Kodiak Sciences Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Kodiak is a clinical-stage biopharmaceutical company developing treatments for retinal diseases. It has no approved products and has not generated product revenue.
Financial performance and position
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | No product revenue | No product revenue | No product revenue | No product revenue |
| Research and development expense | $29.3 million | $10.1 million | $70.0 million | $24.7 million |
| General and administrative expense | $7.4 million | $2.6 million | $19.1 million | $8.3 million |
| Total operating expenses | $36.7 million | $12.7 million | $89.2 million | $33.0 million |
| Net loss | $36.1 million | $12.4 million | $86.5 million | $31.7 million |
| Net loss per share, basic and diluted | $0.80 | $0.33 | $1.92 | $0.85 |
| Cash used in operating activities | Not presented quarterly | $56.4 million | $27.9 million |
At September 30, 2020, cash, cash equivalents and marketable securities totaled $380.5 million; cash, cash equivalents and restricted cash totaled $302.6 million. Current assets were $381.7 million and current liabilities $22.5 million. Total liabilities were $199.0 million, including a $99.9 million liability related to future royalties and $77.3 million of operating lease liabilities. No conventional borrowings are identified in the supplied filing text.
For the first nine months, investing activities provided $46.0 million, mainly reflecting marketable-security maturities and purchases, while financing activities provided $101.1 million, largely from the royalty funding. Cash, cash equivalents and restricted cash increased $90.7 million. Accumulated deficit was $244.6 million at quarter-end. The filing does not report a profit or positive operating cash flow; margins are not meaningful given the absence of product revenue.
Changes versus prior comparable periods
- Q3 net loss widened to $36.1 million from $12.4 million; nine-month net loss widened to $86.5 million from $31.7 million.
- R&D expense rose substantially as KSI-301 clinical trials and manufacturing work expanded. Management attributed additional expense to clinical-trial and manufacturing activity, higher headcount and stock-based compensation.
- Cash used in operations more than doubled year over year for the nine-month period, increasing to $56.4 million from $27.9 million.
- Cash and investments at September 30, 2020 were $380.5 million, compared with $348.2 million at December 31, 2019. The period included receipt of $100 million under the royalty funding agreement.
Outlook, development, risks and unusual items
- KSI-301 program: Kodiak stated that it remained on track to submit a single BLA in 2022 for wet AMD, DME and RVO, subject to successful trials and regulatory review. It initiated Phase 3 DME studies GLEAM and GLIMMER and the RVO study BEACON in Q3. U.S. enrollment in the wet AMD DAZZLE study was complete; EU enrollment was ongoing, with overall completion expected by year-end 2020. Management planned to initiate the NPDR study GLOW in Q1 2021, dependent on COVID-19 conditions. As of November 4, 2020, more than 545 of 550 planned DAZZLE patients had been enrolled.
- Clinical evidence: Management described Phase 1b safety, efficacy and durability data as encouraging, but the reported results are early-stage and based on relatively small patient groups. The filing reports 622 injections in the Phase 1a/1b program as of September 15, 2020, with two mild intraocular inflammation events; neither was reported as drug-related. These observations do not establish pivotal-trial outcomes or future safety.
- Funding outlook: Kodiak expected its cash, cash equivalents and marketable securities to cover anticipated operating and capital requirements for the 12 months following the filing. It also expected losses and negative operating cash flows to continue and increase; additional financing may be needed, and availability on acceptable terms is uncertain.
- Royalty financing: Baker Bros. Advisors, a holder of more than 5% of Kodiak’s stock, funded $100 million in February 2020 for a capped 4.5% royalty on future KSI-301 net sales. A further $125 million is payable upon enrollment of 50% of patients in the planned RVO program. The royalty ends after payments reach 4.5 times the funding amount, subject to agreement terms; Kodiak has a contractual repurchase option.
- Manufacturing and commitments: Kodiak entered an eight-year initial manufacturing agreement for a dedicated KSI-301 suite, with a planned company capital contribution of 40 million Swiss francs. Annual suite fees are 12 million Swiss francs for 2021 and 16 million Swiss francs for each subsequent year under the agreement. Separately, reported cancelable and/or non-cancelable purchase obligations, including accrued amounts, were $221.1 million at September 30, 2020, versus $4.7 million at year-end 2019; the filing states no cancellation fees had been incurred.
- Facilities and liquidity: New Palo Alto leases increased operating lease assets and liabilities materially. The company also posted $11.0 million of restricted cash as collateral for a letter of credit associated with its leases.
- COVID-19: Management reported missed study visits below 5% and no significant trial delays to date, while warning that the pandemic could impair enrollment, trial completion, suppliers, manufacturing, liquidity and operating plans. It advanced GMP manufacturing for KSI-501/OG2072 by six or more months to enable a possible assessment in COVID-19 patients; this was exploratory, not an established treatment or revenue opportunity.
- Other risks: Kodiak is dependent on KSI-301, has no marketed product or commercial-scale manufacturing experience, and relies on third parties for clinical trials and manufacturing. Competition, regulatory uncertainty, intellectual-property challenges, supply constraints and the possibility of further financing are significant risks. Management reported no material pending legal proceedings and stated disclosure controls were effective as of September 30, 2020.
Important facts for investors to verify
- Enrollment, timing, endpoints and results of DAZZLE, GLEAM, GLIMMER and BEACON, and whether the planned 2022 BLA timeline remains achievable.
- How the small, early Phase 1b data compare with results from larger pivotal trials, including the full safety profile and durability of KSI-301.
- Conditions for receipt of the remaining $125 million royalty funding, the royalty economics and the potential long-term cost of the arrangement.
- Whether the $221.1 million purchase-obligation figure is cancellable in practice, and the timing and total cost of manufacturing-suite, lease and other commitments.
- Whether the $380.5 million liquidity position remains sufficient as clinical, manufacturing and operating cash use increases, and whether additional financing will be required.