KADMON HOLDINGS, INC. In this Quarterly Report on Form 10-Q, unless otherwise stated or the context
otherwise requires, references to the "Company," "Kadmon," "we," "us" and "our"
refer to
Overview
We are a biopharmaceutical company engaged in the discovery, development and
commercialization of small molecules and biologics to address significant unmet
medical needs. Our clinical pipeline includes developmental treatments for
immune and fibrotic diseases as well as immuno-oncology therapies. Our
operations to date have been focused on developing first-in-class innovative
therapies for indications with significant unmet medical needs while leveraging
our commercial infrastructure. We believe that we have the ability to progress
these candidates ourselves while maintaining flexibility for commercial and
licensing arrangements. In addition to these discovery and development efforts,
our business strategy includes the efficient commercialization of these drugs in
the
Our revenues are difficult to predict and depend on several factors. For
example, our revenues depend, in part, on regulatory approval decisions for our
product and product candidates, the effectiveness of our and our collaborative
partners' commercialization efforts, market acceptance of our products,
particularly REZUROCK™ (belumosudil), the resources dedicated to our products
and product candidates by us and our collaborative partners, and our ability to
enter into or modify licensing agreements for our product candidates. We have
never been profitable and had an accumulated deficit of
Our operating expenses are also difficult to predict and depend on several factors, including commercialization expenses, research and development expenses, drug manufacturing, and clinical research activities, the ongoing requirements of our development programs and the availability of capital. As our commercialization activities for REZUROCK and research and development programs continue to advance, we expect our operating costs will increase. Management may be able to control the timing and level of research and development and selling, general and administrative expenses, but many of these expenditures will occur irrespective of our actions due to contractually committed activities and/or payments.
As a result of these factors, we believe that period-to-period comparisons are not necessarily meaningful and you should not rely on them as an indication of future performance. The Company has sustained operating losses for the majority of its corporate history and the Company expects to continue to incur operating losses and negative cash flows until revenues reach a level sufficient to support ongoing operations. Due to all of the foregoing factors, it is possible that our operating results will be below the expectations of market analysts and investors. In such event, the prevailing market price of our common stock could be materially adversely affected.
Recent Corporate Highlights
Pending Acquisition by Sanofi
On
The Company's board of directors (the "Board") has unanimously approved the Merger and the Merger Agreement and recommended that the stockholders of the Company adopt the Merger Agreement. At the Effective Time of the Merger:
?
27
--------------------------------------------------------------------------------
Table of Contents
?each share of common stock, par value
?each share of 5% convertible preferred stock, par value
?all unvested options to purchase Company Common Stock ("Company Options") which are outstanding immediately prior to the Effective Time will fully vest and become exercisable and, to the extent not exercised prior to the Effective Time, be canceled at the Effective Time with the former holder of such canceled Company Option becoming entitled to receive an amount in cash (without interest and subject to any applicable withholding or other taxes, or other amount as required by law) equal to (1) the number of shares of Company Common Stock subject to such Company Option multiplied by (2) the excess, if any, of the Common Stock Merger Consideration over the exercise price per share of such Company Option; provided that each Company Option with an exercise price per share equal to or greater than the Common Stock Merger Consideration will be canceled without consideration;
?all unvested stock appreciation rights granted by the Company ("Company SARs") which are outstanding as of immediately prior to the Effective Time will fully vest and, to the extent not exercised prior to the Effective Time, be canceled at the Effective Time, with the former holder of such canceled Company SAR becoming entitled to receive an amount in cash (without interest and subject to any applicable withholding or other taxes, or other amount as required by law) equal to (A) the excess, if any, of the Common Stock Merger Consideration over the exercise price per share of such Company SAR multiplied by (B) the number of shares of Company Common Stock underlying such Company SAR; provided that each Company SAR with an exercise price per share equal to or greater than the Common Stock Merger Consideration will be canceled without consideration; and
?all unvested equity appreciation rights granted by the Company ("Company EARs") which are outstanding as of immediately prior to the Effective Time will fully vest and be canceled at the Effective Time, with the former holder of such canceled Company EAR becoming entitled to receive an amount in cash (without interest and subject to any applicable withholding or other taxes, or other amount as required by law) equal to (A) the excess of the Common Stock Merger Consideration over the base price per share of such Company EAR multiplied by (B) the number of shares of Common Stock underlying such Company EAR; provided that each Company EAR with a base price per share equal to or greater than the Common Stock Merger Consideration will be canceled without consideration.
Consummation of the Merger is subject to customary closing conditions, including, without limitation, the absence of certain legal impediments, the expiration or termination of the required waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and approval by the holders of a majority of the voting power of the outstanding shares of Company Common Stock and Company Preferred Stock, voting on an as converted to Company Common Stock basis, entitled to vote on such matter.
The Company has made representations and warranties in the Merger Agreement and has agreed to covenants regarding the operation of the business of the Company and the Company Subsidiaries prior to the Effective Time. The Company is also subject to customary restrictions on its ability to solicit alternative acquisition proposals from third parties and to provide non-public information to, and participate in discussions and engage in negotiations with, third parties regarding alternative acquisition proposals. The Merger Agreement also contains customary covenants requiring the Board, subject to certain exceptions, to recommend that the Company's stockholders approve the Merger. Prior to the approval of the Merger by the Company's stockholders, the Board may withhold, withdraw, qualify, or modify its recommendation that the Company's stockholders approve the Merger because of a Company Intervening Event or may adopt, approve or recommend any Superior Proposal, subject to complying with notice and other specified conditions. ?
28
--------------------------------------------------------------------------------
Table of Contents
The Merger Agreement contains certain termination rights for both the Company
and Parent, including that, subject to certain limitations, (i) the Company or
Parent may terminate the Merger Agreement if the Merger is not consummated by
The Company will be required to pay a termination fee of
The foregoing description of the Merger Agreement and the transactions
contemplated thereby does not purport to be complete and is subject to, and
qualified in its entirety by reference to, the full text of the Merger
Agreement, which is attached as an exhibit to our Current Report on Form 8-K
filed with the
COVID-19 Update
The ongoing COVID-19 pandemic has severely impacted global economic activity and caused significant volatility in financial markets. While our financial condition, results of operations, cybersecurity and liquidity have not been materially impacted by the direct effects of the pandemic, the COVID-19 pandemic continues to evolve. We are continuing to monitor developments with respect to the COVID-19 pandemic and to make adjustments as needed to assist in protecting the safety of our employees and communities while continuing our business activities. To date, implementation of these measures has not required material expenditures or significantly impacted our ability to operate our business or our internal control over financial reporting and disclosure controls and procedures. We are continuing to monitor the potential impacts of COVID-19 on our operations and those of our partners, suppliers, customers, and regulators, including commercial and clinical drug supply chain continuity and commercial launch of REZUROCK.
Notwithstanding the foregoing, we cannot precisely predict the impact that the
COVID-19 pandemic will have in the future due to numerous uncertainties,
including the severity of the disease and its variants, the duration of the
pandemic, actions that may be taken by governmental authorities, the impact to
the business of potential variations or disruptions in our supply chain, and
other factors identified in Part I, Item 1A. "Risk Factors" included in our
Annual Report on Form 10-K for the year ended
REZUROCK ™ (belumosudil)
REZUROCK is an oral tablet developed by Kadmon for the treatment of cGVHD.
REZUROCK was approved by the FDA on
We began generating revenue from sales of REZUROCK in the third quarter of 2021.
Revenue from sales of REZUROCK in future periods is subject to uncertainties and
will depend on several factors, including the success of our and our partners'
commercialization efforts in the
Financial Outlook for 2022
In the launch period for REZUROCK, expected to be through 2022, the Company is not providing specific revenue or operating guidance. Based on our expectations for revenue and operating expenses, we believe our current cash runway takes us into 2023.
29
--------------------------------------------------------------------------------
Table of Contents
Critical Accounting Policies and Estimates
Management's discussion and analysis of our financial condition and results of
operations is based on our financial statements, which have been prepared in
accordance with
See our significant accounting policies disclosed in "Note 2. Summary of
Significant Accounting Policies" in our audited financial statements for the
year ended
Recent Accounting Pronouncements
See Note 2 of the notes to our unaudited consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for a summary of recently issued and adopted accounting pronouncements.
?
30
--------------------------------------------------------------------------------
Table of Contents
Results of Operations
Three and nine months ended
Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
(unaudited)
(in thousands)
Revenues
Net sales $ 12,223 $ 339 $ 12,607 $ 1,227
Other revenue 2,483 151 2,859 6,446
Total revenue 14,706 490 15,466 7,673
Cost of sales 643 214 750 704
Write-down of inventory - 148 - 1,054
Gross profit 14,063 128 14,716 5,915
Operating expenses:
Research and development 18,850 17,268 52,649 46,658Selling, general and administrative 21,599 10,865 47,852 30,299 Total operating expenses
40,449 28,133 100,501 76,957
Loss from operations (26,386) (28,005) (85,785) (71,042)
Total other (expense) income (6,657) 3,399 (5,981) (10,013)
Income tax expense - - - -
Net loss $ (33,043) $ (24,606) $ (91,766) $ (81,055)
Less: Net income attributable to
noncontrolling interest 580 - 580 -
Less: Deemed dividend on convertible
preferred stock 571 543 1,657 1,578
Net loss attributable to common
stockholders $ (34,194) $ (25,149) $ (94,003) $ (82,633)
Revenues
The increase in total revenue for the three and nine months ended
Cost of Sales and inventory write-down
The increase in cost of sales for the three and nine months ended
The inventory write-down during the three and nine months ended
Research and development expenses
The increase in research and development expenses for the three and nine months
ended
Selling, general and administrative expenses
The increase in selling, general and administrative expenses for the three and
nine months ended
31
--------------------------------------------------------------------------------
Table of Contents
Total other (expense) income
The following table provides components of other (expense) income:
Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
(unaudited) (unaudited)
(in thousands) (in thousands)
Interest income $ 1,246 $ 208 $ 2,966 $ 802
Interest expense (2,492) (8) (6,218) (13)
Unrealized loss on equity securities (1,619) (3,254) (1,368) (32,759)
Realized gain on equity securities - 4,274 - 19,784
Gain on extinguishment of obligations - 1,626 458 1,754
PPP loan forgiveness - - 3,091 -
Change in fair value of warrant liabilities (2,674) 602 (2,326) 469 Other expense
(1,118) (49) (2,584) (50)
Total other (expense) income $ (6,657) $ 3,399 $ (5,981) $ (10,013) The decrease in other expense for nine months ended
Deemed dividend on convertible preferred stock
We have 28,708 shares of 5% convertible preferred stock outstanding at
?
32
--------------------------------------------------------------------------------
Table of Contents
Liquidity and Capital Resources
Sources of Liquidity
Since our inception through
The following table sets forth the primary sources and uses of cash, cash equivalents and restricted cash for each period set forth below:
Nine Months Ended
September 30,
2021 2020
(unaudited)
(in thousands)
Net cash (used in) provided by:
Operating activities $ (80,380) $ (61,129)
Investing activities (136,293) (25,168)
Financing activities 211,076 52,650
Net decrease in cash, cash equivalents and restricted cash
Operating Activities
The net cash used in operating activities was
The net cash used in operating activities was
Investing Activities
Net cash used in investing activities was
Net cash used in investing activities was
Financing Activities
Net cash provided by financing activities for the nine months ended
Net cash provided by financing activities for the nine months ended
?
33
--------------------------------------------------------------------------------
Table of Contents
Future Funding Requirements
Our operations have principally been funded through the issuance of equity and debt securities. As our commercialization activities and our planned research and development programs continue to advance, we expect our costs will increase. Furthermore, given the uncertain economic conditions caused by the COVID-19 pandemic, we will continue to monitor the nature and extent of the impact of the COVID-19 pandemic on our liquidity and capital resources. As a result, our management will retain broad discretion over the allocation of our existing cash, cash equivalents and marketable debt securities.
The expected use of our cash, cash equivalents and marketable debt securities at
Our future working capital requirements, including the need for additional working capital, will be largely determined by the advancement of our portfolio of product candidates and commercialization of REZUROCK. More specifically, our working capital requirements will be dependent on:
?the timing, magnitude and scope of commercial spending and our development programs;
?regulatory approval of our product candidates;
?the costs of obtaining patent protection for our product candidates;
?the timing and terms of business development activities;
?the rate of technological advances relevant to our operations;
?the efficiency of manufacturing processes developed on our behalf by third parties; and
?the level of required administrative support for our daily operations.
Contractual Obligations and Commitments
There have been no material changes in our contractual obligations and
commitments during the nine months ended
Off-balance Sheet Arrangements
During the periods presented we did not have, and we do not currently have, any
off-balance sheet arrangements, as defined under
© Edgar Online, source
