KALA Pharmaceuticals, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Unaudited results; amounts below are in U.S. dollars. The filing identifies the registrant as KALA Pharmaceuticals, Inc.
Business context
Kala commercializes two U.S.-approved eye products: EYSUVIS for short-term treatment of dry-eye signs and symptoms, and INVELTYS for post-operative inflammation and pain. EYSUVIS’s full promotional launch began in January 2021; INVELTYS launched in 2019. The company is also pursuing early-stage preclinical eye-disease programs.
Financial performance and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net product revenue | $3.1 million | $0.8 million | $6.3 million | $1.9 million |
| Operating loss | $29.0 million | $21.3 million | $57.4 million | $41.4 million |
| Net loss | $36.5 million | $23.3 million | $66.9 million | $45.3 million |
| Net loss per share | $0.57 | $0.42 | $1.06 | $0.94 |
- Q2 revenue comprised $1.7 million from EYSUVIS and $1.4 million from INVELTYS. First-half revenue comprised $3.3 million and $3.0 million, respectively.
- Gross margin, calculated as product revenue less cost of product revenue, was approximately 66.7% in Q2 and 72.0% in the first half. This measure excludes other operating expenses.
- Q2 selling, general and administrative expense rose to $28.0 million from $15.3 million, primarily reflecting EYSUVIS launch marketing and added personnel. Research and development fell to $3.1 million from $6.1 million, mainly as EYSUVIS Phase 3 trial spending declined.
- Cash, cash equivalents and short-term investments totaled $149.6 million at June 30, 2021. Current assets were $171.7 million and current liabilities $26.1 million.
- Operating cash use was $54.2 million in the first half, versus $39.1 million in the prior-year period. Cash, cash equivalents and restricted cash increased $57.6 million, supported by investment maturities, equity issuance and debt financing.
- Debt principal was $80.0 million; long-term debt net of discount and issuance costs was $78.1 million. The company reported $27.1 million of long-term lease liabilities. No separate current portion of debt is reported.
Material changes and unusual items
- Revenue increased year over year, driven chiefly by the EYSUVIS launch and higher INVELTYS unit sales; increased estimated reserves per unit partly offset INVELTYS growth.
- On May 4, 2021, Kala repaid its $75.0 million Athyrium facility using proceeds from a new Oxford Finance $80.0 million tranche A loan. The refinancing generated a $5.4 million non-cash/accounting loss on extinguishment, including the prepayment premium and unamortized debt costs.
- The Oxford facility carries a floating rate of the greater of 30-day LIBOR or 0.11%, plus 7.89%; interest-only payments run until December 2024 unless a contingent tranche is drawn. Substantially all assets, including intellectual property, secure the facility.
- The company sold 5.6 million shares through its ATM offering in the first half, receiving $40.7 million net, increasing shares outstanding and diluting existing holders.
Outlook, risks and contingencies
- Management expects continued operating losses and significant expenses. It expects selling, general and administrative costs to rise with commercialization; it expected 2021 research and development costs to be below 2020 levels, but to increase as preclinical programs advance.
- Kala said its June 30 cash, equivalents and short-term investments, together with anticipated product revenue, would fund operations, debt service and capital needs for at least two years in MD&A. The financial statement note instead says at least twelve months from issuance; this difference is not reconciled in the filing text provided.
- Management planned to expand its sales force to as many as 125 territory managers by year-end, subject to payor coverage growth and COVID-19 conditions. No specific revenue or profitability target was provided.
- COVID-19 could again restrict physician access, elective ocular surgery and supply operations, adversely affecting commercialization, particularly INVELTYS. Other key risks include limited market acceptance and reimbursement, competition and generic alternatives, dependence on contract manufacturers, early-stage pipeline uncertainty, financing needs, debt covenants and potential share dilution.
- Commercial supply agreements require minimum purchases totaling $48.0 million through 2025 and thereafter. The filing reports no material legal proceedings. Management concluded disclosure controls were effective as of June 30, 2021.
Important facts for investors to verify
- Reconcile the stated cash runway of at least two years in MD&A with the at-least-twelve-month statement in the financial statement note.
- Track EYSUVIS and INVELTYS prescription growth, payer coverage, rebates and returns, and whether sales growth can support the expanded commercial cost base.
- Assess inventory levels ($17.2 million, including $9.2 million classified as long-term), manufacturing commitments and product demand.
- Review Oxford loan interest, covenants, collateral and contingent tranche revenue hurdles; assess the effects of additional financing or ATM sales on dilution.
- Monitor COVID-19 effects on physician access, elective procedures, manufacturing and the company’s projected liquidity.