Earnings Call Transcript - KNSA Q1 2022

Operator, Operator

Good day, and thank you for standing by. Welcome to the Kiniksa Pharmaceuticals first quarter earnings conference call. At this time all participants are in a listen-only mode. After the speaker presentation there’ll be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Rachel Frank, Head of Investor Relations. Please go ahead.

Rachel Frank, Head of Investor Relations

Thank you, operator. Good morning, and thank you for joining Kiniksa's call to discuss our first quarter 2022 financial results and corporate update. A press release highlighting these results can be found on our website under the Investors & Media 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 ARCALYST commercial execution; then Mark Ragosa, our Chief Financial Officer, will review our first quarter 2022 financial results; and finally, Sanj will return for closing remarks and to kick off the Q&A session, for which John Paolini, our Chief Medical Officer; and Eben Tessari, our Chief Operating Officer, will also be on the line. 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 really happy to review our first quarter 2022 results today. It's been a full year since the commercial launch of ARCALYST for recurrent pericarditis. We're very pleased with the progress we've made so far in bringing ARCALYST to patients in need. I'm delighted to report that the net revenue for ARCALYST for the first quarter of 2022 was $22.2 million. Ross will cover our commercial performance in more detail. Overall, we've been incredibly pleased with the growth in prescriber adoption, patient adherence, and payer coverage. We're highly encouraged by the steady commercial growth of ARCALYST to date, and we plan to fully maximize this opportunity. In addition to the launch, we remain focused on helping even more patients and building value from across our portfolio of clinical stage programs, which include Vixarelimab, KPL-404, and mavrilimumab. Starting with Vixarelimab, we're currently enrolling and dosing in a randomized placebo-controlled Phase IIb dose-ranging study in prurigo nodularis. We expect data from this study in the second half of this year. For KPL-404, which is our CD40 program, we're enrolling and dosing in a Phase II study in rheumatoid arthritis. This is a disease where the dose response has been well characterized, and our 12-week study is designed to provide not only PK characterization but also an early signal of efficacy with chronic administration in a well-described patient population. The trial will potentially serve primarily as a proof of concept and could enable optionality to evaluate a range of other autoimmune diseases. For Mavri, we remain highly encouraged by its broad potential, which has been demonstrated by positive clinical data across multiple indications. We're currently evaluating this development in rare cardiovascular diseases, where the GM-CSF mechanism has been implicated. We also continue to be very active in our business development efforts, which are focused on opportunities that have synergies with our existing commercial infrastructure as well as the other assets in our pipeline. We are making tremendous progress across our entire portfolio and believe we are well positioned for growth. So with that, I'll turn it over to Ross to review our commercial performance in more detail.

Ross Moat, Chief Commercial Officer

Thanks, Sanj. We're extremely pleased to share that Q1 represented continued positive growth in our launch trajectory, generating $22.2 million and close to 20% sequential growth versus Q4. This growth is in spite of the typical seasonal headwinds associated with specialty drugs at the start of the year. Concluding Q1 now gives us 12 months of experience on the market in recurrent pericarditis, and we have generated $60.7 million in net sales launched to date. 2022 will be our first full year of sales, and we are excited by the continued momentum we've generated and the feedback we're gaining from prescribers, payers, and ultimately, patients who are experiencing the transformational impact that ARCALYST can bring to this disease. We continue to guide full year net revenue of between $115 million and $130 million. On Slide 8, I will dive into more detail on the drivers behind the recurrent pericarditis revenue. Regarding our efforts to enhance the awareness of ARCALYST, in Q1, we saw a continued increase in the prescribing base. We now have more than 400 individual prescribers, predominantly cardiologists, who have identified and prescribed for at least one recurrent pericarditis patient. Furthermore, we also saw an increase in the absolute number of physicians who have prescribed for two or more patients. Repeat prescribers account for around 17% of our ever-increasing prescriber base. This demonstrates the continued growth in the breadth of prescribing as well as the positive experiences physicians and patients are having, resulting in a growing depth of prescribers. On the payer side, as I mentioned regarding the typical Q1 seasonality and insurance issues, we saw a substantial number of our patient population switch insurance plans in Q1, requiring new approvals and interim supports on our free goods bridge program. Nevertheless, we continue to see very high approval rates across all payer segments, resulting in a 95% approval rate overall. Almost all of these patients came back onto commercial therapy during the quarter. In terms of duration, we're just about at the one-year stage since our launch, so we have a small cohort of the early launch patients who have been on continuous therapy throughout this time, and we continue to see robust adherence, compliance, and timely refill of scripts. We realize we still need more time to determine how long patients will ultimately remain on continuous commercial therapy. However, from those who started ARCALYST in the first launch quarter, around 60% remain on therapy at the end of Q1. While this will continue to evolve, the limited data suggests continuous treatment durations of around 12 months. Additionally, we recently conducted market research on product satisfaction in recurrent pericarditis, and we are delighted to hear that patients are experiencing a very high level of satisfaction on ARCALYST, especially when compared to other treatments. This bodes well for our ambition of ARCALYST becoming the standard of care in recurrent pericarditis. Moving to Slide 9, we're pleased to see renewed avenues opening for our disease awareness and promotional activities. For the first time since we launched during the COVID-19 pandemic, the main target conferences are now available for dissemination of data and opportunities to meet face-to-face. In April, we attended ACC and made a significant impression on a wide audience with our commercial booth, resulting in over 400 individual details with healthcare professionals. Additionally, over 120 delegates attended our ARCALYST product theater. We now have ACR and AHA coming up in November, so we are excited about these upcoming opportunities to reach more physicians. The results from recent research show that, through interactions with our field force, physicians become significantly more aware and knowledgeable of recurrent pericarditis and ARCALYST, and their likelihood or intent to prescribe ARCALYST in the subsequent months also significantly increases. Moving to Slide 10, I'd like to share more information on how ARCALYST is starting to become the standard of care in recurrent pericarditis. Following the strength of data from our Phase III RHAPSODY study, which resulted in 97% of patients experiencing rapid symptom relief, 92% of days with minimal or no pericarditis pain, and a 96% reduction in the risk of recurrence, we are now starting to see key thought leaders in this space publish and contribute to the new and evolving treatment paradigm. For instance, a recent publication from a pericardial disease expert emphasized ARCALYST as a treatment of choice for recurrent pericarditis, specifically ahead of corticosteroids and even ahead of NSAIDs and colchicine for patients who are intolerant. Indeed, this is exactly how we've been positioning ARCALYST promotional efforts. If we look at the prior treatments our patients have used, we see that ARCALYST is generally being utilized ahead of steroids. Additionally, payers are generally not mandating step edits of these nonspecific therapies. We believe this is an acknowledgment from physicians and payers that they appreciate the steroid-sparing data from RHAPSODY and ARCALYST's ability to specifically inhibit interleukin-1 alpha and beta, the underlying drivers of recurrent pericarditis. These data set us up well for our anticipated continued growth and how we plan to become the standard of care in helping recurrent pericarditis patients. In summary, on my final slide, we're now one year out from launch, and we've had a fantastic start. I'd like to take a moment to thank our fantastic Kiniksa teams in the office and field, who have worked incredibly hard to bring ARCALYST to patients in need. It's rare to have a successful drug launch, especially amid a global pandemic; that is an incredible performance. We're delighted that physicians and payers are embracing a new treatment approach, and we look forward to continuing to support our patients who are providing constant positive feedback on their experience and the improvements they feel under ARCALYST treatment. Since launch, we've recorded $60.7 million in net revenue. We've set a solid foundation that will empower our growth in the quarters and years ahead. I'll now hand over to Mark for our financial results.

Mark Ragosa, CFO

Thanks, Ross. Good morning, everyone. Our detailed first quarter 2022 financial results can be found in the press release we issued earlier today. Over the next couple of minutes, I'd like to call your attention to a few items on this slide. First, total revenue in the first quarter of 2022 was $32.2 million, consisting of product revenue of $22.2 million, representing ARCALYST net sales, and collaboration revenue of $10 million, representing the upfront payment from Huadong Medicine for the Mavri rights in the Asia Pacific region. Of note, the upfront payment of $12 million from Huadong Medicine for ARCALYST rights in the Asia Pacific region was deferred and will be recognized over the life of the agreement. Second, operating expenses, which this year also included cost of goods sold and collaboration expenses, were $55.5 million in the first quarter of 2022 compared to $49.3 million in the first quarter of 2021. Third, collaboration expenses in the first quarter of 2022 were $8.3 million and consisted of obligations to Regeneron and ARCALYST profit split expenses of $2.3 million, and an expense of $6 million representing 50% of the $12 million upfront payment from Huadong Medicine for ARCALYST rights in the Asia Pacific region. Fourth, Kiniksa's net loss in the first quarter of this year was $25.2 million compared to a net loss of $49.5 million in the first quarter of last year. Fifth, first quarter 2022 financials do not reflect the net cash impact from our collaboration with Huadong Medicine, and we ended the period with cash reserves of approximately $145 million. Finally, we expect total 2022 ARCALYST net revenue of between $115 million and $130 million. Based on our cash reserves as well as continued ARCALYST commercial execution, we expect to fund our current operating plan into at least 2024. With that, I'll turn the call back to Sanj for closing remarks.

Sanj Patel, CEO

Thanks, Mark. In essence, it's an exciting time for Kiniksa. In addition to the successful start and commercial launch of ARCALYST in recurrent pericarditis, we're also building a foundation as an emerging leader in immune modulating therapies. On the commercial side, you've heard where revenue is growing, and after only three quarters, the ARCALYST collaboration is already profitable. Looking to the rest of the year, we've guided, as Ross and Mark mentioned, to an estimated net revenue of $115 million to $130 million, which would represent more than 200% growth year-over-year. We've got a near-term milestone coming up with data from the Phase IIb trial of Vixarelimab in the second half of this year. We're also enrolling in the Phase II proof-of-concept study in RA with our CD40 program, and this could provide additional optionality for a range of autoimmune diseases. As I said earlier, we're utilizing data from our Mavri program to evaluate rare cardiovascular diseases that have synergies with our existing cardiovascular commercial infrastructure. Importantly, as Mark just mentioned, we're well capitalized and have cash reserves expected to fund our operating plan into at least 2024. The bottom line is we have no need to raise additional capital at this point, and we continue to drive our portfolio forward. As I mentioned earlier, we are also very much interested in potentially augmenting our pipeline with additional assets through our business development activities. That remains a key focus. Ultimately, we are determined to continue to help patients in need to create massive value and aim to fulfill our goal of becoming a generational company. With that, I want to thank you for your time today, and I will hand it back to the operator to open up for questions. Thank you.

Operator, Operator

Operator Instructions. Our first question comes from the line of Anupam Rama with JPMorgan. Your line is open.

Anupam Rama, Analyst

Hey guys. Thanks so much for taking the question. A quick one for me. I know you said that you have 400 prescribers plus right now, which has grown from 300 plus in the Q4 update. What portion of your target subscribers have been penetrated? I guess I'm trying to understand where the new scripts will be coming from. Will they be from new prescribers or repeat prescribers? And then a second question is, can you remind us how long an initial script is written for? We've heard some patients on anakinra are prescribed for 12 to 24 months. So how do you think about that 60% of patients on therapy from Q2 '21 staying on therapy here in year two?

Sanj Patel, CEO

Thanks, Anupam. Ross, do you want to start with that? And myself or John or Eben can jump in.

Ross Moat, Chief Commercial Officer

Yes, very happy to. Anupam, this is Ross. So you're absolutely right. We announced we have more than 400 individual unique prescribers of ARCALYST so far in recurrent pericarditis; that's grown substantially since the time of launch, around 100 or more than 100 in every quarter since we launched with the growing depth of prescribing currently at 17% roughly of the 400 base. So we're very pleased with that. In terms of your comments around whether it's the target physicians or not, most of the prescribing is coming from our current target base. As you know, we spent a lot of time prior to launch really understanding which physicians and centers looked after recurrent pericarditis patients. We have a highly targeted approach around that. We're pleased to see that most of the prescribing is from the target base, although we also recognize that we're not reaching all recurrent pericarditis patients across the U.S. with our targeting strategy. Therefore, non-personal promotion continues to be incredibly important to us, as do the contacts we make at congresses and through other avenues. So there is a mixture of non-target prescribing as well, but to a much lesser extent. In terms of the duration, your 12-month prescription comment is correct. We see that the majority of prescribers prescribe ARCALYST for 12 months as an initial script, with some prescribing less, often indicating they may want to see the patient in the clinic after a three-month or six-month time period, particularly when they’re new to prescribing ARCALYST. But yes, the majority is for 12 months. Linked to this, the majority of payer approvals are also for 12 months before requiring reauthorization of that approval. So that bodes well for the potential duration. As we said, around 60% of those Q2 early launch patients were still on therapy through the end of Q1, which supports the confidence of duration potentially being around 12 months, although it's important to note it's a small cohort; the data will continue to evolve, and we need to observe a larger patient population to gain better insights into the actual eventual duration.

Operator, Operator

Our next question comes from Paul Choi with Goldman Sachs. Your line is open.

Paul Choi, Analyst

Congratulations on the progress here. I was wondering if you can perhaps elaborate a little more on your comments regarding Q1 payer dynamics and how we should think about ARCALYST dynamics in the future here in Q1? How much of it was due to the new RP indication versus ongoing processing versus CAPS, which I think has been on the market for a while.

Ross Moat, Chief Commercial Officer

Yes. Paul, this is Ross again. The vast majority of the commentary around recurrent pericarditis, CAPS, obviously, continues as does DIRA, and we continue to support those patients through our patient services program in exactly the same way as we do with recurrent pericarditis. At this stage of our launch, 12 months out, the majority of patients on ARCALYST now are for recurrent pericarditis compared to the other two indications. For Q1 payer dynamics, it really comes down to payer plans and people changing insurance, and supporting patients through the bridge once they receive approvals under the new insurance plans, as well as renewed copayments and increasing Kiniksa support around that to help patients through that transition. Thus, we view the Q1 dynamics or headwinds as temporary, and we expect things to return to some normalcy in Q2 and beyond.

Paul Choi, Analyst

Okay. Thanks a lot. And then one pipeline question with regard to Vixa. Given that data is coming up in the second half of the year, could you sort of frame how you think about what would be a competitive result in the context of what is a somewhat crowded landscape? How are you thinking about what areas you'd focus on for differentiation against other clinical stage assets in the category?

Sanj Patel, CEO

Thanks, Paul. John, do you want to start? And then maybe Eben can jump in?

John Paolini, Chief Medical Officer

Sure, happy to do so. Thanks for the question, Paul. As you remember, the Phase IIa study already demonstrated proof of concept of Vixarelimab in prurigo nodularis in terms of the primary and secondary end points being highly statistically significant, but also clinically meaningful outcomes in terms of reduction of pruritus and lesion resolution. The Phase IIb study's purpose is to test practical monthly subcutaneous dosing with a cohort of 180 patients. We will gather important information over 16 weeks regarding reduction of pruritus and patient evaluations longer term in terms of lesion resolution. Vixarelimab has a dual mechanism of action blocking both interleukin-31, which is implicated in pruritus, as well as blocking oncostatin M, which has been implicated in hyperkeratosis and fibrosis.

Eben Tessari, Chief Operating Officer

Yes. Thanks, John. I would add that if we can replicate the results of our Phase IIa study with the monthly dosing in our ongoing Phase IIb program, Vixarelimab is incredibly well positioned given the data we've generated to date versus the two main other competitors in the field.

Operator, Operator

Our next question comes from the line of David Nierengarten with Wedbush Securities. Your line is open.

David Nierengarten, Analyst

Congrats on the profitable franchise. It's wonderful to see. Just a couple of questions on the commercialization. The patient turnover, do you have a handle on any of the patients who feel they're cured or believe they won't have a recurrence and thus have dropped off therapy? On a related note, do you have a better handle on the proportion of patients coming in with pre-existing conditions that would prevent them from going on steroids or other treatments? So these might not be long-term recurrent patients, but perhaps they have their first episode, and the doctor notices underlying conditions that aren't amenable to steroid treatment, so they go on ARCALYST.

Ross Moat, Chief Commercial Officer

Yes. David, this is Ross. I can start on those two questions. Since the time of launch, we've observed some patients that stopped therapy, whether that's through physicians believing they came in with a particular time point in their disease and needed a shorter duration or patients thinking that they have overcome their condition and are able to stop the treatment as well. Although the percentages show that most patients remain on therapy for longer. We've also seen patients come back and restart therapy if they trial and stop, as symptomology will return if the duration is too short. The RHAPSODY data suggests patients can restart therapy if they experience symptoms of recurrent pericarditis again. So it’s good physicians and patients know that if they stop therapy too early, there are safety nets. Physicians judge the duration based on patients' baseline characteristics and the severity of their flares, and try to match treatment duration accordingly. Regarding the proportion of patients who have pre-existing conditions preventing them from using steroids, it's not something we’ve looked at in depth. However, it's recognized that steroids aren't typically a suitable solution for this disease. Long-term or high-dose steroids can be harmful to patients and increase the risk of recurrence. Patients often need an effective first treatment, and that’s where ARCALYST stands as it targets the disease's root cause.

David Nierengarten, Analyst

Got it. And then maybe one quick follow-up. On sales and marketing, do you anticipate any additional spend, incremental spend to continue to market ARCALYST to the less frequent prescribers or patients who may be more acute rather than having two or three recurrences?

Ross Moat, Chief Commercial Officer

Yes. I'll make a start on that, and if Mark or anyone else wants to jump in, please feel free. Ultimately, this is always under evaluation. We're continuously seeking the best, most efficient way to address the opportunity. We did a lot of work prior to launch to position our field team and non-personal promotion side correctly. We've always had a very methodical data-driven approach in addressing the market. We will continue to assess whether maximizing non-personal promotion opportunities, attending congresses, and optimizing our field team are the way to drive value for patients and Kiniksa.

Sanj Patel, CEO

I think you said it very well, Ross. The bottom line is we're excited about the growing opportunity, and we're doing a lot of analytical work right now and continue to look at it, but we are very pleased with our execution on the commercial side. We'll remain focused on the increasing opportunities ahead.

Operator, Operator

Our next question comes from the line of Alexandria Hammond with Bank of America. Your line is open.

Alexandria Hammond, Analyst

Hi, this is Alex Hammond on for Geoff Meacham. Given you have cash to get you to 2024, could you provide any additional color on your BD strategy? Have the depressed mid valuations changed your appetite at all? What qualities are you looking for in assets besides just being in your general wheelhouse?

Sanj Patel, CEO

Maybe I'll make a couple of comments, and Eben, feel free to jump in. We feel great about our cash position, which allows us to reach at least 2024, relying on continued commercial execution as well. You're right; there are many depressed valuations out there, and we are keen to look at ways to augment our pipeline. We have excellent products in the immune-modulating space but would be open to additional technologies or products to build on that. We're looking for synergies with our existing commercial infrastructure and development pipeline. Our team is adaptable, with lots of rare disease experience, and we have proven our ability to execute commercially. We're investigating opportunities across various development stages. It's an exciting time for us as we have created this franchise and company in just six years from scratch, primarily through business development. We also have our own research exploring early-stage programs, mostly in the immune-modulating area, but we're flexible to consider other rare diseases and opportunities providing value. We'll be judicious with capital allocation, as being realistic with valuations is crucial, too. Eben, anything you want to add?

Eben Tessari, Chief Operating Officer

No, I think you captured it nicely. Our focus is maximizing patient value, and we're always on the lookout for opportunities.

Operator, Operator

Our next question comes from the line of Liisa Bayko with Evercore ISI. Your line is open.

Liisa Bayko, Analyst

Most of my questions have been answered. But just one, can you talk about the shape of R&D for this year? Historically, it seems to bounce around a little bit, but how should we be thinking about the shape of the R&D expense this year?

Sanj Patel, CEO

I'll give that one to Mark; he has a bit of muscle memory, so go ahead, Mark.

Mark Ragosa, CFO

Liisa, I don't think there's much to comment on regarding where we're allocating our resources right now beyond what we've disclosed. Obviously, we are focused on the commercialization of ARCALYST alongside the clinical trials of Vixarelimab and 404 in RA. The timing of clinical trials is key to R&D expenses.

Operator, Operator

I'm showing no further questions at this time. I would now like to turn the conference back to Sanj Patel, Chief Executive Officer.

Sanj Patel, CEO

Thanks very much, operator. Thank you for all the questions. I hope you all got a sense of the excitement we've got and look forward to providing additional updates as we move into the rest of the year. As Ross eloquently noted, we've had a tremendous commercial execution start, and we certainly intend to keep that momentum going. So let's continue. Thank you, everybody.

Operator, Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.