Form 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2013

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)

 

 

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  x    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 Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer    ¨    Accelerated filer    ¨
Non-accelerated filer    x  (Do not check if a smaller reporting company)    Smaller reporting company    ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The number of outstanding shares of the registrant’s common stock, par value $0.001 per share, as of May 6, 2013, was 42,618,592.

 

 

 


Table of Contents

CHEMOCENTRYX, INC.

QUARTERLY REPORT ON FORM 10-Q

For the quarterly period ended March 31, 2013

Table of Contents

 

PART I. FINANCIAL INFORMATION

  

Item 1.

   Financial Statements (Unaudited)   
   Condensed Consolidated Balance Sheets – March 31, 2013 and December 31, 2012      3   
   Condensed Consolidated Statements of Operations – Three Months Ended March 31, 2013 and 2012      4   
   Condensed Consolidated Statements of Comprehensive Loss – Three Months Ended March 31, 2013 and 2012      5   
   Condensed Consolidated Statements of Cash Flows – Three Months Ended March 31, 2013 and 2012      6   
   Notes to Condensed Consolidated Financial Statements      7   

Item 2.

   Management’s Discussion and Analysis of Financial Condition and Results of Operations      12   

Item 3.

   Quantitative and Qualitative Disclosures About Market Risk      18   

Item 4.

   Controls and Procedures      19   

PART II. OTHER INFORMATION

  

Item 1.

   Legal Proceedings      20   

Item 1A.

   Risk Factors      20   

Item 2.

   Unregistered Sales of Equity Securities and Use of Proceeds      20   

Item 3.

   Defaults Upon Senior Securities      20   

Item 4.

   Mine Safety Disclosures      20   

Item 5.

   Other Information      20   

Item 6.

   Exhibits      20   

SIGNATURES

     21   

EXHIBIT INDEX

  


Table of Contents

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

CHEMOCENTRYX, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands except share and per share data)

 

     March 31,     December 31,  
     2013     2012  
     Unaudited        
Assets     

Current assets:

    

Cash and cash equivalents

   $ 11,637      $ 8,460   

Short-term investments

     64,268        94,234   

Accounts receivable from related party

     934        1,156   

Prepaid expenses and other current assets

     942        630   
  

 

 

   

 

 

 

Total current assets

     77,781        104,480   

Property and equipment, net

     1,315        1,421   

Long-term investments

     33,803        16,262   

Other assets

     287        160   
  

 

 

   

 

 

 

Total assets

   $ 113,186      $ 122,323   
  

 

 

   

 

 

 
Liabilities and Stockholders’ Equity     

Current liabilities:

    

Accounts payable

   $ 781      $ 750   

Accrued liabilities

     5,440        6,267   

Deferred revenue from related party

     2,633        3,761   

Current portion of equipment financing obligations

     527        522   
  

 

 

   

 

 

 

Total current liabilities

     9,381        11,300   

Noncurrent equipment financing obligations

     233        379   

Other non-current liabilities

     287        298   
  

 

 

   

 

 

 

Total liabilities

     9,901        11,977   

Stockholders’ equity:

    

Preferred stock:

    

Preferred stock, $0.001 par value, 10,000,000 shares authorized; no shares issued and outstanding;

     0        0   

Common stock, $0.001 par value, 200,000,000 shares authorized at March 31, 2013 and December 31, 2012, respectively; 36,834,405 shares and 36,354,547 shares issued and outstanding at March 31, 2013 and December 31, 2012, respectively, net of shares subject to repurchase

     37        36   

Additional paid-in capital

     247,653        244,513   

Note receivable

     (16     (16

Accumulated other comprehensive (loss) income

     (7     2   

Accumulated deficit

     (144,382     (134,189
  

 

 

   

 

 

 

Total stockholders’ equity

     103,285        110,346   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

   $ 113,186      $ 122,323   
  

 

 

   

 

 

 

See accompanying notes.

 

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CHEMOCENTRYX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

 

     Three Months Ended  
     March 31,  
     2013     2012  

Revenues:

    

Collaborative research and development revenue from related party

   $ 1,927      $ 1,018   

Operating expenses:

    

Research and development

     9,255        6,909   

General and administrative

     2,964        2,562   
  

 

 

   

 

 

 

Total operating expenses

     12,219        9,471   
  

 

 

   

 

 

 

Loss from operations

     (10,292     (8,453

Other income (expense):

    

Interest income

     116        103   

Interest expense

     (17     (735
  

 

 

   

 

 

 

Total interest income (expense), net

     99        (632
  

 

 

   

 

 

 

Net loss

   $ (10,193   $ (9,085
  

 

 

   

 

 

 

Basic and diluted net loss per common share

   $ (0.28   $ (0.28
  

 

 

   

 

 

 

Shares used to compute basic and diluted net loss per common share

     36,611        32,931   
  

 

 

   

 

 

 

See accompanying notes.

 

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CHEMOCENTRYX, INC.

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE LOSS

(in thousands)

(unaudited)

 

     Three Months Ended  
     March 31,  
     2013     2012  

Net loss

   $ (10,193   $ (9,085

Unrealized (loss) gain on available-for-sale securities

     (9     10   
  

 

 

   

 

 

 

Comprehensive loss

   $ (10,202   $ (9,075
  

 

 

   

 

 

 

 

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CHEMOCENTRYX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

     Three Months Ended
March 31,
 
     2013     2012  

Operating activities

    

Net loss

   $ (10,193   $ (9,085

Adjustments to reconcile net loss to net cash used in operating activities:

    

Depreciation of property and equipment

     142        159   

Stock-based compensation

     1,536        1,022   

Amortization of premiums/discounts on investments, net

     420        380   

Noncash interest expense

     (11     408   

Changes in assets and liabilities:

    

Accounts receivable due from related party

     222        13   

Prepaids and other current assets

     (312     (166

Other assets

     (127     1,935   

Accounts payable

     31        1,021   

Other liabilities

     (846     (1,069

Deferred revenue

     (1,128     (1,017
  

 

 

   

 

 

 

Net cash used in operating activities

     (10,266     (6,399

Investing activities

    

Purchases of property and equipment, net

     (36     (26

Purchases of investments

     (36,682     (92,882

Maturities of investments

     48,697        22,849   
  

 

 

   

 

 

 

Net cash provided by (used in) investing activities

     11,979        (70,059

Financing activities

    

Proceeds from issuance of common stock

     0        57,017   

Proceeds from exercise of stock options

     1,293        154   

Proceeds from exercise of warrants

     312        0   

Payments on equipment financing obligations

     (141     (135
  

 

 

   

 

 

 

Net cash provided by financing activities

     1,464        57,036   
  

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     3,177        (19,422

Cash and cash equivalents at beginning of period

     8,460        40,155   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 11,637      $ 20,733   
  

 

 

   

 

 

 

Supplemental disclosures of cash flow information

    

Cash paid for interest

   $ 9      $ 14   

Non-cash financing activity:

    

Issuance of common stock for settlement of convertible debt, including accrued interest

   $ 0      $ 10,215   

See accompanying notes.

 

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CHEMOCENTRYX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2013

(unaudited)

 

1. Description of Business

ChemoCentryx, Inc. (the Company) commenced operations in 1997. The Company is a clinical-stage biopharmaceutical company focused on discovering, developing and commercializing orally administered chemokine-based therapeutics to treat autoimmune diseases, inflammatory disorders and cancer. The Company’s principal operations are in the United States and it operates in one segment.

Unaudited Interim Financial Information

The financial information filed is unaudited. The Condensed Consolidated Financial Statements included in this report reflect all adjustments (consisting only of normal recurring adjustments) that the Company considers necessary for the fair statement of the results of operations for the interim periods covered and of the financial condition of the Company at the date of the interim balance sheet. The December 31, 2012 Condensed Consolidated Balance Sheet was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles in the United States of America (GAAP). The results for interim periods are not necessarily indicative of the results for the entire year or any other interim period. The Condensed Consolidated Financial Statements should be read in conjunction with the Company’s financial statements and the notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2012 filed with the Securities and Exchange Commission, or SEC, on March 14, 2013.

 

2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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.

Reclassifications

Certain items in the Condensed Consolidated Statements of Cash Flows have been reclassified to conform to the current fiscal year’s format.

Net Loss Per Share

Basic and diluted net loss per common share is computed by dividing net loss by the weighted-average number of vested common shares outstanding during the period. Participating securities are included in the computation of basic income per share using the two-class method. The calculation of diluted net loss per share excludes potential common stock because its effect is antidilutive. Potential common stock consists of incremental common shares issuable upon the exercise of stock options and warrants.

 

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For the three months ended March 31, 2013 and 2012, the Company’s potential common stock includes the following shares, all of which have been excluded from the computation of diluted net loss per share because their impact is antidilutive:

 

     Three Months Ended
March 31,
 
     2013      2012  

Options to purchase common stock

     4,969,772         4,279,738   

Warrants to purchase common stock

     151,672         309,500   

Common stock subject to repurchase

     0         700   
  

 

 

    

 

 

 
     5,121,444         4,589,938   
  

 

 

    

 

 

 

 

3. Cash Equivalents and Investments

The amortized cost and fair value of cash equivalents and investments at March 31, 2013 and December 31, 2012 were as follows (in thousands):

 

     March 31, 2013
(unaudited)
 
     Amortized      Gross Unrealized     Fair  
     Cost      Gains      Losses     Value  

Money market funds

   $ 12,093       $ 0       $ 0      $ 12,093   

Government-sponsored agencies

     12,005         1         (1     12,005   

Commercial paper

     25,378         0         0        25,378   

Corporate debt securities

     58,691         21         (28     58,684   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total available-for-sale securities

   $ 108,167       $ 22       $ (29   $ 108,160   
  

 

 

    

 

 

    

 

 

   

 

 

 

Classified as:

          

Cash equivalents

           $ 10,089   

Short-term investments

             64,268   

Long-term investments

             33,803   
          

 

 

 

Total available-for-sale securities

           $ 108,160   
          

 

 

 

 

     December 31, 2012  
     Amortized      Gross Unrealized     Fair  
     Cost      Gains      Losses     Value  

Money market funds

   $ 10,403       $ 1       $ 0      $ 10,404   

Government-sponsored agencies

     6,009         1         0        6,010   

Commercial paper

     29,171         3         0        29,174   

Corporate debt securities

     71,980         23         (26     71,977   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total available-for-sale securities

   $ 117,563       $ 28       $ (26   $ 117,565   
  

 

 

    

 

 

    

 

 

   

 

 

 

Classified as:

          

Cash equivalents

           $ 7,069   

Short-term investments

             94,234   

Long-term investments

             16,262   
          

 

 

 

Total available-for-sale securities

           $ 117,565   
          

 

 

 

All available-for-sale securities held as of March 31, 2013, had contractual maturities of less than two years. There have been no significant realized gains or losses on available-for-sale securities for the periods presented. No available-for-sale securities held as of March 31, 2013, have been in a continuous unrealized loss position for more than 12 months. As of March 31, 2013, unrealized

 

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losses on available-for-sale investments are not attributed to credit risk and are considered to be temporary. The Company believes that it is more-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. To date, the Company has not recorded any impairment charges on marketable securities related to other-than-temporary declines in market value.

 

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 are as follows as of March 31, 2013 and December 31, 2012 (in thousands):

 

    

March 31, 2013

(unaudited)

 
Description    Level 1      Level 2      Level 3      Total  

Money market fund

   $ 12,093       $ 0       $ 0       $ 12,093   

Government-sponsored agencies

     0         12,005         0         12,005   

Commercial paper

     0         25,378         0         25,378   

Corporate debt securities

     0         58,684         0         58,684   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

   $ 12,093       $ 96,067       $ 0       $ 108,160   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     December 31, 2012  
Description    Level 1      Level 2      Level 3      Total  

Money market fund

   $ 10,404       $ 0       $ 0       $ 10,404   

Government-sponsored agencies

     0         6,010         0         6,010   

Commercial paper

     0         29,174         0         29,174   

Corporate debt securities

     0         71,977         0         71,977   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

   $ 10,404       $ 107,161       $ 0       $ 117,565   
  

 

 

    

 

 

    

 

 

    

 

 

 

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 using non-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, including non-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 corroborates non-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.

The Company recorded its convertible debt as a liability at fair value, which was estimated at the issuance date using the Probability-Weighted Expected Returns model (PWERM). The PWERM requires inputs such as the expected term of the debt, share price volatility, risk-free interest rate and the likelihood and timing of future equity financing. These assumptions are reviewed each reporting period and changes in the estimated fair value of the convertible note are recognized in interest expense. As of December 31, 2011, the Company estimated the fair value of its convertible debt at approximately $10.5 million. In February 2012, following the completion of the Company’s initial public offering, or IPO, all outstanding principal and accrued interest relating to this debt automatically converted into 1,021,490 shares of common stock. The following table shows the change in fair market value of the Company’s liabilities during the three months ended March 31, 2012 (in thousands):

 

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     Fair Market Value  

Convertible debt from related party

  

Balance as of December 31, 2011

   $ 10,472   

Change in fair market value prior to conversion

     794   
  

 

 

 

Balance upon conversion

     11,266   
  

 

 

 

Balance as of March 31, 2012

   $ —     
  

 

 

 

 

5. Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

 

     March  31,
2013

(unaudited)
     December 31,
2012
 

Research and development related

   $ 3,566       $ 3,678   

Compensation related

     988         1,889   

Other

     886         700   
  

 

 

    

 

 

 
   $ 5,440       $ 6,267   
  

 

 

    

 

 

 

 

6. Related-Party Transactions

Glaxo Group Limited

In August 2006, the Company entered into a product development and commercialization agreement with Glaxo Group Limited (GSK). The Company recognized the following revenues from GSK during the three months ended March 31, 2013 and 2012 (in thousands):

 

     Three Months Ended
March  31,
 
     2013      2012  

GSK:

     

Contract revenue

   $ 799       $ 0   

Recognition of up-front payments

     1,128         1,018   
  

 

 

    

 

 

 

Total revenues

   $ 1,927       $ 1,018   
  

 

 

    

 

 

 

At March 31, 2013 and December 31, 2012, the Company had an accounts receivable balance due from GSK of $0.9 million and $1.2 million, respectively.

Techne

In September 2011, the Company entered into a convertible note loan agreement with Techne Corporation, or Techne, one of its principal stockholders, pursuant to which the Company issued a convertible note to Techne with a principal amount of $10.0 million and bearing interest at a rate of 5.0% per annum and a maturity date in September 2021. In February 2012, the Company completed its IPO, and as such, all outstanding principal and accrued and unpaid interest automatically converted into 1,021,490 shares of common stock at a conversion price equal to the IPO price of $10.00 per share. Upon the conversion of the note in connection with the IPO, Techne received a warrant with a ten-year term to purchase 150,000 shares of the Company’s common stock at an exercise price per share equal to $20.00 per share, or 200% of the IPO price of its common stock. In addition, pursuant to the terms of the convertible note loan agreement, concurrent with the IPO, Techne purchased $5.0 million of the Company’s common stock in a private placement at $10.00 per share.

 

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7. Shareholders’ Equity

Initial Public Offering

In February 2012, the Company completed its IPO pursuant to which the Company issued 5,175,000 shares of common stock, including the exercise of the underwriters’ over-allotment option and received (a) net proceeds of $45.0 million, after underwriting discounts, commissions and offering expenses; and (b) gross proceeds of $12.0 million in concurrent private placements of 1,200,000 shares of common stock at the IPO price of $10.00 per share. In addition, in connection with the completion of the Company’s IPO, all convertible preferred stock converted into 24,332,186 shares of common stock. As discussed in Note 6, all outstanding principal and accrued and unpaid interest under the convertible note loan agreement with Techne also converted into common stock upon the completion of the Company’s IPO.

Warrants to Purchase Common Stock

In February 2012, in connection with the IPO, the warrants to purchase Series B convertible preferred stock converted into warrants to purchase 159,500 shares of common stock at $5.20 per share, with expiration dates from 2012 through 2014. As discussed in Note 6, upon the completion of the Company’s IPO in February 2012, Techne received a warrant with a ten-year term to purchase 150,000 shares of the Company’s common stock at $20.00 per share. As of December 31, 2012, warrants to purchase 301,672 shares of common stock were outstanding with a weighted-average exercise price of $12.56. During the three months ended March 31, 2013, warrants to purchase 150,000 shares of common stock were exercised. As of March 31, 2013, warrants to purchase 151,672 shares of common stock were outstanding with a weighted-average exercise price of $19.84.

 

8. Equity Incentive Plans

During the three months ended March 31, 2013, the Company had the following option activities under its equity incentive plans:

 

           Outstanding Options  
     Available for
Grant
    Shares     Weighted Average
Exercise Price
     Weighted
Average
Remaining
Contractual
Term
     Aggregate
Intrinsic  Value
 

Balance at December 31, 2012

     1,567,902        5,292,738      $ 7.38         

Shares authorized

     1,450,000             

Granted

     (62,075     62,075        12.02         

Exercised

     0        (371,247     3.48         

Forfeited

     13,794        (13,794     9.29         
  

 

 

   

 

 

         

Balance at March 31, 2013

     2,969,621        4,969,772      $ 7.73         6.70 years       $ 30,897,334   
  

 

 

   

 

 

         

Stock-based Compensation

Total stock-based compensation expense was $1.5 million during the three months ended March 31, 2013 and $1.0 million during the three months ended March 31, 2012. As of March 31, 2013, $11.5 million of total unrecognized compensation expense related to employee stock options, net of estimated forfeitures, was expected to be recognized over a weighted-average period of 2.67 years.

 

9. Subsequent Event

In April 2013, the Company completed an underwritten public offering of 5,750,000 shares of its common stock at $12.00 per share. The Company received net proceeds of approximately $64.4 million, after deducting underwriting discounts, commissions and estimated offering expenses.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our financial statements and accompanying notes included in this Quarterly Report on Form 10-Q and the financial statements and accompanying notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012, filed with the Securities and Exchange Commission, or SEC, on March 14, 2013.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q 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:

 

   

the initiation, timing, progress and results of our preclinical studies and clinical trials, and our research and development programs;

 

   

our ability to advance drug candidates into, and successfully complete, clinical trials;

 

   

our collaborator’s exercise of its option with respect to CCX168;

 

   

the commercialization of our drug candidates;

 

   

the implementation of our business model, strategic plans for our business, drug candidates and technology;

 

   

the scope of protection we are able to establish and maintain for intellectual property rights covering our drug candidates and technology;

 

   

estimates of our expenses, future revenues, capital requirements and our needs for additional financing;

 

   

the timing or likelihood of regulatory filings and approvals;

 

   

our ability to maintain and establish collaborations or obtain additional government grant funding;

 

   

our financial performance; and

 

   

developments relating to our competitors and our industry.

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 included in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012, filed with the SEC on March 14, 2013.

Any forward-looking statement in this Quarterly Report on Form 10-Q 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.

ChemoCentryx®, the ChemoCentryx logo, Traficet™ and Traficet-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 Quarterly Report on Form 10-Q belongs to its respective holder.

Unless the context requires otherwise, in this Quarterly Report on Form 10-Q the terms “ChemoCentryx,” “we,” “us” and “our” refer to ChemoCentryx, Inc., a Delaware corporation, and our subsidiary taken as a whole.

 

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Overview

ChemoCentryx is a biopharmaceutical company focused on discovering, developing and commercializing orally-administered therapeutics to treat autoimmune diseases, inflammatory disorders and cancer. We currently have six drug candidates in clinical development. Our drug candidates include:

 

   

Vercirnon (the FDA United States Adopted Name, or USAN designation; also known as Traficet-EN, CCX282 or GSK1605786) — Our most advanced drug candidate targets the chemokine receptor known as CCR9 and is currently in four pivotal Phase III clinical trials being conducted by our partner Glaxo Group Limited, or GSK, an affiliate of GlaxoSmithKline, for the treatment of patients with moderate-to-severe Crohn’s disease;

 

   

CCX140 — Our lead independent drug candidate targets the chemokine receptor known as CCR2 and is currently in Phase II clinical trials in patients with diabetic nephropathy, a form of kidney disease;

 

   

CCX354 (GSK2941266) — An inhibitor of the chemokine receptor known as CCR1, successfully completed a Phase II proof-of-concept clinical trial for the treatment of rheumatoid arthritis, or RA, and was subsequently licensed exclusively to GSK, now solely responsible for further clinical development;

 

   

CCX168 — Targeting the chemoattractant receptor known as C5aR (which binds the complement fragment C5a), CCX168 is currently in a Phase II clinical trial for the treatment of anti-neutrophil cytoplasmic antibody, or ANCA, associated vasculitis, and subject to GSK’s option in 2013 if it meets the success criteria established by the joint steering committee, or JSC;

 

   

CCX872 — Our independent next generation of orally administered inhibitors targeting CCR2 for expanded indications of renal disease is currently in Phase I clinical development; and

 

   

CCX507 — Our de novo wholly-owned next generation CCR9 inhibitor for inflammatory bowel disease and related disorders is currently in Phase I clinical development.

CCX140, CCX872 and CCX507 are wholly owned and are being developed independently by us, while vercirnon, CCX354 and CCX168 are subject to our collaboration agreement with GSK. In December 2009 and November 2011, GSK exercised its options to obtain exclusive licenses for the further development and commercialization of vercirnon and CCX354, respectively. Upon exercise of these options, GSK assumed sole responsibility for the further development and commercialization of these drug candidates and each of their two respective back-up compounds. We are also advancing several additional independent drug candidates through preclinical development. In addition, our strategy has been to identify next generation compounds related to our drug candidates. All of our drug candidates, including those under our collaboration agreement with GSK, have been internally discovered.

In August 2006, we entered into our strategic alliance with GSK. We have received over $250 million from GSK, of which approximately $82 million was in the form of equity investments, and the balance from up-front and milestone payments, research funding and option exercise fees. Under the terms of our agreement with GSK, we are responsible for the discovery and development of small molecule antagonists targeting four defined chemokine and chemo-attractant receptor targets (CCR9, CCR1, C5aR and ChemR23) and for advancing them through clinical proof-of-concept or to such other success criteria as are established by the JSC. If we demonstrate the satisfaction of the applicable success criteria, GSK is entitled to options to exclusively license drug candidates that are subject to the collaboration and two defined back-up compounds for each drug candidate for further development and commercialization on a worldwide basis. Upon exercising any of its options to drug candidates under the collaboration, GSK is solely responsible for all further clinical development and commercialization expenditures worldwide with respect to that drug candidate and its two designated back-up compounds. In exchange for the rights granted to GSK upon the exercise of its options, we are also entitled to receive regulatory and commercial milestone payments, as earned under the terms of our agreement, and royalties on the net sales of licensed drugs. GSK has already exercised its options to vercirnon (CCR9) and CCX354 (CCR1) and each of their two respective defined back-up compounds and we and GSK determined not to further advance the development of CCX832 (ChemR23) or its two designated back-up compounds. Thus, GSK’s only remaining option is to CCX168 (C5aR) and its associated back-up compounds. If GSK does not exercise its option to CCX168, we will evaluate our alternatives for further development of this drug candidate, which may entail internally developing it or identifying other collaboration partners for its development.

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. 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 equipment financing arrangements. In February 2012, we completed our IPO pursuant to which we received net proceeds of $45.0 million, after underwriting discounts, commissions and offering expenses. We also received gross proceeds of $12.0 million from concurrent private placements of common stock at the IPO price of $10.00 per share. In addition, the outstanding principal amount of $10.0 million and accrued interest under a convertible note we had issued to Techne Corporation, or Techne, one of our principal stockholders, automatically converted into shares of our common stock in connection with our IPO at a conversion price equal to the IPO price. In April 2013, we completed an underwritten public offering of 5,750,000 shares of our

 

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common stock at $12.00 per share. The Company received net proceeds of approximately $64.4 million, after deducting underwriting discounts, commissions and estimated offering expenses. As of March 31, 2013, we had an accumulated deficit of $144.4 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 Food and Drug Administration, or 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.

JOBS Act

In April 2012, the JOBS Act was enacted. Section 107 of the JOBS Act provides that an emerging growth company can utilize the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for implementing new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to delay such adoption of new or revised accounting standards, and as a result, we may not implement new or revised accounting standards on the relevant dates on which adoption of such standards is required for other companies.

Subject to certain conditions set forth in the JOBS Act, as an emerging growth company, we intend to rely on certain of these exemptions, including without limitation, providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404 and implementing any requirement that may be adopted regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis). These exemptions will apply for a period of five years following the completion of our IPO although if the market value of our common stock that is held by nonaffiliates exceeds $700 million as of any June 30 before that time, we would cease to be an emerging growth company as of the following December 31.

Critical Accounting Policies and Significant Judgments and Estimates

There have been no material changes in our critical accounting policies during the three months ended March 31, 2013, as compared to those disclosed in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Significant Judgments and Estimates” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012, filed with the SEC on March 14, 2013.

Results of Operations

Revenue

We have not generated any revenue from product sales. For the three months ended March 31, 2013, our revenue was derived from the recognition of up-front payments and reimbursement for research and development services from GSK. Total revenues for the period, as compared to the same period in the prior year, were as follows (in thousands):

 

     Three Months Ended
March 31,
 
     2013     2012  

GSK:

    

Contract revenue

   $ 799      $ —     

Recognition of up-front payments

     1,128        1,018   
  

 

 

   

 

 

 

Total revenues

   $ 1,927      $ 1,018   
  

 

 

   

 

 

 

Dollar increase

     909     

Percentage increase

     89  

The increase in revenues from 2012 to 2013 for the three month period was primarily due to funding of clinical support from GSK for CCX168 and, to a lesser extent, an increase in revenue relating to the upfront payment from GSK following our decision not to advance CCX832, thereby shortening the term of our performance obligation and associated period over which the upfront payment is recognized.

 

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Research and development expenses

Research and development expenses represent costs incurred to conduct basic research the discovery and development of novel small molecule therapeutics, such as vercirnon and CCX140; the development of our suite of proprietary drug discovery technologies, known collectively as EnabaLink, which includes our proprietary Reverse Activation of Migration, or RAM, screening technology and preclinical studies and clinical trials of our drug candidates. We expense 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 for the period, as compared to the same period in the prior year, were as follows (in thousands):

 

     Three Months Ended
March 31,
 
     2013     2012  

Research and development expenses

   $ 9,255      $ 6,909   

Dollar increase

   $ 2,346     

Percentage increase

     34  

The increase in expense from 2012 to 2013 for the three month period was primarily due to investing in our lead independent program targeting the chemokine receptor known as CCR2, including the advancement of CCX872, our second generation CCR2 inhibitor, into Phase I clinical development and CCX140 in Phase II studies in patients with diabetic nephropathy. In addition, CCX168 associated expenses increased primarily due to the continued patient enrollment in our Phase II clinical trial for the treatment of ANCA vasculitis. These increases were partially offset by a decrease in expenses associated with drug discovery efforts targeting CXCR7.

We track specific project expenses that are directly attributable to our clinical development candidates and preclinical candidates that have been nominated and selected for further development. Such project specific expenses include third-party contract costs relating to formulation, manufacturing, preclinical studies and clinical trial activities. Unlike our early stage research and drug discovery programs, we allocate research and development salaries, benefits or indirect costs to our development candidates and we have included such costs in the project specific expenses. All remaining research and development expenses are reflected in “Other” 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 our in-house laboratory activities, laboratory consumables and allocated facility costs associated with these earlier stage programs.

 

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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. The following table summarizes our research and development expenses by project (in thousands):

 

     Three Months Ended
March 31,
 
     2013      2012  

Development candidate (Target)

     

CCX140 (CCR2)

   $ 2,722       $ 2,642   

CCX872 (CCR2 2G)

     1,663         607   

CCX168 (C5aR)

     978         396   

CCX507 (CCR9 de novo)

     759         734   

CCX650 (CXCR7)

     188         1,042   

CCX354 (CCR1)

     —           109   

CCX832 (ChemR23)(1)

     —           91   

Other (CCR2 3G, CCR6, CCR4, CXCR6, Other)

     2,945         1,288   
  

 

 

    

 

 

 

Total research and development

   $ 9,255       $ 6,909   
  

 

 

    

 

 

 

 

(1) In February 2012, we and GSK determined not to further advance the development of CCX832 or its two designated back-up compounds.

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. For the remaining product option covered under our strategic alliance with GSK, for which we are eligible to receive milestone payments, we are responsible for development of drug candidates through satisfaction of the success criteria mutually agreed upon by the members of the JSC under this strategic alliance, after which time GSK has an option to an exclusive license on a compound by compound basis. Our strategy includes entering into additional partnerships with third parties for the development and commercialization of some of our independent drug candidates that are not subject to our alliance with GSK.

Most of our product development programs are at an early-to-mid-stage; therefore 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 CCX140, our lead independent drug candidate.

 

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General and administrative expenses

Total general and administrative expenses were as follows (in thousands):

 

     Three Months Ended
March 31,
 
     2013     2012  

General and administrative expenses

   $ 2,964      $ 2,562   

Dollar increase

   $ 402     

Percentage increase

     16  

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 increases from 2012 to 2013 for the three month period were primarily due to increased stock based compensation expense for stock option grants in addition to higher professional service fees relating to fulfilling our reporting obligations as a public company. We expect that general and administrative expenses will increase in the future as we expand our operating activities and incur additional costs associated with being a public company. These public company related increases will likely include investor and public relations expenses and legal and accounting related fees and expenses associated with preparing the Company to meet the requirements pursuant to the Sarbanes-Oxley Act of 2002.

Interest and other income (expense) 

Interest and other income (expense), primarily consists of interest income earned on our marketable securities and interest expense incurred on our equipment financing obligations and our convertible note. Total interest and other income (expense), net, as compared to prior years was as follows (in thousands):

 

     Three Months Ended
March 31,
 
     2013     2012  

Interest income

   $ 116      $ 103   

Interest expense

     (17     (735
  

 

 

   

 

 

 

Total interest income (expense) and other income, net

   $ 99      $ (632
  

 

 

   

 

 

 

Dollar increase

     731     

Percentage increase

     -116  

Interest expense for the three months ended March 31, 2013 was primarily related to our interest expense due on our equipment lines of credit. Interest expense decreased from 2012 to 2013 for the three month period primarily due to the automatic conversion of the convertible note issued to Techne to common stock upon our IPO in February 2012. Prior to its conversion, the change in the estimated fair value of the convertible note was recorded as interest expense.

Liquidity and Capital Resources

As of March 31, 2013, we had approximately $109.7 million in cash, cash equivalents and investments. Such balances exclude the net proceeds of approximately $64.4 million, after deducting underwriting discounts, commissions and estimated offering expenses, from the aforementioned underwritten public offering of 5,750,000 shares of our common stock at $12.00 per share in April 2013.

 

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The following table shows a summary of our cash flows for the three months ended March 31, 2013 and 2012 (in thousands):

 

     Three Months Ended
March 31,
 
     2013     2012  

Cash provided by (used in)

    

Operating activities

   $ (10,266   $ (6,399

Investing activities

     11,979        (70,059

Financing activities

     1,464        57,036   

Operating activities. Net cash used in operating activities was $10.3 million for the three months ended March 31, 2013, compared to net cash used of $6.4 million for the same period in 2012. This change was primarily due to changes in working capital items and an increase in net loss in the 2013 period.

Investing activities. Net cash used in or provided by investing activities for periods presented primarily relate to the purchase, sale and maturity of investments used to fund the day-to-day needs of our business. Following our February 2012 IPO, we invested the majority of our net proceeds received in short and long term investments. We finance property and equipment purchases through equipment financing facilities. Proceeds from collaboration agreements and common stock issuances are used for general working capital purposes, such as research and development activities and other general corporate purposes.

Financing activities. Net cash provided by financing activities was $1.5 million for the three months ended March 31, 2013, compared to $57.0 million for the same period in 2012. This decrease was primarily due to $57.0 million in net proceeds from the issuance of common stock as a result of our IPO and concurrent private placements in February 2012.

We believe that our existing cash, cash equivalents and investments as of March 31, 2013 will be sufficient to meet our anticipated cash requirements for at least the next 12 months. 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:

 

   

the achievement of milestones under our agreement with GSK;

 

   

the terms and timing of any other collaborative, licensing and other arrangements that we may establish;

 

   

the initiation, progress, timing and completion of preclinical studies and clinical trials for our drug candidates and potential drug candidates;

 

   

the number and characteristics of drug candidates that we pursue;

 

   

the progress, costs and results of our clinical trials;

 

   

the outcome, timing and cost of regulatory approvals;

 

   

delays that may be caused by changing regulatory approvals;

 

   

the cost and timing of hiring new employees to support continued growth;

 

   

the costs involved in filing and prosecuting patent applications and enforcing and defending patent claims;

 

   

the cost and timing of procuring clinical and commercial supplies of our drug candidates;

 

   

the cost and timing of establishing sales, marketing and distribution capabilities; and

 

   

the extent to which we acquire or invest in businesses, products or technologies.

Contractual Obligations and Commitments

There have been no material changes outside the ordinary course of our business to the contractual obligations we reported in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012 filed with the SEC on March 14, 2013.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our market risks at March 31, 2013 have not changed significantly from those discussed in “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2012, filed with the SEC on March 14, 2013.

 

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Item 4. Controls and Procedures

Conclusions Regarding the Effectiveness of Disclosure Controls and Procedures

As of March 31, 2013, 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 Rules 13a-15(e) and 15d-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 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 Officer concluded that, as of March 31, 2013, the design and operation of our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting during the three month period ended March 31, 2013, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Not Applicable.

Item 1A. Risk Factors

There have been no material changes to the risk factors included in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012, filed with the SEC on March 14, 2013.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities

None.

Use of Proceeds

In February 8, 2012, our registration statement on Form S-1 (File No. 333-177332), which registered an aggregate amount of up to $73.6 million of our common stock, was declared effective by the SEC for our IPO pursuant to which we sold 5,175,000 shares of common stock at an IPO price of $10.00 per share, including the exercise of the underwriters’ over-allotment option. As a result of the IPO, we received gross proceeds of approximately $51.8 million, which resulted in net proceeds to us of approximately $45.0 million, after underwriting expenses of approximately $6.8 million (comprising $3.6 million of underwriting discounts and commissions and $3.2 million in other offering expenses). None of the expenses associated with the IPO were paid to directors, officers, persons owning ten percent or more of any class of equity securities, or to their associates, or to our affiliates.

We intend to use the net offering proceeds to advance our independent drug candidates through the clinic and for working capital and general corporate purposes. Through March 31, 2013, the net proceeds have been applied as follows: $14.5 million to further develop CCX140, $4.8 million to advance CCX168 and CCX650, $9.4 million to advance CCX872 and CCX507 into clinical development and $11.0 million to fund other research and drug discovery programs. Pending use of the net proceeds, we intend to invest the net proceeds in short and intermediate-term, interest-bearing obligations, in investment grade securities, or in high credit quality U.S. government agency obligations and commercial paper. There has been no material change in the planned use of proceeds from our IPO from that described in the final prospectus filed with the SEC pursuant to Rule 424(b) on February 9, 2012.

Item 3. Defaults Upon Senior Securities

Not Applicable.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

Not Applicable.

Item 6. Exhibits

A list of exhibits is set forth on the Exhibit Index immediately following the signature page of this Quarterly Report on Form 10-Q, and is incorporated herein by reference.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

  CHEMOCENTRYX, INC.

Date: May 14, 2013

 

/s/ Thomas J. Schall, Ph.D.

 

Thomas J. Schall, Ph.D.

President and Chief Executive Officer

(Principal Executive Officer)

Date: May 14, 2013

 

/s/ Susan M. Kanaya

 

Susan M. Kanaya

Senior Vice President, Finance,

Chief Financial Officer and Secretary

(Principal Financial and Accounting Officer)

 

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EXHIBIT INDEX

 

Exhibit
Number

 

Description

    3.1(1)   Amended and Restated Certificate of Incorporation.
    3.2(1)   Amended and Restated Bylaws.
  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*   The following information from the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2013, formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive Loss, (iv) Condensed Consolidated Statements of Cash Flows, and (v) the Notes to Condensed Consolidated Financial Statements.

 

(1) Filed with Amendment No. 3 to the Registrant’s Registration Statement on Form S-1 on January 23, 2012 (Registration No. 333-177332), and incorporated herein by reference.
* Users of this data are advised that pursuant to Rule 406T of Regulation S-T, this XBRL information is being furnished and not filed herewith for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and Sections 11 or 12 of the Securities Act of 1933, as amended, and is not to be incorporated by reference into any filing, or part of any registration statement or prospectus, of the Registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing.