Kodiak Sciences Inc. — Q3 2018 Form 10-Q
Reporting period: Three and nine months ended September 30, 2018. Kodiak is a clinical-stage biopharmaceutical company developing ophthalmic therapies. It had no approved products and generated no product revenue.
Financial performance and liquidity
Amounts below are in U.S. dollars; financial statement figures are in millions except per-share data.
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Research and development expense | $4.7 | $3.1 | $11.9 | $13.2 |
| General and administrative expense | $1.7 | $0.8 | $5.1 | $2.5 |
| Operating loss | $(6.4) | $(4.0) | $(17.0) | $(15.8) |
| Interest expense | $(2.0) | $(0.4) | $(5.3) | $(0.4) |
| Other expense, net | $(2.1) | $(0.2) | $(4.4) | $(0.2) |
| Net loss | $(10.5) | $(4.6) | $(26.8) | $(16.4) |
| Basic and diluted net loss per share | $(1.33) | $(0.61) | $(3.45) | $(2.19) |
Margins are not meaningful because the company had no revenue. Q3 R&D expense rose 50%, largely reflecting platform and clinical-trial activity and increased personnel; nine-month R&D expense fell 10%, primarily because KSI-301 manufacturing runs had been incurred mainly in 2017. G&A more than doubled in both comparisons, including IPO-related professional services, higher personnel costs and increased overhead. Higher note-related interest and fair-value losses on warrants and a derivative also contributed to the larger net loss.
At September 30, cash and cash equivalents were $11.6 million, restricted cash was $0.1 million, and current assets were $12.3 million versus current liabilities of $5.4 million. Total liabilities were $60.9 million; convertible notes had a carrying value of $41.5 million. The balance sheet also showed $50.0 million of redeemable convertible preferred stock and a $93.8 million stockholders’ deficit. Operating cash use was $20.7 million for the first nine months, compared with $12.8 million in 2017; investing cash use was $0.1 million. Financing provided $30.9 million, mainly from $33.0 million of 2018 convertible notes.
Material changes and subsequent events
- In October 2018, Kodiak completed its IPO, selling 9.0 million shares at $10 per share; in November, underwriters bought another 0.4 million shares. The filing reports approximately $83.7 million of aggregate net proceeds after underwriting discounts and other offering costs.
- At the IPO closing, preferred stock converted into 12.4 million common shares and the 2017 and 2018 notes converted into approximately 2.6 million and 4.3 million common shares, respectively. The notes therefore converted after the September 30 balance-sheet date.
- Management estimated that September 30 cash plus IPO net proceeds would fund planned operations for at least 12 months from issuance of the financial statements. The IPO proceeds were intended to advance KSI-301 clinical studies, support other pipeline research and meet working-capital and corporate needs.
Outlook, commentary and risks
- KSI-301 was Kodiak’s lead candidate. The company reported completion of planned dose cohorts in a Phase 1 DME study, with tolerability, no drug-related adverse events or observed intraocular inflammation to date, and bioactivity at all three dose levels. The study was small and early-stage; these results do not establish later-stage safety, efficacy or durability.
- Management planned a U.S. multiple-dose Phase 1b study across wet AMD, DME/DR and retinal vein occlusion, with enrollment expected to complete in 2019. It planned to start a global wet-AMD Phase 2 study in early 2019, testing 12-, 16- or 20-week dosing against aflibercept every eight weeks. Management intended to design it as pivotal, subject to regulatory acceptance; primary data were anticipated in 2021. China Phase 2 studies and a DME/DR global Phase 2 study were also planned.
- No formal financial earnings guidance was provided. Kodiak expected losses and R&D spending to increase as it advances clinical programs and operates as a public company. The company cautioned that timelines, costs, funding needs and regulatory requirements could differ from expectations.
- Key risks include clinical and regulatory uncertainty, dependence on KSI-301, competition from established retinal therapies, reliance on third-party research and manufacturing, and the need for future capital. KSI-301 manufacturing scale-up and single-source supply dependencies are significant execution risks.
- Commitments included $2.9 million of unconditional Lonza purchase obligations and $3.0 million of future operating lease payments. A cancellable license agreement could require up to $33.2 million in milestone payments plus royalties, contingent on future events and sales. Management reported no legal matters expected to have a material adverse effect.
Investor facts to verify
- Confirm the final IPO proceeds and expense reconciliation: the filing cites approximately $83.7 million net proceeds, while its use-of-proceeds discussion separately gives $87.6 million after underwriting discounts but before estimated offering costs.
- Track Phase 1b and Phase 2 initiation, enrollment, safety and efficacy results, and whether regulators accept the proposed wet-AMD Phase 2 design as pivotal.
- Assess cash burn against management’s runway estimate and planned clinical program spending; future funding may be required.
- Review dilution and capitalization after conversion of notes and preferred stock, warrant exercises and equity-plan grants.
- Monitor manufacturing capacity, supply continuity, and the timing and potential cost of Lonza commitments and other contingent license obligations.