Kiniksa Pharmaceuticals, Ltd. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Amounts below are in millions of U.S. dollars unless stated otherwise. The filing presents unaudited interim results.
Business context
Kiniksa is an early-commercial-stage biopharmaceutical company. Its commercial product is ARCALYST (rilonacept), approved in the United States for recurrent pericarditis and certain other indications; it shares ARCALYST profits evenly with Regeneron. Its development portfolio includes KPL-404, mavrilimumab and vixarelimab.
Key financial results
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Product revenue, net | $27.0 | $7.7 | $49.2 | $7.7 |
| Collaboration revenue | — | — | $10.0 | — |
| Total revenue | $27.0 | $7.7 | $59.2 | $7.7 |
| Cost of goods sold | $5.0 | $2.5 | $9.2 | $2.5 |
| Research and development | $13.8 | $23.9 | $34.6 | $52.6 |
| Selling, general and administrative | $23.8 | $21.8 | $46.1 | $42.4 |
| Operating loss | $(19.4) | $(40.6) | $(42.7) | $(89.8) |
| Net loss | $(20.0) | $(41.6) | $(45.2) | $(91.0) |
| Net loss per share, basic and diluted | $(0.29) | $(0.61) | $(0.65) | $(1.33) |
Product gross profit, calculated as product revenue less cost of goods sold, was approximately $21.9 million in Q2 and $39.9 million for the first half of 2022, or about 81% of product revenue in each period. This is before Regeneron profit-sharing expense and other operating costs.
- Cash and liquidity: At June 30, cash and cash equivalents were $94.3 million and short-term investments were $43.9 million, totaling $138.2 million. Current assets were $179.9 million and current liabilities $43.5 million.
- Cash flow: First-half operating cash use was $44.7 million, versus $78.9 million in 2021. Investing activities provided $15.5 million, mainly reflecting net short-term investment maturities; financing provided $1.0 million. Cash and restricted cash decreased by $28.2 million to $94.3 million.
- Debt: The filing’s balance sheet does not report borrowings or debt balances. Total liabilities were $57.1 million, including $12.0 million of long-term deferred revenue and lease liabilities.
- Capital and commitments: The company reported $37.2 million of minimum commitments to contract manufacturers, all due within one year; separately, management cited $32.6 million of minimum Regeneron commitments due within one year. These are disclosed commitments, not reported debt.
Changes and notable items
- Revenue growth primarily reflected increased ARCALYST patients and the product’s first-half 2021 launch beginning in April. First-half 2022 collaboration revenue included the $10.0 million upfront payment for the Huadong mavrilimumab license.
- Huadong paid $22.0 million upfront for territorial rights to rilonacept and mavrilimumab. Kiniksa recognized $10.0 million for the mavrilimumab license and recorded the $12.0 million rilonacept amount as long-term deferred revenue; no rilonacept materials had yet been delivered. The agreements also provide for potential milestones and royalties.
- R&D expense fell $18.0 million year over year for the first half, mainly due to wind-down of mavrilimumab’s COVID-19 ARDS study and lower ARCALYST trial costs. KPL-404 and vixarelimab program costs increased. In Q2, ARCALYST direct R&D was a $0.6 million credit, attributed to lower-than-expected RHAPSODY close-out costs.
- SG&A increased $3.6 million in the first half, mainly from ARCALYST sales and marketing. Regeneron profit-sharing expense was $11.9 million for the first half, including $6.0 million related to the Huadong rilonacept upfront payment.
- Inventory rose to $19.9 million from $3.7 million at year-end, entirely finished goods. Management attributed higher cost per unit partly to the transition away from repurposed clinical supply carried at zero cost.
Outlook, risks and contingencies
- Management expects ongoing operating losses and cash use. Based on its current operating plan, it said cash, cash equivalents and short-term investments should fund operations and capital expenditure requirements for at least 12 months from issuance of the interim financial statements. Longer-term viability depends on ARCALYST sales and/or additional capital.
- On August 2, 2022, after quarter-end, Kiniksa agreed to license vixarelimab worldwide to Genentech. The agreement provides for $100.0 million in upfront and near-term cash payments and up to approximately $600.0 million in contingent payments, plus tiered royalties. It remained subject to closing conditions, including antitrust clearance. Kiniksa agreed to complete its ongoing Phase 2b prurigo nodularis trial and said it would not disclose trial data in the second half of 2022.
- The company reported no material litigation and no established litigation reserves. It had $165.0 million of potential clinical and regulatory milestones remaining under the Biogen agreement and $57.5 million remaining under the MedImmune agreement; these are contingent obligations.
- Key risks include dependence on ARCALYST commercialization and coverage, losses and potential future financing needs, reliance on third-party manufacturers and single-source supply, clinical and regulatory uncertainty, competition, and possible effects of COVID-19, the war in Ukraine, inflation and supply-chain disruption. The filing notes the primary endpoint in the mavrilimumab Phase 3 COVID-19 ARDS trial did not reach statistical significance and the program was not advanced in that indication.
- ARCALYST’s price increased effective July 1, 2022. The filing cautions that payor responses could limit coverage, reimbursement or the benefit of price increases. No specific full-year revenue or earnings guidance is provided.
Important facts for investors to verify
- Whether ARCALYST patient growth, net revenue and profitability contribution can be sustained, including after Regeneron’s profit share and supply costs.
- Whether the $138.2 million liquidity balance and stated 12-month runway remain adequate as operating cash use, inventory, and near-term manufacturing commitments evolve.
- Whether the Genentech license closes and when the $100.0 million upfront and near-term payments are received; milestone and royalty amounts are contingent.
- Huadong collaboration execution, including future rilonacept supply deliveries, recognition of deferred revenue, and any milestones or royalties.
- Clinical progress and spending for KPL-404 and vixarelimab, plus manufacturing capacity and supply reliability for ARCALYST and development programs.