Kodiak(KOD) - 2020 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Unaudited Q1 2020 financial statements show total assets at $443.0 million, liabilities at $115.4 million from a royalty sale, and a $24.4 million net loss due to increased R&D expenses Condensed Consolidated Balance Sheets Total assets increased to $443.0 million by March 31, 2020, driven by cash and marketable securities, while liabilities rose to $115.4 million due to a new royalty liability Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $226,456 | $211,797 | | Marketable securities | $203,937 | $136,380 | | Total Assets | $443,042 | $358,866 | | Liabilities | | | | Total current liabilities | $13,834 | $11,711 | | Liability related to sale of future royalties | $99,850 | $0 | | Total Liabilities | $115,355 | $13,507 | | Total Stockholders' Equity | $327,687 | $345,359 | Condensed Consolidated Statements of Operations and Comprehensive Loss Net loss for Q1 2020 increased to $24.4 million (or ($0.54) per share) from $8.0 million in Q1 2019, primarily due to higher R&D and G&A expenses Statement of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Research and development | $20,170 | $5,723 | | General and administrative | $5,553 | $2,737 | | Total operating expenses | $25,723 | $8,460 | | Loss from operations | ($25,723) | ($8,460) | | Net loss | ($24,392) | ($7,984) | | Net loss per common share | ($0.54) | ($0.21) | Condensed Consolidated Statements of Cash Flows Q1 2020 saw $17.9 million cash used in operations and $67.2 million in investing, offset by $99.8 million from financing, resulting in a $14.7 million net cash increase Cash Flow Summary (in thousands) | Activity | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | ($17,932) | ($7,207) | | Net cash used in investing activities | ($67,197) | ($23,872) | | Net cash provided by financing activities | $99,788 | $47 | | Net increase (decrease) in cash | $14,659 | ($31,032) | - The company received $99.6 million in net proceeds from the sale of future royalties, which was the primary source of cash from financing activities[24] Notes to Unaudited Condensed Consolidated Financial Statements Notes detail liquidity, accounting policies, and key transactions, including $430.4 million in cash, a $100.0 million royalty funding agreement, and increased purchase obligations - The company believes its cash, cash equivalents, and marketable securities of $430.4 million as of March 31, 2020, are sufficient to fund operations for the next 12 months[27] - In February 2020, the company received $100.0 million from BBA in exchange for a capped 4.5% royalty on future net sales of KSI-301, recorded as a liability due to the significant related-party relationship[54][55][56] - Total cancelable and/or non-cancelable purchase obligations under service agreements increased to $29.8 million as of March 31, 2020, from $4.7 million at year-end 2019[50] - Total stock-based compensation expense for Q1 2020 was $6.1 million, a significant increase from $1.2 million in Q1 2019[64] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the 2022 Vision for KSI-301 BLA submission, minimal COVID-19 impact on trials, and strengthened liquidity from a $100 million royalty payment and $297.6 million equity offering Overview and Recent Developments Kodiak, a clinical-stage biopharmaceutical company, is advancing its 2022 Vision for KSI-301 BLA submission in retinal diseases, with minimal COVID-19 impact on trials - The company's primary goal is the "2022 Vision": submitting a single Biologics License Application (BLA) for KSI-301 in wet AMD, DME, and RVO in calendar year 2022[70] - Despite the COVID-19 pandemic, the pivotal DAZZLE study has seen minimal disruption, with patient missed visit rates below 5% and continued new patient enrollment[76] - The company has optimized its pivotal program to conduct two Phase 3 studies in DME, one in wet AMD (DAZZLE), one in RVO, and one in non-proliferative DR, which is expected to minimize uncertainty related to COVID-19[72][77] Results of Operations Q1 2020 net loss increased to $24.4 million due to a 252% rise in R&D expenses to $20.2 million and a 103% increase in G&A expenses to $5.6 million Comparison of Results of Operations (in thousands) | Expense Category | Q1 2020 | Q1 2019 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Research and development | $20,170 | $5,723 | $14,447 | 252% | | General and administrative | $5,553 | $2,737 | $2,816 | 103% | | Loss from operations | ($25,723) | ($8,460) | ($17,263) | 204% | - KSI-301 program external expenses increased by $10.5 million year-over-year, mainly due to costs for the pivotal DAZZLE clinical study, which had enrolled over 200 patients by March 31, 2020[109] - Payroll and personnel expenses within R&D increased by $3.4 million due to higher headcount and stock-based compensation[110] Liquidity and Capital Resources As of March 31, 2020, Kodiak held $430.4 million in cash and equivalents, bolstered by a December 2019 offering and a $100.0 million royalty payment - The company had cash, cash equivalents, and marketable securities of $430.4 million as of March 31, 2020[115] - Primary sources of liquidity were a follow-on equity offering in December 2019 and an initial $100.0 million payment from a royalty funding agreement in February 2020[85][86][115] - Net cash used in operating activities increased to $17.9 million in Q1 2020 from $7.2 million in Q1 2019, driven by increased R&D and G&A expenses[123][124] - Net cash from financing activities was $99.8 million in Q1 2020, primarily from the royalty sale proceeds, compared to just $47 thousand in Q1 2019[123][126] Quantitative and Qualitative Disclosures About Market Risk No material changes to market risk disclosures were reported for the three months ended March 31, 2020 - There were no material changes to market risk disclosures during the quarter ended March 31, 2020[134] Controls and Procedures Management concluded disclosure controls and procedures were effective as of March 31, 2020, with no material changes to internal control over financial reporting - Management concluded that disclosure controls and procedures were effective as of March 31, 2020[136] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the controls[137] PART II. OTHER INFORMATION Legal Proceedings The company is not involved in any pending legal claims or actions expected to materially affect its financial condition or operations - There are no pending claims or actions against the company that could have a material adverse effect on its results of operations or financial condition[140] Risk Factors The company faces significant risks related to KSI-301's clinical success, regulatory approval, competition, complex manufacturing, financial losses, funding needs, and operational disruptions Risks Related to Business, Financial Condition and Capital Requirements The company, an early clinical-stage entity with no approved products, has an accumulated deficit of $182.5 million and requires substantial additional capital for future operations - The company is in the early clinical stage, has a limited operating history, no approved products, and has not generated any revenue[142] - The company has incurred significant net losses since inception, with an accumulated deficit of $182.5 million as of March 31, 2020, and expects these losses to continue and increase[143] - The company will require substantial additional capital to complete development and commercialization, and failure to obtain it could force delays, scaling back, or discontinuation of programs[152][154] Risks Related to Discovery, Development and Commercialization Prospects depend heavily on KSI-301, facing risks of clinical trial delays (including from COVID-19), intense competition, and complex, single-source manufacturing challenges - The company's prospects are heavily dependent on a single product candidate, KSI-301, which is in the early stages of clinical development[156] - Clinical trials may be substantially delayed or fail due to difficulties in patient enrollment, which can be impacted by health epidemics like the COVID-19 outbreak[168][177] - The company faces significant competition from major pharmaceutical companies with established, widely accepted products for retinal diseases, such as Roche, Regeneron, and Novartis[185] - Manufacturing of KSI-301 is highly complex, requires substantial lead time (at least 12 months for new large-scale batches), and relies on single-source suppliers from multiple countries, magnifying supply chain risk[188][191] Risks Related to Regulatory Approval and Other Legal Compliance Regulatory approval is lengthy and unpredictable, with no guarantee of success, and approved products face extensive ongoing compliance requirements and potential penalties - The regulatory approval process is lengthy, time-consuming, and inherently unpredictable, with no guarantee that any product candidate will ever obtain approval[209] - The company plans to conduct clinical trials outside the U.S., but there is a risk that regulatory authorities like the FDA will not accept the data from these trials[211] - Even if a product is approved, it will remain subject to extensive ongoing regulatory requirements for manufacturing, labeling, and marketing, with potential for withdrawal of approval or other penalties for non-compliance[214][217] Risks Related to Reliance on Third Parties Heavy reliance on third-party CROs and single-source CMOs (Lonza AG) for clinical trials and manufacturing creates significant control and supply chain risks - The company relies on third-party CROs to conduct clinical trials, which reduces control and could lead to delays or failures if these parties do not perform satisfactorily[239] - The company currently relies exclusively on a single third-party manufacturer, Lonza AG, for its materials and does not have redundant supply arrangements, creating significant supply chain risk[243][246] - Reliance on third-party suppliers for key raw materials involves risks of limited control over pricing, availability, and quality, which could harm manufacturing ability[249] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities were reported during the period - None[337] Other Information No other information was reported for the period - None[340] Exhibits This section lists exhibits filed with the Form 10-Q, including Sarbanes-Oxley certifications and XBRL data files - The report includes certifications from the CEO and CFO pursuant to Sarbanes-Oxley Sections 302 and 906, as well as XBRL filings[343]