ChemoCentryx Inc (CCXI) 2016 Q1 法說會逐字稿

Good morning and welcome to the ChemoCentryx Conference Call. At this time all participants are in listen only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference call will be recorded. I would now like to turn the call over to Ms. Susan Kanaya, Senior Vice President and Chief Financial Officer at ChemoCentryx. Ms. Kanaya, please go ahead.

Thank you. Good afternoon and thank you for joining us on our call today. Earlier this morning we issued two press releases which we will be discussing during today's call. The first was a joint press release providing an overview of the Vifor Pharma license agreement to commercialize our complement inhibitor CCX168 and the second was our quarterly results press release. Both results can be found on our website at www.chemocentryx.com.

Meeting the call today will be Dr. Thomas Schall, President and Chief Executive Officer of ChemoCentryx. Tom will provide an overview of the agreement with Vifor Pharma as well as an overview of other recent corporate developments and upcoming milestones and then, we will open up the call for questions.

Before we get started, I would like to remind you that, during today's call, we will be making certain forward-looking statements. These forward-looking statements are based on current information, assumptions and expectations that are subject to change and involve a number of risks and uncertainties that may cause actual results to differ materially from those contained in the forward-looking statements.

These risks are described in our filings made with the Securities and Exchange Commission, including our Annual Report on Form 10-K filed on March 14, 2016. You are cautioned not to place undue reliance on these forward-looking statements, and ChemoCentryx disclaims any obligation to update such statements.

In addition, this conference call contains time sensitive information that is accurate only as a live broadcast, May 10, 2016. ChemoCentryx undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this conference call.

I will now turn the call over to Tom.

Thank you, Susan. And thank you to everyone for joining us on our call this morning. I mentioned last quarter that this is one of the most exciting times in our industry. With the further momentum we have achieved across our programs and especially with today's partnership announcement, we provide further validation that this is indeed a transformational year for ChemoCentryx.

We are extremely pleased with the exclusive collaboration and license agreement with Vifor Pharma to commercialize CCX168 in certain license territories outside the U.S., which I will describe in more detail momentarily. CCX168 is a potent orally-administered, highly specific small molecule inhibitor of the complement C5a receptor and is currently being are evaluated in multiple orphan and rare diseases, including our lead indication anti-neutrophil cytoplasmic autoantibody or ANCA-associated Vasculitis, also called ANCA disease or AAV.

In our view, this agreement with Vifor Pharma is an ideal partnership in many respects. Before I review the terms of the agreement, I would first like to take a moment to provide some background on Vifor Pharma for those of you who are not as familiar as you might with that enterprise.

Vifor Pharma, a company of Galenica Limited is based in Zurich, Switzerland. Its nephrology partner company Vifor Fresenius Medical Care Renal Pharma, Vifor Fresenius for short is a joint venture between Fresenius Medical Care and Galenica specializes in developing and commercializing innovative nephrology focused products. The currently marketed products for Vifor Fresenius include Venofer, Ferinject also known as Injectafer in the United States. In the field of dialysis and predialysis as well as Velphoro, a novel Iron-based phosphate binder.

Vifor Fresenius has been expanding its product portfolio by acquiring the nephrology medicines currently commercialized by Fresenius Medical Care, include the phosphate binders Osvaren and Phosphosorb.

Last summer, Vifor Fresenius and Relypsa announced a European commercial partnership for Patiromer also known as Veltassa for the treatment of Hyperkalemia. Vifor Pharma and Vifor Fresenius are dedicated to bringing exciting medicines to patients in Europe and other markets and continue to expand the Renal Pharma product portfolio and commercial organizations. Both companies promote their portfolio of medicines with one of the, if not the largest fully dedicated renal sales force in Europe.

In addition, the companies have established global commercial reach and presence in other key markets around the world. Under the common company structure Vifor Fresenius has also access to Vifor Pharma's large developments, regulatory, reimbursement and commercial team of approximately 2,000 people.

Under the terms of our agreement, Vifor Pharma licensed exclusive marketing rights to CCX168 in Europe, South America, Latin America, Canada and South Korea. ChemoCentryx retained all commercialization rights to CCX168 in the United States, in Asia excluding South Korea, the Middle East and other countries not licensed to Vifor Pharma. This means that if approve CCX168 will be promoted by one of the largest dedicated renal sales forces in Europe. While importantly, we at ChemoCentryx retain all commercialization rights in the United States, most of Asia and among other countries.

In terms of economics, ChemoCentryx will receive a non-refundable upfront payment from Vifor Pharma of $85 million. This consists of $60 million in cash, in addition to $25 million in an equity investment to purchase ChemoCentryx's common stock at a price of $7.50 per share.

In addition, ChemoCentryx will be eligible to receive additional payments upon the achievement of certain regulatory and sales based milestones for CCX168 as well as tiered royalties with rates ranging from the teens to mid-twenties on potential net sales of CCX168 by Vifor Pharma in their licensed territories.

The total value of this deal including the aforementioned upfront payments and regulatory milestones is just shy of $600 million. This is truly an ideal partnership for us. The reasons are as follows: first, retaining control of all clinical development for CCX168 was essential for us to ensure that we continue to determine the direction, the scope and the pace of the clinical development program. Second, a key component of our plan to forward integrate include retaining certain commercial rights to CCX168 and I am very pleased to say that we were successful in retaining commercial rights in the U.S. as well as countries not licensed to Vifor Pharma.

Finally, given a choice whether to lock in a regional partnership now versus later would largely bit to tend on whether such a deal included the right mix of upfront and downstream economics. With the above key and governance considerations in mind, I am pleased to say that we stood by our guiding doctrine, and I believe have secure a deal that will drive value for patients and for shareholders.

The partnership will focus on the commercialization of CCX168 for the treatment of AAV and rare renal disease. AAV affects approximately 40,000 people in the U.S. and more than 75,000 people in Europe and is currently treated with courses of non-specific immunosuppressants, specifically cyclophosphamide or rituximab combined with high dose chronic steroid administration.

The current standard of care is associated with significant safety issues, including death. In fact, the single major cause of premature mortality in AAV is not disease related adverse events, but rather infection that is a consequence of steroid administration. It may surprise many, but steroids are not actually licensed for use in AAV. Their adaptation as part of the current standard of care has been incremental and empirical rather than the product of randomized controlled clinical trials.

Physicians emphasize a great need for improved therapies for patients who are intolerant of current immunosuppressive treatment and the need for protection against progressive organ damage especially of the kidney. We will discuss these needs in greater detail at our R&D Day in New York next week. This is where we see CCX168 offering real value to patients with the aiming of shifting the current treatment paradigm in AAV.

CCX168 is poised to enter Phase III development, the agreement with Vifor Pharma follows the positive results from the Phase II CLEAR trial in patients with AAV that we reported in January. The aim of the CLEAR trial is to eliminate chronic hydrosteroids, which are associated as I mentioned with significant safety issues, including death from the standard of care regimen in AAV and replace steroids with CCX168. The CLEAR trial achieved this aim.

As a reminder, the trial was successful and met its primary endpoint, demonstrating the miracle superiority and statistical non-inferiority of CCX168 treatment groups versus the standard of care control group based on the Birmingham Vasculitis activity score or BVAS response. With the P value of 0.002, the results were highly statistically significant.

The CLEAR trial results will be reported in an oral presentation at the 53rd ERA EDTA Congress being held in Vienna Austria later this month. The agreement with Vifor Pharma provides validation of our approach of blocking the complement system with CCX168 in rare renal disease. Notably, it also provides validation from an organization of kidney experts of the clinical data we have obtained to-date with CCX168 in AAV.

In terms of immediate next steps for the CCX168 AAV program, we are expecting results from the North America Phase II safety trial in AAV known as CLASSIC next month. This trial is primarily focused on providing more clarity around potential safety profiles of CCX168, when administered with full standard of care and may find additional features of the potential label for CCX168 in AAV. While CLASSIC will help us to assess certain safety questions, we believe that the clear data will form the basis of the Phase III development plan that we submit to the regulatory agencies.

ChemoCentryx will be responsible for the regulatory interactions through NDA or MAA filing and is responsible for the associated costs. Naturally, Vifor Pharma will have input and participate in the EMA meetings. To that end, we will complete our briefing document for an end of Phase II meeting with the FDA and plan to conduct our U.S. and European regulatory meetings in the middle of the year. Assuming positive outcomes from these meetings we plan to initiate our Phase III development program in AAV by the end of this year.

The agreement with Vifor Pharma is certainly an important milestone for ChemoCentryx as we work to make CCX168 available for patients suffering from AAV and other rare renal diseases. The agreement with Vifor Pharma contemplates the development of CCX168 for at least three such disease indications including AAV.

Importantly to the Vifor Pharma agreement is also the first step of a potential broader kidney health alliance and beyond that in orphan and rare diseases between Vifor Pharma and ChemoCentryx. Specifically the agreement also provides Vifor Pharma with an exclusive option to negotiate during 2016 a worldwide license agreement for CCX140.

Recall that CCX 140 is an orally-administered inhibitor of the chemokine receptor known as CCR2 and it has successfully completed Phase II clinical development in patients with diabetic nephropathy. To be clear, this option period in 2016 pertains to just the exclusivity period they have been granted to negotiate terms not to the timing of executing a potential deal.

Since our financial model at ChemoCentryx has not contemplated our independent development of CCX140 in a disease indication as large as diabetic nephropathy, we are pleased that Vifor Pharma negotiated an exclusive option period which could potentially culminate in a worldwide license agreement for CCX140.

To summarize, this collaboration is a key strategic milestone for ChemoCentryx and we are extremely pleased to partner with Vifor Pharma. This alliance with Vifor Pharma who will also work together with its nephrology partner company Vifor Fresenius Medical Care Renal Pharma is an ideal alliance for the CCX168 program. Vifor Pharma and their colleagues Vifor Fresenius have well established commercial organization with a proven track record in carrying for patients with kidney disease.

We and Vifor Pharma are aligned on the potential value of CCX168 particularly in its promise to help patients suffering from orphan and rare diseases associated with the kidney and it's potential to eliminate steroids and their deleterious effects, which to repeat include premature death all to frequently from the current standard of care regimen in AAV.

We are also very pleased with the FDA's recognition of the potential of CCX168 to shift the current paradigm in AAV through the award last month of an initial $500,000 grant under its orphan products development grant program. The goal of this program is to support the clinical development of products for using rare diseases or conditions where no current therapy exists or where the proposed product is intended to be superior to the existing therapy.

Another opportunity within our orphan and rare disease program include CCX168 in patients suffering with atypical hemolytic uremic syndrome or aHUS. aHUS is a rare disease where in the absence of appropriate therapy up to half of all patients progressed to end stage renal disease with 25% dying in the acute phase of the disease.

Patients with aHUS who've had end stage renal disease are generally consigned to life long dialysis, which carries a five year survival rate of just under 40%, with infections accounting for almost 15% of death. aHUS is currently treated with eculizumab, the treatment is not accessible to all patients and not all eculizumab patient derive benefit. Our ongoing Phase II proof-of-concept clinical study in aHUS patients around dialysis continues to enroll and we plan to provide an update on this study later this year.

Now, turning to our immuno-oncology program, we have an ongoing multi-center clinical trial with CCX872, an inhibitor of the chemokine receptor known as CCR2 in 50 patients with non-resectable pancreatic cancer. CCR2 is a chemoattractant receptor, known to be responsible for recruiting immune suppressive cells to the tumor micro environment in certain cancers including pancreatic cancer. Those immune suppressor cells inhibit and effective anti-tumor response by the body's immune system. Therefore by blocking CCR2 with CCX872, we are attempting to inhibit the inhibitors and promote a more effective anti-tumor response.

In this trial, patients receives CCX872 in combination with FOLFIRINOX one of the current standards of care in the treatment of pancreatic cancer. The primary efficacy measurement will be progression free survival following completion of at least 24 weeks of treatment. These top-line progression free survival data will be available in the second half of 2016. But prior to that, overall objective response data will be reported in the middle of 2016.

In addition, next week at our R&D Day, part of the presentation will include an oncologist who specializes in treating pancreatic cancer and who is also an investigator in the ongoing CCX872 clinical trial.

Apart from CCR2 in pancreatic cancer, other chemo-attractive receptors are thought to be involved in other tumor types. Following a successful presentation of data from CCX9588, our orally administered inhibitor of chemokine receptor known as CCR1 combined with an antibody against the checkpoint inhibitor PDL1 had the so called triple meeting last year, we presented additional data from this study at the American Association for Cancer Research AACR Annual Meeting Last month.

These results demonstrated a synergistic effect with combination treatments in triple negative breast cancer models. Specifically, our researchers observed a significant decrease in circulating and tumor infiltrating granulocytic myeloid derived suppressor cells, which are known to be responsible for the induction of a metastatic phenotype in primary tumors. Also, overall tumor size and tumor progression was significantly reduced by the combination treatment of CCR1 inhibitor and anti-checkpoint antibody.

With that, I will now turn the call back over to Susan, who will review our first quarter financial results.

Thank you, Tom. As I mentioned earlier, our first quarter 2016 financial results were included in our press release provided earlier this morning. Research and development expenses were $11.2 million for the three months ended March 31, 2016 compared to $8.4 million in 2015. The increase in research and development expense was primarily attributable to higher cost associated with CCX168 due to the completion of ancillary Phase I studies to support anticipated and the Phase II meetings with regulatory agencies and higher expenses associated with CCX872 for the ongoing pancreatic cancer trial.

General and administrative expenses were $4.1 million for the three months ended March 31, 2016 compared to $3.7 million in 2015. The increase from 2015 to 2016 was primarily due to increases in intellectual property related expenses and travel and professional fees associated with our business development efforts.

Total shares outstanding at March 31, 2016 were approximately 44.3 million shares. Cash, cash equivalents and investments totaled $65.3 million at March 31, 2016, which does not include the $85 million upfront payment in connection with the partnership of Vifor Pharma we announced today.

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

Thank you, Susan. We continue to build the company focused on great science and ultimately great medicines for patients. We have maintained a good deal momentum across our clinical operations and see our regional license agreement with Vifor Pharma for CCX168 as key strategic event for ChemoCentryx. As we have maintained, we had a list of specific requirements for what we believed would constitute a successful and value adding partnership.

We stay true to our guiding doctrine and achieve them with this partnership. We are extremely pleased with our choice of partner and the terms of the partnership. We have a number of important catalysts expected during 2016 and continue to build a company focused on creating significant value. I'm looking forward to our R&D Day on May 18th in New York where we will have several leading clinicians attending.

With that, I will now turn the call back over to the operator, so that we may take your questions. Operator?

Thank you.

(Operator Instructions).

And our first question comes from Anupam Rama of JPMorgan.

Hey, guys, thanks so much for taking the question and congrats on the partnership. Just a couple from me, one strategic question and one quick modeling question for Susan. On the modeling question, for the upfront payment from the partnership, just wondering if that's going to be a one-time payment or should we amortizing that payment over a certain period of time? And then the strategic question, Tom you mentioned, that you guys still have the right for Asia here, should we be thinking about a partner in that region or is that something you guys want to keep internally? Thanks so much.

Thanks, Anupam. So I will take the model questions and then Tom will take the strategic questions. So the $85 million upfront payment will be received in one-time and we are currently evaluating the accounting treatment for that from a revenue recognition standpoint. So, we will able to provide you more guidance but from a cash flow standalone you will just see that come through.

And Anupam, thank you for the question. In terms of Asia obviously the retention of rights in Japan, China, the rest of Asia excluding South Korea certainly does not include future deal making in that part of the world. So certainly that would be potentially part of our planning going forward.

Great, thanks so much for taking our questions.

Thank you.

And our next question comes from Marc Frahm of Cowen and Company.

Hi, thanks for taking my questions and also congratulations on deal this morning.

Thank you, Marc.

Just wondering, if you could give a little bit more detail on kind of the breakdown of the milestone payments between regulatory and sales and may be if there is -- is there any milestone associate with the Phase III trial [development], or is it just once you have actually file a M&A or NDA?

Most of the milestones mark in the agreement as based on filings and then thereafter approvals, acceptances and so on. So during the actual conduct of the Phase III trial, principally no there will be no milestones during that Phase of development.

Okay. And then did Vifor have any access to the CLASSIC data or is purely also the CLEAR data and other Phase I type of datasets?

None of us have had access to CLASSIC yet other than of course just the enrollment rates and we are still blinded ourselves obviously to the data. So their extensive diligence work has occurred on CLEAR, it's occurred on the Phase I studies, it's occurred on the other human studies that are off clinical in nature drug interaction, intensive QT and so on.

Okay, great. And then finally just as you are kind of really getting in the [weeds with your] KOLs with the regulators on kind of Phase II trial events do you see any kind of difference in the appreciation of steroids bearing as a goal in the U.S. versus say in Europe. And maybe would you think there might be any difference in endpoints for the different territory?

I don't think we are speculating at this point on differences in endpoints. I think that there is a fair amount of consensus on what the trial design and endpoint should look like. Obviously, we got to talk to the regulators, we've been in the process of distributing briefing materials and getting exact date scheduled on the calendar and both the U.S. and Europe. I think it's fair to say that Europe has tended to be more progressive in their desire to see the elimination of certainly fairly hypnosis therapy especially dangerous ones like steroids where as I mentioned first year mortality in AAV is between 11% and 18%.

And the single biggest cause of first year death is steroid induced infections. So it's quite well documented now. So there is a great deal of human cost as well as health economics cost associated with that premature mortality. And that is squarely on the shoulders of the steroid standard of care.

So Europe has been very progressive in the desire to try to find ways to eliminate that. But that's not to say that there is not a great deal of desire in the U.S. as well. So, we've been having a lot of discussions with clinicians here in the U.S. And so they're very keen to find ways to remove steroids from the standard of care.

And then importantly, we often don't talk about this, but I defy you to talk to a patients or patient advocacy group who will tell you, steroids are just fine, I have no problem with that. Really, there is a huge movements afford in the patient community to get rid of steroids. And so this is something that we have to be very mindful of. And in fact we were very pleased with the patient recorded outcomes in the CLEAR trial, which as you may remember both with SF36 as well as the Euro qualified D5L quality of life instruments we achieved statistically significant improvements in patient recorded qualities of life with both of those instruments. So that was a real finding, because that had not been seen before in AAV. So we think there is a broad desire to eliminate steroids from the standard-of-care for all of those reasons.

Do you think you need significance on say one of those patient reported outcomes or maybe as safety endpoints like infections to really drive reimbursement?

I don't think so. Frankly there is no precedent for that whatsoever. I mean if you look at the one Phase III development program that's happened in ANCA associated Vasculitis that was when rituximab was offered as an alternative to cyclophosphamide in the so called RAVE trial. And in fact the safety profile was virtually identical between those two arms.

Rituximab is clearly more expensive than cyclophosphamide and yet adoption rate for rituximab over cyclophosphamide in the United States has been very, very good. So -- and that is without any evidence in the label or the trial, the control trials to suggest that there are advantages in the areas that you speak of.

Okay, thank you very much. And congratulations again on the deal.

Thanks very much.

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

Thank you very much. It's been great pleasure to describe our progress this quarter, our plans for 2016 and details around our new alliance with Vifor Pharma today. I thank you all very much for your time and look forward to updating you on future progress. Thanks again.

Ladies and gentlemen thank you for your participation in today's conference. This concludes the program. You may all disconnect. Everyone have a great day.