Kiniksa Pharmaceuticals, Ltd. (NASDAQ:KNSA) Q3 2023 Earnings Call Transcript

Kiniksa Pharmaceuticals, Ltd. (NASDAQ:KNSA) Q3 2023 Earnings Call Transcript October 31, 2023

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. [Operator Instructions] 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: 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, who 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: 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 and is focused in 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, PK, and safety of chronic subcu 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: 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 off that higher base, 24% have now prescribed for two or more recurrent percolates 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 sitting at a total of around 20 months on average may continue to evolve as more patients get towards the longer durations of therapy. Moving to Slide 8, we’re making good progress in continuing to build the market and change the treatment paradigm to establish artist as the standard of care in recurrent pericarditis.

Through our experience launched 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 Harris poll survey, 96% of patients reported that they were incorrectly diagnosed with other conditions prior to their recurrent pericarditis diagnosis. In fact, they had an average of 2.7 diagnosis before the recurrent pericarditis diagnosis. This highlights the substantial room for improvement that’s possible by advancing education on the disease. Additionally, once a diagnosis is reached, we need to evolve physicians’ mindset 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 which we interpret as having the critical information you would need in order to make a prescribing decision such as who it’s for, how it works, and what the clinical data look 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.

And more importantly, of the physicians who were seen by Kiniksa representative 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 NCEs and colchicine. When you look at the current prescribing patterns, around one-third of health care professionals report they’re prescribing ARCALYST ahead of corticosteroids which suggests great progress so far since launch, but still a substantial opportunity for future growth.

Also encouraging is that 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 to 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 who are 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: Thanks Ross. The aim of the Phase II trial of KPL-404 rheumatoid arthritis shown here 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 or a fourth cohort of the study whereas Cohort 3 enrolled approximately 75 patients randomized in a 1:1:1 ratio to the 5-milligram per kilo subcutaneous dose level 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 and followed by 400 milligrams subcutaneously every four weeks for 12 weeks.

We decided to initiate Cohort 4 in order to provide a more comprehensive picture of the KPL-404 PK/PD 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 are also going to 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: 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: Thanks Mark. As you’ve heard today, and as demonstrated by our consistent execution, we are a well-capitalized and highly growth-orientated 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 RA, 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 massive 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?

See also 20 Least Diverse Countries in the World and 15 Biggest Drug Cartels in the World.

Q&A Session

Operator: Thank you. [Operator Instructions] Our first question will come from Anupam Rama of JPMorgan. Your line is open.

Anupam Rama: 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 kind of quantifying the return on investment there? Thanks so much.

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

Ross Moat: 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 a pretty robust growth. I think a large part of that is down to the sales force expansion that we did towards the end of last year. And we said by the time that team were in place and trained, and we changed the territories around and had handovers we saw a jump up in activity in the early part — late stages of last year in the early parts of this year and then an increase in patient enrollments associated with that higher activity. And then really from the Q2 sales where we saw a growth of more than $11 million in the most recent earnings, the growth of over $10 million.

We’re starting to see some of the fruition of that hard work out there in the field. And I think it just speaks to the potential that’s out there, but also the spread of recurrent pericarditis patients, the importance of getting out broadly to the cardiologists of rheumatologists.

Anupam Rama: Thanks so much.

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

Paul Choi: Hi, thank you. Good morning and thank for taking our questions. My first question is for John with regards to the addition of the Cohort 4 to the KPL-404 study. The loading dose and the two other doses are higher than you’re generally testing with the other weekly or every other weekly cohorts. So, 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: Sure. Good morning Paul and thanks so much for your question. So, with regard to Cohort 4, yes, the approach was to provide a more comprehensive picture of the PK/PD relationship. But to be clear, the weekly and biweekly KPL-404 dose levels actually provide plasma concentrations that are higher. So, actually, the 400-milligram Q4-week dose sits in between the 2-milligram per kilo subcu dose and the 5-milligram per kilo subcu dose, thinking remembering that 5 milligrams per kilo is roughly 350 to 400 milligrams absolute depending on the weight of the patient. And so this actually provides us an opportunity to test not only that intermediate trough plasma concentration but also, to your point, to test the different dosing interval of giving it every month, which is, as you mentioned, more convenient.

And so that’s basically the approach and the 600-milligram loading dose allows us to get to that trough plasma concentration quickly. And then, yes, the 400 milligrams every four weeks allows for the attainment of that trough plasma concentration, which is in between the other three. Okay. And then, Ross, did you want to start with the other part of the question?