| 45,683 |
|
|
| — |
|
|
| 45,683 |
|
Asset-backed securities |
|
| — |
|
|
| 29,093 |
|
|
| — |
|
|
| 29,093 |
|
Corporate debt securities |
|
| — |
|
|
| 55,077 |
|
|
| — |
|
|
| 55,077 |
|
Total assets |
| $ | 22,073 |
|
| $ | 152,853 |
|
| $ | — |
|
| $ | 174,926 |
|
During the year ended December 31, 20172019 there were no transfers between Level 1 and Level 2 financial assets. When the Company uses observable market prices for identical securities that are traded in less active markets, the Company classifies its marketable debt instruments as Level 2. When observable market prices for identical securities are not available, the Company prices its marketable debt instruments usingnon-binding market consensus prices that are corroborated with observable market data; quoted market prices for similar instruments; or pricing models, such as a discounted cash flow model, with all significant inputs derived from or corroborated with observable market data.Non-binding market consensus prices are based on the proprietary valuation models of pricing providers or brokers. These valuation models incorporate a number of inputs, includingnon-binding and binding broker quotes; observable market prices for identical or similar securities; and the internal assumptions of pricing providers or brokers that use observable market inputs and, to a lesser degree, unobservable market inputs. The Company corroboratesnon-binding market consensus prices with observable market data using statistical models when observable market data exists. The discounted cash flow model uses observable market inputs, such as LIBOR-based yield curves, currency spot and forward rates, and credit ratings.
F-17
4. | Fair Value Measurements (continued) |
Other Fair Value Measurements
The carrying amount and estimated fair value of financial instruments not recorded at fair value at December 31, 2019 and 2018 were as follows (in thousands):
|
| December 31, |
|
| December 31, |
| ||||||||||
|
| 2019 |
|
| 2018 |
| ||||||||||
|
| Carrying Amount |
|
| Estimated Fair Value |
|
| Carrying Amount |
|
| Estimated Fair Value |
| ||||
Long-term debt, net (1) |
| $ | 19,786 |
|
| $ | 20,253 |
|
| $ | 19,689 |
|
| $ | 19,847 |
|
(1) | Carrying amounts of long-term debt were net of unamortized debt discounts of $214,000 and $311,000 as of December 31, 2019 and 2018, respectively. |
The fair value of the Company's long-term debt is estimated using the net present value of future debt payments, discounted at an interest rate that is consistent with market interest rates, which is a Level 2 input.
5. | Property and Equipment |
Property and equipment consist of the following (in thousands):
December 31, |
| December 31, |
| |||||||||||||
2017 | 2016 |
| 2019 |
|
| 2018 |
| |||||||||
Lab equipment | $ | 5,897 | $ | 5,950 |
| $ | 6,747 |
|
| $ | 6,263 |
| ||||
Computer equipment and software | 1,688 | 1,511 |
|
| 1,865 |
|
|
| 1,809 |
| ||||||
Furniture and fixtures | 551 | 528 |
|
| 552 |
|
|
| 554 |
| ||||||
Tenant improvements | 893 | 866 |
|
| 1,607 |
|
|
| 1,030 |
| ||||||
|
|
|
| 10,771 |
|
|
| 9,656 |
| |||||||
9,029 | 8,855 | |||||||||||||||
Less: accumulated depreciation | (7,819 | ) | (7,950 | ) |
|
| (8,617 | ) |
|
| (8,120 | ) | ||||
|
|
| $ | 2,154 |
|
| $ | 1,536 |
| |||||||
$ | 1,210 | $ | 905 | |||||||||||||
|
|
6. | Accrued Liabilities |
Accrued liabilities consist of the following (in thousands):
December 31, |
| December 31, |
| |||||||||||||
2017 | 2016 |
| 2019 |
|
| 2018 |
| |||||||||
Research and development related | $ | 4,962 | $ | 5,482 |
| $ | 13,100 |
|
| $ | 8,466 |
| ||||
Compensation related | 2,345 | 2,460 |
|
| 3,608 |
|
|
| 2,767 |
| ||||||
Consulting and professional services | 1,012 | 421 |
|
| 1,094 |
|
|
| 811 |
| ||||||
Current portion of operating lease liability |
|
| 1,503 |
|
|
| — |
| ||||||||
Other | 256 | 282 |
|
| 501 |
|
|
| 925 |
| ||||||
|
|
| $ | 19,806 |
|
| $ | 12,969 |
| |||||||
$ | 8,575 | $ | 8,645 | |||||||||||||
|
|
F-18
7. | Long-term Debt |
On December 28, 2017 (the Closing Date), the Company entered into a Loan and Security Agreement (the Credit Agreement) with Hercules Capital, Inc. (Hercules) which the Company amended in December 2018, pursuant to which term loans in an aggregate principal amount of up to $50.0 million (the Credit Facility) arewere available to the Company in three tranches, subject to certain terms and conditions. Under the first tranche,As of December 31, 2019, the Company may borrow through June 2018 an amount up to $15.0had borrowed $20.0 million of which $5.0 million was advanced to the Company on the Closing Date. Upon satisfaction of
CHEMOCENTRYX, INC.
Notes to Consolidated Financial Statements (continued)
certain terms and conditions, the second tranche is available under the Credit Facility which would allowand the Company to borrow an additionalremaining available amount up to $10.0 million through December 15, 2018. The third tranche, which would allow the Company to borrow an additional $25.0 million, would be available upon Hercules’ approval through June 15, 2019.had expired.
Advances under the Credit Facility will bear an interest rate equal to the greater of either (i) 8.05% plus the prime rate as reported from time to time in The Wall Street Journal minus 4.75%, and (ii) 8.05%. At December 31, 2019, the interest rate on the outstanding borrowings under the Credit Facility was 8.05%. For advances made under the first tranche,and second tranches, the Company will make interest-only payments through January 1, 2020, extended to July 1, 2020 upon satisfaction of certain milestones,2021, and will then repay the principal balance and interest on the advances in equal monthly installments after the interest-only period and continuing through December 1, 2021. For advances made under the second and third tranches, the Company will make interest only payments in the first 24 months, extended to 30 months upon satisfaction of certain conditions, and will then repay the principal balance and interest on the advances in equal monthly installments after the interest only period with the entire term loan advances repaid 48 months after the advance under the applicable tranche is drawn.2022.
The Company may prepay advances under the Credit Agreement,Facility, in whole or in part, at any time, subject to a prepayment charge equal to: (a) 2.0% of amounts so prepaid, if such prepayment occurs during the first year following the Closing Date; (b) 1.5% of the amount so prepaid, if such prepayment occurs during the second year following the Closing Date; and (c)(b) 1.0% of the amount so prepaid, if such prepayment occurs after the second year following the Closing Date. The Credit Facility is secured by substantially all of the Company’s assets, excluding intellectual property.
In addition, Hercules has the right to participate, in an amount up to $2.0 million, in any subsequent equity financing broadly marketed to multiple investors in an amount greater than $20.0 million. The Credit Facility also includes customary affirmative restrictions on the payment of dividends and negative covenants, and events of default, the occurrence and continuance of which provide Hercules with the right to demand immediate repayment of all principal and unpaid interest under the Credit Facility, and to exercise remedies against the Company and the collateral securing the Credit Facility. The Company was in compliance with all loan covenants as of December 31, 2017.for all periods presented.
The Company will pay anend-of-term charge for each tranche it draws down, which will occur on the earliest of (i) the applicable tranche maturity date; (ii) the date that the Company prepays all of the outstanding principal under eachsuch tranche in full, or (iii) the date the loan payments are accelerated due to an event of default. For the first tranche,and second tranches, the end of term charge is the greater of (a) 6.25% of the aggregate amount of the advanceswill be $0.9 million and (b) 6.25% of the aggregate amount of the advances plus 50% of the unfunded portion of the first tranche. In the case of the second and third tranches, the charge is 6.25% of the aggregate amount of the advances applicable to such tranche.$0.3 million, respectively.
In addition, the Company payspaid a commitment charge of 1% of the advances made under the Credit Facility, with a minimum charge of $162,500 paid on the Closing Date. Also, the Company reimbursed Hercules for costs incurred related to the Credit Agreement.Facility. These charges were recorded as discounts to the carrying value of the loan and are amortized over the term of the loan using the effective interest method. Amortization
F-19
Table of the debt discounts were immaterial for the year ended December 31, 2017.
CHEMOCENTRYX, INC.
Notes to Consolidated Financial Statements (continued)
7. | Long-term Debt (continued) |
As of December 31, 2017,2019, the Company had outstanding borrowings under the Credit AgreementFacility of $4.7$19.8 million, net of discounts of $0.3$0.2 million.
Future minimum principal payments, which exclude the end of term charge, related to the Credit AgreementFacility as of December 31, 20172019 are as follows (in thousands):
Amounts |
| Amounts |
| |||||
Year ending December 31: |
|
|
|
| ||||
2018 | $ | — | ||||||
2019 | — | |||||||
2020 | 2,394 |
| $ | — |
| |||
2021 | 2,606 |
|
| 6,389 |
| |||
| ||||||||
2022 |
|
| 13,611 |
| ||||
Total minimum payments | 5,000 |
|
| 20,000 |
| |||
Less current portion | — | |||||||
| ||||||||
Noncurrent portion | $ | 5,000 | ||||||
| ||||||||
Less: amount representing debt discount |
|
| (214 | ) | ||||
Present value of remaining debt payments |
|
| 19,786 |
| ||||
Less: current portion |
|
| — |
| ||||
Non-current portion |
| $ | 19,786 |
|
8. | Commitments |
Operating Leases
As described further in “Note 2. Summary of Significant Accounting Policies”, the Company adopted Topic 842 as of January 1, 2019. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.
In May 2004, the Company entered into a noncancelable operating lease for its current office and primary research facility located in Mountain View, California. The Company received a discounted lease rate during the first year of the agreement. In August 2012, the Company entered into an amendment to the lease agreement for the same facility to extend the term through April 2019. In April 2017, the Company entered into a second amendment to the lease agreement for the same facility to extend the term of the lease through April 2020. The total rent obligation is being expensed ratably overIn May 2019, the Company entered into a third amendment to the lease agreement for the same facility to extend the term of the agreement,lease through April 2021.
The balance sheet classification of the Company’s operating lease liabilities was as amended. Rentalfollows (in thousands):
|
| December 31, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
Accrued and other current liabilities (1) |
| $ | 1,503 |
|
| $ | 244 |
|
Other non-current liabilities (2) |
|
| 566 |
|
|
| 143 |
|
Total lease liabilities |
| $ | 2,069 |
|
| $ | 387 |
|
(1) | Includes current portion of operating lease liabilities as of December 31, 2019 and deferred rent as of December 31, 2018. |
(2) | Includes non-current portion of operating lease liabilities as of December 31, 2019 and deferred rent as of December 31, 2018. |
F-20
8. | Commitments (continued) |
The component of lease costs, which was included in operating expenses in the Company’s Consolidated Statements of Operations, was as follows (in thousands):
|
| Year Ended December 31, |
| |||||||||
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||
Operating lease cost |
| $ | 1,295 |
|
| $ | 1,072 |
|
| $ | 1,013 |
|
Cash paid for amounts included in the measurement of lease liabilities for the yearsyear ended December 31, 2017, 2016, and 2015 were2019 was $1.3 million $1.2 million and $1.1 million, respectively.was included in net cash used in operating activities in the Company’s Consolidated Statements of Cash Flows.
Future minimum lease payments under all noncancelable operating leases as of December 31, 2017,2019, are as follows (in thousands):
Amounts | ||||
Year ending December 31: | ||||
2018 | $ | 937 | ||
2019 | 1,316 | |||
2020 | 500 | |||
|
| |||
Total minimum lease payments | $ | 2,753 | ||
|
|
|
| Operating leases |
| |
Year ending December 31: |
|
|
|
|
2020 |
| $ | 1,659 |
|
2021 |
|
| 579 |
|
Total minimum payments |
|
| 2,238 |
|
Less: interest |
|
| (169 | ) |
Present value of lease liabilities |
| $ | 2,069 |
|
Bio-TechneAs of December 31, 2019, the weighted-average remaining lease term was 1.3 years and the weighted-average operating discount rate used to determine the operating lease liability was 11.0%.
Bio-Techne Corporation, formerly Techne Corporation, oneIn July 2019, the Company entered into a ten-year operating lease for a 96,463 square foot facility in San Carlos, California to replace its current headquarters located in Mountain View, California, for which the lease expires in April 2021. Upon execution of the Company’s principal stockholders,lease agreement, the Company provided the landlord an approximately $1.1 million security deposit in the form of a letter of credit. Subject to certain conditions pursuant to the lease, the Company anticipates the lease commencement date to occur in the third quarter of 2020 and monthly rent payments to begin in the second quarter of 2021. Following a six-month period of discounted rent, the Company will pay an initial annual base rent at a rate of approximately $6.5 million, which is subject to scheduled 3% annual increases, plus certain operating expenses. The Company has been provided a tenant improvement allowance of $15.4 million plus an additional allowance of up to $4.8 million for the same. If the additional allowance is provided, such amount will be repaid by the Company as additional rent in equal monthly payments at a rate of 7% per annum through the initial term of the lease. The Company has the right to sublease the facility, subject to landlord consent. The Company also has the option to extend the lease for five years.
9. | Related Party Transactions |
Vifor
Vifor held 6,385,05610,676,825 shares of the Company’s common stock as of December 31, 2017. In connection2019. The Company has collaboration agreements with Vifor: the Company’s initial public offering (IPO) in February 2012,Bio-Techne received a warrant with aten-year term to purchase 150,000 sharesAvacopan Agreements and the CCX140 Agreements (each as described below). See “Note 2. Summary of the Company’s common stock at an exercise price per share equal to $20.00 per share, or 200%Significant Accounting Policies – Concentration of the IPO priceCredit Risk” for additional information on accounts receivable balance due from Vifor.
F-21
Table of its common stock, which was outstanding as of December 31, 2017 and 2016.
CHEMOCENTRYX, INC.
Notes to Consolidated Financial Statements (continued)
9. |
|
For the years ended December 31, 2017, 2016, and 2015, the Company paidBio-Techne $96,000, $114,000 and $62,000, respectively, for research materials. As of December 31, 2017 and 2016, the Company had an accounts payable balance due toBio-Techne for the purchase of research materials of $6,000 and $25,000, respectively.
Avacopan Agreements
In May 2016, the Company entered into an exclusive collaboration and license agreement with Vifor pursuant to which the Company granted Vifor exclusive rights to commercialize avacopan in Europe and certain other markets (the Avacopan Agreement). Avacopan is the Company’s lead drug candidate for the treatment of patients with anti-neutrophil cytoplasmic auto-antibody associated vasculitis (ANCA vasculitis) and other rare diseases. The Company retained control of ongoing and future development of avacopan (other than country-specific development in the licensed territories) and all commercialization rights to avacopan in the United States and China. The Avacopan Agreement also provided Vifor with an exclusive option to negotiate during 2016 a worldwide license agreement for one of the Company’s other drug candidates, CCX140, an orally-administered inhibitor of the chemokine receptor known as CCR2.
In connection with the Avacopan Agreement, the Company received anon-refundable upfront payment of $85.0 million, comprising $60.0 million in cash and $25.0 million in the form of an equity investment to purchase 3,333,333 shares of the Company’s common stock at a price of $7.50 per share. The $85.0 million upfront consideration was initially allocated as of June 30, 2016 as follows:
$7.0 million for the issuance of 3,333,333 shares of the Company’s common stock valued at $2.10 per share, the closing stock price on the effective date of the agreement, May 9, 2016.
$12.5 million, which was creditable against an upfront fee payable by Vifor, should the parties enter into a worldwide license agreement for CCX140. The amount creditable decreased ratably into the fourth quarter of 2016. In October 2016, the amount creditable expired and was reclassified to the amortizable portion of deferred revenue as discussed below.
The remaining upfront consideration of $65.5 million will be recognized over the estimated period of performance under the Avacopan Agreement, which was initially estimated to approximate 4.2 years, ending in June 2020. The deliverables under the Avacopan Agreement consist of intellectual property licenses, development and regulatory services for the submission of the Marketing Authorization Application (MAA). The Company considered the provisions of the revenue recognition multiple-element arrangement guidance and concluded that the license and the development and regulatory activities for the submission of the MAA do not have stand-alone value because the rights conveyed do not permit Vifor to perform all efforts necessary to use the Company’s technology to bring the compound through development and, upon regulatory approval, commercialization of the compound. Accordingly, the Company combined these deliverables and allocated the remaining upfront consideration of $65.5 million into a single unit of accounting.
Following the October 2016 expiration of the $12.5 million potentially creditable towards a CCX140 license agreement, such amount was reclassified to the amortizable portion of deferred revenue, which continues to be recognized over the estimated period of performance under the Avacopan Agreement.
CHEMOCENTRYX, INC.
Notes to Consolidated Financial Statements (continued)
In February 2017, Vifor and the Company expanded the Vifor territories under the Avacopan Agreement to include all markets outside the United States and China (the Avacopan Amendment). In connection with this February 2017 arrangement, the Company received a $20.0 million upfront payment for the expanded rights. In June 2018, Vifor and the Company further expanded the Vifor territories under the Avacopan Agreement to provide Vifor with exclusive commercialization rights in China (the Avacopan Letter Agreement, and together with the Avacopan Agreement and the Avacopan Amendment, the Avacopan Agreements). The Company retains control of ongoing and future development of avacopan (other than country-specific development in the licensed territories), and all commercialization rights to avacopan in the United States and China.States. In connection with this arrangement,consideration for the Avacopan Letter Agreement, the Company received a $20.0$5.0 million upfront cash commitmentpayment for the expanded rights, $10.0 million of which was received in February 2017. The remaining $10.0 million is due in February 2018 and is not reflected in accounts receivable as of December 31, 2017. The February 2017 Avacopan Amendment and the original May 2016 Avacopan Agreement are accounted for as a combined agreement. The February 2017 Avacopan Amendment did not represent a material modification given, among other factors, there were no changes to the Company’s deliverables under the arrangement. As such, the additional upfront commitment of $20.0 million under the Avacopan Amendment will be recognized over the remaining estimated period of performancerights.
In the fourth quarter of 2017, the Company changed its estimated period of performance from 4.2 years to 5.4 years and is recognizing the remaining unamortized portion of the upfront payment over the revised expected remaining performance period, which is estimated to end in September 2021.
For the years ended December 31, 2017 and 2016, the Company recognized $72.5 million and $11.4 million, respectively, of collaboration and license revenue under the Avacopan Agreement and the Avacopan Amendment. In December 2017, the Company recognized $50.0 million of revenue upon achievement of a regulatory milestone when the European Medicines Agency validated the Company’s Conditional MAA for avacopan for the treatment of anti-neutrophil cytoplasmic auto-antibody-associated vasculitis. This amount was recorded as accounts receivable as of December 31, 2017.
Upon achievement of certain regulatory and commercial milestones with avacopan, the Company will receive additional payments of up to $460.0 million under the Avacopan Agreement. In addition, the Company will receive royalties, with rates ranging from the low teens to themid-twenties, on future potential net sales of avacopan by Vifor in the licensed territories. In December 2017, the Company achieved a $50.0 million regulatory milestone when the European Medicines Agency (EMA) validated the Company’s conditional marketing authorization (CMA) application for avacopan for the treatment of ANCA vasculitis.
The Company identified the following material promises under the Avacopan Agreements: (1) the license related to avacopan; (2) the development and regulatory services for the submission of the marketing authorization application (MAA); and (3) an exclusive option to negotiate a worldwide license agreement for CCX140, Agreementwhich expired in 2016. The Company considered that the license has standalone functionality and is capable of being distinct. However, the Company determined that the license is not distinct from the development and regulatory services within the context of the agreement because Vifor is dependent on the Company to execute the development and regulatory activities in order for Vifor to benefit from the license. As such, the license is combined with the development and regulatory services into a single performance obligation. The exclusive option related to CCX140 is a separate performance obligation and the Company determined that its transaction price is not material. As such, the transaction price under this arrangement is allocated to the license and the development and regulatory services.
As of December 31, 2019, the transaction price of $153.0 million consists of the following:
$78.0 million upfront payment under the May 2016 Avacopan Agreement. Of the total $85.0 million upfront payment received under the May 2016 Avacopan Agreement, $7.0 million was allocated to the issuance of 3,333,333 shares of the Company’s common stock valued at $2.10 per share, the closing stock price on the effective date of the agreement, May 9, 2016. The remaining $78.0 million was allocated to the transaction price under this arrangement;
$20.0 million upfront payment under the February 2017 Avacopan Amendment;
F-22
9. | Related Party Transactions (continued) |
$50.0 million regulatory milestone payment achieved upon the validation of the Company’s CMA application by the EMA, for avacopan for the treatment of ANCA vasculitis in December 2017; and
$5.0 million non-refundable upfront payment under the Avacopan Letter Agreement.
The Company will re-evaluate the transaction price in each reporting period and as uncertain events are resolved or other changes in circumstances occur.
The Company determined that the combined performance obligation will be performed over the duration of the contract, which began on the effective date of May 9, 2016 and ends upon completion of development and regulatory services. The Company uses a cost-based input method to measure proportional performance and to calculate the corresponding amount of revenue to recognize. The Company believes this is the best measure of progress because other measures do not reflect how the Company transfers its performance obligation to Vifor. In applying the cost-based input method of revenue recognition, the Company measures 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 the Company completes its performance obligations.
For the years ended December 31, 2019 and 2018, the Company recognized $29.5 million and $37.1 million of collaboration and license revenue under the Avacopan Agreements, respectively. Prior to the adoption of ASC 606 on January 1, 2018, the Company accounted for its performance obligations under the Avacopan Agreements as one combined unit of accounting with the upfront fees being recognized over the estimated period of performance. See “Note 10. Collaboration and License Agreements – Avacopan Agreements” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, filed with the SEC on March 12, 2018, for further discussion. For the year ended December 31, 2017, the Company recognized $72.5 million of collaboration and license revenue under the Avacopan Agreements under ASC 605.
CCX140 Agreements
In December 2016, the Company entered into a second collaboration and license agreement with Vifor pursuant to which the Company granted Vifor exclusive rights to commercialize CCX140 (the CCX140 Agreement) in markets outside the United States and China. CCX140 is an orally-administered inhibitor of the chemokine receptor known as CCR2. The Company retains marketing rights in the United States and China, while Vifor has commercialization rights in the rest of the world. Pursuant to the CCX140 Agreement, the Company will beis responsible for the clinical development of CCX140 in rare renal diseases and will beis reimbursed for Vifor’s equal share of such development cost. Vifor retains an option to solely develop and commercialize CCX140 in more prevalent forms of chronic kidney disease (CKD). Should Vifor later exercise the CKD option, the Company would receiveco-promotion rights infor CKD in the United States.
Under the terms of the CCX140 Agreement, the Company received anon-refundable upfront commitmentpayment of $50.0 million allin 2017.
In June 2018, the Company and Vifor entered into a letter agreement to expand Vifor’s rights to include the right to exclusively commercialize CCX140 in China (the CCX140 Letter Agreement). In connection with the CCX140 Letter Agreement, the Company received a non-refundable payment of which was received in 2017.$5.0 million. The deliverables underCompany and Vifor also entered into an amendment to the CCX140 Agreement consist of intellectual property licenses, development(the CCX140 Amendment, and regulatory services for the submission of the MAA. The Company considered the provisions of the revenue recognition multiple-element arrangement guidance and concluded that the license and the development and regulatory activities for the submission of the MAA do not have stand-alone value because the rights conveyed do not permit Vifor to perform all efforts necessary to use
CHEMOCENTRYX, INC.
Notes to Consolidated Financial Statements (continued)
the Company’s technology to bring the compound through development and, upon regulatory approval, commercialization of the compound. Accordingly, the Company combined these deliverables and allocated the upfront consideration of $50.0 million into a single unit of accounting. The upfront commitment of $50.0 million will be recognized over the estimated period of performance undertogether with the CCX140 Agreement which was initially estimatedand the CCX140 Letter Agreement, the CCX140 Agreements) to approximate 5.0 years, ending in December 2021. Inclarify the fourth quartertiming of 2017,certain payments with respect to development funding of the CCX140 program by Vifor, and the Company changed its estimated periodreceived a non-refundable payment of performance from 5.0 years to 8.0 years$11.5 million. The Company retains control of ongoing and is recognizing the remaining unamortized portion of the upfront payment over the revised expected remaining performance period, which was estimated to end in December 2024.
For the year ended December 31, 2017, the Company recognized $10.0 million of collaboration and license revenue under the CCX140 Agreement, of which $9.0 million was associated with the recognition of upfront commitment. The remaining amount represented collaboration revenue derived from fundingfuture development of CCX140 (other than country-specific development services from Vifor. in the licensed territories), and all commercialization rights to CCX140 in the United States.
Upon achievement of certain regulatory and commercial milestones with CCX140, the Company will receive additional payments of up to $625.0 million under the CCX140 Agreement.Agreements. In addition, the Company will receive tiered royalties, with rates ranging from ten to themid-twenties, on net sales of CCX140 in the licensed territories.
UnderF-23
9. | Related Party Transactions (continued) |
The Company identified the Avacopan Agreement andfollowing material promises under the CCX140 Agreement,Agreements: (1) the license related to CCX140; and (2) the development and regulatory services for the submission of the MAA. The Company considered that the license has standalone functionality and is capable of being distinct. However, the Company determined that future contingent payments relatedthe license is not distinct from the development and regulatory services within the context of the agreement because Vifor is dependent on the Company to execute the development and regulatory milestones meetactivities in order for Vifor to benefit from the definitionlicense. As such, the license is combined with the development and regulatory services into a single performance obligation.
As of a substantive milestoneDecember 31, 2019, the transaction price of $113.7 million consists of the following:
$50.0 million upfront payment under the accounting guidance. Accordingly, revenue forCCX140 Agreement;
$58.7 million of CCX140 development funding by Vifor; and
$5.0 million non-refundable upfront payment under the achievement of these milestones will be recognized in the period when the milestone is achieved. CCX140 Letter Agreement.
The Company will re-evaluate the transaction price in each reporting period and as uncertain events are resolved or other changes in circumstances occur.
The Company determined that the combined performance obligation will be eligibleperformed over the duration of the contract, which began on the effective date of December 22, 2016 and ends upon completion of development and regulatory services. The Company uses a cost-based input method to receive contingent payments relatedmeasure proportional performance and to commercial milestonescalculate the corresponding amount of revenue to recognize. The Company believes this is the best measure of progress because other measures do not reflect how the Company transfers its performance obligation to Vifor. In applying the cost-based input method of revenue recognition, the Company measures 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 the Company completes its performance obligations. For the years ended December 31, 2019 and 2018, the Company recognized $6.4 million and $5.8 million of Viforcollaboration and these payments are not considered to be milestoneslicense revenue under the CCX140 Agreements, respectively.
Prior to the adoption of ASC 606 on January 1, 2018, the Company accounted for its performance obligations under the CCX140 Agreements as one combined unit of accounting guidance. These contingent commercial milestone payments will be includedwith the upfront fee of $50.0 million being recognized over the estimated period of performance. See “Note 10. Collaboration and License Agreements – CCX140 Agreement” in the allocationCompany’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, filed with the SEC on March 12, 2018, for further discussion. For the year ended December 31, 2017, the Company recognized $10.0 million of arrangement consideration ifcollaboration and when achieved, resulting in an accounting treatment similarlicense revenue under the CCX140 Agreement under ASC 605.
The following table presents the contract assets and liabilities for all of the Company’s revenue contracts as of the following dates (in thousands):
|
| December 31, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
Contract asset: |
|
|
|
|
|
|
|
|
Accounts receivable |
| $ | — |
|
| $ | 2,058 |
|
Contract liability: |
|
|
|
|
|
|
|
|
Deferred revenue |
|
| (100,837 | ) |
|
| (134,561 | ) |
F-24
9. | Related Party Transactions (continued) |
During the upfront payment. Theyear ended December 31, 2019, the Company expects to recognize royaltyrecognized the following revenue as a result of changes in the period of sale of the related product, based on the underlying contract terms. The Avacopan Agreementasset and the CCX140 Agreement are accounted for as separate arrangements.contract liability balances (in thousands):
|
| Year Ended December 31, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
Revenue recognized in the period from: |
|
|
|
|
|
|
|
|
Amount included in contract liability at the beginning of the period |
| $ | 35,781 |
|
| $ | 39,815 |
|
Performance obligations satisfied (or partially satisfied) in previous periods |
| $ | (2,251 | ) |
| $ | (3,357 | ) |
10. | Government Grant |
In April 2016,September 2019, the Company was awarded an Orphan Products Developmenta two-year $1.0 million grant byfrom the orphan drug office of the U.S. Food and Drug Administration to support the clinical development of avacopan in patients with the amountrare kidney disease complement 3 glomerulopathy. The Company recognized $0.2 million of $500,000, which was fully recognized during the year endedgrant revenue in 2019. As of December 31, 2016. The term of the grant expired in May 2017.2019, $0.2 million was recorded as accounts receivable.
11. | Stockholders’ Equity |
Equity Incentive Plans
In May 2002, the stockholders approved the Amended and Restated 1997 Stock Option/Stock Issuance Plan (the 1997 Plan) and in September 2002, the stockholders approved the 2002 Equity Incentive Plan (the 2002 Plan). In February 2012, the stockholders approved the 2012 Equity Incentive Award Plan (the 2012 Plan). As of December 31, 2017,2019, a total of 11,500,00015,440,000 shares of the Company’s common stock were reserved for issuance under the 2012 Plan. In addition, the number of shares available for issuance under the 2012 Plan will be annually increased by an amount equal to the lesser of: 2,000,000 shares; 4% of the outstanding shares of the Company’s common stock as of the last day of the Company’s immediately preceding fiscal year; or an amount determined by the Company’s Board of Directors. In October 2017,2019, the Board of Directors approved an increase to the number of shares reserved for issuance under the 2012 Plan by 1,940,0002,000,000 shares effective January 1, 2018.2020. Collectively, the 1997 Plan, the 2002 Plan and the 2012 Plan are known as the Stock Plans.
CHEMOCENTRYX, INC.
Notes to Consolidated Financial Statements (continued)
Restricted Stock
Restricted Stock Awards (RSAs) and Restricted Stock Units (RSUs) are independent of stock option grants and are not transferrable, and are subject to forfeiture if recipients terminate their service to the Company prior to the release of the vesting restrictions. RSUs granted to employees generally vest over a period of three years. RSUs and RSAs granted to its nonemployee directors vest over aone-year period, or over a three-year period in the case of an initial grant pursuant to the Company’sNon-Employee Director Compensation Policy (Directors Plan). In the case of a change in control, RSUs and RSAs granted to nonemployee directors will vest in full. RSUs and RSAs are valued at the closing price of the Company’s common stock on the date of grant. During the years ended December 31, 20162018 and 2015,2017, the weighted averageweighted-average grant date fair value for restricted stock granted was $4.48$11.32 and $7.88,$6.72, respectively. The total fair value of restricted stock vested during the years ended December 31, 2019, 2018 and 2017 2016was $3.1 million, $2.4 million and 2015 was $1.7 million, $0.2 million and $1.0 million, respectively.
F-25
11. | Stockholders’ Equity (continued) |
The activity for restricted stock is summarized as follows:
| Shares |
|
| Weighted- Average Grant-Date Fair Value |
| |||||||||||
Shares | Weighted Average Grant-Date Fair Value | |||||||||||||||
Balance at December 31, 2016 | 471,650 | $ | 4.60 | |||||||||||||
Balance at December 31, 2018 | Balance at December 31, 2018 |
| 467,632 |
|
| $ | 8.47 |
| ||||||||
Granted | 279,738 | 6.72 |
|
| 229,821 |
|
|
| 11.54 |
| ||||||
Vested | (229,610 | ) | 4.60 |
|
| (290,963 | ) |
|
| 7.99 |
| |||||
Canceled | (13,334 | ) | 3.57 |
|
| (6,667 | ) |
|
| — |
| |||||
| ||||||||||||||||
Unvested at December 31, 2017 | 508,444 | $ | 5.79 | |||||||||||||
| ||||||||||||||||
Unvested at December 31, 2019 | Unvested at December 31, 2019 |
| 399,823 |
|
| $ | 10.54 |
|
As of December 31, 2017,2019, there was $1.7$2.0 million of unrecognized compensation expense associated with unvested restricted stock, which is expected to be recognized over a weighted-average period of 1.41.5 years.
Stock Options
Under the Stock Plans, incentive stock options may be granted by the Board of Directors to employees at exercise prices of not less than 100% of the fair value at the date of grant. Nonstatutory options may be granted by the Board of Directors to employees, officers, and directors of the Company or consultants at exercise prices of not less than 85% of the fair value of the common stock on the date of grant. The fair value at the date of grant is determined by the Board of Directors. Under the Stock Plans, options may be granted with different vesting terms from time to time, but not to exceed 10 years from the date of grant. Outstanding options generally vest over four years, with 25% of the total grant vesting on the first anniversary of the option grant date and 1/36th of the remaining grant vesting each month thereafter.
CHEMOCENTRYX, INC.
Notes to Consolidated Financial Statements (continued)
The following table summarizes stock option activity and related information under the Company’s Stock Plans:
Available for Grant | Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value | ||||||||||||||||
Balance at December 31, 2016 | 1,655,524 | 9,345,515 | $ | 7.72 | ||||||||||||||||
Shares authorized | 1,900,000 | — | ||||||||||||||||||
Granted(1) | (2,212,138 | ) | 1,932,400 | 6.80 | ||||||||||||||||
Exercised(2) | 58,967 | (461,151 | ) | 5.84 | ||||||||||||||||
Forfeited and expired(3) | 626,527 | (613,193 | ) | 7.03 | ||||||||||||||||
|
|
|
| |||||||||||||||||
Outstanding at December 31, 2017 | 2,028,880 | 10,203,571 | $ | 7.68 | 6.19 | $ | 3,773,137 | |||||||||||||
|
|
|
| |||||||||||||||||
Vested and expected to vest, net of estimated forfeiture at December 31, 2017 | 9,967,860 | $ | 7.72 | 6.13 | $ | 3,636,358 | ||||||||||||||
|
| |||||||||||||||||||
Exercisable at December 31, 2017 | 7,099,052 | $ | 8.37 | 5.10 | $ | 1,798,555 | ||||||||||||||
|
|
|
| Available for Grant |
|
| Shares |
|
| Weighted Average Exercise Price |
|
| Weighted Average Remaining Contractual Term (in years) |
|
| Aggregate Intrinsic Value |
| |||||
Balance at December 31, 2018 |
|
| 1,708,516 |
|
|
| 10,720,200 |
|
| $ | 8.39 |
|
|
|
|
|
|
|
|
|
Shares authorized |
|
| 2,000,000 |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted (1) |
|
| (2,531,063 | ) |
|
| 2,301,242 |
|
|
| 11.69 |
|
|
|
|
|
|
|
|
|
Exercised (2) |
|
| 125,526 |
|
|
| (2,850,642 | ) |
|
| 7.74 |
|
|
|
|
|
|
|
|
|
Forfeited and expired (3) |
|
| 889,566 |
|
|
| (882,899 | ) |
|
| 7.97 |
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2019 |
|
| 2,192,545 |
|
|
| 9,287,901 |
|
| $ | 9.44 |
|
|
| 6.54 |
|
| $ | 279,636,183 |
|
Vested and expected to vest, net of estimated forfeiture at December 31, 2019 |
|
|
|
|
|
| 8,966,722 |
|
| $ | 9.38 |
|
|
| 6.45 |
|
| $ | 270,570,850 |
|
Exercisable at December 31, 2019 |
|
|
|
|
|
| 5,750,443 |
|
| $ | 8.62 |
|
|
| 5.14 |
|
| $ | 177,869,577 |
|
(1) | The difference between shares granted in the number of shares available for grant and outstanding options represents the RSUs and RSAs granted for the period. |
(2) | Shares presented as available for grant represents shares repurchased for tax withholding upon vesting of RSUs. |
(3) | The difference between shares forfeited and expired in the number of shares available for grant and outstanding options represents the RSUs canceled |
F-26
11. | Stockholders’ Equity (continued) |
The aggregate intrinsic value represents the value of the Company’s closing stock price on the last trading day of the period in excess of the weighted-average exercise price multiplied by the number of options outstanding or exercisable. Total intrinsic value of options exercised was $48.4 million, $9.8 million and $1.3 million $0.7 millionduring 2019, 2018 and $2.1 million during 2017, 2016, and 2015, respectively. As of December 31, 2017,2019, there was $8.2$18.4 million of unrecognized compensation expense, net of estimated forfeitures, associated with outstanding stock options, which is expected to be recognized over an estimated weighted-average period of 2.5 years.
CHEMOCENTRYX, INC.
Notes to Consolidated Financial Statements (continued)
As of December 31, 2017,2019, stock options outstanding were as follows:
Options Outstanding | ||||||||
Exercise Price Range | Shares | Weighted-Average Contractual Life | ||||||
$2.10 - $3.29 | 214,050 | 8.32 | ||||||
$3.57 | 1,151,175 | 8.08 | ||||||
$3.72 - $5.95 | 486,090 | 8.52 | ||||||
$6.00 | 1,054,514 | 1.18 | ||||||
$6.08 - $6.30 | 1,134,724 | 4.61 | ||||||
$6.50 - $6.60 | 96,087 | 9.30 | ||||||
$6.62 | 1,175,900 | 9.10 | ||||||
$6.90 - $7.10 | 1,113,845 | 5.90 | ||||||
$7.12 - $7.85 | 418,100 | 8.87 | ||||||
$8.19 - $15.90 | 3,359,086 | 5.84 | ||||||
|
|
|
| |||||
10,203,571 | 6.19 | |||||||
|
|
|
| Options Outstanding |
| |||||
Exercise Price Range |
| Shares |
|
| Weighted- Average Contractual Life |
| ||
$2.10 - $3.57 |
|
| 940,493 |
|
|
| 6.14 |
|
$4.50 - $6.60 |
|
| 574,174 |
|
|
| 5.36 |
|
$6.62 |
|
| 991,898 |
|
|
| 7.07 |
|
$6.66 - $7.98 |
|
| 890,168 |
|
|
| 5.42 |
|
$8.19 |
|
| 961,252 |
|
|
| 5.15 |
|
$8.22 - $10.82 |
|
| 590,192 |
|
|
| 6.44 |
|
$10.86 |
|
| 980,448 |
|
|
| 8.13 |
|
$10.91 - $10.94 |
|
| 78,800 |
|
|
| 6.80 |
|
$11.02 |
|
| 1,109,583 |
|
|
| 9.17 |
|
$11.56 - $29.76 |
|
| 2,170,893 |
|
|
| 5.80 |
|
|
|
| 9,287,901 |
|
|
| 6.54 |
|
Employee Stock Purchase Plan
In February 2012, the stockholders approved the ESPP. As of December 31, 2017,2019, a total of 950,0001,400,000 shares of the Company’s common stock were reserved for issuance under the ESPP. In addition, the number of shares available for issuance under the ESPP may be annually increased on the first day of each fiscal year during the term of the ESPP, beginning with the 2012 fiscal year, by an amount equal to the lesser of: 300,000 shares; 1% of outstanding shares of the Company’s common stock; or an amount determined by the Company’s Board of Directors. The ESPP provides for an aggregate limit of 3,000,000 shares of common stock that may be issued under the ESPP during the term of the ESPP. In October 2017,2019, the Board of Directors approved an increase to the number of shares reserved for issuance under the ESPP by 150,000300,000 shares effective January 1, 2018.2020.
The Company issued 93,221 shares, 157,893 shares71,653, 88,784 and 134,57993,221 shares under the ESPP in 2017, 20162019, 2018 and 2015,2017, respectively. As of December 31, 2017, 333,3352019, 622,898 shares were available for issuance under the ESPP. As of December 31, 2017,2019, there was $0.1$0.2 million of unrecognized compensation expense, net of estimated forfeitures, associated with the ESPP, which is expected to be recognized over an estimated weighted-average period of 0.4 years.
Stock Awards Granted to Employees
Employee stock-based compensation expense recognized is calculated based on awards ultimately expected to vest and reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
F-27
11. | Stockholders’ Equity (continued) |
Total employee stock-based compensation expense recognized associated with restricted stock, stock options, and the ESPP, was as follows (in thousands):
Year Ended December 31, |
| Year Ended December 31, |
| |||||||||||||||||||||
2017 | 2016 | 2015 |
| 2019 |
|
| 2018 |
|
| 2017 |
| |||||||||||||
Research and development | $ | 3,154 | $ | 3,245 | $ | 3,240 |
| $ | 4,530 |
|
| $ | 3,632 |
|
| $ | 3,154 |
| ||||||
General and administrative | 4,965 | 4,977 | 5,620 |
|
| 6,819 |
|
|
| 6,339 |
|
|
| 4,965 |
| |||||||||
|
|
| ||||||||||||||||||||||
Total | $ | 8,119 | $ | 8,222 | $ | 8,860 |
| $ | 11,349 |
|
| $ | 9,971 |
|
| $ | 8,119 |
| ||||||
|
|
|
CHEMOCENTRYX, INC.
Notes to Consolidated Financial Statements (continued)
Valuation Assumptions
Fair value of options granted under the Stock Plans and purchases under the Company’s ESPP were estimated at grant or purchase dates using a Black-Scholes option valuation model. The Black-Scholes valuation model requires that assumptions are made with respect to various factors, including the expected volatility of the fair value of the Company’s common stock. The Company has based its expected volatility on the average historical volatilities of public entities having similar characteristics including: industry, stage of life cycle, size, and financial leverage. The weighted averageweighted-average expected term of options was calculated using the simplified method as prescribed by accounting guidance for stock-based compensation. This decision was based on the lack of relevant historical data due to the Company’s limited historical experience.
The fair values of the employee stock options granted under the Company’s Stock Plans and the option component of the shares purchased under the ESPP during 2017, 2016,2019, 2018 and 20152017 were estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions:
Employee Stock Options | Employee Stock Purchase Plan |
| Employee Stock Options |
|
| Employee Stock Purchase Plan |
| |||||||||||||||||||||||||||||||||||||||||
2017 | 2016 | 2015 | 2017 | 2016 | 2015 |
| 2019 |
|
| 2018 |
|
| 2017 |
|
| 2019 |
|
| 2018 |
|
| 2017 |
| |||||||||||||||||||||||||
Dividend yield | 0 | % | 0 | % | 0 | % | 0 | % | 0 | % | 0 | % |
|
| 0 | % |
|
| 0 | % |
|
| 0 | % |
|
| 0 | % |
|
| 0 | % |
|
| 0 | % | ||||||||||||
Volatility | 68.3 | % | 65.6 | % | 67.6 | % | 52.9 | % | 99.7 | % | 60.1 | % |
|
| 71.3 | % |
|
| 67.8 | % |
|
| 68.3 | % |
|
| 56.4 | % |
|
| 73.8 | % |
|
| 52.9 | % | ||||||||||||
Weighted-average expected life (in years) | 6.0 | 6.0 | 6.0 | 0.5 | 0.5 | 0.5 |
|
| 6.0 |
|
|
| 6.0 |
|
|
| 6.0 |
|
|
| 0.5 |
|
|
| 0.5 |
|
|
| 0.5 |
| ||||||||||||||||||
Risk-free interest rate | 2.04 | % | 1.58 | % | 1.70 | % | 1.22 | % | 0.47 | % | 0.21 | % |
|
| 2.28 | % |
|
| 2.66 | % |
|
| 2.04 | % |
|
| 1.87 | % |
|
| 2.33 | % |
|
| 1.22 | % | ||||||||||||
Weighted average grant date fair value | $ | 4.30 | $ | 2.43 | $ | 5.00 | $ | 2.16 | $ | 2.29 | $ | 2.22 | ||||||||||||||||||||||||||||||||||||
Weighted-average grant date fair value |
| $ | 7.54 |
|
| $ | 6.22 |
|
| $ | 4.30 |
|
| $ | 4.10 |
|
| $ | 3.73 |
|
| $ | 2.16 |
|
Stock Options Granted to Nonemployees
During 2017, 20162019, 2018 and 2015,2017, the Company granted to consultants options to purchase 239,266, 15,000,82,011, 28,534 and 90,300239,266 shares of common stock, respectively. The stock-based compensation expense related to nonemployees will fluctuate as the fair value of the Company’s common stock fluctuates.
In connection with grants of stock options to nonemployees, the Company recorded stock-based compensation expense as follows (in thousands):
Year Ended December 31, |
| Year Ended December 31, |
| |||||||||||||||||||||
2017 | 2016 | 2015 |
| 2019 |
|
| 2018 |
|
| 2017 |
| |||||||||||||
Research and development | $ | 629 | $ | 313 | $ | 105 |
| $ | 186 |
|
| $ | 862 |
|
| $ | 629 |
| ||||||
General and administrative | — | — | 20 |
|
| 103 |
|
|
| — |
|
|
| — |
| |||||||||
|
|
| ||||||||||||||||||||||
Total | $ | 629 | $ | 313 | $ | 125 |
| $ | 289 |
|
| $ | 862 |
|
| $ | 629 |
| ||||||
|
|
|
F-28
11. | Stockholders’ Equity (continued) |
Valuation Assumptions
Stock-based compensation expense associated with stock options granted to nonemployees is recognized as the stock options vest.
The estimated fair values of the stock options granted are calculated at each reporting date using the Black-Scholes option-pricing model, with the following assumptions:
Year Ended December 31, |
| Year Ended December 31, |
| ||||||||||||||||||
2017 | 2016 | 2015 |
| 2019 |
|
| 2018 |
|
| 2017 |
| ||||||||||
Dividend yield | 0 | % | 0 | % | 0 | % |
| 0% |
|
| 0% |
|
| 0% |
| ||||||
Volatility | 69-70 | % | 65-68 | % | 65-66 | % |
| 68-87% |
|
| 67-68% |
|
| 69-70% |
| ||||||
Weighted-average expected life (in years) | 5.5-10.0 | 6.1-9.9 | 5.6-9.9 |
| 5.5-6.0 |
|
| 5.7-9.9 |
|
| 5.5-10.0 |
| |||||||||
Risk-free interest rate | 1.9-2.5 | % | 1.3-2.4 | % | 1.7-2.4 | % |
| 1.6-2.2% |
|
| 2.7-3.0% |
|
| 1.9-2.5% |
|
In December 2018, the Company entered into an Equity Distribution Agreement (EDA), pursuant to Financial Statements
CHEMOCENTRYX, INC.
Noteswhich the Company may offer and sell, from time to Consolidated Financial Statements (continued)time, shares of the Company’s common stock, par value $0.001 per share, having an aggregate offering price of up to $75.0 million. For the year ended December 31, 2019, the Company sold 6,491,196 shares of its common stock pursuant to its EDA for net proceeds of $73.3 million. These sales fully exhausted the amount available under the EDA. Accordingly, no further sales will be made under the EDA.
12. | 401(k) Plan |
In October 1997, the Company established the ChemoCentryx 401(k) Plan and Trust (the 401(k) Plan). Employees may contribute, up to the percentage limit imposed by the Internal Revenue Code of 1986, as amended, an amount of their salary each calendar year until termination of their employment with the Company. The Company may elect to make matching contributions, as per the Plan; however, no matching contributions were made in the years ended December 31, 2017, 2016,2019, 2018 and 2015.2017.
F-29
13. | Income Taxes |
The Company’s loss before tax is only attributable to U.S. operations. The components of the income tax (benefit) expense are as follows (in thousands):
Year Ended December 31, |
| Year Ended December 31, |
| |||||||||||||||||||||
2017 | 2016 | 2015 |
| 2019 |
|
| 2018 |
|
| 2017 |
| |||||||||||||
Current (benefit from) provision for income taxes: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Federal | $ | — | $ | — | $ | — |
| $ | — |
|
| $ | — |
|
| $ | — |
| ||||||
State | — | — | — |
|
| — |
|
|
| — |
|
|
| — |
| |||||||||
|
|
| ||||||||||||||||||||||
Total current (benefit from) provision for income taxes | — | — | — |
|
| — |
|
|
| — |
|
|
| — |
| |||||||||
Deferred (benefit from) provision for income taxes: | — | — | — |
|
| — |
|
|
| — |
|
|
| — |
| |||||||||
Federal | — | — | — |
|
| — |
|
|
| — |
|
|
| — |
| |||||||||
State | — | — | — |
|
| — |
|
|
| — |
|
|
| — |
| |||||||||
|
|
| ||||||||||||||||||||||
Total deferred tax (benefit from) provision for income taxes | — | — | — |
|
| — |
|
|
| — |
|
|
| — |
| |||||||||
|
|
| ||||||||||||||||||||||
(Benefit from) provision for income taxes | $ | — | $ | — | $ | — |
| $ | — |
|
| $ | — |
|
| $ | — |
| ||||||
|
|
|
A reconciliation of the federal statutory income tax rate to the Company’s effective income tax rate is as follows:
Year Ended December 31, |
| Year Ended December 31, |
| |||||||||||||||||||||
2017 | 2016 | 2015 |
| 2019 |
|
| 2018 |
|
| 2017 |
| |||||||||||||
Federal statutory income tax rate | 34.0 | % | (34.0 | %) | (34.0 | %) |
|
| (21.0 | %) |
|
| (21.0 | %) |
|
| 34.0 | % | ||||||
State income taxes, net of federal benefit | — | (5.8 | ) | (5.8 | ) | |||||||||||||||||||
Permanent items | 5.5 | 2.1 | 1.9 |
|
| 1.3 |
|
|
| 1.6 |
|
|
| 5.5 |
| |||||||||
Excess tax benefit for stock-based compensation | (2.0 | ) | — | — |
| (13.3) |
|
| (2.8) |
|
| (2.0) |
| |||||||||||
Research and development credits | (7.2 | ) | (2.8 | ) | (2.1 | ) | ||||||||||||||||||
Tax credits |
| (38.3) |
|
| (3.5) |
|
| (7.2) |
| |||||||||||||||
Change in valuation allowance | (224.1 | ) | 38.1 | 40.0 |
|
| 70.3 |
|
|
| 24.5 |
|
| (224.1) |
| |||||||||
Change in tax rate | 193.8 | — | — |
|
| — |
|
|
| — |
|
| 193.8 |
| ||||||||||
Other | — | 2.4 | — |
|
| 1.0 |
|
|
| 1.2 |
|
|
| — |
| |||||||||
|
|
| ||||||||||||||||||||||
(Benefit from) provisions for income taxes | — | % | — | % | — | % | ||||||||||||||||||
|
|
| ||||||||||||||||||||||
(Benefit from) provision for income taxes |
|
| — | % |
|
| — | % |
|
| — | % |
CHEMOCENTRYX, INC.
Notes to Consolidated Financial Statements (continued)
13. | Income Taxes (continued) |
The tax effects of temporary differences and carryforwards that give rise to significant portions of the deferred tax assets consist of the following (in thousands):
| December 31, |
| ||||||||||||||
December 31, |
| 2019 |
|
| 2018 |
| ||||||||||
2017 | 2016 | |||||||||||||||
Deferred tax assets: |
|
|
|
|
|
|
|
| ||||||||
Net operating loss carryforwards | $ | 55,569 | $ | 102,269 |
| $ | 76,033 |
|
| $ | 62,405 |
| ||||
Research and development credit | 10,470 | 8,719 | ||||||||||||||
Amortization of deferred stock compensation -non-qualified | 6,385 | 10,567 | ||||||||||||||
Tax credits |
|
| 39,625 |
|
|
| 11,794 |
| ||||||||
Amortization of deferred stock compensation - non- qualified |
|
| 5,172 |
|
|
| 6,569 |
| ||||||||
Reserves and accruals | 785 | 1,747 |
|
| 1,528 |
|
|
| 1,140 |
| ||||||
Deferred revenue | 10,297 | — |
|
| 20,312 |
|
|
| 20,991 |
| ||||||
Depreciation and amortization | 231 | 445 |
|
| 15 |
|
|
| — |
| ||||||
|
| |||||||||||||||
Lease liability |
|
| 434 |
|
|
| — |
| ||||||||
Gross deferred tax assets |
|
| 143,119 |
|
|
| 102,899 |
| ||||||||
Less: valuation allowance |
|
| (142,761 | ) |
|
| (102,891 | ) | ||||||||
Total deferred tax assets |
|
| 358 |
|
|
| 8 |
| ||||||||
Deferred tax liabilities: |
|
|
|
|
|
|
|
| ||||||||
Depreciation and amortization |
|
| — |
|
|
| (8 | ) | ||||||||
Right of use asset |
|
| (358 | ) |
|
| — |
| ||||||||
Total deferred tax liabilities |
|
| (358 | ) |
|
| (8 | ) | ||||||||
Net deferred tax assets | 83,737 | 123,747 |
| $ | — |
|
| $ | — |
| ||||||
Less: valuation allowance | (83,737 | ) | (123,747 | ) | ||||||||||||
|
| |||||||||||||||
Net deferred tax assets | $ | — | $ | — | ||||||||||||
|
|
On December 22, 2017, the Tax Cuts and Jobs Act (“the Act”) was enacted into law. The new tax legislation contains several key provisions including the reduction of the corporate income tax rate to 21%, effective January 1, 2018, as well as a variety of other changes including the limitation of the tax deductibility of interest expense, acceleration of expensing of certain business assets and reductions in the amount of executive pay that could qualify as a tax deduction. Additionally, the Act introduced a territorial-style system for taxing foreign source income of domestic multinational corporations. The Company has analyzed the potential impacts of the Act and due to the federal rate reduction it is expecting a reduction in its federal deferred tax assets by $36.0 million with an offset to the valuation allowance, which has been reflected in the financial statements for the tax year ended December 31, 2017.
Accounting Standards Codification (ASC) 740, Income Taxes, requires companies to recognize the effect of the tax law changes in the period of enactment. Shortly after the enactment of the Act, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act. The Company has adjusted its deferred tax assets and liabilities based on the reduction of the U.S. federal corporate tax rate from 34% to 21% and assessed the realizability of its deferred tax assets based on its current understanding of the provisions of the new law. The Company considers its accounting for the impacts of the new law to be provisional and the Company will continue to assess the impact of the recently enacted tax law (and expected further guidance from federal and state tax authorities as well as further guidance for the associated income tax accounting) on its business and consolidated financial statements over the next 12 months.
The Company has concluded that it iswas more likely than not that its deferred tax assets willwould not be realized. Accordingly, the total deferred tax assets have beenwere fully offset by a valuation allowance. The Company’s valuation allowance decreased by approximately $40.0 million in 2017 and increased by approximately $15.2$39.9 million and $19.3$19.2 million during 2016in 2019 and 20152018, respectively.
At December 31, 2017,2019, the Company had federal and state net operating loss carryforwards of approximately $192.5$278.7 million and $247.9$225.7 million, respectively. The federal net operating loss carryforwards will begin to expire in 2031. The2032. Due to tax reform, federal net operating loss carryforwards generated in 2018 and forward no longer have an expiration date. In 2019, state net operating losses of $21.1 million expired and the state net operating loss carryforwards as of December 31, 2019 will begin to expire in 2018.
CHEMOCENTRYX, INC.
Notes to Consolidated Financial Statements (continued)
TheAs of December 31, 2019, the Company has federal and state research and development credit carryforwards of $11.2$11.5 million and $6.1$9.0 million, respectively. The federal research and development credits will begin to expire in 2019,2020 if not utilized. California research and development credits can be carried forward indefinitely. In 2019, the Company performed a tax credit study and as a result, expects to claim $46.9 million of orphan drug credits in the 2019 tax return. Such orphan drug credit will begin to expire in 2034 if not utilized.
Utilization of the net operating loss and credit carryforwards may be subject to annual limitation due to historical or future ownership percentage change rules provided by the Internal Revenue Code of 1986, and similar state provisions. The annual limitation may result in the expiration of certain net operating loss and credit carryforwards before their utilization.
F-31
13. | Income Taxes (continued) |
A reconciliation of the Company’s unrecognized tax benefits for the years ended December 31, 2017, 2016,2019, 2018 and 2015,2017, is as follows (in thousands):
| Unrecognized Income Tax Benefits |
| ||||||
Unrecognized Income Tax Benefits | ||||||||
Balance as of December 31, 2015 | $ | 4,872 | ||||||
Balance as of December 31, 2017 |
| $ | 8,786 |
| ||||
Additions for current tax positions | 558 |
|
| 928 |
| |||
| ||||||||
Balance as of December 31, 2016 | $ | 5,430 | ||||||
Balance as of December 31, 2018 |
|
| 9,714 |
| ||||
Additions for current tax positions | 603 |
|
| 3,455 |
| |||
Additions for prior tax positions | 2,753 |
|
| 12,090 |
| |||
| ||||||||
Balance as of December 31, 2017 | $ | 8,786 | ||||||
| ||||||||
Balance as of December 31, 2019 |
| $ | 25,259 |
|
As of December 31, 20172019 and 2016,2018, the Company had approximately $8.8$25.3 million and $5.4$9.7 million, respectively, of unrecognized tax benefits, none of which would currently affect the Company’s effective tax rate if recognized due to the Company’s deferred tax assets being fully offset by a valuation allowance. In 2019, unrecognized tax benefits increased due to uncertainty associated with the Company’s claim of prior year research and development and orphan drug credits. The Company is not aware of any items that will significantly increase or decrease its unrecognized tax benefits in the next 12 months.
For U.S. federal and California income tax purposes, the statute of limitations remains open for the years beginning 20142016 and 2013,2015, respectively, except for the carryforward of net operating losses and research and development credits generated in prior years.
If applicable, the Company would classify interest and penalties related to uncertain tax positions in income tax expense. Through December 31, 2017,2019, there has been no interest expense or penalties related to unrecognized tax benefits.
CHEMOCENTRYX, INC.
Notes to Consolidated Financial Statements (continued)
14. | Selected Quarterly Financial Data (unaudited) |
Selected quarterly results from operations for the years ended December 31, 20172019 and 20162018 are as follows (in thousands except per share amounts):
2017 Quarter Ended | ||||||||||||||||
March 31 | June 30 | September 30 | December 31 | |||||||||||||
Revenue | $ | 8,230 | $ | 8,937 | $ | 9,029 | $ | 56,301 | ||||||||
Net income (loss) | $ | (5,996 | ) | $ | (9,240 | ) | $ | (6,560 | ) | $ | 39,655 | |||||
Basic net income (loss) per share | $ | (0.12 | ) | $ | (0.19 | ) | $ | (0.13 | ) | $ | 0.81 | |||||
Diluted net income (loss) per share | $ | (0.12 | ) | $ | (0.19 | ) | $ | (0.13 | ) | $ | 0.80 | |||||
2016 Quarter Ended | ||||||||||||||||
March 31 | June 30 | September 30 | December 31 | |||||||||||||
Revenue | $ | — | $ | 2,795 | $ | 4,251 | $ | 4,889 | ||||||||
Net loss | $ | (15,243 | ) | $ | (9,983 | ) | $ | (7,072 | ) | $ | (7,665 | ) | ||||
Basic net loss per share | $ | (0.34 | ) | $ | (0.22 | ) | $ | (0.15 | ) | $ | (0.16 | ) | ||||
Diluted net loss per share | $ | (0.34 | ) | $ | (0.22 | ) | $ | (0.15 | ) | $ | (0.16 | ) |
|
| 2019 Quarter Ended |
| |||||||||||||
|
| March 31 |
|
| June 30 |
|
| September 30 |
|
| December 31 |
| ||||
Revenue |
| $ | 8,327 |
|
| $ | 7,173 |
|
| $ | 10,581 |
|
| $ | 10,047 |
|
Net loss |
| $ | (11,949 | ) |
| $ | (15,150 | ) |
| $ | (12,862 | ) |
| $ | (15,528 | ) |
Basic and diluted net loss per share |
| $ | (0.23 | ) |
| $ | (0.26 | ) |
| $ | (0.22 | ) |
| $ | (0.26 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2018 Quarter Ended |
| |||||||||||||
|
| March 31 |
|
| June 30 |
|
| September 30 |
|
| December 31 |
| ||||
Revenue |
| $ | 9,546 |
|
| $ | 15,022 |
|
| $ | 8,975 |
|
| $ | 9,332 |
|
Net loss |
| $ | (9,417 | ) |
| $ | (6,874 | ) |
| $ | (10,890 | ) |
| $ | (10,785 | ) |
Basic and diluted net loss per share |
| $ | (0.19 | ) |
| $ | (0.14 | ) |
| $ | (0.22 | ) |
| $ | (0.21 | ) |
The four quarters of net earnings per share may not add to the total year because of differences in the weighted averageweighted-average numbers of shares outstanding during the quarters and the year.
F-32
EXHIBIT INDEX
15. | Subsequent Event |
In January 2020, the Company entered into an Amended and Restated Loan and Security Agreement (the Amended Loan Agreement) with Hercules, which provides the Company with an additional term loan in an aggregate principal amount of up to $100.0 million (the Restated Credit Facility) in three tranches, subject to certain terms and conditions.
The first tranche of up to $40.0 million is available to the Company through December 15, 2020, of which $20.0 million would be available upon submission of the avacopan New Drug Application (NDA) for the treatment of ANCA vasculitis. Under the first tranche, $5.0 million will be advanced to the Company on or before March 15, 2020. The second tranche of up to an additional $30.0 million is available to the Company through December 15, 2021 upon NDA approval of avacopan for the treatment of ANCA vasculitis. The third tranche of up to an additional $30.0 million is available through December 15, 2022, subject to certain conditions.
For advances under the Restated Credit Facility, the Company will make interest only payments through September 1, 2022 and will then repay the principal balance and interest of the advances in equal monthly installments through February 1, 2024. Upon satisfaction of certain conditions, the interest only payment period and the principal balance repayment period may be extended.
The initial interest rate equals to the greater of either (i) 8.50% plus the prime rate as reported in The Wall Street Journal minus 5.25%, and (ii) 8.50%, which may be reduced upon the Company achieving certain cumulative net avacopan revenue levels.
The Company may prepay advances under the Restated Credit Facility, in whole or in part, at any time subject to a prepayment charge up to 2.0% of prepayment amounts. In addition, the Company will pay an end of term charge of 7.15% of the aggregate amount of the advances. The Restated Credit Facility is secured by substantially all of the Company’s assets, excluding intellectual property.
In connection with the Amended Loan Agreement, the Company also entered into a Right to Invest Agreement with Hercules, pursuant to which Hercules shall have the right to participate, in an amount up to $3.0 million, in any subsequent equity financing broadly marketed to multiple investors in an amount greater than $30.0 million.
The Amended Loan Agreement also includes customary affirmative and negative covenants and events of default, the occurrence and continuance of which provide Hercules with the right to demand immediate repayment of all principal and unpaid interest under Amended Loan Agreement, and to exercise remedies against the Company and the collateral securing the Amended Loan Agreement.
F-33
81
Exhibit Number | Description | |
10.20†(3) |
|
| ||
10.21†(3) |
| ||
10.22†(3) | |||
10.23†(3) | |||
10.24†(3) | |||
10.25† | |||
10.26(9) | |||
10.27(6) | |||
10.28†(4) | Letter Agreement dated as of February 13, 2017 between the Registrant and Vifor (International) Ltd. | ||
10.29† | |||
10.30(11) | |||
10.31(13) | |||
10.32(13) | |||
10.33†(13) | |||
10.34(15) | |||
10.35(16) | |||
21.1 | |||
23.1 | |||
31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
32.1 | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
32.2 | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
101.INS | XBRL Instance Document. | ||
101.SCH | XBRL Taxonomy Extension Schema Document. | ||
82
Exhibit Number | Description | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. | |
101.LAB | ||
XBRL Taxonomy Extension Label Linkbase Document. | ||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase document. |
(1) | Filed with Amendment No. 3 to the Registrant’s Registration Statement on FormS-1 on January 23, 2012 (RegistrationNo. 333-177332), and incorporated herein by reference. |
(2) | Filed with Amendment No. 4 to the Registrant’s Registration Statement on FormS-1 on February 6, 2012 (RegistrationNo. 333-177332), and incorporated herein by reference. |
(3) | Filed with the Registrant’s Registration Statement on FormS-1 on October 14, 2011 (RegistrationNo. 333-177332), and incorporated herein by reference. |
(4) | Filed with the Registrant’s Quarterly Report on Form10-Q for the quarterly period ended March 31, 2017, filed with the SEC on May 10, 2017, and incorporated herein by reference. |
(5) | Filed with the Registrant’s Quarterly Report on Form10-Q for the quarterly period ended June 30, 2014, filed with the SEC on August 8, 2014, and incorporated herein by reference. |
(6) | Filed with the Registrant’s Annual Report on Form10-K for the year ended December 31, 2016, filed with the SEC on March 14, 2017, and incorporated herein by reference. |
(7) |
Filed with the Registrant’s Quarterly Report on Form10-Q for the quarterly period ended September 30, 2012, filed with the SEC on November 13, 2012, and incorporated herein by reference. |
(8) | Filed with Amendment No. 2 to Registrant’s Registration Statement on FormS-1 on January 6, 2012 (RegistrationNo. 333-177332), and incorporated herein by reference. |
(9) | Filed with the Registrant’s Quarterly Report on Form10-Q for the quarterly period ended June 30, 2016, filed with the SEC on August 9, 2016, and incorporated herein by reference. |
(10) | Filed with the Registrant’s Quarterly Report on Form10-Q for the quarterly period ended June 30, 2017, filed with the SEC on August 8, 2017, and incorporated herein by reference. |
(11) | Filed with the Registrant’s Current Report on Form8-K filed on January 4, 2018, and incorporated herein by reference. |
(12) | Filed with the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2017, filed with the SEC on March 12, 2018, and incorporated herein by reference. |
(13) | Filed with the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2018, filed with the SEC on August 9, 2018, and incorporated herein by reference. |
(14) | Filed with the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2018, filed with the SEC on May 9, 2018, and incorporated herein by reference. |
(15) | Filed with the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on March 11, 2019, and incorporated herein by reference. |
(16) | Filed with the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2019, filed with the SEC on November 4, 2019, and incorporated herein by reference. |
(17) | Filed with the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2019, filed with the SEC on August 5, 2019, and incorporated herein by reference. |
(18) | Filed with the Registrant’s Current Report on Form 8-K filed on March 19, 2019, and incorporated herein by reference. |
# | Indicates management contract or compensatory plan. |
† | Confidential treatment has been granted for portions of this exhibit. These portions have been omitted and filed separately with the SEC. |
83
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Annual Report on Form10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
CHEMOCENTRYX, INC. | |||||||
Date: March | By: | /s/ Thomas J. Schall, Ph.D. | |||||
Thomas J. Schall, Ph.D. President and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Annual Report on Form10-K has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature | Title | Date | ||
/s/ Thomas J. Schall, Ph.D.
| President, Chief Executive Officer and Director | March 10, 2020 | ||
Thomas J. Schall, Ph.D. | (Principal Executive Officer) | |||
Executive Vice President, | ||||
/s/ Susan M. Kanaya
|
Chief Financial and Administrative Officer and Secretary | March 10, 2020 | ||
Susan M. Kanaya | (Principal Financial | |||
/s/ Pui San Kwan | Vice President, Finance | |||
Pui San Kwan |
(Principal Accounting Officer) | March | ||
/s/ Thomas A. Edwards | ||||
Thomas A. Edwards | Director | March | ||
/s/ Joseph M. Feczko, M.D. | ||||
Joseph M. Feczko, M.D. | Director | March | ||
/s/
| ||||
Rita Jain, M.D. | Director | March 10, 2020 | ||
/s/ Henry A. McKinnell, Jr., Ph.D. | ||||
Henry A. McKinnell, Jr., Ph.D. | Director | March | ||
/s/ Geoffrey M. Parker | ||||
Geoffrey M. Parker | Director | March | ||
/s/ James L. Tyree | ||||
James L. Tyree | Director | March |