KALA Pharmaceuticals, Inc. (now identified in request metadata as KALA BIO, Inc.) — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Financial statements are unaudited and amounts below are in U.S. dollars; financial figures are shown in millions unless noted otherwise. The filing describes the registrant as a clinical-stage biopharmaceutical company focused on therapies for rare and severe eye diseases.
Business context and reporting period
- Kala sold its commercial business, including EYSUVIS, INVELTYS and AMPPLIFY technology rights, to Alcon in July 2022. It therefore reported no product revenue in Q1 2023 and has no revenue-generating commercial products.
- The company’s lead candidate is KPI-012, a mesenchymal stem cell secretome therapy being developed for persistent corneal epithelial defects (PCED). The FDA accepted its IND in December 2022, and the company dosed the first U.S. patient in the Phase 2b CHASE trial in February 2023.
- The company reported 2,309,287 common shares outstanding at March 31 and 2,348,687 at May 8, 2023. A 1-for-50 reverse stock split took effect in October 2022; historical share and per-share data reflect the split.
Key financial metrics
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Product revenue | $0 | $1.372 million |
| SG&A expense | $6.030 million | $26.982 million |
| Research and development | $4.036 million | $4.466 million |
| Operating loss | $11.683 million | $30.914 million |
| Net loss | $14.455 million | $32.941 million |
| Net loss per share, basic and diluted | $6.99 | $22.18 |
| Cash used in operating activities | $9.684 million | $24.089 million |
| Cash and cash equivalents at period end | $63.636 million | $70.495 million at Dec. 31, 2022 |
| Debt principal outstanding | $33.957 million | $43.303 million at Dec. 31, 2022 |
- Total assets were $72.226 million and total liabilities were $48.765 million at March 31. Current assets of $71.344 million exceeded current liabilities of $10.265 million. The company had $23.461 million of stockholders’ equity and an accumulated deficit of $601.665 million.
- Cash, cash equivalents and restricted cash decreased $6.934 million during the quarter. Financing activities provided $2.858 million, including $14.893 million of net equity proceeds, partly offset by $10.000 million of debt principal and final-fee payments and a $2.041 million cash contingent-consideration payment.
- Interest expense was $1.474 million; the loan’s effective interest rate was 16.44%. The reported debt carrying value was $33.266 million, net of discounts and other adjustments.
- Gross margin is not meaningful for Q1 2023 because the company had no product revenue or cost of product revenue. The filing reported no income tax provision or benefit.
Material changes versus the prior comparable period
- Revenue fell to zero following the Alcon sale. Q1 2022 revenue was $1.372 million, comprising EYSUVIS and INVELTYS sales.
- Net loss narrowed by $18.486 million. SG&A fell by $20.952 million, primarily due to the commercial business sale and workforce reduction, including lower employee-related and sales and marketing costs. R&D decreased by $0.430 million overall, while KPI-012 development costs rose to $1.825 million from $0.738 million.
- Operating cash use improved by $14.405 million year over year. The company attributed the change mainly to lower net loss adjusted for non-cash items, partly offset by working-capital timing.
- Interest income increased to $0.675 million from $0.008 million. Q1 2023 also included $1.973 million of other expense, primarily a $2.2 million charge for expiring inventory, partly offset by reimbursable Alcon transition-service income.
- Q1 equity issuance generated $14.893 million net and added 475,265 common shares. The quarter also included share issuance to settle Combangio deferred and contingent consideration.
Outlook, commentary, risks and unusual items
- Clinical outlook: The CHASE trial’s first open-label cohort included two patients; both completed at least one week of high-dose treatment with no safety issues observed. The company had initiated the second cohort, a randomized, double-masked, vehicle-controlled study of approximately 90 patients receiving two KPI-012 doses or vehicle for 56 days. It targeted topline safety and efficacy data in Q1 2024. The filing says positive results, subject to regulatory discussions, could make CHASE the first of two pivotal trials supporting a BLA.
- Funding outlook: The financial-statement note says March 31 cash is expected to fund expenses, lease and debt service obligations, and capital expenditures for at least 12 months from issuance of the statements. MD&A estimates runway into Q1 2025 when anticipated CIRM funding is included. Kala said existing cash should fund safety and efficacy data from CHASE, but not complete KPI-012 clinical development. These are estimates and depend on assumptions.
- CIRM award: On April 28, 2023, after quarter-end, CIRM announced selection of Combangio for a $15 million grant for KPI-012 development, including CHASE. Funding is subject to a definitive agreement, milestones and a co-funding requirement; it should not be treated as received cash based on this filing.
- Alcon milestones: Kala may receive up to $325 million if specified annual sales thresholds for EYSUVIS and INVELTYS are met. No milestone payments had been received by the filing date, and timing and amounts are uncertain.
- Debt and dilution: Oxford Finance debt is secured by substantially all company assets and carries a floating rate. The loan agreement includes restrictive covenants and potential acceleration upon default, including certain Nasdaq listing failures. Kala raised equity through ATM programs; its Series E preferred stock is convertible into approximately 5.314 million common shares, subject to terms and limitations, potentially substantial relative to the common shares outstanding.
- Contingent obligations: Combangio consideration includes up to $40 million of development, regulatory and commercialization milestones and up to $65 million of sales-based milestones, plus royalty obligations. The company recognized $5.234 million of contingent consideration at March 31; additional unachieved sales milestones were not recorded because they were not considered probable. The CHASE dosing milestone triggered cash and stock payments, with $0.146 million remaining due in January 2024.
- Other developments: A new Menlo Park lease signed in April 2023 has estimated minimum undiscounted payments of $3.077 million over an initial 62-month term. A one-time employee and director stock-option exchange program began May 1, 2023. Neither event was reflected as a quarter-end lease liability or completed exchange in the reported quarter.
- Principal risks: Continued operating losses, need for additional financing, clinical and regulatory uncertainty, reliance on third-party manufacturers and trial operators, competition, intellectual-property and licensing risks, uncertain Alcon milestones, debt covenants, and possible future equity dilution. Management reported disclosure controls and procedures were effective as of March 31; no material legal proceedings were reported.
Important facts for investors to verify
- Whether CHASE enrolls and reports results on the stated timetable, and whether the results support pivotal trials and a future BLA.
- The executed CIRM grant terms, timing and conditions of disbursements, and the co-funding requirement before incorporating the award into runway estimates.
- Actual cash burn and financing needs against the company’s stated runway estimates, given no product revenue and the expectation that current resources will not fund full KPI-012 development.
- Debt repayment requirements, floating-rate exposure, covenant compliance and Nasdaq listing status, including the effect of any default or accelerated repayment.
- Potential dilution from future equity sales, preferred-stock conversion, stock awards and other share issuances; compare these with the reported common shares outstanding.
- Whether Alcon achieves sales thresholds that trigger milestone payments, and the amounts and timing, if any, of such payments.
- Changes in contingent consideration, royalty obligations, remaining Alcon inventory and any further inventory write-downs.