KALEIDO BIOSCIENCES, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing at the end of this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the "Risk Factors" section of this Annual Report on Form 10-K, our actual results could differ materially from the results described in, or implied by, the forward-looking statements contained in the following discussion and analysis.
Overview
We are a clinical-stage healthcare company with a differentiated, chemistry-driven approach focused on leveraging the microbiome to treat disease and improve human health. We have built a human-centric proprietary product platform for discovery and development that we believe will enable the rapid advancement of a broad portfolio of novel product candidates using either human clinical studies under regulations supporting research with food or clinical trials as drug candidates. Our product candidates are Microbiome Metabolic Therapies ("MMT" or "MMTs") which are designed to modulate the metabolic output and profile of the microbiome by driving the function and composition of existing microbes. We have an industrialized approach to the discovery and development of MMTs, and our initial MMTs are targeted glycans. Each targeted glycan is an ensemble of complex carbohydrates that is intended to modulate microbial metabolism and community composition to drive a specific biological response. We believe our MMTs have the potential to be novel treatments across a variety of diseases and conditions.
We have initiated a process to explore a range of strategic alternatives to
maximize shareholder value and have engaged professional advisors, including an
investment bank to act as a strategic advisor for this process. Potential
strategic alternatives that may be evaluated include a sale or merger of the
Company or securing additional financing or partnerships that would enable
further development of our programs. There can be no assurance that this
strategic review process will result in our pursuing any transaction or that any
transaction, if pursued, will be completed. We aim to run this strategic review
process into
We have or have had active programs in discovery, including work in ulcerative colitis, psoriasis, atopic immune disease, COPD, pathogens, and immuno-oncology aimed at expanding our MMT platform and clinical pipeline in 2022 and beyond.
Since our inception in 2015, we have devoted substantially all of our resources to building our proprietary product platform, developing our pipeline of MMT candidates, building our intellectual property portfolio and process development and manufacturing function, business planning, raising capital and providing general and administrative support for these operations. To date, we have primarily financed our operations through public offering of our equity securities, private placement of our convertible preferred stock and borrowings of long-term debt.
We have incurred significant net losses since inception and expect to continue to incur net operating losses for the foreseeable future. If we are able to continue as a going concern, we expect to continue to incur significant expenses and increasing operating losses for at least the next several years. We expect that our expenses and capital requirements will increase substantially in connection with our ongoing activities, particularly if and as we:
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conduct preclinical studies, clinical studies and clinical trials for our product candidates;
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advance the development of our product candidate pipeline;
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continue to discover and develop additional product candidates;
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•
continue to build out our proprietary product platform and to increase its throughput for the discovery and nomination of product candidates;
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develop, acquire or in-license other product candidates and technologies;
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maintain, expand and protect our intellectual property portfolio;
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hire additional clinical, scientific and commercial personnel;
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expand manufacturing capabilities, including in-house and third-party commercial manufacturing, through the purchase, renovation, customization and operation of a manufacturing facility and securing supply chain capacity sufficient to provide clinical study and clinical trial materials and commercial quantities of any product candidates which we may commercialize;
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seek regulatory approvals for any product candidates for therapeutic indications that successfully complete clinical trials;
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establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain regulatory approval or identify alternate commercial pathways for such products; and
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add operational, financial and management information systems and personnel, including personnel to support our product development and planned future commercialization efforts, as well as to support our transition to a public reporting company.
We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for or identify alternate non-drug pathways for our product candidates. If we obtain regulatory approval for or otherwise commercialize any of our product candidates, we expect to incur significant expenses related to developing our commercialization capability to support product sales, marketing and distribution.
As of
Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.
Recent Developments
In
On
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This amendment also extended the interest only period of the term loan through
Additionally, we have initiated a process to evaluate strategic alternatives in
order to maximize shareholder value. There can be no assurance that this
strategic review process will result in us pursuing any transaction or that any
transaction, if pursued, will be completed on attractive terms or at all. We aim
to run this process into
As of the date of this Annual Report on Form 10-K and given the strategic process we are running, our active development initiatives are extremely limited.
Financial Overview Revenue
We have recently begun to generate collaboration revenue but have not generated and do not expect to generate any revenue from the sale of products in the near future, if at all. If our development efforts for our current product candidates or additional product candidates that we may develop in the future are successful and can be commercialized, or if we enter into future collaboration or license agreements with third parties, we may generate revenue in the future from a combination of product sales or payments from such collaboration or license agreements.
The collaboration revenue recognized in 2020 and 2021 relates to a research collaboration with Janssen's World Without Disease Accelerator, part of the Janssen Pharmaceutical Companies of Johnson & Johnson. The collaboration explores the potential for Kaleido's Microbiome Metabolic Therapies (MMT™) to prevent the onset of childhood allergy and other atopic, immune and metabolic conditions by driving specific microbiome features which support an appropriate maturation of the infant immune system. We do not expect the total revenue under this arrangement to be material in the aggregate.
Research and Development Expenses
Research and development expenses consist primarily of costs incurred in connection with the discovery and development of our product candidates. These expenses include:
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development and operation of our proprietary product platform;
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employee-related expenses, including salaries, related benefits and stock-based compensation expense, for employees engaged in research and development functions;
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expenses incurred in connection with the preclinical and clinical development of our product candidates, including under agreements with third parties, such as consultants and contract research organizations, or CROs;
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the cost of laboratory supplies and acquiring, developing and manufacturing products for use in our preclinical studies, clinical studies and clinical trials, including under agreements with third parties, such as consultants and contract manufacturing organizations, or CMOs;
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facilities, depreciation and other expenses, which include direct or allocated expenses for rent and maintenance of facilities and insurance; and
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costs related to compliance with regulatory requirements.
We expense research and development costs as incurred. Advance payments that we make for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are delivered or the services are performed.
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Our direct external research and development expenses are tracked on a program-by-program basis and consist of costs that include fees, reimbursed materials and other costs paid to consultants, contractors, CMOs and CROs in connection with our preclinical and clinical development and manufacturing activities. We do not allocate employee costs, costs associated with our discovery efforts, laboratory supplies and facilities expenses, including depreciation or other indirect costs, to specific product development programs because these costs are deployed across multiple programs and our platform technology and, as such, are not separately classified.
Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect that our research and development expenses will increase substantially in connection with our planned preclinical and clinical development activities in the near term and in the future. At this time, we cannot accurately estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of our product candidates. The successful development and commercialization of our product candidates is highly uncertain. This is due to the numerous risks and uncertainties associated with product development and commercialization, including the following:
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the timing and progress of preclinical and clinical development activities;
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the number and scope of programs we decide to pursue and their regulatory paths to market;
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raising additional funds necessary to complete preclinical and clinical development of and commercialize our product candidates;
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the progress of the development efforts of parties with whom we have entered into and may enter into collaboration arrangements;
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our ability to maintain our current research and development programs and to establish new ones;
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our ability to maintain existing and establish new licensing or collaboration arrangements;
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the successful initiation and completion of clinical trials with safety, tolerability and efficacy profiles that are satisfactory to the FDA or any comparable foreign regulatory authority;
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the receipt and related terms of regulatory approvals from applicable regulatory authorities for any product candidates for therapeutic indications;
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the availability of specialty raw materials for use in production of our product candidates;
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establishing agreements with third-party manufacturers for clinical supply for our clinical trials and commercial manufacturing, if any of our product candidates is approved or commercialized on an alternate regulatory pathway;
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meeting demand in a timely fashion with sufficient supply at appropriate quality levels;
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our ability to obtain and maintain patents, trade secret protection and
regulatory exclusivity, both in
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our ability to protect our rights in our intellectual property portfolio;
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the commercialization of our product candidates, if and when approved if approval to market is required;
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obtaining and maintaining third-party insurance coverage and adequate reimbursement;
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the acceptance of our product candidates, if commercialized, by patients, consumers, the medical community and third-party payors;
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competition with other products; and
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a continued acceptable safety profile of our therapies following commercialization.
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A change in the outcome of any of these variables with respect to the development of our product candidates could significantly change the costs and timing associated with the development of that product candidate. We may never succeed in obtaining regulatory approval or commercialization for any of our product candidates.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related costs, including stock-based compensation, for personnel in executive, finance, corporate and business development and administrative functions. General and administrative expenses also include legal fees relating to patent and corporate matters; professional fees for accounting, auditing, tax and administrative consulting services; insurance costs; administrative travel expenses; and facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs.
We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research activities and development of our product candidates.
Results of Operations
Comparison of Years Ended
The following table summarizes our results of operations for the years endedDecember 31, 2021 and 2020: Year Ended December 31, 2021 2020 Change (in thousands) Revenue: Collaboration Revenue$ 1,104 $ 975 $ 129 Operating expenses: Research and development 67,803 55,967 11,836 General and administrative 20,968 23,882 (2,914 ) Total operating expenses 88,771 79,849 8,922 Loss from operations (87,667 ) (78,874 ) (8,793 ) Other income (expense) Interest income 72 249 (177 ) Interest expense (2,838 ) (2,802 ) (36 ) Other expense 145 (193 ) 338
Total other income (expense), net (2,621 ) (2,746 ) 125 Net loss
$ (90,288 ) $ (81,620 ) $ (8,668 )
Research and Development Expenses
Year Ended December 31,
2021 2020 Change
(in thousands)
Personnel-related $ 16,284 $ 15,585 $ 699
Stock-based compensation expense 4,451 3,820 631
External manufacturing and research 23,823 16,537 7,286
Laboratory supplies and research materials 2,560 2,060 500
Professional and consulting fees 9,140 7,149 1,991
Facility-related and other 11,545 10,816 729
Total research and development expenses
Research and development expenses increased by
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General and Administrative Expenses
Year Ended December 31,
2021 2020 Change
(in thousands)
Personnel-related $ 5,068 $ 6,081 $ (1,013 )
Stock-based compensation expense 5,891 8,864 (2,973 )
Professional and consulting fees 3,913 3,559 354
Facility-related and other 6,096 5,378 718
Total general and administrative expenses
General and administrative expenses decreased by
Interest Income
Interest income for the year ended
Interest expense
Interest expense for the year ended
Liquidity and Capital Resources
Since our inception, we have incurred significant operating losses. We have not
yet commercialized any of our product candidates and we do not expect to
generate revenue from sales of any product candidates for several years, if at
all. To date, we have primarily financed our operations through the public
offering of our equity securities, private placement of our convertible
preferred stock and borrowings of long-term debt. As of
On
As of
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and Security Agreement Amendment, and strategic review process, we have sufficient cash and cash equivalents to fund our operating expenses and capital expenditures into the beginning of the second quarter of 2022. We will require substantial additional capital to sustain our operations and pursue our growth strategy, including the development of our MMT candidates. If we fail to raise capital or enter into such agreements as and when needed, we may have to significantly delay, reduce or eliminate the development and commercialization of one or more of our product candidates or delay our pursuit of potential in-licenses or acquisitions. These factors raise substantial doubt about our ability to continue as a going concern. For more information, refer to "-Liquidity and Capital Resources" below and Note 1 to our condensed consolidated financial statements included elsewhere in this Annual Report.
Cash Flows
The following table summarizes our sources and uses of cash for each of the
periods presented:
Year December 31,
2021 2020
(in thousands)
Net cash used in operating activities
(691 ) (4,024 )
Net cash provided by financing activities 70,037 40,399 Net decrease in cash, cash
equivalents and restricted cash$ (7,748 ) $ (25,143 )
During the year ended
During the year ended
Changes in prepaid expenses and other current assets, accounts payable and accrued expenses and other liabilities were generally due to the advancement of our research programs and the timing of vendor invoices and payments.
During the years ended
During the years ended
Net Cash Provided by Financing Activities
During the year ended
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During the year ended
On
The Credit Agreement contains customary representations and warranties, events of default and affirmative and negative covenants, including, among others, covenants that limit or restrict the Borrower's ability to, among other things, incur additional indebtedness, merge or consolidate, make acquisitions, pay dividends or other distributions or repurchase equity, make investments, dispose of assets and enter into certain transactions with affiliates, in each case subject to certain exceptions. As security for its obligations under the Credit Agreement, the Borrowers granted the Lender a first priority security interest on substantially all of the Borrowers' assets (other than intellectual property), subject to certain exceptions.
The facility carries a 48-month term with interest only payments on the
outstanding principal for the first 18 months, which can be extended to up to 24
months, depending on the achievement of certain performance milestones. The Term
Loan will mature in
Funding Requirements
If we are able to continue as a going concern, over the next several quarters we will focus our activities on key exploratory and clinical studies and clinical trials which we expect will reduce our overall expense rate. In the periods that follow, assuming the success of our clinical studies and clinical trials, we anticipate our expenses to increase as we progress towards larger and more pivotal clinical studies and clinical trials of our product candidates, with the potential for larger clinical studies, clinical trials and associated manufacturing. The timing and amount of our operating expenditures will depend largely on:
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the commencement, enrollment or results of the planned clinical studies or clinical trials of our product candidates or any future clinical studies or clinical trials we may conduct, or changes in the development status of our product candidates;
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the timing and outcome of regulatory review of our product candidates;
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our decision to initiate a clinical trial, not to initiate a clinical trial or to terminate an existing clinical trial;
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changes in laws or regulations applicable to our product candidates, including but not limited to clinical trial requirements for approvals;
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developments concerning our CMOs;
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our ability to obtain materials and to produce adequate cGMP compliant product supply for any approved or commercialized product or inability to do so at acceptable prices;
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our ability to establish and maintain collaborations, if needed;
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the costs and timing of future commercialization activities, including product manufacturing, marketing, sales and distribution, for any of our product candidates for which we obtain marketing approval or identify an alternate regulatory pathway to market;
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the costs involved in prosecuting patent applications and enforcing patent claims and other intellectual property claims;
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additions or departures of key scientific or management personnel;
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unanticipated serious safety concerns related to the use of our product candidates; and
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the terms and timing of any collaboration, license or other arrangement, including the terms and timing of any milestone payments thereunder.
Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances, and marketing, distribution or licensing arrangements with third parties. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest may be materially diluted, and the terms of such securities could 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 restrictive covenants that limit our ability to take specified actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, 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 or other arrangements when needed, we may be required to delay, reduce or eliminate our product development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Off-Balance Sheet Arrangements
As of
Critical Accounting Policies and Significant Judgments and Estimates
Our consolidated financial statements are prepared in accordance with generally
accepted accounting principles in
While our significant accounting policies are described in more detail in Note 2 to our consolidated financial statements, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.
Accrued research and development expenses
As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing open contracts and purchase orders, communicating with our applicable personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs. The majority of our service providers invoice us in arrears for services performed, on a pre-determined schedule or when contractual milestones are met; however, some require advance payments. We make estimates of our accrued expenses as of each balance sheet date in the consolidated financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of these
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estimates with the service providers and make adjustments, if necessary. Examples of estimated accrued research and development expenses include fees paid to:
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vendors in connection with preclinical development activities;
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CROs and investigative sites in connection with preclinical, human clinical studies and clinical trials; and
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CMOs in connection with the production of preclinical, human clinical studies and clinical trial materials.
We measure the expense recognized based on our estimates of the services received and efforts expended pursuant to quotes and contracts with multiple CMOs and CROs that supply, conduct and manage preclinical studies, human clinical studies and clinical trials on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of certain milestones. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust the accrual or the amount of prepaid expenses accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in changes in estimates that increase or decrease amounts recognized in any particular period. To date, there have not been any material adjustments to our prior estimates of accrued research and development expenses.
Recent Accounting Pronouncements
Refer to Note 2, "Summary of Significant Accounting Policies," in the accompanying notes to the condensed consolidated financial statements for a discussion of recent accounting pronouncements.
Emerging Growth Company Status
We are an "emerging growth company," as defined in the Jumpstart Our Business
Startups Act of 2012, or the JOBS Act, and we may take advantage of certain
exemptions from various reporting requirements that are applicable to other
public companies that are not emerging growth companies. We may take advantage
of these exemptions until we are no longer an emerging growth company. Section
107 of the JOBS Act provides that an emerging growth company can take advantage
of the extended transition period afforded by the JOBS Act for the
implementation of new or revised accounting standards. We have elected to use
the extended transition period for complying with new or revised accounting
standards and, as a result of this election, our financial statements may not be
comparable to companies that comply with public company effective dates. We may
take advantage of these exemptions up until the last day of the fiscal year
following the fifth anniversary of our IPO or such earlier time that we are no
longer an emerging growth company. We would cease to be an emerging growth
company if we have more than
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