Kodiak Sciences Inc. — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019; filed August 14, 2019. Kodiak is a clinical-stage biopharmaceutical company developing treatments for retinal diseases. It had no approved products and no product revenue.
Financial results and liquidity
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Research and development expense | $8.8 million | $3.6 million | $14.6 million | $7.2 million |
| General and administrative expense | $3.0 million | $1.5 million | $5.7 million | $3.4 million |
| Operating loss | $11.8 million | $5.1 million | $20.3 million | $10.6 million |
| Net loss | $11.4 million | $7.4 million | $19.4 million | $16.3 million |
| Net loss per share, basic and diluted | $0.31 | $0.96 | $0.52 | $2.11 |
- At June 30, 2019, cash and cash equivalents were $45.0 million and marketable securities were $23.1 million, totaling $68.1 million. Current assets were $70.5 million; current liabilities were $6.2 million.
- Cash used in operating activities was $20.2 million for the first half, versus $15.7 million a year earlier. Investing activities used $23.2 million, primarily reflecting net purchases of marketable securities; financing provided $0.1 million.
- Accumulated deficit was $130.1 million. Total liabilities were $8.3 million, including $2.1 million in operating lease liabilities. The company reported no convertible-note balance; those notes converted upon the October 2018 IPO. No interest-bearing debt is identified on the balance sheet.
- Margins are not meaningful because the company had no product sales or revenue. The filing reports operating expenses and losses, not gross margins.
Changes versus the prior comparable periods
- Q2 operating expenses rose $6.7 million year over year, led by a $5.2 million increase in R&D. Kodiak attributed higher R&D costs mainly to KSI-301 trials and manufacturing, ABC Platform manufacturing, KSI-501 research, increased headcount and stock-based compensation.
- Q2 net loss increased $4.0 million year over year. For the first half, net loss increased $3.0 million, while operating loss increased $9.6 million; the comparison also reflects the absence of 2018 interest and other expenses related to convertible notes, warrants and derivatives.
- Reported loss per share was lower than in 2018, but weighted-average shares increased substantially following the IPO; the per-share comparison is therefore affected by the larger share count.
- Cash and cash equivalents plus marketable securities declined from $88.3 million at December 31, 2018 to $68.1 million at June 30, 2019.
Business outlook, milestones and risks
- KSI-301: Management reported interim Phase 1b Week 12 results for 35 patients across wet AMD, diabetic macular edema (DME) and retinal vein occlusion (RVO). Median visual-acuity gains were 8, 9.5 and 26.5 letters, respectively; median retinal-thickness changes were −96, −197 and −209 microns. These are early, small-cohort results, with 2.5 mg and 5 mg doses pooled.
- As of July 24, 2019, 77 patients were enrolled in Phase 1b; Kodiak expected to complete enrollment of the planned cohorts in 2019 and was considering supplemental cohorts. The company reported more than 200 injections to date without intraocular inflammation or ocular serious adverse events.
- Management expected to begin the global DAZZLE Phase 2 wet AMD study in Q3 2019, comparing KSI-301 at 12-, 16- or 20-week intervals with aflibercept every 8 weeks. A primary readout was anticipated in 2021 or 2022, depending on enrollment. The FDA indicated that a successful study could support a marketing application; Kodiak intended to design it as a pivotal study.
- Kodiak was exploring two Phase 2/3 RVO studies intended to begin in 2020, with primary readouts potentially as early as year-end 2021. It also intended to submit one or more China INDs in the second half of 2019 after a supportive pre-IND meeting.
- Management expected operating losses to continue and R&D and public-company costs to rise. The company said its $68.1 million in cash and marketable securities was sufficient for existing operational commitments and objectives at least through the first half of 2020, but disclosed substantial doubt about its ability to continue as a going concern beyond one year from issuance without additional funding. No committed source of additional capital was identified.
- Risks include clinical failure or delay, patient enrollment, regulatory requirements, reliance on third-party research and manufacturing (including a single identified manufacturer, Lonza AG), supply and scale-up challenges, competition, intellectual-property disputes, and the need for further financing. If funding is unavailable, Kodiak may delay, reduce or terminate programs or license product rights.
- The filing reported no pending legal matter expected to have a material adverse effect. Management concluded disclosure controls were effective at the reasonable-assurance level; adoption of new lease accounting was the only reported material change in internal control during the period.
Key facts for investors to verify
- Whether the planned DAZZLE, RVO and China clinical milestones occurred on the stated timelines, and how enrollment affects the projected readouts.
- Whether Phase 1b safety, efficacy and durability observations are confirmed in larger, controlled trials, particularly at the proposed extended dosing intervals.
- Current cash runway, quarterly cash use, financing plans and any subsequent funding or collaboration agreements, given the disclosed going-concern uncertainty.
- Manufacturing capacity, supply continuity and any developments in KSI-301 intellectual-property matters or third-party patent claims.