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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to _________

Commission File Number: 001-38682

 

KODIAK SCIENCES INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

27-0476525

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

2631 Hanover Street

Palo Alto, CA

94304

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code: (650) 281-0850

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, par value $0.0001

KOD

The Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of July 31, 2020, the registrant had 44,712,259 shares of common stock, $0.0001 par value per share, outstanding.

 

 

 


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or Exchange Act. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends affecting the financial condition of our business. Forward-looking statements should not be read as a guarantee of future performance or results and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the time those statements are made and/or management’s good faith beliefs as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements.

Forward-looking statements include all statements that are not historical facts. In some cases, you can identify forward-looking statements by terms such as “may,” “might,” “will,” “objective,” “intend,” “should,” “could,” “can,” “would,” “expect,” “believe,” “anticipate,” “project,” “target,” “design,” “estimate,” “predict,” “potential,” “plan” or the negative of these terms, or similar expressions and comparable terminology intended to identify forward-looking statements. These statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties, including those set forth under the section of this Quarterly Report on Form 10-Q titled “Part II, Item 1A — Risk Factors” and elsewhere in this report. Forward-looking statements include, but are not limited to, statements about:

 

the success, cost and timing of our development activities, preclinical studies, clinical trials and regulatory filings;

 

the translation of our preclinical results and data and early clinical trial results in particular relating to safety, efficacy and durability into future clinical trials in humans;

 

the continued durability, efficacy and safety of our product candidates;

 

our ability to achieve our “2022 Vision” of a Biologics License Application, or BLA, of KSI-301 in 2022;

 

the number, size and design of clinical trials that regulatory authorities may require to obtain marketing approval, including the order and number of clinical studies required to support a BLA in wet age-related macular degeneration, or wet AMD, diabetic macular edema, or DME, retinal vein occlusion, or RVO, and diabetic retinopathy, or DR;

 

the timing or likelihood of regulatory filings and approvals, including the potential to achieve the U.S. Food and Drug Administration, or FDA, approval of KSI-301 in wet AMD, DME, RVO and DR;

 

our ability to obtain and maintain regulatory approval of our product candidates, and any related restrictions, limitations and/or warnings in the label of any approved product candidate;

 

our ability to obtain funding for our operations, including funding necessary to develop, manufacture and commercialize our product candidates;

 

the rate and degree of market acceptance of our product candidates;

 

the success of competing products or platform technologies that are or may become available;

 

our plans and ability to establish sales, marketing and distribution infrastructure to commercialize any product candidates for which we obtain approval;

 

our expectation as to the concentration of retinal specialists in the United States and its impact on our sales and marketing plans;

 

our expectations regarding our ability to enter into manufacturing-related commitments, and the timing thereof;

 

future agreements with third parties in connection with the commercialization of our product candidates;

 

the size and growth potential of the markets for our product candidates, if approved for commercial use, and our ability to serve those markets;

 

existing regulations and regulatory developments in the United States and foreign countries;

 

the expected potential benefits of strategic collaboration agreements and our ability to attract collaborators with development, regulatory and commercialization expertise;

i


 

the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates and technology;

 

potential claims relating to our intellectual property and third-party intellectual property;

 

our ability to contract with third-party suppliers and manufacturers and their ability to perform adequately;

 

the pricing and reimbursement of our product candidates, if approved;

 

our estimates regarding the impact of the novel coronavirus, or COVID-19, pandemic on our business and operations, the business and operations of our collaborators, and on the global economy;

 

our ability to attract and retain key managerial, scientific and medical personnel;

 

the accuracy of our estimates regarding the sufficiency of our cash resources, expenses, future revenue, capital requirements and needs for additional financing;

 

our financial performance; and

 

our expectations regarding the period during which we qualify as an emerging growth company under the JOBS Act.

All forward-looking statements are based on information available to us on the date of this Quarterly Report on Form 10-Q and we will not update any of the forward-looking statements after the date of this Quarterly Report on Form 10-Q, except as required by law. Our actual results could differ materially from those discussed in this Quarterly Report on Form 10-Q. The forward-looking statements contained in this Quarterly Report on Form 10-Q, and other written and oral forward-looking statements made by us from time to time, are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements, and you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. Factors that might cause such a difference include, but are not limited to, those discussed in the following discussion and within the section of this Quarterly Report on Form 10-Q titled “Part II, Item 1A — Risk Factors”.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and although we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted a thorough inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

All brand names or trademarks appearing in this report are the property of their respective holders. Unless the context requires otherwise, references in this report to “Kodiak” the “Company,” “we,” “us,” and “our” refer to Kodiak Sciences Inc.

ii


Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

1

Item 1.

Financial Statements (Unaudited)

1

 

Condensed Consolidated Balance Sheets

1

 

Condensed Consolidated Statements of Operations and Comprehensive Loss

2

 

Condensed Consolidated Statements of Stockholders’ Equity

3

 

Condensed Consolidated Statements of Cash Flows

4

 

Notes to Unaudited Condensed Consolidated Financial Statements

5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

13

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

45

Item 4.

Controls and Procedures

45

PART II.

OTHER INFORMATION

46

Item 1.

Legal Proceedings

46

Item 1A.

Risk Factors

46

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

85

Item 3.

Defaults Upon Senior Securities

85

Item 4.

Mine Safety Disclosures

85

Item 5.

Other Information

85

Item 6.

Exhibits

86

Signatures

87

 

iii


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited).

Kodiak Sciences Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share amounts)

(Unaudited)

 

 

 

 

June 30,

2020

 

 

December 31,

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

269,836

 

 

$

211,797

 

Marketable securities

 

 

147,298

 

 

 

124,684

 

Prepaid expenses and other current assets

 

 

1,880

 

 

 

2,749

 

Total current assets

 

 

419,014

 

 

 

339,230

 

Marketable securities

 

 

 

 

 

11,696

 

Restricted cash

 

 

140

 

 

 

140

 

Property and equipment, net

 

 

1,106

 

 

 

996

 

Operating lease right-of-use asset

 

 

1,591

 

 

 

1,790

 

Other assets

 

 

7,517

 

 

 

5,014

 

Total assets

 

$

429,368

 

 

$

358,866

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

7,034

 

 

$

2,619

 

Accrued and other current liabilities

 

 

11,273

 

 

 

8,658

 

Operating lease liability

 

 

462

 

 

 

434

 

Total current liabilities

 

 

18,769

 

 

 

11,711

 

Operating lease liability, net of current portion

 

 

1,263

 

 

 

1,501

 

Liability related to sale of future royalties

 

 

99,863

 

 

 

 

Other liabilities

 

 

276

 

 

 

295

 

Total liabilities

 

 

120,171

 

 

 

13,507

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value, 10,000,000 shares authorized;

   0 shares issued and outstanding at June 30, 2020 and

   December 31, 2019

 

 

 

 

 

 

Common stock, $0.0001 par value, 490,000,000 shares authorized at

   June 30, 2020 and December 31, 2019; 44,667,016 and 44,413,404

   shares issued and outstanding at June 30, 2020 and

   December 31, 2019, respectively

 

 

5

 

 

 

5

 

Additional paid-in capital

 

 

517,120

 

 

 

503,475

 

Accumulated other comprehensive income

 

 

594

 

 

 

10

 

Accumulated deficit

 

 

(208,522

)

 

 

(158,131

)

Total stockholders’ equity

 

 

309,197

 

 

 

345,359

 

Total liabilities and stockholders’ equity

 

$

429,368

 

 

$

358,866

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

1


Kodiak Sciences Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except share and per share amounts)

(Unaudited)

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

20,557

 

 

$

8,838

 

 

$

40,727

 

 

$

14,561

 

General and administrative

 

 

6,222

 

 

 

2,976

 

 

 

11,775

 

 

 

5,713

 

Total operating expenses

 

 

26,779

 

 

 

11,814

 

 

 

52,502

 

 

 

20,274

 

Loss from operations

 

 

(26,779

)

 

 

(11,814

)

 

 

(52,502

)

 

 

(20,274

)

Interest income

 

 

698

 

 

 

331

 

 

 

1,906

 

 

 

793

 

Interest expense

 

 

(6

)

 

 

(2

)

 

 

(13

)

 

 

(6

)

Other income (expense), net

 

 

88

 

 

 

100

 

 

 

218

 

 

 

118

 

Net loss

 

$

(25,999

)

 

$

(11,385

)

 

$

(50,391

)

 

$

(19,369

)

Net loss per common share, basic and diluted

 

$

(0.58

)

 

$

(0.31

)

 

$

(1.12

)

 

$

(0.52

)

Weighted-average common shares outstanding used in

   computing net loss per common share, basic and diluted

 

 

44,969,795

 

 

 

37,294,853

 

 

 

44,897,269

 

 

 

37,271,638

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized gains related to available-for-sale

   debt securities, net of tax

 

 

105

 

 

 

6

 

 

 

584

 

 

 

12

 

Total other comprehensive income

 

 

105

 

 

 

6

 

 

 

584

 

 

 

12

 

Comprehensive loss

 

$

(25,894

)

 

$

(11,379

)

 

$

(49,807

)

 

$

(19,357

)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

2


Kodiak Sciences Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share and per share amounts)

(Unaudited)

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Deficit

 

 

Equity

 

Balances at December 31, 2019

 

 

44,413,404

 

 

$

5

 

 

$

503,475

 

 

$

10

 

 

$

(158,131

)

 

$

345,359

 

Issuance of common stock upon

   exercise of stock options

 

 

39,297

 

 

 

 

 

 

159

 

 

 

 

 

 

 

 

 

159

 

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

6,082

 

 

 

 

 

 

 

 

 

6,082

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

479

 

 

 

 

 

 

479

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(24,392

)

 

 

(24,392

)

Balances at March 31, 2020

 

 

44,452,701

 

 

 

5

 

 

 

509,716

 

 

 

489

 

 

 

(182,523

)

 

 

327,687

 

Issuance of common stock upon

   exercise of stock options

 

 

203,373

 

 

 

 

 

 

720

 

 

 

 

 

 

 

 

 

720

 

Issuance of common stock upon

   vesting of restricted stock units,

   net of taxes withheld

 

 

10,942

 

 

 

 

 

 

(206

)

 

 

 

 

 

 

 

 

(206

)

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

6,890

 

 

 

 

 

 

 

 

 

6,890

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

105

 

 

 

 

 

 

105

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(25,999

)

 

 

(25,999

)

Balances at June 30, 2020

 

 

44,667,016

 

 

 

5

 

 

 

517,120

 

 

 

594

 

 

 

(208,522

)

 

 

309,197

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Deficit

 

 

Equity

 

Balances at December 31, 2018

 

 

36,829,857

 

 

$

4

 

 

$

197,595

 

 

$

 

 

$

(110,766

)

 

$

86,833

 

Issuance of common stock upon

   exercise of stock options

 

 

80,000

 

 

 

 

 

 

83

 

 

 

 

 

 

 

 

 

83

 

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

1,157

 

 

 

 

 

 

 

 

 

1,157

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

6

 

 

 

 

 

 

6

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,984

)

 

 

(7,984

)

Balances at March 31, 2019

 

 

36,909,857

 

 

 

4

 

 

 

198,835

 

 

 

6

 

 

 

(118,750

)

 

 

80,095

 

Issuance of common stock upon

   exercise of stock options

 

 

21,284

 

 

 

 

 

 

59

 

 

 

 

 

 

 

 

 

59

 

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

1,244

 

 

 

 

 

 

 

 

 

1,244

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

6

 

 

 

 

 

 

6

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(11,385

)

 

 

(11,385

)

Balances at June 30, 2019

 

 

36,931,141

 

 

 

4

 

 

 

200,138

 

 

 

12

 

 

 

(130,135

)

 

 

70,019

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

3


Kodiak Sciences Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

 

 

 

Six Months Ended

June 30,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(50,391

)

 

$

(19,369

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

216

 

 

 

260

 

Stock-based compensation

 

 

12,972

 

 

 

2,401

 

Amortization (accretion) of premium (discount) on marketable securities

 

 

(231

)

 

 

(118

)

Amortization of operating lease right-of-use asset

 

 

199

 

 

 

182

 

Amortization of issuance costs

 

 

22

 

 

 

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

933

 

 

 

(152

)

Other assets

 

 

(2,305

)

 

 

(4,059

)

Accounts payable

 

 

4,338

 

 

 

1,342

 

Accrued and other current liabilities

 

 

2,620

 

 

 

(459

)

Operating lease liability

 

 

(210

)

 

 

(185

)

Net cash used in operating activities

 

 

(31,837

)

 

 

(20,157

)

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(249

)

 

 

(126

)

Purchase of marketable securities

 

 

(86,317

)

 

 

(35,066

)

Maturities of marketable securities

 

 

76,150

 

 

 

12,000

 

Net cash used in investing activities

 

 

(10,416

)

 

 

(23,192

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock upon options exercise

 

 

879

 

 

 

114

 

Payments for restricted stock units, net of taxes withheld

 

 

(206

)

 

 

 

Proceeds from sale of future royalties, net of issuance costs

 

 

99,643

 

 

 

 

Principal payments of capital lease

 

 

(5

)

 

 

(34

)

Principal payments of tenant improvement allowance payable

 

 

(19

)

 

 

(18

)

Net cash provided by financing activities

 

 

100,292

 

 

 

62

 

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

58,039

 

 

 

(43,287

)

Cash, cash equivalents and restricted cash, at beginning of period

 

 

211,937

 

 

 

88,394

 

Cash, cash equivalents and restricted cash, at end of period

 

$

269,976

 

 

$

45,107

 

Reconciliation of cash, cash equivalents and restricted cash to consolidated balance sheets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

269,836

 

 

$

44,967

 

Restricted cash

 

 

140

 

 

 

140

 

Cash, cash equivalents and restricted cash in consolidated balance sheets

 

$

269,976

 

 

$

45,107

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of non-cash investing and financing information:

 

 

 

 

 

 

 

 

Operating lease right-of-use asset obtained in exchange for operating lease liability

 

$

 

 

$

2,163

 

Purchase of property and equipment under accounts payable

 

$

77

 

 

$

137

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

4


 

Kodiak Sciences Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(in thousands, except share and per share data)

1. The Company

Kodiak Sciences Inc. (the “Company”) is a biopharmaceutical company committed to researching, developing and commercializing transformative therapeutics to treat high prevalence retinal diseases in the United States and additional international markets. The Company devotes substantially all of its resources to the research and development of its product candidates including activities to conduct clinical studies of its product candidates, manufacture product candidates and provide general and administrative support for these operations.

Liquidity

As of June 30, 2020, the Company had cash, cash equivalents and marketable securities of $417.1 million. Although the Company has incurred significant operating losses since inception and expects to continue to incur operating losses and negative operating cash flows for the foreseeable future, the Company believes that the cash, cash equivalents and marketable securities will be sufficient to meet the anticipated operating and capital expenditure requirements for the 12 months following the date of this Form 10-Q.

2. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) applicable to interim periods. The condensed consolidated financial statements, in the opinion of management, include all normal and recurring adjustments necessary to present fairly the Company's financial position and results of operations for the reported periods.

These condensed consolidated financial statements have been prepared on a basis substantially consistent with, and should be read in conjunction with the audited financial statements for the year ended December 31, 2019 and notes thereto, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 16, 2020. Certain information and note disclosures normally included in the audited financial statements prepared in accordance with GAAP have been condensed or omitted from this report. The results of operations for any interim period are not necessarily indicative of the results for the year ending December 31, 2020, or for any future period.

The accompanying condensed consolidated financial statements reflect the operations of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated.

Reclassification

Certain prior period amounts have been reclassified to conform to the current period presentation. Such reclassifications had no impact on subtotals in the prior year condensed consolidated financial statements.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements and expenses during the reporting period. The impact of the ongoing COVID-19 pandemic continues to evolve. As a result, certain estimates and assumptions required increased judgment and carried a higher degree of variability and volatility, including but not limited to, the fair value of marketable securities, performance-based equity awards, and research and development accruals for the three and six months ended June 30, 2020. As events continue to unfold and additional information becomes available, these estimates may change materially in future periods. Actual results could differ from those estimates.

5


Kodiak Sciences Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

 

Risks and Uncertainties

In March 2020, the World Health Organization declared a pandemic due to the global COVID-19 outbreak. The significant uncertainties caused by the ongoing COVID-19 pandemic may negatively impact the Company’s operations, liquidity, and capital resources, and will depend on certain evolving developments, including the duration and spread of the outbreak, regulatory and private sector responses and the impact on employees and vendors including supply chain and clinical partners, all of which are uncertain and cannot be predicted. During this pandemic, the Company continues to work closely with clinical sites towards maximal patient safety and the lowest number of missed visits and study discontinuations. The Company has taken and continues to take proactive measures to maintain the integrity of its ongoing clinical studies. Despite these efforts, the ongoing COVID-19 pandemic could significantly impact clinical trial enrollment and completion of its clinical studies. The Company will continue to monitor the COVID-19 situation and its impact on the ability to continue the development of, and seek regulatory approvals for, the Company’s product candidates, and begin to commercialize any approved products.

Summary of Significant Accounting Policies

The significant accounting policies used in preparation of these condensed consolidated financial statements for the three and six months ended June 30, 2020 are consistent with those discussed in Note 2 to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, except as noted below with respect to the Company’s liability related to sale of future royalties and as noted within the “Recent Accounting Pronouncements – Recently Adopted Accounting Pronouncements” section.

Liability related to Sale of Future Royalties

On December 1, 2019, the Company and its subsidiary Kodiak Sciences GmbH entered into a funding agreement with Baker Bros. Advisors, LP (“BBA”), which holds more than 5% of the Company’s stock, pursuant to which BBA purchased the right to receive a capped 4.5% royalty on future net sales of KSI-301, the Company’s anti-VEGF antibody biopolymer conjugate therapy, in exchange for $225.0 million. Under the terms of the funding agreement, there is no obligation to repay any funding amount received, other than through the capped royalty payments on future product revenues. The Company recorded the funding amount paid by BBA as a liability on the consolidated balance sheet net of issuance costs, in accordance with ASC 730, Research and Development. Under ASC 730, the significant related party relationship between the Company and BBA creates an implicit obligation to repay the funding amount paid to the Company. Once royalty payments to BBA are determined to be probable and estimable, and if such amounts exceed the liability balance, the Company will impute interest to accrete the liability on a prospective basis based on such estimates. If and when the Company makes royalty payments under the funding agreement, it would reduce the liability balance at such time. Refer to Note 7.

Credit Losses – Available-for-Sale Debt Securities

For available-for-sale debt securities in an unrealized loss position, the Company will periodically assess its portfolio for impairment. The assessment first considers the intent or requirement to sell the security. If either of these criteria are met, the amortized cost basis will be written down to fair value through earnings.

If not met, the Company will evaluate whether the decline resulted from credit losses or other factors by considering the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and any adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security is compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses will be recorded, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income or loss, as applicable.

Recent accounting pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”), under its ASC or other standard setting bodies, and adopted by the Company as of the specified effective date, unless otherwise discussed below.

6


Kodiak Sciences Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

 

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Statements, which intends to improve financial reporting by requiring earlier recognition of credit losses on certain financial assets, such as available-for-sale debt securities. The Company assessed the impact of ASU 2016-13 on its available-for-sale debt securities and determined there were no credit losses within the portfolio requiring an allowance upon adoption. The Company adopted this new guidance as of January 1, 2020, which did not impact its consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurements, which eliminates, adds and modifies certain disclosure requirements for fair value measurements as part of the FASB’s disclosure framework project. Among the changes, entities will no longer be required to disclose the amount of and reasons for transfers between Levels 1 and 2 of the fair value hierarchy, but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The Company adopted this new guidance as of January 1, 2020, which did not impact its consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which clarifies the accounting for implementation, set-up, and other upfront costs incurred in cloud computing arrangements. The Company adopted this new guidance as of January 1, 2020, which did not impact its consolidated financial statements and related disclosures.

New Accounting Pronouncements Not Yet Adopted

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify the accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The new standard will be effective beginning January 1, 2021. The Company is currently evaluating the impact of adopting this guidance on its consolidated financial statements and related disclosures.

 

3. Accrued and Other Current Liabilities

Accrued and other current liabilities consist of the following (in thousands):

 

 

 

June 30,

2020

 

 

December 31,

2019

 

Accrued research and development

 

$

8,353

 

 

$

4,894

 

Accrued salaries and benefits

 

 

2,165

 

 

 

3,108

 

Accrued legal fees

 

 

246

 

 

 

302

 

Accrued professional fees

 

 

175

 

 

 

195

 

Accrued other liabilities

 

 

334

 

 

 

159

 

Total accrued and other current liabilities

 

$

11,273

 

 

$

8,658

 

 

7


Kodiak Sciences Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

 

4. Fair Value Measurements

The following tables present the Company’s fair value hierarchy for assets measured at fair value on a recurring basis (in thousands):

 

 

 

Fair Value Measurements at June 30, 2020

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

227,060

 

 

$

 

 

$

 

 

$

227,060

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury securities

 

 

 

 

 

60,410

 

 

 

 

 

 

60,410

 

Commercial paper

 

 

 

 

 

43,877

 

 

 

 

 

 

43,877

 

Corporate notes

 

 

 

 

 

43,011

 

 

 

 

 

 

43,011

 

Total

 

$

227,060

 

 

$

147,298

 

 

$

 

 

$

374,358

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at December 31, 2019