KALA Pharmaceuticals, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. The filing identifies the registrant as KALA Pharmaceuticals, Inc. (ticker KALA). Financial amounts below are in millions of dollars unless stated otherwise.
Business context and financial performance
KALA develops and commercializes ophthalmic therapies. Its marketed products are EYSUVIS for short-term treatment of dry eye signs and symptoms, and INVELTYS for post-operative ocular inflammation and pain. Following its November 2021 acquisition of Combangio, KALA is developing KPI-012 for persistent corneal epithelial defects (PCED).
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Net product revenue | $1.37 | $3.27 | Down $1.89 (58%) |
| Cost of product revenue | $0.78 | $0.76 | Up $0.02 |
| Gross profit / margin | $0.60 / 43.5% | $2.51 / 76.9% | Margin down 33.4 percentage points |
| SG&A | $26.98 | $27.70 | Down $0.72 |
| Research and development | $4.47 | $3.13 | Up $1.34 |
| Operating loss | $(30.91) | $(28.31) | Loss increased $2.60 |
| Net loss | $(32.94) | $(30.41) | Loss increased $2.53 |
| Net loss per share | $(0.45) | $(0.49) | Per-share loss narrowed |
| Cash used in operations | $(24.09) | $(32.64) | Use reduced $8.55 |
EYSUVIS contributed $1.0 million of Q1 2022 net product revenue and INVELTYS $0.4 million, compared with $1.63 million and $1.64 million, respectively, in Q1 2021. Management attributed the decline mainly to fewer INVELTYS units and higher estimated allowances per unit for both products, partly offset by higher gross selling prices per unit.
Balance sheet, debt, and liquidity
- At March 31, 2022, cash and cash equivalents were $65.17 million and short-term investments were $4.99 million, totaling approximately $70.16 million of cash, cash equivalents, and short-term investments. Total assets were $111.57 million.
- Current assets were $98.26 million and current liabilities $32.76 million, for working capital of approximately $65.50 million. Total liabilities were $116.86 million; stockholders’ deficit was $5.28 million. Accumulated deficit was $575.33 million.
- Debt principal outstanding was $80.0 million under the Oxford Finance facility; its balance-sheet carrying value, net of discount and issuance costs and including accrued exit fee, was $79.36 million. The floating rate is the greater of 30-day LIBOR and 0.11%, plus 7.89%; the effective rate was 10.41% at quarter-end.
- Interest-only payments are scheduled through December 2024 unless a contingent tranche is funded, in which case the period extends to June 2025. Principal amortization then begins; all unpaid amounts are due May 1, 2026. The debt is secured by substantially all company assets and includes restrictive covenants.
- Cash, cash equivalents, and restricted cash decreased $29.01 million during the quarter. Financing provided $0.15 million; KALA made no ATM stock sales in Q1 2022.
Material changes, outlook, and risks
- In January 2022 KALA issued 6.82 million shares to former Combangio holders, satisfying the upfront portion of deferred acquisition consideration. Shares outstanding increased from 65.50 million at year-end to 72.59 million at March 31. An additional 973,565 shares are held back and potentially issuable in February 2023.
- Q1 expenses included a $1.05 million loss from remeasurement of deferred purchase consideration and a $0.99 million gain from remeasurement of contingent consideration; both are acquisition-related fair-value items.
- Management expected cash, cash equivalents, short-term investments, and anticipated product revenue to fund operations, lease and debt service, and capital expenditures into Q2 2023. The filing also cautions that revenue and COVID-19 effects are uncertain and available capital could be depleted sooner than expected.
- Management expected 2022 SG&A to decline versus 2021, citing completion of commercial infrastructure buildout, lower repeat launch costs, and termination of the Watertown headquarters lease. It expected R&D to increase as programs advance. The company expects significant losses for at least the next several years and did not provide a specific revenue or profitability target.
- KALA planned to submit an IND for KPI-012 and, subject to regulatory clearance, begin a U.S. Phase 2/3 PCED trial in Q4 2022. Timing, trial results, regulatory approval, manufacturing scale-up, and commercial prospects remain uncertain.
- COVID-19 had adversely affected INVELTYS demand and may continue to affect product commercialization and clinical development. Other key risks include weak product revenue and reimbursement, substantial losses and future financing needs, acquisition integration and dilution, reliance on contract manufacturers, and competition.
- Commercial supply agreements required minimum purchases totaling $46.80 million as of March 31, 2022. The company also reported up to $40 million of development, regulatory, and commercialization milestone consideration and up to $65 million of sales-based milestones related to Combangio; the sales-based milestones were not recorded because achievement was not considered probable.
- KALA reported no material legal proceedings. Management concluded disclosure controls and procedures were effective, and reported no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether EYSUVIS and INVELTYS revenue rebounds, including the effect of payer coverage, rebates, and patient assistance on net revenue and gross margin.
- Whether the stated cash runway into Q2 2023 remains supportable given operating cash use, product sales, R&D plans, and debt service.
- KPI-012 IND and Phase 2/3 trial timing, FDA clearance, and clinical and manufacturing progress.
- Potential dilution from the Combangio holdback and milestone payments, alongside the company’s capital-raising needs and remaining ATM capacity.
- Debt terms, covenant compliance, LIBOR transition provisions, and the ability to meet future principal and final-payment obligations.
- Minimum commercial supply commitments and the risk of paying for inventory beyond demand; also monitor Nasdaq’s minimum-bid-price compliance, which the filing said had been regained in March but that the share price had again fallen below $1 after April 11, 2022.