KODIAK SCIENCES INC. You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and the related notes included elsewhere in this report and with our audited financial statements and related notes thereto and management's discussion and analysis of financial condition and results of operations for the year endedDecember 31, 2021 , included in our Annual Report on Form 10-K filed with theSecurities and Exchange Commission , or theSEC , onMarch 1, 2022 . This discussion and analysis and other parts of this report contain forward-looking statements based upon current beliefs, plans and expectations related to future events and our future financial performance that involve risks, uncertainties and assumptions, such as statements regarding our intentions, plans, objectives, expectations, forecasts and projections. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth under the section of this report titled "Part II, Item 1A - Risk Factors" and elsewhere in this report. Overview Since its founding in 2009,Kodiak Sciences Inc. ("Kodiak," the "Company," "we" or "our") has developed a new technology platform for retinal medicines. Our goal is to prevent and treat the major causes of blindness by developing and commercializing next-generation therapeutics for chronic, high-prevalence retinal diseases. Kodiak's lead product candidate, tarcocimab tedromer (formerly KSI-301, also known as tarcocimab), is being investigated in five registrational clinical trials. The comprehensive clinical program targets high prevalence anti-vascular endothelial growth factor ("anti-VEGF") dependent retinal diseases with clinical trials designed as a package to support a broad product label, which we hope will include the key diseases and the longest dosing intervals. Tarcocimab is being developed to become a differentiated, long-interval therapy for use in many patients who may benefit from anti-VEGF therapy. At the same time, Kodiak is investing in commercial scale manufacturing. We aim to provide a pre-filled syringe early in commercialization and are working actively towards this goal. We believe combining these ambitious clinical and manufacturing efforts sets the stage for potential market share capture when and if tarcocimab is approved. In addition, Kodiak is investing in its pipeline. The Company is progressing its Antibody Biopolymer Conjugate ("ABC") PlatformTM towards suboptimal anti-VEGF responder patients, a group estimated to be as large as 30% of treated patients, with its bispecific conjugate KSI-501. Beyond today's anti-VEGF market, Kodiak's new triplet medicines are being designed on its ABC Platform in an effort to bring new capabilities to treat the even higher prevalence retinal diseases of dry age-related macular degeneration ("AMD") and glaucoma. Notably, up to this point, Kodiak has retained all global rights to make, use and sell its product candidates, which we believe preserves future value and allows for agile decision-making.
While engaged in these research and development efforts, we believe we have
demonstrated a disciplined and creative approach to building and financing the
company. As of
Our objective is to develop our retina-focused product candidates, seek FDA and worldwide health authority marketing authorization approvals, and ultimately commercialize our product candidates.
Following from these efforts, we believe Kodiak has the potential to achieve our ambition of becoming a significant incumbent retinal development and commercialization franchise on a global basis.
Recent Updates
Tarcocimab Clinical Program Update
We continued advancing our ongoing pivotal studies of tarcocimab, namely our paired Phase 3 studies GLEAM and GLIMMER in diabetic macular edema ("DME"), short-interval Phase 3 study DAYLIGHT in wet AMD, Phase 3 study BEACON in Retinal Vein Occlusion ("RVO"), and Phase 3 study GLOW in non-proliferative diabetic retinopathy without DME ("NPDR" without DME).
Looking across our development program for tarcocimab, our paired Phase 3 GLEAM
and GLIMMER studies in DME, if successful, are designed to serve as the primary
basis for a Biologics License Application ("BLA"), and potential regulatory
approval of tarcocimab. BEACON serves as the single pivotal study to support
approval in macular edema following RVO. Our Phase 3 DAYLIGHT study and our
Phase 3 GLOW study, if successful, would contribute data to support approvals in
wet AMD and NPDR, respectively. All the studies are fully enrolled and expected
to read out topline data within the next twelve months and, if successful, we
plan to file a single BLA with the data across the program.
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--------------------------------------------------------------------------------GLEAM / GLIMMER - Paired Phase 3 Studies in Patients with Treatment-Naïve Diabetic Macular Edema
The Phase 3 GLEAM and GLIMMER studies are global, multi-center, randomized pivotal studies designed to evaluate the durability, efficacy and safety of tarcocimab in patients with treatment-naïve diabetic macular edema. In each study, patients are randomized 1:1 to receive either tarcocimab or aflibercept. The tarcocimab arm is treated with a proactive, individualized dosing regimen of every 8-, 12-, 16-, 20- or 24 weeks (utilizing tight dynamic retreatment criteria) after three loading doses. The aflibercept arm is treated with a fixed dosing regimen of every 8-weeks after five monthly loading doses, per its label. Both studies completed enrollment of approximately 450 patients each worldwide in the first quarter of 2022. The primary endpoint for both studies is at year one, and patients will be treated and followed for a total of two years. We expect to announce topline data in mid-2023. If successful, we expect that data from our GLEAM and GLIMMER studies will serve as the primary basis for approval of tarcocimab in our anticipated BLA submission.
DAYLIGHT - Phase 3 Study in Patients with Treatment-Naïve Wet AMD
The Phase 3 DAYLIGHT study is a global, multi-center, randomized pivotal study designed to evaluate the efficacy and safety of high-frequency tarcocimab in patients with treatment-naïve wet AMD. Patients are randomized to receive either tarcocimab on a monthly dosing regimen or to receive standard-of-care aflibercept on a fixed dosing regimen of every 8-weeks after three monthly loading doses per its label. The primary endpoint is at year one. The DAYLIGHT study is intended to clarify the efficacy of tarcocimab to treat high need patients with wet AMD and, if successful, is intended to serve as the basis for approval in wet AMD with monthly dosing. DAYLIGHT has completed enrollment of approximately 550 patients worldwide and we expect to announce topline data in mid-2023.
BEACON - Phase 3 Study in Patients with Treatment- Naïve Retinal Vein Occlusion
Following our announcement inAugust 2022 of the topline results at week 24, the study has advanced into the second six months with patients in both tarcocimab and aflibercept groups receiving treatment on an individualized basis per protocol-specified criteria. We intend to include the primary results at week 24 in our anticipated BLA filing to serve as the basis for potential approval of tarcocimab in RVO.
GLOW - Phase 3 Study in Patients with Non-Proliferative Diabetic Retinopathy without DME
The Phase 3 GLOW study is a global, multi-center, randomized pivotal superiority study designed to evaluate the efficacy and safety of tarcocimab tedromer in approximately 240 patients with treatment-naïve, moderately severe to severe non-proliferative diabetic retinopathy. Patients are randomized to receive either tarcocimab every six months after initiating doses given at baseline, 8 weeks and 20 weeks into the study, or to receive sham injections. The primary endpoint is at one year and patients will be treated and followed for two years. Outcomes include changes in diabetic retinopathy severity, measured on a standardized photographic grading scale, and the rate of development of sight-threatening complications due to diabetic retinopathy. We believe tarcocimab tedromer has the potential to be the longest-interval intravitreal therapeutic option for patients with diabetic retinopathy. GLOW has completed enrollment of approximately 240 patients inAugust 2022 , and we expect to announce topline data in the second half of 2023. 12 --------------------------------------------------------------------------------
Tarcocimab Manufacturing
InAugust 2020 , we and our wholly-owned subsidiaryKodiak Sciences GmbH entered into a manufacturing agreement withLonza Ltd ("Lonza") for the clinical and commercial supply of drug substance for tarcocimab. The manufacturing agreement has an initial term of eight years, and the Company has the right to extend the term up to a total of 16 years. The Company and Lonza each has the ability to terminate this agreement upon the occurrence of certain conditions. We planned a custom-built bioconjugation facility with Lonza dedicated to the manufacture of Kodiak's drug substance. InMarch 2022 , we achieved mechanical completion of this facility in partnership with Lonza. InMay 2022 , we announced the grand opening of this facility together with Lonza.
Pipeline Progression
We continued progressing pipeline product candidates developed from ourABC Platform, including KSI-501. KSI-501 is a recombinant, mammalian cell expressed dual inhibitor antibody biopolymer conjugate, targeting both VEGF (VEGF-trap) and IL-6 (anti-IL-6-antibody) for the treatment of retinal diseases with an inflammatory component, including DME and uveitic macular edema. We believe we are on track to file the IND for KSI-501 in the fourth quarter of 2022 and to begin the Phase 1 clinical study in early 2023.
COVID-19 and Global Economic Impacts
We are continuing to monitor the global ongoing COVID-19 pandemic. We and our key clinical and manufacturing partners have been able to continue to advance our operations. Through this pandemic, we continue to work closely with our clinical sites to ensure patient safety and minimize the number of missed visits and study discontinuations. The overall rate of missed study visits remains less than 5% across all of our ongoing studies combined. In response to the COVID-19 pandemic with regards to business operations, clinical trials, and manufacturing activities, we have taken steps in line with guidance from theU.S. Centers for Disease Control and Prevention ("CDC") and theState of California to protect the health and safety of our employees and our community. We will continue to monitor the COVID-19 situation closely. As global economic conditions recover from the COVID-19 pandemic, business activity may not recover as quickly as anticipated, and it is not possible at this time to estimate the long-term impact that COVID-19 could have on our business, as the impact will depend on future developments, which are highly uncertain and cannot be predicted. The ultimate impact of the ongoing COVID-19 pandemic on our business operations remains uncertain and subject to change. We do not yet know the full extent of potential delays or impacts on our business, our clinical trials, healthcare systems or the global economy as a whole. See also the section titled "Risk Factors" for additional information on risks and uncertainties related to the evolving COVID-19 pandemic. Moreover, our results of operations could be adversely affected by general conditions in theU.S. and global economies, theU.S. and global financial markets and adverse geopolitical and macroeconomic developments.U.S. and global market and economic conditions have been, and continue to be, disrupted and volatile due to many factors, including component shortages and related supply chain challenges, geopolitical developments (including the ongoing COVID-19 pandemic) and the conflict betweenUkraine andRussia and related sanctions, and increasing inflation rates and the responses by central banking authorities to control such inflation, among others. See also the section titled "Risk Factors" for additional information on risks and uncertainties related to the evolving global macroeconomic impacts. 13 --------------------------------------------------------------------------------
Components of Operating Results
Operating Expenses
Research and Development Expenses
Substantially all of our research and development expenses consist of expenses incurred in connection with the development of our ABC Platform and product candidates. These expenses include certain payroll and personnel expenses, including stock-based compensation, for our research and product development employees; laboratory supplies and facility costs; consulting costs; contract manufacturing and fees paid to CROs to conduct certain research and development activities on our behalf; and allocated overhead, including rent, equipment, depreciation and utilities. We expense both internal and external research and development expenses as they are incurred. Costs of certain activities, such as manufacturing and preclinical and clinical studies, are generally recognized based on an evaluation of the progress to completion of specific tasks. Nonrefundable payments made prior to the receipt of goods or services that will be used or rendered for future research and development activities are deferred and capitalized. The capitalized amounts are recognized as expense as the goods are delivered or the related services are performed. We are focusing substantially all of our resources and development efforts on the development of our product candidates, in particular tarcocimab. We expect our research and development expenses to increase substantially during the next few years as we conduct our Phase 3 clinical studies, complete our clinical program, pursue regulatory approval of our drug candidates and prepare for a possible commercial launch. Predicting the timing or the final cost to complete our clinical program or validation of our commercial manufacturing and supply processes is difficult and delays may occur because of many factors, including factors outside of our control. For example, if the FDA or other regulatory authorities were to require us to conduct clinical trials beyond those that we currently anticipate, or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development. Furthermore, we are unable to predict when or if our drug candidates will receive regulatory approval with any certainty.
General and Administrative Expenses
General and administrative expenses consist principally of payroll and personnel expenses, including stock-based compensation; professional fees for legal, consulting, accounting and tax services; allocated overhead, including rent, equipment, depreciation and utilities; and other general operating expenses not otherwise classified as research and development expenses. We anticipate that our general and administrative expenses will increase as a result of increased personnel costs, including stock-based compensation, expanded infrastructure and higher consulting, legal and accounting services associated with maintaining compliance with requirements of the stock exchange listing andSEC , investor relations costs and director and officer insurance premiums associated with being a public company.
Interest Income
Interest income consists primarily of interest income earned on our cash, cash equivalents and marketable securities.
Other Income (Expense), Net
Other income (expense), net consists primarily of accretion income and amortization expense on marketable securities, tax provisions and amortized issuance costs from the liability related to the future sale of royalties to BBA in 2019.
Results of Operations
The following table summarizes the results of our operations for the periods
indicated, in thousands:
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 Change 2022 2021 Change
Operating expenses
Research and development $ 61,676 $ 56,002 $ 5,674 $ 211,597 $ 141,743 $ 69,854
General and administrative 17,802 11,533 6,269 55,716 32,259 23,457
Loss from operations (79,478 ) (67,535 ) (11,943 ) (267,313 ) (174,002 ) (93,311 )
Interest income 2,028 40 1,988 3,239 270 2,969
Interest expense (4 ) (6 ) 2 (14 ) (17 ) 3
Other income (expense), net 416 (25 ) 441 713 (76 ) 789
Net loss $ (77,038 ) $ (67,526 ) $ (9,512 ) $ (263,375 ) $ (173,825 ) $ (89,550 )
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Research and Development Expenses
The following table summarizes our research and development expenses for the periods indicated, in thousands:
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 Change 2022 2021 Change
Tarcocimab program
expenses $ 28,878 $ 38,371 $ (9,493 ) $ 107,825 $ 89,557 $ 18,268
KSI-501 program
expenses 1,207 951 256 6,368 4,357 2,011
ABC Platform and
other program
expenses 6,033 1,745 4,288 21,854 5,173 16,681
Payroll and personnel
expenses 19,968 10,679 9,289 60,295 30,483 29,812
Facilities and other
research and
development
expenses 5,590 4,256 1,334 15,255 12,173 3,082
Total research and
development expenses $ 61,676 $ 56,002 $ 5,674 $ 211,597 $ 141,743 $ 69,854
Tarcocimab program expenses decreased $9.5 million and increased $18.3 million
during the three and nine months ended September 30, 2022 as compared to the
same periods in 2021. The decrease during the three months ended September 30,
2022 stemmed from the discontinuation of our Phase 2b/3 study in wet AMD and
timing of manufacturing activities. The increase during the nine months ended
September 30, 2022 was attributable to the clinical trial costs to support our
tarcocimab program, which consists of five fully-enrolled Phase 3 pivotal
trials, as well as ongoing manufacturing progress.
KSI-501 program expenses increased
ABC Platform and other program expenses increased$4.3 million and$16.7 million during the three and nine months endedSeptember 30, 2022 , as compared to the same periods in 2021, primarily due to manufacturing runs to support future research and development effort for our pipeline. Payroll and personnel expenses increased$9.3 million and$29.8 million during the three and nine months endedSeptember 30, 2022 as compared to the same periods in 2021, primarily driven by increased stock-based compensation expense. We recorded stock-based compensation expense of$28.0 million in the nine months endedSeptember 30, 2022 relating to the Kodiak 2021 Long-Term Performance Incentive Plan ("LTPIP"). Facilities and other research and development expenses increased$1.3 million and$3.1 million during the three and nine months endedSeptember 30, 2022 , as compared to the same periods in 2021, primarily due to expansion of ourPalo Alto facilities and incremental research efforts on our pipeline.
General and Administrative Expenses
General and administrative expenses increased$6.3 million and$23.5 million during the three and nine months endedSeptember 30, 2022 , as compared to the same periods in 2021, primarily driven by increased stock-based compensation expense. We recorded stock-based compensation expense of$21.2 million in the nine months endedSeptember 30, 2022 relating to the LTPIP.
Liquidity and Capital Resources; Plan of Operations
Sources of Liquidity
We have funded our operations primarily through the sale and issuance of common stock, redeemable convertible preferred stock, convertible notes, warrants and the sale of royalties. As ofSeptember 30, 2022 , we had cash, cash equivalents and marketable securities of$537.4 million .
Future Funding Requirements
We have incurred net losses since our inception. For the three months endedSeptember 30, 2022 , we had net loss of$77.0 million , of which$26.2 million related to non-cash stock-based compensation expense, and for the nine months endedSeptember 30, 2022 , we had net loss of$263.4 million , of which$80.3 million related to non-cash stock-based compensation expense. We expect to continue to incur additional losses in future periods. As ofSeptember 30, 2022 , we had an accumulated deficit of$821.6 million . We believe that the cash, cash equivalents and marketable securities will be sufficient to meet our anticipated operating and capital expenditure requirements at least 12 months following the date of this Quarterly Report on Form 10-Q. 15 -------------------------------------------------------------------------------- We have based these estimates on assumptions that may prove to be wrong, and we could deplete our available capital resources sooner than we expect. Because of the risks and uncertainties associated with research, development and commercialization of product candidates, we are unable to estimate the exact amount of our working capital requirements. Our future funding requirements will depend on and could increase significantly as a result of many factors. To date, we have not generated any product revenue. We do not expect to generate any product revenue unless and until we obtain regulatory approval of and commercialize any of our product candidates or enter into collaborative agreements with third parties, and we do not know when, or if, either will occur. We expect to continue to incur significant losses for the foreseeable future, and we expect our losses to increase as we continue the development of, and seek regulatory approvals for, our product candidates, and begin to commercialize any approved products. We are subject to all of the risks typically related to the development of new product candidates, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business.
The timing and amount of our operating expenditures and capital requirements will depend on many factors, including:
•
the scope, timing, rate of progress and costs of our drug discovery, preclinical development activities, laboratory testing and clinical trials for our product candidates;
•
the number and scope of clinical programs we decide to pursue;
•
the scope and costs of manufacturing development and commercial manufacturing activities;
•
the extent to which we acquire or in-license other product candidates and technologies;
•
the cost, timing and outcome of regulatory review of our product candidates;
•
the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;
•
our ability to establish and maintain collaborations on favorable terms, if at all;
•
our efforts to enhance operational systems and our ability to attract, hire and retain qualified personnel, including personnel to support the development of our product candidates;
•
the costs associated with being a public company; and
•
the cost and timing associated with commercializing our product candidates, if they receive marketing approval.
A change in the outcome of any of these or other variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate. Furthermore, our operating plans may change in the future, and we will continue to require additional capital to meet operational needs and capital requirements associated with such operating plans. If we raise additional funds by issuing equity securities, our stockholders may experience dilution. Any future debt financing into which we enter may impose upon us additional covenants that restrict our operations, including limitations on our ability to incur liens or additional debt, pay dividends, repurchase our common stock, make certain investments and engage in certain merger, consolidation or asset sale transactions. Any debt financing or additional equity that we raise may contain terms that are not favorable to us or our stockholders. If we are unable to raise additional funds when needed, we may be required to delay, reduce, or terminate some or all of our development programs and clinical trials. We may also be required to sell or license rights to our product candidates in certain territories or indications to others that we would prefer to develop and commercialize ourselves. The significant uncertainties caused by the evolving effects of the ongoing COVID-19 pandemic, the ongoing conflict inUkraine , inflation, rising interest rates, lower consumer confidence, ongoing supply chain disruptions, and volatile equity capital markets may also negatively impact our operations and capital resources. We and our key clinical and manufacturing partners have been able to continue to advance our operations, and we continue to monitor the impact of the aforementioned events on our ability to continue the development of, and seek regulatory approvals for, our product candidates, and begin to commercialize any approved products. One or more of these events may ultimately have a material adverse effect on our liquidity and operating plans, although we are unable to make any prediction with certainty given the spread and rapidly changing nature of the pandemic and the evolving global actions taken to contain and treat the novel coronavirus.
Adequate additional funding may not be available to us on acceptable terms or at all. Our failure to raise capital as and when needed could have a negative impact on our financial condition and our ability to pursue our business strategies. See the section of this report titled "Part II, Item 1A - Risk Factors" for additional risks associated with our substantial capital requirements.
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