Good day, and thank you for standing by. Welcome to the Kiniksa Pharmaceuticals Second 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.

I would now like to hand the conference over to your speaker today, Rachel Frank, Head of Investor Relations..

Thank you, operator. Good morning, everyone, and thank you for joining Kiniksa's call to discuss our second quarter 2023 financial results and recent portfolio execution. Highlighting these results can be found on our website under the Investors and Media section.

As for the agenda, our Chief Executive Officer, Sanj Patel, will start with an introduction. Ross Moat, our Chief Commercial Officer, will provide an update on our outlet local execution. Then Mark Ragosa, our Chief Financial Officer, will review our second quarter 2023 financial results.

And finally, Sanj return for closing remarks and will kick off the Q&A session, in 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. Our review such statements and risk factors can be found on this slide as well as under the caption Risk Factors taking 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..

Thanks, Rachel, and good morning, everyone. I'm happy to review our second quarter 2023 financial results today. We've continued to execute across our cardiovascular and autoimmune franchises, positioning us for success and growth in 2023. On the commercial side, Q2 represented another quarter of growth for with a net product revenue of $54.5 million.

We're encouraged by our commercial execution to date, and we continue to see strong prescriber adoption and patient enrollments in the second quarter. We also remained encouraged by the high patient satisfaction, payer approval rates and the duration of therapy. Accordingly, we've now raised our 2023 ARCALYST guidance to $220 million to $230 million.

On the development side, we remain focused on enrolling the Phase II study KPL-404, which is our CD40 antagonist program in rheumatoid arthritis. This is designed to evaluate the efficacy, dose response, PK and safety of chronic subcu dosing over a duration of 12 weeks. We expect data from this study in the first half of next year.

Additionally, we continue to pursue collaborative study agreements with mavrilimumab to evaluate its potential in rare cardiovascular diseases. This is a molecule that we continue to be excited about, and it has the potential to impact a number of diseases. With that, I'll turn it over to Ross to review our commercial execution of ARCALYST.

Ross?.

Thank you, Sanj. I'm delighted to share further details on our second quarter 2023 commercial performance and the underlying drivers of our continued strong revenue growth. In Q2, the net revenue for ARCALYST grew to $54.5 million. This represents approximately 100% year-over-year growth.

The underlying driver of this success is our focus on a dual strategy of broadening the prescriber base as well as deepening the experience within existing prescribers to help as many patients with recurrent peritonitis as possible.

Total prescribers since the launch of ARCALYST in recurrent pericarditis are now greater than 1,250, which is a growth of more than 250 versus Q1. Additionally, repeat prescribers are at 23% of the much larger total prescribing base, highlighting an acceleration in new repeat prescribers.

This demonstrates growing awareness and commercial experience with ARCALYST, which will help us in the future as more patients visit those physicians. One of the important drivers of revenue continues to be duration of therapy. At the end of Q2, the approximate initial treatment period averaged around 14 months.

When calculating for the restart rates and current duration of the subsequent treatment period, we are seeing that the average total duration of ARCALYST therapy was around 20 months. Moving to Slide 8.

We are making good progress in building the market and establish an ARCALYST as a standard of care in recurrent pericarditis, and we continue to have a huge opportunity ahead.

Our focus has been on increasing the reach and frequency with physicians to enable familiarity with ARCALYST as well as interleukin-1 alpha and beta being the underlying drivers of recurrent pericarditis. The need to rapidly increase awareness and knowledge informed the expansion of our field team in Q4 2022.

This strategy led to a spike in activity with doctors we couldn't previously reach as well as an increased frequency on those that we've called on previously.

In Q2, this has resulted in a substantial growth in the number of active patients on ARCALYST treatments, even after accounting for the stable rate of discontinuations off the growing base of total patients.

As our sales team focuses on continuing patient growth they are complemented by our direct-to-consumer digital marketing, where we're advancing education so patients can self advocate for ARCALYST where appropriate.

We also remain committed to supporting the patient experience through Kiniksa One Connect program, including ensuring affordability for eligible patients who are prescribed ARCALYST. Additionally, we're focused on increasing evidence generation in recurrent pericarditis.

Our resonance patient registry has already enrolled over 300 patients with the goal of gathering real-world physician and patient-reported data to increase the understanding of the burden and the duration of recurrent pericarditis and to better inform clinical decision-making in the management of the disease.

Overall, our commercialization continues to advance as we focus on changing the treatment paradigm and helping as many recurrent pericarditis patients as possible.

Based on our strong commercial execution, boosted by the impact of our sales force expansion, we delivered another quarter of growth to our prescribing base, to our net revenue and to the profitability of our collaboration. We had a great quarter. This led to a higher-than-expected number of patients on active commercial therapy at the end of Q2.

As a result, we're delighted to further increase our revenue guidance for 2023. And from a range of $200 million to $215 million to $220 million to $230 million. And with that, I hand over to Mark to cover our financial results.

Mark?.

Great. Thanks, Ross. Our detailed second quarter 2023 financial results can be found in the press release we issued earlier today. There are several items I'd like to call your attention to this morning.

First, total revenue in the second quarter of 2023 was $71.5 million and consisted of ARCALYST net product revenue of $54.5 million, representing over 100% annual growth; and collaboration revenue of $17 million, largely reflecting the recognition of a $15 million development milestone or a new indication under the Genentech license agreement for Vixarelimab.

To date, we have recognized approximately $110 million of the $115 million earned under the Genentech license agreement, and we expect to recognize the balance of the deferred revenue over the next three quarters. Regarding the development milestone, we recognized the revenue this quarter and we'll book the cash inflow in the third quarter.

Second, ARCALYST collaboration operating profit grew to $28 million in the second quarter and resulted in a collaboration expense of $14 million. Third, a $16.2 million tax benefit helped drive net income of $15 million in the second quarter. This tax benefit was primarily due to the release of a valuation allowance on noncash deferred tax assets.

Fourth, our net cash burn was approximately $2.5 million in the second quarter, which brought our end-of-period cash balance to $185 million. We now expect these reserves as well as continued ARCALYST commercial execution to fund our current operating plan into at least 2027.

Lastly, turning to ARCALYST 2023 net product revenue guidance with a greater-than-expected uptick in active patients on therapy from the sales force expansion at the beginning of this year, we now expect total 2023 ARCALYST net product revenue of between $220 million and $230 million.

This represents approximately 84% year-over-year net product revenue growth at the midpoint and reflects our expectation for continued execution against our opportunity to help recurrent pericarditis patients. With that, I'll turn the call back to Sanj for closing remarks..

Thanks, Mark. In addition to our successful commercialization of ARCALYST, we also have a pipeline of mid-stage clinical programs aimed at making a meaningful impact on patient lives. As a reminder, we expect data from the Phase II study of KPL-404 in rheumatoid arthritis in the first half of next year.

Importantly, we are well capitalized, thanks to growing ARCALYST revenues, non-diluted capital from our strategic out-licensing transactions and continued financial discipline, we now expect cash runway, as Mark said, into at least 2027.

Ultimately, our mission is to continue to help patients in need, create massive value and make a generational impact. We believe we are strategically positioned to do exactly that. I want to thank everyone for their time today, and I'll hand it back to the operator for questions. Thank you..

[Operator Instructions] Our first question comes from Anupam Rama with JPMorgan..

Congrats on a strong quarter here.

I guess from a more qualitative standpoint, what are you seeing with pull-throughs from the sales force expansion in terms of driving sort of repeat prescribers as well as new prescribers?.

Thanks, Anupam. I'll hand it over to Ross, but generally, obviously, as you see, we have seen an increase in our prescriber base. And I still -- why we still think it's somewhat early days, we're really encouraged by the recent expansion.

But Ross, do you want to elaborate?.

Yes, I think that's absolutely right. Thank you very much for the question. So I think any nicely. And you remember we've got the expansion of our field team towards the very end of last year.

In Q1 of this year, we started to see some of those early signs of the impact of having the benefits of having a larger field team in place, which included a jump up in activity and an increase in enrollment rates.

And then really in Q2, what we've seen, as we've reported this morning, is a jump up in the total number of active patients having started ARCALYST for recurrent pericarditis. So we're pleased with how things are going. As Sanj said, it's early days in the expansion of that field team. So we'll see how things progress from here.

But I'm happy with the onetime quick hits as you get a larger number of field-based representatives out there visiting both doctors who we have called upon previously and just further in the frequency and the familiarity of ARCALYST with recurrent pericarditis with them as well as, of course, reaching brand-new physicians for the first time that we were just unable to do with a slightly smaller team previously..

[Operator Instructions] Our next question comes from Paul Choi with Goldman Sachs. You may proceed..

Let me add my congratulations on a good quarter as well. Two commercial questions for us and one P&L question. First, the sequential revenue growth, the growth in the prescriber base and as well as the number of repeat prescribers are all tracking roughly in lockstep in the 25% vicinity.

And so I just wanted to understand maybe if you could comment on what is sort of the tipping point for a onetime prescriber to become a repeat prescriber? Is it just familiarity with the reimbursement process or comfort with the product? Second, can you maybe just comment on where you are with the commercial pay versus the government pay mix, and how that's been potentially impacting realized price? And my third question is just on the R&D expense.

It ticked up quite a bit this quarter sequentially.

Is that mostly related to 404 getting into the final stages of that study? Or is there anything else that's driving that increase?.

Yes. Paul, this is Ross. Thanks very much for the question. So I'll take your first piece to begin with, which is really around the growth that we've seen in both the revenue, the initial prescribers, and then also the repeat prescribers and what the tipping point is there. And then I'll go on to the commercial versus government payer mix question.

So for the tipping point. I mean, we strongly believe that once patients -- once physicians or get a very good experience with ARCALYST, that will precipitate prescribing in future patients.

So that means to us, first of all, making sure that physicians are aware that recurrent pericarditis really is a disease which is driven by the underlying mechanism which is interleukin-1 alpha and beta so understanding that mechanism of the disease.

And then going on to prescribe ARCALYST for the first time, which is often a new experience for many cardiologists in particular and their office staff.

So ensuring that they have familiarity around how to prescribe the drug, how to complete the enrollment form what's required on the payer side regarding prior authorizations at all of the mechanisms around that are very important.

So we spent a lot of time educating physicians and their office staff in how to do that, and we're seeing the benefits of that through the growing rate of initial prescribers.

And then really, the tipping point to becoming repeat prescribers is, one, the patient flow, waiting for the next patient or identifying the next patients to come through who are suitable for ARCALYST treatment; but also having seen success the first time around in terms of the whole process, I explained a little bit; but as well as the patient getting to therapy, making sure that there's a very good access rate for patients across the payer mix, which I'll go on to discuss a little bit.

But also, that the drug is affordable for all eligible patients as well that we can support things like the co-pay program that we have for eligible patients there.

So if they have a good prescriber experience, the patients get on to therapy and then go back into the clinic reporting positive outcomes from being on therapy, we strongly believe that will be advantageous for continuing prescribing.

And as time goes on, and we've seen the repeat prescribing rate increase and the n size increase very significantly quarter-on-quarter, we think we're making really good progress with that.

So if I go on to talk a little bit about the payer mix, I think the important point here is that we see a very high approval rate for patients with ARCALYST in recurrent pericarditis across all of the payer mix, whether it's commercial or government based.

And as a reminder, we have about 70% of patients under commercial insurance, about 20% Medicare and the remaining 10% in Medicaid. So we're seeing high approval rates across the board. And I'll hand over to the P&L question..

Yes. Great. And thanks, Paul. I think your question, you sort of answered it right. I think you saw R&D tick up sequentially and largely related to 404, right, where cohort 1 and cohort 2 are continuing, and we had the initiation of cohort 3. So that really speaks to sort of the incremental or the additional R&D spend in the quarter..

[Operator Instructions] Our next question comes from Geoff Meacham with Bank of America..

This is Alex Hammond on for Geoff Meacham. Congrats on the quarter. Can you walk us through the capital deployment needed to continue to build out the recurrent pericarditis market? And then on Mabry, Connected has been continuing to pursue the collaborative study agreements in the rare cardiovascular diseases for some time.

Can you speak to where you are now versus 1Q? And what are you looking for in a collaborator? And how high is the bar?.

Ross, do you want to take the first part? And I think essentially, we've -- as Ross described, we did increase our sales force late last year and really feel we have a good reach now. We're obviously continuing to assess our needs. Within that, you've seen growing revenue quarter-on-quarter.

Mark, any comments on that as far as expanding the team the needs going forward?.

Yes, Sanj is absolutely correct. I mean I think we always are evaluating ways to look at the data and do our best to help more patients sooner. And so I think that's where we're at on the investment behind ARCALYST..

On Mavrilimumab, John, do you want to make some comments on what we're looking for there? Clearly, we're very excited about that program.

We are looking at collaborative study agreements with various centers, and there are some very interesting lines of scientific research that we're looking at there to help increase the value and increase their reach into patients that -- any comments..

Absolutely, Sanj. Thank you for the question. So yes, we're very confident in the mechanism of Mavrilimumab. And so with regard to collaborative study agreements, we see this as a very capital-efficient way to provide new data in hypothesis generating so experiments.

And so the approach of engaging with academic collaborators to do this type of research is our primary focus at this time. Many of the INDs that would be filed for these studies will be held by investigators.

And as a result, at this point, we don't have any additional comment on the work that and progress we discuss more color as you more to follow as you trial [Indiscernible].

[Operator Instructions] Our next question comes from David Nierengarten with Wedbush Securities. You may proceed..

Maybe just a quick question on the financial guidance.

Does the cash runway include -- I guess, how much additional development for 404 in there? Is that assuming a Phase III in a future indication, or something else?.

Yes, David. So I appreciate the question. I think what we've said in the past and we continue to say is that guidance does provide flexibility to continue to invest behind the ARCALYST commercialization where profitability continues to grow nicely.

It drives flexibility to continue to advance the pipeline and then also to pursue strategic alternatives, including business development. And so we haven't really sort of outlined the buckets and how much flexibility.

But certainly, we do have confidence in the runway into 2027, based upon our time of the market with ARCALYST, our collaboration revenue as well as sort of general financial discipline, which has helped lower burn over the last little while. So very confident in the runway, and it does provide some flexibility to continue to invest..

[Operator Instructions] Our next question comes from Liisa Bayko with Evercore ISI. You may proceed..

Just a follow-up on R&D.

So $24 million, is that a good run rate to think about for the remainder of the year? Might look up from here? Maybe you can just expand a little bit on that?.

Yes. So I think on R&D, as we take a look at it and sort of what I've just sort of talked to David about, we really haven't discussed too much what we're investing beyond our sort of current ongoing trials, right? So our resources are largely focused on the Phase II IV/4VR8 trial.

There are some costs that are remaining to complete the Vixarelimab PN trial. And then as you heard John talk about, we are sort of evaluating opportunities, specifically with mavrilimumab and synergistic sort of cardiovascular indications.

And so that's really where our focus is at the moment and really have not provided further R&D guidance looking forward..

Can you comment on what gross to net you had for ARCALYST for the quarter? And maybe quantify the -- any free drug in addition to that?.

So I guess we can start. We haven't really talked about quantify the level of free goods in the past as far as gross to net year-to-date in the second quarter, or through the second quarter, was 10.3%.

And the year-over-year increase is largely attributable to sort of more patients on therapy and some additional co-pay assistance as a result, and we take these factors certainly into consideration when setting up guidance.

And as we've said in the past and continue to believe there's always some quarterly fluctuation, but we don't expect big swings in our gross to net at this point..

Okay. And then I was really struck by the 20-month duration of therapy. It's a really great update.

How are you thinking about the duration of therapy now? Is this -- do you think this is going to be more like a chronic therapy? Or what's the kind of latest thinking on how long patients may be on treatment?.

Yes. Liisa, this is Ross. So I think there are different ways of thinking about that. And certainly as the data grows and becomes more robust, we obviously look at sharing more information around what we're seeing at the given time. But what we see at the moment is that the initial treatment duration is around 14 months on the average for patients.

We're seeing a restart rate once patients discontinue or trial is stopped, usually believe in there at the end of the natural history of their disease. So about 45% of patients come back on to therapy, and usually pretty quickly within an 8-week time period as well.

And then the data is really building on the subsequent duration when patients come back on to therapy. At the moment, we're seeing a median duration of around 6 months. It takes you to your total of about 20 months total average duration for the patients as we see at the end of Q2.

Bearing in mind that this is just something that continues to evolve and continues to build. I mean, it's against the backdrop of the natural history of disease, being a median of 3 years, around 1/3 of patients still continue to suffer from recurrent pericarditis at 5 years out from the disease.

And then the additional dynamic to contemplate into that is how far into the disease are the patients when they are prescribed ARCALYST? And obviously, that's something that you need to weigh into what the eventual duration of therapy may end up being. But that's what we're seeing to date, and we look forward to the data building more..

Great. And then just 1 final question, if I can sneak 1 in, for Mark. You talked about the Genentech development milestone, the balance of the deferred revenue in the next 3 quarters.

Can you just explain what exactly you mean by I noticed you had a -- what is a $15 million milestone -- it was development related? And are you referring to continuation of that being completed in the next 3 quarters? Or are you talking about the upfront payment? If you could just elaborate a little bit..

Yes, sure. So I think as we -- when we announced the Genentech transaction, we talked about $100 million in upfront and near-term payments as well as sort of milestones of $600 million and royalties in the low double digits to mid-teens before fulfilling upstream obligations.

And so as of today, as of the end of the second quarter, we have recognized $110 million of the $115 million earned under the license agreement.

And so obviously, that's more than the $100 million in upfront, reflects the recognition of a portion -- recognizes -- it also reflects the recognition of the development milestone from Genentech for a new indication that they began development for. And so there's $5 million of the $115 million earned to date under the license agreement.

We've recognized $110 million, there's $5 million in deferred revenue that we expect to recognize over the course of the next 3 quarters..

Thank you. I'd now like to turn it back to Sanj Patel for any closing remarks..

Thank you, operator, and thanks, everybody, for the questions and for joining the call today. We clearly have an exciting rest of the year ahead of us, looking forward to providing additional updates in the future. So thank you all..

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