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, 2020 , included in our Annual Report on Form 10-K filed with theSecurities and Exchange Commission , or theSEC , onMarch 1, 2021 . 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
At Kodiak, we are bringing new science to the design and development of next generation retinal medicines. Our ABC Platform™ 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 goal is to prevent and treat the major causes of blindness by developing and commercializing next-generation therapeutics for chronic, high-prevalence retinal diseases. To date, we have generated compelling clinical data with our most advanced product candidate, KSI-301, a novel anti-VEGF antibody biopolymer conjugate, which is designed to maintain potent and effective drug levels in ocular tissues for longer periods than the currently-marketed biologic medicines used to treat retinal diseases. 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 macular edema, or DME, macular edema due to retinal vein occlusion, or RVO, and diabetic retinopathy, or DR. We have continued to progress and expand the KSI-301 development program towards the goal of having the medicine approved and available to physicians for broad, first-line treatment of patients across all of these indications. We are also investing in optimizations of KSI-301's product presentation, such as the early commercial availability of pre-filled syringes that could further support strong commercial uptake. We also believe that KSI-301 has the potential to be an important therapy for other vision-threatening diseases that are less prevalent but also may be responsive to anti-VEGF therapy, such as retinopathy of prematurity and myopic choroidal neovascularization, and we may develop KSI-301 for such diseases in the future. The ABC Platform and KSI-301 were developed at Kodiak, and we own rights to these assets in key geographies including the US, EU,China and other major countries. We have applied our ABC Platform to develop additional product candidates beyond KSI-301, including KSI-501, our bispecific anti-IL-6/VEGF bioconjugate, and we are expanding our early research pipeline to includeABC Platform-based triplet inhibitors for multifactorial retinal diseases such as dry AMD and the neurodegenerative aspects of glaucoma. We intend to progress these and other product candidates to address high-prevalence ophthalmic diseases.
Our overall objective is to develop our retina-focused product candidates, seek FDA and worldwide health authority marketing authorization approvals, and ultimately commercialize our product candidates.
Recent Updates
KSI-301 Pivotal Program
We are engaged in a broad development program for KSI-301 with concurrent late-stage development activities across all of the major disease indications for which intravitreal anti-VEGFs are used. We expect to include the results of all our pivotal clinical trials in wAMD, DME and RVO in a single initial BLA. Developing and launching a novel anti-VEGF medicine with extended durability is the central principle of our KSI-301 development program, and in the last quarter we have continued to make substantial progress in the recruitment of our pivotal studies evaluating KSI-301. The pivotal study program evaluates KSI-301's potential for best-in-class long-interval dosing regimens and broad labeling to reduce barriers to reimbursement. Our Phase 2b/3 DAZZLE pivotal study in patients with treatment-naïve wet AMD was initiated inOctober 2019 and completed enrollment inNovember 2020 . In the third quarter of 2020, we also initiated two Phase 3 studies in DME (GLEAM and GLIMMER) and one Phase 3 study in RVO (BEACON). InJune 2021 , we randomized the first patients into an additional Phase 3 study in wet AMD (DAYLIGHT) that is designed to broaden KSI-301's potential product labeling and maximize physician's treatment flexibility and reimbursement confidence. To date, we are pleased with the operational progress in site activation, patient screening and recruitment in these studies. We believe we are on track to complete patient enrollment into GLEAM, GLIMMER, BEACON, and DAYLIGHT in the fourth quarter of 2021 or early 2022. Notably, BEACON is nearly two-thirds enrolled and we are extending the study to 18 months to allow participants to continue to receive treatment for a longer period of time. In the DAZZLE study, the last patient's last visit for the primary efficacy endpoint is expected in the fourth quarter of 2021 and topline data are expected in the first quarter of 2022. 11 -------------------------------------------------------------------------------- We also believe we are on track to begin screening and recruiting patients inAugust 2021 in our Phase 3 GLOW study in patients with non-proliferative Diabetic Retinopathy without DME, although we are not planning for this study and indication to be included in our initial BLA filing given the long timeframe we expect to be required to recruit patients in this chronic, more preventive disease indication. This expanded pivotal program for KSI-301 reflects our conviction in KSI-301 (and our ABC Platform) and seeks labeling at launch that is supportive of a broad range of individualized dosing intervals, from every 4-week dosing up to once every 20-week dosing for wAMD patients; from every 4-week dosing up to once every 24-week dosing for DME patients; and from every 4-week dosing up to once every 8-week dosing for RVO patients.
This conviction is also reflected in our concurrent manufacturing efforts, notably our dedicated IBEX manufacturing facility and also our continued efforts towards the potential of early commercial availability of our pre-filled syringe, both key efforts supportive of strong early commercial uptake.
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Amendment to Funding Agreement with
InDecember 2019 , we, together with our wholly-owned subsidiaryKodiak Sciences GmbH entered into a funding agreement (the "Funding Agreement") with certain assignees ofBaker Bros .Advisors, LP ("BBA") under which BBA agreed to fund up to$225.0 million in the aggregate in exchange for the right to 4.5% royalties on our potential future net sales of KSI-301 and certain other products. The royalty was capped at 4.5 times the total amount funded under the Funding Agreement. BBA funded$100.0 million at closing inFebruary 2020 , with the remaining$125.0 million to be funded upon receipt of our notice that we satisfied specified product development criteria and making certain certifications to BBA. At our request, BBA acknowledged and confirmed onJuly 22, 2021 in a letter agreement that, despite Kodiak being in a position to satisfy the product development criteria, the second funding amount would not be paid and the aggregate royalty cap under the Funding Agreement would be reduced from$1,012.5 million to$450.0 million . The request was made in light of, among other factors, our strong balance sheet due to the$612.0 million capital raise inNovember 2020 and our clinical trial progress. An independent committee of the Board of Directors of Kodiak ratified the decision not to draw the second funding payment.
KSI-301 International Non-proprietary
InMay 2021 , we selected tarcocimab tedromer as the proposed INN for KSI-301. The INN uniquely describes KSI-301 in all countries and is assigned by theWorld Health Organization (WHO ). The two-part INN is descriptive of our bioconjugate, namely the antibody (tarcocimab) and the biopolymer (tedromer).
China INDs
InMarch 2021 , our investigational new drug (IND) applications for KSI-301 in RVO and DME were approved byChina's National Medicinal Products Administration (NMPA). The IND approval allows Kodiak to enroll patients fromChina into the BEACON and GLIMMER studies; we believe that inclusion of patients fromChina in these studies could be beneficial for the potential future approval of KSI-301 inChina . 13
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KSI-301 Phase 1b Study
InFebruary 2021 , we presented Year 1 durability, efficacy and safety data from our ongoing Phase 1b trial of KSI-301 in patients with treatment naïve wet AMD, DME or RVO at the Angiogenesis, Exudation, and Degeneration 2021 - Virtual Edition meeting. The data showed 2 in every 3 patients are on a 6-month or longer treatment-free interval at Year 1 in each of the three major retinal vascular diseases after only three loading doses. Robust vision gains (particularly notable in the context of very good baseline vision) and robust retinal drying (when baseline anatomical characteristics are considered) were seen across all three diseases being studied. Strong anti-VEGF efficacy (achieving at Year 1 approximately 20/40 eye chart vision on average in wet AMD and approximately 20/32 vision on average in DME and RVO) and an encouraging safety profile continued to be observed across all three diseases. We believe the data support the "anti-VEGF Generation 2.0" profile of KSI-301.
We believe the safety profile of KSI-301 continues to be very encouraging. In the Phase 1a/1b program, over 825 injections of KSI-301 have now been administered, with patients followed for as long as 31 months. In the pivotal study programs, in which the data remain masked (blinded) as the studies are ongoing, we estimate that 2,800 KSI-301 injections have been given; the total safety database now includes an estimated >575 patient-years of exposure to KSI-301. Our ongoing reviews of safety data from the open-label Phase 1b study and the masked pivotal studies continue to suggest that the safety of KSI-301 is tracking with the expectations set by the safety profile of the current standard of care intravitreal medicines.
COVID-19
We are continuing to monitor the global ongoing COVID-19 pandemic. Since the initial outbreak in early 2020, governments globally have taken preventative and protective actions, including but not limited to, restrictions on non-essential travel, business operations, and gatherings of individuals. TheState of California , where our corporate office is located, declared a state of emergency and shelter-in-place order inMarch 2020 . Many restrictions have since eased, but resurgences in number and rates of infections in certain states and/or countries may result in the return or implementation of more restrictive measures. The extent of the impact of the ongoing COVID-19 pandemic will depend on certain evolving developments, including the duration and spread of the outbreak and the impact on our employees, vendors including supply chain and clinical partners, all of which are uncertain and cannot be predicted. We continue to assess the potential for supply chain disruptions as the pandemic may impact personnel at third party manufacturing facilities inthe United States ,Germany ,Switzerland and other countries, as well as its impact on the availability and/or cost of materials. We continue to monitor financial markets and the impact on our operations and capital resources.
We and our key clinical and manufacturing partners have been able to continue to advance our operations. Because the diseases under study in the KSI-301 development program are serious, vision-threatening conditions for which patients are still seeking and receiving treatment from retina specialists during the pandemic, we have been able to continue advancing the clinical programs for KSI-301 during the pandemic towards achieving our "2022 Vision."
Through this pandemic, we continue to work closely with our clinical sites towards maximal patient safety and the lowest number of missed visits and study discontinuations. We have taken and continue to take proactive measures to maintain the integrity of our ongoing clinical studies. To date, we continue to see low levels of patient missed visits.
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 , orCDC , and theState of California to protect the health and safety of our employees and the community. ? We are working closely with our clinical trial sites to monitor and attempt to minimize the potential impacts of the evolving COVID-19 pandemic on patient enrollment, continued participation of patients already enrolled in our clinical studies, protocol compliance, data quality, and overall study integrity. Some specific actions we have taken inthe United States include the use of remote study monitoring, temporarily increasing study site budget overhead rates, providing additional transportation service options for patients to attend study site visits and focusing on new patient enrollment only at study sites with appropriate backup resource plans in place and where the local COVID-19 situation allows. The overall rate of missed study visits remains <5%. As of now, we have not experienced significant delays to our ongoing or planned clinical trials; however, this could change rapidly depending on the dynamics of the pandemic. ? To minimize the potential for disruption of our pivotal studies of KSI-301, we refined our study designs, including sample size and country selection. We began enrollment of our pivotal DME (GLEAM and GLIMMER) and RVO (BEACON) studies in the third quarter of 2020 inthe United States and began enrollment of the DAYLIGHT wet AMD study inJune 2021 . We aim to begin our pivotal study in non-proliferativeDR (GLOW) inAugust 2021 , dependent on the continued evolution of the COVID-19 pandemic. All of our EU andIsrael clinical trial application submissions are active and approved for GLEAM, GLIMMER and BEACON, and global recruitment activities are underway in all three studies. Ex-US clinical trial applications for DAYLIGHT and GLOW are currently underway. ? Our clinical supply chain and manufacturing activities remain intact, and we do not currently anticipate disruptions to our clinical supply of KSI-301 due to COVID-19. 14
-------------------------------------------------------------------------------- ? As we work towards commercial scale-up and manufacturing activities to support BLA submission, there is increasing competition with COVID-19 related vaccine and therapeutic programs for manufacturing related (i) materials such as resins, filters, sterile tubesets, pipette tips; (ii) personnel such as facility engineering and construction as well as plant engineers and workers; and (iii) production slots in cGMP facilities. These events may cause delays to our commercial manufacturing timelines. Construction of the IBEX facility is now targeted for completion in 2022. The primary cause of the revised timeline is construction delays encountered at the Ibex Dedicate Facility inSwitzerland due to COVID-19 vaccine related manufacturing activities, primarily limitation of construction and facility personnel resources. We will continue to monitor the COVID-19 situation closely. The ultimate impact of the ongoing COVID-19 pandemic on our business operations remains highly 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.
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 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.
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--------------------------------------------------------------------------------Results of Operations
The following table summarizes the results of our operations for the periods
indicated, in thousands:
Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 Change 2021 2020 Change
Operating expenses
Research and development $ 45,404 $ 20,557 $ 24,847 $ 85,741 $ 40,727 $ 45,014
General and administrative 10,505 6,222 4,283 20,726 11,775 8,951
Loss from operations (55,909 ) (26,779 ) (29,130 ) (106,467 ) (52,502 ) (53,965 )
Interest income 81 698 (617 ) 230 1,906 (1,676 )
Interest expense (5 ) (6 ) 1 (11 ) (13 ) 2
Other income (expense), net (19 ) 88 (107 ) (51 ) 218 (269 )
Net loss $ (55,852 ) $ (25,999 ) $ (29,853 ) $ (106,299 ) $ (50,391 ) $ (55,908 ) Research and Development Expenses
The following table summarizes our research and development expenses for the periods indicated, in thousands:
Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 Change 2021 2020 Change
KSI-301 program expenses $ 27,700 $ 9,888 $ 17,812 $ 51,186 $ 22,173 $ 29,013
KSI-501 program expenses 1,741 394 1,347 3,406 469 2,937
ABC Platform and other program
expenses 1,352 2,447 (1,095 ) 3,428 3,171 257
Payroll and personnel expenses 10,191 6,858 3,333 19,804 12,746 7,058
Facilities and other research
and development expenses 4,420 970 3,450 7,917 2,168 5,749
Total research and development
expenses $ 45,404 $ 20,557 $ 24,847 $ 85,741 $ 40,727 $ 45,014
KSI-301 program expenses increased $17.8 million and $29.0 million during the
three and six months ended June 30, 2021 , respectively, as compared to 2020. The
increase was primarily due to clinical trial costs to support ongoing trials, as
well as manufacturing progress for KSI-301. Our pivotal Phase 2b/3 clinical
study in wAMD (DAZZLE) completed patient recruitment in November 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.
In June 2021 , we randomized the first patients into an additional Phase 3 study
in wet AMD (DAYLIGHT) designed to broaden KSI-301's product labeling.
KSI-501 program increased $1.3 million and $2.9 million during the three and six
months ended June 30, 2021 , respectively, as compared to 2020, primarily due to
increased research and development activities for KSI-501.
Payroll and personnel expenses increased $3.3 million and $7.1 million during
the three and six months ended June 30, 2021 , respectively, as compared to 2020,
due to increased headcount and stock-based compensation expense.
Facilities and other research and development expenses increased $3.5 million
and $5.7 million during the three and six months ended June 30, 2021 ,
respectively, as compared to 2020, primarily due to lease costs for our Palo
Alto and Switzerland facilities expansion.
General and Administrative Expenses
General and administrative expenses increased$4.3 million and$9.0 million during the three and six months endedJune 30, 2021 , respectively, as compared to 2020, primarily driven by higher headcount and stock-based compensation expense, professional services related to consulting, legal and accounting, and lease costs forPalo Alto facilities expansion. 16 --------------------------------------------------------------------------------
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 ofJune 30, 2021 , we had cash and cash equivalents of$880.9 million . Future Funding Requirements We have incurred net losses since our inception. For the three and six months endedJune 30, 2021 , we had net loss of$55.9 million and$106.3 million , respectively, and we expect to continue to incur additional losses in future periods. As ofJune 30, 2021 , we had an accumulated deficit of$397.5 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. 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; ? 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; 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. 17 -------------------------------------------------------------------------------- The significant uncertainties caused by the evolving effects of the ongoing 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 of this report titled "Part II, Item 1A - Risk Factors" for additional risks associated with our substantial capital requirements.
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