The following discussion and analysis of our financial condition and results of
operations should be read together with our unaudited condensed consolidated
financial statements and related notes thereto appearing elsewhere in this
Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year
ended December 31, 2021, which was filed with the Securities and Exchange
Commission on March 29, 2022.
This Quarterly Report on Form 10-Q contains forward-looking statements that
involve substantial risks and uncertainties. The words "anticipate," "believe,"
"continue" "could," "estimate," "expect," "intend," "may," "might," "plan,"
"potential," "predict," "project," "should," "target," "would," and similar
expressions are intended to identify forward-looking statements, although not
all forward-looking statements contain these identifying words. There are a
number of important risks and uncertainties that could cause our actual results
to differ materially from those indicated by forward-looking statements. We may
not actually achieve the plans, intentions or expectations disclosed in our
forward-looking statements, and you should not place undue reliance on our
forward-looking statements. Actual results or events could differ materially
from the plans, intentions and expectations disclosed in the forward-looking
statements we make. We have included important factors in the cautionary
statements included in this Quarterly Report on Form 10-Q, particularly in the
section entitled "Risk Factors" in Part II, Item 1A that we believe could cause
actual results or events to differ materially from the forward-looking
statements that we make. Our forward-looking statements do not reflect the
potential impact of any future acquisitions, mergers, dispositions, joint
ventures or investments that we may make.
We are a clinical-stage biopharmaceutical company focused on the research,
development and commercialization of innovative therapies for rare diseases of
the eye. Our product candidate, KPI-012, which we acquired from Combangio, Inc.,
or Combangio, on November 15, 2021, is a mesenchymal stem cell secretome, or
MSC-S, and is currently in clinical development for the treatment of persistent
corneal epithelial defects, or PCED, a rare disease of impaired corneal healing.
Based on the positive results of a Phase 1b clinical efficacy trial of KPI-012
in patients with PCED, we plan to submit an investigational new drug
application, or IND, to the U.S. Food and Drug Administration, or FDA, for
KPI-012 and, subject to regulatory clearance, commence a Phase 2/3 clinical
trial for PCED in the United States in the fourth quarter of 2022.
We believe the multifactorial mechanism of action of KPI-012 also makes MSC-S a
platform technology. We are evaluating KPI-012 in indications for rare front of
the eye diseases, such as for the treatment of Partial Limbal Stem Cell
Deficiency and ocular manifestations of moderate-to-severe Sjögren's. In
addition, we are planning to initiate preclinical studies under our KPI-014
program to evaluate the utility of our MSC-S platform for retinal degenerative
diseases, such as Retinitis Pigmentosa and Stargardt Disease, with the goal to
select a retinal indication for development in the second half of 2023. In
connection with the determination to focus our research and development efforts
on KPI-012, we determined to cease the development of our preclinical pipeline
programs that are unrelated to our MSC-S platform, including the development of
KPI-287, our receptor tyrosine kinase inhibitor, and our selective
glucocorticoid receptor modulators. We expect to commercialize in the United
States any of our product candidates that receive marketing approval. For a
further description of our acquisition of Combangio, KPI-012 and PCED, see our
Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
We previously developed and commercialized two marketed products, EYSUVIS®
(loteprednol etabonate ophthalmic suspension) 0.25%, for the short-term (up to
two weeks) treatment of the signs and symptoms of dry eye disease, and
INVELTYS® (loteprednol etabonate ophthalmic suspension) 1%, a topical
twice-a-day ocular steroid for the treatment of post-operative inflammation and
pain following ocular surgery. Both products applied a proprietary
mucus-penetrating particle drug delivery technology, which we referred to as the
AMPPLIFY® Drug Delivery Technology.
On July 8, 2022, we closed the transaction, or the Alcon Transaction,
contemplated by the asset purchase agreement, dated as of May 21, 2022, or the
Asset Purchase Agreement, by and between us, Alcon Pharmaceuticals Ltd. and
Alcon Vision, LLC, or together referred to as Alcon, pursuant to which Alcon
purchased the rights to manufacture, sell, distribute, market and commercialize
EYSUVIS and INVELTYS and to develop, manufacture, market and
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otherwise exploit the AMPPLIFY Technology, which we collectively refer to as the
Commercial Business. Alcon also assumed certain liabilities with respect to the
Commercial Business at the closing of the Alcon Transaction.
Alcon paid us an upfront cash payment of $60.0 million upon the closing of the
Alcon Transaction. Pursuant to the Asset Purchase Agreement, we are also
eligible to receive from Alcon up to four commercial-based sales milestone
payments as follows: (1) $25.0 million upon the achievement of $50.0 million or
more in aggregate worldwide net sales of EYSUVIS and INVELTYS in a calendar year
from 2023 to 2028, (2) $65.0 million upon the achievement of $100.0 million or
more in aggregate worldwide net sales of EYSUVIS and INVELTYS in a calendar year
from 2023 to 2028, (3) $75.0 million upon the achievement of $175.0 million or
more in aggregate worldwide net sales of EYSUVIS and INVELTYS in a calendar year
from 2023 to 2029 and (4) $160.0 million upon the achievement of $250.0 million
or more in aggregate worldwide net sales of EYSUVIS and INVELTYS in a calendar
year from 2023 to 2029. Each milestone payment will only become payable once, if
at all, upon the first time such milestone is achieved, and only one milestone
payment will be paid with respect to a calendar year. In the event that more
than one milestone is achieved in a calendar year, the higher milestone payment
will become payable and the lower milestone payment will become payable only if
the corresponding milestone is achieved again in a subsequent calendar year.
In connection with our entry into the Asset Purchase Agreement, on May 21, 2022,
we entered into an amendment, or the Loan Amendment, with Oxford Finance LLC, or
Oxford Finance, to the Loan and Security Agreement, or the Loan Agreement, by
and among us, Combangio, Inc. and Oxford Finance, in its capacity as Lender, and
in its capacity as Agent. Pursuant to the Loan Amendment, the Lender and Agent
consented to the entry by us into the Asset Purchase Agreement and the sale of
the Commercial Business to Alcon and agreed to release its liens on the
Commercial Business in consideration for the payment by us at the closing of the
Alcon Transaction of an aggregate amount of $40.0 million, or the Prepayment, to
the Lender and Agent. The Prepayment, which represented a partial prepayment of
principal in the amount of $36.7 million of the $80.0 million principal amount
outstanding under the term loan advanced by the Lender under the Loan Agreement,
plus a prepayment fee of $0.7 million and a final payment fee of $2.6 million,
was paid on July 8, 2022 in connection with the closing of the Alcon
Transaction. In addition, we were required to pay all accrued and unpaid
interest on the principal amount of the term loan being repaid.
Under the Loan Amendment, the Lender and Agent agreed that, following the
closing of the Alcon Transaction and the Prepayment, the start date for
amortization payments under the Loan Agreement would be extended from December
1, 2024 to January 1, 2026, at which time the aggregate principal balance of the
term loan then outstanding under the Loan Agreement is required to be repaid in
five monthly installments. Pursuant to the Loan Amendment, we may also make
partial prepayments of the term loan to the Lender, subject to specified
conditions, including the payment of applicable fees and accrued and unpaid
interest on the principal amount of the term loan being repaid.
On July 8, 2022, we announced that we had committed to a course of action to
terminate 113 employees, consisting of our entire commercial sales force and
certain employees in our commercial, scientific, manufacturing, finance and
administrative functions. The determination to proceed with the workforce
reduction was made in the context of the closing of the Alcon Transaction and
the changes to the scope of our research and development activities of KPI-012
as more fully described above. We expect to complete the workforce reduction, to
streamline our corporate infrastructure, by December 31, 2022, we expect the
workforce reduction to result in approximately $27.6 million in reduced
annualized operating expenses once the workforce reduction is fully implemented.
In addition, we expect to incur a charge of approximately $2.5 million primarily
in the third quarter of 2022 related to the workforce reduction, consisting of
severance, benefits and related costs, all of which are anticipated to be paid
prior to the end of the first quarter of 2023.
Since inception, we have incurred significant losses from operations and
negative cash flows from operations. Our net losses were $28.1 million and
$61.1 million for the three and six months ended June 30, 2022, respectively,
and $142.6 million for the year ended December 31, 2021. As of June 30, 2022, we
had an accumulated deficit of $603.4 million. As we commenced a full promotional
launch of EYSUVIS in early January 2021 and commercially launched our first
product, INVELTYS, in January 2019, we had generated only limited revenues from
product sales prior to the sale of the Commercial Business to Alcon in July
2022. We had financed our operations primarily through proceeds from the sale of
our Commercial Business to Alcon in July 2022, our initial public offering, or
IPO, follow-on public common stock offerings and sales of our common stock under
our sales agreement with Jefferies, LLC, or Jefferies, in
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at-the-market offerings, or ATM Offerings, private placements of preferred
stock, borrowings under credit facilities and our Loan and Security Agreement,
or Loan Agreement, with Oxford Finance, convertible promissory notes and
warrants. We have devoted substantially all of our financial resources and
efforts to research and development, including preclinical studies and clinical
trials and, prior to the sale of our Commercial Business to Alcon in July 2022,
engaging in activities to launch and commercialize EYSUVIS and INVELTYS. As a
result of our acquisition of Combangio and the sale of our Commerical Business
to Alcon, we intend to devote substantial financial resources to the research
and development and potential commercialization of KPI-012. We have no
revenue-generating commercial products, and although we are eligible to receive
up to $325.0 million in payments from Alcon based upon the achievement of
specified commercial sales-based milestones with respect to EYSUVIS and
INVELTYS, there can be no assurance when we may receive such milestone payments
or the amount of milestone payments we may receive, if any. We expect to
continue to incur significant expenses and operating losses for the foreseeable
future, including in connection with our continued development, regulatory
approval efforts and commercialization, if any, of KPI-012. We may never achieve
or maintain profitability. Our net losses may fluctuate significantly from
quarter-to-quarter and year-to-year.
Business Impact of COVID-19 Pandemic
In order to safeguard the health of our employees from the ongoing COVID-19
pandemic, we are following, and will continue to follow, recommendations from
the U.S. Centers for Disease Control and Prevention, as well as federal, state,
and local governments, regarding working-from-home practices for non-essential
employees.
In addition, government restrictions have at times led to moratoria on elective
ocular surgeries in many jurisdictions, which had significantly reduced the
demand for INVELTYS, which is indicated for the treatment of inflammation and
pain following ocular surgery. While surgeries have returned to historical
levels, the COVID-19 pandemic had negatively impacted revenues from INVELTYS in
prior periods. In addition, the COVID-19 pandemic has generally had an adverse
impact on the launch of pharmaceutical products, and we believe the pandemic
impacted the launch of EYSUVIS. We cannot predict whether the COVID-19 pandemic
will impact Alcon's ability to commercialize EYSUVIS and INVELTYS, and as a
result, it cannot be certain whether the COVID-19 pandemic might adversely
affect when we may receive milestone payments from Alcon, which milestone
payments we may receive and if we will receive any milestone payments at all. We
also do not know the extent to which the COVID-19 pandemic will impact our
development of KPI-012 or any other product candidate we develop. Any impact of
the COVID-19 pandemic on Alcon's commercialization efforts of EYSUVIS and
INVELTYS, our development of KPI-012 and any other product candidate we may
develop in the future, and our operational and financial performance will depend
on certain developments, including the length and severity of this pandemic, the
timing and extent of any resurgence of the COVID-19 virus or any variant strains
of the virus, the availability and effectiveness of vaccines, and the full
extent of the impact on customers, employees, vendors and government agencies,
all of which are uncertain and cannot be predicted.
Management is actively monitoring the COVID-19 pandemic and its effects on our
financial condition, liquidity, operations, customers, sales force, contractors,
and workforce. For additional information on risks posed by the COVID-19
pandemic, please see Part II, Item 1A - "Risk Factors" of this Quarterly Report
on Form 10-Q, including the risk factor entitled "The ongoing novel coronavirus
pandemic and the efforts to prevent its spread have adversely impacted our
operations, could impact the development of KPI-012 or any other product
candidate we develop, and may continue to adversely affect our business, results
of operations and financial condition."
Financial Operations Overview
Product Revenues, Net
We commenced generating product revenues from sales of INVELTYS in January 2019,
and commenced generating revenue from EYSUVIS upon the shipment to wholesalers
in the United States in late December 2020. Full promotional launch of EYSUVIS
began in early January 2021. Our product revenues for the periods presented are
recorded net of provisions relating to estimates for (i) trade discounts and
allowances, such as discounts for prompt payment and other discounts and
distributor fees, (ii) estimated rebates, chargebacks and co-pay assistance
programs, and (iii) reserves for expected product returns. These estimates
reflect current contractual and statutory requirements,
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known market events and trends, industry data and forecasted customer buying and
payment patterns. Actual amounts may ultimately differ from these estimates. If
actual results vary, estimates may be adjusted in the period such change in
estimate becomes known, which could have an impact on earnings in the period of
adjustment. On July 8, 2022, we sold our Commercial Business, including EYSUVIS
and INVELTYS, to Alcon and ceased recording gross revenue on sales of EYSUVIS
and INVELTYS. We currently have no commercial products in our porfolio.
Moreover, subject to regulatory clearance, we plan to commence a Phase 2/3
clinical trial of KPI-012 for PCED in the United States in the fourth quarter of
2022 and, accordingly, we do not expect to generate revenue from KPI-012 or any
other product candidate we may develop in the future for the foreseeable future,
if at all.
Beginning in March 2020 and continuing through most of the second quarter of
2020, prescriptions of INVELTYS and revenue had been adversely affected by the
ongoing COVID-19 pandemic as federal, state and local governments implemented
restrictions on elective procedures, which included most ocular surgeries. While
many deferred ocular surgeries have been rescheduled as individual states have
released restrictions on elective procedures, prescriptions of INVELTYS and
related revenue are still being adversely affected by the ongoing COVID-19
pandemic. We also cannot quantify the full extent of the impact that the
COVID-19 pandemic has had on the commercialization of EYSUVIS.
Cost of Product Revenues
Cost of product revenues consists primarily of materials, third-party
manufacturing costs, freight and distribution costs, royalty expense, allocation
of labor, quality control and assurance, reserves for defective inventory,
reserves for excess and obsolete inventory, losses on inventory purchase
commitments, and other manufacturing overhead costs. The determination of
whether inventory costs will be realizable requires estimates by management. If
actual market conditions are less favorable than projected by management,
additional write-downs of inventory may be required which would be recorded as a
cost of product revenues in the condensed consolidated statements of operations
and comprehensive loss. We expensed cost of product revenues related to INVELTYS
as research and development expenses prior to U.S. regulatory approval, which we
received on August 22, 2018. We expensed cost of product revenues related to
EYSUVIS as research and development expenses prior to the determination that FDA
approval was probable and before the future economic benefit was expected to be
realized. Following the sale of our Commercial Business to Alcon, we do not
expect to generate cost of product revenues until such time as we commercialize
another product candidate.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of salaries,
benefits, commissions, stock-based compensation and travel expenses related to
our commercial infrastructure and our executive, finance, human resources,
legal, compliance, information technology and business development functions.
Selling, general and administrative expenses also include external selling and
marketing costs, costs to manufacture sample units and professional fees for
auditing, tax, information technology, consultants, legal services and allocated
facility-related costs not otherwise included in research and development
expenses.
We expect that our selling, general and administrative expenses for 2022 will
decrease as compared to such expenses for the year ended December 31, 2021 as a
result of the workforce reduction announced on July 8, 2022, as we have
completed the sale of our Commercial Business to Alcon, incurred launch-related
expenses for EYSUVIS during 2021 that we will not incur again in 2022 and
terminated the lease for our corporate headquarters, effective January 11, 2022.
We anticipate that our selling, general and administrative expenses will
decrease in 2023 as compared to the year ended December 31, 2022 and then remain
largely consistent with the expenses for 2023 for the foreseeable future as we
continue to support our development efforts for KPI-012 and seek marketing
approval for KPI-012 and any other product candidate we may develop in the
future. If we obtain marketing approval for KPI-012 or any product candidates we
may develop, we expect that our selling, general and administrative expenses
will increase substantially if and as we incur commercialization expenses
related to product marketing, sales and distribution.
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Research and Development Expenses
Research and development expenses consist of costs associated with our research
activities, including compensation and benefits for full-time research and
development employees, an allocation of facilities expenses, overhead expenses
and certain outside expenses. Our research and development expenses include:
? employee-related expenses, including salaries, related benefits, travel and
stock-based compensation;
expenses incurred for the preclinical and clinical development of our product
candidates and under agreements with contract research organizations, including
? costs of manufacturing product candidates prior to the determination that FDA
approval of a drug candidate is probable and before the future economic benefit
of the drug is expected to be realized; and
? facilities, depreciation and other expenses, which include direct and allocated
expenses for rent and maintenance of facilities and supplies.
We expense research and development costs as they are incurred. We expense costs
relating to the production of inventory for our product candidates, as research
and development expenses within our condensed consolidated statements of
operations and comprehensive loss in the period incurred, unless we believe
regulatory approval and subsequent commercialization of the product candidate is
probable and we expect the future economic benefit from sales of the drug to be
realized. Research and development costs that are paid in advance of performance
are capitalized as a prepaid expense until incurred. We track outsourced
development costs by development program but do not allocate personnel costs,
payments made under our license agreements or other costs to specific product
candidates or development programs. These costs are included in Employee-related
costs and Other research and development costs in the line items in the tables
under "Results of Operations".
We expect that our research and development costs for 2022 will increase as
compared to such expenses for the year ended December 31, 2021 as we advance the
clinical development of KPI-012 and as we conduct any necessary preclinical
studies and clinical trials and other development activities for any other
product candidate we may develop in the future, including our planned
preclinical studies under our KPI-014 progam. The process of conducting
preclinical studies and clinical trials necessary to obtain regulatory approval
is costly and time-consuming. We may never succeed in obtaining marketing
approval for any of our product candidates. The probability of success for each
product candidate may be affected by numerous factors, including preclinical
data, clinical data, competition, manufacturing capability and commercial
viability. With respect to the ongoing COVID-19 pandemic, we are unable to
predict the impact it may have on our research and development activities.
Subject to regulatory clearance, we plan to commence a Phase 2/3 clinical trial
of KPI-012 for PCED in the United States in the fourth quarter of 2022.
Successful development and completion of preclinical studies and clinical trials
is uncertain and may not result in approved products. Completion dates and
completion costs can vary significantly for each product candidate and future
product candidate and are difficult to predict. We will continue to make
determinations as to which product candidates to pursue and how much funding to
direct to each product candidate on an ongoing basis in response to the
scientific and clinical success of each product candidate as well as ongoing
assessments as to the commercial potential of product candidates and our ability
to enter into collaborations with respect to each product candidate. We will
need to raise additional capital and may seek collaborations in the future to
advance KPI-012 and any product candidate we may develop in the future.
Additional private or public financings may not be available to us on acceptable
terms, or at all. Our failure to raise capital as and when needed would have a
material adverse effect on our financial condition and our ability to pursue our
business strategy.
(Gain) Loss on Fair Value Remeasurement of Deferred Purchase Consideration
In connection with the closing of the acquisition of Combangio on November 15,
2021, or the Combangio Closing, we agreed to issue an aggregate of 7,788,637
shares, or the Deferred Purchase Consideration, of our common stock to former
Combangio stockholders and other equityholders, or the Combangio Equityholders,
consisting of (i) an aggregate of 6,815,072 shares of common stock which were
issued on January 3, 2022 and (ii) an aggregate of 973,565
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shares of common stock that have been held back by us and will be issuable
subject to the terms of the merger agreement to the Combangio Equityholders on
the date that is fifteen months after the Combangio Closing. We recorded an
obligation for such Deferred Purchase Consideration at fair value on the
acquisition date. We then revalue our Deferred Purchase Consideration
obligations each reporting period. Changes in the fair value of our Deferred
Purchase Consideration obligations, other than changes due to issuance, are
recognized as a gain or loss on fair value remeasurement of Deferred Purchase
Consideration in our condensed consolidated statements of operations and
comprehensive loss.
Gain on Fair Value Remeasurement of Contingent Consideration
In addition to the Deferred Purchase Consideration, consideration payable for
the Combangio acquisition includes potential future payments that are contingent
upon the achievement of specified development, regulatory and commercialization
milestones. We recorded an obligation for such contingent consideration at fair
value on the acquisition date. We then revalue our contingent consideration
obligations each reporting period. Changes in the fair value of our contingent
consideration obligations, other than changes due to issuance, are recognized as
a gain or loss on fair value remeasurement of contingent consideration in our
condensed consolidated statements of operations and comprehensive loss.
Interest Income
Interest income consists of interest earned on our cash, cash equivalents and
short-term investments.
Interest Expense
Interest expense primarily consists of contractual coupon interest, amortization
of debt discounts and debt issuance costs and accretion of the final payment fee
recognized on our debt arrangements.
Critical Accounting Policies and Significant Judgments and Estimates
Our management's discussion and analysis of our financial condition and results
of operations is based on our financial statements, which we have prepared in
accordance with U.S. generally accepted accounting principles. We believe that
several accounting policies are important to understanding our historical and
future performance. We refer to these policies as critical because these
specific areas generally require us to make judgments and estimates about
matters that are uncertain at the time we make the estimate, and different
estimates-which also would have been reasonable-could have been used. On an
ongoing basis, we evaluate our estimates and judgments, including those
described in greater detail below. We base our estimates on historical
experience and other market-specific or other relevant assumptions that we
believe to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying value of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.
There have been no material changes to our critical accounting estimates from
those described in "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in our Annual Report on Form 10-K for the fiscal year
ended December 31, 2021.
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Results of Operations
Comparison of the Three Months Ended June 30, 2022 and 2021
The following table summarizes the results of our operations for the three
months ended June 30, 2022 and 2021:
Three Months Ended
June 30,
2022 2021 Change
(in thousands)
Product revenues, net $ 2,100 $ 3,051 $ (951)
Costs and expenses:
Cost of product revenues 1,774 1,016 758
Selling, general and administrative 22,673 27,986 (5,313)
Research and development 4,473 3,094 1,379
Gain on fair value remeasurement of deferred
purchase consideration (789) - (789)
Gain on fair value remeasurement of contingent
consideration (59) - (59)
Total operating expenses 28,072 32,096 (4,024)
Loss from operations (25,972) (29,045) 3,073
Other income (expense)
Interest income 68 33 35
Interest expense (2,207) (2,091) (116)
Loss on extinguishment of debt - (5,395) 5,395
Net loss $ (28,111) $ (36,498) $ 8,387
Product revenues, net
Product revenues, net was $2.1 million for the three months ended June 30, 2022,
consisting of $0.9 million from EYSUVIS sales and $1.2 million from INVELTYS
sales, compared to product revenues, net of $3.1 million for the three months
ended June 30, 2021, which consisted of $1.7 million from EYSUVIS sales and $1.4
million from INVELTYS sales. The decrease in product revenues, net of $1.0
million was primarily the result of a decrease in the total units of INVELTYS
sold in the three months ended June 30, 2022, as well as higher estimated
allowances per unit sold on both products during the three months ended June 30,
2022 as compared to those allowances per unit during the three months ended June
30, 2021, partially offset by a higher per unit gross selling price of both
products as compared to those sold during the three months ended June 30, 2021.
Following of the sale of our Commercial Business to Alcon in July 2022, we no
longer have any commercial products in our portfolio. Subject to regulatory
clearance, we plan to commence a Phase 2/3 clinical trial of KPI-012 for PCED in
the United States in the fourth quarter of 2022 and, accordingly, we do not
expect to generate revenue from KPI-012 or any other product candidate we may
develop for the foreseeable future, if at all.
Cost of product revenues
Cost of product revenues was $1.8 million for the three months ended June 30,
2022, compared to $1.0 million for the three months ended June 30, 2021, which
was an increase of $0.8 million. Cost of product revenues increased $0.8 million
as a result of reserves recorded for expiring inventory or inventory that did
not pass quality inspection which did not occur in the three months ended June
30, 2021 and $0.1 million attributable to EYSUVIS largely due to an increase in
the units of EYSUVIS sold, as compared to the three months ended June 30, 2021.
These increases were partially offset by a decrease in units of INVELTYS sold
during the three months ended June 30, 2022, as compared to the three months
ended June 30, 2021. We do not expect to continue to incur cost of product
revenues following the sale of our Commercial Business to Alcon in July 2022
until such time as we commercialize another product candidate.
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Selling, general and administrative expenses
Selling, general and administrative expenses were $22.7 million for the three
months ended June 30, 2022, compared to $28.0 million for the three months ended
June 30, 2021, which was a decrease of $5.3 million. The decrease in selling,
general and administrative expenses for the three months ended June 30, 2022 was
primarily due to a $2.1 million decrease in employee-related expenses, a $2.0
million decrease in stock-based compensation costs, a $1.8 million decrease in
facility related costs and certain medical affairs costs attributable to our
commercial products and a $0.6 million decrease in external sales and marketing
costs. This decrease, as compared to the three months ended June 30, 2021, was
partially offset by $0.8 million of transaction costs related to the Alcon
Transaction which were not incurred in the three months ended June 30, 2021 and
a $0.4 million increase in administrative and professional service fees.
We expect our selling, general and administrative expenses for 2022 to decrease
as compared to such expenses for the year ended December 31, 2021 as a result of
the workforce reduction announced on July 8, 2022, and because we completed the
sale of our Commercial Business to Alcon, incurred launch-related expenses for
EYSUVIS in 2021 that we will not incur again in 2022 and terminated the lease
for our former corporate headquarters, effective January 11, 2022. We anticipate
that our selling, general and administrative expenses will decrease in 2023 as
compared to the year ended December 31, 2022 and then remain largely consistent
with the expenses for 2023 for the foreseeable future as we focus our resources
on our development efforts for KPI-012 and any other product candidate we may
develop in the future. If we obtain marketing approval for KPI-012 or any
product candidates we may develop, we expect that our selling, general and
administrative expenses will increase substantially if and as we incur
commercialization expenses related to product marketing, sales and distribution.
Research and development expenses
The following table summarizes the research and development expenses incurred
during the three months ended June 30, 2022 and 2021:
Three Months Ended
June 30,
2022 2021 Change
(in thousands)
KPI-012 development costs $ 1,581 $ - $ 1,581
Employeerelated costs 2,347 2,106 241
Other research and development costs 545 988 (443)
Total research and development $ 4,473 $ 3,094 $ 1,379
Research and development expenses were $4.5 million for the three months ended
June 30, 2022, compared to $3.1 million for the three months ended June 30,
2021. The $1.4 million increase was primarily the result of a $1.6 million
increase in KPI-012 development costs and a $0.2 million increase in
employee-related costs, partially offset by a $0.4 million decrease in other
research and development costs, which primarily included preclinical studies
related to our former pipeline programs and other facility related costs. We
expect research and development costs to increase as we advance the clinical
development of KPI-012 for PCED and as we conduct any necessary preclinical
studies and clinical trials and other development activities for any other
product candidate we may develop in the future, including our planned
preclinical studies under our KPI-014 program.
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Gain on fair value remeasurement of deferred purchase consideration
Gain on fair value remeasurement of deferred purchase consideration for the
three months ended June 30, 2022 was $0.8 million and was primarily due to a
change in the fair value of our underlying stock price. There was no gain or
loss on fair value remeasurement of deferred purchase consideration for the
three months ended June 30, 2021.
Gain on fair value remeasurement of contingent consideration
Gain on fair value remeasurement of contingent consideration for the three
months ended June 30, 2022 was $0.1 million and was primarily due to changes in
discount rates, partially offset by the passage of time. There was no gain or
loss on fair value remeasurement of contingent consideration for the three
months ended June 30, 2021.
Interest income
Interest income was $0.1 million for the three months ended June 30, 2022 and
less than $0.1 million for the three months ended June 30, 2021. Interest income
consists of interest earned on our cash, cash equivalents and short-term
investments.
Interest expense
We incurred interest expense of $2.2 million for the three months ended June 30,
2022, compared to $2.1 million for the three months ended June 30, 2021, a $0.1
million increase. Interest expense for the three months ended June 30, 2022 was
comprised of the contractual coupon interest expense, the amortization of the
debt discount and the accretion of the final payment fee associated with our
Loan Agreement with Oxford Finance. Interest expense for the three months ended
June 30, 2021 was comprised of the contractual coupon interest expense, the
amortization of the debt discount and the accretion of the final payment fee
associated with our Loan Agreement with Oxford Finance and our Athyrium Credit
Facility. During the three months ended June 30, 2022, $80.0 million of
indebtedness was outstanding under our Loan Agreement. During the three months
ended June, 2021, $75.0 million of indebtedness was outstanding under the
Athyrium Credit Facility until we repaid such indebtedness in full on May 4,
2021. During the three months ended June 30, 2021, $80.0 million of indebtedness
was outstanding under our Loan Agreement after we drew down the tranche A term
loan on May 4, 2021.
Loss on extinguishment of debt
There was no loss on extinguishment of debt for the three months ended June 30,
2022. The loss of extinguishment of debt was $5.4 million for the three months
ended June 30, 2021. Upon the repayment in full of all amounts owed under the
Athyrium Credit Facility, the unamortized debt discount and issuance costs,
prepayment premium and unaccreted exit fee were recorded as loss on
extinguishment of debt for the three months ended June 30, 2021.
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Comparison of the Six Months Ended June 30, 2022 and 2021
The following table summarizes the results of our operations for the six months
ended June 30, 2022 and 2021:
Six Months Ended
June 30,
2022 2021 Change
(in thousands)
Product revenues, net $ 3,472 $ 6,317 $ (2,845)
Costs and expenses:
Cost of product revenues 2,549 1,771 778
Selling, general and administrative 49,655 55,685 (6,030)
Research and development 8,939 6,220 2,719
Loss on fair value remeasurement of deferred
purchase consideration 262 - 262
Gain on fair value remeasurement of contingent
consideration (1,047) - (1,047)
Total operating expenses 60,358 63,676 (3,318)
Loss from operations (56,886) (57,359) 473
Other income (expense)
Interest income 76 76 -
Interest expense (4,242) (4,232) (10)
Loss on extinguishment of debt - (5,395) 5,395
Net loss $ (61,052) $ (66,910) $ 5,858
Product revenues, net
Product revenues, net was $3.5 million for the six months ended June 30, 2022,
consisting of $1.9 million from EYSUVIS sales and $1.6 million from INVELTYS
sales, compared to product revenues, net of $6.3 million for the six months
ended June 30, 2021, which consisted of $3.3 million from EYSUVIS sales and $3.0
million from INVELTYS sales. The decrease in product revenues, net of $2.8
million was primarily the result of higher estimated allowances per unit sold on
both products during the six months ended June 30, 2022 as compared to those
allowances per unit during the six months ended June 30, 2022, as well as a
decrease in the total units of INVELTYS sold in the six months ended June 30,
2022, partially offset by a higher per unit gross selling price of both products
as compared to those sold during the six months ended June 30, 2021. Following
of the sale of our Commercial Business to Alcon in July 2022, we no longer have
any commercial products in our portfolio. Subject to regulatory clearance, we
plan to commence a Phase 2/3 clinical trial of KPI-012 for PCED in the United
States in the fourth quarter of 2022 and, accordingly, we do not expect to
generate revenue from KPI-012 or any other product candidate we may develop for
the foreseeable future, if at all.
Cost of product revenues
Cost of product revenues was $2.5 million for the six months ended June 30,
2022, compared to $1.8 million in the six months ended June 30, 2021, an
increase of $0.7 million. Cost of product revenues increased $0.8 million as a
result of reserves recorded for expiring inventory or inventory that did not
pass quality inspection which did not occur in the six months ended June 30,
2021 and $0.1 million attributable to EYSUVIS largely due to an increase in the
units of EYSUVIS sold, as compared to the six months ended June 30, 2021. These
increases were partially offset by a decrease in units of INVELTYS sold during
the six months ended June 30, 2022, as compared to the six months ended June 30,
2021. We do not expect to continue to incur cost of product revenues following
the sale of our Commercial Business to Alcon in July 2022 until such time as we
commercialize another product candidate.
Selling, general and administrative expenses
Selling, general and administrative expenses were $49.7 million for the six
months ended June 30, 2022, compared to $55.7 million for the six months ended
June 30, 2021, which was a decrease of $6.0 million. The decrease in selling,
general and administrative expenses for the six months ended June 30, 2022 was
primarily due to a $3.4 million decrease in stock-based compensation costs, a
$2.7 million decrease in facility related costs and certain medical affairs
costs attributable to our commercial products and a $2.0 million decrease in
employee-related costs. This
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decrease, as compared to the six months ended June 30, 2021, was partially
offset by a $0.9 million increase in administrative and professional service
fees, $0.8 million of transaction costs related to the Alcon Transaction which
were not incurred in the six months ended June 30, 2021 and a $0.4 million
increase in external sales and marketing costs attributable to a
direct-to-consumer marketing campaign for EYSUVIS.
We expect our selling, general and administrative expenses for 2022 to decrease
as compared to such expenses for the year ended December 31, 2021 as a result of
the workforce reduction announced on July 8, 2022, and because we completed the
sale of our Commercial Business to Alcon, incurred launch-related expenses for
EYSUVIS in 2021 that we will not incur again in 2022 and terminated the lease
for our former corporate headquarters, effective January 11, 2022. We anticipate
that our selling, general and administrative expenses will decrease in 2023 as
compared to the year ended December 31, 2022 and then remain largely consistent
with expenses for 2023 for the foreseeable future as we focus our resources on
our development efforts for KPI-012 and any other product candidate we may
develop in the future. If we obtain marketing approval for KPI-012 or any
product candidates we may develop, we expect to incur commercialization expenses
related to product marketing, sales and distribution.
Research and development expenses
The following table summarizes the research and development expenses incurred
during the six months ended June 30, 2022 and 2021:
Six Months Ended
June 30,
2022 2021 Change
(in thousands)
KPI-012 development costs $ 2,319 $ - $ 2,319
Employeerelated costs 4,852 4,311 541
Other research and development costs 1,768 1,909 (141)
Total research and development $ 8,939 $ 6,220 $ 2,719
Research and development expenses were $8.9 million for the six months ended
June 30, 2022, compared to $6.2 million for the six months ended June 30, 2021,
a $2.7 million increase. The increase was primarily the result of a $2.3 million
increase in KPI-012 development costs and a $0.5 million increase in
employee-related costs, partially offset by a $0.1 million decrease in other
research and development costs, which primarily included preclinical studies
related to our former pipeline programs and other facility related costs. We
expect research and development costs to increase as we advance the clinical
development of KPI-012 and as we conduct any necessary preclinical studies and
clinical trials and other development activities for any other product candidate
we may develop in the future, including our planned preclinical studies under
our KPI-014 program.
Loss on fair value remeasurement of deferred purchase consideration
Loss on fair value remeasurement of deferred purchase consideration for the six
months ended June 30, 2022 was $0.3 million and was primarily due to a change in
the fair value of our underlying stock price. There was no gain or loss on fair
value remeasurement of deferred purchase consideration for the six months ended
June 30, 2021.
Gain on fair value remeasurement of contingent consideration
Gain on fair value remeasurement of contingent consideration for the six months
ended June 30, 2022 was $1.0 million and was primarily due to changes in
discount rates, partially offset by the passage of time. There was no gain or
loss on fair value remeasurement of contingent consideration for the six months
ended June 30, 2021.
Interest income
Interest income was $0.1 million for the six months ended June 30 2022 and for
the six months ended June 30, 2021. Interest income consists of interest earned
on our cash, cash equivalents and short-term investments.
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Interest expense
We incurred interest expense of $4.2 million for the six months ended June 30,
2022 and for the six months ended June 30, 2021. Interest expense for the six
months ended June 30, 2022 was comprised of the contractual coupon interest
expense, the amortization of the debt discount and the accretion of the final
payment fee associated with our Loan Agreement with Oxford Finance. Interest
expense for the six months ended June 30, 2021 was comprised of the contractual
coupon interest expense, the amortization of the debt discount and the accretion
of the final payment fee associated with our Loan Agreement with Oxford Finance
and our Athyrium Credit Facility. During the six months ended June 30, 2022,
$80.0 million of indebtedness was outstanding under our Loan Agreement. During
the six months ended June, 2021, $75.0 million of indebtedness was outstanding
under the Athyrium Credit Facility until we repaid such indebtedness in full on
May 4, 2021. During the six months ended June 30, 2021, $80.0 million of
indebtedness was outstanding under our Loan Agreement after we drew down the
tranche A term loan on May 4, 2021.
Loss on extinguishment of debt
There was no loss on extinguishment of debt for the six months ended June 30,
2022. The loss of extinguishment of debt was $5.4 million for the six months
ended June 30, 2021. Upon the repayment in full of all amounts owed under the
Athyrium Credit Facility, the unamortized debt discount and issuance costs,
prepayment premium and unaccreted exit fee were recorded as loss on
extinguishment of debt for the six months ended June 30, 2021.
Liquidity and Capital Resources
Since our inception, we have incurred significant operating losses. As we
commercially launched our first product, INVELTYS, in January 2019, and
commenced a full promotional launch of our second product, EYSUVIS, in early
January 2021, we have had limited revenues to date from product sales prior to
the sale of our Commercial Business to Alcon in July 2022. We have financed our
operations primarily through proceeds from the sale of our Commercial Business
to Alcon in July 2022, our IPO, follow-on public common stock offerings and
sales of our common stock under our ATM Offerings, private placements of
preferred stock, borrowings under credit facilities and the Loan Agreement,
convertible promissory notes and warrants.
In July 2022, we sold our Commercial Business to Alcon. In addition to the
upfront cash payment of $60.0 million we received from Alcon pursuant to the
Asset Purchase Agreement, we are also eligible to receive from Alcon up to four
commercial-based sales milestone payments as follows: (1) $25.0 million upon the
achievement of $50.0 million or more in aggregate worldwide net sales of EYSUVIS
and INVELTYS in a calendar year from 2023 to 2028, (2) $65.0 million upon the
achievement of $100.0 million or more in aggregate worldwide net sales of
EYSUVIS and INVELTYS in a calendar year from 2023 to 2028, (3) $75.0 million
upon the achievement of $175.0 million or more in aggregate worldwide net sales
of EYSUVIS and INVELTYS in a calendar year from 2023 to 2029 and (4) $160.0
million upon the achievement of $250.0 million or more in aggregate worldwide
net sales of EYSUVIS and INVELTYS in a calendar year from 2023 to 2029. Each
milestone payment will only become payable once, if at all, upon the first time
such milestone is achieved, and only one milestone payment will be paid with
respect to a calendar year. In the event that more than one milestone is
achieved in a calendar year, the higher milestone payment will become payable
and the lower milestone payment will become payable only if the corresponding
milestone is achieved again in a subsequent calendar year. We now have no
revenue-generating commercial products, and although we are eligible to receive
up to $325.0 million in milestone-based payments from Alcon, there can be no
assurance as to when we may receive such milestone payments or the amount of
milestone payments we may receive, if any.
In July 2017, we completed an IPO pursuant to which we issued and sold 6,900,000
shares of our common stock, which included 900,000 shares sold pursuant to the
exercise of the underwriters' option to purchase additional shares, at a price
of $15.00 per share. We received net proceeds of $94.0 million after deducting
underwriting discounts and commission of $7.3 million and offering costs of
$2.2 million.
On August 9, 2018, we filed our shelf registration statement on Form S-3 that
was declared effective by the SEC on August 27, 2018, or the 2018 Shelf
Registration, under which we could initially offer and sell up to $250.0
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million of a variety of securities including common stock, preferred stock,
warrants, depositary shares, debt securities, purchase contracts, purchase units
or any combination of such securities during the three-year period that
commenced upon the 2018 Shelf Registration becoming effective. The 2018 Shelf
Registration is now expired.
On October 1, 2018, we entered into the Athyrium Credit Facility with Athyrium
for up to $110.0 million. The Athyrium Credit Facility provided for a Term Loan
A in the aggregate principal amount of $75.0 million, and a Term Loan B in the
aggregate principal amount of $35.0 million which we did not draw down. On May
4, 2021, concurrently with the closing of the Loan Agreement with Oxford Finance
and the borrowing of the tranche A loan, we utilized substantially all of the
proceeds from the tranche A term loan to repay in full all outstanding amounts
owed under the Athyrium Credit Facility, under which we had an aggregate
principal amount of $75.0 million of indebtedness outstanding. We terminated all
commitments by Athyrium to extend further credit under the Athyrium Credit
Facility and all guarantees and security interests granted by us thereunder. In
connection with the termination of the Athyrium Credit Facility, we paid to the
lenders a prepayment premium of $2.25 million and an exit fee of $0.8 million.
The transaction resulted in a loss on extinguishment of debt of $5.4 million,
consisting of the prepayment premium, the unamortized debt discount and the
unaccreted exit fee.
On October 5, 2018, we sold 7,500,000 shares of common stock in an underwritten
offering pursuant to the 2018 Shelf Registration at a public offering price of
$8.25 per share, before underwriting discounts and commissions. In addition, the
underwriters were granted an overallotment option to purchase an additional
1,125,000 shares of the common stock at the same public offering price, less
underwriting discounts and commissions. On October 11, 2018, the underwriters
exercised in full their option to purchase the overallotment shares. The total
number of shares sold by us in the offering was 8,625,000 shares, resulting in
net proceeds to us, after underwriting discounts and offering expenses, of $66.1
million. In connection with the filing of the 2018 Shelf Registration, we
entered into a sales agreement with Jefferies, pursuant to which we could issue
and sell, from time to time, up to an aggregate of $50.0 million of our common
stock in an ATM Offering, through Jefferies, as sales agent. Through the first
quarter of 2020, we issued an aggregate of 4,945,605 shares of our common stock
under the ATM Offering, resulting in net proceeds to us of $25.6 million. On
March 10, 2020, we suspended and terminated the prospectus related to the ATM
Offering.
On March 11, 2020, we sold 16,000,000 shares of our common stock in an
underwritten offering pursuant to the 2018 Shelf Registration at a public
offering price of $7.89 per share, resulting in net proceeds of $118.2 million,
after underwriting discounts, commissions, and offering expenses. In addition,
the underwriters of the offering were granted the option for a period of 30 days
to purchase up to an additional 2,400,000 shares of common stock offered in the
public offering at the public offering price, less underwriting discounts,
commissions and offering expenses. On April 3, 2020, the underwriters exercised
their option and purchased an additional 979,371 shares of common stock at $7.89
per share, resulting in net proceeds to us of $7.2 million, after underwriting
discounts, commissions, and offering expenses. The total number of shares sold
by us in the offering was 16,979,371, resulting in total net proceeds to us,
after underwriting discounts, commissions and offering expenses, of $125.4
million.
Under the 2018 Shelf Registration, which has now expired, we issued an aggregate
of 30,549,976 shares of common stock, including under the ATM Offering,
resulting in aggregate gross proceeds to us of $231.7 million.
On May 7, 2020, we filed our shelf registration statement on Form S-3 that was
declared effective by the SEC on May 7, 2020, or the 2020 Shelf Registration,
under which we may offer and sell up to $350.0 million of a variety of
securities including common stock, preferred stock, warrants, depositary shares,
debt securities or units during the three-year period that commenced upon the
2020 Shelf Registration becoming effective. In connection with the filing of the
2020 Shelf Registration, we entered into an amended and restated sales agreement
with Jefferies, pursuant to which we may issue and sell, from time to time, up
to an aggregate of $75.0 million of our common stock under our ATM Offering.
Through December 31, 2021, we issued and sold an aggregate of 8,581,257 shares
of our common stock under the ATM Offering, resulting in net proceeds of $61.8
million, which included 837,257 and 5,583,329 shares of common stock issued and
sold during the three and six months ended June 30, 2021, respectively,
resulting in net proceeds of $6.0 milllion and $40.7 million, respectively. As
of June 30, 2022, there was $11.3 million of shares of common stock remaining
under the ATM Offering that we may issue and sell in the future and, excluding
the shares of common stock that may be offered under our ATM Offering, there was
$275.0 million of securities available to be issued under the 2020 Shelf
Registration.
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On May 4, 2021, we entered into the Loan Agreement with Oxford Finance, in its
capacity as lender, or the Lender, and in its capacity as collateral agent, or
Agent, pursuant to which a term loan of up to an aggregate principal amount of
$125.0 million is available to us, consisting of (i) a tranche A term loan that
was disbursed on the closing date of the Loan Agreement in the aggregate
principal amount of $80.0 million; (ii) a contingent tranche B term loan in the
aggregate principal amount of $20.0 million available to us through June 30,
2023 and within 90 days of our achieving trailing 6-month product revenue equal
to or greater than $75.0 million, subject to certain other terms and conditions;
and (iii) a contingent tranche C term loan in the aggregate principal amount of
$25.0 million available to us through December 31, 2023 and within 90 days of
our achieving trailing 6-month product revenue equal to or greater than $100
million, subject to certain other terms and conditions. The term loans bear
interest at a floating rate equal to the greater of 30-day LIBOR and 0.11%, plus
7.89%. Certain of the customary negative covenants limit our and certain of our
subsidiaries' ability, among other things, to incur future debt, grant liens,
make investments, make acquisitions, distribute dividends, make certain
restricted payments and sell assets, subject in each case to certain exceptions.
Under the Loan Amendment entered into in connection with our entry into the
Asset Purchase Agreement with Alcon, the Lender and Agent consented to the entry
by us into the Asset Purchase Agreement and the sale of the Commercial Business
to Alcon and agreed to release its liens on the Commercial Business in
consideration for the Prepayment by us at the closing of the Alcon Transaction
of an aggregate amount of $40.0 million to the Lender and Agent. The Prepayment,
which represented a partial prepayment of principal in the amount of $36.7
million of the $80.0 million principal amount outstanding under the term loan
advanced by the Lender under the Loan Agreement, plus a prepayment fee of $0.7
million and a final payment fee of $2.6 million, was paid on July 8, 2022 in
connection with the closing of the Alcon Transaction. The Loan Agreement, as
amended by the Loan Amendment, provides that the start date for amortization
payments under the Loan Agreement would be extended from December 1, 2024 to
January 1, 2026, at which time the aggregate principal balance of the term loan
then outstanding under the Loan Agreement is required to be repaid in five
monthly installments. All unpaid principal and accrued and unpaid interest with
respect to each term loan is due and payable in full on May 1, 2026, or the
Maturity Date.
We paid a facility fee of $0.4 million on the closing date of the Loan Agreement
and have agreed to pay a facility fee of $0.1 million upon closing of the
tranche B term loan and a $0.1 million facility fee upon the closing of the
tranche C term loan. We will be required to make a final payment fee of 7.00% of
the original principal amount of any funded term loan payable on the earlier of
(i) the prepayment of the term loan in full or (ii) the Maturity Date. At our
option, we may elect to make partial repayments of the term loan to the Lender,
subject to specified conditions, including the payment of applicable fees and
accrued and unpaid interest on the principal amount of the term loan being
repaid. For further information about the Loan Agreement, see Note 10, "Debt",
of our condensed consolidated financial statements.
As a result of the acquisition of Combangio, we may be required to pay
additional contingent consideration to the former Combangio Equityholders.
Pursuant to the Merger Agreement, former Combangio Equityholders are entitled to
receive from us, subject to the terms and conditions of the Merger Agreement,
cash or stock consideration which would become payable upon our achievement of
various development, regulatory and sales milestones and as a result of certain
cash royalty payment obligations. The total potential maximum payout for the
milestone payments which are contingent upon the achievement of specified
development, regulatory and commercialization milestones is $40.0 million and
the total potential maximum payout for future sales-based milestone payments is
an additional $65.0 million. At our option, we may satisfy a portion of certain
of the milestone payments through either the payment of cash or the issuance of
additional shares of our common stock up to 19.9% of the total number of shares
of our common stock issued and outstanding immediately prior to the closing of
the acquisition of Combangio. For a full description of the consideration
payable as a result of the acquisition of Combangio, see our Annual Report on
Form 10-K for the fiscal year ended December 31, 2021.
Our other material cash requirements from known contractual and other
obligations as of June 30, 2022 primarily related to licensing and commercial
supply agreements. For information related to our future commitments relating to
our licensing and commercial supply agreements, see Note 16, "Commitments and
Contingencies" and Note 17, "Subsequent Events", of our condensed consolidated
financial statements.
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Cash Flows
As of June 30, 2022 and 2021, we had $44.6 million and $149.6 million in cash,
cash equivalents and short-term investments, respectively. As of June 30, 2022
and 2021, we had $80.0 million in indebtedness, which represented the aggregate
principal amount that was outstanding under the Loan Agreement with Oxford
Finance. In connection with the closing of the Alcon Transaction, $36.7 million
of the principal amount was repaid on July 8, 2022 and the remaining principal
amount outstanding under the Loan Agreement was $43.3 million.
The following table summarizes our sources and uses of cash for each of the
periods presented:
Six Months Ended
June 30,
2022 2021 Change
(in thousands)
Net cash used in operating activities $ (49,508) $ (54,248) $ 4,740Net cash (used in) provided by investing activities (2,245) 70,705 (72,950)
Net cash provided by financing activities
144 41,164 (41,020)
(Decrease) increase in cash and restricted cash $ (51,609) $ 57,621 $ (109,230)
Operating Activities
Net cash used in operating activities for the six months ended June 30, 2022 was
$49.5 million, compared to $54.2 million for the six months ended June 30, 2021,
a decrease of $4.7 million, primarily due to the timing of working capital
fluctuations which accounted for $10.5 million of the decrease, partially offset
by a $5.8 million increase in the net loss adjusted for non-cash charges.
Notable working capital fluctuations include a decrease to accounts receivable
in the six months ended June 30, 2022 of $1.5 million, whereas accounts
receivable had increased by $2.3 million in the six months ended June 30, 2021
driven by an increase in sales largely due to the launch of EYSUVIS. Inventory
increased by a lower amount during the six months ended June 30, 2022, as
compared to the six months ended June 30, 2021.
Investing Activities
Net cash used in investing activities for the six months ended June 30, 2022 was
$2.2 million compared to net cash provided by investing activities of $70.7
million for the same period in 2021, a decrease of $72.9 million. Net cash used
in investing activities for the six months ended June 30, 2022 related to the
purchases of short-term investments of $5.0 million and purchases of property
and equipment and other assets of $0.2 million, partially offset by proceeds
from the sales or maturities of short-term investments of $3.0 million. Net cash
provided by in investing activities for the six months ended June 30, 2021
consisted of the proceeds from the sales or maturities of short-term investments
of $71.2 million, partially offset by purchases of property and equipment and
other assets of $0.5 million.
Financing Activities
Net cash provided by financing activities for the six months ended June 30, 2022
was $0.1 million, a decrease of $41.1 million compared to $41.2 million in the
six months ended June 30, 2021. Net cash provided by financing activities for
the six months ended June 30, 2022 largely consisted of $0.1 million of proceeds
from the exercise of stock options and the issuance of common stock under our
employee stock purchase plan. Net cash provided by financing activities for the
six months ended June 30, 2021 consisted of $77.8 million of net proceeds from
the tranche A term loan under our Loan Agreement, $40.7 million of net proceeds
from the sale of shares of our common stock under the ATM Offering and $0.7
million of proceeds from the exercise of stock options and the issuance of
common stock under our employee stock purchase plan, partially offset by the
repayment of indebtedness under our Athyrium Credit Facility of $78.0 million.
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Funding Requirements
We anticipate that our research and development expenses will increase
substantially in the future as compared to prior periods as we advance the
clinical development of KPI-012. Our research and development expenses will also
increase as we conduct any necessary preclinical studies and clinical trials and
other development activities for any other product candidates we may develop in
the future, including our planned preclinical studies under our KPI-014 program.
If we obtain marketing approval for KPI-012 or any product candidates we may
develop, we expect that our selling, general and administrative expenses will
increase substantially if and as we incur commercialization expenses related to
product marketing, sales and distribution.
Our expenses will also increase if and as we:
? submit an IND for, and continue the clinical development of, KPI-012 for PCED;
? initiate and continue the research and development of KPI-012 for additional
indications, including initiating and conducting clinical trials;
? scale up our manufacturing processes and capabilities to manufacture the
clinical supply of KPI-012;
? seek regulatory approval for KPI-012 for PCED in the United States and other
jurisdictions;
? seek regulatory approval for KPI-012 for additional indications;
grow our sales, marketing and distribution capabilities in connection with the
? commercialization of any product candidates for which we may submit for and
obtain marketing approval;
? initiate and progress any future preclinical development programs under our
MSC-S platform, including from our KPI-014 program;
? conduct clinical trials and other development activities and/or seek marketing
approval for any product candidates we may develop in the future;
? in-license or acquire the rights to other products, product candidates or
technologies;
? maintain, expand and protect our intellectual property portfolio;
? hire additional clinical, quality control, scientific, manufacturing,
commercial and management personnel to support our operations;
? expand our operational, financial and management systems; and
? increase our product liability insurance coverage if we initiate
commercialization efforts for any product candidates.
We expect to continue to incur significant expenses and operating losses. Net
losses may fluctuate significantly from quarter-to-quarter and year-to-year. We
anticipate that our cash, cash equivalents and short-term investments as of June
30, 2022, along with the upfront payment of $60.0 million received from Alcon
upon the closing of the Alcon Transaction in July 2022, net of a $40.0 million
prepayment to Oxford Finance, and the cash purchase by Alcon of $5.0 million of
EYSUVIS and INVELTYS inventory on-hand at the closing of the sale the Commercial
Business, will enable us to fund our operations, debt service obligations, and
capital expenditure requirements into the second quarter of 2024. We expect that
our existing cash resources will be sufficient to enable us to obtain initial
data from our planned Phase 2/3 clinical trial of KPI-012 in PCED. However, we
do not expect that our existing cash resources will be sufficient to enable us
to complete the clinical development of KPI-012 for PCED or any other
indication. We have based our
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estimates on assumptions that may prove to be wrong, and our operating plan may
change as a result of many factors currently unknown to us. As a result, we
could deplete our available capital resources sooner or later than we currently
expect. This estimate also assumes that we remain in compliance with the
covenants under the Loan Agreement, including as a result of the delisting of
our common stock from the Nasdaq Global Select Market. If an event of default
were to occur under the Loan Agreement, the period for which we will be able to
fund our operations and capital expenditure requirements will be significantly
shorter. For additional information regarding the deficiency letters we have
received from the Nasdaq Stock Market LLC, our obligations under the Loan
Agreement and the potential impact on our financial condition from the delisting
of our common stock from the Nasdaq Global Select Market, see "Risk Factors - If
we fail to comply with the continued listing requirements of Nasdaq, our common
stock may be delisted and the price of our common stock and our ability to
access the capital markets could be negatively impacted" and "Risk Factors - Our
substantial indebtedness may limit cash flow available to invest in the ongoing
needs of our business."
Because of the numerous risks and uncertainties associated with pharmaceutical
product development, we are unable to accurately predict the timing or amount of
increased expenses or when, or if, we will be able to achieve profitability. Our
expenses will increase from what we anticipate if:
? we elect or are required by the FDA or non-U.S. regulatory agencies to perform
clinical trials or studies in addition to those expected;
? there are any delays in enrollment of patients in or completing our clinical
trials or the development of our product candidates;
? we in-license or acquire rights to other products, product candidates or
technologies; or
there are any third-party challenges to our intellectual property portfolio, or
? the need arises to defend against intellectual property-related claims or
enforce our intellectual property rights.
Although we are eligible to receive up to $325.0 million in payments from Alcon
based upon the achievement of specified commercial sales-based milestones with
respect to EYSUVIS and INVELTYS, there can be no assurance when we may receive
such milestone payments or the amount of milestone payments we may receive, if
any. Our ability to become and remain profitable depends on our ability to
generate revenue. We do not expect to generate revenue from KPI-012 or any other
product candidate we may develop in the future for the foreseeable future, if at
all. Achieving and maintaining profitability will require us to be successful in
a range of challenging activities, including:
? timely filing of an IND for, and completing the clinical development of,
KPI-012 for PCED and any other indications we determine to pursue;
? subject to obtaining favorable results from our planned clinical trials of
KPI-012, applying for and obtaining marketing approval of KPI-012;
? successfully commercializing KPI-012, if approved;
discovering, developing and successfully seeking marketing approval and
? commercialization of any additional product candidates we may develop in the
future;
? hiring and building a full commercial organization required for marketing,
selling and distributing those products for which we obtain marketing approval;
? manufacturing at commercial scale, marketing, selling and distributing those
products for which we obtain marketing approval;
achieving an adequate level of market acceptance, and obtaining and maintaining
? coverage and adequate reimbursement from third-party payors for any products we
commercialize;
? obtaining, maintaining and protecting our intellectual property rights; and
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? adapting our business in response to the pandemic health event resulting from
COVID-19 and its collateral consequences.
As a company, we have limited experience commercializing products, and we may
not be able to commercialize a product successfully in the future. There are
numerous examples of unsuccessful product launches and failures to meet
expectations of market potential, including by pharmaceutical companies with
more experience and resources than us.
We may never succeed in our development activities or commercialization efforts,
if any, of any product candidates that receive regulatory approval, and we may
never generate revenue that is sufficient to achieve profitability. Even if we
do achieve profitability, we may not be able to sustain or increase
profitability on a quarterly or annual basis. Our failure to become and remain
profitable would decrease the value of our company and could impair our ability
to raise capital, expand our business, maintain our research and development
efforts, diversify our product offerings or even continue our operations. A
decline in the value of our company could also cause you to lose all or part of
your investment.
Until such time, if ever, as we can generate substantial product revenues, we
expect to finance our cash needs through a combination of equity offerings, debt
financings, collaborations, strategic alliances, licensing arrangements, royalty
agreements, and marketing and distribution arrangements. To the extent that we
raise additional capital through the sale of equity or convertible debt
securities, your ownership interest will be diluted, and the terms of these
securities may include liquidation or other preferences that adversely affect
your rights as a common stockholder. Debt financing and preferred equity
financing, if available, may involve agreements that include pledging of assets
as collateral, covenants limiting or restricting our ability to take specific
actions, such as incurring additional debt, making capital expenditures or
declaring dividends. Our pledge of our assets as collateral to secure our
obligations under our Loan Agreement may limit our ability to obtain additional
debt financing. Under our Loan Agreement, we are also restricted from incurring
future debt, granting liens, making investments, making acquisitions,
distributing dividends on our common stock, making certain restricted payments
and selling assets and making certain other uses of our cash, without the
lenders' consent, subject in each case to certain exceptions.
We will need to raise additional capital in the future to advance our business.
Additional private or public financings may not be available to us on acceptable
terms, or at all. Additionally, the COVID-19 pandemic has already caused
significant disruptions in the financial markets, and may again cause such
disruptions, which could impact our ability to raise additional funds. The
COVID-19 pandemic has also impacted, and may continue to impact, the volatility
of our stock price and trading in our stock. Even after the COVID-19 pandemic
has subsided, we may continue to experience adverse impacts to our business as a
result of any economic recession or depression that has occurred or may occur in
the future.
Our failure to raise capital as and when needed would have a material adverse
effect on our financial condition and our ability to pursue our business
strategy. If we raise additional funds through collaborations, strategic
alliances, licensing arrangements, royalty agreements, or marketing and
distribution arrangements, we may have to relinquish valuable rights to our
technologies, future revenue streams, research programs or product candidates or
grant licenses on terms that may not be favorable to us. If we are unable to
raise additional funds through equity or debt financings when needed, we may be
required to delay, limit, reduce or terminate our product development or current
or future commercialization efforts or grant rights to develop and market
products or product candidates that we would otherwise prefer to develop and
market ourselves.
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