Kala Pharmaceuticals, Inc.
Q1 2021 Earnings Call Transcript

Published: 5 May 2021

[Operator:]

Good morning and welcome to Kala Pharmaceuticals' First Quarter 2021 Financial Results Conference Call. . As a reminder, this call is being recorded. I would now like to turn the call over to Niranjan Kameswaran, Senior Vice President of Strategy for Kala Pharmaceuticals. Please proceed.

[Niranjan Kameswaran:]

Thank you, operator and thank you all for participating in today's call. Joining me from the company are Mark Iwicki, Chairman, President and Chief Executive Officer; Todd Bazemore, Chief Operating Officer; Mary Reumuth, Chief Financial Officer; and Kim Brazzell, our Chief Medical Officer.

[Mark Iwicki:]

Thanks, Niranjan and good morning everyone. Thank you for joining us today to review Kala's first quarter 2021 financial results and recent business highlights. It's an exciting time at Kala. We now have two commercial products available for eye care professionals and patients, deep relationships across the ophthalmology and optometry markets and are advancing a suite of innovative NCE pipeline programs. Taken together, we are working to extend our reach to address a broad range of front and back of the eye diseases and help millions more patients. We believe this provides us with a tremendous foundation for future growth. As we look to the remainder of 2021, we are working hard to ensure the commercial success of EYSUVIS and INVELTYS. We are pleased with the early EYSUVIS launch feedback from doctors and patients as well as the significant commercial coverage that we've been able to secure in the few months since launch. In addition, we are encouraged by recent trends suggesting that elective ocular surgeries are growing toward pre-COVID levels as vaccines are becoming more readily available. We believe this positions INVELTYS for future growth in the market.

[Todd Bazemore:]

Thank you, Mark. I'll begin this morning with the launch update for EYSUVIS. We are pleased to report that as of the week ending April 23rd, data from Symphony Health and our patient hub indicate that more than 11,600 prescriptions for EYSUVIS have been filled, written by more than 2000 unique prescribers since the product launched in early January. In the short period of time, EYSUVIS is quickly establishing itself in the market as an ideal first-line treatment option for dry eye flares. Symphony patient source data indicate that approximately half of all EYSUVIS prescriptions are for treatment of eye patients, who previously had not been on a prescription therapy for their dry eye disease. Supporting our belief that EYSUVIS has the potential to become the preferred first-line prescription therapy for dry eye flares. Turning now to execution against two of our strategic priorities for the EYSUVIS launch, ensuring optimal access and broad payer coverage and establishing EYSUVIS as the preferred prescription therapy for the short-term treatment of dry eye disease.

[Mary Reumuth:]

Thanks, Todd. During this discussion of our financial results, I will reference certain non-GAAP financial measures. These non-GAAP financial measures exclude stock-based compensation, depreciation, and non-cash interest expense. For a full reconciliation of our GAAP to non-GAAP financial measures, please refer to today's press release which is available on our website. This morning, we announced that we have further strengthened our cash position by entering into a new five-year, $125 million credit facility with Oxford Finance replacing our existing $75 million facility. The terms of the new facility provides for an initial tranche of $80 million with the ability to borrow two additional tranches totaling $45 million based on meeting certain revenue targets. The terms also eliminate the minimum cash balance required under our previous facility resulting in additional cash on our balance sheet of $10 million. Principal payments will begin in December 2024 at the earliest for two years beyond our previous facility. Additional information regarding the new credit facility is available in the 8-K, we filed this morning. As Mark mentioned, we believe this will allow us to invest in our company as we continue to establish our marketed products and advance our preclinical pipeline. Based on our current operational plans, we anticipate that our cash resources as of march 31, 2021 along with anticipated revenue from EYSUVIS and INVELTYS will enable us to fund operations for at least the next two years.

[Operator:]

. Our first question comes from Andreas Argyrides with Wedbush.

[Andreas Argyrides:]

Hi, this is Andreas for Liana Moussatos. Congrats guys on the quarter. Just a quick question on INVELTYS. What trends are you seeing in the amount of cataract surgeries will give you confidence, so they're going to pick up later in the year.

[Todd Bazemore:]

Yes, Andreas. This is Todd, I'm happy to answer that question for you. So we're currently seeing surgical volume roughly at around 80% of its pre-COVID levels. I think what gives us encouragement is obviously the vaccine rollout continuing to go very well combined with the fact that market scope is routinely conducting market research with surgeons to ask them what the impacts of COVID are and what they think future surgical volume will be as the vaccines continue to roll out? And the ophthalmologists are reporting that they expect by the end of the year could be able to return nearly to full pre-COVID surgical volume levels.

[Andreas Argyrides:]

I'm going to hop back in the queue and I will ask questions.

[Operator:]

Thank you. Our next question comes from Christopher Neyor with JP Morgan.

[Christopher Neyor:]

The first question is on EYSUVIS contracting -- acknowledging and still ongoing negotiations. Can you speak to your confidence in adding additional contracts here near term? And secondly, how are you viewing the pace and progress for securing payer coverage relative to what you saw for the INVELTYS launch? And second on the EYSUVIS patient hub, what's been your success rate and feedback from both physicians and patients on -- for patients who don't have commercial and Medicare coverage as of yet. Any color there would be helpful.

[Todd Bazemore:]

Sure, Chris. This is Todd. I'll try to tick you through those. if I miss something, please don't hesitate to jump back in. We're really pleased with the way the EYSUVIS, a commercial market access is shaping up here and launch here. We do expect additional wins to come, I expect additional wins to come within the second quarter. And as we've always said, we expect that commercial coverage to continue to expand throughout the year and really be the key driver of continued prescription growth as we head into the remaining three quarters of 2021. So feeling really good, I think the team is doing a great job executing on that and we do expect to have additional wins to be able to announce and share with you throughout the year. I think on the hub side, I think like most patient hubs, we're having some success there getting some scripts filled that how this set up to help us with the prior hospitals acquired -- required for patients whose insurance does not yet have EYSUVIS on formulary. And so that's certainly a short-term solution to help in those situations, but ideally what we want to be able to do is move away from the hub by securing broad market access having most patients had access to EYSUVIS through their health insurance plan and not require a prior authorization to get the prescription approved and covered that's going to allow patients when they get the prescription from EYSUVIS to go straight to their local pharmacy get the script filled, have a benefit, fill their EYSUVIS prescription at a reasonable co-pay and have the ability to start treating their dry eye flare immediately.

[Christopher Neyor:]

Yes, that's super helpful. How do we think about the mix between script volumes currently that are on -- that are currently covered versus uncovered?

[Todd Bazemore:]

So I think if you're asking about the actual market access, coverage is about 43% of commercial lives that we now have coverage for EYSUVIS, is that the question you're asking?

[Christopher Neyor:]

Or more so, what percentage of the script volumes that you're seeing or clearly have commercial access coverage are going through the hub?

[Todd Bazemore:]

Yes. You look like most newly launched products, most patients' insurance do not yet cover it. And that means that most of the prescriptions that were written certainly in the first quarter did not have insurance coverage and required a prior authorization, approval, and so another thing that gives us great confidence as our market access continues to expand and patients are not requiring prior authorizations, it will have a significant impact on prescription volume growth for the remainder of the year.

[Operator:]

Thank you. Our next question comes from Francois Brisebois with Oppenheimer. Your line is now open.

[François Brisebois:]

Just wondering, can you help us understand the breakdown a little bit that you're seeing between ophthalmologists and optometrists for prescriptions?

[Todd Bazemore:]

Francois, this is Todd. Good question. Right now the majority of our prescriptions are being generated by optometrists, about 55% of prescriptions from optometrist, about 45% from ophthalmologists, that's not surprising to us. We know that optometrist are tend to treat a little bit younger patient population, when it comes to dry eye who more likely has commercial insurance, there are also oftentimes sort of the first-line dry eye -- eye care professional. And so they may be seeing more of the mild-to-moderate patients who are suffering from three, four or five acute dry eye flares a year and our patients that are ideal as first-line prescription therapy patients for EYSUVIS.

[François Brisebois:]

Okay, great. And then on that line of the first-line treatment, can you talk a little bit more about the endpoints that about 50% of your patients are treatment-naive and when you say first-line, just to be very clear here, is it mostly first-line for patients experiencing flares or first-line for patients with dry eye, just simply dry eye.

[Todd Bazemore:]

Yeah. So, to your first question, we're really encouraged by the fact it is early in launch, already half of the EYSUVIS prescriptions are for treatment-naive patients and those are patients that have not been on a prescription dry eye therapy previously. It's probably we're oftentimes when the new product is launched, you may get used in the more severe patient population that may be on other therapies and you may be used as a chunk of our add-on, but the fact is so early in launch on eye care professionals already going into EYSUVIS as a first-line prescription therapy for many of the patients is really encouraging. And when we talk about first-line, I think certainly for a patient, it's experiencing dry eye flares, we think that's a lot of where the prescriptions are going. But remember, that's the majority of all dry eye patients across multiple quantitative research studies, it's indicates that anywhere from 80% to 90% of diagnosed dry eye patients suffer from these acute flares. We also know that only about 10% of those diagnosed patients are currently on one of the FDA-approved chronic dry eye medications. So we think that means that the majority of diagnosed dry eye patients are great candidates for first line prescription therapy for EYSUVIS.

[François Brisebois:]

Okay. Now, that's very helpful. And then lastly if you can just help us here, where are we exactly in terms of reimbursement, you just mentioned, again the wins, their dates of effectiveness and what you would expect once something is effective, is a kind of a bowers, kind of a pent-up demand or is it slow? And then just lastly, if you can touch on the percentage of patients here that our commercial versus Medicare?

[Todd Bazemore:]

Sure, I'll start with the latter. About 50% of all dry eye prescriptions are reimbursed by commercial payers as to around 40% that are Medicare and the remaining 10% is some mix of cash and Medicaid and look the Cigna contract goes live here in just a couple of weeks, ESI has been live since the beginning of February, and I think the team is doing a great job getting out there and communicating and educating eye care professionals about where there is access, which patients' insurance cover that -- cover EYSUVIS mean where they're able to write those prescriptions and get the prescription filled with having a call back from the pharmacists. So yes, they are continuing doing a great job, we will continue to communicate that. We're just a couple of weeks now from Cigna rolling out with that coverage and I'm really confident in the team's ability to drive prescriptions if that coverage comes online.

[Operator:]

Our next question comes from Tazeen Ahmad with Bank of America.

[Tazeen Ahmad:]

Hi. Can you tell us if you have any sense yet about number of bottles per year that are going to be utilized by each patient, I know you still early in the launch trajectory, but are you noticing any trends on that and then I have a couple of follow-ups.

[Todd Bazemore:]

Tazeen, it's Todd. To your point, it's still too early to know number of refills. Just four months into launch, but we do have some transparency to us with the scripts that have come into the hub. What percentage of those scripts have been written with refills and right currently it's about two thirds of all of our prescriptions that we've seen at the hub were written with refills attached to them. So that gives us really good confidence that most of the scripts have been met with refills and so as patients use their first followup. I see this and then experience additional players and need a refill, be able to go and get it, what all happy to go back to the doctor's office for another prescription.

[Tazeen Ahmad:]

And how many refills are they allowing?

[Todd Bazemore:]

It varies. The majority of the refills are being written for more than two refills. But we're seeing great variance on that. We've seen some Tazeen as low as 1 refill to some sort of as many as 10 refills.

[Tazeen Ahmad:]

Okay. Now in the first four months of launch, are you able to quantify what the impact of COVID has been and as the country reopens, what kind of easing -- as a result of easing of restraints, do you think, how would that impact the the tenure of the launch?

[Todd Bazemore:]

Yeah. It's a really good question. We are definitely seeing impacts. I think the biggest impact is just on our sales were up ability to get in and see their customers face to face and have really meaningful sales interactions. It is currently probably about 65% to 70% of our eye care professionals that we're actually able to get in and see face to face and impact us there as you can imagine the sales force is really focused its efforts in the first quarter on our high decile customers that they can actually get in and see. And so as time goes on and more of those practices get comfortable allowing sales reps back in and we think that will certainly have a positive impact, it will give us a chance to get in and detail more eye care professionals, make sure they have samples and co-pay cards, which is going to be really important for expanding our reach.

[Tazeen Ahmad:]

Okay. We've heard as discussed before, but I was curious if you have updated thoughts on the number of visits, the sales rep might need to make to our physicians practice to result in scripts being written. Has that evolved during the course of the pandemic?

[Todd Bazemore:]

Yes, I would say also a little too early to say, we are standing, it typically takes multiple sales calls to get in. Those sales calls involved talking about dry eye flares, identifying if those patients are the practice, appropriately positioning EYSUVIS as first-line prescription therapy for those patients. So too early to say on the exact number of calls per term. We are certainly seeing that it takes a few sales calls before an eye care professional adopts and begins prescribing EYSUVIS.

[Tazeen Ahmad:]

Okay. And then, have you adopted virtual doctor visits. I guess zoom calls or anything like that.

[Todd Bazemore:]

Yeah, we certainly have virtual targets in place. They involve both rep to eyecare professional interactions as well as, we have done some virtual peer programs, with some of our speaker programs can be done virtually as well.

[Tazeen Ahmad:]

Okay, great. And maybe just moving on, one more question. Beyond -- marketed products, you talked about a pipeline of pre-clinical assets, both for the front and back of the eye and wondering when we could get some more color about those, and when they might enter the clinic?

[Todd Bazemore:]

Yes, I'll hand it over to Kam.

[Niranjan Kameswaran:]

Yes. What we've said publicly is on our SEGRM program, our target is to identify a lead compound by the end of this year, 2022 and then to begin the IND enabling work that would let us get into the clinic, hopefully within 12 to 18 months of that time.

[Tazeen Ahmad:]

So you would identify by the end of this year 2021.

[Todd Bazemore:]

Yes.

[Operator:]

Thank you. Our next question comes from Yi Chen with H.C. Wainwright.

[Yi Chen:]

How many eyecare professionals have been reached by the sales team from January to April and what are the reasons for those that have not prescribed EYSUVIS.

[Todd Bazemore:]

Yes. This is Todd, I'm happy to answer that question. As I was saying earlier, it's probably about in the range of 65% to 70% of our eye care professionals that we're able to see face to face, we have certainly gotten to those eyecare professionals. We have others that we're getting through virtual promotion, the sales force has spent most of this time as you can imagine during the first quarter, focused on the higher decile targets that we're able to get in and see face-to-face. And we believe from the market research and the feedback we've got that, eyecare professionals are very enthusiastic about EYSUVIS, as we said in the most recent round of quantitative research, 70% had said they had already written a prescription for EYSUVIS. And we think the biggest thing that we can do to help them at this point is to continue to improve market access, generate on payer coverage. So, that a larger percentage of the prescriptions that are been written end up in a field prescription that's covered by the patient's insurance.

[Yi Chen:]

Okay. Could you give us an update on the usage of the patient access program?

[Todd Bazemore:]

Sure. I mean, are you referring to the harbor you referring to our co-pay card?

[Yi Chen:]

The co-pay card.

[Todd Bazemore:]

Yes, it's a little less than half of the prescriptions are coming in, they were getting filled with the co-pay card.

[Operator:]

Thank you. Our next question comes from Tim Chiang with Northland Securities. Your line is now open.

[Timothy Chiang:]

I know you guys mentioned that you have about 43% of covered those secured with market access for EYSUVIS. What is the target? what do you think that figure will be by year-end?

[Todd Bazemore:]

Tim, we have not set a specific target or have not externally communicated a specific target for market access by year-end. We've just said that, our goal is to obtain broad market access coverage within commercial payers by the end of 2021 with really a focus for Medicare coverage to start coming online in 2022.

[Timothy Chiang:]

Okay, and maybe just a follow-up. As we get to the reopen, what sort of major medical conferences are you guys going to be attending near term and throughout this year, that sort of increase the awareness for your products. Obviously, I think a lot of ophthalmologists and optometrists, they are much more interested in new products. So I was just sort of wondering, what sort of conferences you guys are going to be attending.

[Todd Bazemore:]

Yes, we will be at all of them and we're really pleased that these conferences starting to come back online and in-person meetings. So this past week was the big optometry conference down in Atlanta. It's a in-person, we had great representation there. A number of programs ongoing. The whole Eye conference would be going on next week, that is largely kind of by ophthalmologist, again that meeting we'll be in person. So as these conferences start to occur in person, we will have a significant presence, both of our medical affairs department and our commercial teams at each of the conferences.

[Timothy Chiang:]

Okay, great. And maybe just one last question, just sort of, I don't think you will be able to answer it. But obviously, how do you sort of look at your prices for both EYSUVIS and INVELTYS throughout the course of this year and next. Obviously you signed some contracts here, you've got to whack price for us, it was around $460. Anything you can highlight and just in terms of where the gross to net discounts are at this point and they pretty much in line with what other new products add in terms of that discount.

[Todd Bazemore:]

Yes. I certainly appreciate the question. Tim. As you know, we're not providing direct guidance on net revenues or gross to net. But I think it's a fair statement to say that similar to other new product launches. We expect there to be deeper discounts in the first few quarters of launch when you start to account for things like Initial trade distribution and patient assistance programs and expect those gross to nets to improve over time as we secure broader market access coverage and at that point or just paying rebates to the payers as opposed to a lot of the other patient access programs that you have to initially put in place at launch.

[Operator:]

Thank you. . Our next question comes from Kelly Shi with Jefferies. Your line is now open.

[Kelly Shi:]

This is Kelly Shi from Jefferies. My first question is a follow-up on the COVID impact. Have you seen gradual recovery in Q2 on the new patient starts on EYSUVIS given the vaccination has accelerated in the United States and a one, do you expect to see full recovery of regular doctor office visit and also have a second question, I wonder if you have market research data informed. What percentage of the dry patients treated with steroid as a frontline treatment of acute flares and do you see a difference on prescribing steroid that beaches optometrists and ophthalmologist.

[Todd Bazemore:]

Sure, I'll tell you, I'll try to kick to each of those. Please don't hesitate to jump in. If there is something that I missed. I think in terms of COVID impacts, as I said earlier, we're encouraged with the vaccine rollout. I think at this point, it's estimated that roughly around 56% to 57% of the U.S. population has received at least one shot, obviously hard for us to predict what future quarters are going to look like, and how the rest of the rollout of vaccinations are going to go, but we're optimistic, we are certainly seen more practices that we're able to get into, and see the eyecare professionals face to face, certainly just point compared to back in the winter when we were doing with the second wave of spikes in cases being reported. So that appears to be improving. Certainly we have seen really good prescription volume growth for both INVELTYS and EYSUVIS in the second quarter looking at the weekly data compared to first quarter. So a lot of really positive signs there. As far as your next question about split and use of the product, we are seeing at this point about 55% of prescriptions being generated by optometrist, about 45% by ophthalmologists. So the optometrist do appear to be early adopters of EYSUVIS and we certainly anticipated based on a lot of the market research, we did to prepare for launch. And understanding that a lot of those patients with more mild to moderate dry eye disease who do not have chronic persistent symptoms on the daily basis and are really not candidates for a chronic maintenance trial and medication patients who are better suited to be treated with a short-term treatment of few times a year like eye sugars. Those patients are largely treated by the optometrist and so we are not surprised by the fact that they are early adopters. And then you asked about general use of steroids to treat dry eye flares. It's been quite limited, only about 3% of the 17.5 million diagnosed dry eye patients previously would get a prescription for steroid and off-label steroids. There are certainly certain subset, some physicians like corneal specialists that were more comfortable we're still reducing more steroids, but when you look broadly across sort of all optometrists and ophthalmologists. It's only previously about 3% of diagnosed dry eye patients we get an off-label steroids and off course, we expect that to grow significantly now with EYSUVIS' approval and having on label steroid to treat the acute dry eye flares.

[Operator:]

Thank you. I'm not showing any further questions at this time. I would now like to turn the call back over to Mark Iwicki for closing remarks.

[Mark Iwicki:]

Thank you everyone for joining us this morning. We're really pleased with progress on the business and especially the early indicators of launch success with EYSUVIS. We look forward to updating everyone soon and hope everyone stays safe. Thank you.

[Operator:]

This concludes today's conference call. Thank you for participating. You may now disconnect.