KALA BIO Inc (KALA) 2021 Q3 法說會逐字稿

Good morning, and welcome to Kala Pharmaceuticals conference call to review its third quarter financial results and the acquisition of Combangio.

Please note that the slide presentation that was designed to accompany this conference call is available on Kala's website, kalarx.com as well as through the webcast player.

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

I would now like to turn the call over to Jill Steier, Executive Director, Investor Relations and Corporate Communications for Kala Pharmaceuticals.

Please proceed.

Thank you, operator, and thank you all for participating in today's call.

Earlier today, we issued two press releases: one announcing our third quarter financial results and recent business highlights; and the other announcing our acquisition of Combangio and a fleet asset CMB-012, which we have renamed KPI-012, a novel cell-free secretome therapy currently in clinical development for persistent corneal epithelial defect.

Both releases, along with the slides we will be reviewing on today's call, are available on the Investors section of Kala's website at www.kalarx.com.

We will begin the call with prepared remarks by Mark Iwicki, our Chairman, President and Chief Executive Officer; Kim Brazzell, our Chief Medical Officer; Todd Bazemore, our Chief Operating Officer; and Mary Reumuth, Chief Financial Officer.

Then we will open the call up for questions.

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 statements regarding the development program and market potential of KPI-012 and the benefits of our acquisition of Combangio; observations associated with our commercialization of EYSUVIS and INVELTYS; and the sufficiency of our cash resources.

These and other forward-looking statements are based on the beliefs and expectations of management as of this conference call.

Our actual results may differ materially from our expectations.

The company undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances that occur after this conference call except as required by law.

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 our forward-looking statements, including the company's quarterly report on Form 10-Q and other filings we make with the SEC.

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

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

Good morning, everyone, and thank you for joining us today to review our third quarter 2021 financial results and recent business highlights.

Our mission at Kala has been to provide patients and eye care professionals with a portfolio of innovative medicines that can better treat the often debilitating diseases that affect the front and back of the eye.

Today, we are advancing toward that goal with the acquisition of Combangio, a clinical-stage company developing a novel biotherapy for severe ocular surface diseases.

With this acquisition, we are very excited to expand our clinical stage pipeline with KPI-012, a secretome product being developed to address persistent corneal epithelial defect, or PCED, and potentially other serious ocular diseases that involve impaired healing.

KPI-012 is a clinical-stage asset initially in development for PCED, a rare disease associated with vision-threatening morbidity and sequelae.

Current treatments for PCED are limited and suboptimal, and we believe there is a clear need for new therapies to address the impaired wound healing that underlies PCED and similar corneal damage diseases.

The KPI-012 Phase Ib clinical data in PCED patients are very promising, and we are planning to commence a Phase II/III clinical trial in 3Q next year.

We are also evaluating additional indications, with the goal of initiating clinical evaluation in one or more of these once we have filed the IND.

Importantly, KPI-012 adds a late-stage clinical asset to our pipeline of earlier-stage programs, including rTKI that we expect to have initial preclinical PK and efficacy data early next year.

For KPI-012, we are well suited to leverage our deep ophthalmic, clinical and commercial capabilities to advance KPI-012 through development beginning in PCED and potentially expanding into additional orphan patient populations with significant market potential in the U.S. and globally.

As part of the acquisition, we are very excited to welcome Darius Kharabi, President and CEO of Combangio, as Kala's new Chief Business Officer; as well as Mark Blumenkranz, an ophthalmologist, vitreoretinal surgeon and Professor Emeritus in the Department of Ophthalmology at Stanford, who will be joining our Board.

Before turning the call over to Kim, I'd like to comment on our third quarter commercial performance.

The ramp of EYSUVIS has been slower than expected.

With EYSUVIS, we are changing the treatment paradigm for dry eye disease which is a key, though time-consuming, process for long-term success.

Historically, steroids have been used only as a last-line, off-label therapy for patients with severe disease, and positioning EYSUVIS as a first-line prescription therapy for people with mild or moderate disease requires significant investment and time.

To that end, our initial launch strategy focused on education.

We sought to drive proactive discussions with eye care professionals in order to educate on dry eye flares, the availability of EYSUVIS as the first FDA-approved, on-label steroid with limited risk of intraocular pressure elevation and the potential for our therapy to effectively fill the gap between over-the-counter artificial tears and chronic prescription therapies.

As we move into the second stage of our launch, and as Todd will elaborate on shortly, we are now implementing a number of new targeted strategies aimed directly at the patient, including our first digital direct-to-consumer campaign, which we plan to launch by year-end.

With this program, we aim to empower patients providing them with the information and resources necessary to proactively discuss flares with their doctors.

We believe in the long-term potential of EYSUVIS and are confident that prescriptions and revenues will grow over time.

We continue to receive encouraging feedback from eye care professionals who appreciate EYSUVIS' rapid onset of action and comfort of administration.

And we anticipate that physicians will become even more positive about EYSUVIS as we obtain additional payer coverage in the months ahead.

Patients also continue to report positive experiences on therapy, and we believe it is clear that EYSUVIS effectively delivers rapid relief of the signs and symptoms of dry eye disease.

I will now turn the call over to Kim and Todd to review the Combangio acquisition in greater detail.

Kim?

Thank you, Mark.

This is a really exciting addition to our pipeline and an important component of our strategy to develop novel therapies for significant unmet needs.

It's also an excellent fit with our current R&D expertise and ocular surface disease.

I want to first acknowledge the Combangio team for their excellent work and for the significant process they have made in applying this cutting-edge science to the treatment of significant unmet need in ophthalmology.

It's a great accomplishment for them to progress this program to an initial proof-of-concept in patients with persistent corneal epithelial defect.

We welcome the Combangio team to Kala and look forward to working with them to move this program towards full development and, ultimately, to regulatory approval into market.

I'm now going to provide an overview of KPI-012, so please refer to the slide presentation.

There's a great deal of information in the deck, so I will only be touching on the high points in this presentation.

Starting with Slide 3. KPI represents a novel therapeutic approach to the management of disease driven by impaired corneal healing, such as PCED.

This therapy is an application of the novel technology involving the utilization of secretomes, which for KPI-012, are harvested from human bone marrow-derived mesenchymal stem cell.

This secretome is utilized to produce a cell-free therapy comprised of numerous essential biomolecules that are secreted by the bone marrow cells and have the potential to correct the impaired healing that is an underlying etiology of diseases such as PCED.

Being cell-free, the secretome approach provides many of the benefits of cell therapy without the need for the administration of intact cells, which can often have unexpected and untoward effects.

KPI-012 is a clinical-stage asset which has demonstrated encouraging results in a Phase Ib clinical trial, with improvement in PCED that 7 of the 8 patients treated and complete healing in 6 of the 8 patients, in most cases, within 1 to 2 weeks of initiation of the BID dosing.

I will further discuss these results and our plans for development for a broad PCED indication later in this presentation.

We believe there's significant potential for KPI-012 beyond PCED for a number of rare diseases.

FDA has granted orphan drug designation to KPI-012 for the treatment of PCED, and we anticipate that many of the additional indications we are evaluating would also be considered for orphan drug designation.

Moving to Slide 4. PCED, the first indication we plan to pursue, is a serious and potentially blinding disease, and there is a significant unmet need for safe and effective treatments.

PCED is defined as a persistent nonhealing corneal defect or wound that is refractory to conventional treatments.

In fact, if untreated, these persistent defects can lead to significant morbidity, including corneal perforation, infections, scarring and ultimately vision loss.

PCED is a rare disease with an estimated incidence of approximately 100,000 patients per year in the U.S. and 238,000 in U.S., EU and Japan combined.

The only approved prescription product in the PCED space is Oxervate, which is indicated for neurotrophic keratitis.

Based on our analysis, neurotrophic keratitis is the underlying etiology for about 1/3 of all PCED cases.

Oxervate's only active component is human nerve growth factor and thus has benefited primarily in those patients whose underlying etiology is neurotrophic disease.

To our knowledge, Oxervate has not been shown to be effective against PCED of other etiologies.

KPI-012, on the other hand, contains multiple growth factors and other biomolecules, including neurotrophic factors, and we anticipate broader wound healing activity across multiple etiologies, including neurotrophic keratitis.

Turning to Slide 5. Normal corneal healing is a highly regulated multifactorial process that involves numerous biologic pathways.

Impaired healing is most often the result of an imbalance at multiple stages of the process.

As such, addressing the impaired healing is believed to require a multifactorial therapeutic approach to correct these imbalances and return the healing process to its normal state.

As shown on Slide 6, KPI-012 delivers a number of bioactive molecules as part of its multifactorial mechanism of action which we feel is important to address the impaired healing associated with PCED and other serious ocular surface diseases.

As shown on this slide, these include protease inhibitors, matrix proteins, growth factors and neurotrophic factors.

As illustrated on Slide 7, KPI-012 has demonstrated broad wound healing activity in several established preclinical models of corneal healing, which supports the potential benefit in PCED and other ocular diseases involving impaired healing.

Slide 8 provides more detail on the Phase Ib clinical trial conducted by Combangio.

The trial involved 12 subjects overall with an initial safety cohort of 3 subjects who did not have PCED or active corneal disease and they were dosed twice daily for 1 week.

This portion of the trial showed KPI-012 to be well tolerated with no significant safety issues observed.

Following evaluation of the safety cohort, the efficacy component of the trial was initiated with 9 patients with active PCED being treated with topical KPI-012 twice daily for up to 8 weeks.

One patient in the PCED cohort was withdrawn from the trial early for reasons unrelated to KPI-012, leaving 8 patients in the evaluable efficacy cohort.

In this cohort, 1 patient was dosed for 1 week, 3 patients for 2 weeks, 3 for 4 weeks and 1 particularly severe patient was dosed for 8 weeks.

As you can see from the right-hand portion of this slide, many of these patients had large corneal defects, many of significant duration, which are typically difficult to heal.

Top line efficacy results in these 8 patients showed improvement at 7, with complete healing of the PCE in 6 of the 8 patients as measured by corneal forcing staining photographs.

Four of these patients had complete healing within 1 week of treatment and the other 2 that completely healed did so within 2 to 4 weeks.

KPI-012 was also shown to be well tolerated with no treatment-related safety issues in this portion of the trial.

Slide 9 shows the results from the 8 patients in the broader efficacy cohort and demonstrates the rapid and sustained healing that was observed during the study.

As I said earlier, 6 of 8 patients in the PCED cohort achieved complete healing of the lesion after 4 weeks of treatment, with 4 of the 8 patients completely healing after only 1 week of treatment.

All 6 of the healed patients remain healed throughout the follow-up period, which ranged from 8 and 19 weeks.

One of the 2 patients that did not show complete healing did have an improvement in their PCED, but did not achieve complete resolution of the defect.

The other patient had a PCED that had existed for 871 days before treatment and is rare for a PCED of this duration to show significant healing.

Of note, the patients that healed had a variety of underlying etiologies, ranging from neurotrophic disease to infectious keratitis to Stevens-Johnson syndrome, evidence of the broad mechanism of action of KPI-012.

The pretreatment duration in the 6 healed patients also ranged from 15 to 213 days.

These results suggest that KPI -012 could be effective against a broad range of PCED, etiologies and durations.

As shown on Slide 10, treatment with KPI-012 resulted in a significant reduction of pain, a common symptom in PCED.

All 6 of the patients that reported pain at baseline had an improvement after only 1 week of treatment, with 2/3 of the patients having complete resolution of their pain at 1 week and 100% after 3 weeks of dosing.

Slide 11 provides an overview of our current thoughts on the next stages of development.

Combangio held a productive pre-IND meeting with FDA last year in which the agency agreed that a broad indication is possible.

There were also important guidance on clinical trial design, patient population and endpoints for clinical trials to support this indication.

We plan to file an IND in the third quarter of next year and then initiate the Phase II/III clinical trial in PCED patients of various etiologies.

The design of the trial is still being finalized but will actually be a randomized vehicle-controlled trial evaluating the efficacy of at least 2 dose regimens of KPI-012.

If the results of the Phase II/III trial are favorable, it could serve as the first of 2 required pivotal trials, and we would plan to conduct an initial pivotal Phase III trial to support the submission of a BLA to the FDA.

I will now turn the presentation over to Todd to discuss the commercial potential of KPI 012.

Thank you, Kim.

Moving on to Slide 12.

We are excited about the potential of KPI-012 as it targets an orphan indication with a large global unmet need.

PCED is a rare disease with substantial clinical burden for which speed of healing, resolution of pain and prevention of vision loss are all critical treatment outcomes.

There are no products FDA-approved with a broad label to treat all PCED regardless of the etiology and KPI-012 has been granted orphan drug designation by the FDA for the treatment of PCED.

KPI-012 has the potential to deliver broad efficacy for all PCED patients with only twice a day dosing for a 4-week treatment period and provide a product with favorable safety and tolerability.

There is an estimated annual incidence of 100,000 PCED patients in the U.S. and an estimated 238,000 patients in the U.S., EU and Japan combined.

The market is projected to continue to grow annually, and we have full worldwide rights to the asset.

There is one product approved to treat neurotrophic keratitis, which is an underlying etiology and only about 1/3 of all PCED cases.

That product is currently priced at approximately $100,000 per treatment and the cornea specialist KOLs we have spoken to tell us that patients often require retreatment with that product.

KPI-012 drug substance manufacturing is scaled and ready for pivotal trials and an agreement is already in place with a leading contract manufacturing organization with deep experience in the formulation and filling of ophthalmic drug products into unit dose, blow-fill-seal vials.

And importantly, as an orphan disease, PCED is primarily treated by a small targeted group of eye care specialists which will allow for a highly efficient rare disease commercial model if and when approved.

Turning to Slide 13.

KPI-012 is a regenerative cell-free therapy with a multifactorial mechanism of action to address the complexities of the wound healing process.

This novel secretome approach has the potential to serve as a pipeline and a product with strong life cycle opportunities in other orphan ophthalmic indications such as corneal ulcers, corneal burns, ocular graft versus host disease and Stevens-Johnson syndrome.

As you can see, taken together, these additional conditions create a substantial incremental market opportunity for KPI-012.

And if successful, our plans are to expand our development efforts to address these additional indications.

We are targeting initiation of a human proof-of-concept study in at least one of these additional indications in the second half of 2022.

In addition, there are other wound healing opportunities outside of the eye that may present potential out-licensing opportunities.

Continuing on to Slide 14.

Here, we have outlined the expected patent and regulatory exclusivity for KPI-012.

As a biologic agent, KPI-012 has the potential to be eligible for 12 years of market exclusivity that would prevent biosimilars for being introduced for at least that period.

In addition, KPI-012 has the potential to receive 7-year orphan drug exclusivity for PCED which would run concurrently with the 12 years of biologic exclusivity.

There is also a significant patent portfolio related to KPI-012, and it's used for the treatment of ocular conditions such as PCED, with a 20-year patent term ending in 2040 as well as possible patent term extension in the U.S. beyond 2040.

On the regulatory side, we plan to pursue additional designations that could accelerate development and regulatory review time lines and would help to maximize this opportunity.

In conclusion, Slide 15 summarizes why we are so enthusiastic about the acquisition of Combangio and the potential of KPI-012 to treat a significant unmet need in the rare disease ophthalmic space.

This transaction is aligned with our corporate strategy of advancing a pipeline with multiple product candidates that can address serious ophthalmic diseases which have the potential to cause vision loss.

And we are very excited to continue moving this development program forward.

We look forward to providing you future updates on our progress with KPI-012.

I'll now transition to a progress update on the EYSUVIS launch.

While I've spent most of my comments today outlining our strategy to address the headwinds we've encountered over the last several months, I want to begin with a recap of our quarterly performance and several key leading indicators which we believe demonstrate positive momentum for EYSUVIS.

In the third quarter of 2021, Symphony Health and our patient hub reported 18,537 EYSUVIS prescriptions, representing an increase of 19% over the second quarter.

As of the week-ended November 5, 2021, approximately 50,860 prescriptions for eb have been filled since the launch in January, including over 6,650 refill prescriptions.

More than 5,500 unique eye care professionals have prescribed EYSUVIS since the launch.

We are encouraged to report that approximately 2/3 of all EYSUVIS prescriptions in the third quarter were written for patients entirely new to prescription dry eye therapy, indicating first-line use and continued progress towards our goal of becoming the preferred first-line prescription therapy for the treatment of dry eye flares.

Retail prescriptions for EYSUVIS were 3,115 in the third quarter, an increase of 94% over the second quarter.

In addition, weekly script volume is currently 22% higher over the last 9 weeks compared to average weekly script volumes during the summer months of June and July.

While some of this can be expected with the seasonality of dry eye flares, we are also seeing continued growth in market share which would indicate that recent growth is driven by increasing demand.

EYSUVIS continues to grow in new-to-therapy prescriptions, a measure of the number of patients newly initiating prescription dry eye therapy with 10% growth in the most recent 4-week over 4-week period.

We also saw an increase of 11% in the most recent 4-week over 4-week period for NRxs, achieving an all-time high for EYSUVIS share of the new prescription market.

Importantly, these figures, while promising, do not reflect the totality of physician patient demand for EYSUVIS.

We estimate that only about half of all prescription -- EYSUVIS prescriptions are currently getting filled at the pharmacy, with the rest being rejected due to lack of insurance coverage.

As payer coverage grows, we anticipate that many more of these prescriptions will get filled, resulting in higher script volumes.

And in turn, we believe ECP prescribing will increase as doctors become more comfortable that most health brands are covering EYSUVIS on their formulary.

Finally, we remain very encouraged by feedback from eye care professionals.

In July 2021, we conducted a quantitative market research study of 200 ECPs.

And within the study, ECPs scored EYSUVIS the highest of all dry eye therapies compared to both prescription and OTC options and report an intent to increase prescribing as payer coverage grows.

The only significant disadvantage reported was payer coverage.

And as I will discuss shortly, we are working hard to grow our market access coverage with both commercial and Medicare Part D plans and anticipate coverage improvement in the coming months.

Now while we are encouraged by these data, we also acknowledge that the launch has been met with some challenges.

Today, I want to spend a few moments highlighting what we understand to be the primary challenges faced during the launch and outline our strategy to adjust them.

The first challenge is acquiring market access coverage in a timely manner, specifically acquiring a meaningful enough level of market access that will allow the majority of prescriptions written to be filled and covered by the patient's insurance.

Of course, this is not an issue unique to Kala.

It is arguably the biggest challenge facing all newly launched products.

While successful in achieving formulary coverage with ESI and Optum within the first 2 quarters of launch, we are still working to grow EYSUVIS coverage with additional large commercial and Medicare Part D plans.

As we've previously stated, commercial and Medicare Part D health plans collectively represent about 90% of all dry eye prescriptions.

Specifically, within commercial, we are working to pull through the Express Scripts and Optum contracts with their custom clients in order to grow the number of health plans that add EYSUVIS to formulary at both of these PBMs.

In the third quarter, we made meaningful progress, adding an additional 4.5 million covered lives through new health plans under the existing contract with Express Scripts and OptumRx, bringing us to approximately 60% commercial coverage.

Looking ahead, we are focused on adding EYSUVIS to formulary in other large commercial plans such as CVS/Caremark and UnitedHealthcare.

Collectively, these wins would expand our total commercial access to greater than 80%, which would be in line with the leading prescription dry eye therapies.

With regard to Medicare, we have secured preferred coverage at Express Scripts and Prime Therapeutics, bringing our total access to 10% of all Medicare Part D lives.

We are now focused on the remaining largest Medicare Part D plans such as SilverScript, United AARP and Humana which, along with ESI, collectively represent more than 70% of all covered Medicare Part D lives.

We anticipate additional coverage under Medicare Part D to start -- to begin growing in 2022.

As we work to continue to increase market access coverage for EYSUVIS, we are also continuing our commercial co-pay assistance program to help defray out-of-pocket cost for patients.

The second challenge has been the COVID-19 pandemic.

As you know, the pandemic has wreaked havoc on the medical system, particularly for nonemergent diseases where patients may be less compelled to visit their doctors in-person or where the decision to seek treatment can be more easily delayed.

When looking at ophthalmology specifically, it has been one of the most impacted specialties by the pandemic with regards to both patient office visits and prescription volume.

Again, this is not a challenge unique to Kala, but we believe it means that fewer dry eye patients have visited their doctors, limiting the number of newly diagnosed patients who are in the market for therapeutic intervention.

Relatedly, the in-person restrictions resulting from COVID have also limited the ability of sales representatives to access health care professionals and educate them on newly launched products, such as EYSUVIS.

While this has made it difficult for the vast majority of products launched during the pandemic, we do not expect these dynamics to persist indefinitely, particularly as vaccines are now becoming commonplace and communities across the country are returning to pre-pandemic conditions.

Finally, the third challenge, as Mark alluded to earlier, is the fact that we are working to fundamentally alter the treatment paradigm for dry eye disease.

Historically, steroids have generally been used off-label and at limited capacity for patients with more severe dry eye disease, typically as induction therapy when initiating treatment with a chronic medication like Restasis or Xiidra.

As we stated before, we estimate that only about 3% of diagnosed dry eye patients were prescribed off-label steroids in the past.

We are working to reverse that paradigm and position EYSUVIS as the preferred first-line prescription option for patients with mild to moderate disease to treat their dry eye flares.

What we know is while approximately 80% of dry eye patients report that they suffer from flares, eye care professionals believe that only about 38% of their patients experience flares.

Therefore, we need to drive more proactive discussions between patients and ECPs to help identify which patients are actually experiencing flares.

As we educate ECPs on the benefits of prescribing EYSUVIS to this patient population, we are fundamentally altering the way they think about treating the disease from a chronic maintenance therapy to a condition that can manifest with episodic worsening of symptoms and be treated on an as-needed basis for a much shorter time frame.

Since our launch, we have taken a number of actions to educate eye care professionals and begin shifting this treatment paradigm.

As you know, we increased our sales force earlier this year from 91 to 105 representatives in order to increase both the reach and frequency of our interactions with key dry eye prescribers.

And we've participated in all the major medical congresses in order to help drive education around dry eye flares and the need to treat them.

Now we are starting to also focus on patient education.

We know that many patients are suffering from dry eye disease flares.

And we believe from the experience of other dry eye therapies that this is an audience that's receptive to direct-to-consumer advertising.

We also know that many of our target patients are searching online, relying on tools like social media and top health care websites, to identify resources or therapies to better manage their disease.

As such, we will be launching a targeted digital direct-to-consumer campaign by year's end which will incorporate [in-office] education, digital media and social media education to encourage proactive discussions between patients and ECPs around dry eye flares and the availability of EYSUVIS as the only FDA-approved, rapid-acting, short-term treatment option.

We believe this will help increase awareness of those experiencing dry eye flares and help drive more patients to therapy.

We look forward to providing additional details as our campaign gets underway.

Turning now to INVELTYS.

As we have said over the past 18 months, the pandemic has negatively impacted the ocular surgery market, resulting in fewer surgical procedures and surgical volume has been recovering at a slow rate.

In addition, during the third quarter, CVS moved to a predominantly generic formulary in the ophthalmic surgical steroid category and INVELTYS was removed from coverage.

While this affected INVELTYS sales, we have access programs in place to help mitigate the impact and cover those CVS patients.

In the third quarter of 2021, there were approximately 37,410 prescriptions of INVELTYS reported by Symphony Health compared to 41,103 prescriptions in the second quarter of 2021.

Despite the uncertainties of the pandemic continues to present, we believe that INVELTYS prescriptions and revenues will grow over time.

However, we remain unable to project the specific timing or quantify the potential impact on future revenues due to the potential disruptions of these continued uncertainties on elective ocular procedures and gaining increased market access coverage.

As we previously stated, our commercial efforts for INVELTYS are completely synergistic with EYSUVIS as 100% of the INVELTYS targets are also dry eye targets for which EYSUVIS the primary focus and INVELTYS is in a second position sales call.

In closing, while we recognize that prescription growth slowed over the summer months, we are encouraged by recent key leading indicators for EYSUVIS.

We believe these trends, coupled with the new initiatives we are undertaking, should accelerate prescription growth and ultimately position EYSUVIS as the preferred first-line prescription therapy for the short-term treatment of dry eye disease.

Our team is working hard to execute against our commercial strategy, and I look forward to providing you further updates on future calls.

I'd now like to turn the call over to Mary to review our financial results.

Thanks, Todd.

During this discussion of our financial results, I will review certain highlights from our quarterly performance.

For our full financial results, please refer to today's press release, which is available on our website.

For the third quarter of 2021, we reported net product revenues of $3.1 million, which is consistent with the second quarter of 2021.

Broken down by product, this $3.1 million in net revenue is made up of $1.83 million from sales of EYSUVIS, which represents a 10% increase over the second quarter of $1.66 million; and $1.2 million from the sales of INVELTYS, which represents a decrease of 11% over the second quarter.

With respect to EYSUVIS, Symphony reported that prescriptions increased by 19% over the previous quarter and shipments to our distributors on which we recognize revenue have also increased.

Our net revenues were partially impacted by a significant percentage of business coming from our patient assistance programs.

We expect to be less reliant on these patient assistance programs as we gain additional market access coverage.

With respect to INVELTYS, the decrease in net revenue was driven by a decrease in total units of INVELTYS sold to distributors during the third quarter of 2021 as compared to the second quarter which is also consistent with the decrease in prescriptions for the same period.

Total operating expenses decreased by $3 million to $29.1 million from the second quarter, primarily due to lower spending within SG&A and certain launch-related expenses for EYSUVIS were incurred during the first half of the year.

Our cash and cash equivalents as of September 30, 2021, was $124.5 million compared to $149.6 million as of June 30, 2021.

cash and cash equivalents as of September 30 does not reflect the $5 million upfront cost to acquire Combangio.

Including the cost of the acquisition as well as the development of KPI-012, we believe our cash resources, together with anticipated revenue from EYSUVIS and INVELTYS and certain cost containment measures, will enable us to fund operations until the second quarter of 2023.

With respect to the cost-containment measures I just mentioned and because we have been so pleased with the efficiency of our team as we have been in a primarily remote work environment for over 1.5 years now, we have decided to downsize our corporate office.

We have entered into a termination agreement for our company headquarters that will be effective on December 31, 2021, subject to certain terms and conditions.

The savings from terminating this lease will be approximately $6 million per year through October 2026.

In addition, we have decided to maintain our sales force at its current size.

As we look ahead to 2022, we continue to focus on reducing our cash burn and anticipate that our overall operating expenses will not increase above 2021.

This includes progressing our development programs, including KPI-012, and implementing the targeted digital DTC campaign for EYSUVIS, which Todd discussed earlier.

That concludes our prepared remarks for today.

I will now pass the call over to the operator for questions.

(Operator Instructions) Our first question comes from Andreas Argyrides with Wedbush.

I'll try to keep them to a few.

Just quickly on EYSUVIS.

Maybe you can help us make sense a little bit about some of the metrics that you're providing.

You're saying scripts are up, but still they're kind of relatively flat.

Maybe comments around price discounts and where they stand.

Also, refill seemed quite low compared to total scripts.

Can you provide some comments there?

And then if you could provide a breakdown, if you have, between scripts prescribed between ophthalmologists and optometrists.

Sure.

This is Todd.

There's a lot there, so I'll try to unpack it.

If I miss anything, please don't hesitate to jump back on.

So in terms of the recent prescription growth trends, what we referenced is quarter-over-quarter growth of about 19% in scripts.

But even more recently, when I look at 4-week over 4-week performance, so think of that as the most recent 4 weeks or the most recent month versus the prior 4 weeks or prior month, and we've seen really nice acceleration for growth there as well, with 10% growth in new-to-brand prescriptions and about 11% growth in overall NRxx.

And over that period of time, EYSUVIS has been growing faster than any other dry eye products.

So again, some leading indicators here as we're getting into the fall that have us optimistic.

You asked a bit about the growth in scripts opposite revenue.

One of the things that we saw was an increased utilization of our patient assistance programs within the quarter.

And obviously, that has an impact on gross to net.

What we have always stated is that as we continue to grow our market access coverage and fewer prescriptions are filled through the patient assistance program, that will have a positive impact on our gross to nets over time.

And I think the final question that I heard in there was about the split in prescriptions between specialty.

And that is another item that we continue to see evolve as optometrists more and more are becoming primary drivers of EYSUVIS prescriptions.

I think that split is almost nearly at 60% of all prescriptions coming from optometrists and about 40% from ophthalmologists, which is not surprising to us as we've been positioning the product as first-line therapy for patients with more mild to moderate disease.

And we know that those patients oftentimes are seeing first and treated by an optometrist.

I think -- I don't know if there was any other questions in the...

Yes, I'll have 1 more on EYSUVIS and then a question for the Combangio acquisition.

I don't want to take more time.

But just comment on refills, what you're seeing.

Yes.

Really good question.

And obviously, that was part of the driver of revenue being up 10% within the quarter, which is we're also starting to see some refills come back into the market.

Refills were up 94% in Q3 compared to Q2, as we're starting to see those patients that got their first prescriptions closer to the time of launch in the first quarter, that have worked through their first bottle of EYSUVIS, that have treated those initial flares, that are now coming back into the market and needing to get refills as they head into the fall and winter flare season.

So we're encouraged by those data as well.

Okay.

And then just a quick one on kind of the Combangio acquisition.

So there are quite a few other candidates that are in Phase II.

What makes KPI-012 more compelling?

And broadly speaking, the timing of this acquisition versus, let's say, developing the internal pipeline or pushing ahead more on the internal pipeline.

This is Kim Brazzell.

I'll comment on the competition.

There's actually only one product that we're aware of that's in development for broad PCED indication.

There are a few products in development for neurotrophic keratitis.

And as we said before, that only represents about 1/3 of etiologies that lead to PCED.

There's other applications in neurotrophic keratitis for less severe disease.

So as we see, there's only one product that's in development, in clinical development for a broad PCED indication.

Our next question comes from Christopher Neyor with JPMorgan.

Great.

So first one is on payer coverage.

So you guys currently stand at about 60% on commercial covered lives and you received some initial Medicare coverage which stands at about 10%.

So first, is there any additional color you can provide on adding coverage, the time lines for CVS and UnitedHealth.

And just how we think about when that coverage will be added and when we could see the benefit in scripts?

And then second, maybe can you just discuss the higher-level strategy and expectations for Medicare Part D coverage looking into 2022 and beyond?

Chris, it's Todd.

I'm happy to answer your questions.

So we're in active discussions with both the remaining large commercial plans as well as the Medicare Part D plans.

We have just actually recently resubmitted bids to all the Medicare Part D plans and expect most of those conversations to be occurring as we get into early 2022.

We feel like we've got a really good line of sight into what expectations were or are, I should say.

And I feel like we've submitted very competitive bids, consistent with the feedback we received from those payers.

And so what we've said is we expect our coverage -- payer coverage for both commercial and Medicare Part D to continue to grow throughout 2022.

I feel like we've got a chance for that commercial coverage to maybe become a little bit quicker, within the first half of the year.

But would expect the Medicare Part D coverage to continue to evolve throughout the year.

That's helpful.

And kind of related question.

I think on the Q2 call, you mentioned that roughly 60% of scripts were being rejected.

So where does that level stand right now?

And I guess how do you see that evolving over the coming quarters?

Yes.

I think when we were talking last quarter, we said about 60% rejected.

I think we're still sort of in that range right now.

It's arguably the biggest issue facing the brand, right?

We know demand is really strong.

Eye care professionals are writing lots of scripts.

But the majority of those scripts are not getting through and filled with the pharmacy because of lack of insurance coverage.

We have rolled out some adjustments to our patient assistance programs here within the quarter.

We think that will help to close the gap a bit.

But ultimately, the most important thing we can do is add additional health plans that are covering EYSUVIS on formulary so that most of these scripts are still right in will have a, we believe, a two-pronged effect.

Not only will it result in more of the current demand that exists, resulting in filling the prescriptions, but that, in turn, will encourage physicians to perceive EYSUVIS as having broad market access coverage and we believe will increase their prescribing across a broader base of patients.

Great.

And maybe just talk a bit about the split between treatment-naive and patients who are already taking a dry eye therapy and what you're seeing and how those progress as launch continues.

Yes, sure.

That's running at about 2/3 treatment-naive, about 1/3 on prior therapies or maybe initiating a chronic therapy and using EYSUVIS as induction therapy.

And as we stated before, we're really encouraged by that, that EYSUVIS is taking foothold of this position as the first-line therapy to treat dry eye flares.

And in particular, in more mild to moderate patients that have only been on artificial tears, that have not been on a chronic medication previously.

And we think, again, the biggest thing we can do to help accelerate that is to get more managed care coverage so more of those patients can be prescribed EYSUVIS.

But we also do think there's a real significant opportunity to close this gap between the number of patients that report they suffer from flares to the eye care professionals' perception of the number of patients in their practice suffering flares.

And that's why we're launching some targeted direct-to-consumer digital advertising here by the end of the year to drive patients into the physician's office to bring up their dry eye flares proactively and to ask for EYSUVIS by name.

And then the last one is just on the cash runway.

I think you provided some helpful comments on the upfront commentary.

Maybe just could you help with the framework for thinking about your confidence in the cash runway through 2Q 2023.

And specifically, does that include any revenue growth?

And then I think you already addressed it in the preliminary commentary, but just OpEx levels, how we should think about that relative to current levels.

Yes.

Thanks, Chris.

So we do feel good about our cash runway into Q2 of '23.

That does include some uptick in revenue.

We launch a DTC campaign that we talked about, so we expect that, that will be effective.

And as far as the OpEx levels, we said that we expect that our OpEx will not increase following 2021 in 2022 over 2021.

And we expect that we'll be able to fund our development programs as part of that operating expense as well.

Great.

And then last one.

So how do we think about the incremental OpEx for the Combangio acquisition as part of your development program?

Yes.

So that's baked into our cash runway.

I think one of the important things to remember is we've implemented some cost containment measures that we talked about.

We talked about the lease termination, which, when effective in 2022, will cover the expenses that we expect to incur for the Combangio asset moving that forward.

Our next question comes from François Brisebois with Oppenheimer.

Okay.

So in terms of the scripts you talked about them making more sense as we track them with the net revenues reported.

But can you remind us, is it the -- the fact that if you kind of look at it, the net revenues actually kind of went down again from the last quarter.

What -- why is that?

It seems like it wasn't big discounts or rebates.

It seems like it was people using the patient assistance program more.

Any idea as to why that is?

Was that surprising that the patient assistant program was used more as coverage is kind of progressing?

Thanks, Frank.

Good questions.

And just to clarify, EYSUVIS revenues were up 10% quarter-over-quarter, almost 10%, while revenue was up 19 -- I mean, volume was up 19%.

INVELTYS revenues were down as volume was down, largely driven by the removal from CVS formulary for INVELTYS.

But we did see overall revenues as well as volume up for EYSUVIS.

There was not a direct correlation in the increase in revenue to the increase in volume, and that was attributable to more scripts getting filled through our co-pay program.

I think part of what's happening there, Frank, is just as you think about those rejections that we talked about on the Q2 call, we're now starting to pick up a few more of those rejected prescriptions are getting filled through our co-pay assistance program.

But obviously, that has impact on gross to nets.

So it does not correlate into a direct one-to-one improvement in revenues along with the same level of improvement we saw in prescriptions.

Right.

Okay.

So no big new rebates or discounts from your guys' end?

No.

Okay.

And on the pricing side for PCED, you talked about Oxervate $100,000 per treatment.

But if it's only 1/3 of the market, I guess, is it -- does that -- how do you correlate -- what do you share on potential pricing?

Or is this, look, they're both orphan?

Or is it -- is the implication here that if it's 1/3 of the size, maybe that's 3x the price that you would be interested in?

All really fair questions, Frank.

I'd say, first and foremost, it's too early to speculate on what the ultimate price would be if we're successfully developing and get KPI-012 (inaudible) to the market rather.

That having been said, I would expect -- I would say that PCED is a rare disease.

Incidence is about 100,000 a year.

I would expect rare disease pricing.

And I think we've got a really good analog in the market at $100,000 with Oxervate.

And what I would just say is keep in mind with Oxervate, while it's only neurotrophic keratitis rather, there's only about 1/3 of PCED cases, there is an estimated incidence of neurotrophic keratitis of about 60,000 to 65,000 patients per year in the U.S. So I think it's a very good analog to use for consideration at this point for our pricing potential.

Okay.

Great.

And just lastly here, a lot in this earnings call.

On the PCED front, what causes PCED?

Is it known?

Is it easy to diagnose?

What leads to it?

Kim, do you want to take that?

Sure.

There's a number of underlying diseases, and we pointed that out on the slide.

And it's really two.

There are underlying diseases such as neurotrophic keratitis that themselves cause a degradation of the epithelial layer in the eye.

You get a natural -- you get a resulting epithelial defect.

There's also a number of surgical and other indications.

For example, a lot of viral herpet keratitis.

Levels of deficiency, you get -- in many cases, you get a wound or a scratch on the eye.

You have an underlying healing ability, and that scratch or wound then can't heal and it gets bigger and bigger and bigger.

So there's a number of etiologies that outside of NK that can lead to a PCED.

(Operator Instructions) Our next question comes from Chris Howerton with Jefferies.

Great.

Congratulations on the exciting expansion of your business.

So I guess the two questions for me would be, as you're planning on developing KPI-012, how are you going to prioritize that relative to your existing new chemical entity assets?

And then the second question that I would have is could you give us a comparator or some other success story of direct-to-consumer marketing for the ophthalmology space?

Sure.

This is Mark.

I think the very first part of answering your question is that, look, we're really excited to have a late-stage clinical asset, to be able to start a Phase II/III study with the intent that, that could very well be the first pivotal study for the program is really exciting.

Our TKI program is also advancing, and we expect to have the preliminary or initial PK and efficacy data early next year.

And so what we've done with our cash resources, and as reflected in the runway, is to be able to advance both those programs while we're also continuing to work on our SEGRM program and hope to have a development candidate in the first half.

So we can advance all of that and continue to work on the launch of EYSUVIS and the promotion of INVELTYS.

I'm sorry, Chris, the second part.

I think that might have been the second part of your question.

Yes.

Yes.

The other question was just if you have a comparator of a success story of a direct-to-consumer marketing campaign in the ophthalmology space.

Yes.

Look, I think the most obviously is for stasis, right?

They, over the years, have enjoyed great success.

They've made that at its peak, I think, nearly a $2 billion a year brand.

And a lot of that was on their direct-to-consumer efforts.

Of course, Xiidra as well has launched consumer.

And we saw some return to growth that began last year actually with Xiidra around the time that they launched their new consumer campaign that we view as having been successful as well.

Got it.

And I mean, do you have any sense in terms of the return on investment relative to expanding a sales force?

Or I guess any relative metrics you can provide on that could be helpful.

Yes.

I think it's too early to be quoting ROI numbers.

But I would say that I think that we feel good where we are right now with 105 representatives.

And the next lever for us to pull is the patient digital consumer efforts to start driving patients into the doctor's office so that we can benefit from the synergies of the educational work that we've done over the last 9 months increasing awareness of EYSUVIS to now start driving some patient demand.

I'm not showing any further questions at this time.

I'd like to turn the call back over to Mark Iwicki for closing remarks.

Thank you, operator, and thank you all for joining us this morning.

Today is a transformative day for Kala as we take a major step toward our vision of delivering a broad portfolio of new medicines to advance the treatment of eye diseases.

We're extremely excited about our acquisition of Combangio and the potential of KPI-012 to change the care of people living with PCED and potentially other ocular wounds.

And we believe our existing commercial products will continue to gain market share as we execute on our commercial strategy and move beyond the COVID-19 pandemic.

We look forward to updating all of you soon.

Ladies and gentlemen, this does conclude today's presentation.

You may now disconnect, and have a wonderful day.