Earnings Call Transcript - KNSA Q4 2022

Operator, Operator

Good day, and thank you for standing by. And welcome to the Kiniksa Pharmaceuticals’ Fourth Quarter and Full Year 2022 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. I would now like to hand the conference over to your speaker today, Rachel Frank, Head of Investor Relations. Please go ahead.

Rachel Frank, Head of Investor Relations

Thank you, operator. Good morning, everyone. And thank you for joining Kiniksa's call to discuss our fourth quarter and full year 2022 financial results and recent portfolio application. 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 fourth quarter and full year 2022 financial results. And finally, Sanj will return for closing remarks and to kick-off the Q&A session for which Eben Tessari, our Chief Operating Officer; and John Paolini, our Chief Medical 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 of 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 looking forward to reviewing our fourth quarter and full year 2022 financial results today. In 2022, we continued to execute across our cardiovascular and autoimmune franchises, which positions us for continued success and growth in 2023. On the commercial side, as we announced in January, Q4 represented another quarter of continued growth for ARCALYST. The net product revenue of $39.9 million represents approximately 20% sequential growth versus the previous quarter Q3. Our full year 2022 net revenue of $122.5 million is right in the middle of the guidance we gave at the beginning of the year, which was $115 million to $130 million. We are very pleased with our commercial execution to date. And as we move into the year ahead, we're highly focused on reaching more patients with recurrent pericarditis by expanding the breadth and depth of our prescriber base. Ross will provide more details on this in a few moments. We also remain focused on building the maximum value across our portfolio of clinical stage assets, including KPL-404, which is our CD40 antagonists program. We're currently conducting a Phase 2 study in rheumatoid arthritis, which is designed to evaluate the efficacy, dose response, PK and safety of chronic subcutaneous dosing over a duration of 12 weeks. In terms of where we are right now with this program, we fully enrolled the first and second cohort of the PK lead-in and we're now focused on starting the third and final cohort, which is the efficacy portion. We expect the proof of concept data from this study in the first half of next year. We continue to pursue collaborative study agreements with mavrilimumab to evaluate potential in rare cardiovascular diseases. This is a molecule that we continue to be excited about and has the potential to impact a number of diseases. And with that, I'll turn it over to Ross to review our commercial execution of ARCALYST.

Ross Moat, Chief Commercial Officer

Thank you, Sanj. I'm pleased to share further details on our fourth quarter and full year 2022 commercial performance, and our plans for continued growth in recurrent pericarditis. Throughout the year, we continued to deliver solid sequential quarter-on-quarter growth of ARCALYST revenue. The growth in Q4 resulted in a net revenue of $39.9 million, representing approximately 20% sequential growth versus the prior quarter. This means our full year 2022 net revenue was $122.5 million. Our team has continued to activate an ever-growing prescriber base and there are now more than 800 unique prescribers for recurrent pericarditis since launch, which is a growth of more than 100 additional new prescribers every single quarter. We continue to hear from both prescribers and patients that they are having a positive experience with ARCALYST, and this is resonating in the repeat prescriber rate where considering we have a larger overall prescriber base, we have maintained about 22% of the total prescriber base who have written for two or more patients. Slide 8 outlines some of the key metrics and drivers of the ARCALYST growth. Since launch, we've been laser-focused on the 14,000 target population of recurrent pericarditis patients who have had two or more episodes. By the end of 2022, we have achieved $122.5 million in net revenue by activating approximately 5% of this target population on ARCALYST treatment. This penetration demonstrates that ARCALYST is being well received. We have meaningful and growing revenue and we continue to have a significant opportunity ahead of us. The payer approval rates in Q4 remain greater than 90% of all completed cases as it has been every quarter since launch. Another important driver of growth, which I will highlight in more detail on the next slide is the duration of therapy, which is currently at approximately 18 months in total. Additionally, compliance continues to be strong with greater than 85% with refills generally completed on time, highlighting that once a patient starts on therapy, they see the benefits and stay adherent throughout the duration. Our gross to net also continues to be very healthy and at 9% overall in 2022. All these metrics point in the direction of a successful progressive commercial launch with significant room for substantial growth, and we're extremely excited by what we can achieve with this franchise. I'd like to take a moment to highlight the total duration of therapy metric I mentioned on the previous slide. As we follow more patients over longer periods of time, we believe the average total duration of therapy is now at approximately 18 months. This may continue to evolve, but what we're seeing in the commercial setting is that initially patients are staying on treatment for around 12 months and then a high proportion, approximately 45%, are restarting treatment fairly quickly after trial and stop. This reflects what we know about the persistence of the disease, where 60% of multiple recurrence patients suffer for two years, and from our clinical data showing that continuous treatment with ARCALYST throughout the disease results in the long-term prevention of flares. We acknowledge that treating this debilitating and complex disease with ARCALYST requires an evolutionary mindset and practice for cardiologists. Whereas the focus in the past was aimed at minimizing treatment duration, in particular with steroids due to their toxicity burden and potentially worsening and prolonging the disease, but now with ARCALYST the aim is to treat continuously throughout the duration of the disease and we are rapidly advancing the education on this to cardiologists across the US. Our commercial launch strategy has been successful and now we are continuing to execute and enhance this strategy to reach many more patients in 2023 and beyond. We're focused on a dual approach of continuing to broaden our base of prescribers as well as deepening the depth of repeat prescribers. At the end of last year, we expanded our sales force to around 50 sales representatives, which we believe will enable greater frequency with our target doctors as well as broaden our reach overall. We understand the importance of having multiple calls on our target base and how to provide the education needed to ensure cardiologists become comfortable with addressing the root cause of recurrent pericarditis by prescribing a targeted biologic therapy. We are planning to make far stronger inroads into digital marketing, having built a patient database of more than 3,000 pericarditis patients where we will advance the education so patients can self-advocate for ARCALYST if and when patients have their next recurrence. Currently, patients are widely spread throughout the country. We plan to lead the charge to support centers who wish to advance their services by focusing on pericardial diseases and creating networks of local referrals to centers who specialize in the management of these diseases. We also want to be at the leading edge of evidence generation, for example, with our longitudinal registry called RESONANCE, which is focused on the severity and burden of the disease, as well as understanding and educating further on the outcomes associated with appropriate disease management. And turning to Slide 11, our efforts on commercializing the first and only FDA-approved drug for recurrent pericarditis has resulted in a cracking launch, with hundreds of patients gaining access to therapy. The next stage for us is to dig much deeper into the opportunity. We believe we have built strong foundations that do just that. Our data are exceedingly compelling. We have an ever-growing prescriber base. Physicians and patients are reporting positive experiences with ARCALYST, and we have an excellent field team who are executing our strategy brilliantly. Looking to 2023, we expect to grow our ARCALYST net revenue to between $190 million and $205 million. This would represent a significant year-on-year growth of greater than 60% at the midpoint of that range. We're delighted with our current commercial performance and are very excited about the growth we have ahead. With that, I'll hand over to Mark to cover our financial results.

Mark Ragosa, Chief Financial Officer

Thanks, Ross. Good morning, everyone. Over the next few minutes, I'll walk through our fourth quarter and full year 2022 financial performance and review our 2023 financial guidance. You can find our detailed financial information in today's press release, and I'd like to call your attention to a few items. First, fourth quarter total revenue was $61.9 million and consisted of ARCALYST net product revenue of $39.9 million, as well as collaboration revenue of $21.9 million from our license agreement with Genentech. Full year 2022 total revenue was $220.2 million and consisted of ARCALYST product revenue of $122.5 million, as well as collaboration revenue of $97.7 million from our license agreements with Huadong Medicine and Genentech. Second, ARCALYST collaboration profit grew to $15 million in the fourth quarter, and collaboration expense was $7.5 million. Full year 2022 ARCALYST collaboration profit was $36.2 million and collaboration expense inclusive of a $6 million payment related to our license agreement with Huadong was $24.1 million. Third, over the course of the year, net income benefited from collaboration revenue, as well as the release of evaluation allowance on non-cash deferred tax assets. For the fourth quarter and full year 2022, net income was $4.5 million and $183.4 million respectively. Lastly, turning to our financial guidance. As Ross just mentioned, we expect total 2023 ARCALYST net revenue of between $190 million and $205 million, and we ended 2022 with cash reserves of $190.6 million. We expect these reserves as well as continued ARCALYST commercial execution to fund our current operating plan into at least 2025. And with that, I'll turn the call back to Sanj for closing remarks.

Sanj Patel, CEO

Thanks Mark. We believe there is a lot to be excited about as we move into the rest of the year. As a corporation, we're revenue-producing and continue to have a profitable ARCALYST collaboration. And as both Ross and Mark mentioned, we expect that full year 2023 net product revenue of $190 million to $205 million, which represents greater than 50% growth year-over-year at the midpoint of that range. As I mentioned previously, in addition to our successful collaboration and commercialization of ARCALYST and recurrent pericarditis, we also have a pipeline of mid-stage clinical programs aimed at making a big impact on patient lives. As a reminder, we're enrolling patients in the Phase 2 study in rheumatoid arthritis and we expect data in the first half of next year. Importantly, we are well capitalized. We have growing ARCALYST revenues, non-diluted capital from strategic out-licensing in transactions and continued financial discipline, which all supports providing us cash runway into at least 2025. Ultimately, our mission is to continue to help patients in need, create massive value, and make a generational impact. And with that, I want to thank all of you for your time today. And I'll hand it back to the operator for questions.

Operator, Operator

And our first question comes from Anupam Rama from JP Morgan.

Anupam Rama, Analyst

Here's a quick question on the guidance. What's that delta between the bottom end and the top end of the guidance range of $190 million to $205 million? Is it just trade market penetration and seasonal factors we should be considering? Is it compliance, reinitiation post dosing, what metrics should we be considering there? And then a quick second question. What types of pull-through are you seeing from the expanded sales force?

Ross Moat, Chief Commercial Officer

I think the guidance is one, first. So we've provided guidance, which is a $50 million delta, which is the same as what we provided last year. This, of course, knowing that there were some uncertainties, such as the prescriber continued growth and the growth in the pre-prescribers, compliance and adherence rates, as well. Also, the total duration of therapy, which we announced today that we're expecting 18 months worth of duration, which is higher than what we announced in the previous quarter. So I think there are multiple facets that are important going into the guidance we’ve provided the range and look forward to executing against that. But the feedback we get from the field is incredibly positive. The thing that we realize is that patients are dispersed around the US. So we're delighted to have a 5% penetration into the 14,000 target population so far, but we've got a lot more work to do to get the message out there, create awareness, and to make physicians comfortable in prescribing ARCALYST when they see appropriate patients. So we've got to keep driving that penetration throughout the year. On the sales force, we haven't really provided many more metrics around that yet. This is really our full-year '22 and Q4 earnings call. And we’ve built the field team and expanded the field team throughout Q4 with an aim to have everyone in place by the end of the year. So it's a bit too early to judge what that is yet. Although, we're really happy with the people that we've been able to recruit, and we have seen a very high number of applications into clinics to come and join our exceptional current team. And are pleased with who came in, obviously, then we completed some onboarding and training, which we are very rigorous about, so that takes some time. And then for the field team to kind of be out there in the field making a difference. We've seen an uptick in activity rates associated with that in Q4, and we wait to see what the throughput of that is in terms of enrollments and new patients coming onto therapy as we move throughout the year.

Operator, Operator

And our next question comes from Paul Choi from Goldman Sachs.

Paul Choi, Analyst

I also want to ask a question on the guidance, particularly with regard to any sort of patient behaviors, and then if you have seen anything exiting the fourth quarter that might have indicated some patients' economic sensitivity in the recurrent pericarditis market. And just maybe if you can articulate how much conservatism because of this is built into your guidance, and then I have a couple of follow-up questions.

Ross Moat, Chief Commercial Officer

So we haven't really seen anything of note in Q4 regarding the economic sensitivity of patients. Of course, this is not our first time now in the commercial setting, getting to the end of the year and of course starting off Q1 as well, and we know that there's some seasonal implications in our specialty medicine around that, around changes of insurance plans, resetting of copays, and all those types of dynamics. So we have an experienced robust patient services team on the Kiniksa OneConnect, which we set out prior to launch and have been amazing in supporting patients throughout their journey on ARCALYST. They have very high contact rates with the patients to understand their situations and changes to insurances moving forward. So we work very closely with the patients to ensure both economic circumstances are managed appropriately and to try to support patients transitioning back to commercial therapy if they're provided bridge therapy during insurance plan changes. So we have all those programs in place for eligible patients and we look forward to continuing to support those patients to make sure that they can remain on commercial therapy.

Paul Choi, Analyst

And then I want to maybe just ask with the growing patient base, what your potential relative exposure in the early part of the year to the Medicare donut hole might be? And then one pipeline question is, can you provide us just an enrollment update on KPL-404, where you are and when you potentially expect to complete enrollment here in the dose escalation?

Sanj Patel, CEO

So maybe I'll take the first part of the question and pass on to Eben to talk about the next part. But in terms of the donut hole and patients who face that in the start of the year, we've been there before and supported patients in every way that we can through that, through catastrophic coverage, which happens rapidly with our type of drug as well. So we just remain very close to the patients and we have a wealth of services to support them through each eventuality. So we're quite confident in having all the programs in place to support patients throughout the year.

Eben Tessari, Chief Operating Officer

I'll take the other part of the question on the enrollment. What we obviously said is that we'll have results in the first half of next year, and we're certainly on track to meet that objective and have no updates.

Operator, Operator

And our next question comes from David Nierengarten from Wedbush.

David Nierengarten, Analyst

I had a question on the patients who discontinue. Do you know or are they tending to be patients who are earlier line or less severe? I'm just trying to get a handle for the duration of therapy in patients who might be a little bit earlier in line than the initial group of patients that you've treated over the past year and a half?

Ross Moat, Chief Commercial Officer

It's a great question, and really we need to wait for more data to build on that, to try to understand some of the deeper dynamics on the types of patients that may be stopping and restarting. If there's any particular trends there to be aware of. But at the moment, it's relatively early days with a fairly small size that we can't really draw very clear conclusions at the moment. So really our focus is on educating around the duration of the disease with physicians to ensure they understand that 60% of patients do have the disease for two years. The median is three years in that particular data set that we use, and some patients have it for many years beyond that as well; it's a very long tail. We know the importance of treating throughout the disease and to try and help physicians understand that and incorporate that into their thinking. What we have seen is that the approximate end of the initial treatment duration is around 12 months on average, which is probably driven by the fact that the majority of prescribers are prescribing for 12 months worth of refills. Also, payers also generally approve for 12 months before requiring a simple reauthorization for patients to continue longer. So of course that creates a bit of a junction at that 12-month time period where physicians and patients will consider whether to stay on therapy or trying to stop. I've certainly seen some patients try to stop. Out of all those patients that do stop, regardless of whether it's at the 12-month time period or much shorter or even longer than that, we see a restarting total of 45%, which I think really highlights what we know about the duration of the disease and how persistent this disease can be. So I think people are maybe learning along the way as well and wanting to ensure that patients are treated for the adequate amount of time, so they don't have to suffer future flares.

Operator, Operator

And our next question comes from Geoff Meacham from Bank of America.

Geoff Meacham, Analyst

I just have a couple. So ARCALYST, another question on persistence rates. Where do you think it could ultimately go? I guess, is the question. And then when you look at new starts, have you guys shortened the time to onboarding? I guess the question would be, whether you guys have shortened the diagnostic path to try to get patients on the drug at an accelerated rate? And then a second one for Sanj. The question is, how important is profitability as a strategic objective? It is very differentiated among SMID cap peers. I wasn't sure that where this ranks as a priority for you guys in the near term?

Sanj Patel, CEO

Maybe I'll have Ross answer this first part, and I'll come back to the second one.

Ross Moat, Chief Commercial Officer

So maybe if I take your question about persistence rates and duration first. This is the first time we've announced that we expect the total average duration to be around 18 months. And we know that this may well have a long tail with it due to what we know about the disease. But yes, that's a longer time period than we have previously anticipated and mentioned. Is there the ability for that to be even longer? The answer is quite possibly, yes. But we just need to wait for the data to build on that. We know what the initial treatment duration looks like, we know what the restart percentage looks like so far. But knowing that when you get that far out, the number of patients that we are tracking are reasonably limited. We've only been on the market for about 21 months now. So we’ve tracked that with a keen eye and look forward to sharing more information on that as time goes on. For now, we've said that the approximate average duration will be 18 months worth of therapy from what we've seen through to the end of 2022. The second part of your question around the diagnostic path or time through to diagnosis and then initiation on ARCALYST. Again, it's difficult to tell knowing that patients are very widely spread throughout the US. We're making a concerted effort on educating physicians, promoting ARCALYST, creating awareness and we're seeing that success in the prescriber rates, the number of patients on therapy, and how revenue is building. But we are essentially building a market where we are the first and only approved therapy. We’re going in and educating physicians and changing the treatment paradigm, which takes some time to do when you look at other analogs in a similar type of market space. This is a rare flaring disease, so it takes time. We've always said we see this as a steady sequential launch with 5% penetration of the target population so far. That's why we are excited about the opportunity that we have ahead.

Sanj Patel, CEO

And to the latter part of your question regarding profitability and how important that is. Obviously, it is important to us, but I think even more so, growth and increasing opportunities to enhance value are of higher priority. We've shown that we can be disciplined as far as financial management is concerned and we've demonstrated that quarter-on-quarter. While profitability is crucial, we are focused on increasing value which is why we've made changes in our portfolio to facilitate that licensing out for significant amounts of capital, and we will continue to be disciplined and strategic moving forward.

Operator, Operator

And our next question comes from Liisa Bayko from Evercore ISI.

Liisa Bayko, Analyst

I'm just curious on how you're thinking about growth to net for 2023. You’d guided to around 10% for 2022. I know it came in more at 9%. What do you think for this year?

Sanj Patel, CEO

That sounds like a fantastic question for Mark Ragosa, Chief Financial Officer.

Mark Ragosa, Chief Financial Officer

So as Ross mentioned, gross to net was 9% for the year 2022. I don't think while there's always some quarterly fluctuations, we do not expect big swings at this point in gross to net going forward, but we certainly have not provided formal guidance.

Liisa Bayko, Analyst

So wait, so 9% was for year-to-date or was for…

Mark Ragosa, Chief Financial Officer

Yes, 2022. Yes, exactly. So year-to-date 2022...

Liisa Bayko, Analyst

And then just back to the patients who restarted, I want to clarify to make sure I understand. What percentage of patients, I guess, discontinued therapy? Are you saying 45% of those who discontinued restarted, or 45%... like what is the 45%? And I'm trying to understand does that represent patients who discontinued or those are the restarts of the patients who discontinued? If so, what was the discontinuation?

Ross Moat, Chief Commercial Officer

So maybe I can clarify that, Liisa. The 45% is 45% of all of those patients who discontinued ARCALYST treatments for recurrent pericarditis throughout 2022. So regardless of when they stopped, even if they stopped therapy after one month or after 12 months or even longer than that. Out of all those who started and looking at those who stopped, the percentage that restarted therapy is 45%. So a stop means that they've gone more than 28 days beyond when their prescription ran out or their latest refill ran out. So that is how we define having stopped therapy, and then yes, 45% restart.

Liisa Bayko, Analyst

And so what is the discontinuation rate then that you see?

Ross Moat, Chief Commercial Officer

So we haven't provided an actual number of the discontinuation rate aside from saying that the average approximate discontinuation time was 12 months across all of the patients that started. In our investors slide deck as well, we do have a graph that shows that kind of discontinuation distribution in broad terms without specifics on it. So that gives you a little bit of a flavor there. But yes, the average is 12 months.

Liisa Bayko, Analyst

And then can you discuss this valuation release a little bit more? I know you quantified it, I just missed it.

Mark Ragosa, Chief Financial Officer

So it happened in the third quarter of this year. So if you kind of go back a little bit in the second quarter, we had a full evaluation allowance against our deferred tax assets as we were in a three-year cumulative tax loss position in both the US and the UK. With the proceeds from the Vixa license agreement plus actual and forecasted ARCALYST sales, we reached the three-year cumulative tax gain position in the UK. As such, we were required to release the valuation allowance on our UK deferred non-cash deferred tax assets. That was the main driver of the reported $172 million net income tax benefit in 2022.

Liisa Bayko, Analyst

And you've had an 85% compliance rate so far. Is that pretty stable, do you think, or do you think that's going to shift around from here?

Mark Ragosa, Chief Financial Officer

The 85% compliance rate is on ARCALYST. We just said in totality across 2022, it was greater than 85% as a compliance rate. We put a lot of effort into our touchpoints with patients to make sure that they're supported all the way along the journey and that they understand the high importance of compliance and adherence to therapy. We have various programs in place to ensure that patients remain informed and supported as appropriate. So that was greater than 85% across the totality of 2022.

Operator, Operator

And I am showing no further questions. I would now like to turn the call back over to Sanj Patel, Chief Executive Officer, for closing remarks.

Sanj Patel, CEO

Thanks, operator. Thank you everybody for the questions and for joining the call today. We've clearly got a very exciting year ahead of us and we look forward to providing additional updates in the future. So thanks everyone.

Operator, Operator

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