KALA BIO, Inc. (KALA) Earnings Call Transcript & Summary

Good afternoon. This is Bill Maughan. I'm an associate on the SMid-cap Biotech Research Team here at Bank of America. And it's my pleasure to introduce our next presenter, Mark Iwicki, CEO of Kala Pharmaceuticals. Mark?

Thank you very much. And hello, everyone. I'm the CEO of Kala and I want to thank you for joining the call this afternoon. Before getting started, I want to let everyone know that we will make forward-looking statements and all information in this presentation is as of May 13, 2020, and should not be considered current after such date. So just moving to Slide 3, Kala was formed about 10 years ago based on our AMPPLIFY technology that lets us enhance delivery to target tissues in the eye. We have IP protection for the AMPPLIFY technology and products through at least 2033. Our product that we will spend a lot of time talking about today is EYSUVIS and that is our dry eye product that has the potential to become the preferred first line prescription therapy for the short-term treatment of dry eye disease. We recently reported out our STRIDE 3 trial which was successful and achieved the primary and key secondary endpoints. That STRIDE 3 trial replicates the successful results of the prior clinical trials and addresses a CRL recommendation for an additional positive trial that we received from the FDA. We've also recently resubmitted the NDA to the FDA and expect the potential approval in the U.S. in the second half of 2020. INVELTYS is our prescription product for cataract surgery and that product was approved by the FDA in August of 2018 and we launched it in early 2019. It's the first and only post-surgical steroid with class leading combination of powerful efficacy and a safety profile comparable to vehicle. And it also is the first and only steroid for post-cataract surgery and other surgeries with BID dosing. On the corporate highlight side, we have cash and cash equivalents of $196.5 million as of March 31, 2020. We raised $146.9 million in gross proceeds from Q 2020 financing and our existing cash resources are expected to fund operation into at least the second quarter of 2022. So moving on to Slide 5, this is a depiction of the AMPPLIFY technology and what it enables us to do is get about 3x more drug to the target tissue. By avoiding being trapped and cleared by mucous membranes, we're not only able to get that 3x greater deposition of a product, but we get a much more even distribution of the drug across the target tissue. And we think that is what has really enabled our 2 products and we will start the presentation by talking about INVELTYS. So I'm on Slide 7, and again INVELTYS is the first and only post-surgical steroid approved with twice a day dosing. The product is being promoted right now by our dedicated specialty ophthalmology sales force and account director team, and we've been using commercial and Medicare co-pay assistance programs for eligible patients as we've been launching the product. It is indicated to treat inflammation and pain following all ocular surgeries. It has an excellent safety and tolerability profile, and in particular the intraocular pressure results from our clinical trials have been similar to placebo. We use that nanoparticle technology not only in INVELTYS, but also in EYSUVIS, our dry eye product, and we will be talking more about that in a few minutes. On Slide 8, you can see that steroids are really the standard of care in the treatment of post-surgery inflammation and pain. And there are other products that are used as well. And just imagine a person may be 70, 80 years old that just had their eyes operated on, they're handed 3 little white bottles of medicine. And the most important one to get into the eye each day to control that inflammation is the steroid and that's the one that typically has had the worst dosing for the patient. So it's a very meaningful benefit to have the first twice a day product, and it really speaks to our technology and our ability to get more drug to that target tissue and provide a really meaningful product for patients and physicians. On Slide 9, the ocular surgery market is large and expected to continue to grow, especially as the population is aging. There were almost 9 million ocular surgery procedures in 2019 in the U.S. and growing in a CAGR of about 3.5%. Branded products account but over half of the gross sales. If the market was dollarized at branded prices, it would be over a $2 billion market. So quite a substantial opportunity for us to grow INVELTYS and make meaningful penetration into this segment of the market. There are about 6,500 eye care professionals that account for 80% of the target surgical business, and that is the focus of our commercial efforts. The payer mix favors commercial and cash, but there is a meaningful Medicare segment as well. On Slide 10, you'll see some of the reaction that we've gotten to the product, which has been very strong, and we're really pleased by the physician response. We've got strong acceptance from all the eye care professionals. We have about 45% of physicians in our market research saying that they've used the product and currently have a share of around 6% of their cataract surgeries and expect that to almost quadruple over the next 6 months. And if you look to the bottom left of the slide, for those eye care professionals that our sales force interacts with, you can see that the trial or usage number is even higher at 70%, it's almost 50% greater. And you can see that their stated share for cataract surgery is also higher at 12%. And for those that haven't used the product, when they see the profile, they really expect to start using the product. So we've been really pleased, again, with the response that physicians have had to INVELTYS. On Slide 11, you can see that prescriptions have been growing very nicely. In the first quarter, there was an overall trend down in the market. And then certainly, COVID has also affected the prescriptions. But we remain optimistic that when hopefully, everything gets back to normal with the COVID situation and cataract surgeries are again scheduled throughout the United States that the brand will return to its growth pattern that it was on before the COVID issues. And we have heard of several states where the ophthalmologists are back in a limited way, starting to do surgeries again. So I believe that's a good sign. I'd like to transition now to EYSUVIS, our product for dry eye disease that we're very excited about. And I mentioned that we reported out our STRIDE 3 trial just a few weeks ago. You can see the design of that trial on Slide 13, and it was very similar to our STRIDE 1 and STRIDE 2 trials. The primary endpoint in STRIDE 3 was the change from baseline and ocular discomfort severity at day 15 in the overall ITT population as well as a second primary endpoint, the change from baseline in the ODS score in a subset of patients that had a more severe baseline discomfort. Key secondary endpoints were conjunctival hyperemia at day 15 and ocular discomfort severity at day 8 in the ITT population. On Slide 14, you can see that we achieved statistical significance for both pre-specified primary endpoints. That's the ocular discomfort or the symptom endpoint day 15 in the overall ITT and in the ITT group of patients with more severe baseline discomfort. And those results clearly replicate the primary symptom endpoint results from STRIDE 1. Slide 15 shows that we also achieved statistical significance for the key secondary endpoint of conjunctival hyperemia. That is the sign endpoint in our program and we hit that in all of our Phase III study. So that's the third time we've had really strong statistical significance on hyperemia. EYSUVIS was very well tolerated in STRIDE 3. Adverse events and intraocular pressure increases are similar to vehicle. It's a very important aspect of the product to have a very tolerable profile. These patients, their eyes are really bothering them. And so if your applying a medicine that also causes burning and stinging, that's very problematic in this condition of dry eye disease. In addition to that, physicians want to make sure that the product they're using is safe and intraocular pressure is a known effect of steroids. But our data has shown that for the use in our clinical trials, the profile for IOP increases has been comparable to vehicle, which has been very reassuring to physicians and thought leaders as they've looked at our clinical data. On Slide 17, you can see that we have consistent improvement in that primary symptom endpoint in STRIDE 1 and STRIDE 3 as I mentioned before with very similar effect size. And on Slide 18, this is data that we think will be really meaningful to patients and physicians, and that's that we get a rapid and sustained improvement in their symptomatology starting on day 2. That's super important especially because of the way we're thinking about positioning and the way that we believe physicians will use EYSUVIS and that's to treat the episodic manifestation of flares associated with dry eye disease. So you want something that works very quickly that is well tolerated and has a great safety profile. You can see on Slide 19, there is a consistent improvement in the patients with a more severe baseline as well. So again the overall ITT or more generalized population, good consistency of data, hitting those endpoints as well as in the patients that are more severe. And we believe that that's very important because the product not only is likely to be used first line for many patients that are getting their first prescription product, but may also be used in combination with other products for more severe patients. You can see that on the signs, as I mentioned earlier, this is conjunctival hyperemia and really strong p-values in all 3 of our Phase III studies. On Slide 21 is our corneal fluorescein staining data. And you can see that we have demonstrated in 2 consecutive clinical trials that we have improvement at 2 weeks. And the inflammation and corneal damage are hallmark signs in dry eye disease. And the significant benefit that we're seeing in total corneal staining observed at 2 weeks in STRIDE 2 and STRIDE 3 really demonstrates that we have a rapid and robust effect on inflammation. On Slide 22, you see the adverse event and IOP profile for all 3 Phase III trials. And again very well tolerated product. On the left hand side, you can see, this is the only adverse event that was meaningful in the trials and it's comparable to vehicle, and again the intraocular pressure increase rates are comparable to vehicle. So in summary, on Slide 23, from the clinical database, we have statistical significance for the primary endpoint in the overall ITT population, also for the patients with a higher baseline and symptomatology. The key secondary endpoints, we hit conjunctival hyperemia as well as ocular discomfort at day 8 and we've hit day 8 in all 3 of our trials as well. EYSUVIS is very well tolerated, and has a favorable adverse event and intraocular pressure profile that's similar to vehicle. So the next steps are that we have filed, refile the NDA and expect that that will be accepted by the FDA and we would have a 6-month review clock on that NDA. So hoping for approval in late October or November timeline. Just to talk a little bit about the market and the commercial opportunity on Slide 25. What you see there is that the vast majority of patients suffer from an episodic manifestation of dry eye disease. They have about 6 flares per year and most patients do not suffer from a significant continual set of symptomatology. It is a chronic disease, but it's a flaring or episodic chronic disease. And so most patients are having 3, 4 or 5 flares a year. Those flares last a couple of weeks. But there is a wide range; a mild patient may have 2 or 3 flares a year, moderate patient is maybe at that 6 level, and then even patients that are on maintenance therapies like Restasis and Xiidra also suffer from a significant amount of flares per year. So we believe that the rapid acting nature of EYSUVIS and the well tolerated profile that we have with the product is going to really lend itself to be something that doctors can prescribe first line and patients can stay on throughout the course of progression of their disorder. And that's -- it's really important when you think about the market and how these patients are suffering in these episodes, not unlike mild to moderate asthma where patients are intermittently using Albuterol inhaler as the onset of action is critical. The current maintenance therapies that are approved take somewhere between weeks and months to work. So they're just not really appropriate or optimal for treating dry eye flares. The efficacy is not very strong and its side effects cause a lot of issues, and patients at about the 6 month timeline are mostly off of the drugs that they were started on, which is really not the best way to take care of these patients and treat their disorder when you're losing about 85% to 90% of patients at the 6-month mark. Despite all of that and only about a million patients on our Rx therapies today, the market was estimated to be over $1.5 billion. And we think that this market will continue to grow and is a really meaningful opportunity for Kala and the EYSUVIS product. On Slide 27, this shows the breakdown of that 90% of patients that are today not on any Rx therapy. There is nothing approved today that would be appropriate for episodic patients in this 90% piece of the pie. But not only do we believe will be used there as monotherapy, but also as adjunctive therapy to any chronic medicine that they might be on. And there are 17.2 million diagnosed dry eye disease patients today. Those patients are already seeing their eye care professional 2 to 3 times per year and we know that when they go to the doctor's office, that about 42% of the time those visits are for dry eye flares. So they've been diagnosed, they're under doctor care, and they're seeking help from the physicians. And we really think, moving to Slide 28, that EYSUVIS is poised to answer this huge unmet need in dry eye disease. We have a broad anti-inflammatory activity demonstrated by that meaningful and rapid effect on hyperemia and corneal staining. In our clinical trials, we've demonstrated that we get that effect as early as day 2 and it's maintained throughout the trial. I've talked about the tolerability profile, and we will be the first and only ocular steroid to have that dry eye disease indication. We know that doctors do a little bit of experimenting with steroids off-label today, but it's really only about 2% to 3% of diagnosed dry eye patients that get a steroid today. But they certainly want to have a product that's on-label, that is safe, well tolerated, and certainly something where the efficacy and safety has been reviewed and approved by the FDA. We know that there is a very high level of interest to have EYSUVIS approved and for doctors and patients to be able to add it to their armamentarium. You can see that on Slide 29 where, whether you look at a first line patient that's managed by OTC that's experiencing flares or whether a patient that may be on Restasis or some other maintenance therapy or even an induction therapy to quiet the eye while they're trying to start a maintenance therapy, doctors see using EYSUVIS in over half of their dry eye patients regardless of what use type it might be. And clearly physicians are -- I'm sorry, patients are looking for something that can provide that relief for them during their flares. And that just turns out to be a really large and meaningful market opportunity, on Slide 30. If you take the 80% to 90% of the diagnosed 17.2 million patients, realize that they're having on average about 6 flares per year, that's 330 million treatable flare days for which we believe we'll really be the only appropriate product that treat those flares. And that's an over $8 billion market opportunity. We're really excited about the progress that we've made. And on Slide 31, we feel great that we've been able to report out topline results in the first quarter and resubmit the NDA, which could lead to a second half of this year approval. And with our current sales force that has been promoting INVELTYS, we'd be able to launch the product shortly after approval. And with that, I'd like to say thank you for being on the call today and happy to take any questions.

So what do you think the long-term implications of COVID will be to your business or the industry more broadly? Is there anything you've changed in the way you're doing business that you think might persist into a new normal?

Yes, it's a great question. Certainly cataract surgeries and LASIK surgeries for right now are elective. And so those who're dramatically reduced estimates maybe a 90% reduction. But we do see them starting to come back and some ophthalmologists are beginning surgeries again. I think there will be a slow progression, but we do believe that at some point it'll return to normal. We feel like we try to stay on top of the situation and interactions with our customers through virtual interactions and hopefully that will smooth our return to the offices. We do have our sales force like, I think, virtually all companies working remotely right now and not visiting the offices. But we do believe that through the virtual interactions that we've been having and staying in contact with the offices, that that will smooth that recovery. To your point about the long term if this continues to persist, I think there will be a rapid growth in interacting with physicians and offices and support staff virtually. And I believe our team has really done some great work, I mean some pioneering work in the ophthalmology area to be able to remain in contact with doctors. And I think doctors actually appreciate the way that Kala has handled this and we continue to educate them and make sure they have what they need. And I feel like we'd be able to prepare for the EYSUVIS launch as well in that manner and hopefully everything returns to normal by the time we're ready to launch the product later this year.

And if even after the COVID situation is resolved, if there's longer term economic effect, maybe a potential recession or something like that, how do you feel Kala is equipped to dealing that sort of situation? Are there any cost offsets you would think about or is it still all systems go?

Yes, look, we're a very lean organization. We have 56 sales representatives in our company right now. They're terrific with tremendous experience in ophthalmology and a great leadership team and account management team. So our plans have been to expand the sales force under the kind of normal market condition so that we can further enhance our reach to optometrists and other prescribing physicians that treat dry eye disease. But we could certainly moderate that if the market is not up fully back or if there are economic issues like you described, we can launch right away with our current sales force. So I think we have quite a bit of flexibility. And dry eye is something that could lend itself to telemedicine if we ever got there. It's not a procedure that has to be done in the doctor's office. There are really not a lot of tests that need to be done. So especially for patients that have already been diagnosed and again 17 million diagnosed patients, only 10% of them on a prescription drug today. I think our product could really lend itself to that telemedicine or virtual kind of interaction model, if we needed to go there.

All right. Thank you. Thank you for spending time with us today, Mark.

Thank you very much. Have a great day. And thanks everyone who joined the call.