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

Good afternoon, everyone. Thank you for joining us on day 3 of the Bank of America Healthcare Conference. It is my pleasure to have with me our next presenting company, Kala Pharmaceuticals. I have several members of the management team with us for the next 30 minutes. I'll start off by introducing CEO, Mark Iwicki. Mark, good afternoon.

Tazeen, thank you very much for making the time for us today, and thanks to everyone who's attending. And with me today, I have Todd Bazemore, our Chief Operating Officer; Mary Reumuth, our Chief Financial Officer; and Kim Brazzell, our Chief Medical Officer.

Welcome, everyone. Thanks so much for joining. So Mark, we usually try to start out the conversation with a broad overview. So in 2 minutes or less, if you could tell anyone who's listening on the phone or on the webcast about the platform, and we can go into some more detail after that.

Sounds great. Kala Pharmaceuticals has 2 approved products. The first product that was approved 2 years ago is a postsurgery product. And then we recently, late fall last year, had our dry eye product approved. Both products use our AMPPLIFY technology, which enables us to deliver about 4x as much drug to the target tissue. We're very excited about the dry eye product, EYSUVIS. It's an absolutely huge market with a lot of unmet need. And we're the first product that has been approved and is available that can treat symptomatology very quickly. In the first couple of days, you start seeing relief of the signs and symptoms of dry eye disease. And it can be used across a wide range of dry eye patients from mild to moderate patients, the whole way through more severe patients. So we're really excited to be launching into such a terrific market.

Okay. Great. So with that in mind, I'm hoping that you can give us a summary of how COVID has impacted your commercial organization.

Yes, it's a great question. I mean, certainly, last year, because our product, INVELTYS, is to be used after cataract surgery, LASIK surgery and other ophthalmic surgeries, there was a significant reduction in surgeries. And although some of those surgeries could be thought about as a little bit more severe, they are still elective surgeries. And so there was a huge dip through midyear last year. Maybe it went down as much as 80%. Started to come back through the summer. And then when COVID resurfaced in late fall and winter, there was another dip. Market is starting to come back now. Maybe it's around 75% of pre-COVID levels. So we're feeling like the recovery is taking place and certainly happy about all the vaccinations and hopeful that, that market fully recovers. On EYSUVIS, which is our dry eye product, there's still an impact because those same target physicians that are doing the surgeries are the ones that treat dry eye disease. And there's just a reduction in patient flow, and the same goes for optometry. So again, hopeful that in the next couple of months as vaccination continues to take hold, that we'll get back to normal.

Okay. So your launch in dry eye is still probably early so it's difficult for you to really provide any kind of trends per se. But to the extent that you can, as it relates to the very early days of the commercial launch, on your earnings call, you did talk about some of the metrics that you're seeing. I wanted to get your thoughts on use in ophthalmologists versus optometrists. As you know, we have done work looking at both sets of experts. It had seemed from the earlier work that we did that optometrists would potentially be quicker to adopt use. But how is it in the real-world setting now that the drug is launched? And how are you thinking the split will be, I don't know, in the first few quarters, if you will?

Yes. It's a great question, Tazeen. Maybe I'll just give a high-level overview, and then turn it over to Todd for some of the details. We would call it the early indicators of the launch. And as you point out, it's still early, but we feel really good. And at a high level, what we've seen is really positive feedback on the clinical profile of the drug. And so with the early adopters, not only are we getting individual reports and we, this week, are in an ophthalmology conference with all of the top key opinion leaders. The feedback is really positive. Product working quickly, comfortable drop, patients finding it easy to use and doctors being satisfied, and I think already beginning to expand their comfort with the drug. We've also recently gotten several important managed care organization formulary positions. And so overall, you always want to make sure when you launch your product that it is well received, the clinical utility of the product is well received. I feel like we're seeing that. We also do market research every couple of weeks, and we're seeing that the usage or penetration into our target list is increasing and doctors indicating that they're using the product. So I feel really good. And maybe, Todd, you could just talk about some of the more detailed points around ophthalmologists and optometrists. Tazeen asks a really good question.

Sure. I'm happy to do so. And Tazeen, I remember discussing the report when it first came out and we were doing similar research. It was coming up with similar findings that the optometrists really look like -- was a group that has a potential to adopt early. They were certainly really excited about the product profile, both prelaunch and since we have launched. And I think through that, we have learned there's a couple of leading attributes that are probably really driving that. One is they typically treat more the first-line dry eye patients that probably have more mild to moderate disease, maybe patients that don't yet need to go on a chronic daily maintenance medication like a Restasis or a Xiidra. These are patients that are sort of like just using their artificial tears. They get exposed to some trigger, it results in an acute dry eye flare a few times a year. And so EYSUVIS is really then well suited to treat that patient population. I think optometrists also, as a specialty, tends to be a bit more label conscious. So the fact that they have an on-label steroid to treat these patients with their dry disease suddenly have certainly found very, very attractive. I think as we said on the earnings call, they're producing about 55% of all of our prescriptions, and about 45% are coming from the ophthalmologists. I think we've also seen good receptivity early from the comprehensive ophthalmologist. And we're really starting to spend a lot of time with the clinical specialist, too, as the group that had the most experience previously using steroids off-label. And we're getting really, really good receptivity from them as well, too. And as Mark said, we're at a big ophthalmology conference right now, and we've been in multiple advisory boards with some of the top ophthalmologists around the country. We've gotten really, really great feedback around their thoughts of sort of where EYSUVIS is today, but where things can also go in the future. And sort of this idea of using EYSUVIS is a great way to initially get their dry eye patients under control and then sort of assessing where to go from there, whether they can just keep the patient on artificial tears or does the patient have more chronic severe disease and need to have a maintenance medication added. So really in line with what we've always thought we could eventually accomplish, which is that first-line prescription therapy for most dry eye sufferers.

Okay. So for the patients that have gone on drug so far, is there anything that you can identify that's common among them that maybe decisions are leaning towards a certain patient profile as their first trial with the drug?

Yes, really good question. We're -- so we're looking at sourcing business down and trying to understand the initial patients coming on EYSUVIS. What do they look like? And what, if anything, were they previously treated with? And this is one of the areas that I've been really optimistic in our ability to become a first-line prescription therapy and -- as that nearly half of all of the patients that have been prescribed EYSUVIS since launch are treatment-naive, meaning they were not previously on a prescription dry eye medication. They were only on artificial tears. So that's really encouraging. The other half of patients, sort of evenly split where about half of them are on a chronic maintenance medication and EYSUVIS is being added on top of, whether that is to treat breakthrough flares or there are patients that are just initiating one of those therapies and EYSUVIS is being used as induction therapy. And then about the other half -- or 25% of our total patient volume, I should say, are coming from patients that are being switched from an existing therapy. And sometimes that switch is they're coming off of a chronic maintenance medication and going on to EYSUVIS or maybe they were on an off-label steroid previously and then switched to EYSUVIS. So sort of most of the business are treatment-naive patients, which are great. The other half of the business is sort of evenly split between switches and add-ons.

Okay. Now is this a specialty where doctors can do patient consultations virtually?

That certainly occurs. And certainly for existing patients that have a diagnosis already of dry eye disease, very, very easy to be able to have those consultations or appointments via telehealth.

Okay. So then, as you mentioned, for the patient switches, is it going to be important to see doctors go back to the office on a more regular basis before you see a big uptick in number of scripts? Or could it be that, at least taking out the new patients just for the switch patients, were those -- it would not be as much of a hindrance if patients are seeing their physicians on a video call or something like that?

Yes. We certainly feel like telemedicine is a way for EYSUVIS to be prescribed in using these patients. Ultimately, we think it's best when they can come into the office. So we do feel like as that continues to improve and those numbers get better, it will benefit us. Because they are prescribing a steroid so it's not uncommon for them to want to take a look under a slit lamp, see what pressures look like or initiate EYSUVIS and pull them back into the office a few weeks later and just give a quick check and make sure that their IOP looks good. And they've told us once they're comfortable that, that patient is doing well, that they probably want to follow up every 6 months or so to check in on the patient and make sure they're doing well with their EYSUVIS.

Okay. On average, can you remind us how many acute flares the dry eye patient has in a year?

Yes. That's -- it's really interesting. That data -- those data rather have been consistent across numerous large quantitative patient research studies, some that we've conducted, some that were done independently by third parties like the ]. And it's about 80% of dry eye -- diagnosed dry eye patients report that they suffer flares, and they on average suffer about 5.5 dry eye flares per year.

Okay. And do you think that for every flare a patient has, he or she will seek treatment? Or is it based on the severity of the flare? I don't know if that's...

Great question.

That's a good question.

Yes, really good question, Tazeen. And we do think the severity of the flare will have some impact, right? How bothersome -- as is often the case with any symptomatic condition, how bothersome the symptoms are when the patients have an acute episode will definitely have an impact on their desire to seek treatment.

I think what we're seeing already, Tazeen, is that maybe a little bit over half the prescriptions are already being written with refill. So I think it's going to be across the spectrum. It's a new patient, newly diagnosed and the doctor is just becoming familiar. It may be one script and then check the patient. And then -- or it could be that they feel comfortable with the patient, known them for years and they may give them 2 refills and then see them once or twice a year. I think in general, what we hear is they ideally like to see their dry eye patients twice a year.

I see. Okay. Now for those who may not know, why wouldn't the chronic dry eye treatment be efficacious to treat the acute flares? Why wouldn't Restasis or Xiidra?

Yes, that's a great question. Yes. Kim, do you want to talk about that?

Sure. One of the things we've shown in our clinical trials and the feedback we're getting from physicians and patients is the onset of activity. We see statistically significant improvements by day 2. If you look at the chronic meds, for example, Restasis and Xiidra, Restasis takes up to 3 months to actually start working because of the mechanism. Xiidra seems to be a little quicker, but it's still 4 to 6 weeks before they start getting symptomatic relief. So these patients are wanting quicker relief because they're having pretty severe symptoms. A lot of patients because of the inflammation and our product being a steroid is able to address that very quickly and provide the relief they need in a matter of days instead of weeks or months.

Okay. Now is there any correlation of patients who have been on Restasis or Xiidra for an extended period of time? Do they tend to have less acute flares? Or does it not matter?

That's a great question. They actually tend to have more flares. That might sound counterintuitive because they're on the medicine, but those patients tend to be more severe. And what we've seen in all of our market research is the more severe the patient is, even when they're on one of those chronic medications, they tend to have more flares. Those products can be very useful for some patients, but they typically do not completely eliminate symptomatology. And those patients still experience triggers and still get quite a few flares. And one of our market research studies we did with a more moderate severe population, patients were having more like 8 or 9 flares a year.

Okay. Now -- all right. I don't know if we have much time . Okay. In terms of price, can you just remind everyone what the list price is for EYSUVIS? And how much out-of-pocket cost does the patient have today?

Sure, I'm happy to. So we launched at a list price or a WAC price of $465. That's for an 8.5 ml bottle. So the bottle size is larger than most standard steroid eye drops in the market. So I'm sorry, Tazeen, what was the second part of the question? I want to make sure I comply.

How much is the out-of-pocket cost for the patient?

Out of pocket, thank you. So typically, where we have insurance coverage, where we've been added to formulary, we're able to message to eye care professionals that co-pay will be no more than $40. So in a position where we've got preferred coverage, which is what starts live with Cigna here in 2 days, that goes live on May 15th, we're a preferred product, the co-pay is typically $25. In situations where the co-pay may be higher in a nonpreferred situation, say, around $50 or $60, our co-pay card buys those patients down to $40. So with the co-pay card, when it's covered by insurance, patients typically should be paying $40 or less, which has been well received for an acute medication that most eye care professionals anticipate patients will only need to fill 2 or 3 prescriptions a year.

Okay. So how many uses does a patient get out of, I guess, one 8.5 ml bottle?

Yes. Certainly, if -- Kim, did you have a comment?

No.

I thought Kim was jumping in. So if they use the product 4 times a day, 2 drops in each eye every day, there's a couple of weeks' worth of therapy in that bottle. We're finding early on we don't think most patients are treating that way, that patients are treating until they get symptom resolution. And for many patients, that may come after a few days or up to a week. And then they just are able to keep the remaining amount of drug in the bottle for the next time they have an acute flare. So probably reasonable to assume they can treat a couple of flares with a single prescription.

Okay. Is there any seasonality to the flares?

Definitely, right? It's interesting. If you look at the dry eye market itself, it doesn't look like a lot of seasonality in prescribing historically because, again, the market has been -- drugs available were chronic maintenance medications. But when we look at patients that suffer from flares, there's definitely a seasonality component. Spring allergy season is a big trigger of acute dry eye flares that last early into summer, too, with the grass season. Then you'll see -- typically, we hear another spike in the fall allergy season when ragweed becomes very prominent. And in the winter months, right, the cold dry air can really be a trigger for patients. And then just changing internal environments as well, too, whether the air conditioning first coming on at the beginning of the summer season with heat or the beginning of the winter season. And the other one that we're really learning a lot about is we're hearing often that eye care professionals are seeing a huge increase in dry eye flares driven by 2 new elements. One is all the screen time that we're all spending sitting at home, doing our business on Zoom. And then secondly, the wearing of masks. It is forcing warm air that the patients are exhaling up into their eyes, and that can also be a trigger.

Okay. Didn't know that part about the mask. Okay. So maybe let's spend a few minutes talking about the commercial organization, specifically the sales force. So you started out with a group of salespeople. And you've talked about plans to expand bit by bit, not by much, but still between now and year-end expanding out. Can you talk to us about the rationale for that? And what does each incremental increase in sales reps or feet on the ground do for the launch?

Yes. Really good question. We just -- we're trying to be smart and prudent with our sales force expansion as we're sort of securing and improving our market access coverage over the time and also dealing with the pandemic and rollout of vaccines. So we knew all along that eventually, Tazeen, we'd like to be around 125 representatives. You'll recall previously with INVELTYS alone we had about 50. But just felt like rather than jumping straight to 125, we should take it in a couple of steps. So we originally went from 50 to about 90. Recently announced on our earnings call that we're going to go from 90 to 105 here by the end of the second quarter, and then really assess the second half of the year. And if things continue to improve with regards to patient flow back into the office, as things improve with the pandemic and we continue to improve our market access, we'll look to do another expansion to the full 125 by the end of the year.

Okay. And does that expansion mean that you're covering more territory or that you have more people on each territory?

Great question. We're going to pick up additional geographies. And in some instances where we may have a single territory being worked by one representative, it'll give us some chance to cut territories up and have 2 reps not overlapping. But just split up the geography, which will give us better reach and frequency to some of the customers and as you can imagine, some of the high-density metropolitan areas. There's some areas that we could use additional sales representatives. And in other instances, it's allowing us to get into what I would call white space, which are geographies maybe like out in the Midwest that we chose not to cover initially during launch that we're now going to be able to put a representative in those areas.

Okay. Now again, it's still early, but what would you say right now is the biggest gating factor for the launch to really strengthen? I think I asked a derivation of this question on the call. How much of an impact can you quantify, if at all, is COVID?

That's definitely creating some headwinds, no doubt. And I think -- I don't know so much that I can quantify from a prescription level standpoint. What I could give to you is more sort of what does our access look like. And during the first quarter, it was probably about 65% to 70% of our targeted eye care professionals that we were able to see face-to-face, right? So we've got a lot of that. We were doing what we can with virtual promotion. But probably as much as 1/3 of our customers, we were unable to get in and see during the first quarter of launch. I think the other thing that I've learned is this new phrase that our sales representatives call a dumpster call, which means that even some of the doctors we could get in to see, they weren't allowed up into the practice itself. But the doctor would meet them down outside the back door by the trash dumpster, hence the dumpster call, and do a quick signature for some samples and maybe you get a quick sales presentation in. But obviously, not ideal condition. So I think knowing that all of that is going to get better as the vaccines continue to roll out, I'm really optimistic that, that could create some tailwinds in the future. But I think the really biggest component of this is securing more market access. We know that eye care professionals really like the drug. Patients love it when they're prescribed. We know there's a lot of demand, a lot of prescriptions being written. But most of those prescriptions right now have to go through prior authorization, right? So there's some hassle there and doctors have to fill out paperwork and seek approval for the patient's prescription and the patients may have to wait a few days or up to a couple of weeks for their insurance to decide if they're going to cover the medication or not. And when you secure market access and the drug ends up on patients' formulary, all that goes away. The doctor can write the script, patient goes down the street to the pharmacy and they get their prescription filled that day, and there's no additional steps required by the doctor's office. And so that's why we have consistently said as that market access continues to improve, that's going to be a really important catalyst for prescription volume growth in the future.

Okay. I want to spend a few minutes on INVELTYS before we run out of time. So that, of course, has been on the market now for some time to treat post-op inflammation for patients following cataract surgery. How has COVID -- I mean, I would imagine that, that would be like a major speed bump for use of the product because during the height of the pandemic, I think nearly all elective surgeries were put on hold. So how are the dynamics of that now improving, if at all?

So exactly what you said, Tazeen, right? Essentially all elective procedures were postponed and put on hold for a period of time last year in the spring and into the early summer. They started coming back online over the summer months, and we're growing really strongly heading into the fall, and then we all get hit with the second wave of cases with the pandemic. And while the elective procedures did not get halted completely as they had in the spring, they certainly diminished in terms of overall surgical volume. And that had a direct impact on our prescription volume for INVELTYS. What really has me encouraged is during that period of time, we continue to grow our -- and increase our market penetration and our market share for INVELTYS in the postsurgical market. And in our most recent weeklies, INVELTYS is now above a 13% branded new prescription market share. So we've grown our share in what's been a down market and has been really optimistic as the market comes back and returns to its full pre-COVID surgical volume levels that we will see prescriptions begin to grow again for INVELTYS. And they have been growing, in fact, in the most recent weeks.

Okay. Do you have any idea -- or can you share with us what percent of your targeted physicians have written a script for INVELTYS since the time it was launched?

Tazeen, very fair question. I just don't know the number off the top of my head as we're sitting here today.

Okay. No worries. I guess internally, how do you think about the opportunity for INVELTYS? What is the competitive landscape like for patients right now for options for doctors to get patients right now? And how do you see this launch maturing?

Sure. So when you look at that postsurgical market, certainly, generics dominate, right, when it comes to steroids. And for many patients, doctors deem the steroid as -- generic steroids as fine. But there are specific situations where they reach for a brand for a reason. In a situation where maybe they're looking to optimize efficacy a little bit better or where safety is a concern, they don't want to take any risk of increasing intraocular pressure, for example, in a patient that may have comorbid glaucoma. And those are really instances in where INVELTYS are great for those patients, right? Because we're the only product that's efficacious enough to get a BID indication from the FDA, right, demonstrate really great efficacy while only dosed twice a day. All of the steroids require 3 to 4 times a day dosing. And because the active ingredient is loteprednol, it's an ester-based steroid that has the lowest risk of increasing intraocular pressure. And so there are some very specific instances in which a doctor would choose to prescribe a brand, and we think INVELTYS is well suited in those circumstances.

Okay. In the less than 3 minutes we have left, I wanted to quickly touch base about the pipeline. So you've talked about investing in the future of the company with various mechanisms of action for both front of the eye and back of the eye disease. So I don't know if you guys can give us an overview of some of the indications that you might find worth pursuing and when we could start to see data from them.

Sure, Tazeen, I could comment on that. And now that we have the 2 products approved, we've got the bandwidth now for R&D to focus. And we have 2 really important pipeline projects. One is a novel anti-inflammatory called SGRMs, which stands for Selective Glucocorticoid Receptor Modulators. And these are compounds that are not steroids but activate the steroid receptor. And when you activate a steroid receptor with a traditional corticosteroid, you really get 2 pathways that are activated. One of them is responsible for the anti-inflammatory effect. The other is primarily responsible for the untoward adverse event. So we are actively screening compounds, new chemical entities and have identified our own internal compounds that are highly selected for the anti-inflammatory pathway with significantly reduced activity towards the pathway that's responsible for many of the untoward effect. We're excited about that because we think it has significant applicability in both front and back of the eye diseases. We know diseases such as macular edema, diabetic macular edema, has a significant inflammatory component that today are treated with steroids but cautiously because of the numerous side effects that happen when you administer steroids to the back of the eye. And so we think there would be a significant potential for this type of compound that gives you the type of effect that you would get with the steroid, but without the untoward effect. So we're very excited about that. We think it also could have significant applicability in the front of the eye. We know steroids are very effective in the front of the eye. And if you had something that didn't have the untoward effects, perhaps you could have a chronic therapy for dry eye and the other ocular surface diseases. And what we've said, we're on target to have identified the lead compound in that space by the end of 2021. We can then move that into pre-IND or IND-enabling studies. And then within a year, 1.5 years be able to move into clinical trials.

Okay. With that, we're just about out of time. So we'll stop the conversation here. I'm sure there's plenty more for us to talk about. We can do that again sometime soon, hopefully. Thanks so much for participating in our conference and for taking the last half hour to catch up with me.

Thank you, Tazeen, for the time. Have a great day.

Thank you, Tazeen.

And thanks, everybody, for joining our webcast. Have a good day.