Q1 2022 Kala Pharmaceuticals Inc Earnings Call
Good morning, and welcome to the California, <unk> Conference call to review its first quarter.
Our results.
At this time all participants are in listen only mode. Following the management's prepared remarks, and Q&A session will be held.
As a reminder, this call.
It is being recorded.
I would now like to turn the call over to Jill Stier Executive director of Investor Relations and corporate Communications for California. Please proceed.
Thank you operator, and thank you all.
Participating in today's call joining me for the company are Mark <unk>, Chief Executive Officer stock based Smart President and Chief operating Officer.
I'm Grateful head of R&D, and Chief Medical Officer, Mary <unk>, Chief Financial Officer, and galleries copy our Chief business Officer will also be joining us for the Q&A question on today's call. During this call we will make certain comments about <unk> future expectations plans and prospects.
Looking statements within the meaning of the pie.
Vivek Securities Litigation Reform Act of 1995.
Statements will include observations associated with our commercialization of ice tea. This isn't about this.
Once we got into development programs and market potential of K P. I owe one too on the strip.
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.
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 the other five.
<unk>, we've made with the SEC I will now turn the call over to college CEO Mark <unk>.
Thanks, Jill and thank you everyone for joining us this morning.
When you started call a number of years ago with a mission to advance the treatment of front and back of the eye diseases by providing patients and physicians with a portfolio of new medicines that are safe well tolerated and highly effective.
Over the past several years consistent with this goal we successfully advanced I assumed this end and delta is through clinical development.
Hands of many patients in need.
In the case of I assume this we developed the first and only prescription therapy for the short term treatment of the signs and symptoms of dry eye disease with a product profile that addresses the unmet needs articulated by patients and eyecare professionals alike.
Since the product was approved in 2020, we've made great strides towards changing the treatment paradigm for this disease, educating ophthalmologist and optometrists and the frequent episodic nature of flares on I assume this is the first FDA approved therapy to bridge the gap between over the counter artificial tears.
And chronic prescription therapies.
In recent weeks, we have also significantly expanded our payer coverage and with the addition of Cvs Caremark, we now have coverage for 92% of commercial lives and 30% of Medicare lives, ensuring that many more patients will be able to easily access ICU beds.
This is a really important milestone in our launch for both patients and for Kala, We expect the additional coverage to translate into a meaningful increase in prescriptions being filled for patients. Moreover, we expect it will significantly reduce reliance on patient assistance programs and therefore.
Port growth and net revenue.
As a reminder, we have used patient assistance programs throughout the launch to ensure prescriptions are being filled in situations where patients insurance did not fully cover I assume this.
In recent months consistent with trends in prior quarters, we have seen increased use of the patient assistance program, representing more demand for ICU. This but also negatively impacting our net revenues.
With the expansion in payer coverage, we expect our patient assistance programs to be reduced.
Relating to an improvement in average selling price and as a result, an increase in future net revenue.
As we continue to progress the commercial launch of ice to this we're also focusing on our clinical and research stage programs, which we believe have the potential to meaningfully impact the care and treatment of people living with underserved diseases.
We are advancing <unk> two for the treatment of persistent corneal epithelium defect or PCB and other rare and severe ocular diseases.
May we presented the full phase <unk> data for <unk> at the ARVO annual meeting.
These data, which served as the foundation for our acquisition of <unk> late last year highlight the significant potential of our novel secret home therapy to deliver a new approach to treat PCE.
And potentially other front and back of the eye diseases.
We look forward to advancing this program into our planned phase two three clinical trial in the fourth quarter of 2022 and to sharing additional details around our indication expansion strategy later this year.
With that I'll turn the call over to Todd to review our commercial performance.
Thank you Mark for.
For the first quarter of 2022 Symphony Health reported 26580, <unk> prescriptions, an increase of 18% over the fourth quarter of 2021.
My service prescription growth rates have accelerated in Q2 compared to Q1 currently growing at 31%.
Since the product first launched through May six 2022, we have now seen a total of approximately 104000 prescriptions, including approximately 18000 refills written by more than 8200 unique prescribers.
As I mentioned on the last quarter's call. This uptick in prescribing began prior to our most recent payer wins and we believe this momentum is likely to be supported by significant tail rooms in the months ahead.
To that point, just a few weeks ago, we announced another meaningful expansion of our payer coverage.
Caremark, the largest pharmacy benefit manager in the United States added I see this as a covered brand in its commercial formulary effective may 2nd 2022.
This adds $28 5 million commercial lives, bringing total Ais service coverage to $155 3 million lives or 92% of all commercial lives.
<unk> is now covered on formulary by all three of the largest commercial pbms in the U S.
This formulary addition is particularly important in light of the fact that in the second half of 2021, Cvs Caremark implemented increased coverage restrictions on high service, which in turn resulted in more prescriptions going through the patient co pay assistance program, having a disproportionate negative impact on net revenues in Q.
For 2021 in Q1 of 2022.
We anticipate the addition of my service to the Cvs Caremark formulary will not only accelerate prescription growth, but also positively impact our NAV or net average sales price.
In fact in just the first couple of weeks. Since this formulary addition, we have already started to see a shift away from the copay assistance program over to a higher percentage of commercial covered prescriptions.
In addition, effective June one 2022 Humana one of the largest Medicare health plans in United States will include ICU versus a preferred brand on its Medicare formularies.
This will add an additional 7 million loans doubling our total Medicare coverage to $14 1 million lives or approximately 30% of all Medicare lives.
As Mark noted we are very pleased with by this continued growth in our payer coverage and.
And we expect it will translate into higher prescription fulfillment rates for Ais service and higher net average sales prices.
We are excited about these recent payer wins and expect additional positive coverage decisions in 2022.
Turning to <unk> in the first quarter of 2022, there were approximately 34690 prescriptions reported by Symphony Health.
Impaired to 36007 hundred in the fourth quarter of 2021.
We continue to believe that indulges prescriptions and revenues will grow as Medicare part D coverage for the product increases.
As previously stated our commercial efforts for <unk> deltas are completely synergistic with my service as 100% of in Delta's targets.
Also dry eye targets for which our service is the primary focus and belt. This isn't a second position sales call.
I will now turn the call over to Kim to discuss our pipeline programs.
Thank you Todd.
We continue to make significant progress on <unk> two and are currently on track to follow the R&D and initiated a phase II <unk> clinical trial in the fourth quarter of 2022 and patients suffering from a persistent corneal epithelium defect or PCE D. As we call it.
As we've discussed previously <unk> two is a novel clinical stage asset that we acquired as part of the convey NGL acquisition in November of 2021. This has been a great addition to our pipeline and to our strategy to develop innovative therapies for significant unmet needs in ophthalmology.
This promising therapies in application of novel technology involving the utilization of secret code.
For <unk> two are harvested from human bone marrow derived maximum cargo stems.
The secret home approach allows us to produce itself free therapy comprised of a number of the central bile molecule secreted by the Mexican catalyst themselves such as growth factors protease inhibitors matrix proteins and Europe trophic factors that has the potential for multiple therapeutic applications.
Being cell free the sickle program approach provides many of the benefits of cell therapy without the need for administration of <unk> Tec sales, which can ultimately have unexpected and in Florida.
We're currently developing <unk> for the treatment of PCB, which is defined as a non healing corneal wound would defect that is refractory could compete school trip.
P. C E D can be the result of numerous etiologies, including but not limited to neurotrophic keratitis.
And Texas, keratitis, surgical or non surgical trauma sjogren syndrome.
<unk> stem cell deficiency and dry eye.
If left untreated these persistent defects can lead to significant morbidity, including infection corneum perforation scarring and ultimately visual.
<unk> is a rare disease with an estimated incidence of approximately 100000 patients per year in the U S and 238000 patients per year in the U S EU and Japan combined.
API two has received orphan drug designation from the FDA for the treatment of PCB and we're exploring potential submissions for fast track and breakthrough designations as well.
We recently presented the results of the <unk> two phase <unk> clinical trial.
Conducted by <unk>, which demonstrate significant benefit in patients with PC.
This was a single arm prospective open label trial, which evaluated <unk> in 12 patients.
This included three non <unk> patients, who were enrolled and the safety cohort.
Benign PCE D patients who were enrolled in the next cohort.
Within the efficacy cohort patients presented with P. C E D. Various etiology and durations ranging from 15 to 871 days.
Patients were treated with <unk> twice daily for up to four weeks with a follow up of up to 12 weeks.
Key efficacy important with complete healing of corneal defect.
It was evaluated by corneal fluorescein staining.
Other FC endpoints included reduction in defects.
<unk> visual acuity corneal opacities.
Safety measures included Tolerability of product cuellar pressure and patient reported adverse events.
In the trial eight patients were evaluable for efficacy as one participant was determined to be eligible do it to a non treatment related adverse events.
Significant improvement in the cornea would be effect was observed in seven of eight of the <unk> patient.
Six of the eight were completely healed by the end of week, four including four who withheld by the end of week, one and one who would deal by the end of week two.
All six patients remained healed throughout the end of the follow up period.
<unk> also demonstrated benefit against other key efficacy endpoints, including best corrected visual acuity.
Only oil patch.
Pain.
For example, all six patients who reported PCE related pain at baseline and experienced a reduction in pain by the end of week one.
With four achieving a zero pain score by the end of week, one and all six achieving a zero pain score by the end of week three.
<unk> two was well tolerated in the trial with no significant safety issues observed.
We've had the opportunity to interact with key opinion leaders across the eye care community, who share our enthusiasm around the <unk> product profile.
How did the urgent need for an approved therapy that can address PC days of all etiology.
As well as the opportunity for simple convenient add drops that can improve the patient experience.
We're very encouraged by these initial core local trial result.
And we're looking forward to advancing <unk> into a phase two three clinical trial in the U S. Later this year.
We made we were right on track to initiate the trial in the fourth quarter of 2022, which if positive could serve as one of our two acquired pivotal trials in the U S and.
In addition to our <unk> program, we view Kpis, one two as a potential pipeline of product opportunity due to its multi factorial mechanism of action based on our existing preclinical and clinical data. We believe the KPN. One two has the potential to treat multiple corneal disease is characterized by severe.
Ocular surface damage.
Additionally, message Campbell stem cell sneak where totals are known to paint constituents with therapeutic potential for diseases of the back of the App.
We're currently conducting a more in depth analysis to identify specific front and back of the eye indications for future development.
Plan to provide updates later this year.
Now I'd like to pass the call to Mary to go over our financial risk.
Thanks Kim.
During this discussion of our financial results I will reference certain non-GAAP financial measures. These non-GAAP financial measures exclude stock based compensation noncash interest depreciation and amortization loss on fair value Remeasurement of deferred purchase consideration and gain on fair value remeasurement of contingent consideration.
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.
For the first quarter of 2022, we reported net product revenues of $1 4 million compared to $1 9 million in the fourth quarter of 2021 by.
Byproduct of this $1 4 million of net revenue consist of $1 million from the sale you bet.
Third to $1 2 million in the fourth quarter and 400000 from the sales have been down as compared to 700000 in the fourth quarter.
As Todd described earlier and as we discussed last quarter the impact on our net revenue for HD vest in the first quarter of 2022 is a direct result of our reliance on our patient assistance program in large part because of being increased coverage restrictions implemented by Cvs caremark in the second half of last year.
With the addition of ICU beds to the Cvs Caremark formulary.
We will be able to significantly reduce our reliance on patient assistance programs, which we believe have a positive impact on our average sales price.
SG&A expenses were $27 million for the first quarter of 2022, non-GAAP SG&A expenses from $24 7 million.
R&D expenses were $4 5 million for the first quarter of 2022, and non-GAAP R&D expenses were $3 9 million or.
Our cash position as of March 31, 2022 seven.
$70 2 million compared to $92 one as of December 31, 2021.
This decrease primarily reflects cash used in operations.
First on our current plans, we anticipate that our cash resources as of March 31, 2022, together with anticipated revenue from my stupid and in Delta will enable us to fund operations into the second quarter of 2023 as.
As we mentioned last quarter, we remain committed to further extending our cash runway by reducing operating expenses over the rest of the year and going forward.
That concludes our prepared remarks for today I will now pass the call over to the operator for questions.
Thank you.
To ask a question you will need to press star one on your telephone.
To withdraw your question press the pound key.
Please stand by while we compile the Q&A roster.
Our first question comes from Chris <unk> with J P. Morgan Your line is open.
Good morning, and thanks for taking the questions. So the first one is just on the gross to net and that dynamic.
So I see this so if you look at the quarter ICD sales were down sequentially through the second quarter in a row and at the same time.
18% in <unk>, and then on tobacco, 21% growth.
21% growth in <unk>.
So could you just help US bridge the difference between kind of the prescription growth in the sales growth you guys referenced.
The Cvs Caremark restrictions is that the vast majority of the impact and when can we expect prescription growth to better translate into net sales for us.
Exactly.
Should we see a positive impact in Q2 or is that more kind of a second half moon Cay to me, but I'll start.
Hey, Chris This is mark.
Yeah.
I think just to answer your question at the high level.
Yes, those restrictions.
From Cvs Caremark made up.
A big portion of the increase in the use of the patient assistance programs.
There is not perfect data to know exactly how many prescriptions go through an individual payer, but it was a substantial proportion of patients and they went from.
Essentially covering the product for.
Many of there.
Patients that have Cvs caremark to putting significant restrictions and so that is what caused that drop and then to get to the second part of your question, we've already seen an increase in prescriptions.
Going through.
Cvs Caremark and a reduction in co pay assistant programs and so yes, we do.
We expect that to start soon and clearly would be an improvement in second half of this year.
Great.
That's also touches on kind of my second question regarding payer coverage. So you guys mentioned, an update that right, 2% commercial covered lives coverage.
And then also roughly 30% on Medicare as well so with these recent coverage expansion, including Cvs Caremark and prior to that United help to what extent is this kind of resolve some of these commercial headwinds <unk> been referencing earlier in the service launch.
Could you maybe just touch on the high level strategy for Medicare part D coverage, and where that could go through the remainder of 2022.
Yes, Chris. This is this is Todd I'm happy to jump in and answer the questions. So first on the commercial side.
I would say we're done right I think you recall in prior calls that we said that our target was to ultimately get the brand and the sort of 80% to 85% range for commercial coverage. We're now at 92%. So we've effectively gotten all the major national plans a lot of the large regional plans doesn't means that there is not maybe some small individuals.
Blue Cross Blue Shield plans will continue to go after but I would say, 90% over 90% coverage. We have all of the commercial coverage in place. If we need that's going to result in two things right and acceleration in prescription growth.
And we're already seeing that here.
Early first few weeks of the second quarter for which we have script data scripts are up 31% almost doubled the growth rate in Q2 compared to the growth rate of Q1 compared to Q4. So we're seeing that acceleration and then importantly, and the early data we're already seeing a decrease in.
The amount of scripts that have been filled utilizing some of the copay assistance program. So think of those numbers are sort of in the fourth quarter of last year.
Many of 70% of ICU the scripts, we're getting filled utilizing one of our co pay assistance programs.
As Mark said, largely driven by the restrictions at Cvs Caremark get implemented that required more patients to use co pay assistance.
The most recent week of data that we have.
We're set up by service prescriptions getting filled using a co pay assistance program is down to 54%. So already we're seeing a dramatic shift from reliance on that program.
Along with an acceleration in our prescription growth rates and so the combination of the two more scripts will be more at a more favorable ESP.
Will positively impact our.
Net revenues going forward on the Medicare front, we just secured humana that starts from June 1st there are three large Medicare plans that control upwards of 70% of all Medicare coverage in the U S. They are Humana Cvs.
Cvs Caremark silver script and United.
So in acquiring coverage Humana, we have now.
<unk> achieved coverage at one of the big three and we have goods that are pending with both United.
ERP and silver script, Cvs Caremark, and we expect to learn about those bids sometime later in the third quarter.
And we feel really good about those bids right and I think I also feel good about the fact that Cvs caremark commercial side of the business and United commercial side of the business. Both just took positive formulary coverage decisions for <unk> service.
Address the formulary effective April one and as you know Cvs caremark out at US effective may 2nd so having positive coverage decisions on the commercial side Hasnt feeling really good about those Medicare bids that we've submitted and the coverage decisions that we would expect in the third quarter of this year.
I'll pause here to see if that answers the questions that you have.
Yes, that's helpful context, thanks for taking my questions.
Thank you Chris.
Thank you as a reminder to ask a question at this time. Please press Star then one our next question comes from Frank <unk> with Oppenheimer. Your line is open.
Alright, thanks for taking the questions. So just just to hit on the Cvs Caremark restrictions do we know.
Why they added restrictions all of a sudden and then now that covers just any color onto why this happened and could this happen again and did it hit products across the industry or was it mostly.
It took a hit here.
Really good questions. This is Todd.
I would say it was sort of normal negotiating.
And formulary management and so on the formulary management side.
Beginning of the first half of 2021, when we were launching.
I services being covered it required a prior off that patients had previously tried an over the counter RF shift here, that's a standard prior off pretty much all join on medications and our prescriptions were getting through.
The full lap right because we did not we were not on formulary, we did not have a read.
Rebate or discount in place so those prescriptions were going through and they were going through a very favorable SKU.
It is not uncommon for payers to put restrictions in place for newly launched products or the heightened restrictions that the product starts to gain some momentum and the product is not yet on their formulary.
It is essentially what occurred in the second half of last year and really impacted net revenues in Q4 of 2021 in Q1 of 2022.
We have been negotiating as I think all of you know with Cvs Caremark to get added to formulary. They took a positive decision and added us to their formulary effective may 2nd which removes those restrictions and so now those prescriptions can flow through again now at Cvs Caremark, They will under our rebate contract with them.
As I said, both increase of volume as well as the net asp's.
Thank you and then in terms of the.
We've seen some impact here in may.
But then I think I heard that we would expect more of an impact in the second half of the year. So I'm just trying to gauge the gross to net improvement obviously would be gradual as that is it fair to assume and the impact may I guess as well into the second quarter. I guess is this something that.
We would hope by the end of the year to get to a level that we want just based on how good the commercial coverage is now or just any any work there on the timing of it.
Sure.
Totally appreciate the question and look.
We will start to see improvements in that ASP.
In the quarters in which there was those coverage decisions were taken but.
Really.
I would sort of expect a more significant ramp in those improvements to occur in the second half of this year and certainly by year end as you stated we should be realizing on the commercial side of the business the full benefit of that.
These contracts that have been put in place and then obviously as we continue to focus on growing our Medicare coverage.
And if we are successful in securing.
Both United AARP, and Cvs Caremark silver script coverage.
There is a significant opportunity there and the Medicaid Medicare side as well.
Okay, sorry for the question I'm going to sneak in another one here.
On the just do you still discussed I think in the past you've discussed the just to talk about the demand the amount of prescriptions that were written versus the ones that were filled I think was around 50% you've touched on a little bit who uses that business.
The patient assistance program, but any idea now where we stand on the written versus filled.
Prescriptions and then just quickly on the PCB side also can you just talk about maybe the competitive landscape and what else working in this space.
Sure. So I'll take the first part of the question and then I'll hand, the second part of the question.
No.
D program.
Yes.
Early Frank So we're seeing an acceleration in prescription growth rates attributed to these these recent wins.
We will get the data here over the next few weeks.
It will get a good look at the percent of scripts written that are getting filled in covered.
So the more granular level data theres always a little bit more of a lag on payer data isn't there isn't just there.
On pure prescription data that comes out of the weekly basis.
As I said do have some high level data that has showed a drop in scripts being filled with the copay assistance program.
That number now is down 54% at the same time that we know that our prescription growth rates have been accelerating so when we get the more granular data here in a few weeks I suspect that what its going to indicators that there has been a larger number of description hung up with the farmers are getting filled and are getting filled as paid commercial scripts covered.
The patient's insurance.
And Kevin I'll hand, it over to you on the PCB portion.
Sure.
In the PC space is totally one marketed product today product called Arc survey by Docs say, it's an Italian company.
And it's indication is only for neurotrophic keratitis so.
Our epidemiology suggests that PCE deeds that arise from neurotrophic keratitis represent probably about a third of all PC.
Our approach of course is to go after PCE deeds of all etiologies. So we think we have significant potential there.
They also have a rather complicated.
For emulation system.
It's frozen requires 19th steps to reconstitute and they have to be administered six tonnes a day.
<unk> will be to provide a single dose unit of the solution.
Current dry eye drops are provided so we think that it'll be significant benefit in terms of the patient experience.
There is really one other product that.
Secret home in active trials that we know up for PCE.
A company called <unk>.
And they have a.
Secret tolling product, but they just started.
Our phase III <unk> trial for their phase one results were published.
Lee and they did not see certainly the level of.
Appealing that we saw.
But that seems to be the one product in the PC space. There are a few in the neurotrophic keratitis.
Space as well, but again.
In our view a subset of the entire PCE.
Opportunity.
Alright, thank you.
Yes.
Thank you our next question comes from.
Andreas <unk> your.
Your line is open.
Oh good morning, Thanks for taking our questions two from us.
Just can you tell us so far I assume is the percentage of scripts that are being rejected and then provide an update on <unk> seven.
Hey, Andreas it's Todd Yeah, So Robert I would say.
Frank asked a similar question.
Give us a few weeks here to get some updated data. We believe there is a rejection rates are going down.
Simply by the fact that the early data that we have shown a decrease in the number of scripts going through the copay assistance program an increase in commercial coverage scripts at a time that prescription rates are accelerating so we will have more granular data here.
Most of the Cvs Caremark decision that just took effect two weeks ago.
But suspect that when we get that data is going to indicate that a larger percentage of prescriptions are getting filled fewer scripts are getting rejected.
The phones you can just.
A couple of weeks of lag on having those data are available.
And then I'll hand, it over to Kim to answer questions on to return them.
Yes, we're continuing to evaluate.
<unk> developed <unk> 287, we have preclinical trials that are ongoing.
We've had a couple of delays.
Expected related to the <unk>, where we're doing the sites, but we're still active.
Matt and I hope them to be in a position to provide updates.
And the next quarter or perhaps a little after that but its still active and we still got a lot of activity there.
Alright, thank you.
Thank you at this time Im showing no more questions in the queue Mr. <unk> I'll.
I will turn the call back to you.
Well, thank you very much operator, and thanks, everyone for joining us today.
We really appreciate your continued interest in Cala and look forward to updating you soon have a great day.
This concludes today's conference call. Thank you for participating you may now disconnect.
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