Shares of ChemoCentryx (CCXI) rose over 53% today after the tiny biopharma announced two separate pieces of news. First, the company's conditional marketing authorization (CMA) application for its lead drug candidate, avacopan, was accepted for review by the European Medicines Agency.
Second, ChemoCentryx announced up to $100 million in new capital commitments. That's worded a bit funny because there are really two separate financial transactions supporting that number. The acceptance of the CMA by the European Medicines Agency triggered a $50 million milestone payment from Vifor Fresenius Medical Care Renal Pharma, the company's partner for the drug's development.
The other $50 million comprises the "up to $100 million" part of the second announcement. That's because ChemoCentryx entered into a credit facility with Hercules Capital, which will provide up to $50 million in three separate tranches in the next several years. The company received $5 million already, and it intends to use the capital agreement to push avacopan over the finish line, if necessary.
As of 11:24 a.m. EST Thursday, the stock had settled to a 36.2% gain.
ChemoCentryx packed a lot of news into a single day, so let's back up just a little.
The company formed a Kidney Health Alliance with Vifor Fresenius Medical Care Renal Pharma to develop two drug candidates, avacopan and CCX140, as potential treatments for various kidney diseases. The former is the lead drug candidate for the tiny biopharma's overall pipeline. It's currently enrolling patients in a pivotal phase 3 trial evaluating its effectiveness in treating anti-neutrophil cytoplasmic antibody associated vasculitis, or ANCA vasculitis. The disease causes inflammation that ruptures small blood vessels and mainly targets a patient's kidneys, so it's considered to be a kidney disease.
While it's always good to have a deep-pocketed partner on board for drug development, partnerships really only matter if drug candidates progress through the clinic and eventually hit the market, especially since most of the value for a tiny company comes in the form of milestone payments and royalties. So far, ChemoCentryx is hitting the mark with the Kidney Health Alliance and Viform, having received $205 million to date, including today's milestone payment.
The partnering strategy is the main reason ChemoCentryx boasted $120 million in cash and short-term investments and had no debt on its balance sheet at the end of September 2017. The new cash from today's developments (the capital agreement will result in debt on the balance sheet for the first time) bodes well for completing the phase 3 trial for avacopan and potentially launching it into the market -- significantly de-risking the expenses that come with late-stage drug development and commercialization. Plus, there are additional milestones on the horizon if the drug is approved.
Simply having a CMA accepted for review means relatively little in the grand scheme of things, although a cool $50 million milestone payment certainly helps. Just remember that the drug still needs to show up in its ongoing phase 3 trial.
Mr. Market has historically overlooked ChemoCentryx but is reconsidering his stance today. There's no guarantee that avacopan will successfully complete its phase 3 trial or be a market success if approved. However, this tiny biopharma has done a pretty solid job maintaining lean operations, strategically financing development, and not diluting shareholders. It could be one to watch in 2018.