Kiniksa Pharmaceuticals Ltd

NASDAQ:KNSA

Earnings Call Analysis

Q2 Financial Highlights and Future Outlook

Kiniksa Pharmaceuticals reported a strong second quarter in 2024, driven by their flagship product ARCALYST, which saw net product revenue grow by 90% year-over-year to $103.4 million. The company expanded its sales force and launched initiatives with the American Heart Association and Henrik Linquist to boost market penetration. As a result of strong performance, Kiniksa raised its 2024 net sales guidance for ARCALYST to between $405 million and $415 million. Despite a net loss of $3.9 million, the company expects to remain cash flow positive annually, supporting ongoing investments in its pipeline, including abiprubart for Sjogren’s disease【6:0†source】【6:5†source】【6:3†source】.

Kiniksa Pharmaceuticals' Strong Q2 Performance

Kiniksa Pharmaceuticals, in its second-quarter earnings call, revealed a remarkable performance led by its flagship drug, ARCALYST. The net product revenue from ARCALYST reached $103.4 million, marking a staggering 90% year-over-year increase. This impressive growth can be attributed to the increased adoption from healthcare providers, where the total number of prescribers rose to about 2,300, an increase of 300 from the previous quarter. As Kiniksa establishes ARCALYST as the 'standard of care' for recurrent pericarditis, it also reported a collaboration revenue of $5.2 million, mainly resulting from a $5 million development milestone under a partnership with Genentech.

Guidance Adjustments and Financial Strength

Given this robust performance, Kiniksa raised its 2024 revenue guidance for ARCALYST from a previous estimate of $370 million to a new range of $405 million to $415 million. The company expects continued strength in its operations with projected cash flows remaining positive on an annual basis. The transition from a net income of $15 million the previous year to a net loss of $3.9 million this quarter highlights the ongoing investment required for growth, particularly in commercialization efforts. Despite this loss, the company closed the quarter with a strong cash position of $218.8 million.

Market Trends and Long-Term Perspectives

Kiniksa is seeing a shift in the treatment landscape for recurrent pericarditis, transitioning more towards a chronic treatment perspective. The average duration of ARCALYST treatment has increased from approximately 23 months to 26 months in recent reports. This change is crucial for establishing long-term treatment plans among physicians, as about 11% of the targeted multiple recurrence patient population are currently on ARCALYST, up from 9% in the previous reporting period. The company aims to maintain this growth trajectory while aiding clinicians in recognizing the need for long-term therapy.

Investments in Awareness and Education

Building awareness about recurrent pericarditis is a key strategy for Kiniksa. A study revealed that 96% of patients reported misdiagnoses before being correctly identified with this condition. Kiniksa is focusing on educational initiatives, expanding its sales force to approximately 85 representatives and sponsoring programs with the American Heart Association to improve care quality. These efforts aim to ensure that healthcare providers understand the importance of timely diagnosis and appropriate treatment, thereby enhancing patient outcomes.

Future Growth Opportunities through Pipeline Developments

Looking ahead, Kiniksa is excited about advancing its pipeline, particularly the drug abiprubart, which is currently in a Phase IIb study for Sjogren’s disease—a chronic autoimmune condition lacking FDA-approved therapies. The management expresses confidence in the drug's potential based on prior clinical proofs and plans to explore other indications as the program develops. The focus remains on driving both near-term revenue from ARCALYST and long-term value through pipeline advancements.

Earnings Call Transcript 2024-Q2

[Operator]

Good day, and thank you for standing by. Welcome to Kiniksa Pharmaceuticals Second Quarter 2021 Earnings Conference Call. [Operator Instructions]

Please note that this conference is being recorded. I will now hand the conference over to your speaker for today, Rachel Frank, Head of Investor Relations. Please go ahead.

[Rachel Frank, executive]

Thank you, operator. Good morning, everyone, and thank you for joining Kiniksa call to discuss our second quarter 2024 financial results in recent portfolio execution. A 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. Next, Ross Moat, our Chief Commercial Officer, will provide an update on the Atlas commercial execution.

From there, Mark Ragosa, our Chief Financial Officer, will review our second quarter 2024 financial results. And finally, Song 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. or review 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, executive]

Thanks, Rachel, and hello, to everyone listening in. in the second quarter of the year, we've continued to execute and make significant progress across our portfolio. We've driven strong commercial performance and advanced our clinical stage asset abiprubart into a Phase IIb study in Sjogren’'s disease. The full clinical development plan for this program is fully funded within our current operating plan. .

We've also maintained a strong financial position, and we expect to be cash flow positive on an annual basis. All of this positions us for continued success in the second half of the year and beyond. Starting on the commercial side since launching ARCALYST in recurrent pericarditis just over 3 years ago, Kiniksa has built an effective commercial operation, allowing us to reach an increasing number of recurrent pericarditis patients.

We've introduced and advanced a fundamental shift in the treatment paradigm for this disease, and this has been pivotal in establishing ARCALYST as the standard of care for recurrent pericarditis. We've also consistently driven ARCALYST collaboration profitability. This allows us to invest in further commercialization -- it also includes our recent sales force expansion, the American Heart Association initiative and the Henrik Lances partnership that we announced last month. In the second quarter, ARCALYST net product revenue grew to $103.4 million, which is 90% year-over-year growth.

This growth was supported by continued strength across several key commercial drivers, including increasing prescriber adoption high physician and patient satisfaction and over 90% payer approval of completed cases. The second quarter also benefited from higher compliance and lower gross to net, both of which we do not expect to improve at the same rate going forward.

With regard to prescribers, the total number since launch has increased from approximately 2,000 in Q1 to approximately 2,300 in Q2. Importantly, these prescribers are demonstrating a growing appreciation of the need to treat to the duration of underlying disease and that's reflected by the total average duration of therapy increasing from 23 months at the end of 2023 to approximately 26 months at the end of Q2.

Additionally, at the end of the second quarter, approximately 11% of the 14,000 target population were actively on ARCALYST treatment. As we look to grow this penetration number and ultimately help more patients, we've continued to evolve our commercial efforts and initiatives, and we now expect 2024 full year ARCALYST net sales to be between $405 million and $415 million, and Ross will cover in more detail this in a moment.

Ultimately, it's our commercial execution that's helping to drive our strong financial position and our ability to drive further growth across the Kiniksa business. With that in mind and looking to our pipeline, we're really excited about the potential of abiprubart to provide another growth opportunity for the company. We recently announced that we started enrollment in the Phase IIb study of abiprubart in Sjogren’'s disease.

This is a debilitating chronic autoimmune disease that has no FDA-approved therapies. Based on the clear biological activity demonstrated by abiprubart, potential for convenient subcutaneous administration and the externally proof of concept of the inhibition of the CD40 and CD154 interaction, we believe that abi has the potential to provide meaningful benefit to patients.

I do want to mention that today is World Children's Day. This is a day that's dedicated to raising awareness of this life-altering disease. We're very excited to be working closely with both the Sjogren’ Foundation and Sjogren's Europe to help raise awareness. With that, I'll turn it over to Ross, who'll provide an update on how we plan to continue driving patient and physician adoption. Ross?

[Ross Moat, executive]

Thank you, Sanj. As Sanj noted, Q2 represented a solid quarter of growth, which was marked by strength across a number of key revenue drivers. As of the end of the second quarter, the number of active commercial patients reached approximately 11% into the 14,000 multiple recurrence target population as compared to around 9% as of the end of 2023. We are proud to be helping many recurrent pericarditis patients, we believe there is a massive opportunity ahead if we continue to execute our strategy to further build the recurrent pericarditis market.

A key component of continuing to build the market is disease awareness which ultimately impacts all of the other underlying commercial growth drivers. As a rare chronic flaring disease, recurrent pericarditis is often misdiagnosed and undertreated due to a lack of access to expert care. In a Harris poll survey, 96% of patients reported that they were incorrectly diagnosed with other conditions prior to their recovering pericarditis diagnosis. In fact, they had an average of 2.7 misdiagnoses before their recurrent pericarditis diagnosis. Additionally, once the diagnosis is reached, our aim is to evolve the physician's mindsets to recognize interleukin-1 alpha and beta as the underlying driver of the disease and to be proactive in moving away from continued systemic treatment and utilize uplift.

Based on our learnings since launch, we've made a number of investments focused on improving the awareness and understanding of the disease. This includes evolving digital marketing materials and expanding our field force to approximately 85 representatives with the goal of achieving greater reach and frequency of engagements with health care professionals. Additionally, we recently announced 2 exciting initiatives. Firstly, we're sponsoring the American Heart Association's addressing recurrent pericarditis initiative, which is a multifaceted national effort to improve quality of care for recurrent pericarditis patients through building centers of excellence and disseminating best practices for the diagnosis and management of the disease.

Under this initiative, the AHA has identified 15 champion sites that will establish a learning collaborative to improve referral pathways, identify gaps and develop solutions that can be shared with regional health care practices across the country. In addition to creating a scalable national model of care, this initiative will also develop educational materials and digital media for both patients and physician audiences.

Finally, we also recently announced a partnership with Henrik Linquist, National Hockey League, Hall of Famer and former Goalie of the New York Rangers to raise awareness of the realities of suffering from recurrent pericarditis and the importance of proactive early treatment to prevent future flats. We look forward to providing more details when the awareness campaign formally kicks off in September. In Q2, we saw a growth of around 300 new prescribers versus the prior quarter. This takes the total prescriber base to more than 2,300 since launch and demonstrated solid growth in the breadth of prescribing.

Additionally, the depth of prescribing is growing with the number of repeat prescribers now reaching around 550. Looking year-over-year, we're seeing an acceleration in the step-up of both prescribers and repeat prescribers which bodes well for the future as physicians continue to share their positive prescribing experiences and patients report the magnitude of effects from being treated with ARCALYST. Furthermore, with the growth in repeat prescribers over time, they're starting to account for a meaningful size of the new patients starting ARCALYST. Year-to-date, repeat prescribers accounted for greater than 40% of all new enrollments over the same time period. And we're still nascent in the overall with carbon peritonitis market opportunity for ARCALYST.

One measure to demonstrate this is that our recently increased sales force are targeting around 11,000 prescribers, covering approximately 85% of the recurrent pericarditis patients nationally. Clearly, with around 2,300 prescribers launched to date and considering some of those doctors are not within our target base, we're only just getting going and we have a huge opportunity to further expand both the breadth and the depth of the prescriber base.

Turning to the next slide. Our market research is also pointing to the opportunity ahead. when interview and health care professionals, both current prescribers and those who haven't previously prescribed ARCALYST, both overwhelmingly expect prescriber of ARCALYST to grow with 0 expecting a decrease. In addition, and unsurprisingly, given the positive experiences they're having rheumatologists and cardiologists are considering the use of ARCALYST in patients earlier in their disease course than they were compared to a year ago.

More broadly, this tells us that we're succeeding in our efforts to evolve physicians' mindset to appreciate that recurrent pericarditis is a serious and debilitating disease that requires a proactive treatment with an interleukin-1 approach. This underscores that we are starting to establish a new standard of care for recurrent pericarditis with ARCALYST. [ Don ] mentioned earlier that Q2 was a particularly strong quarter, mainly driven by an increased number of patients on therapy due to an acceleration of patient starts and longer durations of therapy.

A portion of the growth was also due to metrics that improved in Q2 compared to Q1, where we don't anticipate the same magnitude of growth in subsequent quarters. For example, higher compliance rates resulting from Q1 payer plan changes and a new compliance and adherence program that we launched to support patients even further on their journey on ARCALYST. Additionally, year-to-date gross to net decreased from 13.5% at the end of Q1 to 10.8% at the end of Q2 due to better-than-expected co-pay utilization with more patients reaching their out-of-pocket maximums earlier than forecast.

As a result of the strong Q2 performance, we are delighted to increase the net revenue guidance for 2024 from $370 million to $390 million to $405 million to $415 million. I'll now turn it over to Mark to discuss the second quarter 2024 financial results. Mark.

[Mark Ragosa, executive]

Thank you Ross. Detailed second quarter 2024 financial results can be found in the press release we issued earlier today. There are several items on this slide that I'd like to call your attention to this morning. First, total revenue in the second quarter of 2024 was $108.6 million, including ARCALYST net product revenue of $103.4 million, representing 90% year-over-year growth and collaboration revenue of $5.2 million, representing the recognition of milestones earned under the Genentech license agreement for Vixarelimab, including a $5 million development milestone received this quarter related to a third indication. .

Second, ARCALYST collaboration operating profit in the second quarter grew 114% year-over-year to $59.9 million and drove collaboration expenses to $30 million. Third, higher cost of goods sold and collaboration expenses, both of which are largely driven by ARCALYST revenue growth as well as investment related to ARCALYST commercialization, drove year-over-year operating expense growth in the second quarter. Fourth, net loss in the second quarter was $3.9 million compared to net income of $15 million in the second quarter of last year, when we recognize a noncash tax benefit related to the treatment of our deferred tax assets.

And lastly, net cash flow in the second quarter was $5.2 million bringing our end-of-period cash balance to $218.8 million. We continue to expect our cash reserves as well as strong commercial execution and financial discipline to support our current operating plan and we expect to remain cash flow positive on an annual basis. With that, I'll turn the call back to Sanj for closing remarks.

[Sanj Patel, executive]

Thanks, Mark. As you've heard, we're focused on accelerating Kiniksa's growth through our commercial execution with ARCALYST and by advancing our pipeline. Importantly, we expect to remain cash flow positive on an annual basis while continuing to invest in value-creating opportunities. I am jolly excited about the strides we're making to provide life-changing medicines for patients and building sustainable value. With that, I'll now turn the call back to the operator for questions. Operator? .

[Operator]

[Operator Instructions] Now first question coming from the line of Anupam Rama with JPMorgan.

[Anupam Rama, analyst]

Just a quick one for me. As you're thinking about ARCALYST treatment duration now over 2 years, where would you say physician and payer understanding about ARCALYST being more of a chronic therapy versus a product used for sort of a defined treatment duration is currently.

[Sanj Patel, executive]

Thanks, Anupam. This is Sanj I'm sure I'll hand it over to other Ross or John. But certainly, we see recurrent hepatitis as a chronic flowing disease and certainly our education both payers, physicians, prescribers have been very much along that line. I think there's a growing understanding that this is definitely a chronic disease, and you've seen the duration increase since the launch just over 3 years ago. But I'll maybe hand over to Ross, who's obviously in close contact with the payer community of VA's payer group.

[Ross Moat, executive]

Thank you for the question. So I think you're absolutely right. So I think we are starting to see somewhat of a shift and has been evolving since the time of launch, as Sanj outlined, most recently changing from a total average duration of around 23 months to now around 26 months. We're really focusing on making sure people understand the natural history of the disease, which is a median of around 3 years of disease and about 1/3 of the patients are still suffering from the disease at 5 years out.

So we're really trying to utilize that backdrop is the way of treating for ARCALYST. And I think we're starting to see the food itself that people really understanding it and treat into the natural history. Our clinical experience also mirrors some of that as well, where we have a median of 2 years treatment duration, on a maximum 3-year streamingation under the long-term extension.

We obviously have a resonance registry ongoing as well to help collect that more long term, [indiscernible] information from patients. So I guess I can say that we're starting to see it continue to evolve, and we'll see whether that continues along the trajectory for the future or not, but it's obviously a key focus for us and to make sure the patients are treated appropriately throughout the course of the disease that they're suffering from rather than stopping too early, which we do see and then patients go and restart back on ARCALYST if symptomology comes back.

On the payer side, generally, we see power approvals for 12 months duration and then an asset station from the physician that the patient needs to continue on therapy and is seeing good experience on therapy to just roll over and continue for the next year. So obviously, we've had many, many patients go through that reapproval process now as well.

[Operator]

And our next question coming from the line of Paul Choi with Goldman Sachs. .

[Unknown Analyst]

Ours is Koala I guess a couple of quick ones from us. When you talked about the GTN decline decreasing this quarter. I was just wondering if you had any kind of color on what the steady state should be going forward and how we should think about that -- and then secondly, we're wondering if you had any color on the cadence of enrollment in the EPA trial. .

[Sanj Patel, executive]

Maybe Ross, why don't you start on none John Yes.

[Ross Moat, executive]

Sure. I'll take the question as parts to begin with. So maybe just to orientate you to a point of reference, which is through 2023, where we saw the full year gross amount of 9.8%. And throughout the entire year. At the end of Q1, the year-to-date gross new was 13.5%. And as we mentioned on the prepared remarks, at the end of Q2, that was reduced quite substantially to 10.8% as the year-to-date number at the end of Q2.

So many of that is coming from the co-pay dynamics in Q1, obviously, there's a lot of industry headwinds associated with payer plan changes and co-pays. We saw that reverse quite substantially through Q2, which kind of accounted for a meaningful amount of the growth that I think was important. But obviously, we have not provided a forward look into what we expect for the full year of 2024 to be from a gross to net perspective. And then with Scott or your...

[John Paolini, executive]

With regard to your second question. This is John Paolini, the Chief Medical Officer regarding your question for the Phase IIb study for [ Epirus. ] Yes, we were pleased to announce at the earlier part of July that we had initiated enrollment in the Phase IIb SEVIN trial. And today, of course, being international Sharon Day, we really paused to reflect upon the importance of this debilitating disease and [ Codexis ] contribution to trying to grow the science in this space with the development program in abiprubart.

And so as was mentioned by Sanj, enrollment has initiated -- and at this point, further updates could be provided through the usual mechanisms clinicaltrials.gov.

[Operator]

And our next question coming from the line of Eva Fortea-Verdejo with Wells Fargo.

[Eva Fortea-Verdejo, analyst]

At on the quarter. a few from us. So person parcels, you mentioned 11% of patients with multiple recurrences were arc treatment. So for just 11%, can you provide a bit more color on how this is split between patients on second and the recurrence on beyond? And also, does this include patients on first recurrence? Or how should we be thinking about this distance and how much upside can we expect for the remainder of the year? And on abiprubart,how should we think about the kidney trials in indications.

[Ross Moat, executive]

This is Ross. Thanks very much for the question. I find it difficult to hear the second part. But if I don't answer it correctly, please, just now, and I have a lot to go. But regarding the 11% penetration into the 14,000 multiple recurrent patients. That's obviously the patient group that have suffered for 2 or more recurrences and the 11% is a moment in time and how many active commercial patients we have on ARCALYST within that price that multiple recurrence number.

So out of all the patients that are on ARCALYST, the vast majority are on 2 or more rebut we certainly have some patients that are just on their first recurrence earlier in the disease as well. And as a reminder, we do have a very broad label that completely allows for that for physicians to utilize it on the first recurrence.

And the graph that I shared in the prepared remarks as well also shows physicians' future intent of when they consider prescribing ARCALYST, so you can see that growing as an intent to consider it within the first recurrence. -- and obviously going up within each recurrence that the patients suffer from. So I think we're making good progress with that regard. And hopefully, that helps to answer your question.

[Sanj Patel, executive]

Eva, could you repeat the second half of your question. It was very difficult to hear. We heard abiprubart and Cadence, but was it the Phase IIb Sjogren’'s trial? Or was it the potential new indications you're asking about .

[Eva Fortea-Verdejo, analyst]

That was yes, potential new indications, basically, how should we think about the cadence of the new indications for abiprubart.

[Sanj Patel, executive]

Yes. I mean, obviously, we're looking very, very closely at the applicability for abiprubart. We're very excited about the mechanism. There has been proof of concept in a number of different areas as you've probably understand. And so obviously, Sjogren’'s is the first one that we've started with the Phase IIb.

We've often said it isn't sort of mutually exclusive as it were that we would have to wait for that readout. We've had the proof of concept from the rheumatoid arthritis trial. We're very pleased with that, particularly the RF factor data and the PD marker data -- but time will tell, we'll have to obviously at this point, we've not disclosed what other indications we're considering or when we'll announce them. But we're certainly going to look very carefully and work very hard about thinking about what the next steps are in that program.

[Operator]

And a question coming from the line of Liisa Bayko with Evercore.

[Liisa Bayko, analyst]

Congratulations on a strong quarter and the trajectory of alone. I have a question for you just on -- was there any inventory changes or just -- I'm trying to reconcile kind of ending the quarter 11% percent of patients on therapy? And then just kind of how it well. I know you had connects were a little bit different for this year. So any inventory changes or other things that could have sort of given a sort of temporary boost to sales for this quarter? And then also, what is close to that for the next 2 quarters is made to be overall for the year? .

[Sanj Patel, executive]

Yes. I mean I can make some comments. I'm sure Ross will jump in. I mean there's nothing of repute as far as inventory changes. We also made some comments on in regards to some of the onetime growth that we've seen. We certainly haven't commented to our overall guidance for gross to net. But I all means look at our 10-Q, you'll see some previous disclosures in the study, you'll see them from this current 10-Q, but nothing to report, nothing certainly unusual on the inventory side.

[Liisa Bayko, analyst]

Okay. Maybe just to add to something. But okay. So there's no inventory can like that. I mean you might expect it if you're selling market...

[Sanj Patel, executive]

There's no major untoward in big changes. Sounds like you're riding in the Jetsons car, Liisa. So it's a bit of a noise coming through, but thank you for the question.

[Operator]

I'm showing no further questions in the queue at this time. I will now turn the call back over to Mr. Sanj Patel, Chief Executive Officer, for any closing remarks.

[Sanj Patel, executive]

No. Thank you very much. Obviously, we're very pleased with the performance to date. We continue to execute both commercially and from the portfolio side. I appreciate forebody dialing in, and we look forward to providing additional updates in the future. So thank you very much. .

[Operator]

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation, and you may now disconnect.