KALA BIO Inc (KALA) 2019 Q4 法說會逐字稿

Good morning, and welcome to the Kala Pharmaceuticals Fourth Quarter and Full Year 2019 Earnings Conference Call.

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

I would now like to turn the call over to Niranjan Kameswaran, Senior Vice President of Strategy for Kala Pharmaceuticals.

Please proceed.

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; Todd Bazemore, Chief Operating Officer; Mary Reumuth, Chief Financial Officer; Kim Brazzell, Chief Medical Officer; and Hongming Chen, Chief Scientific Officer.

Today's call is being webcast live.

The webcast link can be found in the Investors and Media section on our 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 also be found on 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 commercialization of INVELTYS; statements regarding the development and commercial plans for EYSUVIS, including the STRIDE 3 clinical trial; the sufficiency of our cash resources; and projected revenue.

These statements are based on the beliefs and expectations of management as of today, February 12, 2020.

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 statements included in the company's annual report on Form 10-K and other filings with the SEC.

The Form 10-K will be filed with the SEC and will be available on our website.

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

Thanks, Niranjan.

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

Earlier today, we issued our financial results for the fourth quarter and full year ended December 31, 2019.

2019 was a defining year for Kala.

We made significant progress on the STRIDE 3 Phase III trial of EYSUVIS, our dry eye disease pipeline candidate, and we successfully launched our first commercial product, INVELTYS, the first and only twice-daily postsurgical ocular corticosteroid.

We are pleased to announce that the last patient in the STRIDE 3 trial has now completed their final study visit.

We remain on track to announce top line data from STRIDE 3 in this quarter and to resubmit our NDA to the FDA in the second quarter of 2020.

We expect our NDA resubmission will be designated as Class II, which would be subject to a 6-month review.

If approved, we believe that EYSUVIS could become the preferred first-line prescription option for the treatment of dry eye flares.

In January 2019, we successfully launched our first commercial product, INVELTYS, for the treatment of postoperative inflammation and pain following ocular surgery.

We've consistently received positive feedback from eye care professionals and have seen steady prescription growth throughout the year.

Since launch, over 144,000 INVELTYS prescriptions were written by more than 3,300 eye care professionals.

Our commercial team has done a terrific job educating prescribers on INVELTYS, and we are pleased to provide ocular surgery patients with the only BID option that delivers strong efficacy without compromising on safety or tolerability.

We look forward to seeing demand continue to increase as we enter our second year postlaunch.

Importantly, we believe our success with INVELTYS provides a strong foundation as we prepare for the potential launch of EYSUVIS later this year.

I will now pass the call over to Kim Brazzell, our Chief Medical Officer, to further provide details on the STRIDE 3 clinical trial.

Kim?

Thank you, Mark, and good morning, everyone.

As Mark noted, we're pleased to announce that all patients in the STRIDE 3 trial have now completed their final study visits and that all patient assessments have been completed.

We're now preparing for database lock and statistical analysis.

We continue to be on track for top line results in this quarter.

As a reminder, we've previously completed 1 Phase II and 2 Phase III clinical trials, STRIDE 1 and STRIDE 2. In these trials, we demonstrate statistical significance for the primary sign endpoint of conjunctival hyperemia in all 3 trials.

In addition, statistical significance was achieved for 2 prespecified primary symptom endpoints, ocular discomfort in the entire population and ocular discomfort in a predefined subgroup of patients with more severe baseline discomfort in STRIDE 1, with a strong trend for both symptom endpoints in STRIDE 2.

EYSUVIS was very well tolerated with a very low level of adverse events and intraocular pressure effects comparable to vehicle.

Based on clinical data from these 3 trials, we filed a new drug application in October of 2018.

In August of 2019, we announced that we had received a complete response letter from the FDA with respect to this NDA.

In the CRL, the FDA indicated that efficacy data from an additional clinical trial would be needed to support a resubmission.

We initiated the ongoing STRIDE 3 trial in the third quarter of 2018, which we expect will serve as the basis of our response to the CRL.

We designed STRIDE 3 with certain modifications to the inclusion/exclusion criteria relative to STRIDE 1 and STRIDE 2, which we believe will improve the probability of success of the trial.

As a reminder, STRIDE 3 has 2 independent primary symptom endpoints: ocular discomfort in the entire population and ocular discomfort in the more severe subgroup.

We believe that achieving statistical significance for either of these prespecified symptom endpoints in STRIDE 3 will be sufficient to demonstrate efficacy to support the resubmission of the NDA.

We're looking forward to announcing top line results from STRIDE 3 in this quarter.

I will now pass the call over to Todd Bazemore, our Chief Operating Officer, to provide further details on INVELTYS and EYSUVIS.

Todd?

Thank you, Kim.

We are very excited about the commercial potential of EYSUVIS.

As a reminder, there are approximately 33 million patients with dry eye disease in the U.S., of which over 17 million have been diagnosed and are managed by an eye care professional.

However, less than 1 million of them are currently treated with a prescription therapy.

Quantitative market research studies conducted with dry eye patients indicate that approximately 80% to 90% of them report experiencing dry eye flares.

We estimate that there are over 300 million dry eye flare days per year in the U.S. alone, representing a total addressable market potential in excess of approximately $8 billion annually.

If approved, we believe EYSUVIS could become the preferred prescription therapy for the vast majority of dry eye patients who experience episodic flares, and would benefit from a rapid-acting, short-term treatment.

They can address the inflammation, which is considered a key trigger of flares.

Our market research indicates that EYSUVIS would be used in mild to moderate patients who currently use palliative approaches, such as artificial tears, which do not directly impact ocular inflammation as well as in more severe patients as an adjunctive therapy to their chronic dry eye prescription medication, as either induction therapy or to treat breakthrough symptoms.

This will allow us to position EYSUVIS as first-line therapy to treat flares for all dry eye patients.

Our market research also indicates eye care professionals intend to prescribe EYSUVIS for more than half of their dry eye patients, regardless of whether they are currently on a prescription medication or are only using artificial tears.

Our team is making great progress on launch planning preparations, and we feel we are well positioned to leverage our existing commercial infrastructure to support the potential launch of EYSUVIS in late 2020.

Additionally, we continue to make good progress with INVELTYS.

We expect continued growth of prescriptions and net revenue in 2020, driven by growing demand and improved gross-to-net discounts.

In the fourth quarter, there were approximately 47,000 prescriptions of INVELTYS reported by Symphony Health, which represents an increase of approximately 17% over the third quarter.

This positive growth trend for INVELTYS in the fourth quarter is particularly encouraging, considering that the branded steroid market and RXs were down by 16.5% between the Thanksgiving and Christmas holidays.

Importantly, INVELTYS demonstrated strong prescription and market share growth throughout 2019, a year in which the other major branded and generic steroids demonstrated declining trends.

We've also seen continued growth in the number of prescribers.

To date, over 3,300 eye care professionals have prescribed INVELTYS.

We have also achieved an 11.2% NRx share in the branded steroid market and an 18.8% NRx-branded market share among our called-on eye care professionals.

We recently completed a large quantitative market research study with 200 eye care professionals.

In this study, ECPs rated INVELTYS highly for the key attribute of providing the best balance of efficacy and safety in the ocular steroid class.

Approximately half of these ECPs reported having already prescribed INVELTYS and that they intend to increase prescribing from our current self-reported market share of 6%, growing to 25% over the next 6 months.

On the market access front, we have achieved unrestricted access for approximately 80% of all commercial lives and approximately 23% of Medicare Part D lives.

The team has executed well on the launch of INVELTYS, and we have designed our commercial infrastructure to be readily scalable to support the potential future launch of EYSUVIS.

If the FDA approves EYSUVIS, we plan to increase the sales force from our current 57 sales professionals to a total of between 75 to 100, who will promote both EYSUVIS and INVELTYS.

We expect the sales force of this size will allow us to effectively cover the eye care professionals that are responsible for approximately 75% to 85% of all dry eye prescriptions.

So in summary, if approved, EYSUVIS has the potential to become the preferred first-line prescription therapy for the treatment of dry eye flares.

Launch preparations for EYSUVIS are already well underway.

And the INVELTYS launch continues to progress well, with strong growth in prescriptions and market share.

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

Thanks, Todd.

During this discussion of our financial results, 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 December 31, 2019 was $85.4 million compared to $170.9 million as of December 31, 2018.

We anticipate that our existing cash, together with projected INVELTYS revenue, will enable us to fund operations into the second quarter of 2021.

For the fourth quarter of 2019, we reported INVELTYS net revenue of $1.2 million, and for the full year 2019, we reported INVELTYS net revenue of $6.1 million.

As a reminder, we recognize revenue when products are delivered to distributors.

Net revenues in Q4 were impacted by higher reserve estimates at the end of 2019.

We expect improvements in our gross-to-net discounts beginning in Q1 2020 and to continue throughout the year and going forward.

Cost of product revenues for the fourth quarter of 2019 were $700,000.

We began capitalizing inventory costs for INVELTYS after receipt of FDA approval on August 22, 2018.

Prior to receiving FDA approval, such costs were expensed as research and development.

Non-GAAP cost of product revenues was $600,000 for the fourth quarter of 2019.

SG&A expenses for the fourth quarter of 2019 were $14.5 million compared to $14.3 million for the same period in 2018.

The increase in SG&A expenses for the fourth quarter of 2019 compared to the same period in 2018 was primarily due to costs associated with the commercial infrastructure being in place for the entire fourth quarter of 2019, as compared to only a portion of the fourth quarter of 2018 as well as an increase in facility-related costs, partially offset by lower pre-launch external costs incurred during the fourth quarter of 2018.

Non-GAAP SG&A expenses for the fourth quarter of 2019 were $12.7 million, which is consistent with the same period in 2018.

R&D expenses for the fourth quarter of 2019 were $6.1 million compared to $9.2 million for the same period in 2018.

The decrease in R&D expenses for the fourth quarter of 2019 compared to the same period in 2018 was primarily due to INVELTYS-related manufacturing and headcount costs, which in 2018 were classified as R&D expenses prior to FDA approval and the NDA filing fee for INVELTYS of $2.6 million incurred in the fourth quarter of 2018.

Non-GAAP R&D expenses for the fourth quarter were $5.5 million compared to $8.6 million for the same period in 2018.

Loss from operations for the fourth quarter of 2019 was $20.2 million compared to $23.6 million for the same period in 2018.

Non-GAAP operating loss was $17.6 million for the fourth quarter of 2019 compared to $21.3 million for the same period in 2018.

Net loss for the fourth quarter of 2019 was $22 million, or $0.63 per share compared to a net loss of $25.2 million, or $0.76 per share for the same period in '18.

Non-GAAP net loss was $19.2 million for the fourth quarter of 2019 compared to $22.7 million for the same quarter of 2018.

Please refer to today's press release for the weighted average number of shares used in the calculation of our net loss per share for the quarterly and annual periods discussed.

That concludes our prepared remarks for today.

I'll now turn the call over to the operator for questions.

(Operator Instructions) Our first question comes from Liana Moussatos with Wedbush Securities.

Can you remind us of the difference in patient characteristics in STRIDE 2 versus STRIDE 1 associated with the symptom endpoint?

And what changes were made to the inclusion/exclusion criteria in STRIDE 3?

Thanks, Liana.

A nice question.

We haven't really talked about the difference in the patient characteristics, but we can talk a bit about the changes we made in the STRIDE 3 inclusion/exclusion criteria.

And the primary focus of those changes was to screen out patients that did not have a stable symptom profile during run-in, that could be either patients that were improving significantly during the run-in but still would have made randomization or patients that had highly variable symptom profile through the run-in.

We often give an example.

There were 80-or-so patients in the STRIDE 2 trial that had significant improvement in symptoms during the run-in phase but has still had sufficient symptoms to be eligible for randomization.

As we look at those patients, we assume these were patients that were having a typical dry eye flare, and they continue to improve regardless of whether they were on drug or placebo.

In that situation, if you remove those 90 patients from the analysis, then you get a p-value of 0.02.

That's just one example.

We had a couple of other changes.

If you take those patients that we've excluded in STRIDE 3 and remove those from the analysis of STRIDE 1 and STRIDE 2, then you get p-values of 0.002 for both of the trials.

So our goal was sort of to eliminate those patients that were problematic patients in STRIDE 2.

And our following question comes from the line of Chris Schott with JP Morgan.

This is Chris Neyor on for Chris Schott.

So first is on INVELTYS.

We have seen solid progress on coverage and script growth throughout 2019.

And you previously discussed targeting roughly 6,000 to 7,000 high-prescribing physicians.

Could you update us on where we stand on adding new physicians for this script?

And then second, on EYSUVIS.

With the completion of the STRIDE 3 study, can you just reiterate the factors that give you confidence in the 6-month filing time line?

Sure, Chris.

Thanks for the question.

This is Todd.

I'll handle the INVELTYS question, and then I'll hand it over to Kim to address your question with regards to EYSUVIS.

So we still -- our target universe for INVELTYS is about 6,000 to 7,000 physicians.

Those physicians collectively represent 80% to 85% of prescribing of all ocular steroids.

And of that universe, to date, over 3,300 have already prescribed INVELTYS.

We're at about 50% penetration of the target universe in terms of prescribers of INVELTYS, and that number is up significantly quarter-over-quarter, 22% growth in number of prescribers from Q3 to Q4.

I'll hand it over to Kim to answer your EYSUVIS call.

With regards to the resubmission, as you recall, Chris, we did submit an NDA and received a complete response letter.

In that situation then, the resubmission is considered a Class II resubmission.

And that time line for that Class II or the PDUFA for that is 6 months.

It's a very similar situation that Shire experienced with Xiidra, where they had a CRL, resubmitted the results and got approval, in that case, 5 months.

So we're quite confident that the 6-month time line is correct.

And our following question comes from the line of Esther Rajavelu

With Oppenheimer.

Can you please help us understand how you're thinking about 2020 priorities in the context of a positive and/or negative readout, really, for EYSUVIS?

Sure.

Esther, it's Mark.

Thanks for the question.

Obviously, we're feeling a lot of excitement.

We're nearing the end of the STRIDE 3 trial and excited about seeing the results in the first quarter and being able to report those out to everyone.

And that will be a huge change for the company.

We really understand that the unmet need for a product in the dry eye market that could be used in a first-line fashion, could be used as adjunctive therapy to Xiidra and Restasis is just something that the market has wanted for a long time.

There are no really quick-acting products that can be used to treat patients' flares, and we know that over 90% of patients experience these flares routinely.

And that's whether they're on just OTC therapies, like artificial tears or other kind of home remedies, or if they're on more maintenance products.

So that's a real change for us.

The good news is we've created a terrific infrastructure.

We have an outstanding sales force and commercial organization with a really deep experience both in the post-surgery market as well as the dry eye market.

So we are gearing up and ready to hopefully see those positive results in a matter of weeks here, and to be able to get the NDA in, and then hopefully secure approval and launch.

And I think, as Todd mentioned earlier, we're fully capable of launching the product with our existing sales force and then also adding some additional representatives to make sure that we appropriately can go after what we think is just a huge unmet need in the marketplace and target all of the appropriate eye care professionals.

Certainly, if there's more work to be done, we'll have to evaluate that.

If the results require us to take some time, and we'll get back to everyone and let people know.

But right now, we're gearing up and excited for what we hope to be a real positive outcome on STRIDE 3 and then preparing to make the file and the launch.

Got you.

And a quick follow-up from a cost basis.

Are we sort of assuming that over the course of 2020, you're not -- it sounds like you're not going to need to spend a ton more than what you've been doing with -- on the sales force.

I just wanted to confirm that.

Yes.

No, that's right.

I think in general, 2020 is much more of a sort of stable year.

And if we did secure the approval later this year, then we will most likely, and plan to increase the sales force.

But our expectation would be right now that, that would likely come either very late in the year or early next year, depending on when we secure the approval.

So you're right.

This year is much more of a stable OpEx situation.

Of course, as the trial ends, that expense run rate will be reduced a bit.

So you're spot on with your assessment.

And our next question comes from the line of Biren Amin with Jefferies.

Mark, can -- are you -- I got on the call a little late, but can you just go over what type of a sales force increase you would need if STRIDE 3 were positive and if you were able to secure a dry eye approval?

Absolutely.

I'll just have Todd answer that for you, Biren.

Sure, Biren.

The current sales organization is about 57 sales representatives.

We believe we would grow the sales force to somewhere between 75 and 100 sales representatives.

And in that range, it would allow us to effectively cover 75% to 85% of all the dry eye prescriptions being written today.

Okay.

And then I guess, just from a pipeline standpoint, can you maybe update us on where the TKI program is for retinal diseases?

Yes, sure.

We have advanced that over the 2019 calendar year.

And we've not made any specific announcements about that program, but it does continue to move forward.

And of course, over the last few years, we've concentrated the vast majority of our resources on our first 2 programs.

But hopefully, on the other side of positive dry eye data and securing an approval, that is an important program to us and we would expect to invest more in it over time.

And just a reminder, that is an NCE kinase inhibitor that our internal discovery team has developed, and we're quite excited about it, but again have remained focused on INVELTYS and, hopefully, the upcoming positive data for EYSUVIS.

(Operator Instructions) And our next question comes from Yi Chen with H.C. Wainwright.

My first question is, it seems that the growth rate in INVELTYS script has been slow -- slowing during the past 2 quarters.

Could you let us know, what would be the catalyst in 2020 and beyond that to -- that will continue to drive the growth in INVELTYS script?

Sure.

Yi, this is Todd.

I think the growth trends have been really strong for INVELTYS.

Remember, they were -- scripts were up in Q3 by 30% versus Q2.

The growth rate was 17% for Q4 versus Q3, but that was largely impacted by the holidays, right?

Between Thanksgiving and Christmas holidays, you have a lot of practices that are not conducting surgery, cataract surgeries during that period of time.

If we were to back out those holidays and treat them as normal days with normal script volumes, our growth again in the fourth quarter would have been up 30% quarter-over-quarter just like it was Q3 over Q2.

So we think the growth rates have been tremendous and expect continued growth rates this year, largely driven by our increasing market access.

So you'll recall that in the second quarter, third quarter of last year, our commercial market access was around 50%.

In fourth quarter, that jumped up to 80%.

So we currently have, between our Medicare Part D and commercial access, unrestricted access to about 145 million lives in the U.S., and feel that we've got a lot of headroom in front of us to continue to show strong growth in the brand throughout 2020.

My second question is, could you give us some color on the gross margin in the fourth quarter of 2019?

And whether we can expect that EYSUVIS to have a similar gross margin compared to INVELTYS.

I'm assuming you're referring to the reserves that we took at the end of the year.

So they were higher in Q4 of '19, and there are a few items that contributed to that in the fourth quarter.

First, it was the resetting of the deductibles under the health insurance plans as of January 1, which meant that more patients were using our co-pay card when they are in the higher deductible portion of their plan.

And second, we had a price increase on January 1, which meant that the units that we sell to distributors in 2019, we would reserve for at the rebates based on the new 2020 price.

So those both impacted the reserves that we took in 2019.

Okay.

For EYSUVIS, will it have a higher gross margin than INVELTYS?

So we haven't talked about that yet and given guidance on EYSUVIS yet.

Okay.

Got it.

My final question is, can we assume that the R&D expense, quarterly R&D expenses will be lower significantly once the STRIDE 3 trial is completed?

Yes, it's a great question.

At this time, we don't have another large Phase II or Phase III program that we're putting into place.

We have earlier-stage programs.

So it is our expectation that compared to 2018 and 2019 that overall, the R&D expense, in particular associated with clinical work, will be reduced.

There's always some R&D expense when you're manufacturing new supplies and other things.

But as it relates to clinical trial work, we do expect a reduction there.

Got it.

One more thing.

Could you give us the shares outstanding at the end of 2019 and when the 10-K will be filed?

Sure.

35.5 million shares outstanding at the end of '19.

And we'll file the 10-K this week.

Thank you.

And I'm not showing -- I'm showing no more questions in the queue.

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

Well, thank you very much, everyone, for your time this morning.

We greatly appreciate your interest at this really exciting juncture for Kala Pharmaceuticals, and we look forward to updating you later in the quarter.

Have a great day.

Ladies and gentlemen, this concludes today's conference.

Thank you for your participation.

You may disconnect your lines at this time.