Kala Pharmaceuticals, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2018. Financial statements are unaudited. The company is a development-stage biopharmaceutical business with no product-sales revenue to date.
Financial performance and position
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Revenue | No product-sales revenue | No product-sales revenue | No product-sales revenue | No product-sales revenue |
| Research and development expense | $7.4 million | $8.1 million | $13.0 million | $16.1 million |
| General and administrative expense | $7.2 million | $1.6 million | $12.6 million | $3.1 million |
| Total operating expense | $14.5 million | $9.6 million | $25.7 million | $19.2 million |
| Net loss | $14.6 million | $11.0 million | $25.9 million | $20.7 million |
| Basic and diluted loss per share | $0.60 | $9.30 | $1.06 | $17.56 |
| Operating cash used | Not stated for quarter | Not stated for quarter | $21.9 million | $18.2 million |
At June 30, 2018, cash was $91.2 million, restricted cash was $2.2 million, total assets were $95.6 million, and accumulated deficit was $160.3 million. Cash and restricted cash together were $93.4 million. Total debt was $20.0 million; current debt was $1.7 million. The debt facility bears variable interest at Prime plus 3.00% (8.00% at quarter-end), with maturity extended to March 2022 and interest-only payments through April 2019.
Six-month investing cash use was $0.5 million; financing provided $1.1 million, principally net debt proceeds offset by principal payments. The company reported no cash equivalents or investments. No operating margin is meaningful because the company had no product-sales revenue.
Material changes versus the prior comparable period
- Q2 net loss increased by $3.6 million year over year; six-month net loss increased by $5.2 million.
- R&D expense declined, chiefly because external costs for completed Phase 3 trials were lower. The six-month decrease was partly offset by higher staffing and stock compensation.
- G&A expense rose substantially as the company expanded its organization and commercial preparations and incurred public-company legal, accounting, and finance costs. Stock-based compensation was $4.2 million for the first half, versus $1.1 million a year earlier.
- Operating cash use increased by $3.7 million year over year for the first half. Cash and restricted cash declined by $21.3 million during that period.
- Interest expense increased, reflecting higher debt outstanding and a higher interest rate. The prior-year period included a $1.2 million loss from warrant-liability fair-value changes; warrants were reclassified to equity upon the 2017 IPO, so there was no corresponding 2018 charge.
Outlook, risks, and notable items
- Management believed June 30 cash would fund planned operating expenses, debt service, and capital expenditures for at least 12 months from issuance of the statements, while cautioning that actual cash needs could exceed estimates. The company expects expenses and losses to continue and did not expect product revenue before 2019, if ever.
- INVELTYS (KPI-121 1.0%) NDA had been accepted for filing; the FDA action goal date was August 24, 2018. Approval was not assured. If approved, management anticipated an initial U.S. sales and marketing organization of about 75 personnel.
- Following FDA discussions, the company planned to submit an NDA for KPI-121 0.25% in the second half of 2018. STRIDE 1 met both primary endpoints; STRIDE 2 met the sign endpoint but missed the primary symptom endpoint. An additional Phase 3 trial, STRIDE 3, was initiated in Q3 2018 at FDA recommendation, with topline results expected in Q4 2019.
- The company entered an eight-year Watertown headquarters and lab lease, with an option to extend five years. It expected occupancy by year-end 2018; stated average rent was approximately $322,000 per month beginning November 2018. The contractual-obligations table reported $31.0 million of other lease obligations, primarily associated with this lease.
- Principal risks include regulatory approval and clinical-trial uncertainty, especially KPI-121 0.25%’s mixed Phase 3 results; commercialization and reimbursement uncertainty; reliance on third-party manufacturers and clinical vendors; intellectual-property risks; and the need for additional capital. A third-party testing laboratory had received an FDA Form 483 with two observations; the laboratory characterized them as non-critical.
- No material legal proceedings or material subsequent events were reported. Management concluded disclosure controls were effective at the reasonable-assurance level and reported no material change in internal control over financial reporting.
- The filing disclosed an immaterial correction to 2017 annual loss-per-share data: weighted-average shares were corrected from 6,903,239 to 11,375,000 and loss per share from $6.11 to $3.71.
Important facts for investors to verify
- FDA’s decision and timing on the INVELTYS NDA, and any resulting launch costs or requirements.
- KPI-121 0.25% NDA submission status, STRIDE 3 progress and results, and whether further trials are required.
- Cash burn, runway assumptions, financing needs, and compliance with the venture-debt terms.
- Lease commencement, payment obligations, and cash available after planned commercialization and research spending.
- Manufacturing and testing-laboratory readiness, including resolution or implications of the FDA Form 483 observations.
- The corrected 2017 share-count and loss-per-share figures in subsequent company reporting.