KALA Pharmaceuticals, Inc. (now identified in request metadata as KALA BIO, Inc.) — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018; filed May 10, 2018. The filing registrant name is Kala Pharmaceuticals, Inc. The company is a development-stage biopharmaceutical business focused on ocular therapies using its Mucus Penetrating Particles technology. It had no product sales.
Financial performance and position
| Metric | Q1 2018 / March 31, 2018 | Prior comparable period / December 31, 2017 |
|---|---|---|
| Revenue | No product revenue; MD&A reports limited historical revenue from feasibility studies | No product revenue |
| Research and development expense | $5.7 million | $8.0 million in Q1 2017 |
| General and administrative expense | $5.5 million | $1.5 million in Q1 2017 |
| Total operating expense / operating loss | $11.1 million / $(11.1) million | $9.6 million / $(9.6) million in Q1 2017 |
| Net loss | $(11.3) million; $(0.46) per share | $(9.8) million; $(8.26) per share in Q1 2017 |
| Net cash used in operating activities | $(12.7) million | $(9.4) million in Q1 2017 |
| Cash and restricted cash | $102.7 million, including $2.2 million restricted; cash alone $100.5 million | $114.7 million combined at December 31, 2017 |
| Debt | $20.0 million principal; $19.7 million carrying value, net of discount | $18.9 million principal at December 31, 2017 |
| Total assets / stockholders’ equity | $105.0 million / $80.3 million | $116.5 million / $89.7 million at December 31, 2017 |
Gross margin is not meaningful given the absence of product sales. The reported per-share loss is not directly comparable year over year because weighted-average shares rose from 1.18 million to 24.54 million following the 2017 IPO and conversion of preferred shares.
Changes and cash flows
- Net loss increased by $1.5 million year over year. R&D declined $2.4 million, primarily because external KPI-121 trial costs fell after Phase 3 trials were completed; higher employee-related costs partly offset the decline.
- G&A increased $4.0 million, reflecting public-company legal, accounting and finance costs, commercial infrastructure spending, headcount and stock-based compensation.
- Operating cash use increased $3.4 million year over year. Investing cash use was $0.4 million, mainly property and laboratory equipment. Financing provided $1.1 million, including $2.7 million net venture-debt proceeds, offset by $1.7 million of principal payments.
- Stock-based compensation was $1.9 million in Q1 2018. Accrued expenses fell $2.9 million, contributing to operating cash use.
Outlook, commitments and risks
- Management said available cash at March 31, 2018 was expected to fund planned operating expenses, debt service and capital spending for at least 12 months from issuance of the financial statements. It cautioned that assumptions could prove wrong and cash could be depleted sooner. The company expects significant future expenses and losses and may need additional financing.
- The FDA accepted the INVELTYS NDA for filing and set an August 24, 2018 action goal date. Approval was not assured. The company was building a U.S. commercial organization and anticipated an initial sales and marketing team of about 75 if approved.
- For KPI-121 0.25% in dry eye disease, STRIDE 1 met both primary endpoints; STRIDE 2 met the sign endpoint but missed the primary symptom endpoint. After meeting with the FDA, the company expected formal minutes in Q2 2018 before deciding whether to file an NDA or conduct more trials.
- On March 29, 2018, the venture-debt facility was amended: the interest-only period was extended 12 months, maturity moved to March 2022, and borrowing capacity increased by $5 million. The rate was variable at 7.75% at quarter-end; principal payments were scheduled to begin in 2019. Debt is secured by substantially all assets other than intellectual property, and default could permit acceleration.
- The company entered an eight-year Watertown headquarters and lab lease, with expected occupancy by year-end 2018 and average rent of approximately $322,000 per month beginning November 2018. The filing’s contractual-obligations table lists $31.1 million of “other lease obligations”; the new lease was excluded from recognized lease liabilities while the premises were under construction.
- Principal risks include regulatory uncertainty, the mixed dry-eye trial results, clinical and manufacturing execution, reliance on third parties, competition, reimbursement and pricing, intellectual-property disputes, and the need for additional capital. A European patent relating to LE and dry-eye treatment could impede European commercialization unless invalidated or licensed. The company reported no material litigation and no material subsequent events.
- Management concluded disclosure controls were effective as of March 31, 2018; no material change in internal control over financial reporting was reported.
Investor verification priorities
- Track the FDA’s INVELTYS decision and any additional data or trial requirements for KPI-121 0.25% following the FDA meeting.
- Verify cash runway against operating cash burn, rising commercialization costs, debt service and the new headquarters lease.
- Review the amended debt terms, variable-rate exposure, covenant compliance and scheduled principal repayments.
- Assess whether manufacturing capacity and regulatory readiness support a potential launch, and monitor the identified European patent issue.