KALA Pharmaceuticals, Inc. (Nasdaq: KALA) — Q1 2020 Form 10-Q
Entity note: The supplied filing is for Kala Pharmaceuticals, Inc.; the request metadata names KALA BIO, Inc. Verify the intended issuer and filing.
Business context and reporting period
Unaudited results cover the three months ended March 31, 2020, compared with the same period in 2019. Kala develops and commercializes therapies for eye diseases using its AMPPLIFY drug-delivery technology. Its only approved product at the time was INVELTYS, launched in the U.S. in January 2019 for post-surgical ocular inflammation and pain. EYSUVIS, a candidate for short-term treatment of dry-eye signs and symptoms, remained under FDA review.
Key financial metrics
| Metric | Q1 2020 | Q1 2019 / prior date |
|---|---|---|
| Net product revenue | $1.071 million | $1.386 million |
| Cost of product revenue | $0.354 million | $0.241 million |
| Gross profit / gross margin | $0.717 million / approximately 67% | $1.145 million / approximately 83% |
| Operating expenses | $21.196 million | $25.436 million |
| Operating loss | $20.125 million | $24.050 million |
| Net loss | $21.955 million | $25.388 million |
| Basic and diluted net loss per share | $0.54 | $0.75 |
| Cash and cash equivalents at March 31 | $196.456 million | $85.449 million at December 31, 2019 |
| Restricted cash at March 31 | $12.584 million | $12.582 million at December 31, 2019 |
| Operating cash used | $19.880 million | $31.170 million |
| Long-term debt carrying value | $71.438 million | $71.184 million at December 31, 2019 |
| Debt principal outstanding | $75.0 million | $75.0 million |
Cash and restricted cash together were $209.040 million at quarter-end. The company reported current assets of $210.247 million and current liabilities of $17.273 million. The Athyrium term loan carries a fixed annual rate of 9.875%; principal payments are scheduled to begin in 2022, with maturity in October 2024.
Material changes versus the prior comparable period
- Revenue decreased $0.315 million, or about 23%. Management attributed the decline mainly to $1.3 million of higher reserves for Q1 2020 sales, partly offset by a $1.0 million increase from higher per-unit gross selling price.
- Operating expenses fell $4.240 million. SG&A declined $2.828 million, primarily because Q1 2019 included INVELTYS launch expenses; R&D declined $1.525 million, mainly due to lower external STRIDE 3 trial costs.
- Net loss narrowed by $3.433 million. Lower operating costs more than offset lower revenue and a $0.458 million decline in interest income.
- Operating cash use improved by $11.290 million year over year. Financing provided $131.181 million, principally from a $118.2 million underwritten stock offering and $12.5 million of ATM proceeds.
- Common shares issued and outstanding rose from 36.1 million at December 31, 2019 to 54.6 million at March 31, 2020, primarily reflecting the 16 million-share offering, ATM sales and employee issuances.
Outlook, management commentary, risks and contingencies
- Liquidity and runway: Management’s MD&A says March 31 cash was expected to fund operations, lease and debt service, and capital expenditures into at least Q2 2022. The financial-statement liquidity note separately says cash was expected to fund planned needs for at least 12 months from issuance of the statements. Investors should reconcile the different stated runway periods and underlying assumptions.
- COVID-19: Restrictions on elective procedures, including ocular surgeries, significantly reduced INVELTYS demand beginning in March. In-person sales activity was suspended and laboratory operations were partially curtailed. The company could not estimate the pandemic’s full financial impact or the timing of any recovery.
- EYSUVIS: STRIDE 3 met its primary symptom endpoints and key secondary sign endpoint, according to the company. Kala resubmitted the NDA on April 30, 2020, after quarter-end; it believed the resubmission would receive Class 2 review with a targeted six-month PDUFA timeline. FDA approval and review timing were uncertain, including due to COVID-19-related FDA demands, and further trials could be required.
- Commercial and operating outlook: Kala expected 2020 revenue to be negatively affected by COVID-19. It anticipated lower R&D costs in 2020 following STRIDE 3 completion, but potentially higher commercial and administrative spending; if EYSUVIS were approved, it planned to expand its sales force from 57 representatives to approximately 100–125.
- Funding and debt risks: The company expected continued significant losses and could require additional capital. Equity financing could dilute shareholders; debt is secured by substantially all assets and carries covenants, including a $10 million minimum-cash requirement. Kala did not expect to qualify for the facility’s additional $35 million Term Loan B by June 30, 2020.
- Other matters: Kala reported no material legal proceedings, no material subsequent events, and effective disclosure controls as of March 31, 2020. It recorded no income tax provision or benefit and maintained a full valuation allowance; an ownership change had materially limited certain tax-loss and credit carryforwards.
Important facts for investors to verify
- Confirm issuer identity and ticker: the filing names Kala Pharmaceuticals, Inc., while the request metadata names KALA BIO, Inc.
- Track FDA action and timing on the April 30 EYSUVIS resubmission, including whether additional data or trials are requested.
- Monitor COVID-19 effects on elective surgeries, INVELTYS prescriptions and sales, and the pace of commercial recovery.
- Assess cash burn against the stated runway, including the differing runway language in the filing, planned spending, debt service and any future financing needs.
- Review dilution and remaining financing capacity: the filing reports approximately $18.3 million of securities remaining under the shelf after the underwriters’ April 3 option exercise.
- Evaluate revenue-reserve estimates, inventory levels and gross-margin trends, as quarterly net sales were small and reserves materially affected reported revenue.