Kiniksa Pharmaceuticals, Ltd. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Financial statements are unaudited. Amounts below are in U.S. dollars; financial statement figures are in millions unless noted.
Business context
Kiniksa is a clinical-stage biopharmaceutical company developing medicines for immunological diseases. It reported no product revenue and said it may never commercialize a marketable product. Its principal candidates are rilonacept, mavrilimumab, vixarelimab and KPL-404.
Financial performance and position
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Research and development expense | $31.4 | $22.0 | $74.6 | $112.1 |
| General and administrative expense | $11.8 | $8.4 | $29.8 | $25.3 |
| Total operating expenses | $43.2 | $30.4 | $104.5 | $137.4 |
| Net loss | $43.8 | $27.1 | $107.7 | $130.1 |
| Net loss per share | $0.66 | $0.49 | $1.80 | $2.42 |
For the nine months, operating cash outflow was $95.3 million, versus $134.2 million in 2019. Investing activities used $92.1 million, largely reflecting purchases of short-term investments; financing activities provided $226.4 million. Cash, cash equivalents and short-term investments totaled $364.4 million at September 30, including $85.9 million of cash and equivalents and $278.5 million of short-term investments. The company reported an accumulated deficit of $463.8 million and shareholders’ equity of $358.5 million.
No borrowings are reported. Current liabilities were $24.9 million against current assets of $378.4 million. Operating lease liabilities totaled $1.5 million. Margins are not meaningful because the company had no product revenue.
Material changes versus comparable periods
- Q3 net loss increased $16.8 million year over year as operating expenses rose $12.8 million, interest income fell $1.3 million and the income-tax line shifted from a $2.0 million benefit to a $0.7 million expense.
- Q3 R&D expense increased $9.4 million, driven mainly by mavrilimumab spending, including GCA trial manufacturing and COVID-19 trial start-up costs. G&A increased $3.4 million, including higher personnel and rilonacept pre-commercialization costs.
- Nine-month net loss improved by $22.3 million. R&D expense fell $37.5 million, primarily because 2019 included $18.0 million for the Primatope acquisition and a $10.0 million Biogen milestone, as well as higher prior-year vixarelimab and KPL-404 spending. Lower interest income and a $4.4 million tax provision partly offset the improvement.
- Two 2020 follow-on offerings and concurrent private placements generated approximately $220.7 million in net proceeds, increasing liquidity but diluting shareholders.
Outlook, commentary and risks
- Management expects existing cash, cash equivalents and short-term investments to fund operating expenses and capital expenditures for at least 12 months from issuance of the statements. Longer-term funding depends on raising additional capital; continued operating losses are expected.
- Management anticipated a potential U.S. rilonacept launch for recurrent pericarditis in the first half of 2021, if FDA-approved and assuming priority review. A $7.5 million regulatory milestone payment to Regeneron could be due in Q4 2020. If approved, Kiniksa would commercialize U.S. sales and split profits evenly with Regeneron after specified commercialization expenses.
- The filing reports positive Phase 3 RHAPSODY results for rilonacept and statistically significant primary and secondary efficacy endpoints in the Phase 2 GCA trial of mavrilimumab. The company was enrolling the Phase 2 portion of a mavrilimumab Phase 2/3 COVID-19 trial; competitive studies and changing standards of care could affect enrollment. It expected initial KPL-404 data in Q4 2020 and planned to start a vixarelimab Phase 2b trial in Q4 2020.
- Kite discontinued its planned mavrilimumab/Yescarta collaboration in August 2020 before the trial began. Kiniksa terminated its Novo Nordisk KPL-045 license in January 2020.
- COVID-19 could disrupt trials, enrollment, suppliers, manufacturing, regulatory reviews and commercial preparations. Other material risks include clinical and regulatory failure, reliance on single-source manufacturers, future financing and dilution, competition, intellectual-property challenges, and uncertainty over coverage and reimbursement.
- The company reported no material legal proceedings and no off-balance-sheet arrangements. Disclosure controls were considered effective at September 30, 2020. Management expected to cease emerging-growth-company status at year-end 2020 and smaller-reporting-company status on January 1, 2021, increasing compliance obligations.
Important facts for investors to verify
- Timing and status of the rilonacept sBLA review, FDA inspections, potential approval and launch; confirm whether the $7.5 million milestone was triggered.
- Subsequent trial results and timelines for mavrilimumab, vixarelimab and KPL-404, including any COVID-19-related delays or enrollment changes.
- Actual cash burn and whether liquidity remains consistent with management’s stated 12-month runway, given planned trial and commercialization spending.
- Manufacturing capacity and supply continuity, particularly Kiniksa’s dependence on Regeneron for rilonacept and other single-source suppliers.
- Potential dilution from equity financing, share-based compensation and conversion of the company’s multiple share classes; assess the related voting-control structure.