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. Kiniksa's portfolio of assets, ARCALYST® (rilonacept), mavrilimumab, vixarelimab and KPL-404, 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. We
received
Mavrilimumab is an investigational monoclonal antibody inhibitor targeting
granulocyte-macrophage colony stimulating factor receptor alpha, or GM-CSFR?. We
are evaluating mavrilimumab for the potential treatment of giant cell arteritis,
or GCA, a chronic inflammatory disease of the medium-to-large arteries with an
estimated
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exhibited a favorable safety profile. In
Vixarelimab is an investigational monoclonal antibody that is designed to
simultaneously inhibit the signaling of the cytokines interleukin 31, or IL-31,
and oncostatin M, or OSM, by targeting their common receptor subunit, oncostatin
M receptor beta, or OSMR?. We are evaluating vixarelimab for the potential
treatment of with prurigo nodularis, a chronic inflammatory skin condition with
an estimated
KPL-404 is an investigational monoclonal antibody designed to inhibit
interaction of CD40 with CD154, or CD40 ligand, signaling, a well-known pathway
that plays a critical role in regulating B cell proliferation and T cell
activation as well as antibody production. We conducted a randomized,
double-blind, placebo-controlled, single-ascending-dose Phase 1 clinical trial
of KPL-404 in healthy volunteers to evaluate safety and pharmacokinetics well as
receptor occupancy, or RO, and T-cell dependent antibody response, or T-cell
Dependent Antibody Response, or TDAR, in these subjects. In
Our future success is dependent on our ability to successfully 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
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On
On
We have incurred significant operating losses since inception. Our ability to
generate product revenue sufficient to achieve profitability will depend heavily
on the successful commercialization of ARCALYST and the development and eventual
commercialization of one or more of our current or future product candidates, if
approved. Our net losses were
As a result, until such time as we can generate significant revenue from product sales of ARCALYST and one or more of our current or future approved product candidates, if ever, we expect to finance our operations through public or private securities offerings, debt financings or 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 and or of one or more of our current or future product candidates or 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 profitability. Even if we are able to successfully 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 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
Components of Our Results of Operations
Product revenue, net
Following the FDA approval of ARCALYST in
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primarily through a network of authorized specialty pharmacies and specialty distributors ("customers"), which deliver the medication to patients by mail. Our payment terms are between 30 to 35 days.
Net revenue from product sales is recognized at the transaction price when the specialty pharmacy or specialty distributors obtains 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 606 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.
Operating Expenses Cost of Goods Sold
Cost of goods sold includes production and distribution costs of ARCALYST, and amortization of the regulatory milestone, and other miscellaneous product costs associated with ARCALYST. Cost of goods sold also includes the allocations for the labor and overhead costs associated with the production of ARCALYST associated with quality control, quality assurance, and supply chain activities.
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 CROs that are primarily engaged in the
? oversight and conduct of our clinical trials and 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, depreciation and other expenses, which
include rent and utilities.
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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.
The table below summarizes our research and development expenses incurred by
program:
Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 2021 2020
(in thousands) (in thousands)
Rilonacept $ 3,212 $ 5,132 $ 6,013 $ 9,169
Mavrilimumab 7,054 3,335 15,917 5,545
Vixarelimab 2,130 1,807 4,786 4,463
KPL-404 1,814 775 2,320 2,046Unallocated research and development expenses 9,735 11,275 23,592 22,002 Total research and development expenses
$ 23,945 $ 22,324 $ 52,628 $ 43,225
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 planned clinical trials for mavrilimumab, vixarelimab and KPL-404, as well as conduct other preclinical and clinical development including regulatory filings for our current and future product candidates. As a result, our related personnel costs will increase, including costs associated with share-based compensation. 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.
Upon approval from the FDA of the commercial marketing of ARCALYST in
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uncertainty is due to the numerous risks and uncertainties associated with product development and commercialization, including the uncertainty of:
the potential impact of the COVID-19 pandemic, including any new variants of
? the virus, on our business, including our preclinical studies, clinical trials
and operations;
? the scope, progress, outcome and costs of our research and preclinical
development activities, clinical trials and other development activities;
? establishing an appropriate safety and efficacy profile with IND enabling and
clinical studies;
? the successful enrollment and initiation, performance and completion of
preclinical studies and clinical trials;
? the timing, receipt and terms of any marketing approvals from applicable
regulatory authorities, including the FDA;
? the extent of any required post-marketing approval commitments to applicable
regulatory authorities;
increasing clinical and commercial manufacturing capabilities or making
arrangements with additional third-party manufacturers to successfully
? manufacture our product candidates at reasonable cost and within approved
specifications for product quality, and in sufficient quantities to meet
patient demand;
? development and timely delivery of clinical-grade and commercial-grade drug
formulations that can be used in our clinical trials and for commercial launch;
maintaining, establishing, and/or expanding 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;
successfully launching commercial sales of ARCALYST or of our current or future
? product candidates, if and when approved, whether alone or in collaboration
with others;
? making milestone or other payments under any current or future license,
acquisition, collaboration or other strategic transaction agreements;
? obtaining, maintaining, defending and enforcing patent claims and other
intellectual property rights;
? significant and changing government regulation; and
? maintaining a continued acceptable safety profile of ARCALYST or our current or
future approved product candidates following approval, if any.
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 executive, business development, finance, human resources, legal, medical affairs, commercial and support personnel functions. Selling, general and administrative expenses also include insurance and professional fees for legal, patent, consulting, accounting and audit services, and the cost associated with the production and sale of free goods.
We expect that our general and administrative expenses will continue to increase in the future as we continue to perform commercialization and sales activities and increase our headcount to support our business objectives. We also
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anticipate that we will continue to incur significant costs associated with being a public company, including accounting, audit, legal, compliance and director and officer insurance costs as well as investor and public relations expenses, and that such costs will increase over time especially as we are now a large accelerated filer and are no longer permitted to rely on exemptions from certain requirements that are applicable to public companies that are not emerging growth companies.
Interest Income
Interest income consists of income recognized from investments in money market
funds and
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,
2021 2020 Change
(in thousands)
Revenue:
Product revenue, net $ 7,704 $ - $ 7,704
Costs and Operating expenses:
Cost of goods sold 2,466 - 2,466
Research and development 23,945 22,324 1,621
Selling, general and administrative 21,848 9,536 12,312
Total operating expenses 48,259 31,860 16,399
Loss from operations (40,555) (31,860) (8,695)
Interest income 6 266 (260)
Loss before provision for income taxes (40,549) (31,594) (8,955)
Provision for income taxes (1,014) (5,875) 4,861
Net loss $ (41,563) $ (37,469) $ (4,094)
Product Revenue, Net
Following the FDA approval of ARCALYST in
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The 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 606 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.
Cost of Goods Sold
Upon the first sale commencing in
Research and Development Expenses
Three Months Ended
June 30,
2021 2020 Change
(in thousands)
Rilonacept $ 3,212 $ 5,132 $ (1,920)
Mavrilimumab 7,054 3,335 3,719
Vixarelimab 2,130 1,807 323
KPL-404 1,814 775 1,039Unallocated research and development expenses: Personnel related (including share-based compensation) 6,341 7,734 (1,393) Other
3,394 3,541 (147)
Total research and development expenses $ 23,945 $ 22,324 $ 1,621 Research and development expenses were
The direct costs for our ARCALYST program were
The direct costs for our mavrilimumab program were
The direct costs for our vixarelimab program were
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while during the three months ended
The direct costs for our KPL-404 program were
Unallocated research and development expenses were
Selling, General and Administrative Expenses
Selling, general and administrative expenses were
Interest Income
Interest income was less than
Provision for Income Taxes
For the three months ended
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Comparison of the Six Months Ended
The following table summarizes our results of operations for the six months
ended
Six Months Ended
June 30,
2021 2020 Change
(in thousands)
Revenue:
Product revenue, net $ 7,704 $ - $ 7,704
Operating expenses:
Cost of goods sold 2,466 - 2,466
Research and development 52,628 43,225 9,403
Selling, general and administrative 42,448 18,022 24,426
Total operating expenses 97,542 61,247 36,295
Loss from operations (89,838) (61,247) (28,591)
Interest income 15 1,055 (1,040)
Loss before provision for income taxes (89,823) (60,192) (29,631)
Provision for income taxes (1,224) (3,696) 2,472
Net loss $ (91,047) $ (63,888) $ (27,159)
Product Revenue, Net
Following the FDA approval of ARCALYST in
Cost of goods sold
Upon the first sale commencing in
Research and Development Expenses
Six Months Ended
June 30,
2021 2020 Change
(in thousands)
Rilonacept $ 6,013 $ 9,169 $ (3,156)
Mavrilimumab 15,917 5,545 10,372
Vixarelimab 4,786 4,463 323
KPL-404 2,320 2,046 274
Unallocated research and development expenses: -
Personnel related (including share-based compensation) 16,083 15,095 988 Other
7,509 6,907 602
Total research and development expenses $ 52,628 $ 43,225 $ 9,403 Research and development expenses were
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COVID-19 related ARDS, offset by a decrease in the cost associated with our RHADSODY trial. The following includes additional information on our development programs.
The direct costs for our ARCALYST program were
The direct costs for our mavrilimumab program were
The direct costs for our vixarelimab program were
The direct costs for our KPL-404 program were
Unallocated research and development expenses were
Selling, General and Administrative Expenses
Selling, general and administrative expenses were
Interest Income
Interest income was less than
Provision Benefit for Income Taxes
For the six months ended
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Liquidity and Capital Resources
Following the FDA approval of ARCALYST in
On
On
As of
Cash Flows
The following table summarizes our cash flows for each of the periods presented:
Six Months Ended
June 30,
2021 2020
(in thousands)
Net cash used in operating activities $ (78,905) $ (61,020)
Net cash provided by investing activities 130,827 57,573
Net cash provided by financing activities 1,993 79,975
Net increase in cash and cash equivalents and restricted cash
Operating Activities
During the six months ended
During the six months ended
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Investing Activities
During the six months ended
During the six months ended
Financing Activities
During the six months ended
During the six months ended
Funding Requirements
We expect to incur significant expenses in connection with our ongoing and planned activities as we 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 connection with the in-licensing or acquisition of additional product candidates. As a result, our related personnel costs will increase, including costs associated with share-based compensation. 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. 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 mavrilimumab, vixarelimab
and KPL-404, as well as for any future product candidates, as applicable;
increase clinical and commercial manufacturing capabilities or make
? arrangements with additional third party manufacturers to successfully
manufacture our 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;
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launch commercial sales of ARCALYST and 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;
? hire additional clinical, quality and research and development personnel;
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. We have based these estimates on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect. 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 commercialization 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 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 will depend on and could increase significantly as a result of many factors, including:
? any impact of the COVID-19 pandemic on our business, including our preclinical
studies and clinical trials, and operations;
? the scope, progress, results and costs of researching and developing our
product candidates, and conducting preclinical and clinical trials;
? the costs, timing and outcome of regulatory review of our product candidates;
the costs, timing and ability to manufacture our product candidates to supply
? our clinical and preclinical development efforts and our clinical trials and
commercialization;
the costs of future activities, including product sales, medical affairs,
? marketing, manufacturing, pricing and reimbursement, distribution and
compliance, for any of our product candidates for which we receive marketing
approval;
? the costs of manufacturing commercial-grade product and necessary inventory to
support commercial launch and ongoing sales;
? the ability to receive additional non-dilutive funding;
? the revenue received from commercial sale of ARCALYST or any of our current or
future products candidates, should they receive marketing approval;
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the costs of preparing, filing and prosecuting patent applications, maintaining
? and enforcing our intellectual property rights and defending intellectual
property-related claims;
? our ability to establish and maintain licensing, collaboration or other
strategic transactions and arrangements on favorable terms, if at all;
? the extent to which we acquire or in-license other product candidates,
technologies and their related businesses; and
? the timing, receipt and amount of sales of, or milestone payments related to or
royalties on, our current or future product candidates, if any.
Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of public or private equity offerings, debt financings, or other sources, including, 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.
Contractual Obligations and Commitments
During the six months ended
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
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"Consolidated Unaudited Financial Statements," included in this Quarterly Report. We believe that of our critical accounting policies, the following accounting policies involve the most judgment and complexity:
? accrued research and development expenses;
? share-based compensation; and
? revenue recognition Revenue Recognition
ASC 606 outlines a five-step process for recognizing revenue from contracts with customers: i) identify the contract with the customer, ii) identify the performance obligations in the contract, (iii) determine the transaction price, iv) allocate the transaction price to the separate performance obligations in the contract, and (v) recognize revenue associated with the performance obligations as they are satisfied.
We only apply the five-step model to contracts when it is probable that we will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. Once a contract is determined to be within the scope of ASC 606, we determine the performance obligations that are distinct. We recognize as revenues the amount of the transaction price that is allocated to each respective performance obligation when the performance obligation is satisfied or as it is satisfied. Generally, our performance obligations are transferred to customers at a point in time, typically upon receipt of the product by the customer.
ASC 606 requires entities to record a contract asset when a performance obligation has been satisfied or partially satisfied, but the amount of consideration has not yet been received because the receipt of the consideration is conditioned on something other than the passage of time. ASC 606 also requires an entity to present a revenue contract as a contract liability in instances when a customer pays consideration, or an entity has a right to an amount of consideration that is unconditional (e.g. receivable), before the entity transfers a good or service to the customer.
Product Revenue, Net
Net revenue from product sales is recognized at the transaction price when the specialty pharmacy or specialty distributors obtains control of our products, 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 606 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 us as our 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.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any
off-balance sheet arrangements, as defined in the rules and regulations of the
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