KALA BIO Inc (KALA) 2019 Q1 法說會逐字稿

Good morning, and welcome to Kala Pharmaceuticals First Quarter 2019 Earnings Conference Call.

(Operator Instructions) As a reminder, this call is being recorded.

I would now like to turn the call over to Mary Reumuth, Chief Financial Officer for Kala Pharmaceuticals.

Please proceed, ma'am.

Thank you, operator.

And thank you all for participating in today's call.

Joining me from the company are Mark Iwicki, Chairman, President and Chief Executive Officer; Kim Brazzell, Chief Medical Officer; Todd Bazemore, Chief Operating Officer; and Hongming Chen, Chief Scientific Officer.

Today's call is being webcast live, and the webcast link can be found in the Investors & Media section on the Kala corporate website, kalarx.com.

During this call, we will be referring to non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles.

A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is available in our press release issued today, which can be found in the Investors & Media section of our website.

On this call, we will make certain comments about Kala's future expectations, plans and prospects that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

These statements will include observations associated with our commercial launch of INVELTYS in the U.S.; statements regarding our ongoing STRIDE 3 clinical trial; and the sufficiency of our cash resources.

These statements are based on the beliefs and expectations of management as of today, May 9, 2019.

Our actual results may differ materially from our expectations.

The company undertakes no obligation to revise or update any statements to reflect events or circumstances after the date of this conference call.

Investors should carefully read the risks and uncertainties described in today's press release as well as the risk factors, which identify specific factors that may cause actual results or events to differ materially from those described in the forward-looking statement included in the company's filings with the SEC, including our quarterly report on Form 10-Q, which will be filed with the SEC after the market closes today and will be available on our corporate website.

I will now turn the call over to Kala's CEO, Mark Iwicki.

Mark?

Thanks, Mary.

Good morning, everyone, and thank you for joining us this morning.

Earlier today, Kala issued our financial results for the first quarter of 2019.

We're pleased with our recent accomplishments, including the following: the FDA approval of INVELTYS, the first and only twice-daily product for the treatment of inflammation and pain following ocular surgery; we finished the completion of the build-out of our commercial infrastructure; the strengthening of our balance sheet with successful equity and debt financings providing a cash runway through at least mid-2020; and the significant progress we made with KPI-121 0.25%, our product candidate for the temporary relief of signs and symptoms of dry eye disease.

We also continue to be really pleased with the launch of INVELTYS, our first commercial product.

Todd Bazemore, Kala's Chief Operating Officer, will provide further details later in the call.

For KPI-121 0.25%, our product candidate for dry eye disease, our PDUFA date is August 15.

Recall that the NDA included results from our 2 completed Phase III clinical trials, STRIDE 1 and STRIDE 2, and our Phase II clinical trial.

Enrollment also continues to progress as planned in our STRIDE 3 trial for dry eye disease, and we look forward to receiving top line data from STRIDE 3 in the fourth quarter of 2019.

I'll now turn the call over to Todd to discuss the INVELTYS launch.

Todd?

Thank you, Mark.

Good morning, everyone.

As Mark mentioned, we are pleased with the early days of the INVELTYS launch.

As a reminder, our main goal during this phase of launch is to ensure that physicians are gaining clinical experience with INVELTYS and that patients are able to fill their INVELTYS prescriptions at the pharmacy without restrictions.

We are pleased to report that in the first quarter more than 11,000 prescriptions of INVELTYS were filled according to Symphony data.

And as of the week ending April 26, nearly 20,000 prescriptions have been filled since launch.

Scripts have been showing strong weekly growth, and INVELTYS has achieved a branded new prescription market share of approximately 5%, making INVELTYS the third most prescribed branded ocular steroid just 16 weeks into launch.

Our sales representatives continue to focus their efforts on high-prescribing targets.

The majority of our sales calls and samples are going to decile 5 through 10 eye care professionals, who currently comprise approximately 82% of all INVELTYS prescriptions launched to date.

Additionally, nearly half of our highest value targets, decile 9 through 10 eye care professionals, have already prescribed INVELTYS.

Our reps have made significant progress in securing surgical protocol conversion pull-through, and our trade team is working hard to help ensure INVELTYS availability at pharmacies and that prescriptions are being filled.

We've also made significant progress in securing market access coverage in the early days of launch.

As a reminder, the ocular steroid market is approximately 50% commercial and 38% Medicare Part D coverage.

In terms of commercial coverage, on our year-end call in March, we noted that we had secured several early access wins and had already achieved unrestricted market access for approximately 1/3 of all lives covered by commercial payers.

We are pleased to update that as of today, we have achieved unrestricted access for approximately 70 million patients, representing 41% of all commercial lives.

In terms of Medicare coverage, as we noted on the year-end call in March, we submitted our Medicare bids in the fourth quarter of 2018 for the 2020 Medicare coverage cycle.

We continue to make progress working through those bids with several large Part D health plans.

Even as we continue to work through these bids, we have already achieved unrestricted access for approximately 10% of Medicare Part D lives for 2019.

We continue to receive positive feedback regarding our co-pay program, for which commercial patients pay as little as $35 for their prescription and Medicare patients, who opt out of the Medicare benefit, pay as little as $55 for their prescription.

Launch to date, the majority of the INVELTYS prescriptions have been filled utilizing our co-pay program.

In summary, we are pleased with the launch progress to date.

The overall feedback from eye care professionals has been positive, we are seeing strong prescription growth trends, we continue to improve market access for INVELTYS and our commercial team is executing on all of our key drivers.

I will now turn the call over to Mary to discuss our financial results.

Thanks, Todd.

As a result of the launch of our first product, we're excited to report quarterly revenue generated from product sales for the first time in our company's history.

During this discussion of our quarterly financial results, and as noted earlier, I will reference certain non-GAAP financial measures.

These non-GAAP financial measures exclude stock compensation, depreciation and noncash interest expense.

For a full reconciliation of our GAAP to non-GAAP financial measures, please refer to today's press release, which is available on our website.

Our cash position as of March 31, 2019, was $138.9 million compared to $170.9 million as of December 31, 2018.

We continue to anticipate that our existing cash will enable us to fund operations through at least mid-2020 with additional cash runway when including revenue from INVELTYS sales.

For the first quarter of 2019, we reported net product revenue of $1.4 million.

Kala recognizes revenue when products are delivered to distributors.

Our net revenue in Q1 includes some initial stocking at our distributors.

We've significantly drawn down our initial stocking inventory levels and have begun to see reorders based on demand.

We expect inventory levels to normalize by the end of Q2.

Our overall gross-to-net discount in Q1 was approximately 75%, which is in line with our expectations and is reflective of all discounts and rebates to distributors, pharmacies and payers.

As Todd mentioned, we utilize a co-pay card for which commercial payment -- patients pay as little as $35 for their prescriptions and Medicare patients, who opt out of their Medicare benefit, pay as little as $55.

During the first quarter of 2019, and in line with our strategy to drive utilization, the majority of INVELTYS prescriptions filled utilized a co-pay card.

We expect our gross-to-net discount to improve over time as we achieve greater market access, which will result in less utilization of the co-pay program.

Cost of product revenues for the first quarter of 2019 were $0.2 million representing a gross margin of approximately 83%.

Since we began capitalizing materials and manufacturing costs related to INVELTYS upon FDA approval which occurred in August of 2018, our margins were favorably impacted by the portion of manufacturing completed prior to FDA approval that was expensed as R&D.

SG&A expenses for the first quarter of 2019 were $18.2 million compared to $5.5 million for the same period in 2018.

The increase in expenses were primarily due to costs associated with hiring additional personnel, building our commercial organization, external costs associated with the launch of INVELTYS and an increase in our facility costs due to the lease of our new corporate headquarters, which commenced late last year.

Non-GAAP SG&A expenses for the first quarter of 2019 were $16.3 million compared to $4.2 million for the same period in 2018.

R&D expenses for the first quarter of 2019 were $7 million compared to $5.7 million for the same period in 2018.

The increase in R&D expenses for the first quarter was primarily due to increased clinical expenses associated with STRIDE 3, which were partially offset by a decrease in manufacturing costs related to INVELTYS, which were expensed as R&D prior to FDA approval.

Non-GAAP R&D expenses for the first quarter of 2019 were $6.3 million compared to $5 million for the same period in 2018.

Loss from operations for the first quarter of 2019 was $24.1 million compared to $11.1 million for the same period in 2018.

Non-GAAP operating loss was $21.4 million for the first quarter of 2019 compared to $9.2 million for the same period in 2018.

Net loss for the first quarter was $25.4 million or $0.75 per share compared to a net loss of $11.3 million or $0.46 per share for the same period in 2018.

Non-GAAP net loss was $22.5 million compared to $9.4 million for the same quarter of 2018.

I will now turn the call back to Mark.

Thanks, Mary.

We're very pleased with the tremendous progress we've made in the first few months of the year, and we look forward to continuing to update you on the INVELTYS launch as well as the KPI-121 0.25% PDUFA in August and the STRIDE 3 results by the end of the year.

That concludes our prepared remarks for today.

Operator, we're ready to take questions.

(Operator Instructions) Our first question is from Liana Moussatos from Wedbush.

This is Shveta, for Liana.

Congrats on all the progress.

Just a couple of questions.

First on INVELTYS.

Data so far from Symphony Health has shown a pretty steady linear ramp.

So as we're thinking about the rest of the year and realizing that you're not providing guidance, do you expect this trend to inflect at some point as you hit critical mass with peers?

And then I have 2 more questions?

Really good question.

As you noted, we're not providing guidance this year.

We are very pleased with the growth trends we've seen in the first quarter, and we do expect prescriptions to continue to grow throughout the course of the year.

There can always be some seasonality at certain times of the year, but overall growth trends are expected to continue for the remainder of 2019.

Okay.

And for the STRIDE 3 data, can you provide an update when in Q4 can we expect this data to come?

And one more question on the dry eye space.

What are your thoughts on the Novartis deal -- Novartis and Takeda deal with Xiidra?

And how does this impact your strategy for dry eye drug launch?

Yes.

The first question, I'll answer.

And that's that we're just providing guidance that we should have the data by the end of the year, and there is no further update on that today.

And yes, we saw the deal, and we've always believed that the dry eye market is just massive.

There are over 30 million patients that suffer from dry eye disease in the United States alone, 16 million patients have been diagnosed with dry eye disease, and roughly 1 million to 1.5 million of those are actively treated with drugs.

And so there's just a huge opportunity, maybe 85% to 90% of patients are not treated.

And I think Xiidra did reasonably well.

Their performance has been flat for a while along with Xiidra, so I believe that those 2 drugs are used mostly for the most severe patients that have chronic continual symptomatology that require that kind of maintenance therapy.

And again, we think that's the smaller part of the patient market.

And with dry eye -- with KPI-121, our product for dry eye disease, we think we'll be going after the 80% to 85% of the market, which is the patients that have a more episodic manifestation of the disease and treat flare.

So we've always felt like the market is absolutely huge, it's just in the beginning stages of really being able to go after that market in those patient populations.

And the current maintenance drugs are not really, in doctor's eyes, appropriate therapies for treating the acute symptoms associated with that kind of episodic or flaring dry eye disease.

And so we just believe that our market is unchanged in any way.

Happy for Novartis; I think, Shire did a good job with that drug as well, and we don't really see anything changing in the marketplace because the product has changed hands.

The next question is from Esther Rajavelu from Oppenheimer.

Congrats on the quarter.

A couple of -- I have a couple.

One is, in terms of the prescribing data, do you have any -- do you see any trends on whether it's one prescription per surgery or is there any variability on that front?

Yes.

So that's a good question.

And I'll remind that it's still early in launch.

Generally, we are seeing a lot of single prescriptions post the ocular surgery.

However, in the case of cataract surgery, as you know, oftentimes those patients come back to have the second eye done.

And at that point, we are seeing some refills that are occurring.

Got you.

And then it would be great if you can give us some color on how gross to net has kind of came in this quarter, and where you hope to get to by 2020?

Yes.

So we're not guiding on 2020.

As Mary stated, our gross to net was about 75% in the first quarter, a lot of that's driven by heavy dependence on the co-pay program, co-pay program that we have.

We expect over time to be less dependent on the co-pay program as we improve our market access and are looking to gross to nets improving in the future substantially below where they were in the first quarter of this year.

Got you.

And then my last question, it's on the SG&A spend for the quarter.

Is that -- the $16 million non-GAAP number, is that sort of -- is that how we should be thinking about the run rate for the remainder of the year or would there be variability there as well?

I would just say qualitatively and without giving specific guidance, this is our first quarter -- first full quarter with our full commercial team.

So that includes the cost to launch INVELTYS and the full team.

So we feel like that's a good number going forward.

The next question is from Biren Amin from Jefferies.

This is David, on for Biren.

Congrats on the quarter guys.

Just few questions from me.

First, in terms of market access, for those lives that do have some restrictions on them that are unrestricted, I guess what kind of restrictions are you seeing?

And then have you heard any feedback on Bausch's recent product for -- steroid product for cataract surgery?

And how are docs thinking about your product versus Bausch's?

Sure.

So first question on restrictions, when we were -- David, we were reporting our access as restricted or unrestricted, we're using a very, I would say, conservative definition of either we're on formulary and covered or not on formulary and not covered.

So we are counting unrestricted access as physicians are unencumbered to write a prescription and that prescription can get filled at the pharmacy by the patient without any restrictions whatsoever.

So that's how we're reporting our 41% unrestricted access for commercial lives.

As far as Bausch's launch of their new formulation of LOTEMAX, the LOTEMAX gel SM, they -- what we are seeing in the market early on is they are having no impact on us or any other brand other than themselves.

They essentially are taking share away from their LOTEMAX gel formulation, which is being converted over to their LOTEMAX gel SM formulation.

So it is -- they are stealing market share or business from their own franchise and not impacting any other brands in the market.

The next question is from Yi Chen from H.C. Wainwright.

Can you explain how Medicare patients can gain access to INVELTYS before its formally covered under Part D?

And how many prescriptions do you think within the past quarter are based on Medicare patients prescriptions?

Sure.

Really good question, Yi.

You know there's a couple of different ways a Medicare patient could get access.

One, recall, we have our co-pay program that includes the option for Medicare patients to opt out of their Medicare benefit and essentially become a cash-paying patient, and then we buy that patient down to a $55 co-pay to fill that prescription.

So those Medicare patients essentially become cash-paying patients.

They can fill their prescription for $55.

We chose the $55 level because that's about what a preferred brand co-pay is for a Medicare Part D drug.

So that's one way.

The other way, as I stated, we have already received formulary access for about 10% of Medicare Part D lives.

We've been successful in our negotiations for the 2020 bid cycle to actually get some approvals to add INVELTYS to formulary and move that start date into 2019, so we have access to about 10% of lives.

And then the third way that's possible, as you know, when patients rollover into the new calendar year, CMS does allow for patients to either continue on drugs that they may have been on from a prior health plan or if it's a new prescription that's written in the beginning of the year, CMS does require Medicare Part D plans to reimburse for those drugs in the first 90 days of a new calendar year.

So there are essentially 3 different ways that patients could be getting access to INVELTYS right now.

Thank you.

At this time, I am showing no more questions in the queue.

Mr. Iwicki, I'll turn the call back to you.

Well, I just want to thank everybody for participating in today's conference call.

We look forward to keeping you updated on our progress throughout the year.

Thanks, again, everyone.

Ladies and gentlemen, this concludes today's conference.

Thank you for your participation.

You may now disconnect.