CCXI Chemocentryx, Inc. - 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of financial condition and results of operations together with “Item 6. Selected Financial Data” and our financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion and other parts of this Annual Report on Form 10-K contain forward-looking statements that involve risk and uncertainties, such as statements of our plans, objectives, expectations and intentions. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in “Item 1A. Risk Factors” of this Annual Report on Form 10-K.

Overview

ChemoCentryx is an integrated United States biopharmaceutical company focused on the development and commercialization of new medications targeting inflammatory disorders, autoimmune diseases and cancer. We target the chemokine and chemoattractant systems to discover, develop and commercialize orally-administered therapies. We have commercially launched TAVNEOS Ò (avacopan) in the U.S. in anti-neutrophil cytoplasmic autoantibody-associated vasculitis, or ANCA-associated vasculitis, specifically granulomatosis with polyangiitis, or GPA, and microscopic polyangiitis, or MPA, the two main forms of ANCA-associated vasculitis , in combination with standard therapy including glucocorticoids, and not for the elimination of glucocorticoid use.

2021 was a transformational year for ChemoCentryx. We became an integrated biopharmaceutical company. We obtained regulatory approval and launched TAVNEOS in the U.S. for the treatment of an orphan disease called ANCA-associated vasculitis, leading to the recent grant of orphan drug marketing exclusivity for a period of seven years. TAVNEOS also obtained regulatory approval in Japan for the treatment of patients with MPA and GPA. The European Medicines Agency’s, or EMA, Committee for Medicinal Products for Human Use, or CHMP, also adopted a positive opinion recommending marketing authorization for TAVNEOS, leading to the recent approval in Europe for the use of TAVNEOS in the European Union in January 2022 for the treatment of adult patients with severe active GPA or MPA in combination with a rituximab or cyclophosphamide regimen.

ANCA-associated vasculitis is a group of rare diseases that affect small-to-medium sized blood vessels in the patient’s body. It involves inflammation of the blood vessels, which reduces blood flow and can result in organ damage and failure, with the kidney as the major target, and is often fatal if not treated. While a patient’s genetics and environment are thought to be contributing causes of the disease, the exact cause is currently unknown.

The two most common sub-types of ANCA-associated vasculitis are GPA and MPA. In GPA, small areas of inflammation called “granulomas” develop inside parts of the body. GPA typically involves the kidneys, lungs ears, nose and throat. If a patient has GPA they may be at risk for serious complications, such as hearing loss, kidney damage, skin scarring, or blood clots. MPA also affects the lungs and kidneys. However, unlike GPA, a patient’s ears, nose and throat are less likely to be affected, and there is no granuloma formation.

We plan to capitalize on TAVNEOS ’s potential to address multiple disease areas in the coming years. We consider TAVNEOS to be a ‘Pipeline in a Drug.’ We plan to continue or initiate clinical development in additional orphan indications, including severe hidradenitis suppurativa, or HS, complement 3 glomerulopathy, or C3G, and lupus nephritis, or LN.

Our goal is to change treatment paradigms in orphan and rare disease; specifically targeting the chronic inflammatory pathway while avoiding immuno-suppression. Each of our drug candidates and our first commercial drug product, TAVNEOS, are designed to selectively block a specific chemoattractant receptor. Separately, in our cancer program, we use a novel, orally-administered drug candidate, CCX559, designed to inhibit programmed death protein 1/programmed death-ligand 1, or PD-1/PD-L1, which we are developing for the treatment of a variety of cancers. Small molecule checkpoint inhibitors may have advantageous properties compared to approved monoclonal antibodies, such as better penetration into solid tumors, reduced immunogenicity, lack of Fc-mediated side effects, and the convenience of oral administration.

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Highlights from our development pipeline include:

TAVNEOS Ò (avacopan) :

We are also developing TAVNEOS for the treatment of severe HS. We reported initial topline data, including positive results in a subgroup analysis of patients with Hurley Stage III (considered to have severe HS) from the Phase II AURORA trial of TAVNEOS, although the primary efficacy endpoint was not met in the overall study population. Pending interactions with regulatory agencies, we plan to advance TAVNEOS into Phase III clinical development for the treatment of severe HS in the second half of 2022.

We also reported initial topline data from the Phase II ACCOLADE trial of TAVNEOS for the treatment of patients with C3G. We plan to review data from the ACCOLADE trial with FDA in 2022.

We plan to develop TAVNEOS in additional complement-mediated renal indications, such as LN. We plan to initiate a clinical development program for TAVNEOS in LN in the second half of 2022, pending interaction with regulatory agencies.

Immuno-Oncology

CCX559 is our orally-administered inhibitor for programmed death protein 1/programmed death-ligand 1, or PD-1/PD-L1, which we are developing for the treatment of various cancers. This structurally novel small molecule displayed nanomolar potency and high selectivity for PD-L1. Results from in vitro studies suggested that CCX559 induced the dimerization and internalization of cell-surface PD-L1. CCX559, when orally administered in animal models, was observed to have anti-tumor activity, including the potential to induce complete responses. Safety pharmacology and toxicology studies in preclinical animal species supported the initiation of human trials in patients with advanced tumors. We initiated a Phase I dose escalation study of CCX559 in patients with advanced solid tumors in the second quarter of 2021. We plan to report initial data from this study in 2022 and initiate a Phase 1b/2 clinical study in selected patient populations in the second half of 2022.

Our Strategy

The key elements to our commercial and scientific strategy are to:

Commercialize TAVNEOS ® (avacopan) in the United States using our own resources, where we believe a company of our size can effectively compete in rare disease markets. We have deployed a specialty sales force primarily targeting that subset of nephrologists and rheumatologists treating ANCA-associated vasculitis patients in the United States;

Continue to develop CCX559, our orally-administered inhibitor for PD-1/PD-L1 for various cancers;

Develop and commercialize TAVNEOS for additional indications, including C3G, severe HS, and additional complement-mediated renal indications, such as LN, if approved;

Develop our drug candidates and establish collaborations with pharmaceutical and biotechnology companies to further develop and market our drug candidates; and

Discover and develop new drug candidates.

As of December 31, 2021, we had an accumulated deficit of $617.1 million. We expect to continue to incur net losses as we commercialize TAVNEOS in the United States, develop our drug candidates, expand clinical trials for our drug candidates currently in clinical development, and expand our research and development activities, organization systems and facilities. Significant capital is required to commercialize a drug 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.

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Recent Developments

In January 2022, the European Commission approved TAVNEOS in combination with a rituximab or cyclophosphamide regimen for the treatment of adult patients with severe active GPA or MPA, the two main forms of ANCA-associated vasculitis. TAVNEOS will receive marketing authorization in all member states of the EU, as well as in Iceland, Liechtenstein and Norway. The approval resulted in our achievement of a $45.0 million regulatory milestone from Vifor.

Also, in January 2022, the FDA granted a seven-year orphan drug marketing exclusive approval for TAVNEOS which began on October 7, 2021, the date of approval of the NDA. We are required to assure the availability of sufficient quantities of TAVNEOS to meet the needs of patients.

COVID-19

In December 2019, a disease caused by a novel strain of coronavirus, COVID-19, was identified in Wuhan, China. This virus has spread globally, including countries in which we have active clinical trial sites or contract manufacturing sites. The length of the pandemic and its related restrictions and their consequences for us remain subject to a number of risks and uncertainties, including disease resurgence and variants. We experienced a delay in topline clinical data from our ongoing AURORA trial to the fourth quarter of 2020, due to COVID-19, impacting certain sites where the trial was being conducted. We do not currently anticipate any material delays in our commercial production of TAVNEOS nor are we currently anticipating any material disruption in our clinical drug supply as a result of the pandemic. However, the pandemic continues to be unpredictable, and impacts may not be foreseeable or expected.

Critical Accounting Policies and Significant Judgments and Estimates

The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of our financial statements as well as the reported revenues and expenses during the reported periods. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in the Notes to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe that the following critical accounting policies relating to revenue recognition, clinical trial expenses and stock-based compensation are most important to understanding and evaluating our reported financial results.

Revenue Recognition

We recognize revenue when our customer obtains control of promised goods or services, in an amount that reflects the consideration which we expect to receive in exchange for those goods or services. To determine revenue recognition for arrangements, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy a performance obligation. We only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer. At contract inception, we assess the goods or services promised within each contract and determine those that are performance obligations and assess whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

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Product Sales, net and Product Supply Sales

Product Sales: We sell TAVNEOS to a limited number of specialty pharmacies and a specialty distributor. These customers subsequently dispense TAVNEOS directly to a patient or resell it to hospitals and certain pharmacies. We recognize product sales when the customer obtains control of the product, which occurs typically upon delivery to the customer. Product sales to these customers are recorded net of reserves established for distributor service fees and prompt payment discounts as stated in agreements, estimates for product returns, government rebates, chargebacks and the our co-pay assistance program for patients. We estimate these reserves using the expected value approach.

We believe our estimated reserves require significant judgment and may adjust these estimates as we accumulate historical data and assesses other quantitative and qualitative factors. Differences from actual results and changes to these estimates will be reported in the period that the differences become known.

Product Supply: Under a commercial supply agreement with Vifor, we sell TAVNEOS at contractual prices and recognize revenue upon delivery to Vifor or its sublicensees.

Collaboration and License Revenue

We enter into corporate collaborations under which we may obtain upfront license fees, research and development funding and development and regulatory and commercial milestone payments and royalty payments. Our performance obligations under these arrangements may include licenses of intellectual property, distribution rights, research and development services, delivery of manufactured product, and/or participation on joint steering committees.

Licenses of intellectual property: If the license to our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, we recognize revenue from upfront license fees allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license. For licenses that are bundled with other promises, we utilize judgement to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring proportional performance for purposes of recognizing revenue from non-refundable, up-front fees. We evaluate the measure of proportional performance each reporting period and, if necessary, adjust the measure of performance and related revenue recognition.

Milestone payments: At the inception of each arrangement that includes development, regulatory or commercial milestone payments, we evaluate whether the milestones are considered probable of being reached and estimate the amount to be included in the transaction price. ASC 606 suggests two alternatives to use when estimating the amount of variable consideration: the expected value method and the most likely amount method. Under the expected value method, an entity considers the sum of probability-weighted amounts in a range of possible consideration amounts. Under the most likely amount method, an entity considers the single most likely amount in a range of possible consideration amounts. Whichever method is used, it should be consistently applied throughout the life of the contract; however, it is not necessary for us to use the same approach for all contracts. We expect to use the most likely amount method for development and regulatory milestone payments. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within our or the licensee’s control, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. The transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis. We recognize revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, we re-evaluate the probability of achievement of each such milestone and any related constraint, and if necessary, adjust our estimates of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment.

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Commercial milestones and royalties: For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and in which the license is deemed to be the predominant item to which the royalties relate, we recognize revenue when the related sales occur. To date, we have not recognized any royalty revenue resulting from our collaboration arrangements.

Up-front payments and fees are recorded as deferred revenue upon receipt or when due, and may require deferral of revenue recognition to a future period until we perform our obligations under these arrangements. Amounts payable to us are recorded as accounts receivable when our right to consideration is unconditional.

Cost of Sales

Cost of sales for product sales and product supply consists primarily of direct and indirect costs related to the manufacturing of TAVNEOS products sold, including third-party manufacturing costs, packaging services, freight, storage costs, allocation of overhead costs of employees involved with production and net sales-based royalties expense. We began capitalizing costs related to inventory in October 2021 upon the FDA approval of TAVNEOS. Manufacturing costs associated with campaigns initiated prior to FDA approval are recorded as research and development expense. Accordingly, cost of sales in the near term will likely be lower than in later periods given the sales of pre-approval inventory will carry little to no manufacturing costs given such costs were previously expensed to research and development expense.

Clinical Trial Accruals and Related Expenses

We accrue and recognize expenses for clinical trial activities performed by third parties, including clinical research organizations, or CROs, and clinical investigators, based upon estimates made as of the reporting date of the work completed over the life of the individual trial in accordance with agreements established with CROs and clinical trial sites. Some CROs invoice us on a monthly basis, while others invoice upon milestones achieved and the expense is recorded as services are rendered. We determine the estimates of clinical activities incurred at the end of each reporting period through discussion with internal personnel and outside service providers as to the progress or stage of completion of trials or services, as of the end of each reporting period, pursuant to contracts with numerous clinical trial centers and CROs and the agreed upon fee to be paid for such services. The significant factors considered in estimating accruals include the number of patients enrolled and the percentage of work completed to date. Costs of setting up clinical trial sites for participation in the trials that are paid for in advance are expensed over the estimated set-up period. While the set-up periods vary from one arrangement to another, such set-up periods generally take from two to six months. Such set-up activities include clinical site identification, local ethics committee submissions, regulatory submissions, clinical investigator kick-off meetings and pre-study site visits. Clinical trial site costs related to patient enrollments are accrued as patients are entered into the trial. Due to the nature of estimates, we cannot assure you that we will not make changes to our estimates in the future as we become aware of additional information about the status or conduct of our clinical trials. However, based on facts and circumstances inherent in developing estimates and assumptions, management believes it is unlikely that applying other estimates and assumptions would have a material impact on the financial statements.

Stock-Based Compensation

Stock-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the employee’s requisite service period on a straight line basis. The fair value of the stock options is estimated using the Black-Scholes valuation model. We recorded non-cash stock-based compensation expense of $30.7 million, $22.9 million and $11.6 million for the years ended December 31, 2021, 2020 and 2019, respectively. At December 31, 2021 and 2020, we had $37.0 million and $33.8 million, respectively, of total unrecognized stock-based compensation expense, net of estimated forfeitures, related to employee stock options that will be recognized over a weighted-average period of 2.4 years and 2.3 years, respectively. We expect to continue to grant stock options in the future, and to the extent that we do, our actual stock-based compensation expense recognized in future periods will likely increase. Determining an estimate of the fair value of equity awards using the Black-Scholes valuation model requires that use of subjective assumptions related to expected stock price, volatility, term, risk-free interest rate and dividend yield.

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Results of Operations

Revenue

We launched TAVNEOS and began commercial sales during the quarter ended December 31, 2021. We also earned revenue from selling TAVNEOS in 2021 under our commercial supply agreement with Vifor. For the years ended December 31, 2021, 2020 and 2019, our revenues were primarily derived from collaboration and license revenue related to the Avacopan Agreement, the Avacopan Commercial Supply Agreement and the CCX140 Agreement, in each case, as amended, and the related letter agreements. In addition, we have grant revenue derived from the FDA Orphan Products Development grant to support the clinical development of TAVNEOS for the treatment of patients with C3G.

Total revenues were as follows (in thousands):

Year Ended December 31,

Product sales, net

Product supply sales to related party

Collaboration and license revenue from

related party

Grant revenue

Total revenue

Dollar increase (decrease)

Percentage increase (decrease)

For the collaboration and license revenue, we use a cost-based input method to measure proportional performance and to calculate the corresponding amount of revenue to recognize. In applying the cost-based input method of revenue recognition, we measure actual costs incurred relative to budgeted costs to fulfill the combined performance obligation. These costs consist primarily of third-party contract costs. Revenue is recognized based on actual costs incurred as a percentage of total budgeted costs as we complete our performance obligations.

The decrease in total revenue from 2020 to 2021 was primarily due to the acceleration of revenue recognition of the transaction price associated with the CCX140 Agreement with Vifor in 2020. Following the decision to discontinue development of CCX140 in Focal Segmental Glomerulosclerosis, or FSGS, $46.7 million of deferred revenue was recognized as contract revenue in the second quarter of 2020. This decrease was partially offset by the impact of $30.0 million milestones from Vifor for the February 2021 acceptance of JNDA filing and the September 2021 approval of TAVNEOS and lower costs incurred due to the completion of the TAVNEOS ADVOCATE Phase III pivotal trial in 2020 .

Research and development expenses

Research and development expenses represent costs incurred to conduct basic research, discovery and development of novel small molecule therapeutics, development of our suite of proprietary drug discovery technologies, preclinical studies and clinical trials of our drug candidates. We recognize all research and development expenses as they are incurred. These expenses consist primarily of salaries and related benefits, including stock-based compensation, third-party contract costs relating to research, formulation, manufacturing, preclinical study and clinical trial activities, laboratory consumables, and allocated facility costs. Total research and development expenses, as compared to the prior years, were as follows (in thousands):

Year Ended December 31,

Research and development expenses

Dollar increase

Percentage increase

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The increase in research and development expenses from 2020 to 2021 was primarily attributable to the manufacture of commercial drug supply in anticipation of the launch of TAVNEOS for the treatment of ANCA-associated vasculitis and higher research and drug discovery expenses, including those associated with the development of CCX559, our orally-available small molecule checkpoint (PD-1/PD-L1) inhibitor. These increases were partially offset by lower Phase II related expenses due to the completion of the TAVNEOS AURORA Phase IIb clinical trial in patients with HS and the discontinuation of further clinical development of CCX140 in FSGS in 2020.

The increase in research and development expenses from 2019 to 2020 was primarily attributable to patient enrollment of the TAVNEOS AURORA Phase IIb clinical trial in patients with HS, professional fees associated with the preparation of our NDA submission for TAVNEOS for the treatment of ANCA-associated vasculitis and higher research and drug discovery expenses, including those associated with the development of CCX559. These increases were partially offset by decreases in expenses due to the completion of the TAVNEOS ADVOCATE Phase III pivotal trial in 2020 and the CCX140 LUMINA-1 Phase II clinical trial in 2019.

The following table summarizes our research and development expenses by stage of development (in thousands):

Year Ended December 31,

Phase I

Phase II

Phase III

Research and drug discovery

Total R&D

We track development expenses that are directly attributable to our clinical development candidates by phase of clinical development. Such development expenses include third-party contract costs relating to formulation, manufacturing, preclinical studies and clinical trial activities. We allocate research and development salaries, benefits or indirect costs to our development candidates and we have included such costs in research and development expenses. All remaining research and development expenses are reflected in “Research and drug discovery” which represents early stage drug discovery programs. Such expenses include allocated employee salaries and related benefits, stock-based compensation, consulting and contracted services to supplement our in-house laboratory activities, laboratory consumables and allocated facility costs associated with these earlier stage programs.

At any given time, we typically have several active early stage research and drug discovery projects. Our internal resources, employees and infrastructure are not directly tied to any individual research or drug discovery project and are typically deployed across multiple projects. As such, we do not maintain information regarding these costs incurred for our early stage research and drug discovery programs on a project specific basis. We expect our research and development expenses to increase as we advance our development programs further and increase the number and size of our clinical trials. The process of conducting preclinical studies and clinical trials necessary to obtain regulatory approval is costly and time consuming. We, or our partners, may never succeed in achieving marketing approval, as we did with TAVNEOS, for any of our drug candidates. The probability of success for each drug candidate may be affected by numerous factors, including preclinical data, clinical data, competition, manufacturing capability and commercial viability. Our strategy includes entering into additional partnerships with third parties for the development and commercialization of some of our independent drug candidates.

The successful development of our drug candidates is highly uncertain and may not result in approved drug products. Completion dates and completion costs can vary significantly for each drug candidate and are difficult to predict for each drug 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 may 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 TAVNEOS, CCX559 and CCX507.

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Selling, general and administrative expenses

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

Year Ended December 31,

Selling, general and administrative

Dollar increase

Percentage increase

Selling, general and administrative expenses consist primarily of salaries and related benefits, including stock-based compensation and travel expenses, in executive, finance, commercial, business and corporate development and other administrative functions, including costs associated with the launch of TAVNEOS. Other selling, 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 2020 to 2021 and from 2019 to 2020 were primarily due to higher employee-related expenses, including those associated with commercialization planning efforts and launch of TAVNEOS, and professional fees .

We anticipate that our selling, general and administrative expenses will increase substantially in the future primarily due to commercialization-related activities and personnel costs to support the commercialization of TAVNEOS as an adjunctive treatment for adult patients with ANCA-associated vasculitis, specifically GPA and MPA, in combination with standard therapy including glucocorticoids, and not for the elimination of glucocorticoid use in the United States.

Other (expense) income, net

Other (expense) income, net primarily consists of interest income earned on our marketable securities and interest expense for our long-term debt. Total other (expense) income, net as compared to prior years was as follows (in thousands):

Year Ended December 31,

Interest income

Interest expense

Total other (expense) income, net

Dollar increase

Percentage increase

The change from total other expense, net from 2020 to 2021 was primarily due to decreased interest income earned from lower cash and investment balances.

The change from total other income, net for 2019 to total other expense, net for 2020 was primarily due to lower interest income from our investment portfolio in a low interest rate environment during the current COVID-19 pandemic and increased interest expense due to additional borrowings under the loan and security agreement, or Credit Facility, with Hercules Capital, Inc., or Hercules, and the amended and restated loan and security agreement, or Restated Credit Facility, with Hercules, partially offset by higher interest income from higher cash and investment balances.

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Liquidity and Capital Resources

As of December 31, 2021, we had approximately $363.4 million in cash, cash equivalents, restricted cash and investments. The following table shows a summary of our cash flows for each of the three years ended December 31, 2021, 2020 and 2021 (in thousands):

Year Ended December 31,

Cash provided by (used in)

Operating activities

Investing activities

Financing activities

Operating activities. Net cash used in operating activities was $75.6 million for the year ended December 31, 2021, compared to $81.1 million for the same period in 2020. This decrease was primarily due to changes in working capital items, which was partially offset by higher operating expenses associated with the launch preparation of TAVNEOS in the United States. The change in operating activities from 2019 to 2020 was primarily due to higher operating expenses and changes in working capital items.

Investing activities. Net cash provided by or used in investing activities for periods presented primarily relate to the purchase, sale and maturity of investments used to fund the day-to-day needs of our business, as well as purchases or property and equipment. We invested the majority of our net proceeds received from the June 2020 equity follow-on offering and the March 2019 issuance of common stock under an equity distribution agreement in short and long term investments. The use of cash in investing activities in all periods presented also includes the investment of funds received under the Avacopan Agreement and CCX140 Agreement, in each case, as amended, and the related letter agreements.

Financing activities. Net cash provided by financing activities was $1.1 million for the year ended December 31, 2021, compared to $356.6 million and $94.8 million, respectively, for the year ended December 31, 2020 and 2019. We made a $1.0 million debt repayment in 2021. Net cash provided by financing activities for the year ended December 31, 2020 included net proceeds of $325.7 million from the issuance of common stock from our June 2020 equity follow-on offering and $4.4 million received under the Restated Credit Facility. Net cash provided by financing activities for the year ended December 31, 2019 included net proceeds of $73.3 million from the issuance of common stock under an equity distribution agreement. Net cash provided by financing activities for the years presented also included proceeds from the exercise of stock options and stock purchases from contributions to our amended and restated 2012 Employee Stock Purchase Plan, and cash used for tendered ChemoCentryx, Inc. common stock to satisfy employee tax withholding requirements upon vesting of restricted stock units .

As of December 31, 2021, we had borrowed $20.0 million under the Credit Facility with Hercules. In January 2020, we entered into the Restated Credit facility with Hercules, which provides for borrowings of up to an additional $100.0 million in three tranches, subject to certain terms and conditions. As of December 31, 2021, we had borrowed $5.0 million under the Restated Credit Facility. We made interest-only payments through June 2021 and the first principal and interest payment on July 1, 2021. The Credit Facility was subsequently amended in July and December 2021 to extend the interest-only payment period through August 2022, at which point we will then be obligated to repay the principal balance and interest on the advances in equal monthly installments through December 2022. In addition, we are obligated to pay an end of term charge of $1.3 million in December 2022. See “Note 7. Long-term Debt” in the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for additional information regarding our borrowings.

As of December 31, 2021, we had approximately $363.4 million in cash, cash equivalents, restricted cash and investments. We believe that our available cash, cash equivalents, restricted cash and investments will be sufficient to fund our anticipated level of operations and capital expenditures for at least 12 months following our financial statement issuance date, March 1, 2022. 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.

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Our future capital requirements are difficult to forecast and will depend on many factors, including:

the continuing sales of TAVNEOS as an adjunctive treatment for adult patients with severe active ANCA-associated vasculitis, specifically GPA and MPA, in combination with standard therapy including glucocorticoids, and not or the elimination of glucocorticoid use;

Vifor and any sublicensees’ ability to successfully commercialize and launch TAVNEOS and royalties there from;

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, including any delays as a result of the COVID-19 pandemic on our business, preclinical studies or clinical trials ;

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 and expansion;

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, drug products or technologies.

Contractual Obligations and Commitments

The following is a summary of our long-term contractual cash obligations as of December 31, 2021 (in thousands):

Payments Due by Period

Total

Less than

One Year

1-3 Years

3-5 Years

More than

5 Years

Long-term debt  (1)

Aggregate interest obligation (2)

Operating lease  (3)

Purchase obligations  (4)

Total contractual obligations

These amounts represent the future principal payments, excluding the end of the term charge, of the Credit Facility and the Restated Credit Facility w e entered into with Hercules. See “Note 7. Long-term Debt” in the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for additional information.

These amounts represent the estimated interest for our outstanding debt obligations that are payable in cash and the end of term charge, excluding non-cash amortization of debt discount. See “Note 7. Long-term Debt” in the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for additional information.

These amounts represent minimum lease payments under the lease agreements for the facilities in San Carlos, California and Mountain View, California. See “Note 8. Commitments” in t he Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for additional information.

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Purchase obligations include firm purchase commitments related to commercial manufacturing arrangements.

We enter into contracts in the normal course of business with CROs for clinical trials and clinical supply manufacturing and with vendors for preclinical research studies, research supplies and other services and products for operating purposes. These contracts generally provide for termination on notice, and therefore are cancelable contracts and not included in the table of contractual obligations and commitments.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements (as defined by applicable SEC regulations) that are reasonably likely to have a current or future material effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources, except warrants and stock options.

Recent Accounting Pronouncements

See “Note 2. Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements of this Annual Report on Form 10-K for a full description of recently issued accounting pronouncements, including the respective expected dates of adoption and effects on our consolidated financial position and results of operations.

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Index to Financial Statements

Item 7A. Quantitative and Qualitati ve Disclosures About Market Risk.

The primary objectives of our investment activities are to ensure liquidity and to preserve principal while at the same time maximizing the income we receive from our marketable securities without significantly increasing risk. Some of the securities that we invest in may have market risk. This means that a change in prevailing interest rates may cause the principal amount of the marketable securities to fluctuate. To minimize the risk in the future, we intend to maintain our portfolio of cash equivalents and short-term investments in a variety of securities, including commercial paper, money market funds, government and non-government debt securities and corporate obligations. Because of the short-term maturities of our cash equivalents and marketable securities, we do not believe that an increase or decrease in interest rates would have any significant impact on the realized value of our marketable securities.

We are affected by market risk exposure primarily through the effect of changes in interest rates on amounts payable under the Credit Facility and Restated Credit Facility. At December 31, 2021, borrowings under the Credit Facility totaled $20.0 million with an interest rate of 8.05%. Advances under the Credit Facility bear an interest rate equal to the greater of (i) 8.05% plus the prime rate as reported from time to time in The Wall Street Journal, or Prime Rate, minus 4.75%, and (ii) 8.05%. We made interest-only payments through June 2021 and the first principal and interest payment on July 1, 2021. The Credit Facility was subsequently amended in July and December 2021 to extend the interest-only payment period through August 2022, and at which point we will then be obligated to repay the principal balance and interest on the advances in equal monthly installments through December 1, 2022. We are obligated to pay an end of term charge of $1.3 million in December 2022.

In addition, borrowings under the Restated Credit Facility totaled $5.0 million at December 31, 2021 with an interest rate equal to the greater of (i) 8.50% plus the Prime Rate minus 5.25%, and (ii) 8.50%, which may be reduced upon the Company achieving certain cumulative net TAVNEOS revenue levels. We are obligated to make interest-only payments on our borrowings under the Restated Credit Facility through September 1, 2022, at which point we will then be obligated to repay the principal balance and interest on the advances in equal monthly installments after the interest-only period and continuing through February 1, 2024. Upon approval of TAVNEOS, the interest-only payment period and the principal balance repayment period were extended. We will make interest only payments through February 1, 2023 and will then repay the principal balance and interest on the advances in equal monthly installments through February 1, 2025. If the total amounts outstanding under the Credit Facility and the Restated Credit Facility remained at this level for an entire year and the interest rates increased by 1%, our annual interest expense would increase by an additional $250,000 . S ee “Note 8. Long-term Debt” in th e Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for additional information regarding our borrowings.

Item 8. Financial Statement s and Supplementary Data.

Our consolidated financial statements and the reports of our independent registered public accounting firm are included in this Annual Report on Form 10-K on pages F-1 through F-35 and are incorporated herein by reference.