KALA Pharmaceuticals, Inc. — Q2 2022 Form 10-Q Summary
Reporting period: Three and six months ended June 30, 2022. The filing is under the name KALA Pharmaceuticals, Inc. Financial amounts below are in millions of dollars unless noted.
Business context and significant transaction
Kala was shifting from a commercial ophthalmology business to a clinical-stage biopharmaceutical company focused on KPI-012, an MSC-S biologic candidate for persistent corneal epithelial defects (PCED). It had decided to stop preclinical programs unrelated to its MSC-S platform.
After quarter-end, on July 8, 2022, Kala completed the sale of EYSUVIS, INVELTYS and related AMPPLIFY technology to Alcon. Kala received $60.0 million upfront and Alcon purchased $5.026 million of inventory. Kala is eligible for up to $325.0 million in sales-based milestone payments, but receipt and timing are uncertain. Following the sale, Kala had no commercial products.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net product revenue | $2.1 | $3.1 | $3.5 | $6.3 |
| Cost of product revenue | $1.8 | $1.0 | $2.5 | $1.8 |
| Gross profit / margin | $0.3 / 15.5% | $2.0 / 66.7% | $0.9 / 26.6% | $4.5 / 71.9% |
| SG&A | $22.7 | $28.0 | $49.7 | $55.7 |
| Research and development | $4.5 | $3.1 | $8.9 | $6.2 |
| Operating loss | $26.0 | $29.0 | $56.9 | $57.4 |
| Net loss | $28.1 | $36.5 | $61.1 | $66.9 |
| Net loss per share | $0.38 | $0.57 | $0.83 | $1.06 |
Q2 revenue declined about 31% year over year; six-month revenue fell about 45%. Management attributed lower sales mainly to fewer INVELTYS units and higher estimated allowances per unit. Higher cost of product revenue included reserves for expiring or quality-inspection-failing inventory. Lower net losses partly reflect the absence of the $5.4 million debt-extinguishment loss recorded in 2021; Q2 2022 also included fair-value gains on acquisition-related consideration.
Q2 SG&A fell by $5.3 million, while R&D increased by $1.4 million as KPI-012 development costs grew. No income tax benefit or provision was recorded.
Cash, liquidity and debt
- At June 30, cash and cash equivalents were $42.6 million; short-term investments were $2.0 million. Cash, cash equivalents and short-term investments totaled approximately $44.6 million, excluding restricted cash.
- Six-month operating cash use was $49.5 million, compared with $54.2 million in 2021. Investing activities used $2.2 million; financing activities provided $0.1 million. Cash, cash equivalents and restricted cash decreased $51.6 million during the half.
- Current assets were $83.5 million and current liabilities $32.9 million. Total liabilities were $116.5 million; stockholders’ deficit was $31.6 million. Accumulated deficit was $603.4 million.
- At quarter-end, Oxford Finance debt principal was $80.0 million ($79.8 million net carrying value), at a floating rate of the greater of 30-day LIBOR or 0.11%, plus 7.89%. On July 8, Kala paid $40.0 million, including $36.7 million of principal and fees, leaving $43.3 million of principal. Amortization was deferred to January 1, 2026; maturity remains May 1, 2026.
Outlook, risks and unusual items
- Management estimated available resources—including June 30 cash and investments, the Alcon upfront and inventory payments, less the Oxford prepayment—would fund operations, debt service and capital needs into Q2 2024. It expected resources to cover initial data from the planned KPI-012 Phase 2/3 trial, but not completion of KPI-012 clinical development. This outlook depends on assumptions, including compliance with debt covenants.
- Subject to FDA clearance, Kala planned to submit an IND and begin a U.S. Phase 2/3 KPI-012 PCED trial in Q4 2022. It also planned preclinical work under KPI-014, with a retinal indication selection target in the second half of 2023. Clinical outcomes and timing are uncertain.
- In July, Kala announced a reduction of 113 employees. It expected approximately $27.6 million in annualized operating expense reductions once implemented and approximately $2.5 million in related charges, primarily in Q3 2022, with completion expected by year-end.
- Nasdaq had notified Kala of bid-price and market-value listing deficiencies. Failure to cure them could lead to delisting; delisting after the applicable period could also trigger a debt default and acceleration risk under the Oxford agreement.
- Key risks include dependence on KPI-012, need for additional capital, substantial losses and negative operating cash flow, uncertain Alcon milestones, clinical and regulatory failure or delay, biologic manufacturing and third-party dependence, COVID-19 effects, and potential dilution or restricted access to capital. Kala reported no material legal proceedings. Management said disclosure controls were effective as of June 30, 2022.
Most important facts for investors to verify
- Whether Kala’s cash runway, burn rate and stated Q2 2024 funding horizon remain valid after the Alcon sale, debt prepayment and restructuring costs.
- Progress and timing of the KPI-012 IND and Phase 2/3 trial, including FDA acceptance of the prior Phase 1b data and availability of trial results.
- Oxford debt balance, interest terms, covenant compliance and consequences of any Nasdaq listing deficiency or delisting.
- Alcon’s commercialization performance and whether any sales milestones are achieved; the maximum $325.0 million is contingent, not assured revenue.
- Execution and actual savings from the workforce reduction, alongside the company’s ability to retain the staff and manufacturing capacity needed for development.