Kiniksa Pharmaceuticals, Ltd. — Q3 2018 Form 10-Q
Business context and reporting period. This unaudited filing covers the three and nine months ended September 30, 2018, with comparisons to 2017. Kiniksa is a clinical-stage biopharmaceutical company developing therapies for autoinflammatory and autoimmune diseases. It had no product sales or other revenue and had no approved products of its own.
Financial results and liquidity
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $20.6m | $14.0m | $50.5m | $26.4m |
| General and administrative expense | $5.5m | $2.2m | $13.6m | $6.3m |
| Total operating expenses | $26.2m | $16.2m | $64.0m | $32.7m |
| Net loss | $24.4m | $16.0m | $60.6m | $32.2m |
| Basic and diluted loss per share | $0.51 | $8.25 | $2.62 | $19.21 |
| Operating cash used | Not provided for quarter | Not provided for quarter | $53.4m | $26.8m |
Amounts are shown in millions except per-share data. As the company had no revenue, operating and profit margins are not meaningful. Interest income was $1.6m for Q3 and $3.0m for the nine months, up from $0.2m and $0.4m, respectively, largely reflecting higher invested balances and interest rates.
- At September 30, cash and cash equivalents were $69.7m and short-term investments were $268.2m, totaling $337.9m. Working capital was approximately $313.5m; total assets were $347.1m and total liabilities were $28.2m.
- The balance sheet reports no borrowings or debt line. The company reported an accumulated deficit of $151.6m.
- Nine-month investing cash outflow was $268.9m, primarily purchases of short-term investments; financing cash inflow was $346.4m. Financing included $190.8m net proceeds from Series C preferred shares and $155.5m net IPO proceeds.
- The company completed its IPO in May 2018 and converted all outstanding preferred shares into common shares.
Material changes versus prior comparable periods
- Q3 net loss increased $8.4m year over year; nine-month net loss increased $28.5m. Operating expenses rose as Kiniksa advanced a broader pipeline, increased staffing and manufacturing work, and incurred costs of operating as a public company.
- Nine-month R&D expense increased $24.1m, including higher program and unallocated costs. G&A increased $7.3m, mainly due to personnel and professional fees.
- Year-over-year program comparisons include material one-time items in 2017: a $5.0m Regeneron upfront payment in rilonacept costs, a $4.0m Biogen milestone in KPL-716 costs and a $1.5m Novo Nordisk upfront payment in KPL-045 costs.
- Cash used in operations nearly doubled to $53.4m from $26.8m for the nine-month period, while the company’s IPO and Series C financing substantially increased its liquidity.
Outlook, commentary, risks and unusual items
- Management expected available cash, cash equivalents and short-term investments to fund operating and capital expenditure needs for at least 12 months from issuance of the financial statements. It expects continuing losses and says funding beyond that period depends on raising additional capital. No specific earnings or revenue guidance was provided.
- Planned development included a global pivotal Phase 3 trial of rilonacept for recurrent pericarditis; a global Phase 2 proof-of-concept trial of mavrilimumab for giant cell arteritis; and a Phase 2a/2b trial of KPL-716 for prurigo nodularis, planned for Q1 2019. IND filings for KPL-045 and KPL-404 were expected in the second half of 2019.
- The company disclosed $34.9m of minimum manufacturing commitments, up from $7.8m at year-end 2017, and $2.5m of future minimum lease payments. License and acquisition agreements also contain contingent milestone and royalty obligations. A $10.0m MedImmune milestone had already been accrued; an additional $5.0m pass-through milestone was anticipated in Q4 2018.
- Key risks include clinical failure or delay, regulatory uncertainty, patient enrollment, reliance on contract manufacturers and single-source suppliers, and the need for further financing. The filing also describes prior FDA clinical-hold history relating to mavrilimumab based on lung findings in non-human primates. No material litigation was reported.
- The company identified an error in weighted-average share calculations for the 2018 first and second quarters and said it would revise those periods when next presented. The error did not affect Q3 loss per share; it increased nine-month 2018 loss per share by $0.09 versus the November 1, 2018 press release.
- Management concluded disclosure controls were effective as of September 30, 2018 and reported no material change in internal control over financial reporting. Interest-rate sensitivity was described as limited by the short-term nature of investments.
Important facts for investors to verify
- Whether the disclosed 12-month cash runway remains consistent with actual operating burn and planned clinical and manufacturing spending.
- Timing, enrollment, safety and results for the rilonacept, mavrilimumab and KPL-716 studies, plus the anticipated KPL-045 and KPL-404 IND filings.
- Potential cash requirements under license and manufacturing agreements, including the accrued and anticipated MedImmune milestones and the Primatope option, which could require up to $20m if exercised.
- The weighted-average-share error and the planned revision to previously reported 2018 interim periods.
- Potential dilution and governance implications of the multi-class share structure: Class B shares carried ten votes each, while Class A1 and B1 shares had no voting rights; management disclosed control of a majority of voting power.