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 March 31, 2019
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
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, 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 ☒
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 |
As of April 30, 2019, the registrant had 36,911,857 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 and clinical trials; |
|
|
• |
the translation of our preclinical results and data and early clinical trial results into future clinical trials in humans; |
|
|
• |
the number, size and design of clinical trials that regulatory authorities may require to obtain marketing approval, including whether our planned Phase 2 trial in wet AMD will be considered a pivotal trial by the U.S. Food and Drug Administration, or FDA; |
|
|
• |
the timing or likelihood of regulatory filings and approvals; |
|
|
• |
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 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; |
|
|
• |
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; |
|
|
• |
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 ability to attract and retain key managerial, scientific and medical personnel; |
|
|
• |
the accuracy of our estimates regarding expenses, future revenue, capital requirements and needs for additional financing; |
|
|
• |
our financial performance; |
|
|
• |
our expectations regarding the period during which we qualify as an emerging growth company under the Jumpstart Our Business Startups Act of 2012, or JOBS Act; and |
|
|
• |
our anticipated use of the proceeds from our initial public offering. |
i
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
|
|
|
Page |
|
PART I. |
1 |
|
|
Item 1. |
1 |
|
|
|
1 |
|
|
|
Condensed Consolidated Statements of Operations and Comprehensive Loss |
2 |
|
|
Condensed Consolidated Statements of Stockholders’ Equity (Deficit) |
3 |
|
|
4 |
|
|
|
Notes to Unaudited Condensed Consolidated Financial Statements |
5 |
|
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
12 |
|
Item 3. |
18 |
|
|
Item 4. |
18 |
|
|
PART II. |
19 |
|
|
Item 1. |
19 |
|
|
Item 1A. |
19 |
|
|
Item 2. |
55 |
|
|
Item 3. |
55 |
|
|
Item 4. |
55 |
|
|
Item 5. |
55 |
|
|
Item 6. |
56 |
|
|
57 |
||
iii
Item 1. Financial Statements (Unaudited).
Kodiak Sciences Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share and per share amounts)
(Unaudited)
|
|
|
March 31, 2019 |
|
|
December 31, 2018 |
|
||
|
Assets |
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
57,222 |
|
|
$ |
88,254 |
|
|
Marketable securities |
|
|
23,853 |
|
|
|
— |
|
|
Prepaid expenses and other current assets |
|
|
2,202 |
|
|
|
2,195 |
|
|
Total current assets |
|
|
83,277 |
|
|
|
90,449 |
|
|
Restricted cash |
|
|
140 |
|
|
|
140 |
|
|
Property and equipment, net |
|
|
1,084 |
|
|
|
1,097 |
|
|
Operating lease right-of-use asset |
|
|
2,073 |
|
|
|
— |
|
|
Other assets |
|
|
503 |
|
|
|
503 |
|
|
Total assets |
|
$ |
87,077 |
|
|
$ |
92,189 |
|
|
Liabilities and stockholders’ equity |
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
1,754 |
|
|
$ |
1,050 |
|
|
Accrued and other current liabilities |
|
|
2,628 |
|
|
|
3,776 |
|
|
Operating lease liability |
|
|
391 |
|
|
|
— |
|
|
Total current liabilities |
|
|
4,773 |
|
|
|
4,826 |
|
|
Operating lease liability, net of current portion |
|
|
1,882 |
|
|
|
— |
|
|
Other liabilities |
|
|
327 |
|
|
|
530 |
|
|
Total liabilities |
|
|
6,982 |
|
|
|
5,356 |
|
|
Commitments and contingencies (Note 6) |
|
|
|
|
|
|
|
|
|
Stockholders’ equity: |
|
|
|
|
|
|
|
|
|
Common stock, $0.0001 par value, 490,000,000 shares authorized at March 31, 2019 and December 31, 2018; 36,909,857 and 36,829,857 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively |
|
|
4 |
|
|
|
4 |
|
|
Additional paid-in capital |
|
|
198,835 |
|
|
|
197,595 |
|
|
Accumulated other comprehensive loss |
|
|
6 |
|
|
|
— |
|
|
Accumulated deficit |
|
|
(118,750 |
) |
|
|
(110,766 |
) |
|
Total stockholders’ equity |
|
|
80,095 |
|
|
|
86,833 |
|
|
Total liabilities and stockholders’ equity |
|
$ |
87,077 |
|
|
$ |
92,189 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
1
Condensed Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except share and per share amounts)
(Unaudited)
|
|
|
Three Months Ended March 31, |
|
|||||
|
|
|
2019 |
|
|
2018 |
|
||
|
Operating expenses |
|
|
|
|
|
|
|
|
|
Research and development |
|
$ |
5,723 |
|
|
$ |
3,642 |
|
|
General and administrative |
|
|
2,737 |
|
|
|
1,905 |
|
|
Total operating expenses |
|
|
8,460 |
|
|
|
5,547 |
|
|
Loss from operations |
|
|
(8,460 |
) |
|
|
(5,547 |
) |
|
Interest income |
|
|
480 |
|
|
|
48 |
|
|
Interest expense (includes $862 attributable to related parties for the three months ended March 31, 2018) |
|
|
(4 |
) |
|
|
(1,470 |
) |
|
Other income (expense), net (includes $1,394 other expense attributable to related parties for the three months ended March 31, 2018) |
|
|
— |
|
|
|
(1,951 |
) |
|
Net loss |
|
$ |
(7,984 |
) |
|
$ |
(8,920 |
) |
|
Net loss per common share, basic and diluted |
|
$ |
(0.21 |
) |
|
$ |
(1.16 |
) |
|
Weighted-average common shares outstanding used in computing net loss per common share, basic and diluted |
|
|
37,248,165 |
|
|
|
7,684,045 |
|
|
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
Change in unrealized gains related to available-for-sale debt securities, net of tax |
|
|
6 |
|
|
|
— |
|
|
Total other comprehensive income (loss) |
|
|
6 |
|
|
|
— |
|
|
Comprehensive loss |
|
$ |
(7,978 |
) |
|
$ |
(8,920 |
) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
Condensed Consolidated Statements of Stockholders’ Equity (Deficit)
(in thousands, except share and per share amounts)
(Unaudited)
|
|
|
Three Months Ended March 31, 2019 |
|
||||||||||||||||||||||||||||||
|
|
|
Redeemable Convertible Preferred Stock |
|
|
|
Common Stock |
|
|
Additional Paid-In |
|
|
Accumulated Other Comprehensive |
|
|
Accumulated |
|
|
Total Stockholders’ Equity |
|
||||||||||||||
|
|
|
Shares |
|
|
Amount |
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Income (Loss) |
|
|
Deficit |
|
|
(Deficit) |
|
||||||||
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2018 |
|
||||||||||||||||||||||||||||||
|
|
|
Redeemable Convertible Preferred Stock |
|
|
|
Common Stock |
|
|
Additional Paid-In |
|
|
Accumulated Other Comprehensive |
|
|
Accumulated |
|
|
Total Stockholders’ Equity |
|
||||||||||||||
|
|
|
Shares |
|
|
Amount |
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Income (Loss) |
|
|
Deficit |
|
|
(Deficit) |
|
||||||||
|
Balances at December 31, 2017 |
|
|
12,385,154 |
|
|
$ |
50,017 |
|
|
|
|
7,936,434 |
|
|
$ |
1 |
|
|
$ |
584 |
|
|
$ |
— |
|
|
$ |
(69,323 |
) |
|
$ |
(68,738 |
) |
|
Issuance of common stock upon exercise of stock options |
|
|
— |
|
|
|
— |
|
|
|
|
300 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Stock-based compensation expense |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
92 |
|
|
|
— |
|
|
|
— |
|
|
|
92 |
|
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(8,920 |
) |
|
|
(8,920 |
) |
|
Balances at March 31, 2018 |
|
|
12,385,154 |
|
|
$ |
50,017 |
|
|
|
|
7,936,734 |
|
|
$ |
1 |
|
|
$ |
676 |
|
|
$ |
— |
|
|
$ |
(78,243 |
) |
|
$ |
(77,566 |
) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
|
|
|
Three Months Ended March 31, |
|
|||||
|
|
|
2019 |
|
|
2018 |
|
||
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(7,984 |
) |
|
$ |
(8,920 |
) |
|
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
130 |
|
|
|
122 |
|
|
Non-cash interest expense and amortization of debt discount and issuance cost |
|
|
— |
|
|
|
1,463 |
|
|
Change in fair value of redeemable convertible preferred stock warrant liability |
|
|
— |
|
|
|
1,625 |
|
|
Change in fair value of derivative instrument |
|
|
— |
|
|
|
326 |
|
|
Stock-based compensation |
|
|
1,157 |
|
|
|
92 |
|
|
Accretion of discount on available-for-sale investments |
|
|
(18 |
) |
|
|
— |
|
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets |
|
|
(17 |
) |
|
|
(90 |
) |
|
Operating lease right-of-use asset |
|
|
90 |
|
|
|
— |
|
|
Accounts payable |
|
|
594 |
|
|
|
(1,383 |
) |
|
Accrued and other current liabilities |
|
|
(1,114 |
) |
|
|
(4,502 |
) |
|
Operating lease liability |
|
|
(45 |
) |
|
|
— |
|
|
Other liabilities |
|
|
— |
|
|
|
8 |
|
|
Net cash used in operating activities |
|
|
(7,207 |
) |
|
|
(11,259 |
) |
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
|
(7 |
) |
|
|
— |
|
|
Purchase of available-for-sale investments |
|
|
(23,865 |
) |
|
|
— |
|
|
Net cash used in investing activities |
|
|
(23,872 |
) |
|
|
— |
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
Proceeds from issuance of convertible notes (includes $9,560 from related parties for the three months ended March 31, 2018) |
|
|
— |
|
|
|
33,000 |
|
|
Deferred offering costs |
|
|
— |
|
|
|
(133 |
) |
|
Debt issuance cost |
|
|
— |
|
|
|
(140 |
) |
|
Principal payments of capital lease |
|
|
(27 |
) |
|
|
(27 |
) |
|
Proceeds from issuance of common stock |
|
|
83 |
|
|
|
— |
|
|
Principal payments of tenant improvement allowance payable |
|
|
(9 |
) |
|
|
(23 |
) |
|
Net cash provided by financing activities |
|
|
47 |
|
|
|
32,677 |
|
|
Net increase (decrease) in cash, cash equivalents and restricted cash |
|
|
(31,032 |
) |
|
|
21,418 |
|
|
Cash, cash equivalents and restricted cash, at beginning of period |
|
|
88,394 |
|
|
|
1,535 |
|
|
Cash, cash equivalents and restricted cash, at end of period |
|
$ |
57,362 |
|
|
$ |
22,953 |
|
|
Reconciliation of cash, cash equivalents and restricted cash to statement of financial position |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
57,222 |
|
|
$ |
22,813 |
|
|
Restricted cash |
|
|
140 |
|
|
|
140 |
|
|
Cash, cash equivalents and restricted cash in statement of financial position |
|
$ |
57,362 |
|
|
$ |
22,953 |
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of non-cash investing and financing information: |
|
|
|
|
|
|
|
|
|
Purchase of property and equipment under accounts payable |
|
$ |
110 |
|
|
$ |
— |
|
|
Issuance of derivative instrument related to convertible notes payable |
|
$ |
— |
|
|
$ |
6,603 |
|
|
Unpaid offering costs |
|
$ |
— |
|
|
$ |
1,689 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
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 clinical-stage biopharmaceutical company specializing in novel therapeutics to treat high-prevalence ophthalmic diseases. The Company devotes substantially all of its time and efforts to performing research and development, raising capital and recruiting personnel.
Liquidity
The Company has incurred significant losses and negative cash flows from operations since inception and had an accumulated deficit of $118.8 million as of March 31, 2019. The Company has historically financed its operations primarily through the sale of redeemable convertible preferred stock, convertible notes, warrants and the sale of common stock in its initial public offering (“IPO”). To date, none of the Company’s product candidates have been approved for sale and therefore, the Company has not generated any revenue from product sales. Management expects operating losses to continue for the foreseeable future. The Company currently plans to raise additional funding as required based on the status of its clinical trials and projected cash flows, however the Company believes that its cash and cash equivalents and marketable securities as of March 31, 2019 are sufficient for the Company to continue as a going concern for at least 12 months from the issuance date of these condensed consolidated financial statements for the period ended March 31, 2019.
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 and, in the opinion of management, include all normal and recurring adjustments which are 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, 2018 and notes thereto, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 27, 2019. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. 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, as is permitted by such rules and regulations. The results of operations for any interim period are not necessarily indicative of the results for the year ending December 31, 2019, 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.
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. Actual results could differ from those estimates.
Summary of Significant Accounting Policies
The significant accounting policies used in preparation of these condensed consolidated financial statements for the three months ended March 31, 2019 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, 2018, except as noted below with respect to the Company’s lease and marketable securities accounting policies and as noted within the “Recent Accounting Pronouncements – Recently Adopted Accounting Pronouncements” section.
5
Kodiak Sciences Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
The Company determines if an arrangement is, or contains, a lease at inception and then classifies the lease as operating or financing based on the underlying terms and conditions of the contract. Leases with terms greater than one year are initially recognized on the balance sheet as right-of-use assets and lease liabilities based on the present value of lease payments over the expected lease term. The interest rate implicit in lease contracts is typically not readily determinable. As such, the Company utilizes the incremental borrowing rate, which is the rate incurred to borrow, on a collateralized basis, an amount equal to the lease payments over a similar term and in a similar economic environment. The Company has elected not to recognize leases with terms of one year or less on the balance sheet.
Marketable Securities
The Company invests excess cash balances in short-term marketable securities. The investments in marketable securities are classified as either held-to-maturity or available-for-sale based on facts and circumstances present at the time of purchase. Debt securities are carried at fair value with the unrealized gains and losses included in other comprehensive income (loss) as a component of stockholders’ equity until realized. Any premium or discount arising at purchase is amortized and/or accreted to interest income and/or expense over the life of the instrument. Equity securities with readily determinable fair values are also carried at fair value with unrealized gains and losses included in other income (expense), net. Realized gains and losses on both debt and equity securities are determined using the specific identification method and are included in other income (expense), net.
If any adjustment to fair value reflects a decline in value of the investment, the Company considers all available evidence to evaluate the extent to which the decline is “other-than-temporary” and, if so, marks the investment to market through a charge to the Company’s statement of operations and comprehensive loss.
Recent accounting pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”), under its Accounting Standards Codification (“ASC”) or other standard setting bodies, and adopted by the Company as of the specified effective date, unless otherwise discussed below.
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which set out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). In July 2018, the FASB issued ASU 2018-10, Leases (Topic 842), Codification Improvements, and ASU 2018-11, Leases (Topic 842), Targeted Improvements. ASU 2018-10 clarified certain provisions and corrected unintended applications of the guidance such as the application of implicit rate, lessee reassessment of lease classification, and certain transition adjustments that should be recognized to earnings rather than to stockholders' equity. ASU 2018-11 provided an alternative transition method and practical expedient for separating contract components for the adoption of Topic 842. ASU 2016-02, ASU 2018-10, and ASU 2018-11 (collectively, "the new lease standards") superseded the previous leases standard, ASC 840 Leases.
The Company adopted the new lease standards as of January 1, 2019 using the modified retrospective approach to recognize a cumulative-effect adjustment on the effective date and to not adjust financial information and disclosures required under the new lease standards for comparative prior periods. The Company did not elect for the package of practical expedients and assessed all contracts at the transition date. The Company did not utilize the practical expedient which allows the use of hindsight in determining lease term and assessing impairment in right-of-use assets. The Company elected to apply the practical expedient and accounted for each lease component and related non-lease component as one single component. The Company elected not to recognize leases with terms of one year or less on the balance sheet.
The adoption of the new lease standards on January 1, 2019 resulted in the initial recognition of right-of-use asset of $2.2 million and operating lease liability of $2.3 million related to the operating lease for the Company’s office and laboratory space in Palo Alto, California on the consolidated balance sheets with no material impact to the consolidated statements of operations, stockholders’ equity or cash flows. Refer to Note 6.
In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260) Distinguishing Liabilities from Equity (Topic 480) Derivatives and Hedging (Topic 815) (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. This update simplifies the accounting for certain financial instruments with down round features, a provision in an equity-linked financial instrument (or embedded feature) that provides a downward adjustment of the current exercise price based on the price of future equity offerings. Down round features are common in warrants, preferred shares, and convertible debt instruments issued by private companies and early-stage public companies. This update requires companies to disregard the down round feature when assessing whether the instrument is indexed to
6
Kodiak Sciences Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
its own stock, for purposes of determining liability or equity classification. ASU 2017-11 is effective for interim and annual periods beginning after December 15, 2018. The Company adopted this new guidance as of January 1, 2019, which did not result in a material impact on its consolidated financial statements and related disclosures.
In June 2018, the FASB issued ASU 2018-07, Compensation — Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which expands the scope of Topic 718 to include all share-based payment transactions for acquiring goods and services from nonemployees. ASU 2018-07 specifies that Topic 718 applies to all share-based payment transactions in which the grantor acquires goods and services to be used or consumed in its own operations by issuing share-based payment awards. ASU 2018-07 also clarifies that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under ASC 606. ASU 2018-07 is effective for interim and annual periods beginning after December 15, 2018. The Company adopted this new guidance as of January 1, 2019, which did not result in a material impact on its consolidated financial statements and related disclosures.
New Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 362): 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 standard is effective for interim and annual periods after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact of adopting this guidance on 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. The standard is effective for interim and annual periods beginning after December 15, 2019. The standard specifies certain amendments which should be applied prospectively while all other amendments should be applied retrospectively. Early adoption is permitted. The Company is currently evaluating the impact of adopting this guidance on 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 standard is effective for interim and annual periods beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact of adopting this guidance on its consolidated financial statements and related disclosures.
3. Accrued Liabilities and Other Current Liabilities
Accrued liabilities and other current liabilities consist of the following (in thousands):
|
|
|
March 31, 2019 |
|
|
December 31, 2018 |
|
||
|
Accrued research and development |
|
$ |
1,237 |
|
|
$ |
1,387 |
|
|
Accrued salaries and benefits |
|
|
888 |
|
|
|
2,061 |
|
|
Accrued professional fees |
|
|
221 |
|
|
|
117 |
|
|
Accrued legal fees |
|
|
162 |
|
|
|
82 |
|
|
Accrued other liabilities |
|
|
120 |
|
|
|
129 |
|
|
Total accrued and other current liabilities |
|
$ |
2,628 |
|
|
$ |
3,776 |
|
7
Kodiak Sciences Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
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 March 31, 2019 |
|
|||||||||||||
|
|
|
Quoted Price in Active Markets (Level 1) |
|
|
Significant Observable Inputs (Level 2) |
|
|
Significant Unobservable Inputs (Level 3) |
|
|
Total |
|
||||
|
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
57,059 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
57,059 |
|
|
Marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper |
|
|
— |
|
|
|
14,267 |
|
|
|
— |
|
|
|
14,267 |
|
|
Corporate notes |
|
|
— |
|
|
|
9,586 |
|
|
|
— |
|
|
|
9,586 |
|
|
Total |
|
$ |
57,059 |
|
|
$ |
23,853 |
|
|
$ |
— |
|
|
$ |
80,912 |
|
|
|
|
Fair Value Measurements at December 31, 2018 |
|
|||||||||||||
|
|
|
Quoted Price in Active Markets (Level 1) |
|
|
Significant Observable Inputs (Level 2) |
|
|
Significant Unobservable Inputs (Level 3) |
|
|
Total |
|
||||
|
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
87,957 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
87,957 |
|
|
Total |
|
$ |
87,957 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
87,957 |
|
5. Marketable Securities
The marketable securities are classified as available-for-sale and consist of corporate notes and commercial paper. The fair value measurement data for marketable securities is obtained from independent pricing services. The Company validates the prices provided by the third-party pricing services by understanding the valuation methods and data sources used and analyzing the pricing data in certain instances.
The following table summarizes the marketable securities held at March 31, 2019 (in thousands):
|
|
|
Amortized Cost |
|
|
Unrealized Gains |
|
|
Unrealized Losses |
|
|
Fair Value |
|
||||
|
Commercial paper |
|
$ |
14,267 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
14,267 |
|
|
Corporate notes |
|
|
9,580 |
|
|
|
6 |
|
|
|
— |
|
|
|
9,586 |
|
|
Total |
|
$ |
23,847 |
|
|
$ |
6 |
|
|
$ |
— |
|
|
$ |
23,853 |
|
All marketable securities held at March 31, 2019 had contractual maturities of less than one year. There were no realized gains or losses recognized on the sale or maturity of available-for-sale debt securities during the three months ended March 31, 2019 and as a result, the Company did not reclassify any amounts out of accumulated comprehensive loss. There were no impairment charges related to marketable securities for the three months ended March 31, 2019.
6. Commitments and Contingencies
Leases
In January 2013, the Company executed a non-cancellable lease agreement for office and laboratory space in Palo Alto, California. The lease began in October 2013 and would expire in October 2018. In March 2016, the Company executed a lease amendment which was effective March 2016 and extended the lease term until October 2023.
8
Kodiak Sciences Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
The Company recognized an operating lease right-of-use asset and corresponding liability on January 1, 2019 based on the present value of remaining lease payments discounted at the Company’s estimated incremental borrowing rate of 8.5% over the remaining lease term of 4.60 years. For the three months ended March 31, 2019, the operating lease cost was $0.1 million and the operating cash flows used for operating leases was $0.1 million. The short-term lease costs were immaterial for the three months ended March 31, 2019.
The following tables summarize the Company’s future payments under the non-cancellable operating lease (in thousands):
|
Year ending December 31, |
|
As of March 31, 2019 |
|
|
|
2019 (excluding the three months ended March 31, 2019) |
|
$ |
424 |
|
|
2020 |
|
|
581 |
|
|
2021 |
|
|
598 |
|
|
2022 |
|
|
616 |
|
|
2023 |
|
|
526 |
|
|
Total undiscounted lease payments |
|
|
2,745 |
|
|
Less: imputed interest |
|
|
(472 |
) |
|
Total operating lease liabilities |
|
$ |
2,273 |
|
|
Year ending December 31, |
|
As of December 31, 2018 |
|
|
|
|
$ |
564 |
|
|
|
2020 |
|
|
581 |
|
|
2021 |
|
|
598 |
|
|
2022 |
|
|
616 |
|
|
2023 |
|
|
526 |
|
|
Total payments |
|
$ |
2,885 |
|
Legal Proceedings
From time to time, the Company may become involved in legal proceedings arising from the ordinary course of its business. Management is currently not aware of any matters that could have a material adverse effect on the Company’s financial position, results of operations or cash flows. The Company records a legal liability when it believes that it is both probable that a liability may be imputed, and the amount of the liability can be reasonably estimated. Significant judgment by the Company is required to determine both probability and the estimated amount.
Indemnification
To the extent permitted under Delaware law, the Company has agreed to indemnify its directors and officers for certain events or occurrences while the director or officer is, or was serving, at the Company’s request in such capacity. The indemnification period covers all pertinent events and occurrences during the director’s or officer’s service. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is not specified in the agreements; however, the Company has director and officer insurance coverage that reduces its exposure and enables the Company to recover a portion of any future amounts paid. The Company believes the estimated fair value of these indemnification agreements in excess of applicable insurance coverage is minimal.
7. Stock-based Compensation
In January 2019, the number of shares of common stock available for issuance under the 2018 Equity Incentive Plan was increased by approximately 1.5 million shares as a result of the automatic increase provision in the 2018 Plan.
9
Kodiak Sciences Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
Stock option activity under the 2018 Plan and 2015 Equity Incentive Plan is summarized as follows (in thousands, except share and per share data).
|
|
|
|
|
|
|
Outstanding Awards |
|
|
|
|
|
|
|
|
|
|||||
|
|
|
Number of Shares Available for Grant |
|
|
Number of Shares Underlying Outstanding Options |
|
|
Weighted Average Exercise Price |
|
|
Weighted Average Remaining Contractual Term (in years) |
|
|
Aggregate Intrinsic Value |
|
|||||
|
Balance, December 31, 2018 |
|
|
3,024,404 |
|
|
|
5,135,267 |
|
|
$ |
5.99 |
|
|
|
9.07 |
|
|
$ |
10,681 |
|
|
Shares authorized |
|
|
1,473,194 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercised |
|
|
— |
|
|
|
(80,000 |
) |
|
|
1.04 |
|
|
|
|
|
|
|
290 |
|
|
Balance, March 31, 2019 |
|
|
4,497,598 |
|
|
|
5,055,267 |
|
|
$ |
6.14 |
|
|
|
8.69 |
|
|
$ |
8,769 |
|
Stock-based compensation is classified in the condensed consolidated statements of operations and comprehensive loss as follows (in thousands):
|
|
|
Three Months Ended March 31, |
|
|||||
|
|
|
2019 |
|
|
2018 |
|
||
|
Research and development |
|
$ |
706 |
|
|
$ |
53 |
|
|
General and administrative |
|
|
451 |
|
|
|
39 |
|
|
Total stock-based compensation |
|
$ |
1,157 |
|
|
$ |
92 |
|
As of March 31, 2019, the unrecognized stock-based compensation of unvested employee options and unvested RSAs and RSUs was $14.2 million and it is expected to be recognized over a weighted-average period of 2.64 years.
8. Net Loss per Share Attributable to Common Stockholders
The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders which excludes shares which are legally outstanding, but subject to repurchase by the Company (in thousands, except share and per share data):
|
|
|
Three Months Ended March 31, |
|
|||||
|
|
|
2019 |
|
|
2018 |
|
||
|
Numerator: |
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders |
|
$ |
(7,984 |
) |
|
$ |
(8,920 |
) |
|
Denominator: |
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding |
|
|
37,276,968 |
|
|
|
7,936,572 |
|
|
Less: weighted-average unvested restricted shares and shares subject to repurchase |
|
|
(28,803 |
) |
|
|
(252,527 |
) |
|
Weighted-average common shares outstanding used in computing net loss per common share, basic and diluted |
|
|
37,248,165 |
|
|
|
7,684,045 |
|
|
Net loss per share attributable to common stockholders, basic and diluted |
|
$ |
(0.21 |
) |
|
$ |
(1.16 |
) |
10
Kodiak Sciences Inc.
Notes to Unaudited Condensed Consolidated Financial Statements (Continued)
The following potentially dilutive securities, presented on an as-converted to common stock basis, were excluded from the computation of diluted net loss per share attributable to common stockholders for the period presented because including them would have been antidilutive:
|
|
|
As of March 31, |
|
|||||
|
|
|
2019 |
|
|
2018 |
|
||
|
|
|
|
|
|
|
|
|
|
|
Options to purchase common stock |
|
|
5,055,267 |
|
|
|
1,204,114 |
|
|
Redeemable convertible preferred stock |
|
|
— |
|
|
|
12,385,154 |
|
|
2017 convertible notes (1) |
|
|
— |
|
|
|
2,319,384 |
|
|
2018 convertible notes (2) |
|
|
— |
|
|
|
4,163,480 |
|
|
Redeemable convertible preferred stock warrants |
|
|
— |
|
|
|
500,000 |
|
|
Unvested restricted stock awards |
|
|
25,253 |
|
|
|
228,454 |
|
|
Unvested early exercised common stock options |
|
|
— |
|
|
|
1,875 |
|
|
Total |
|
|
5,080,520 |
|
|
|
20,802,461 |
|
|
(1) |
Calculated as $10.0 million in principal and $1.6 million in accrued but unpaid interest as of March 31, 2018, convertible at $5.00 per share of common stock. |
|
(2) |
Calculated as $33.0 million in principal and $0.3 million in accrued but unpaid interest as of March 31, 2018, convertible at 80% of the $10.00 per share of common stock from the Company’s IPO. |
11
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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 ended December 31, 2018, included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or the SEC, on March 27, 2019. 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 Quarterly Report on Form 10-Q titled “Part II, Item 1A — Risk Factors” and elsewhere in this report.
Overview
We are a clinical-stage biopharmaceutical company specializing in novel therapeutics to treat chronic, high-prevalence retinal diseases. Our most advanced product candidate is KSI-301, a biologic therapy built with our antibody biopolymer conjugate platform, or ABC platform, which is designed to maintain potent and effective drug levels in ocular tissues. We believe that KSI-301, if approved, has the potential to become an important anti-vascular endothelial growth factor, or anti-VEGF, therapy in wet age-related macular degeneration, or wet AMD, diabetic retinopathy, or DR, including diabetic macular edema, or DME, macular edema due to retinal vein occlusion, or RVO, and other retinal vascular diseases. KSI-301 and our ABC Platform were developed at Kodiak, and we own worldwide rights to those assets, including composition of matter patent protection with respect to KSI-301. We have applied our ABC Platform to develop additional product candidates beyond KSI-301, including KSI-501, our bispecific anti-IL-6/VEGF bioconjugate. We intend to progress these and other product candidates to address high-prevalence ophthalmic diseases.
We initiated our first-in-human, single ascending dose Phase 1a clinical study of KSI-301 in the United States in nine patients with severe DME in July 2018. We successfully dosed all patients at the pre-planned dose levels and reached the 12-week last visit in November 2018. The last visit (twelve-week) data demonstrated safety and durability of responses following the single dose of KSI-301. Notably:
|
|
• |
Rapid high-magnitude and durable treatment responses were seen at all dose levels tested in a heavily pre-treated Phase 1 patient population. |
|
|
• |
Twelve weeks after a single dose, median vision improvement from baseline of almost two lines of vision (9 eye chart letters) and median improvement in retinal edema of 121 microns were achieved across all three dose levels tested. |
|
|
• |
No dose-limiting toxicities, drug-related adverse events, or intraocular inflammation were observed through each patients' last visit at 12 weeks. |
In the fourth quarter of 2018, we initiated an open-label, multiple-dose Phase 1b study of KSI-301 in the United States in patients with anti-VEGF treatment naïve neovascular wet AMD, DME, and RVO. The Phase 1b study continues to recruit well and based on strong investigator support, we have elected to increase the targeted number of patients from 50 to 90 with approximately ten additional patients in each of wet AMD and DME and twenty in RVO. This study is designed to provide additional scientific and clinical understanding of the safety, bioactivity and durability of KSI-301 in retinal vascular disease. All patients receive three loading doses once a month and are then followed monthly with further KSI-301 treatments determined by disease-specific retreatment criteria. All patients will be evaluated through 36-weeks. To date, we have observed bioactivity in all three diseases tested and have not observed signs of intraocular inflammation in the multiple dose setting with more than 75 doses administered in total. We expect to complete enrollment of these cohorts of patients in 2019. We intend to present on-going data from the Phase 1b study at medical and investor meetings starting in the second half of 2019.
Having successfully demonstrated early safety and tolerability in the Phase 1 study, with the additional observations around bioactivity and durability, we plan to further evaluate the highest dose tested of KSI-301, 5 mg, in a series of phase 2 studies in retinal vascular diseases.
We expect to be enrolling patients in a global Phase 2 study of KSI-301 in wet AMD in the third quarter of 2019. This study is intended to evaluate the non-inferiority of intravitreal KSI-301 dosed on an every 12-, 16- or 20-week regimen compared to standard of care aflibercept dosed every 8 weeks. The FDA indicated that this study, if successful, can be supportive of a marketing application for KSI-301, and we are designing and intend to execute this Phase 2 study as a pivotal study, with an option for an administrative interim analysis in 2020. A primary data readout is anticipated in 2021.
We additionally plan to initiate Phase 2 clinical studies in China, and we are planning for these studies to have the same clinical design frameworks as our U.S. and EU studies. We held our China pre-investigational new drug, or IND, meeting for KSI-301 in the second quarter of 2019. Based on this meeting, we intend to submit one or more INDs for KSI-301 in China in the second half of 2019. The disease indications we explored in our pre-IND meeting included wet AMD, DME, and DR. We plan to run these studies as dual-use studies which can support regulatory requirements both in China and in the U.S. and EU.
12
Since inception in June 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 currently do not need 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, convertible notes and warrants. In October 2018, we completed our initial public offering, or IPO.
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 $8.0 million for the three months ended March 31, 2019. As of March 31, 2019, we had an accumulated deficit of $118.8 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 or DME/DR or RVO or delay our efforts to advance and expand our product pipeline.
As of March 31, 2019, we had cash and cash equivalents and marketable securities of $81.1 million. We currently plan to raise additional funding as required based on the status of our clinical trials and projected cash flows, however we believe that our cash and cash equivalents and marketable securities are sufficient to fund our projected operations for at least the next 12 months.
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 seek to initiate our Phase 2 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
13
compliance with requirements of the stock exchange listing and the SEC, investor relations costs and director and officer insurance premiums associated with being a public company.
Interest Income
Interest income consists of interest income earned on investments for the three months ended March 31, 2019 and 2018, respectively.
Interest Expense
Interest expense consists primarily of interest expense related to our convertible notes, including amortization of debt discount and debt issuance costs, for the three months ended March 31, 2018. The convertible notes converted into shares of common stock upon the closing of our IPO.
Other Income (Expense), Net
Other income (expense), net consists of changes in the fair value of preferred stock warrants and derivative instruments for the three months ended March 31, 2018. The preferred stock warrants converted into common stock warrants and the derivative liability was extinguished upon the IPO.
Results of Operations
Comparison of the Three Months Ended March 31, 2019 and 2018
The following table summarizes our results of operations for the periods indicated:
|
|
|
Three Months Ended March 31, |
|
|
Change |
|
||||||||||
|
|
|
2019 |
|
|
2018 |
|
|
Dollar |
|
|
Percent |
|
||||
|
|
|
(in thousands) |
|
|||||||||||||
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
$ |
5,723 |
|
|
$ |
3,642 |
|
|
$ |
2,081 |
|
|
|
57 |
% |
|
General and administrative |
|
|
2,737 |
|
|
|
1,905 |
|
|
|
832 |
|
||||