Kiniksa Pharmaceuticals, Ltd. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. The unaudited consolidated filing is for Kiniksa Pharmaceuticals, Ltd., a clinical-stage biopharmaceutical company. Amounts below are U.S. dollars; financial statement figures are in millions unless noted.
Business context and financial performance
Kiniksa reported no product revenue. Its pipeline includes rilonacept, mavrilimumab, vixarelimab and KPL-404; the company stated it may never commercialize a marketable product.
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Research and development expense | $22.3 | $30.8 | $43.2 | $90.1 |
| General and administrative expense | $9.5 | $8.4 | $18.0 | $16.8 |
| Total operating expenses / operating loss | $31.9 | $39.3 | $61.2 | $106.9 |
| Interest income | $0.3 | $1.7 | $1.1 | $3.5 |
| Income tax provision (benefit) | $5.9 | ($0.4) | $3.7 | ($0.4) |
| Net loss | $37.5 | $37.2 | $63.9 | $103.0 |
| Basic and diluted loss per share | $0.65 | $0.68 | $1.13 | $1.94 |
Gross margin is not applicable because the company had no product sales. The filing reports no interest-bearing debt; operating lease liabilities totaled $1.8 million at June 30, 2020.
Liquidity and cash flow
- At June 30, cash and cash equivalents were $123.5 million and short-term investments were $128.9 million, totaling $252.4 million. Current assets were $264.5 million against current liabilities of $20.6 million.
- For the six months, operating activities used $61.0 million, investing activities provided $57.6 million, and financing activities provided $80.0 million. Cash, cash equivalents and restricted cash increased $76.5 million to $123.7 million.
- The May 2020 follow-on offering and private placement generated net proceeds of approximately $74.5 million. After quarter-end, a July offering and private placement generated estimated net proceeds of approximately $145.9 million.
- Management expects cash, cash equivalents and short-term investments, including July offering proceeds, to fund operating and capital expenditure needs for at least 12 months from issuance of the financial statements. Continued operations beyond that period depend on raising additional capital.
Material changes versus prior periods
- Q2 R&D expense fell $8.5 million year over year, chiefly as vixarelimab trial costs declined after enrollment completed in Q1 and 2019 included drug-supply costs for rilonacept.
- Six-month R&D expense declined $46.9 million. The 2019 comparison included $18.0 million for the Primatope acquisition and an $10.0 million Biogen milestone, as well as higher program and manufacturing costs.
- G&A expense increased $1.1 million in Q2 and $1.2 million for the six months, primarily from personnel and rilonacept pre-commercialization spending. Lower interest rates reduced interest income in both comparisons.
- Q2 net loss was $0.3 million higher despite lower operating expenses, mainly reflecting a $5.9 million tax provision versus a $0.4 million tax benefit in Q2 2019. The 2020 provision included a valuation allowance against U.S. deferred tax assets.
- Equity offerings increased capital and share count; accumulated deficit was $420.0 million at June 30.
Outlook, management commentary and risks
- Rilonacept: The pivotal Phase 3 RHAPSODY trial met its primary and major secondary efficacy endpoints. Kiniksa expected to submit an FDA supplemental biologics license application in 2020. FDA Orphan Drug designation was received in July 2020; Breakthrough Therapy designation had been received in 2019.
- Other programs: Mavrilimumab Phase 2 GCA data and KPL-404 Phase 1 data were expected in Q4 2020. The company was enrolling and dosing patients in a mavrilimumab COVID-19 trial and expected the Kite-sponsored Yescarta combination trial to start in H2 2020. A vixarelimab Phase 2b trial in prurigo nodularis was planned for Q4 2020.
- Management expects significant operating losses for the foreseeable future and substantial spending on clinical development, manufacturing and potential commercialization. No specific revenue or profitability guidance was provided.
- COVID-19 could disrupt trials, enrollment, suppliers, manufacturing, shipping, regulatory review and commercial preparations. Kiniksa reported partially affected operations and a temporary pause in some KPL-404 trial activities; the CRO had resumed certain activities.
- Key risks include clinical failure or delay, regulatory approval and manufacturing uncertainty, reliance on single-source suppliers, the need for future capital and potential dilution, competition, reimbursement and intellectual-property risks. The company reported $8.4 million of minimum manufacturing commitments and no material litigation.
Important facts for investors to verify
- Progress and filing timing for the rilonacept sBLA, including transfer of Regeneron’s existing U.S. BLA and any FDA requirements.
- Final and complete clinical data, timelines and safety findings for RHAPSODY and the other pipeline trials, including any COVID-19-related delays.
- Cash burn, remaining runway assumptions and use of the July 2020 offering proceeds; future funding needs and associated dilution.
- Basis and potential consequences of the U.S. deferred-tax valuation allowance, and the filing’s stated possibility that Kiniksa may be a PFIC for 2020.
- Commercial manufacturing readiness, supply commitments and the effects of reliance on third-party manufacturers.