KNSA - Kiniksa Pharmaceuticals: Arcalyst Performs While KPL-404 Advances Toward Early 2024 Readout

2023-11-03 11:07:17 ET

Summary

• Kiniksa Pharmaceuticals delivered another good quarter with Arcalyst, although the revenue beat was partially driven by an inventory benefit.
• The launch metrics for Arcalyst have improved slightly, with an increase in prescribers and repeat patients.
• Phase 2 results for KPL-404 in rheumatoid arthritis are expected in Q1 and Q2 2024 and should help the company find the right dosing regimen for further development.

Kiniksa Pharmaceuticals ( KNSA ) continues to drive the sales of Arcalyst higher while its financials improve and as the phase 2 data readout of KPL-404 draws near.

The stock was one of my portfolio's casualties in the last few weeks as I reduced and eventually eliminated it as part of portfolio prioritization and rearrangement. However, I continue to like its long-term growth prospects based on Arcalyst in recurrent pericarditis, KPL-404 in rare autoimmune diseases (but not rheumatoid arthritis), and the company’s successful business development approach that brought in all the assets it currently has.

Arcalyst outperforms in Q3, driven by continued demand growth and inventory benefit

In my Q3 2023 earnings preview article to subscribers, I said Arcalyst should deliver $62-64 million in net sales and that total revenue will be in the $64-66 million range due to the $2 million collaboration revenue the company expected to recognize in the quarter. Actual net sales were $64.8 million and total revenues were $67 million, both above my estimate range and the $64.4 million analyst consensus.

On the earnings call , management noted that the outperformance was partly driven by a slight inventory benefit which they did not quantify, and as such, I would assume that the quarterly net sales were within my estimate range, possibly around the mid-point of the range.

But that is not really to complain about the numbers, because Arcalyst’s growth trajectory is on the more predictable side and $1-2 million in quarterly sales more or less do not make a major difference.

The company fell short on the guidance side this time. We had two beat-and-raise quarters this year and the full-year net sales guidance was unchanged this time, although management noted Arcalyst is trending toward the high end of the $220-230 million guidance range.

The launch metrics have improved slightly in the third quarter. The company added 200 new prescribers and the total number has reached 1,450 and the percentage of repeat prescribers ticked up from 23% in Q2 to 24% in Q3. The percentage of patients who restarted Arcalyst remained steady at 45% and the average duration of therapy including restarts remained at 20 months.

The effectiveness of Kiniksa’s sales force continues to impress. Arcalyst as a business is already significantly profitable and the operating profit margin of the collaboration with Regeneron ( REGN ) exceeded 53% in Q3 with half of the operating profit going to Kiniksa. Arcalyst is now not very far from funding the whole company.

Kiniksa’s cash position did increase to $201 million in Q3, but that was largely due to the $15 million milestone from partner Roche ( RHHBY ) for vixarelimab.

Overall, Q3 was a decent quarter for Arcalyst and Kiniksa, and consistent with the overall launch trajectory.

Phase 2 results of KPL-404 expected in Q1 2024 and Q2 2024

Kiniksa refined the guidance for the phase 2 readout of KPL-404 in patients with rheumatoid arthritis. The previous guidance was the first half of 2024 and the company now expects to report results from the first three cohorts in Q1 of 2024 and from the fourth cohort in Q2 2024.

I relayed my lack of excitement for this readout previously, and that has not changed. I believe KPL-404 is unlikely to be developed for the treatment of rheumatoid arthritis and that it has greater potential in other, less prevalent autoimmune indications. This should be considered a dose-finding trial.

The inhibition of CD40 has also, to date, yielded underwhelming data in rheumatoid arthritis and this adds to it being an unlikely target for KPL-404. Dazodalibep, which is now Amgen’s ( AMGN ) candidate that came from the acquisition of Horizon Therapeutics, generated positive phase 2 data in moderate to severe rheumatoid arthritis patients, but the data was hardly impressive, and Horizon too treated this as a dose-finding trial.

I do like this candidate’s long-term prospects, but in other indications. Sjogren’s syndrome should be an indication of high interest for Kiniksa. Dazodalibep generated positive data in two different patient populations – patients with moderate to severe systemic activity and patients with moderate to severe localized symptoms. Other diseases of interest could be systemic lupus, solid organ transplant, Graves’ disease, psoriasis, and several other autoimmune indications.

The obvious problem here is the time it will take to generate data in these other indications. Any trial is unlikely to start before the second half of 2024, and I would not expect to see data before 2026.

With vixarelimab in Roche’s hands with limited economics to Kiniksa, and with mavrilimumab being outsourced to third-party collaborators to conduct trials (and it has been stuck in this type of description for several quarters now without tangible progress), all Kiniksa has on the clinical side is the above-mentioned phase 2 readout of KPL-404 in rheumatoid arthritis.

All this is not to talk down the stock but to say that there is an apparent lack of catalysts on the clinical side.

Conclusion

Arcalyst performed well in the third quarter and looks well-positioned to continue to grow in 2024 and beyond. I removed the stock from our model portfolio but continue to like its long-term growth prospects, and it will stay on my watchlist. The focus will temporarily turn to KPL-404 due to the upcoming phase 2 data in rheumatoid arthritis patients after which we should hear more about the development plans which I believe should go in the direction of less prevalent diseases rather than Kiniksa pushing the candidate into phase 3 development for rheumatoid arthritis.

Kiniksa is well funded to execute its strategy, with $201 million in cash and equivalents that the company believes should be sufficient to last at least into 2027.

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