KALA Pharmaceuticals, Inc. — Q3 2021 Form 10-Q
Business context and reporting period. Unaudited results cover the three and nine months ended September 30, 2021. Kala commercializes EYSUVIS for short-term dry-eye symptoms and INVELTYS for post-operative ocular inflammation and pain, while pursuing ophthalmic research and development. EYSUVIS’s full promotional launch began in January 2021. The Combangio acquisition described below closed after quarter-end, on November 15, 2021.
Key financial results
Amounts in millions, except per-share data and percentages.
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net product revenue | $3.1 | $2.2 | $9.4 | $4.1 |
| Cost of product revenue | $0.9 | $0.7 | $2.7 | $1.8 |
| Gross profit / margin | $2.2 / 70.4% | $1.5 / 68.4% | $6.7 / 71.5% | $2.3 / 56.0% |
| Operating expenses | $29.1 | $28.1 | $92.8 | $71.4 |
| Operating loss | $(26.1) | $(25.8) | $(83.4) | $(67.2) |
| Net loss | $(28.1) | $(27.9) | $(95.0) | $(73.2) |
| Net loss per share, basic and diluted | $(0.43) | $(0.50) | $(1.49) | $(1.44) |
| Operating cash used | Not provided quarterly | Not provided quarterly | $(80.3) | $(64.8) |
Balance sheet and liquidity at September 30, 2021: cash and cash equivalents were $124.5 million; current assets $149.1 million; current liabilities $27.2 million; total assets $193.8 million; total liabilities $132.3 million; and stockholders’ equity $61.5 million. The company reported an accumulated deficit of $494.8 million. Short-term investments were nil, versus $76.3 million at December 31, 2020.
Debt: $80.0 million principal was outstanding under Oxford Finance’s term loan, reported net of discounts and costs at $78.5 million. Interest is floating at the greater of 30-day LIBOR or 0.11%, plus 7.89%; the effective interest rate was 10.41% at September 30. Payments are interest-only until December 2024 if no contingent tranche is funded, with maturity on May 1, 2026. The loan is secured by substantially all company assets and includes restrictive covenants.
Material changes versus prior comparable periods
- Q3 net revenue rose $0.8 million year over year, principally reflecting EYSUVIS sales of $1.8 million; INVELTYS contributed $1.2 million. Nine-month revenue increased $5.3 million, including $5.1 million from EYSUVIS and $4.3 million from INVELTYS.
- Nine-month SG&A increased $26.4 million to $81.0 million, mainly from EYSUVIS launch-related marketing and higher employee expenses and stock compensation. Nine-month R&D fell $5.9 million to $9.1 million, mainly as EYSUVIS Phase 3 spending declined after STRIDE 3.
- Nine-month net loss widened by $21.8 million. In addition to higher operating expenses, 2021 included a $5.4 million loss on extinguishment of the Athyrium debt.
- Operating cash use increased $15.6 million year over year to $80.3 million. Cash and restricted cash increased $37.5 million during the period, supported by $41.1 million of net ATM equity proceeds and new debt proceeds, alongside repayment of the prior facility.
- Common shares outstanding increased to 65.1 million at quarter-end from 58.9 million at December 31, 2020, including 5.7 million shares sold through the ATM in the first nine months.
Outlook, management commentary, and risks
- Management estimated that September 30 cash and anticipated EYSUVIS and INVELTYS revenue would fund operations, lease and debt service, and capital expenditures until the second quarter of 2023. Separately, the financial statement note says cash plus anticipated product revenue was expected to fund requirements for at least twelve months from issuance of the statements. Both estimates depend on assumptions and actual spending, revenue, and financing needs may differ.
- No specific revenue or earnings guidance was provided. Management expected 2021 SG&A to exceed 2020 levels due to the EYSUVIS launch, with SG&A expected to decrease in 2022 as launch costs abate and the headquarters lease ends, subject to stated conditions. R&D was expected to increase as programs advance, including KPI-012.
- On November 15, 2021, Kala acquired Combangio, adding KPI-012 (formerly CMB-012), a clinical-stage candidate for persistent corneal epithelial defects (PCED). Consideration included $5.0 million cash and 7,788,667 Kala shares valued at approximately $16.1 million, plus up to $105 million in milestone consideration, royalties and certain licensing-related payments. The company was still evaluating acquisition accounting.
- Combangio’s Phase 1b trial enrolled 12 patients; in the PCED cohort, six of eight evaluable patients achieved complete healing by four weeks. Management planned to submit an IND in Q3 2022 and, subject to regulatory clearance, begin a U.S. Phase 2/3 trial. These early results are from a small trial and do not establish later-stage efficacy.
- In November 2021, the company agreed to terminate its Watertown headquarters lease effective December 31, subject to the landlord entering into an acceptable new lease with another tenant; Kala would receive $2.0 million if the condition is met.
- Key risks include continued operating losses and possible need for additional capital; uncertain product uptake, pricing and payer coverage; COVID-19-related disruption to sales and ocular surgery volumes; substantial debt and covenant constraints; manufacturing dependence and minimum purchase commitments ($46.7 million disclosed); and the clinical, regulatory, integration, manufacturing and dilution risks associated with Combangio and KPI-012. The filing reports no material legal proceedings. Management concluded disclosure controls were effective and reported no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Whether EYSUVIS and INVELTYS sales, prescription trends, payer coverage and net revenue reserves support sustainable commercial growth.
- Cash runway assumptions underlying the stated Q2 2023 estimate, including post-quarter acquisition costs, cash burn, debt service and any need for additional financing.
- Oxford loan terms, covenant compliance, contingent tranche eligibility, interest-rate exposure and the ability to meet principal payments beginning in 2024 or 2025.
- Combangio consideration and potential dilution, including the scheduled share issuance, escrow/holdback, contingent milestones and royalties; verify subsequent acquisition accounting and integration costs.
- Progress toward the KPI-012 IND and U.S. trial, and the robustness of evidence from the small Phase 1b study, including manufacturing scale-up and second-source supply plans.
- Whether the conditional $2.0 million lease-termination payment was received and whether commercial supply minimums can be met without excess or obsolete inventory.