KALA BIO, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; filed May 14, 2024. KALA BIO is a clinical-stage biopharmaceutical company focused on rare and severe eye diseases. It has no revenue-generating commercial products; its former commercial business was sold to Alcon in 2022. Unless otherwise stated, financial amounts below are in millions of dollars.
Financial results and liquidity
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Revenue | None reported | None reported | No commercial product revenue |
| Research and development expense | $6.35 | $4.04 | Increased $2.32 |
| General and administrative expense | $5.42 | $6.03 | Decreased $0.61 |
| Operating loss | $11.93 | $11.68 | Loss increased $0.25 |
| Net loss | $11.81 | $14.46 | Improved $2.65 |
| Basic and diluted loss per share | $4.20 | $6.99 | Improved |
| Cash used in operating activities | $10.84 | $9.68 | Use increased $1.16 |
The narrower net loss reflected, among other items, $1.08 million of CIRM grant income in Q1 2024 and the absence of $1.97 million of other expense recorded in Q1 2023, as well as lower contingent-consideration remeasurement expense. These items partly offset increased R&D spending. R&D growth chiefly reflected higher KPI-012 development and employee-related costs. No meaningful revenue margin comparison is available because the company reported no revenue.
- Cash and cash equivalents: $48.48 million at March 31, 2024, down from $50.90 million at December 31, 2023.
- Debt: $33.96 million principal outstanding under the Oxford Finance loan; carrying value was $34.50 million, including accrued exit-fee accretion and net of unamortized costs. The effective interest rate was 17.2%. Scheduled principal amortization starts January 2025; $23.97 million of principal is scheduled for 2025 and $9.99 million for 2026.
- Balance sheet: Total assets of $53.03 million, total liabilities of $46.37 million, and stockholders’ equity of $6.66 million. Accumulated deficit was $641.22 million. Current liabilities included $5.99 million of current debt.
- Financing: The March 2024 Series G preferred-stock placement generated $8.54 million net proceeds. The company used $10.84 million in operating cash and reported a $2.42 million net decrease in cash, cash equivalents and restricted cash during the quarter.
Material changes and business developments
- KALA is substantially dependent on KPI-012, its mesenchymal stem cell secretome candidate for persistent corneal epithelial defects (PCED). The ongoing CHASE Phase 2b trial has an approximately 90-patient randomized cohort evaluating two doses against vehicle. Management targeted topline safety and efficacy data by the end of 2024. If results are positive and regulators agree, KALA believes CHASE could be the first of two pivotal trials supporting a biologics license application.
- R&D expense rose 57% year over year to $6.35 million as KPI-012 clinical development advanced. G&A expense fell 10%, primarily from lower administrative and professional service fees, partly offset by higher stock-based compensation and employee costs.
- The $11.81 million quarterly net loss was lower than the prior-year loss, but operating cash use increased. Q1 2023 cash flows also included substantial working-capital movements and $14.89 million of net common-stock offering proceeds; Q1 2024 financing instead principally reflected the Series G preferred placement.
- Common shares outstanding were 2,816,454 at March 31, 2024, compared with 2,759,372 at year-end 2023. Series G preferred shares were newly issued during Q1. All outstanding Series E, F and G preferred shares are initially convertible into an aggregate 6,507,500 common shares, subject to ownership limits and other terms.
Outlook, risks and contingencies
- Management said cash at March 31, together with the anticipated remaining $9.1 million of the CIRM award, is expected to fund operations, lease and debt-service obligations and capital needs into Q3 2025. The filing also states that cash is expected to cover at least twelve months from issuance of the financial statements. These forecasts depend on assumptions and receipt of conditional grant funds. Management does not expect existing resources to fund completion of KPI-012 clinical development.
- The $15 million CIRM award is milestone- and co-funding-dependent; $5.9 million was initially disbursed, and $1.075 million of grant income was recognized in Q1. CIRM may stop further disbursements if milestones are late or award terms are not met. KALA may therefore not receive the remaining $9.1 million.
- KALA may receive up to $325 million in Alcon commercial-sales milestones, but had received none as of the filing. Payment depends on sales thresholds and timing and is not assured. Separately, Combangio acquisition consideration includes up to $40 million of development, regulatory and commercialization milestones and up to $65 million of sales-based milestones; additional royalty obligations may also apply.
- KALA expects continued operating losses and increased R&D costs. It will need additional financing to complete development; financing may be unavailable or dilutive, and funding constraints could delay, reduce or terminate programs.
- Key risks include clinical-trial outcomes, patient enrollment, regulatory approval, third-party manufacturing and supply, reliance on CIRM, and KPI-012’s dependence on licensed intellectual property. The company also has substantial debt secured by substantially all assets. Nasdaq delisting could constitute a loan default and permit acceleration of amounts due.
- Preferred-stock conversion could materially dilute common holders. If specified shareholder proposals are approved, the board could raise conversion ownership limits; full conversion could add 6,507,500 common shares and give Baker Brothers approximately 72.65% ownership, according to the filing.
- KALA reported no material legal proceedings. Management concluded disclosure controls and procedures were effective as of March 31, 2024, and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether CHASE enrollment, conduct and end-of-2024 topline reporting remain on schedule, and what the full safety and efficacy results show.
- Whether CIRM milestones and co-funding conditions are met, and how much of the remaining $9.1 million is actually disbursed.
- Actual cash burn and runway relative to management’s Q3 2025 estimate, including debt service and upcoming 2025 principal amortization.
- Whether Alcon achieves any sales milestone thresholds; none had been paid as of the filing.
- Potential financing needs and dilution, including preferred-stock conversion terms, shareholder approvals and any additional equity issuance.
- Compliance with Nasdaq listing requirements and Oxford loan covenants, given the link between listing status and potential loan default.