Earnings Call Transcript - KNSA Q3 2023

Operator, Operator

Good day and thank you for standing by. Welcome to the Kiniksa Pharmaceuticals Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. And I would now like to hand the conference over to your speaker today, Ms. Rachel Frank. Please go ahead.

Rachel Frank, Investor Relations

Thank you, operator. Good morning everyone and thank you for joining Kiniksa's call to discuss our third quarter 2023 financial results and recent portfolio execution. Press release highlighting these results can be found on our website under the Investors section. As for the agenda, our Chief Executive Officer, Sanj K. Patel, will start with an introduction; Ross Moat, our Chief Commercial Officer, will provide an update on our commercial execution; John Paolini, our Chief Medical Officer, will provide a KPL-404 forum review; then Mark Ragosa, our Chief Financial Officer, will review our third quarter 2023 financial results. And finally, Sanj will return for closing remarks and to kick off the Q&A session. Before getting started, please note that we will be making forward-looking statements today that are subject to risks and uncertainties that may cause actual results to differ materially from these statements. A review of such statements and risk factors can be found on this slide as well as under the caption Risk Factors contained in our SEC filings. These statements speak only as of the date of this presentation, and we undertake no obligation to update such statements, except as required by law. With that, I will turn it over to Sanj.

Sanj Patel, CEO

Thanks Rachel and good morning everyone. I'm happy to review our third quarter 2023 financial results today. We continued to advance all aspects of our business, including strong revenue growth with ARCALYST and clinical trial execution with KPL-404. On the commercial side, Q3 represented another quarter of growth for ARCALYST with a net product revenue of $64.8 million. We continue to execute commercially, and we have seen strong prescriber adoption and patient enrollments in the third quarter. We also remain encouraged by the high patient satisfaction, payer approval rates, and the duration of therapy. And we're currently tracking towards the high end of our previously issued guidance of $220 million to $230 million for 2023. We're also executing across our clinical development portfolio, and we have now completed enrollment of the third cohort of the Phase II trial of KPL-404, which is our CD40 antagonist program focused on rheumatoid arthritis, and we now expect data from cohorts 1 to 3 in the first quarter of 2024. This trial is designed to evaluate the efficacy, dose response, pharmacokinetics, and safety of chronic subcutaneous dosing over a duration of 12 weeks. Dr. John Paolini will cover more details on this program in a moment. Additionally, we continue to pursue collaborative study agreements with mavrilimumab to evaluate its potential in rare cardiovascular diseases. This is a molecule that has the potential to impact a number of diseases. So, with that, I'll turn it over to Ross to review our commercial execution of ARCALYST. Ross?

Ross Moat, CCO

Thank you, Sanj. I'm delighted to share further details on our third quarter commercial performance and the underlying drivers of our continued strong revenue growth. In Q3, the net revenue of ARCALYST grew to $64.8 million. This represents approximately 94% year-on-year growth and just over $10 million growth quarter-on-quarter. As has been the case since launch, the vast majority of growth this quarter came from increased demand due to a higher number of patients on therapy as a result of increased new patient enrollments and strong compliance and persistence. Additionally, the Q3 revenue benefited from a slight increase in inventory within the contracted range of our recently restructured specialty pharmacy network. The underlying driver of the continued increase in ARCALYST demand is our focus on a dual strategy of broadening the prescriber base as well as deepening the experience within existing prescribers. This strategy has resulted in more than 1,450 individual prescribers since launch, and of that higher base, 24% have now prescribed for two or more recurrent pericarditis patients. Our payer approval rate continues to be greater than 90% of all completed cases. Patient compliance remains above 85%, and the duration of therapy currently averages around 20 months. Moving to Slide 8, we're making good progress in continuing to build the market and change the treatment paradigm to establish ARCALYST as the standard of care in recurrent pericarditis. Through our experience to date, we've outlined several core priorities to drive our future growth. Firstly, we need to drive a proactive mindset for the identification and treatment of recurrent pericarditis patients. In a survey, 96% of patients reported that they were incorrectly diagnosed with other conditions before their recurrent pericarditis diagnosis. In fact, they had an average of 2.7 diagnoses before the recurrent pericarditis diagnosis. This highlights the substantial room for improvement by advancing education on the disease. Additionally, once a diagnosis is reached, we need to evolve physicians' mindsets to be more proactive in treating earlier and preventing future flares, as well as increasing patient education on their disease and treatment options so they can advocate for themselves. Secondly, we're focused on closing the knowledge gap by increasing the awareness of ARCALYST. We know that when ARCALYST is prescribed, both physicians and patients have a very positive experience. However, to continue growing the prescribing base, we need to increase knowledge within the broad cardiology and rheumatology audience. Based on a recent survey of 200 physicians, around 95% of the respondents were generally aware of ARCALYST. However, only half were very knowledgeable, meaning they had the critical information needed to make a prescribing decision such as who it's for, how it works, and what the clinical data looks like. So again, we have a lot of opportunity ahead. The good news is that the percentage of physicians who consider themselves very knowledgeable has been growing. More importantly, of the physicians seen by Kiniksa representatives in the last three months, three-quarters consider themselves very knowledgeable, which speaks to the impact of our sales force. Additionally, we're starting to evolve the treatment paradigm for recurrent pericarditis. While there are currently no consensus guidelines in the US, recent publications coming from thought leaders are introducing treatment algorithms that recommend interleukin-1 alpha and beta antagonism ahead of corticosteroids after a patient fails NSAIDs and colchicine. Around one-third of healthcare professionals report they are prescribing ARCALYST ahead of corticosteroids, suggesting significant progress since launch, but still a substantial opportunity for future growth. Encouragingly, physicians overwhelmingly report that they intend to increase their future prescribing of ARCALYST while 58% say that they intend to decrease their utilization of corticosteroids, which is exactly aligned with our positioning of ARCALYST. Based on the progress we've made to date, we believe there is significantly more opportunity to penetrate the recurrent pericarditis market, and we're excited to help even more patients suffering from this debilitating disease. Overall, we're delighted with our progress over the last quarter, growing both our net revenue and the profitability from our collaboration. Based on our current trajectory and accounting for the headwinds of Q4 industry dynamics and an expected level setting of inventory, we are currently tracking to the high end of the previously stated guidance range of $220 million to $230 million. With that, I'll hand over to John to discuss KPL-404. John?

John Paolini, CMO

Thanks Ross. The aim of the Phase II trial of KPL-404 in rheumatoid arthritis is to evaluate the efficacy, dose response, pharmacokinetics, and safety of chronic subcutaneous dosing over a duration of 12 weeks. As Sanj mentioned, we've completed enrollment in Cohorts 1, 2, and 3 of the study. Subsequently, we initiated an additional fourth cohort of the study, where Cohort 3 enrolled approximately 75 patients randomized in a 1:1:1 ratio to the 5-milligram per kilo subcutaneous dose administered weekly versus biweekly versus placebo. This new fourth cohort will enroll approximately 40 patients randomized in a 3:2 ratio to a fixed subcutaneous KPL-404 dose administered monthly versus placebo. Specifically, participants in the active arm will receive a 600-milligram loading dose on day one followed by 400 milligrams subcutaneously every four weeks for 12 weeks. We decided to initiate Cohort 4 to provide a more comprehensive picture of the KPL-404 pharmacokinetics and pharmacodynamics dose relationship. This additional cohort of patients is predicted to reach a trough exposure level, which is complementary to the trough exposure levels already being tested in the other arms of the proof-of-concept portion of the trial. The primary endpoint remains the same as Cohort 3, which was changed from baseline in DAS28 CRP at week 12. While this study is designed to test the efficacy of different subcutaneous dosing regimens versus placebo, we will also be looking at the raw horsepower of the mechanism relative to the competitive landscape. We expect data from Cohorts 1, 2, and 3 in the first quarter of 2024 and data from Cohort 4 in the second quarter of 2024. I will now turn it over to Mark to cover our financials. Mark?

Mark Ragosa, CFO

Thanks John. Our detailed third quarter 2023 financial results can be found in the press release we issued earlier today. There are a few items I'd like to call your attention to this morning. First, total revenue in the third quarter was $67 million, including ARCALYST net product revenue of $64.8 million, representing 94% year-over-year growth and $2.2 million of collaboration revenue from the Genentech license agreement for vixarelimab. Second, strong ARCALYST net product revenue in the third quarter drove ARCALYST collaborating operating profit to $34.6 million, representing more than 275% year-over-year growth and leading to collaboration expenses of $17.3 million. Third, higher cost of goods sold and collaboration expenses, both of which were driven by our revenue growth as well as advancement of the KPL-404 Phase II trial in rheumatoid arthritis and investment related to ARCALYST commercialization contributed to year-over-year operating expense growth for the period. Lastly, in the third quarter, we received a $15 million development milestone from Genentech that was disclosed and recognized as revenue in the second quarter of this year. This led to net cash flow of $16 million for the third quarter and an ending cash balance of $201 million. We continue to expect these reserves as well as strong ARCALYST commercial execution to fund our current operating plan into at least 2027. And with that, I'll turn the call back to Sanj for closing remarks.

Sanj Patel, CEO

Thanks Mark. As you've heard today, and as demonstrated by our consistent execution, we are a well-capitalized and highly growth-oriented company. We're focused on maximizing the commercial opportunity with ARCALYST as well as providing data from Cohorts 1, 2, and 3 of the Phase II clinical trial of KPL-404 in rheumatoid arthritis in the first quarter of 2024. In addition to the potential in rheumatoid arthritis, we believe KPL-404 could be a best-in-class therapy across a number of autoimmune indications. Given the company's cash reserves of $201 million, strong ARCALYST commercial execution, and our financial discipline, we have a cash runway into at least 2027. Ultimately, we continue to be focused on helping patients in need, creating significant value, and making a generational impact, and we believe we are strategically positioned to do exactly that. I do want to thank you all for your time today, and I'll now hand it back to the operator for questions.

Operator, Operator

Thank you. Our first question will come from Anupam Rama of JPMorgan. Your line is open.

Anupam Rama, Analyst

Hey guys. Thanks for taking the question and congrats on all the progress. I'm wondering maybe what are you seeing on the pull-through from the sales force expansion for ARCALYST? And how are you quantifying the return on investment there? Thanks so much.

Sanj Patel, CEO

Good to hear your voice. Ross, do you want to start and I can jump in?

Ross Moat, CCO

Yes, I mean, thanks, Anupam, for the question. I think I'll just start with saying you can see from the last couple of quarters' worth of revenue performance where we've had pretty robust growth. A large part of that is due to the sales force expansion we did towards the end of last year. By the time that team was in place and trained, and we changed the territories around and had handovers, we saw a jump in activity in the late stages of last year and the early parts of this year and then an increase in patient enrollments associated with that higher activity. From the Q2 sales, we saw a growth of more than $11 million in the most recent earnings; the growth was over $10 million. We're starting to see some of the fruition of that hard work out there in the field. It just speaks to the potential that's out there, but also the spread of recurrent pericarditis patients and the importance of getting out broadly to the cardiologists and rheumatologists.

Anupam Rama, Analyst

Thanks so much.

Operator, Operator

Thank you. Our next question will come from the line of Paul Choi of Goldman Sachs. Your line is open.

Paul Choi, Analyst

Hi, thank you. Good morning and thank you for taking our questions. My first question is for John regarding the addition of Cohort 4 to the KPL-404 study. The loading dose and the two other doses are higher than what you're generally testing with the other weekly or biweekly cohorts. Can you maybe just characterize for us, is there a view that you need to increase exposure here? Or given the monthly dosing schedule, is it more of a test to see if we can improve on convenience relative to the other cohorts? My second question is for Ross just with regard to his comments on misdiagnosis and the lack of treatment guidelines. Can you maybe just update us on what the status is of potentially getting either a consensus ACC or AHA guideline inclusion and just kind of what the timing and gating factors are for that? Thank you.

John Paolini, CMO

Sure. Good morning Paul, and thanks so much for your question. With regard to Cohort 4, yes, the approach was to provide a more comprehensive picture of the pharmacokinetics and pharmacodynamics relationship. But to be clear, the weekly and biweekly KPL-404 dose levels actually provide plasma concentrations that are higher. The 400-milligram every four weeks dose sits between the 2-milligram per kilo subcutaneous dose and the 5-milligram per kilo subcutaneous dose, remembering that 5 milligrams per kilo is roughly 350 to 400 milligrams depending on the weight of the patient. This offers an opportunity to test not only that intermediate trough plasma concentration, but also to your point, test the different dosing interval of giving it every month, which is, as you mentioned, more convenient. So, that's basically the approach and the 600-milligram loading dose allows us to get to that trough plasma concentration quickly. Yes, Ross, did you want to start with the other part of the question?

Ross Moat, CCO

Yes. Thank you. Thanks Paul. To address your misdiagnosis question, we've shared information on how commonplace that could be among this patient population, which really speaks to the need for education and awareness. We're taking good strides, but have so much more to do. We're seeing substantial increases around the awareness of recurrent pericarditis. Previously, there were no targeted therapies approved for recurrent pericarditis; now we're in a different place. We’re starting to see the ramp-up of education and awareness, and hopefully will notice improvements in the time it takes for patients to get a correct diagnosis. We're focused across both our field team from a sales perspective and our medical affairs efforts to boost education to physicians and do direct-to-consumer awareness so that patients can advocate for themselves. We're implementing various methods to get effective messages out to the populations, which includes webinars and speaker programs. We see some good improvements, but certainly have a lot more work to do.

John Paolini, CMO

Regarding the guidelines, the last time guidelines were made was in 2015, and that was in Europe. The European Society of Cardiology put those guidelines out and of course, that predates nearly all the work in the IL-1 space. In that treatment paradigm, patients progress after NSAIDs and colchicine through corticosteroids. Only in patients resistant to corticosteroids would the introduction of IL-1 antagonism come into play. The recent data from the Rhapsody trial showed resolution of acute pericarditis flares and prevention of subsequent flares for two populations of patients: those on corticosteroids and those who had failed NSAIDs and colchicine. The similarity of results across both populations allows us to explore the use of IL-1 antagonism in advance of corticosteroids. This is being noted in literature by American thought leaders, showing how to best manage the disease. We see this as a very encouraging sign for patients in moving towards a new treatment paradigm.

Paul Choi, Analyst

Thank you.

Operator, Operator

Thank you. Our next question will come from David Nierengarten of Wedbush Securities. Your line is open.

David Nierengarten, Analyst

Hey, thanks for taking our questions. I have two. Just on the patient stops and restarts again, with another quarter worth of data, do you have any idea on the patients who discontinued therapy and don't return if they are less severe or earlier stage in their disease? I'm curious to get a handle on the distribution of time on therapy. I know it seems like you have a tail there with a stable percentage on longer term therapy. And then the second question was on KPL-404; can we expect a discussion of any additional indications beyond rheumatoid arthritis when you release the data in Q1? Thanks.

Ross Moat, CCO

Okay. Thanks David. This is Ross. I'm happy to answer the part around the restart patient stops and generally about what we're seeing regarding patient duration on therapy. We educate physicians that the duration of therapy should be linked to the natural history of the disease, which is three years as a median from a natural history perspective. Still, one-third of the patients suffer from the disease five years after their initial episode. The initial average time for treatment is around 14 months, with a median of 12 months. The restart rate is around 45% of all patients who cease therapy the first time and come back on treatment, most within an eight-week period. We're seeing a total average duration of around 20 months across all patient populations. There isn't a clear commonality in terms of demographics that distinguishes those who are more likely to stop or stay on therapy longer; it largely depends on how long they have suffered from the disease at the time of diagnosis.

Sanj Patel, CEO

And David, this is Sanj. Thanks for your question regarding the cohort from the KPL-404 study in RA. We're looking forward to the data from Cohorts 1, 2, and 3 in the first quarter as you've mentioned. We're excited about the potential of KPL-404 for both RA, but also do believe there is a chance for some differentiated effects and strong efficacy across various autoimmune indications. We've not disclosed which additional indications we may consider at this time but certainly will keep an eye out for developments.

David Nierengarten, Analyst

Thanks.

Operator, Operator

Thank you. Our next question will come from Geoff Meacham of Bank of America.

Unidentified Analyst, Analyst

Hey thanks for taking the question. This is John Joy for Geoff. I have two quick questions. One is, how are you guys thinking about sort of total prescriber TAM and payer TAM? Do you think there's still headroom to grow? Or are you starting to see that flatten out a bit? And second, just as you continue to grow, how are you thinking about capital structure?

Ross Moat, CCO

Maybe I'll just take the first part, John. Thanks for the question, and then I'll hand over to Mark or Sanj for the second. Regarding prescriber growth, we see a huge opportunity ahead. We announced at the turn of the year that we reached around 5% penetration when we looked at how many patients were on therapy at the end of 2022. While we haven't updated that number, it indicates the opportunity that remains. Patients are widely dispersed across the US, and we're seeing good growth in both the number of individual prescribers and repeat prescribers, highlighting the prospects ahead. I feel that we are still relatively embryonic in our launch with an exciting opportunity ahead to reach many more recurrent pericarditis patients who are suffering.

Mark Ragosa, CFO

To your question regarding our thoughts on capital, we think we're very well capitalized. As I mentioned, we had $201 million in reserves at the end of the third quarter. Our runway, which we guided to having cash until at least 2027, ultimately depends on the success of our current and future investments. We feel very confident in our cash reserves and runway.

Unidentified Analyst, Analyst

Great. Thanks.

Operator, Operator

Thank you. Our next question will come from Liisa Bayko of Evercore ISI. Your line is open.

Liisa Bayko, Analyst

Hi, thanks for taking the question. Can you maybe quantify a little bit more the amount of inventory changes that you're seeing and how that's contributing to what seems like a flat quarter-over-quarter into the fourth quarter, but I know this is offset by some inventory changes. So, if you could quantify that, it would be helpful. Thank you.

Ross Moat, CCO

Yes, that's right. In some of that is, this is Ross. We continue to see robust performance across all the key drivers of the commercialization. We believe we've still got a huge potential ahead. However, when we look at the growth that we had in Q4 and think forward to the end of the year, to be very clear, we expect continued growth in Q4 despite a couple of expected headwinds. These include some pressure on our gross-to-net in Q4 due to industry-wide items such as end-of-year accounting for insurance resets and increased co-pay systems, as well as changes to our specialty pharmacy network, which may drive a slightly higher gross-to-net in Q4. We're also expecting inventory to level out in Q4 following some favorability we saw in that regard in the prior quarter, meaning additional pressure on Q4 revenue growth. Nonetheless, we are still expecting revenue growth in Q4 and tracking towards the high end of the guidance we provided.

Liisa Bayko, Analyst

Great. Can you just quantify the inventory change a little bit more, like what amount are we talking about? And then also to clarify, what we're closing at in the third quarter? Thanks.

Ross Moat, CCO

We haven't really quantified the inventory amount, but the majority — the vast majority of the growth comes down to having a higher number of patients on therapy, which has been the key driver of all our growth since launch. That's the vast majority, and then to a smaller extent, there's a little inventory dynamic at play. As of year-to-date, our gross-to-net is 9.9% versus 9% in 2022. There can always be some quarterly fluctuations, but that's where we stand at 9.9% for this year.

Liisa Bayko, Analyst

Thank you.

Operator, Operator

Thank you. I am seeing no further questions in the queue. I would now like to turn the conference back to Sanj Patel for closing remarks.

Sanj Patel, CEO

Thank you very much for the questions and for joining the call today. We clearly have an exciting time ahead of us and are looking forward to providing additional updates in the future. Until then, thanks very much.

Operator, Operator

This concludes today's conference call. Thank you all for participating. You may now disconnect and have a pleasant day.