Kiniksa Pharmaceuticals, Ltd. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. The filing identifies the registrant as Kiniksa Pharmaceuticals, Ltd. (Bermuda), rather than “International, Plc.” Amounts below are in U.S. dollars; financial statement amounts are in millions unless otherwise indicated.
Business context and period highlights
Kiniksa is an early commercial-stage biopharmaceutical company developing immune-modulating therapies. Following FDA approval of ARCALYST (rilonacept) for recurrent pericarditis in March 2021, U.S. commercial sales began in April. Kiniksa also assumed U.S. sales and distribution for ARCALYST’s previously approved indications and will split profits evenly with Regeneron after specified commercialization costs.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net product revenue | $7.7 | — | $7.7 | — |
| Cost of goods sold | $2.5 | — | $2.5 | — |
| Research and development | $23.9 | $22.3 | $52.6 | $43.2 |
| Selling, general and administrative | $21.8 | $9.5 | $42.4 | $18.0 |
| Operating loss | $40.6 | $31.9 | $89.8 | $61.2 |
| Net loss | $41.6 | $37.5 | $91.0 | $63.9 |
| Net loss per share | $0.61 | $0.65 | $1.33 | $1.13 |
Q2 gross profit on reported sales was approximately $5.2 million, or 68% of revenue. This margin is not necessarily representative of ongoing economics: Kiniksa said it continued selling relabeled clinical-trial inventory carried at zero cost and expected to sell the remaining zero-cost inventory in Q3 2021. COGS also included $0.3 million of amortization of a Regeneron regulatory milestone.
- Cash flow: Six-month operating cash use was $78.9 million, versus $61.0 million in 2020. Investing activities provided $130.8 million, largely reflecting short-term investment maturities net of purchases and the $20.0 million regulatory milestone payment. Financing activities provided $2.0 million, primarily from employee share-plan proceeds. Cash, cash equivalents and restricted cash increased $53.9 million.
- Liquidity: At June 30, cash and cash equivalents were $168.0 million and short-term investments were $57.9 million, totaling $225.9 million. Management expected these resources to fund operations and capital expenditure requirements for at least 12 months from issuance of the financial statements; funding beyond that horizon depends on raising additional capital.
- Balance sheet and debt: Total assets were $279.2 million, total liabilities $43.4 million and shareholders’ equity $235.8 million. The filing reports operating lease liabilities but no borrowings or other financial debt. Current assets were $244.8 million versus current liabilities of $38.8 million.
Material changes versus prior comparable periods
- First reported product revenue began after the ARCALYST launch; six-month revenue was $7.7 million.
- Six-month net loss increased $27.2 million year over year. Operating expenses rose $36.3 million, including a $24.4 million increase in SG&A associated primarily with building commercial operations and launch marketing.
- Six-month R&D expense increased $9.4 million. Mavrilimumab program costs rose $10.4 million, primarily due to the COVID-19 ARDS Phase 2/3 trial; rilonacept costs fell $3.2 million as the pivotal RHAPSODY trial was completed and transitioned to its extension.
- Interest income fell to $0.015 million from $1.1 million for the six-month period, attributed to lower rates and a lower average short-term investment balance.
- Cash and short-term investments declined from $323.5 million at year-end 2020 to $225.9 million, reflecting operating cash use and the $20.0 million milestone payment, as well as investment portfolio activity.
Outlook, commentary and risks
- Management expects continuing operating losses and significant commercialization and R&D spending. It states that additional capital will be needed beyond the anticipated 12-month runway and is not assured on acceptable terms.
- Mavrilimumab Phase 3 enrollment in non-mechanically ventilated patients with severe COVID-19-related ARDS was ongoing, with data expected in Q1 2022. The company intended to discontinue enrollment of mechanically ventilated patients in the Phase 3 portion; preliminary Phase 2 results in that cohort did not show a reduction in death.
- Kiniksa planned to initiate a Phase 2 proof-of-concept KPL-404 trial in rheumatoid arthritis in Q4 2021. A Phase 2b vixarelimab trial in prurigo nodularis was underway.
- The company disclosed manufacturing events that may delay or prevent distribution of certain ARCALYST material as planned. Regeneron and its contract manufacturers are the sole ARCALYST manufacturers, creating supply concentration risk. Manufacturing commitments totaled $36.6 million, of which $17.0 million was due within one year.
- COVID-19 and potential new variants may affect commercial access, clinical-trial conduct, manufacturing, supply chains and financing. Other key risks include commercialization and reimbursement uncertainty, competition, clinical and regulatory setbacks, and dependence on third parties.
- The filing reports no material legal proceedings and no off-balance-sheet arrangements. Management concluded disclosure controls were effective at the reasonable-assurance level as of June 30, 2021.
Important facts for investors to verify
- Track ARCALYST sales, payer coverage, net pricing, channel inventory, returns and rebates, and the eventual profit-sharing calculation with Regeneron.
- Assess the duration of cash runway against operating cash burn, planned trial spending, commercialization costs and the $36.6 million manufacturing commitments.
- Monitor ARCALYST supply availability and resolution of the disclosed manufacturing events, given sole-source dependence.
- Confirm timing and results of the mavrilimumab Phase 3 readout, and progress of the vixarelimab and KPL-404 programs.
- Evaluate whether reported product margins remain comparable after the remaining zero-cost inventory is sold and milestone amortization and profit-sharing costs are reflected.