Kodiak Sciences Inc. — FY 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. This is an annual filing, not a standalone fourth-quarter report; selected Q4 results are noted below. Kodiak is a clinical-stage ophthalmology biotechnology company with no approved products and no product revenue.
Financial performance and liquidity
| Metric | FY 2019 | FY 2018 |
|---|---|---|
| Revenue | None | None |
| Research and development expense | $37.5 million | $18.8 million |
| General and administrative expense | $11.7 million | $7.6 million |
| Operating loss | $49.2 million | $26.4 million |
| Net loss | $47.4 million | $41.4 million |
| Net loss per share | $1.25 | $2.77 |
| Cash, cash equivalents and marketable securities at year-end | $348.2 million | $88.3 million |
| Working capital at year-end | $327.5 million | $85.6 million |
| Total liabilities at year-end | $13.5 million | $5.4 million |
- Operating cash outflow was $39.1 million in 2019, versus $29.0 million in 2018. Investing cash outflow was $137.0 million, primarily from purchases of marketable securities; financing cash inflow was $299.7 million, primarily from the follow-on stock offering.
- Margins are not meaningful because Kodiak had no revenue. The company reported no conventional debt outstanding at year-end; its prior convertible notes had converted to common stock in connection with the 2018 IPO. Year-end liabilities included operating lease obligations.
- Q4 2019 operating loss was $16.2 million and net loss was $15.6 million, compared with $9.4 million and $14.7 million, respectively, in Q4 2018.
Material changes versus prior period
- R&D expense doubled year over year, largely reflecting higher KSI-301 clinical and manufacturing costs, as well as increased personnel spending. G&A rose 54%, including higher public-company, professional-services and compensation costs.
- Net loss increased about 14%, while loss per share narrowed because the weighted-average share count increased substantially after the IPO and follow-on offering.
- Year-end cash and marketable securities increased substantially, primarily following the December 2019 equity offering, which generated $297.6 million in net proceeds.
Business, outlook and key risks
- Kodiak’s lead candidate, KSI-301, is an investigational anti-VEGF biologic for wet age-related macular degeneration (wet AMD), diabetic macular edema (DME), retinal vein occlusion (RVO) and diabetic retinopathy (DR). Its Phase 1b study enrolled 121 patients. The company reported encouraging interim safety, efficacy and dosing-durability observations, but these were early, open-label results and are not proof of pivotal-trial success.
- The FDA had agreed on a five-pivotal-trial program: one study each in wet AMD, DME and DR without DME, and two in RVO. Kodiak planned to begin four additional pivotal trials in 2020, alongside the ongoing wet AMD DAZZLE study, and targeted an initial BLA in 2022 for wet AMD, DME and RVO, with DR potentially following by supplemental BLA. These are company targets, not assured outcomes.
- In December 2019 Kodiak agreed to a $225 million development-funding arrangement with Baker Bros. Advisors in exchange for a capped 4.5% royalty on future KSI-301 sales. The first $100 million was received in February 2020; the remaining $125 million was contingent on reaching 50% enrollment in each of two planned RVO Phase 3 trials. Royalty payments end at 4.5 times funding paid unless repurchased under the agreement. Certain additional anti-VEGF product royalties may also apply.
- Management said year-end cash and marketable securities were expected to fund projected operations for at least 12 months. This estimate depends on assumptions and excludes the February 2020 funding receipt from the year-end balance. The company expects losses and R&D spending to rise as trials and manufacturing scale-up advance.
- Key risks include clinical or regulatory failure or delay; patient enrollment and trial execution; manufacturing scale-up and reliance on Lonza and other third parties; competition from established anti-VEGF drugs and emerging therapies; uncertain reimbursement and market adoption; intellectual-property challenges; and the company’s future need for capital. The filing also identified possible COVID-19 impacts on clinical trials, suppliers and manufacturing.
- Other pipeline programs include KSI-501, for which Kodiak planned an IND submission in 2021, and KSI-601, a dry-AMD research candidate for which an IND was targeted in 2022. Neither was in clinical trials at the filing date.
- PwC issued an unqualified opinion on the consolidated financial statements. Management stated that disclosure controls and internal control over financial reporting were effective; the auditor did not provide an internal-controls attestation because Kodiak qualified as an emerging growth company.
Most important facts for investors to verify
- Progress, enrollment, readouts and results of the five planned KSI-301 pivotal trials, including whether durability and safety observations hold up in controlled studies.
- Timing and conditions for the remaining $125 million Baker Bros. payment, and the full scope, cap and repurchase economics of the royalty arrangement.
- Current cash, marketable securities, cash burn and runway after subsequent-period funding and planned trial/manufacturing commitments.
- Manufacturing capacity, validation, supply reliability and any effects of COVID-19 or other disruptions on trials and suppliers.
- Potential dilution from future financing, equity awards and outstanding options; no product revenue or commercial approval had been achieved.