Good morning, and welcome to the Kiniksa Pharmaceuticals second quarter 2022 financial earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question- and- answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press the star 1 again. For operator assistance throughout the call, please press star 0. Finally, I would like to advise all participants that this call is being recorded. Thank you. I would now like to hand over to Rachel Frank, Head of IR.
Thank you, operator. Good morning, everyone, and thank you for joining Kiniksa's call to discuss our second quarter 2022 financial results and corporate update. The press release highlighting these results can be found on our website under the Investors and Media section. As for the agenda, our CEO, Sanj K. Patel, will start with an introduction. Eben Tessari, our Chief Operating Officer, will review our global license agreement with Genentech for the right to develop and commercialize vixarelimab, which we announced this morning. Ross Moat, our Chief Commercial Officer, will provide an update on our ARCALYST commercial execution. Mark Ragosa, our Chief Financial Officer, will review our second quarter 2022 financial results. Finally, Sanj will return for closing remarks and to kick off the Q&A session for which John Paolini, our Chief Medical Officer, will also be on the line.
Before getting started, please note that we will be making forward-looking statements today that are subject to risks and uncertainties that may cause actual results to differ materially from these statements. A review of such statements and risk factors can be found on this slide, as well as under the caption Risk Factors contained in our SEC filings. These statements speak only as of the date of this presentation, and we undertake no obligation to update such statements except as required by law. With that, I will turn it over to Sanj.
Thanks, Rachel, and good morning, everyone. I am really excited today to talk to you about two key updates. First, this morning, we announced a license agreement with Roche and Genentech for the global rights to develop and commercialize vixarelimab. Eben will cover the agreement in more detail, but under the terms of the deal, Kiniksa expects to receive $100 million in upfront and near-term payments. We're proud to advance vixarelimab from a preclinical stage program through to phase II clinical studies. We believe our work underscores the differentiated potential of the mechanism, as well as its potential to help patients with serious unmet need. We plan to allocate the non-dilutive capital received from the transaction towards synergistic opportunities across our portfolio, including the expansion of our ARCALYST cardiovascular franchise. Additionally, on the commercial side, I'm really happy to review our second quarter 2022 results.
We reported today that net revenue for ARCALYST for the second quarter of 2022 was $27 million, representing approximately 22% growth over the first quarter of 2022. We are very pleased with the continued momentum of ARCALYST in recurrent pericarditis that we've seen to date. Ross will review our progress in more detail shortly. The strong performance since launch warrants additional investment in the franchise, and we are focused on expanding our portfolio by leveraging our cross-functional cardiovascular expertise and infrastructure. In addition, we remain focused on building the maximum value across our portfolio of clinical stage assets, which include KPL-404, our CD40 program. We're conducting a phase II clinical trial of KPL-404 in rheumatoid arthritis, which is designed to evaluate the efficacy, dose response, pharmacokinetics, and the safety of chronic subcutaneous dosing over 12 weeks.
Finally, mavrilimumab will remain highly encouraged by its broad potential, which has been demonstrated by positive clinical data across multiple indications. We're evaluating the next best steps for this development in rare cardiovascular diseases, where the GM-CSF mechanism has already been implicated. With that, I'll turn it over to Eben to review our global license agreement with Roche and Genentech in more detail. Over to you, Eben.
Thanks, Sanj. As you just mentioned, we are incredibly excited to announce this agreement. Kiniksa will receive $100 million in upfront and near-term payments and is eligible to receive up to approximately $600 million in certain clinical, regulatory and sales-based milestones before fulfilling upstream obligations with our lead licensee. Along with the milestones, we are eligible to receive royalties on net sales. Roche and Genentech will obtain global rights in all fields for the development and commercialization of vixarelimab. Kiniksa has completed screening patients for the II-B clinical trial of vixarelimab in Pyoderma Gangrenosum, and we plan to complete this trial. The company will not disclose data in the second half of 2022 from this study.
Overall, we are incredibly proud to advance vixarelimab from a preclinical stage asset through phase II clinical studies, and we truly believe Roche and Genentech is the right partner to maximize the future development potential of vixarelimab. With that, I'll turn it over to Ross to review our commercial performance in more detail.
Thank you, Eben. Thank you. I'm pleased to share further information on our quarterly commercial performance and our plans for continued growth in recurrent pericarditis. You've heard from Sanj that Q2 represented another quarter of strong growth driven by patient identification and demand in recurrent pericarditis, which led to a quarterly growth of 22% or $4.8 million and resulted in a Q2 net revenue of $27 million.
In the first half of 2022, we recorded $49.2 million net revenue, and we continue to guide to a range of $115 million-$130 million for the totality of 2022. On slide 10, I will dive into more detail on the drivers behind the recurrent pericarditis revenue. Starting with physician growth, as the awareness of ARCALYST for recurrent pericarditis continues to grow, so too does the number of physicians who have prescribed ARCALYST. Since launch, we've seen a growth of around 100 additional prescribers per quarter, and in Q2, we saw this jump to greater than 550 prescribers since launch. We believe that by closely supporting physicians through their prescribing experience and patients throughout their journey on ARCALYST, we will trigger further prescribing when physicians identify their next appropriate patients.
We're starting to see that inflection. Of an ever-increasing base, we now have 20% of the total prescriber base who have prescribed for two or more patients. This is excellent experience because prescribing biologics is still relatively new for many cardiologists. It's also crucial that they see on the payer side that patients are getting access to therapy. On this note, we continue to see very high approval rates in the 90+% mark. Therefore, both prescribers and patients can be very confident that their prescription will result in access to therapy. In terms of duration, while this will continue to evolve, the data on hand continue to reflect continuous treatment durations of around 12 months of therapy.
This insight is driven by most prescriptions being written for 12 months, most payers approving for 12 months prior to a reauthorization, strong compliance and adherence to therapy, and around 45% of those earliest launch patients from Q2 2021 still being on continuous therapy through the end of Q2 2022. Lastly, ARCALYST has received a very high satisfaction rating from patients, greater than 90%, and we continue to hear directly and indirectly on the transformational benefits ARCALYST is making to patients suffering from this debilitating, flaring disease. Moving to slide 11, I want to discuss why we're excited about the potential ahead as well as what we've learned since launch. First, we've had a brilliant launch to date, and we know the opportunity well. There are 14,000 multiple recurring patients, meaning 2 or more recurrences in any given year.
Given ARCALYST's broad label, it could be utilized even earlier in the disease after one recurrence. We have a huge opportunity ahead, and we're in the very early days of the life cycle. Second, our field force is driving the adoption of ARCALYST and helping to create a very positive patient and customer experience. From research, we see that physicians become significantly more aware and knowledgeable of recurrent pericarditis and ARCALYST, and their likelihood or intent to prescribe ARCALYST in the subsequent months significantly increases with 88% of prescribers who have met with a representative stating that their prescribing will grow in the coming months. Third, there are only a small number of dedicated pericarditis centers who are taking the lead on pericardial diseases. This means that recurrent pericarditis patients are quite dispersed, and the volume that each physician sees is relatively modest.
Even within the same institution, patients can present on further recurrences to different physicians. Therefore, given our success since launch and the positive impact our field team makes when calling on physicians, we plan to accelerate our coverage and reach by expanding our field team. We strongly believe that this will allow us to increase market penetration and ultimately reach patients faster. Turning to slide 12, I want to outline how we will evolve our field team. As a reminder, we launched with a highly motivated and experienced field team of approximately 30 specialized cardiology representatives who have been delivering targeted and focused execution in the field. This lean team enabled us to cover around 45% of the recurrent pericarditis patients, and we rapidly drove towards profitability for the franchise, which we achieved remarkably quickly in the third quarter of launch.
Now, we're actioning the learnings since our launch and aiming to accelerate our growth by evolving our field team while maintaining profitability. Since launch, we have learned the importance of repeat calling on our target base, as well as the need to switch on entire teams of cardiologists opposed to only individual doctors. In Q4 of this year, we plan to grow from around 30 representatives to approximately 50, who will be able to cover 6,000 healthcare professionals and around 70% of the recurrent pericarditis population. Additionally, we're also adding a small team of inside sales representatives as a cost-effective approach to reaching some of the lower decile doctors. This exciting growth will not only create greater frequency with our high decile doctors, but will also accelerate our ability to reach a wider audience of cardiologists who are managing recurrent pericarditis patients.
The bottom line is, we are really pleased with our initial ramp since launch. We have a profitable franchise, and we're now investing further in the opportunity to transform the lives of recurrent pericarditis patients even quicker.
In summary, we believe we're at the beginnings of a robust trajectory of a very sustainable, profitable franchise. Since launch, we've seen continuous, steady sequential growth quarter on quarter. Physicians, payers, and patients continue to react extremely positively to ARCALYST availability, and more and more patients are getting appropriately diagnosed and provided with a targeted treatment that's designed to treat the underlying driver of the disease. In the first half of 2022, we have recognized $49.2 million net revenue, and we're guiding to $115 million-$130 million for the full year. We're very excited to take the step to evolve our field team in Q4 and become even better, faster, stronger. Now I'll hand over to Mark to cover our financial results. Mark?
Thanks, Ross. Hello, everyone. Our detailed second quarter 2022 financial results can be found in the press release we issued earlier today. There are a few items I'd like to call your attention to this morning. First, as you have heard, product revenue grew 22% sequentially in the second quarter to approximately $27 million, primarily due to ARCALYST sales and recurrent pericarditis. Second, collaboration expense in the second quarter was approximately $3.7 million, based on an ARCALYST collaboration profit of approximately $7.4 million. Third, total operating expenses and net loss were both lower year-over-year in the second quarter at approximately $46.3 million and $20 million, respectively, as ARCALYST sales ramped and programmatic spend decreased with the conclusion of the RHAPSODY and MAVERY trials.
Fourth, our net cash burn improved in the second quarter of this year with the receipt of a $22 million upfront payment from our collaboration with Huadong Medicine. Lastly, we remain well capitalized with a cash balance at the end of the second quarter of approximately $138 million, and we expect these reserves, combined with the proceeds from the vixarelimab global license agreement announced this morning, as well as continued ARCALYST commercial execution, to fund our current operating plan into at least 2025. With that, I'll turn the call back to Sanj for closing remarks.
Thanks, Mark. In addition to our successful commercial launch in recurrent pericarditis, we're also building a foundation as an emerging leader in immune modulating therapies. We're focused on continuing to execute across our current portfolio as well as developing the portfolio in line with our existing cardiovascular expertise and infrastructure. On the commercial side, as Ross said, we're revenue producing, and our ARCALYST collaboration continues to be profitable. Looking to the rest of the year, our guidance is of an estimated net revenue of $115 million-$130 million. Importantly, as Mark reiterated, we are well capitalized. At the close of the vixarelimab deal with Roche and Genentech, our cash reserves are expected to fund, as he said, into at least 2025. With that license agreement and our continued commercial performance in ARCALYST, Kiniksa is in a very strong financial position.
Ultimately, we are determined to continue to help patients in need, create massive value, and aim to fulfill our goal of becoming a global generational company. With that, I wanna thank you all for your time today and hand it back to the operator for questions.
Thank you, all speakers. At this time, I would like to remind everyone in order to ask a question, press star then the number one on your telephone keypad, and we will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Geoff Meacham from Bank of America. Your line is open.
Good morning. This is Jason on for Geoff Meacham. Thank you so much for taking our questions, and congratulations on the quarter. I was hoping you could elaborate on maybe some of the nearer-term ARCALYST dynamics. You know, it certainly sounds like you're hitting on a number of key endpoints here, but maybe what are some of the nearer-term levers that you think could potentially drive you know more of an acceleration? You know, as you think about expanding the sales force, you know, what are the opportunities here to move beyond kind of that initial bolus of you know 14,000 patients to a broader base there? Thanks so much.
Thanks, Jason. Thanks for the question. Ross, why don't you cover that?
Yeah, very happy to. Hi, Jason. This is Ross. Thanks a lot for the question. I think a lot of the key metrics that we're looking at, you know, previously and moving forward and how we continue to execute really are the same as previously. It's kind of really focusing on the number of prescribers that we have, the number of unique, you know, prescribers for the first time, driving the number of those repeat prescribers. Of course, keeping a very keen eye and focus on compliance, adherence, education on both the physician and the patient side, and really continuing to drive patient identification. You know, this is a rare flaring disease, and we have a lot of activities out in the field to try to really boost the education.
We're really pleased with the growth that we've had so far. You know, into Q2, this is a 22% growth. We feel like we have a nice trajectory, and we just need to continue to focus and execute.
Gotcha. Is there a sense that, once prescribers kind of gain experience prescribing ARCALYST, you know, that they can reach out to their colleagues and build that base, or is that sort of, you know, something more that the sales team can do?
Yeah. No, thanks. That's a great point. It's something that we're very much hoping is gonna be the case, and I think we're seeing that in part already, you know, the fact that we have such a broad prescribing base, and this is being taken up by so many cardiologists. Let's not forget that biologics are still fairly new to cardiologists. So many of them have not had experience prescribing before. The better the experience they get, once they do identify a patient and continue to do so, and when they hear back from the patient about the clinical effect and results the patients are achieving, the better.
We hope that we are able to share that on our side, as well as peer-to-peer, doctor-to-doctor, education and share of that experience as well. I think that's vital all across the country.
Perfect. Thanks for the color.
Thank you, Jason. Your next question comes from the line of Anupam Rama from JP Morgan. Your line is open.
Hey, guys. Thanks so much for taking the question, congrats on all the progress. Sorry if I missed it in the opening comments, but I know you noted that the proceeds from the vixarelimab transaction, you're gonna be looking for synergistic opportunities in the CV space. Does that include maybe external business development, or is it kind of more focused on MAVERY, which you noted in the PR? What does this mean around the strategy around KPL-404? Thanks so much.
Thanks, Anupam. No, as always, you've nailed it. Definitely, still looking very much at BD. BD continues to be a very strong. Obviously, you've seen from this deal in particular, but certainly this non-dilutive capital will definitely, as well as what Ross described and Mark described, this will definitely go to investing in our existing franchise with ARCALYST. On top of that, we will be looking to potentially augment our portfolio with, you know, other immune-modulating therapies, hopefully within the cardiovascular space. Certainly that capital could go towards that. You know, besides that, we continue to be very encouraged with our own portfolio. You're right, KPL-404 continues. We are enrolling in that phase II study we've described in rheumatoid arthritis, so that we continue to progress that, and we're excited about that.
Obviously, again, this is a molecule, an asset that we pretty much almost fully own, the economics around, so that's exciting. Again, with mavrilimumab, you know, I think the idea that potentially there as well, we're looking at potential indications in the more rare cardiovascular front. Again, leveraging that expertise and that infrastructure that we have. On top of that, as you said, BD is very much a focus for us, so we're excited. The additional runner that we've got is fantastic. As I said, at least into 2025. It's a good time to be at Kiniksa.
Thanks so much for taking our question.
Thank you, Anupam. Your next question comes from the line of Paul Choi from Goldman Sachs. Your line is open.
Hi, this is Roderick for Paul. Thanks for taking our questions. We have a couple, and maybe the first one is for the upfront payment from Genentech. Will that be a one-time payment or amortized over a certain period?
Yeah. What we've said is $100 million in upfront and near term. Essentially what that is is $80 million that'll come upfront immediately, and then there are $20 million in some supply obligations that we expect in the relatively near term too. Really, it's $100 million of near upfront. Maybe Mark can cover how we plan to monetize it.
Yeah. Thank you for the question. I think we're still in the early stages here in working you know with our auditors here to determine the details and the proper way to recognize the revenue. More to come on that front down the line.
Okay. Thanks. Maybe just another question. Can you just, like, what is the royalty rate, possibly that, can be disclosed?
The royalty rate?
Mm-hmm.
The royalties on annual net sales per the Genentech agreement are range from a low double digit to the mid-teens.
Got it.
That's before fulfilling our three financial obligations to our.
Got it. Maybe just the last one on the pipeline. You mentioned that BD probably is one of the areas you are looking into, and maybe just on your current pipeline, what is your priority for now?
Yeah. No, thanks for the question. You know, you know, we're incredibly happy with our pipeline and have lots of investment opportunities. That's why we've historically said we have an incredibly high bar for bringing new programs in. It's always a trade-off between investment in your own portfolio with all of the exciting opportunities we have versus external. That being said, you know, we're highly active and we continue to look at opportunities. If we think that there is a larger benefit for bringing something in than investing in the pipeline, well, we'll do so. But that remains an incredibly high bar as we think we have many things to invest in that are incredibly valuable to patients.
Mm-hmm. Thanks for that.
Thank you, all speakers. There are no further questions at this time. I turn the call back over to Sanj Patel.
Thanks, operator. Again, thanks everybody for the questions and joining the call today. Hopefully, you get a sense of the real excitement we've got here. We're very excited about this deal. Obviously, the continued execution around ARCALYST and also the progressing of the pipeline. We look forward to providing additional updates throughout the rest of the year. Have a great day, everybody. Thank you.
This concludes today's conference call. You may now disconnect.