KALA BIO, Inc. — Q2 2023 Form 10-Q Summary
Reporting period: Three and six months ended June 30, 2023. Financial statements are unaudited. The company changed its name from Kala Pharmaceuticals, Inc. to KALA BIO, Inc. on August 2, 2023.
Business context and reporting period
KALA is a clinical-stage biopharmaceutical company focused on rare and severe eye diseases. Its lead candidate, KPI-012, is in Phase 2b development for persistent corneal epithelial defects (PCED). Following the July 2022 sale of EYSUVIS, INVELTYS and related commercial rights to Alcon, KALA has no revenue-generating commercial products.
Key financial metrics
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Product revenue | $0 | $2.1 million | $0 | $3.5 million |
| Operating expenses | $9.6 million | $28.1 million | $21.3 million | $60.4 million |
| Operating loss | $9.6 million | $26.0 million | $21.3 million | $56.9 million |
| Net loss | $10.4 million | $28.1 million | $24.9 million | $61.1 million |
| Net loss per share | $4.36 | $18.92 | $11.15 | $41.10 |
| Operating cash used | Not stated for quarter | Not stated for quarter | $17.3 million | $49.5 million |
Amounts are shown as losses or cash outflows where applicable. With no 2023 product revenue, a current-period product gross margin is not meaningful.
- Liquidity at June 30: Cash and cash equivalents were $49.3 million and short-term investments were $9.9 million, totaling $59.2 million. Total current assets were $65.5 million; current liabilities were $9.9 million.
- Debt: Oxford Finance principal outstanding was $34.0 million; its net carrying value was $33.6 million. The loan bears floating-rate interest; the effective interest rate was 16.97% at June 30, including fees and non-cash accretion. Scheduled amortization begins January 2025, with maturity then scheduled for May 2026.
- Equity and deficit: Stockholders’ equity was $17.5 million and accumulated deficit was $612.1 million. Common shares outstanding were 2,538,687 at June 30 and 2,542,716 at August 3, 2023.
- Cash movements, six months: Investing activities used $10.1 million, largely for $9.9 million of short-term investment purchases. Financing provided $5.9 million, including $18.0 million of net ATM proceeds, offset by $10.0 million of debt principal and final-fee payments and a $2.0 million cash contingent-consideration payment.
Material changes versus the prior comparable period
- Revenue ended after the Alcon transaction; the comparable 2022 periods included sales of EYSUVIS and INVELTYS.
- SG&A fell to $5.0 million from $22.7 million in Q2 and to $11.0 million from $49.7 million in the first half. Management attributed the decrease mainly to the business sale and 2022 workforce reduction, including lower sales and marketing and employee costs.
- First-half R&D was $8.3 million versus $8.9 million. KPI-012 development costs increased by $1.1 million, while costs for other research programs and facilities declined.
- First-half operating cash use decreased to $17.3 million from $49.5 million. The lower net loss was partly offset by working-capital timing.
- Debt principal declined from $43.3 million at December 31, 2022 to $34.0 million, after $10.0 million of principal and final-fee payments. Common shares issued and outstanding increased from 1,706,971 at year-end, reflecting ATM sales and other issuances.
Outlook, management commentary, risks and unusual items
- Clinical outlook: The CHASE Phase 2b trial evaluates two KPI-012 doses against vehicle in approximately 90 patients, with treatment over 56 days. The first two-patient, open-label cohort completed at least one week of dosing without observed safety issues; the second cohort was initiated. Management targeted topline safety and efficacy data in Q2 2024. If results are positive and regulators agree, KALA believes the trial could be the first of two pivotal trials for a BLA.
- Funding outlook: Management said June 30 cash, equivalents and investments, together with the anticipated $15.0 million CIRM award, were expected to fund operations and obligations into Q2 2025 and support obtaining CHASE safety and efficacy data. KALA does not expect existing resources to fund completion of KPI-012 clinical development and says additional capital will be needed. The runway estimate depends on assumptions and full receipt of CIRM funding.
- CIRM award, subsequent event: Combangio signed a $15.0 million award on August 2, 2023, after quarter-end, and became entitled to an initial $5.9 million disbursement. Remaining payments depend on milestones and co-funding; disbursements may be suspended or ceased for missed milestones or noncompliance. The award also includes royalty obligations on qualifying future sales. No grant had been received or recognized as of June 30.
- Alcon contingent proceeds: KALA may receive up to $325.0 million in sales-based milestones, but no such milestone payments had been received by the filing date. Receipt and timing depend on Alcon’s sales reaching specified annual thresholds; proceeds are uncertain and should not be treated as available liquidity.
- Acquisition obligations and unusual items: Contingent consideration remeasurement produced a $2.2 million first-half loss, primarily reflecting changes in discount rates. First-half other expense was $2.1 million, including $2.3 million for expiring inventory, partly offset by transition-service reimbursements. KALA paid former Combangio equityholders $2.5 million in cash and $2.4 million in shares after the first CHASE patient was dosed; $0.1 million remains payable in January 2024. Additional development, regulatory and sales milestones may be payable.
- Principal risks: Continued losses and cash burn; dependence on KPI-012’s clinical and regulatory success; need for additional financing and potential dilution; debt service, collateral and restrictive covenants; uncertain Alcon and CIRM payments; trial enrollment, manufacturing and third-party execution risks; and Nasdaq listing requirements. KALA reported no material legal proceedings. Management concluded disclosure controls were effective as of June 30, 2023.
Important facts for investors to verify
- Progress, enrollment, safety and timing of CHASE, and whether Q2 2024 topline data remain on track.
- Actual CIRM disbursements, milestone and co-funding conditions, and compliance with award and loan covenants.
- Alcon’s reported product sales against milestone thresholds and whether any payments become payable.
- Cash burn, financing needs, ATM or other equity issuance, and the resulting dilution; note that Series E preferred stock was convertible into common shares subject to its terms.
- Oxford loan repayment requirements, floating-rate exposure, and the ability to maintain Nasdaq listing compliance.
- Remaining inventory recoverability and potential Combangio milestone, royalty and Stanford license obligations.