KALA BIO, INC. The following discussion and analysis of our financial condition and results of
operations should be read together with our unaudited condensed consolidated
financial statements and related notes thereto appearing elsewhere in this
Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year
ended
This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. The words "anticipate," "believe," "continue" "could," "estimate," "expect," "intend," "may," "might," "plan," "potential," "predict," "project," "should," "target," "would," and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. There are a number of important risks and uncertainties that could cause our actual results to differ materially from those indicated by forward-looking statements. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Quarterly Report on Form 10-Q, particularly in the section entitled "Risk Factors" in Part II, Item 1A that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments that we may make.
We are a biopharmaceutical company focused on the discovery, development and
commercialization of innovative therapies for diseases of the eye. Our
innovative mucus-penetrating particle, or MPP, drug delivery technology, which
we refer to as our AMPPLIFY® technology, uses selectively-sized nanoparticles
that each have a proprietary coating. We believe that these two key attributes
enable even distribution of drug particles on mucosal surfaces and significantly
increase drug delivery to target tissues by enhancing mobility of drug particles
through mucus and preventing drug particles from becoming trapped and eliminated
by mucus. We have applied the AMPPLIFY technology to loteprednol etabonate, or
LE, a corticosteroid designed for ocular applications, resulting in the
EYSUVIS is our product candidate for patients with dry eye disease utilizing a
two-week course of therapy. In
On
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subgroup of ITT patients with more severe baseline ocular discomfort (p=0.0007),
defined as patients who scored greater than or equal to 68 mm in baseline ocular
discomfort. These data replicate the achievement of both primary symptom
endpoints of STRIDE 1 (p<0.0001 in the overall ITT population and p=0.0008 in
the pre-defined ITT subgroup with more severe ocular discomfort at baseline).
Statistical significance was also achieved in the key secondary endpoint of
conjunctival hyperemia at day 15 in the ITT population (p<0.0001). We believe
this result replicates the achievement of the positive results of STRIDE 1 and
STRIDE 2, where statistical significance was demonstrated for conjunctival
hyperemia at day 15 in the ITT population as a prespecified primary endpoint in
each of those trials. Statistical significance was also achieved for the key
secondary endpoint of ODS at day 8 in the ITT population (p=0.0282), which was
consistent with STRIDE 1 (p=0.0011) and STRIDE 2 (p=0.0408). Significant
improvement was also observed for corneal staining in the ITT population
(p=0.0042), consistent with the result in STRIDE 2 (p=0.0314). Consistent with
STRIDE 1 and STRIDE 2, EYSUVIS was generally well tolerated in STRIDE 3, with no
clinically significant treatment related adverse events observed during the
course of either trial, and with elevations in interocular pressure, or IOP, in
both trials similar to placebo. On
INVELTYS is the first and only FDA-approved ocular corticosteroid product with a twice-a-day dosing regimen for the treatment of post-operative inflammation and pain. Other approved topical ocular corticosteroid products for this indication are dosed three or four times a day. In clinical trials, INVELTYS showed statistical significance in the primary efficacy endpoints of complete resolution of inflammation at day eight maintained through day 15 with no need for rescue medication compared to placebo and complete resolution of pain at day eight maintained through day 15 with no need for rescue medications compared to placebo.
We are also evaluating other opportunities for MPP nanosuspensions of LE, compounds in our receptor Tyrosine Kinase Inhibitor program, or rTKI program, that inhibit the vascular endothelial growth factor, or VEGF, pathway, for the potential treatment of a number of retinal diseases and novel next-generation anti-inflammatories designed to exhibit steroid-like anti-inflammatory action with the goal of eliminating the risk of IOP increase and cataract formation.
INVELTYS received FDA approval under Section 505(b)(2) of the Federal Food, Drug
and Cosmetic Act, or FDCA, which is the pathway we are pursuing for the approval
of EYSUVIS as well. We have retained worldwide commercial rights for INVELTYS
and our current product candidates, including EYSUVIS. Since the FDA approval of
INVELTYS, we have built a commercial infrastructure with our own focused,
specialty sales force which includes 56 territory sales managers, 7 regional
sales leaders, and 3 directors of national accounts. If EYSUVIS is approved by
the FDA, we plan to increase, pending the status of the COVID-19 pandemic, our
sales force from 56 sales representatives to a total of approximately 100 to 125
sales representatives, who will promote both EYSUVIS and INVELTYS. We expect to
commercialize in
Since the initial public offering of our common stock, or IPO, we have financed
our operations primarily through common stock offerings pursuant to a shelf
registration statement on Form S-3 that was declared effective by the
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On
We also have an aggregate amount of
Since inception, we have incurred significant losses from operations and
negative cash flows from operations. Our net losses were
Business Impact of COVID-19 Pandemic
The ongoing COVID-19 pandemic, which began in
In addition, government restrictions have at times led to moratoria on elective ocular surgeries in many jurisdictions, which has significantly reduced, and may in the future continue to significantly reduce, the demand for INVELTYS, which is indicated for the treatment of inflammation and pain following ocular surgery. The extent of the impact of COVID-19 on our commercialization efforts and our operational and financial performance will depend on certain developments, including the length and severity of this pandemic, impact on our customers, employees, vendors, and government agencies, all of which are uncertain and cannot be predicted.
While we believe FDA review of our resubmitted NDA for EYSUVIS remains on track
to be finalized by the PDUFA goal date of
Management is actively monitoring the COVID-19 pandemic and its possible effects on our financial condition, liquidity, operations, customers, sales force, contractors, and workforce. For additional information on risks posed by the COVID-19 pandemic, please see Part II, Item 1A - "Risk Factors" of this Quarterly Report, including the risk factor
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entitled "The ongoing novel coronavirus pandemic and the efforts to prevent its spread have adversely impacted our operations and the market for INVELTYS and may continue to adversely affect our business, results of operations and financial condition."
Financial Operations Overview
Product Revenues, Net
As a result of the commercial launch of INVELTYS in
Cost of product revenues
Cost of product revenues consists primarily of materials, third-party
manufacturing costs, freight and distribution costs, royalty expense, allocation
of labor, quality control and assurance, reserves for defective inventory,
reserves for excess and obsolete inventory, and other manufacturing overhead
costs. We expensed cost of product revenues related to INVELTYS as research and
development expenses prior to regulatory approval which we received on
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of salaries, benefits, commissions, stock-based compensation and travel expenses related to our commercial infrastructure and our executive, finance, human resources, legal, information technology and business development functions. Selling, general and administrative expenses also includes external costs related to marketing, samples and professional fees for auditing, tax, information technology, consultants, legal services and allocated facility-related costs not otherwise included in research and development expenses.
We anticipate that our selling, general and administrative expenses will
increase in the future as we continue to build our commercial infrastructure to
support the commercialization of INVELTYS or of any product candidates for which
we obtain marketing approval, and if and as we increase our administrative
headcount to support our continued research activities and development of our
product candidates or additional product candidates, including EYSUVIS. In
addition, we anticipate increased expenses related to supporting a larger
organization and increase in selling expense related to EYSUVIS, if approved.
With respect to the ongoing COVID-19 pandemic, selling, general and
administrative expenses were favorably impacted during the three and six months
ended
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pandemic, selling, general and administrative expenses could be favorably impacted by a reduction in certain expenses associated with the restriction in activities for our sales force. We are unable to predict the specific amount of this impact if we are forced to resume such restrictions.
Research and Development Expenses
Research and development expenses consist of costs associated with our research activities, including compensation and benefits for full-time research and development employees, an allocation of facilities expenses, overhead expenses, payments to universities under our license agreements and other outside expenses. Our research and development expenses include:
? employee-related expenses, including salaries, related benefits, travel and
stock-based compensation;
expenses incurred for the preclinical and clinical development of our product
? candidates and under agreements with contract research organizations, or CROs,
including costs of manufacturing product candidates prior to receipt of
regulatory approval;
? facilities, depreciation and other expenses, which include direct and allocated
expenses for rent and maintenance of facilities and supplies; and
payments made under our third-party licensing agreements, including the annual
? minimum royalty and reimbursable expenses for defense of agreed upon patents
under a license agreement with
We expense research and development costs as they are incurred. Research and development costs that are paid in advance of performance are capitalized as a prepaid expense until incurred. We track outsourced development costs by development program but do not allocate personnel costs, payments made under our license agreements or other costs to specific product candidates or development programs. These costs are included in Employee-related costs and Other research and development costs in the line items in the tables under "Results of Operations".
We expect that our research and development costs in 2020 will remain consistent
as compared to the year ended
Our research and development programs are at various stages of development. Successful development and completion of clinical trials is uncertain and may not result in approved products. Completion dates and completion costs can vary significantly for each product candidate and future product candidate and are difficult to predict. We will continue to make determinations as to which product candidates to pursue and how much funding to direct to each product candidate on an ongoing basis in response to the scientific and clinical success of each product candidate as well as ongoing assessments as to the commercial potential of product candidates and our ability to enter into collaborations with respect to each product candidate. We may need to raise additional capital and may seek collaborations in the future to advance our various product candidates. Additional private or public financings may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a material adverse effect on our financial condition and our ability to pursue our business strategy.
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Interest Income
Interest income consists of interest earned on our cash balance held in a deposit account.
Interest Expense
Interest expense primarily consists of contractual coupon interest expense, amortization of debt discounts and debt issuance costs recognized on our debt facility.
Critical Accounting Policies and Significant Judgments and Estimates
Our management's discussion and analysis of our financial condition and results
of operations is based on our financial statements, which we have prepared in
accordance with
There have been no material changes to our critical accounting policies from
those described in "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in our Annual Report on Form 10-K, for the fiscal
year ended
Results of Operations
Comparison of the Three Months Ended
The following table summarizes the results of our operations for the three
months ended
Three Months Ended
June 30,
2020 2019 Change
(in thousands)
Product revenues, net $ 833 $ 2,057 $ (1,224)
Costs and expenses:
Cost of product revenues 759 352 407
Selling, general and administrative 15,301 17,007 (1,706)
Research and development 6,053 7,108 (1,055)
Total operating expenses 22,113 24,467 (2,354)
Loss from operations (21,280) (22,410) 1,130
Other income (expense)
Interest income 102 646 (544)
Interest expense (2,134) (2,061) (73)
Net loss $ (23,312) $ (23,825) $ 513
Product revenues, net
Product revenues, net was
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INVELTYS is our first product to receive regulatory approval, which we launched
in
Cost of product revenues
Cost of product revenues was
Selling, general and administrative expenses
Selling, general and administrative expenses were
Research and development expenses
The following table summarizes the research and development expenses incurred
during the three months ended
Three Months Ended
June 30,
2020 2019 Change
(in thousands)
KPI-121 development costs $ 2,034 $ 3,298 $ (1,264)
Employeerelated costs 3,357 3,279 78
Other research and development costs 662 531 131
Total research and development
Research and development expenses were
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Interest income
Interest income decreased by
Interest expense
We incurred interest expense of
Comparison of the Six Months Ended
The following table summarizes the results of our operations for the six months
ended
Six Months Ended
June 30,
2020 2019 Change
(in thousands)
Product revenues, net $ 1,904 $ 3,443 $ (1,539)
Costs and expenses:
Cost of product revenues 1,113 593 520
Selling, general and administrative 30,709 35,243 (4,534)
Research and development 11,487 14,067 (2,580)
Total costs and expenses 43,309 49,903 (6,594)
Loss from operations (41,405) (46,460) 5,055
Other income (expense)
Interest income 400 1,402 (1,002)
Interest expense (4,262) (4,155) (107)
Net loss $ (45,267) $ (49,213) $ 3,946
Product revenues, net
Product revenues, net was
Cost of product revenues
Cost of product revenues was
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inspection. The increase was primarily offset by a
Selling, general and administrative expenses
Selling, general and administrative expenses were
Research and development expenses
The following table summarizes the research and development expenses incurred
during the six months ended
Six Months Ended
June 30,
2020 2019 Change
(in thousands)
KPI-121 development costs $ 3,715 $ 6,649 $ (2,934)
Employeerelated costs 6,234 5,765 469
Other research and development costs 1,538 1,653 (115)
Total research and development
Research and development expenses were
Interest income
Interest income decreased by
Interest expense
We incurred interest expense of
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2020 and 2019. During the six months ended
Liquidity and Capital Resources
Since our inception, we have incurred significant operating losses. As we
commercially launched our first product, INVELTYS, in
In
On
On
On
On
In connection with the filing of the 2018 Shelf Registration, we entered into a
sales agreement with Jefferies, pursuant to which we could issue and sell, from
time to time, up to an aggregate of
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2,592,934 shares of our common stock under the ATM Offering, resulting in net
proceeds to us of
On
In connection with the filing of the 2020 Shelf Registration, we entered into an
amended and restated sales agreement with Jefferies, pursuant to which we may
issue and sell, from time to time, up to an aggregate of
Cash Flows
As of
Six Months Ended
June 30,
2020 2019
(in thousands)
Net cash used in operating activities $ (39,134) $ (51,596)
Net cash used in investing activities (57,450) (943)
Net cash provided by financing activities 139,160 19
Increase / (decrease) in cash and restricted cash
During the six months ended
During the six months ended
Net cash used in investing activities was
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Net cash used in investing activities was
Net Cash Provided by Financing Activities
Net cash provided by financing activities was
Net cash provided by financing activities was
Funding Requirements
We anticipate that our expenses will increase substantially as compared to prior
periods as we continue to commercialize INVELTYS in
Our expenses will also increase if and as we:
continue to grow our sales, marketing and distribution capabilities in
connection with the commercialization of INVELTYS and any product candidates,
? including EYSUVIS, for which our NDA is under review by the FDA with a goal
date under PDUFA set for
our NDA;
? conduct any necessary clinical trials and other development activities and/or
seek marketing approvals for EYSUVIS and any other product candidates;
? in-license or acquire the rights to other products, product candidates or
technologies;
? pursue the clinical development of KPI-121 for the treatment of other
additional indications or for use in other patient populations;
pursue the preclinical and clinical development of product candidates,
including our rTKI program, for use in the treatment of retinal diseases, and
? novel next-generation anti-inflammatories designed to exhibit steroid-like
anti-inflammatory action with the goal of eliminating the risk of IOP increase
and cataract formation;
? seek regulatory approval for EYSUVIS, INVELTYS or any other product candidate
outside of
continue to scale up our manufacturing processes and capabilities to support
? commercialization of INVELTYS, and any of our product candidates, including
EYSUVIS, for which we seek and/or obtain marketing approval;
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? leverage our proprietary AMPPLIFY technology to advance additional potential
high-value therapeutics into preclinical and clinical development;
? maintain, expand and protect our intellectual property portfolio;
? hire additional clinical, quality control, scientific, manufacturing,
commercial and management personnel;
expand our operational, financial and management systems and increase
? personnel, including personnel to support our clinical development,
manufacturing and commercialization efforts and our operations as a public
company; and
increase our product liability insurance coverage as we expand our
? commercialization efforts, including increased coverage for EYSUVIS, if
approved.
We expect to continue to incur significant expenses and operating losses. Net
losses may fluctuate significantly from quarter-to-quarter and year-to-year. We
expect that our existing cash, cash equivalents, and short-term investments as
of
Because of the numerous risks and uncertainties associated with pharmaceutical product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve profitability. Our expenses will increase from what we anticipate if:
? we elect or are required by the FDA or non-
clinical trials or studies in addition to those expected;
? there are any delays in enrollment of patients in or completing our clinical
trials or the development of our product candidates; or
there are any third-party challenges to our intellectual property portfolio, or
? the need arises to defend against intellectual property-related claims or
enforce our intellectual property rights.
Our ability to become and remain profitable depends on our ability to generate
revenue. While we began to generate revenue from the sales of INVELTYS in
? successfully growing INVELTYS revenues;
? obtaining marketing approval of EYSUVIS or any other product candidates;
achieving an adequate level of market acceptance and obtaining and maintaining
? coverage and adequate reimbursement from third-party payors for INVELTYS and
EYSUVIS, if approved, and any other products we commercialize;
manufacturing at commercial scale, marketing, selling and distributing INVELTYS
? or any product candidates for which we obtain marketing approval, including
EYSUVIS;
? maintaining regulatory and marketing approvals for INVELTYS and for any other
product candidates for which we obtain approval, including EYSUVIS;
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hiring and building a full commercial organization required for marketing,
? selling and distributing those products for which we obtain marketing approval,
including EYSUVIS;
? obtaining, maintaining and protecting our intellectual property rights; and
? adapting our business in response to the current pandemic health event
resulting from COVID-19 and its collateral consequences.
INVELTYS is our only product that has been approved for sale and it has only
been approved in
In addition, our recent commercialization efforts have been hampered by the operational restrictions on our sales force from quarantines, travel restrictions and bans and other governmental restrictions related to COVID-19. As a result of these restrictions, we previously suspended our sales force from substantially all in-person interactions with physicians and customers and were limited to conducting educational and promotional activities virtually, and we may be forced to suspend all or some in-person interactions again in the future. To the extent we restrict in-person interactions with physicians and customers, we will again be limited to conducting educational and promotional activities virtually, which has hampered, and may continue to hamper, our ability to market INVELTYS and could adversely affect our ability to launch and market EYSUVIS, if and when approved. In addition, government restrictions have at times led to moratoria on elective ocular surgeries in many jurisdictions, which has significantly reduced, and may in the future continue to significantly reduce, the demand for INVELTYS, which is indicated for the treatment of inflammation and pain following ocular surgery. The extent of the impact of COVID-19 on our commercialization efforts will depend on the length and severity of this pandemic, which is uncertain and cannot be predicted.
We may never succeed in these activities and may never generate revenue that is sufficient to achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would decrease the value of our company and could impair our ability to raise capital, expand our business, maintain our research and development efforts, diversify our product offerings or even continue our operations. A decline in the value of our company could also cause you to lose all or part of your investment.
Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements, royalty agreements, and marketing and distribution arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include pledging of assets as collateral, covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Our pledge of our assets as collateral to secure our obligations under our Athyrium Credit Facility may limit our ability to obtain additional debt financing. Under our Athyrium Credit Facility, we are also restricted from paying dividends on our common stock and limited with respect to certain other uses of our cash without the lenders' consent.
We may need to raise additional capital in the future to advance our business. Additional private or public financings may not be available to us on acceptable terms, or at all. Additionally, the COVID-19 pandemic has already caused significant disruptions in the financial markets, and may continue to cause such disruptions, which could impact our ability to raise additional funds. The COVID-19 pandemic has also impacted, and may continue to impact, the volatility of our stock price and trading in our stock. Even after the COVID-19 pandemic has subsided, we may continue
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to experience adverse impacts to our business as a result of any economic recession or depression that has occurred or may occur in the future.
Our failure to raise capital as and when needed would have a material adverse effect on our financial condition and our ability to pursue our business strategy. If we raise additional funds through collaborations, strategic alliances, licensing arrangements, royalty agreements, or marketing and distribution arrangements, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or current or future commercialization efforts or grant rights to develop and market products or product candidates that we would otherwise prefer to develop and market ourselves.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any
off-balance sheet arrangements, as defined in the rules and regulations of the
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