KODIAK SCIENCES INC. You should read the following discussion and analysis of our financial condition and results of operations together with the section titled "Selected Consolidated Financial Data" and our consolidated financial statements and the related notes included elsewhere in this report. 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 titled "Risk Factors" and elsewhere in this report.
Overview
Kodiak Sciences (we or the Company) is a biopharmaceutical company committed to researching, developing and commercializing transformative therapeutics to treat high prevalence retinal diseases inthe United States and additional international markets. We are bringing new science to the design and development of next generation retinal medicines. Our ABC PlatformTM uses molecular engineering to merge the fields of antibody-based and chemistry-based therapies and is at the core of Kodiak's discovery engine. Our lead product candidate, KSI-301, is a novel anti-VEGF antibody biopolymer conjugate generating compelling data in treatment naïve patients with retinal vascular diseases. Our pivotal program is exploring KSI-301 in wAMD, DME, RVO and non-proliferative diabetic retinopathy. Our hope with KSI-301 is to meaningfully change the treatment paradigm for all patients with retinal vascular diseases. Our pipeline, including product candidates KSI-501 and KSI-601, aims to bring a similar ethos of drug development to other unmet needs in retina such as dry AMD and glaucoma. Our goal is to prevent and treat the major causes of blindness by developing next-generation therapeutics for chronic, high-prevalence retinal diseases. Our overall objective is to develop our product candidates, seek FDA and worldwide health authority marketing authorization approvals, and ultimately commercialize our product candidates. Product Candidates KSI-301 Kodiak's lead product candidate, KSI-301, is a novel anti-VEGF antibody biopolymer conjugate being developed for the treatment of retinal vascular diseases including age-related macular degeneration, a leading cause of blindness in elderly patients, and diabetic eye diseases, a leading cause of blindness in working-age patients. We continue to observe promising safety, efficacy and clinical durability data through 52-weeks in our ongoing Phase 1b study of KSI-301 in treatment-naïve patients with wet AMD, DME or RVO. Based on the encouraging data from our Phase 1b study, we have expanded the KSI-301 clinical pivotal program in the third quarter of 2020, and we have entered into the manufacturing-related commitments necessary for KSI-301's commercial scale-up and BLA submission. We successfully recruited patients into both of our paired pivotal studies in DME (GLEAM and GLIMMER) and into our pivotal study in RVO (BEACON) in the third quarter of 2020. The pivotal study for wet AMD (DAZZLE) began recruiting in the third quarter of 2019 and completed patient enrollment in the fourth quarter of 2020. Approximately 2,000 KSI-301 injections have been administered to approximately 500 patients, representing approximately 350 patient-years of exposure. We believe the intersection of these clinical and manufacturing activities remain on track per our "2022 Vision" to submit a single BLA for wet AMD, DME and RVO in calendar year 2022.
We believe that KSI-301, if approved, has the potential to be an important therapy to treat patients with wet age-related macular degeneration, or wet AMD, diabetic retinopathy, or DR, including diabetic macular edema, or DME, and macular edema due to retinal vein occlusion, or RVO.
Our Pre-Clinical Pipeline
Kodiak has leveraged its ABC Platform to build a pipeline of product candidates in various stages of development including KSI-501, our bispecific anti-IL-6/VEGF biopolymer conjugate for the treatment of neovascular retinal diseases with an inflammatory component, and we are expanding our early research pipeline to include ABC Platform based triplet inhibitors for multifactorial retinal diseases such as dry AMD and glaucoma. The ABC Platform and KSI-301 were developed at Kodiak, and we own worldwide rights to these assets.
Further details of our ongoing KSI-301 Phase 1b trial, our accelerating development strategy, our manufacturing-related commitments, and our pipeline of retinal medicines based on the ABC Platform are described in the "Business" section above.
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Financial Operations Overview
Since inception inJune 2009 , we have devoted substantially all of our resources to discovering and developing product candidates and manufacturing processes, building our ABC Platform and assembling our core capabilities in drug development for ophthalmic disease. We plan to continue to use third-party contract research organizations, or CROs, to carry out our preclinical and clinical development. We rely on third-party contract manufacturing organizations, or CMOs, to manufacture and supply our preclinical and clinical materials to be used during the development of our product candidates. We are evaluating investments in commercial manufacturing capacity. We do not have any products approved for sale and have not generated any product revenue since inception. We have funded our operations primarily through the sale and issuance of equity securities. InOctober 2018 , we completed our initial public offering, or IPO. InDecember 2019 , we completed a follow-on offering. InNovember 2020 , we completed a second follow-on offering. We have incurred significant operating losses to date and expect that our operating losses will increase significantly as we advance our product candidates, particularly KSI-301, through preclinical and clinical development, seek regulatory approval, prepare for and, if approved, proceed to commercialization; broaden and improve our platform; acquire, discover, validate and develop additional product candidates; obtain, maintain, protect and enforce our intellectual property portfolio; and hire additional personnel. In addition, we expect to incur additional costs associated with operating as a public company. Our net loss was$133.1 million ,$47.4 million and$41.4 million for the years endedDecember 31, 2020 , 2019 and 2018, respectively. As ofDecember 31, 2020 , we had an accumulated deficit of$291.2 million . Our ability to generate product revenue will depend on the successful development and eventual commercialization of one or more of our product candidates. Until such time as we can generate significant revenue from sales of our product candidates, if ever, we expect to finance our operations through the sale of equity, debt financings or other capital sources, including potential collaborations with other companies or other strategic transactions. Adequate funding may not be available to us on acceptable terms, or at all. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back, or discontinue the development and commercialization of KSI-301 for wet AMD, RVO, DME or NPDR or delay our efforts to advance and expand our product pipeline. InNovember 2020 , we filed an automatic shelf registration statement (File No. 333-250109), which became effective upon filing. The shelf registration statement allows us to issue certain securities, including shares of our common stock, from time to time. InNovember 2020 , we completed a follow-on offering pursuant to the automatic shelf registration and issued and sold 5,972,222 shares of the Company's common stock, including the underwriters' full exercise of their over-allotment option, at a price to the public of$108.00 per share under our shelf registration statement. The gross proceeds from this offering were$645.0 million , resulting in aggregate net proceeds of$612.0 million after deducting underwriting discounts and commissions and other offering costs.
As of
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.
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We are focusing substantially all of our resources and development efforts on
the development of our product candidates, in particular KSI-301. 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 andSecurities and Exchange Commission , orSEC , 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 debt securities net of amortized issuance costs from the liability related to the future sale of royalties to BBA in 2019.
Results of Operations
The following table summarizes our results of operations for the periods
indicated:
Year Ended 2020 vs 2019
December 31, Change
2020 2019 2018 Dollar Percent
(in thousands, except percentages)
Operating expenses:
Research and development $ 107,389 $ 37,506 $ 18,793 $ 69,883 186 %
General and administrative 28,618 11,684 7,581 16,934 145 %
Loss from operations (136,007 ) (49,190 ) (26,374 ) (86,817 ) 176 %
Interest income 2,902 1,568 617 1,334 85 %
Interest expense (includes $nil,
$nil and $3,030
attributable to related parties
for the years ended
December 31, 2020 , 2019 and 2018,
respectively) (25 ) (8 ) (5,519 ) (17 ) *
Other income (expense), net
(includes $49 , $nil, and
$2,736 expenses attributable to
related parties for
the years ended December 31, 2020 ,
2019, and
2018, respectively) 34 265 (4,688 ) (231 ) *
Loss on extinguishment of debt
(includes $1,587
attributable to related parties
for the year ended
December 31, 2018) - - (5,479 ) - *
Net loss $ (133,096 ) $ (47,365 ) $ (41,443 ) $ (85,731 ) 181 %
*Percentage is not meaningful
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Research and Development Expenses
Research and development expenses increased
The following table summarizes our research and development expenses:
Year Ended
December 31, 2020 vs 2019
2020 2019 2018 Change
(in thousands)
ABC Platform external expenses (1)
39,278
KSI-501 program external expenses (3) 1,573 1,188
- 385
Payroll and personnel expenses (4) 30,434 11,978 6,825
18,456
Other research and development
expenses (5) 9,454 2,837 2,319 6,617
Total research and development
expenses $ 107,389 $ 37,506 $ 18,793 $ 69,883 (1) ABC Platform external expenses primarily relates to manufacturing of
biopolymer intermediate drug substance which can be used with multiple
product candidates. These expenses are primarily for services provided by
CMOs.
(2) KSI-301 program external expenses relate to development of KSI-301, including
manufacturing and clinical trial costs. These expenses are primarily for
services provided by CMOs and CROs.
(3) KSI-501 program external expenses relate to research and development of
KSI-501.
(4) Payroll and personnel expenses includes salaries, benefits and stock-based
compensation for our personnel involved in research and development
activities. These expenses are separately classified and not allocated to
specific programs because these expenses relate to multiple programs.
(5) Other research and development expenses includes direct costs related to
research and development activities other than those listed above.
ABC Platform external expenses increased
KSI-301 program external expenses increased$39.3 million during the year endedDecember 31, 2020 as compared to 2019, primarily due to clinical trial costs to support ongoing trials, as well as manufacturing activities for KSI-301. Our pivotal Phase 2b/3 clinical study in wAMD (DAZZLE) dosed the first patient inOctober 2019 , and patient recruitment completed in the fourth quarter of 2020. We initiated two pivotal Phase 3 clinical studies in DME (GLEAM and GLIMMER) and one pivotal Phase 3 clinical study in RVO (BEACON) in the third quarter of 2020. KSI-501 program external expenses increased$0.4 million during the year endedDecember 31, 2020 as compared to 2019, due to ongoing research and development of KSI-501.
Payroll and personnel expenses increased
Other research and development expenses increased$6.6 million during the year endedDecember 31, 2020 as compared to 2019, primarily due to the allocation of lease costs forPalo Alto andSwitzerland . Our other research and development expenses may fluctuate in future periods as we elect to develop other product candidates.
General and Administrative Expenses
General and administrative expenses increased$16.9 million , or 145%, from the year endedDecember 31, 2020 as compared to 2019. The increase in general and administrative expenses was primarily driven by increased headcount and stock-based compensation expense as well as professional services related to consulting, legal and accounting, as well as the allocation of lease costs forPalo Alto . 113
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Interest Income
Interest income increased$1.3 million from the year endedDecember 31, 2020 as compared to 2019, which was mainly attributable to interest income earned on increased cash balances from our follow-on offering inDecember 2019 andNovember 2020 .
Other Income (Expense), Net
Other income (expense), net decreased$0.2 million from the year endedDecember 31, 2020 as compared to 2019, which was mainly attributable to issuance costs from the liability related to the future sale of royalties to BBA inDecember 2019 .
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 and warrants. As ofDecember 31, 2020 , we had cash, cash equivalents and marketable securities of$969.0 million . IPO In connection with our IPO in 2018, we sold and issued 9,400,000 shares of common stock at a price to the public of$10.00 per share. The aggregate net proceeds from our IPO, inclusive of the partial over-allotment option exercise, were$83.5 million after deducting underwriting discounts and commissions and other offering costs. Follow-On Offering InDecember 2019 , we completed a follow-on offering pursuant to the shelf registration on Form S-3 and issued and sold 6,900,000 shares of common stock at a price to the public of$46.00 per share. The gross proceeds from this offering were$317.4 million , resulting in aggregate net proceeds of$297.6 million after deducting underwriting discounts and commissions and other offering costs payable by us.
In
Future Funding Requirements
We have incurred net losses since our inception. For the years endedDecember 31, 2020 , 2019 and 2018, we had net losses of$133.1 million ,$47.4 million , and$41.4 million , respectively, and we expect to continue to incur additional losses in future periods. As ofDecember 31, 2020 , we had an accumulated deficit of$291.2 million . 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. Moreover, we expect to continue incurring additional costs associated with operating as a public company. We have based these estimates on assumptions that may prove to be wrong, and we could deplete our capital resources sooner than we expect. 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;
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• 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 COVID-19 pandemic 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 COVID-19 on our ability to continue the development of, and seek regulatory approvals for, our product candidates, and begin to commercialize any approved products. This pandemic 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 titled "Risk Factors" for additional risks associated with our substantial capital requirements.
Summary Statement of Cash Flows
The following table sets forth the primary sources and uses of cash for each of
the periods presented below:
Year Ended
December 31,
2020 2019 2018
(in thousands)
Net cash (used in) provided by:
Operating activities $ (83,428 ) $ (39,146 ) $ (29,031 )
Investing activities $ 104,834 $ (136,998 ) $ (581 )
Financing activities $ 717,377 $ 299,687 $ 116,471
Net increase (decrease) in cash, cash
equivalents and restricted cash $ 738,783 $ 123,543 $ 86,859 Cash Flows from Operating Activities
Net cash used in operating activities was$83.4 million for year endedDecember 31, 2020 . Cash used in operating activities was primarily driven by the increase in net loss during this period due to increased payroll and personnel expenses and manufacturing and clinical trial costs to support overall growth. Cash used in operating activities was also driven by changes in operating assets and liabilities. 115
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Cash Flows from Investing Activities
Net cash provided by investing activities was
Cash Flows from Financing Activities
Net cash provided by financing activities was
Contractual Obligations and Commitments
The following table summarizes our contractual obligations as ofDecember 31, 2020 (in thousands): Payments Due by Period Less than 1 to 3 3 to 5 More than 1 year years years 5 years Total Operating lease obligations$ 4,288 $ 22,258 $ 30,512 $ 71,462 $ 128,520 Manufacturing agreements 82,576 50,939 36,261 72,523 242,299 Tenant improvement obligations 42 94 110 51 297 Other agreements 470 - - - 470 Total$ 87,376 $ 73,291 $ 66,883 $ 144,036 $ 371,586
For further information, refer to Note 7 of the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K.
Critical Accounting Policies, Significant Judgments and Use of Estimates
Our consolidated financial statements have been prepared in accordance withU.S. generally accepted accounting principles, or GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported expenses incurred during the reporting periods. The impact of the ongoing COVID-19 pandemic continues to evolve. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management's judgments and estimates.
Our accrued research and development costs are estimated based on the level of services performed, including the phase or completion of events, and contracted costs. Accrued clinical trial and related costs are estimated using data such as patient enrollment, clinical site activations or information provided by outside service providers regarding their actual costs incurred. Management determined accrual estimates through reports from and discussions with clinical personnel and outside service providers as to the progress of trials, or the services completed. The estimated costs of research and development provided, but not yet invoiced, are included in accrued liabilities and other current liabilities on the consolidated balance sheets. If the actual timing of the performance of services or the level of effort varies from the original estimates, we will adjust the accrual accordingly. Payments made to third parties under these arrangements in advance of the performance of the related services are recorded as prepaid expenses and other assets until the services are rendered.
Stock-Based Compensation Expense
We measure and recognize compensation expense for all stockbased awards made to
employees, directors and nonemployees, based on estimated fair values of the
awards on the grant date and recognized using the straightline method over the
requisite service period.
The fair value of options is estimated on the grant date using the BlackScholes
option valuation model. The calculation of stockbased compensation expense
requires that we make certain assumptions and judgments about a number of
complex and subjective variables used in the BlackScholes model, including the
expected term, expected volatility of the underlying common stock and riskfree
interest rate. Our stock-based awards are subject to either service or
performance-based vesting
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conditions. We evaluate whether achievement of the performance conditions is
probable and record expense over the appropriate service period based on this
assessment.
Changes in these assumptions can materially affect the fair value and ultimately how much stock-based compensation expense is recognized. These inputs are subjective and generally require significant analysis and judgment to develop.
Income Taxes
We provide for income taxes under the asset and liability method. Current income tax expense or benefit represents the amount of income taxes expected to be payable or refundable for the current year. Deferred income tax assets and liabilities are determined based on differences between the financial statement reporting and tax bases of assets and liabilities and net operating loss, or NOLs, and credit carryforwards, and are measured using the enacted tax rates and laws that will be in effect when such items are expected to reverse. Deferred income tax assets are reduced, as necessary, by a valuation allowance when management determines it is more likely than not that some or all of the tax benefits will not be realized. We assess all material positions taken in any income tax return, including all significant uncertain positions, in all tax years that are still subject to assessment or challenge by relevant taxing authorities. Assessing an uncertain tax position begins with the initial determination of the position's sustainability and is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. As of each balance sheet date, unresolved uncertain tax positions must be reassessed, and we will determine whether (1) the factors underlying the sustainability assertion have changed and (2) the amount of the recognized tax benefit is still appropriate. The recognition and measurement of tax benefits requires significant judgment. Judgments concerning the recognition and measurement of a tax benefit might change as new information becomes available. Our policy is to recognize interest and penalties related to the underpayment of income taxes as a component of income tax expense or benefit. To date, there have been no interest or penalties charged in relation to the unrecognized tax benefits. NOLs and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service, orIRS , and may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50% as defined under Sections 382 and 383 in the Internal Revenue Code, which could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on our value immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. We have completed a Section 382 study throughDecember 31, 2020 which concluded no such ownership change had occurred throughDecember 31, 2020 .
As of
Off-Balance Sheet Arrangements
Since our inception, we have not engaged in any off-balance sheet arrangements,
as defined in the rules and regulations of the
Recent Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially
impact our financial position and results of operations is discussed under Note
2 to our consolidated financial statements included in Part II, Item 8 of this
Annual Report on Form 10-K.
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