Kodiak Sciences Inc. — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020; comparisons are to the corresponding 2019 periods. All financial figures below are in U.S. dollars.
Business context
Kodiak is a clinical-stage biopharmaceutical company developing treatments for retinal diseases. It had no approved products and generated no product revenue. Its lead candidate, KSI-301, was in clinical development for wet AMD, diabetic macular edema (DME), retinal vein occlusion (RVO), and diabetic retinopathy (DR). The company’s plans and financial outlook therefore depend substantially on clinical, regulatory, and manufacturing progress.
Financial performance and position
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Research and development expense | $20.6 million | $8.8 million | $40.7 million | $14.6 million |
| General and administrative expense | $6.2 million | $3.0 million | $11.8 million | $5.7 million |
| Net loss | $26.0 million | $11.4 million | $50.4 million | $19.4 million |
| Net loss per share, basic and diluted | $0.58 | $0.31 | $1.12 | $0.52 |
| Operating cash used | Not provided for quarter | Not provided for quarter | $31.8 million | $20.2 million |
Higher R&D costs reflected KSI-301 clinical-trial and manufacturing activity, platform manufacturing, and increased personnel costs. G&A growth was attributed primarily to higher headcount, stock-based compensation, and professional services. With no revenue, operating margins are not meaningful.
- Liquidity: Cash, cash equivalents, and marketable securities totaled $417.1 million at June 30, 2020, versus $348.2 million at December 31, 2019. Cash, cash equivalents, and restricted cash were $270.0 million.
- Cash flows: For the first six months, investing activities used $10.4 million and financing activities provided $100.3 million, including $99.6 million net proceeds from the royalty funding arrangement. Cash, cash equivalents, and restricted cash increased $58.0 million.
- Debt and royalty obligation: The balance sheet reports no conventional borrowing. It includes a $99.9 million liability related to the sale of future royalties. Under the agreement with significant stockholder Baker Bros. Advisors, the company received $100 million in February 2020 and may receive a further $125 million when 50% of planned RVO-program patients are enrolled. In return, Baker Bros. is entitled to a capped 4.5% royalty on future KSI-301 net sales, terminating after aggregate payments reach 4.5 times the funding amount, subject to the agreement’s terms.
- Liquidity outlook: Management said available cash, equivalents, and marketable securities should fund anticipated operating and capital needs for at least 12 months following the filing date. The company expects continuing operating losses and negative operating cash flows and may need additional financing.
Material changes and developments
- Six-month net loss increased $31.0 million year over year; operating cash use increased $11.7 million.
- The company revised its KSI-301 pivotal plan: two Phase 3 DME studies (GLEAM and GLIMMER), an ongoing Phase 2/3 wet AMD study (DAZZLE), a Phase 3 RVO study (BEACON), and a planned Phase 3 NPDR study (GLOW). Planned DME and RVO study starts were in Q3 2020; GLOW was planned for Q4, subject to pandemic conditions.
- Management said it delayed the next pivotal-study starts by one quarter, from June to September 2020, to assess COVID-19 impacts and optimize study plans. It continued to target a single 2022 BLA submission for wet AMD, DME, and RVO; DR could be submitted separately as a supplemental BLA.
- The company entered into leases for new Palo Alto headquarters and laboratory buildings and a Switzerland facility. At June 30, it did not yet control the spaces, so related right-of-use assets and lease liabilities were not recorded. The disclosed initial monthly rents for the Palo Alto buildings were approximately $0.6 million and $0.5 million, plus annual increases; rent abatements apply.
- Manufacturing-related purchase obligations, including accrued amounts, were $38.6 million at June 30, compared with $4.7 million at December 31, 2019. The company reported no cancellation fees incurred.
Outlook, commentary, and risks
- Management reported that DAZZLE enrollment remained strong, with more than 375 patients enrolled as of July 30, 2020, and missed visits below 5% since March. The independent monitoring committee recommended continuing the study without modification after its May review.
- Management described Phase 1b results as encouraging, but the reported efficacy and durability findings were from small, early-stage cohorts and do not establish pivotal-trial success. The filing reported two mild intraocular inflammation events in the Phase 1a/1b program; none of the serious adverse events observed was reported as drug-related.
- COVID-19 had caused a study-start delay and could further affect enrollment, site operations, supply chains, manufacturing, costs, liquidity, and timelines. Management reported limited disruption to date but emphasized that future effects were uncertain.
- Key risks include clinical or regulatory failure or delay, reliance on third-party manufacturers and CROs, manufacturing scale-up and single-source supply exposure, competition, intellectual-property disputes, commercialization and reimbursement uncertainty, and the possibility that available capital proves insufficient. Kodiak had not completed a pivotal trial or established commercial manufacturing or sales capabilities.
- The company accelerated GMP manufacturing work for OG2072, the bispecific component used in KSI-501, to enable possible evaluation in COVID-19 as well as support KSI-501 development. This was exploratory; the filing did not report clinical evidence of benefit in COVID-19 patients.
Important facts for investors to verify
- Whether planned pivotal trials started on schedule, enrolled adequately, and maintained data quality despite COVID-19.
- Whether larger, controlled trials confirm KSI-301’s safety, efficacy, and dosing durability beyond the preliminary Phase 1b findings.
- Whether the remaining $125 million royalty-funding installment is triggered, and the long-term economic impact of the 4.5% royalty and repurchase provisions.
- Whether manufacturing scale-up, the Lonza facility timetable, and expanded contractual commitments support clinical and potential commercial supply.
- Whether cash runway and future financing needs remain consistent with management’s stated outlook as development and facility spending rise.