ChemoCentryx (CCXI), which we originally recommended on August 5 as a play on upcoming Phase III data for the company’s lead drug candidate vercirnon, has to date been a poor investment, falling over 39% through the close of trading on August 30. Although the ChemoCentryx investment thesis has failed thus far, we believe that investors have reason to continue holding. With catalysts for two of the company’s lead clinical programs set to materialize by the end of the year, and with a well-capitalized balance sheet, there’s room for a recovery as interim data for an experimental diabetic nephropathy treatment is released in the third quarter and GlaxoSmithKline makes a decision on its involvement in a second asset.
A Word on Vercirnon
Given the Phase III failure of vercirnon and partner GlaxoSmithKline’s suspension of development, we do not expect the market to ascribe any real value to the drug going forward, certainly not without explicit word from Glaxo or ChemoCentryx that development has resumed. Although focus will shift away from vercirnon moving forward, there’s a chance that development resumes. We note that neither ChemoCentryx nor Glaxo have released any actual Phase III clinical data; the companies have only said that vercirnon failed to meet its Phase III efficacy endpoints. Several questions remain unanswered. What was the magnitude of the failure? Was there a difference in efficacy amongst patient subgroups? Another aspect of the Phase III program to keep in mind is the fact that in SHIELD-I, Glaxo specifically recruited patients with a history of failure to respond to anti-TNF therapies – just 12% of patients were non-responsive in successful Phase II trials. As we outlined in our original coverage of ChemoCentryx, one of the key strategic strengths of the drug was its lack of broad immunosuppressive side effects, a facet of existing anti-TNF therapies, chief among them Humira and Remicade. Such a benefit would be helpful to all Crohn’s Disease patients, not just those who fail to respond to anti-TNFs. If Glaxo had structured the vercirnon Phase III program around a wider set of patients, then it’s possible that efficacy in the Phase III program would have paralleled previous results.
We note that Glaxo has not yet scrapped development of vercirnon entirely. Rather, all trials are suspended as the company explores the current SHIELD-I safety and efficacy data. We also note that ChemoCentryx has also been developing CCX507, a next-generation de novo CCR9 compound now in Phase I trials. With SHIELD-I having a primary completion date of August 2013, it’s possible that ChemoCentryx may be able to provide an update in November in conjunction with its Q3 2013 earnings. However, until an update is provided, we won’t be ascribing value to vercirnon.
With the effective removal of vercirnon, ChemoCentryx’ pipeline is now led by its two Phase II compounds – the wholly owned CCX140 for the treatment of diabetic nephropathy, and CCX168 for the treatment of ANCA-vasculitis, also partnered with Glaxo.
Chemokines in Diabetic Nephropathy and ANCA-Vasculitis
With the failure of vercirnon, it’s prudent to discuss not only ChemoCentryx’s most advanced pipeline assets, but the medical rationale underpinning the company’s clinical programs. We turn first to chemokines in diabetic nephropathy. Diabetic nephropathy is characterized by the angiopathy of capillaries in the kidney glomeruli (which reside at the beginning of the nephron that filters blood), and is one of the more serious complications that arise from diabetes. Per data from the American Diabetes Association, diabetic nephropathy has become the single most common cause of end stage renal disease (ESRD) in the U.S. accounting for around 40% of ESRD cases in the United States. It is estimated that 20-30% of diabetes patients will develop nephropathy over the course of their lifetimes. Over the last several years, there has been an increase in research related to the role of chemokines in diabetic nephropathy, specifically that of CCR2 and CCL2 (the main ligand for CCR2, also known as MCP-1). Research published in 2003 in Nephrology Dialysis Transplantation (Wada T. et al) examined the role of these proteins in diabetic nephropathy; their research showed consistent, progressive increases in MCP-1 levels in diabetic patients with advancing glomular lesions. More current research, published in June 2013 in Nephrology Dialysis Transplantation focused specifically on the impact of blocking CCL2 & CCR2 in diabetic mice. The scientist fed diabetic mice food infused with RS102895 [a CCR2 antagonist sold by Sigma-Aldrich (SIAL) for use in clinical research] or regular food for 9 weeks. Their research concluded that after 9 weeks, the diabetic mice on therapy saw significant improvements in diabetes-induced albuminuria as well as an improvement in glucose intolerance. In addition, no adverse changes in weight or blood pressure were detected in the study. In addition, ChemoCentryx’s pre-clinical studies showed improvements in 4 key markers of diabetic nephropathy, including albuminuria, hyperglycemia, glomerular filtration rates, serum markers, and multiple histological improvements. ChemoCentryx’s preclinical research showed that CCX140 is certainly a potent CCR2 antagonist and helps block the presence of monocytes in the kidneys of diabetic patients, where they would eventually become macrophages.
In a completed Phase II program, CCX140 demonstrated an acceptable safety profile as well as statistically significant efficacy at the 10 mg dosing level. Now, 140 is being tested in another Phase II trial (NCT01447147). This trial, with a primary completion date of August 2014, is testing CCX140 in 332 type 2 diabetes patients, with safety and tolerability serving as the primary endpoint, and efficacy as measured by changes from baseline in morning ACR (albumin:creatinie ratio) as a secondary endpoint. Interim 12-week data is due by the end of September, covering several key measures. On ChemoCentryx’s Q2 2013 earnings call, CEO Thomas Schall said, “[The 12-week interim data] will be focused on the safety and tolerability of CCX140 in this patient population and also examine effects of CCX140 on protein levels in the urine or proteinuria as a measure of kidney function. We will also examine the drug’s effects on hemoglobin A1c or HbA1c.” Schall further noted that reductions in proteinuria of greater than 20% would be notable, in light of existing data that indicates 20% is the threshold at which patients begin to see long-term improvements in renal function. We note that CCX140 is not the only CCR2-based therapy in development. Pfizer (PFE) is also working on its own CCR2 therapies – PF-04634817 – also in Phase II trials (NCT01712061). Although Pfizer’s primary completion date of May 2014 puts the company slightly ahead of ChemoCentryx in terms of timing, we note that PF-04634817 is dosed 6 times per day versus once per day for CCX140 (Pfizer has another diabetic nephropathy therapy, PF-00489791 in Phase II trials, but this is a PDE5 inhibitor). ChemoCentryx plans to retain rights to CCX140 in North America but will seek a partner for international commercialization of the compound if successful. On a global basis, the diabetic nephropathy market is estimated to reach $2.35 billion by 2017 (from $1.65 billion in 2010). Diabetic nephropathy is currently treated via several different therapies, namely ACE inhibitors and ARB’s. Clinical studies have shown that antihypertensive therapy can slow the progression of diabetic nephropathy, but as the disease progresses, more ACE inhibitors and/or ARB’s are necessary to keep blood pressure below the American Diabetes Association’s 130/80 mm Hg blood pressure target. Around 20% of patients still progress to end-stage renal disease, and CCX140 has the potential to offer a new approach to addressing diabetic nephropathy in a more direct manner. We note that in conjunction with CCX140, ChemoCentryx is also developing CCX872, its next-generation CCR2 therapy, which is currently in Phase I trials.
CCX168 is in Phase II trials (NCT01363388) for the treatment of ANCA (anti-neutrophil cytoplasmic autoantibody)-associated vasculitis, also known as AAV. Patients with AAV have flawed immune systems in which ANCA’s attack neutrophils, causing a patient’s white blood cells to attack the walls of small vessels throughout their body. Symptoms include weakness, tingling, bleeding, and kidney failure.
Researchers at the University of Birmingham and Queen Elizabeth Hospital (published in the Journal of the American Society of Nephrology) argued that ANCA’s activate cytokine-primed neutrophils. Kamesh L. et al said that “Neutrophils respond [to activation by ANCA’s] by developing the capability of adhering to cytokine-activated endothelial cells, generating a respiratory burst, releasing proteolytic granule contents, and secreting proinflammatory cytokines. ANCA also interfere with the normal processes of resolution of inflammation.” The researchers also argue that there is an unmet medical need for new treatments given the high morbidity and mortality of existing ANCA-vasculitis treatments; the disease is chiefly treated with corticosteroids and cyclophosphamide (marketed as Baxter’s Endoxan, Pfizer’s Neosar, and Bristol-Myers’ Cytoxan). Cyclophosphamide’s main use is in treating cancer, but the drug is also widely used in treating autoimmune diseases such as ANCA-vasculitis. Other existing treatment options for ANCA-vasculitis include azathioprine, rituximab, and in severe cases, plasma exchange. The efficacy of existing treatment options has been well-established; ChemoCentryx has gone on record saying that 70-90% of patients respond to existing therapeutic options. The unmet need lies in a treatment without severe side effects, chief among them infection that arises as a result of weakened immune systems. Cyclophosphamide has a wide range of side effects, including bone marrow suppression, hair loss, lethargy, and nausea, and is actually carcinogenic, with bladder cancer having been shown to be a potential long-term complication of treatment. Kasama T. et al also laid out a case for the role of cytokines in vasculitis: “Although little data are available regarding the participation of proinflammatory cytokines in the pathogenesis of systemic vasculitis, many cytokines are known to play a role in the pathogenesis of vasculitis syndrome.” Their work concludes by noting that cytokine networks are likely critical components of vascular inflammation, and that further clinical research is needed to reach a definitive conclusion.
Pre-clinical studies conducted by ChemoCentryx in mice showed that treatment with CCX168 produced complete blockage of glomerulonephritis induced by injections of anti-myeloperoxidase antibodies (a type of ANCA). In a Phase I trial in 31 healthy subjects, CCX168 also showed an acceptable safety profile across a range of potential doses (ranging from 1 mg to 100 mg). No serious adverse events were reported, and the most common adverse events were headache, diarrhea, dizziness, and nausea, a far cry from the side effects of existing treatment options.
We also note that the role of C5aR has also been examined in ANCA-induced glomerulonephritis. Schreiber A. et al examined whether or not anaphylotixin C5a plays a role in disease induction via C5aR. The researches tested their hypothesis via two groups of mice. They immunized myeloperoxidase-deficient mice with myeloperoxidase and then transplanted bone marrow from either wild mice or C5aR deficient mice, after subjecting the mice to irradiation. 100% of the mice that received wild mice marrow (6 out of 6) developed necrotizing crescentic glomerulonephritis (also known as NCGN), but only 1 of eight (p<0.05) mice given C5aR-deficient marrow developed NCGN. In addition, mice in the C5aR-deficient group saw a statistically significant (p<0.05) improvement in albuminuria and neutrophil influx. It remains to be seen whether these preclinical results will translate to humans.
ChemoCentryx’s ongoing Phase II trial (n=60) is geared towards safety, with the primary endpoint being the rate of adverse events and abnormalities detected via physical examination. Measure of efficacy will also be monitored, with the rate of systemic corticosteroid usage serving as the trials secondary endpoint. Patients in the trial must be diagnosed with one of three forms of vasculitis, Wegner’s granulomatosis, microscopic polyangiitis, or renal limited vasculitis, and test positive for P-ANCA, C-ANCA or for anti-proteinase-3 or anti-myeloperoxidase. ChemoCentryx’s Phase II trial has a primary completion date of July 2013, suggesting that the trial is wrapped and data being analyzed.
Perhaps most importantly, GlaxoSmithKline must make a licensing decision in the fourth quarter, suggesting that ChemoCentryx is unlikely to release the Phase II clinical data for CCX168 until Glaxo decides whether or not to exercise its option; in other words, we expect top-line data to be released in tandem with a Glaxo’s licensing decision. We remind investors that should Glaxo exercise its option, it will assume all development and commercialization costs for CCX168, and ChemoCentryx will be entitled to up to $125 million in potential sales milestones and royalties of at least 10% to the mid-teens.
Conclusions
Understanding that CCX140 represents the most important value driver for CCXI, holding shares through the release of upcoming data for 140 (interim and subsequently top-line data next year) makes sense given the risk/reward associated with a compelling treatment for diabetic nephropathy. Furthermore, ChemoCentryx is still well capitalized; the company ended Q3 2013 with over $166 million in cash & investments and no debt; investors are paying around $189 million for ChemoCentryx’s pipeline, which includes 7 programs aside from CCX140 and CCX168. CCX354 is in Phase II trials for the treatment of rheumatoid arthritis and has already been licensed by Glaxo. The company is developing next-generation versions of both its CCR9 (CCX507) and CCR2 compounds (CCX872) and has 4 other programs in pre-clinical testing, covering glioblastoma, dermatitis, hepatitis, and various autoimmune diseases. Even if ChemoCentryx’s burn rate were to double from a 2013 average of $9.1 million per quarter, the company’s balance of cash & investments would be enough to fund operations for almost two years. For those underwater following the vercirnon failure, holding out for further milestones makes sense.
