KINIKSA PHARMACEUTICALS, LTD. The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our unaudited consolidated
financial statements and related notes included elsewhere in this Quarterly
Report on Form 10-Q, or Quarterly Report, and our audited consolidated financial
statements and related notes for the year ended
Overview
We are a biopharmaceutical company focused on discovering, acquiring, developing and commercializing therapeutic medicines for patients suffering from debilitating diseases with significant unmet medical need. Our portfolio of assets, ARCALYST® (rilonacept), KPL-404, mavrilimumab, and vixarelimab , are based on strong biologic rationale or validated mechanisms, target underserved conditions, and offer the potential for differentiation. These assets are designed to modulate immunological pathways across a spectrum of diseases.
ARCALYST is an interleukin-1? and interleukin-1? cytokine trap. In 2017, we
licensed ARCALYST from Regeneron, who discovered and initially developed the
drug. Our exclusive license to ARCALYST from Regeneron includes worldwide
rights, excluding the
KPL-404 is an investigational monoclonal antibody inhibitor of CD40-CD154
interaction. In 2019, we acquired all of the outstanding securities of
Mavrilimumab is an investigational monoclonal antibody inhibitor targeting
granulocyte-macrophage colony stimulating factor receptor alpha, or GM-CSFR?. In
2017, we licensed exclusive worldwide rights in all indications to mavrilimumab
from
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other development areas. We previously evaluated mavrilimumab in giant cell arteritis, or GCA, a chronic inflammatory disease of the medium-to-large arteries, and COVID-19-related acute respiratory distress syndrome, or ARDS.
Vixarelimab is an investigational monoclonal antibody inhibitor of signaling
through oncostatin M receptor beta, or OSMR?. We acquired worldwide rights to
vixarelimab in all indications from
Our future success is dependent on our ability to continue to commercialize
ARCALYST and to develop, obtain regulatory approval for and successfully
commercialize one or more of our current or future product candidates. Upon
approval from the FDA of the commercial marketing of ARCALYST in
We have incurred significant operating losses since inception. Our ability to
generate product revenue sufficient to achieve corporate profitability will
depend heavily on the continued commercialization of ARCALYST and the
development and eventual commercialization of one or more of our current or
future product candidates, if approved. While our ARCALYST collaboration with
Regeneron has achieved profitability, such profits remain small compared to our
total net losses and there is no guarantee that our ARCALYST collaboration with
Regeneron will remain profitable in the future. For the six months ended
As a result, until such time as we can generate significant and sustained revenue, if ever from product sales of ARCALYST and one or more of our current or future product candidates, if approved, we expect to finance our operations through a combination of sales of ARCALYST, raising additional capital such as through debt or equity offerings or through other sources, which may include licensing, collaborations or other strategic transactions or arrangements. We may be unable to raise additional funds or enter into such other transactions or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such transactions or arrangements as and when needed, we may have to significantly delay, scale back or discontinue the development of one or more of our current or future product candidates, delay our pursuit of potential in-licenses or acquisitions or scale back on commercialization activities for ARCALYST.
Because of the numerous risks and uncertainties associated with product development, including any impact from the COVID-19 pandemic, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain corporate profitability. Even if we are able to continue to commercialize ARCALYST and generate product sales from one or more of our current or future product candidates, if approved, we may not become profitable. If we fail to become profitable or are unable to sustain corporate profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.
As of
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wrong, and we could exhaust our available capital resources sooner than we expect. See "- Liquidity and Capital Resources." Our future viability is dependent on our ability to fund our operations through sales of ARCALYST and/or raise additional capital, such as through debt or equity offerings, as needed.
Components of Our Results of Operations
Product revenue, net
Following the FDA approval of ARCALYST in
Net revenue from product sales is recognized at the transaction price when the customers obtain control of our product, which occurs at a point in time, typically upon shipment of the product from the third party logistics provider.
Our net revenues represent total revenues adjusted for discounts and allowances, including estimated cash discounts, chargebacks, rebates, returns, copay assistance, and specialty pharmacy and distributor fees. These adjustments represent variable consideration under ASC Topic 606, Revenue from Contracts with Customers, and are estimated using the expected value method and are recorded when revenue is recognized on the sale of the product. These adjustments are established by management as its best estimate based on available information and will be adjusted to reflect known changes in the factors that impact such allowances. Adjustments for variable consideration are determined based on the contractual terms with customers, historical trends, communications with customers and the levels of inventory remaining in the distribution channel, as well as expectations about the market for the product and anticipated introduction of competitive products.
Collaboration revenue
Collaboration revenue includes amounts recognized related to upfront payments,
royalty revenue, and milestone payments. On
Under the Collaboration Agreements, we received a total upfront cash payment of
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Operating Expenses
Cost of Goods Sold
Cost of goods sold includes production and distribution costs of ARCALYST, and
amortization of the
Collaboration expenses
Collaboration expenses consists of Regeneron's share of the profit related to ARCALYST sales under the license agreement with Regeneron, or the Regeneron Agreement. We evenly split profits on sales of ARCALYST with Regeneron, where profits are determined after deducting from net sales of ARCALYST certain costs related to the manufacturing and commercialization of ARCALYST. Such costs include but are not limited to (i) our cost of goods sold for product used, sold or otherwise distributed for patient use by us; (ii) customary commercialization expenses, including the cost of our field force, and (iii) our cost to market, advertise and otherwise promote ARCALYST, with such costs identified in subsection (iii) subject to specified limits. In addition, should there be a transfer of technology related to the manufacture of ARCALYST, then, to the extent permitted in accordance with the Regeneron Agreement, the fully-burdened costs of each of us and Regeneron incurred in performing (or having performed) such technology transfer shall also be deducted from net sales of ARCALYST to determine profit. We also evenly split with Regeneron any proceeds received by us from any licensees, sublicensees and distributors in consideration for the sale, license or other disposition of rights with respect to ARCALYST, including upfront payments, milestone payments and royalties.
Research and Development Expenses
Research and development expenses consist primarily of costs incurred in connection with the research and development of our product candidates. We expense research and development costs as incurred. These expenses may include:
?expenses incurred to conduct the necessary preclinical studies and clinical trials required to obtain regulatory approval;
?expenses incurred under agreements with contract research organizations, or CROs that are primarily engaged in the oversight and conduct of our clinical trials and contract manufacturing organizations, or CMOs that are primarily engaged to provide preclinical and clinical drug substance and product for our research and development programs for our product candidates;
?other costs related to acquiring and manufacturing preclinical and clinical trial materials, including manufacturing validation batches, as well as investigative sites and consultants that conduct our clinical trials, preclinical studies and other scientific development services;
?payments made in cash or equity securities under third-party licensing, acquisition and other similar agreements;
?employee-related expenses, including salaries and benefits, travel and share-based compensation expense for employees engaged in research and development functions;
?costs related to compliance with regulatory requirements; and
?allocated facilities-related costs, which include rent and utilities, depreciation and other expenses.
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We recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our service providers. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. Such amounts are recognized as an expense as the goods are delivered or the related services are performed, or until it is no longer expected that the goods will be delivered or the services rendered.
Our direct research and development expenses are tracked on a program-by-program basis for our product candidates and consist primarily of external costs, such as fees paid to outside consultants, CROs, CMOs and research laboratories in connection with our preclinical development, process development, manufacturing and clinical development activities. Our direct research and development expenses by program also include fees incurred under license, acquisition and other similar agreements. We do not allocate employee costs or facility expenses, including depreciation or other indirect costs, to specific programs because these costs are deployed across multiple programs and, as such, are not separately classified. We use internal resources primarily to conduct our research and discovery activities as well as for managing our preclinical and clinical development, process development and manufacturing clinical and preclinical materials.
Research and development activities are central to our business. Product candidates in later stages of clinical development generally have higher costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. As a result, we expect that our research and development expenses will be substantial over the next several years as we conduct our ongoing and/or planned clinical trials for our product candidates as well as conduct other preclinical and clinical development, and make regulatory filings for our product candidates. We also expect to incur additional expenses related to milestone and royalty payments payable to third parties with whom we have entered into license, acquisition and other similar agreements to acquire the rights to our product candidates.
At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the clinical development of our current or future product candidates or when, if ever, we will realize significant revenue from product sales or be profitable. This uncertainty is due to the numerous risks and uncertainties, including those described in Part II, Item 1A. "Risk Factors" in this Quarterly Report.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of salaries and benefits, travel and share based compensation expense for personnel in selling, marketing, medical, executive, business development, finance, human resources, legal and support personnel functions. Selling, general and administrative expenses also include insurance and professional fees for legal, patent, consulting, accounting and audit services.
Upon approval from the FDA of the commercial marketing of ARCALYST in
Interest Income
Interest income consists of income recognized from investments in money market
funds and
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Income Taxes
As an exempted company incorporated under the laws of
Results of Operations
Comparison of the Three Months Ended
The following table summarizes our results of operations for the three months
ended
Three Months Ended
June 30,
2022 2021 Change
(in thousands)
Revenue:
Product revenue, net $ 26,972 $ 7,704 $ 19,268
Collaboration revenue - - -
Total revenue 26,972 7,704 19,268
Costs and Operating expenses:
Cost of goods sold 5,029 2,466 2,563
Collaboration expenses 3,672 - 3,672
Research and development 13,798 23,945 (10,147)
Selling, general and administrative 23,841 21,848 1,993
Total operating expenses 46,340 48,259 (1,919)
Loss from operations (19,368) (40,555) 21,187
Interest income 103 6 97
Loss before provision for income taxes (19,265) (40,549) 21,284
Provision for income taxes (716) (1,014) 298
Net loss $ (19,981) $ (41,563) $ 21,582
Product Revenue, Net
Following the FDA approval of ARCALYST in
Collaboration Revenue
We had no collaboration revenue for the three months ended
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Cost of Goods Sold
Upon the first sale commencing in
Collaboration Expenses
Collaboration expenses were
Research and Development Expenses
Three Months Ended
June 30,
2022 2021 Change
(in thousands)
Rilonacept $ (614) $ 3,212 $ (3,826)
KPL-404 1,712 1,814 (102)
Mavrilimumab 977 7,054 (6,077)
Vixarelimab 3,634 2,130 1,504Unallocated research and development expenses: Personnel related (including share-based compensation) 5,209 6,341 (1,132) Other
2,880 3,394 (514)
Total research and development expenses $ 13,798 $ 23,945 $ (10,147) Research and development expenses were
The direct costs for our ARCALYST program were
The direct costs for our KPL-404 program were
The direct costs for our mavrilimumab program were
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months ended
The direct costs for our vixarelimab program were
Unallocated research and development expenses were
Selling, General and Administrative Expenses
Selling, general and administrative expenses were
Provision for Income Taxes
For the three months ended
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Comparison of the Six Months Ended
Six Months Ended
June 30,
2022 2021 Change
(in thousands)
Revenue:
Product revenue, net $ 49,161 $ 7,704 $ 41,457
Collaboration revenue 10,000 - 10,000
Total revenue 59,161 7,704 51,457
Operating expenses:
Cost of goods sold 9,248 2,466 6,782
Collaboration expenses 11,926 - 11,926
Research and development 34,615 52,628 (18,013)
Selling, general and administrative 46,059 42,448 3,611
Total operating expenses 101,848 97,542 4,306
Loss from operations (42,687) (89,838) 47,151
Interest income 137 15 122
Loss before provision for income taxes (42,550) (89,823) 47,273
Provision for income taxes (2,641) (1,224) (1,417)
Net loss $ (45,191) $ (91,047) $ 45,856
Product Revenue, Net
Following the FDA approval of ARCALYST in
Collaboration Revenue
Collaboration revenue for the six months ended
Cost of Goods Sold
Upon the first sale commencing in
Collaboration Expenses
Collaboration expenses were
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upfront payment from the Huadong rilonacept Collaboration Agreement. We expect to continue to incur collaboration expenses associated with sales of ARCALYST.
Research and Development Expenses
Six Months Ended
June 30,
2022 2021 Change
(in thousands)
Rilonacept $ 1,242 $ 6,013 $ (4,771)
KPL-404 3,918 2,320 1,598
Mavrilimumab 4,489 15,917 (11,428)
Vixarelimab 6,439 4,786 1,653
Unallocated research and development expenses: -
Personnel related (including share-based compensation) 12,179 16,083 (3,904) Other
6,348 7,509 (1,161)
Total research and development expenses $ 34,615 $ 52,628 $ (18,013) Research and development expenses were
The direct costs for our ARCALYST program were
The direct costs for our KPL-404 program were
expenses incurred primarily related to the continuation costs of our Phase 2
trial in RA during the six months ended
The direct costs for our mavrilimumab program were
The direct costs for our vixarelimab program were
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Unallocated research and development expenses were
Selling, General and Administrative Expenses
Selling, general and administrative expenses were
Provision for Income Taxes
For the six months ended
Liquidity and Capital Resources
As of
Under various agreements with third parties, we have agreed to make milestone
payments, pay royalties, annual maintenance fees and to meet due diligence
requirements, each based upon specified milestones. Under our license agreement
with Regeneron, we have entered into supply agreements to provide both clinical
and commercial product. We have committed to minimum payments to Regeneron of
Under various agreements with third parties, we are entitled to receive upfront
payments, milestone payments, and royalties, each based upon specified
milestones. In the second quarter of 2022 we received
These agreements impact our short-term and long-term liquidity and capital
needs.
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Cash Flows
The following table summarizes our cash flows for each of the periods presented:
Six Months Ended
June 30,
2022 2021
(in thousands)
Net cash used in operating activities $ (44,670) $ (78,905)
Net cash provided by investing activities 15,542 130,827
Net cash provided by financing activities 965 1,993
Net increase (decrease) in cash and cash equivalents and
restricted cash $ (28,163) $ 53,915
Operating Activities
During the six months ended
During the six months ended
Investing Activities
During the six months ended
During the six months ended
Financing Activities
During the six months ended
Funding Requirements
We expect to incur significant expenses in connection with our ongoing and planned activities as we continue to commercialize ARCALYST and advance our current and future product candidates through preclinical and clinical development, seek regulatory approval and commercialize one or more of our current or future product candidates, if approved. In addition, if we obtain marketing approval for any of our current or future product candidates, we expect to incur significant additional commercialization expenses related to such activities. We may also incur expenses in
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connection with the in-licensing or acquisition of additional product candidates. As a result, we expect to incur additional expenses related to milestone, royalty and other payments payable to third parties with whom we have entered into license, acquisition and other similar agreements to acquire the rights to our product candidates. Additionally, we expect to continue to incur costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses. We expect to incur expenses as we:
? conduct our current and planned clinical trials for our current and future
product candidates;
increase clinical and commercial manufacturing capabilities or make
? arrangements with additional third party manufacturers to successfully
manufacture our products and product candidates;
? develop and timely deliver clinical grade and commercial grade product
formulations that can be used in our clinical trials and for commercial sale;
? seek regulatory approvals for any product candidates that successfully complete
clinical trials;
maintain, establish, and/or expand a sales, marketing, medical affairs and
? distribution infrastructure to commercialize ARCALYST or any of our current or
future product candidates for which we may obtain marketing approval and intend
to commercialize on our own;
? launch commercial sales of any of our current or future product candidates, if
and when approved, whether alone or in collaboration with others;
? make milestone or other payments under any current or future license,
acquisition, collaboration or other strategic transaction agreements;
expand our operational, financial and management systems and increase personnel
? globally to support our clinical development, manufacturing and
commercialization efforts and our operations as a public company;
? maintain, expand and protect our intellectual property portfolio; and
? in-license or acquire other product candidates and technologies or their
related businesses if we determine to do so.
We believe that our existing cash, cash equivalents and short-term investments will enable us to fund our operating expenses and capital expenditure requirements for at least the next 12 months. The future viability of our company is dependent on our ability to fund our operations through sales of ARCALYST and/or raise additional capital, such as through debt or equity offerings, as needed. We anticipate that we may require additional capital if we choose to pursue in-licenses or acquisitions of other product candidates and technologies or their related businesses. We expect to continue to incur significant expenses related to product manufacturing, sales, marketing and distribution of ARCALYST. In addition, if we obtain regulatory approval for any of our current or future product candidates, pursue additional indications or additional territories for our products or any of our current or future product candidates, we expect to incur significant expenses related to product development and manufacturing, sales, marketing and distribution, depending on where we choose to commercialize.
Because of the numerous risks and uncertainties associated with research, development and commercialization of biologic products, we are unable to estimate the exact amount of our working capital requirements. Our future funding requirements may be impacted by a number of factors, including those described in Part II, Item 1A. "Risk Factors" in this Quarterly Report.
Until such time, if ever, as we can generate substantial and sustained product revenue, we expect to finance our cash needs through a combination of public or private equity offerings, debt financings, or other sources, including,
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licensing, collaboration, marketing, distribution or other strategic transactions or arrangements with third parties. To the extent that we raise additional capital through the sale of equity or convertible debt securities, our shareholders' ownership interest may be materially diluted, and the terms of such securities could include liquidation or other preferences that adversely affect our shareholders' rights as a common shareholder. Debt financing and preferred equity financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specified actions, such as incurring additional debt, making capital expenditures or declaring dividends. In addition, debt financing would result in fixed payment obligations.
If we raise funds through licensing, collaboration, marketing, distribution or other strategic transactions or arrangements with third parties, we may have to relinquish valuable rights to our technologies, product candidates or future revenue streams, or otherwise agree to terms that may not be favorable to us. If we are unable to obtain funding, we could be forced to delay, reduce or eliminate some or all of our research and development programs for product candidates, product portfolio expansion or commercialization efforts, which could adversely affect our business prospects, or we may be unable to continue operations.
Critical Accounting Policies and Significant Judgments and Estimates
Our consolidated financial statements are prepared in accordance with generally
accepted accounting principles in
During the six months ended
? accrued research and development expenses;
? share-based compensation; and
? revenue recognition
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