Kiniksa Pharmaceuticals, Ltd. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited consolidated financial statements. Unless otherwise noted, amounts are in U.S. dollars and millions.
Business context
Kiniksa is a commercial-stage biopharmaceutical company focused on immune-modulating medicines. Its principal marketed product is ARCALYST, approved in the U.S. for recurrent pericarditis, CAPS and DIRA. Its development portfolio includes KPL-404 and mavrilimumab. Genentech holds exclusive worldwide rights to develop and commercialize vixarelimab; Kiniksa is completing the associated Phase 2b trial.
Financial results and liquidity
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Product revenue, net | $42.7 | $22.2 | +$20.5; approximately +92% |
| License and collaboration revenue | $5.7 | $10.0 | -$4.3 |
| Total revenue | $48.3 | $32.2 | +$16.2; approximately +50% |
| Cost of goods sold | $7.0 | $4.2 | +$2.8 |
| Operating expenses | $59.5 | $55.5 | +$4.0 |
| Loss from operations | $(11.2) | $(23.3) | Improved $12.1 |
| Net loss | $(12.3) | $(25.2) | Improved $12.9 |
| Basic and diluted loss per share | $(0.18) | $(0.36) | Improved $0.18 |
| Cash used in operating activities | $(4.3) | $(36.8) | Lower cash use |
Overall gross margin, calculated as total revenue less cost of goods sold, was approximately 85% in Q1 2023; this measure does not reflect collaboration expenses. Operating margin was approximately negative 23%, versus negative 72% a year earlier. Higher ARCALYST sales drove revenue growth; Kiniksa attributed the lower net loss mainly to increased revenue and lower R&D expense.
At March 31, 2023, cash and cash equivalents were $80.6 million and short-term investments were $106.9 million, totaling $187.5 million, compared with $190.6 million at December 31, 2022. Current assets were $231.5 million and current liabilities $36.6 million. Total liabilities were $52.8 million; the filing reports no interest-bearing debt. Cash and cash equivalents fell $42.1 million, while operating cash use was $4.3 million; investing cash use of $37.9 million primarily reflected purchases of short-term investments.
Material changes and unusual items
- ARCALYST product revenue increased by $20.5 million, primarily because of an increase in patients. Cost of goods sold rose with sales.
- R&D expense declined $5.6 million to $15.2 million, reflecting lower ARCALYST trial close-out and late-stage activity and lower mavrilimumab trial close-out costs; KPL-404 trial costs increased.
- SG&A rose $6.8 million to $29.0 million, mainly from personnel costs and expanded salesforce-related sales and marketing costs.
- Q1 collaboration revenue included $5.7 million recognized under the Genentech agreement. Kiniksa received a further $20.0 million from Genentech for drug-supply deliveries; revenue recognition depends on performance obligations, and $6.7 million remained deferred at quarter-end. The $12.0 million Huadong rilonacept upfront payment remained deferred pending material deliveries.
- Other income increased to $1.8 million, primarily from higher interest rates and a larger average short-term investment balance. Income tax provision was $2.9 million, primarily related to U.K. and U.S. income.
Outlook, risks and contingencies
Management expects existing cash, cash equivalents and short-term investments to fund operating expenses and capital needs for at least 12 months from issuance of the statements. Kiniksa expects operating losses for the foreseeable future and says longer-term viability depends on ARCALYST sales and/or additional capital. No specific revenue, earnings or cash-flow guidance is provided.
- Regeneron initiated transfer of the ARCALYST drug-substance manufacturing process in March 2023. Kiniksa must identify and qualify a new manufacturer and testing labs; delays, comparability requirements, additional costs or supply interruption could affect patient supply and commercialization. Management expects transfer-related costs to increase cost of goods sold.
- KPL-404’s Phase 2 rheumatoid arthritis trial completed enrollment in its multiple-ascending-dose portion; the proof-of-concept portion was enrolling, with data expected in the first half of 2024.
- Key risks include reliance on third-party manufacturers and CROs, clinical and regulatory uncertainty, competition, reimbursement and market acceptance, and need for future financing. One large private insurer excluded ARCALYST for CAPS in January 2023, which the company said could create coverage hurdles for new patients across indications.
- Manufacturing minimum commitments under CMO agreements totaled $11.7 million, all due within one year; Regeneron supply commitments were $7.6 million due within one year. The company also disclosed $5.9 million of future lease payments, including $3.7 million due within one year, and substantial contingent milestone and royalty obligations under licenses.
- Kiniksa reported no material litigation and no accrued litigation reserves. Management concluded disclosure controls were effective at the reasonable-assurance level, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether ARCALYST patient growth and revenue momentum persist, and whether payer coverage or pricing changes affect access.
- Progress, timing, cost and supply safeguards for the ARCALYST manufacturing technology transfer.
- Whether the KPL-404 trial remains on track for data in the first half of 2024, and the status and cost of completing the vixarelimab Phase 2b trial.
- How much deferred collaboration revenue is recognized as Genentech trial work and Huadong supply deliveries proceed, and whether potential milestones or royalties are achieved.
- Cash runway assumptions, operating cash burn, future financing needs, and the impact of contingent license, manufacturing and royalty obligations.
- Potential U.S. deferred-tax valuation-allowance release: the filing says it is reasonably possible within one year based on current forecasts, but does not state that release is assured.