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.
Unless otherwise indicated, all information in this Quarterly Report on Form
10-Q gives effect to a 1-for-50 reverse stock split of our common stock that
became effective on October 20, 2022, and all references to historical share and
per share amounts give effect to the reverse stock split.
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,
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sell, distribute, market and commercialize EYSUVIS and INVELTYS and to develop,
manufacture, market and 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, following the closing of the Alcon Transaction and the
Prepayment, the start date for amortization payments under the Loan Agreement
was 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 total charges of approximately $2.3 million
which were primarily recorded 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 income was $29.1 million for the
three months ended September 30, 2022 as a result of the Alcon Transaction and
our net losses were $32.0 million and $142.6 million for the nine months ended
September 30, 2022 and the year ended December 31, 2021, respectively. As of
September 30, 2022, we had an accumulated deficit of $574.4 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
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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 at-the-market
offerings, or ATM Offerings, private placements of preferred stock, borrowings
under credit facilities and our 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 Commercial 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."
Recent Developments
Dividend Series D Preferred Stock
On August 18, 2022, our Board of Directors, or the Board, declared a dividend of
one one-thousandth of a share of our Series D Preferred Stock, or the Series D
Preferred Stock, for each outstanding share of our common stock held of record
as of 5:00 p.m. Eastern Time on August 29, 2022, or the Record Date. This
dividend was based on the number of
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outstanding shares of common stock prior to the Reverse Stock Split, which is
more fully described below. As of September 30, 2022, there were 73,208 shares
of Series D Preferred Stock issued and outstanding.
Special Meeting of Stockholders
We held a special meeting of stockholders on October 19, 2022, or the Special
Meeting, at which meeting our stockholders approved an amendment to our Restated
Certificate of Incorporation, or the Certificate of Incorporation, to effect a
reverse stock split of our common stock at a ratio in the range of 1-for-2 to
1-for-75, with such ratio to be determined by our Board and included in a public
announcement (the "Reverse Stock Split Proposal"). The outstanding shares of
Series D Preferred Stock were entitled to vote together with the outstanding
shares of our common stock, as a single class, exclusively with respect to the
Reverse Stock Split Proposal, as well as any proposal to adjourn any meeting of
stockholders called for the purpose of voting on the Reverse Stock Split
Proposal, or the Adjournment Proposal.
Redemption of Series D Preferred Stock
All shares of Series D Preferred Stock that were not present in person or by
proxy at the Special Meeting were automatically redeemed by us immediately prior
to the opening of the polls at Special Meeting, or the Initial Redemption. All
shares that were not redeemed pursuant to the Initial Redemption were redeemed
automatically upon the approval by our stockholders of the Reverse Stock Split
Proposal at the Special Meeting, or the Subsequent Redemption, which together
with the Initial Redemption, we refer to as the Redemption. Each share of Series
D Preferred Stock was entitled to receive $0.10 in cash for each 100 whole
shares of Series D Preferred Stock immediately prior to the Redemption. As of
November 7, 2022, both the Initial Redemption and the Subsequent Redemption have
occurred. As a result, no shares of Series D Preferred Stock remain outstanding.
We were not solely in control of Redemption of the shares since the holders had
the option of deciding whether to return a proxy card for the Special Meeting,
which determined whether a given holder's shares of Series D Preferred Stock
were redeemed in the Initial Redemption or the Subsequent Redemption. Since the
redemption of the Series D Preferred Stock was not solely in our control, the
shares of Series D Preferred Stock are classified within mezzanine equity in our
unaudited condensed consolidated balance sheets. The shares of Series D
Preferred Stock were initially measured at redemption value. The value of the
shares of Series D Preferred Stock as of September 30, 2022 was de minimis.
Reverse Stock Split
Following the Special Meeting, the Board determined to effect a reverse stock
split at a ratio of 1-for-50 and approved the corresponding final form of the
Certificate of Amendment. On October 19, 2022, we filed the Certificate of
Amendment with the Secretary of State of Delaware to effect a 1-for-50 reverse
stock split of the shares of our common stock either issued and outstanding or
held by us as treasury stock, effective as of 4:05 p.m. (Delaware time) on
October 20, 2022, or the Reverse Stock Split.
As a result of the Reverse Stock Split, every 50 shares of issued and
outstanding common stock were automatically combined into one issued and
outstanding share of common stock, without any change in the par value per
share. No fractional shares were issued as a result of the Reverse Stock Split.
Any fractional shares that would otherwise have resulted from the Reverse Stock
Split were rounded up to the next whole number. The Reverse Stock Split reduced
the number of shares of common stock outstanding from 73,208,140 shares to
1,476,637 shares. The number of authorized shares of common stock under the
Certificate of Incorporation remained unchanged at 120,000,000 shares. All
historical share and per share amounts reflected throughout this report have
been adjusted to reflect the Reverse Stock Split described above.
Proportionate adjustments were made to the per share exercise price and the
number of shares of common stock that may be purchased upon exercise of
outstanding stock options and warrants, and the number of shares of common stock
reserved for future issuance under our 2017 Equity Incentive Plan and Employee
Stock Purchase Plan.
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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. 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. Our product revenues for the periods presented
herein 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, 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.
We currently have no commercial products in our portfolio. 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. See the section
titled "Business Impact of COVID-19 Pandemic" above for information about the
impact of COVID-19 on sales and commercialization of EYSUVIS and INVELTYS.
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. As a result of the sale of our Commercial Business to Alcon, which
occurred on July 8, 2022, 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, and because we
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 ending December 31, 2022 and then will
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
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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
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 program. 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.
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(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 155,799
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 136,314 shares of common stock which were
issued on January 3, 2022 and (ii) an aggregate of 19,485 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) Loss 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.
Gain on Sale of Commercial Business
Gain on sale of Commercial Business represents the gain recognized as a result
of the sale of our Commercial Business to Alcon on July 8, 2022.
Loss on Extinguishment of Debt
Loss on extinguishment of debt primarily consists of unamortized debt discount
and issuance costs, a prepayment premium and unaccreted final payment fees paid
on our Loan Agreement with Oxford Finance as a result of the partial
extinguishment of debt on July 8, 2022 in connection with the closing of the
Alcon Transaction.
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
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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.
Results of Operations
Comparison of the Three Months Ended September 30, 2022 and 2021
The following table summarizes the results of our operations for the three
months ended September 30, 2022 and 2021:
Three Months Ended
September 30,
2022 2021 Change
(in thousands)
Product revenues, net $ 420 $ 3,067 $ (2,647)
Costs and expenses:
Cost of product revenues 11 908 (897)
Selling, general and administrative 9,549 25,349 (15,800)
Research and development 5,391 2,881 2,510
Gain on fair value remeasurement of deferred
purchase consideration (57) - (57)
Loss on fair value remeasurement of contingent
consideration 95 - 95
Total operating expenses 14,989 29,138 (14,149)
Loss from operations (14,569) (26,071) 11,502
Other income (expense)
Interest income 234 16 218
Interest expense (1,447) (2,072) 625
Loss on extinguishment of debt (2,583) - (2,583)
Gain on sale of Commercial Business 46,995 - 46,995
Other income (expense), net 443 - 443
Net income (loss) $ 29,073 $ (28,127) $ 57,200
Product revenues, net
Product revenues, net was $0.4 million for the three months ended September 30,
2022, which consisted of $0.4 million from EYSUVIS sales and less than $0.1
million from INVELTYS sales, compared to product revenues, net of $3.1 million
for the three months ended September 30, 2021, which consisted of $1.8 million
from EYSUVIS sales and $1.3 million from INVELTYS sales. The decrease in product
revenues, net of $2.7 million was due to the sale of our Commercial Business to
Alcon in July 2022, partially offset by the release of certain reserves. As a
result of the sale of our Commercial Business, we no longer have any commercial
products in our portfolio.
Cost of product revenues
Cost of product revenues was less than $0.1 million for the three months ended
September 30, 2022, compared to $0.9 million for the three months ended
September 30, 2021, which was a decrease of $0.9 million due to the sale of our
Commercial Business to Alcon in July 2022.
Selling, general and administrative expenses
Selling, general and administrative expenses were $9.5 million for the three
months ended September 30, 2022, compared to $25.3 million for the three months
ended September 30, 2021, which was a decrease of $15.8 million. The decrease in
selling, general and administrative expenses for the three months ended
September 30, 2022 was primarily
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due to the sale of our commercial product portfolio to Alcon and includes a
$10.2 million decrease in employee-related expenses, a $4.3 million decrease in
external sales and marketing costs, a $1.9 million decrease in stock-based
compensation costs and certain medical affairs costs attributable to our former
commercial products. Also contributing to the decrease as compared to the three
months ended September 30, 2021, was a $1.4 million decrease in facility related
costs. These decreases, as compared to the three months ended September 30,
2021, was partially offset by $1.5 million recorded to selling, general and
administrative expenses related to the workforce reduction and $0.5 million
increase in administrative and professional service fees.
Research and development expenses
The following table summarizes the research and development expenses incurred
during the three months ended September 30, 2022 and 2021:
Three Months Ended
September 30,
2022 2021 Change
(in thousands)
KPI-012 development costs $ 2,379 $ - $ 2,379
Employeerelated costs 2,427 1,859 568
Other research and development costs 585 1,022 (437)
Total research and development $ 5,391 $ 2,881 $ 2,510
Research and development expenses were $5.4 million for the three months ended
September 30, 2022, compared to $2.9 million for the three months ended
September 30, 2021. The $2.5 million increase was primarily the result of a $2.4
million in KPI-012 development costs and a $0.5 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.
Gain on fair value remeasurement of deferred purchase consideration
Gain on fair value remeasurement of deferred purchase consideration for the
three months ended September 30, 2022 was $0.1 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 September 30, 2021.
Loss on fair value remeasurement of contingent consideration
Loss on fair value remeasurement of contingent consideration for the three
months ended September 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 September 30, 2021.
Interest income
Interest income was $0.2 million for the three months ended September 30, 2022
and less than $0.1 million for the three months ended September 30, 2021.
Interest income consists of interest earned on our cash, cash equivalents and
short-term investments, if any.
Interest expense
We incurred interest expense of $1.4 million for the three months ended
September 30, 2022, compared to $2.1 million for the three months ended
September 30, 2021, a $0.7 million decrease. Interest expense for the three
months ended September 30, 2022 and 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. During
the three months ended September 30, 2022, $80.0 million of indebtedness was
outstanding under our Loan Agreement until $36.7 million was repaid on July 8,
2022 resulting in an outstanding indebtedness of $43.3 million.
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During the three months ended September 30, 2021, $80.0 million of indebtedness
was outstanding under our Loan Agreement.
Loss on extinguishment of debt
The loss on extinguishment of debt was $2.6 million for the three months ended
September 30, 2022. There was no loss on extinguishment of debt for the three
months ended September 30, 2021. Upon the partial repayment of $36.7 million of
indebtedness under our Loan Agreement, the prepayment premium, unaccreted amount
of the final payment fee due and a pro-rata portion of the debt discount were
recorded as loss on extinguishment of debt for the three months ended September
30, 2022.
Gain on sale of Commercial Business
The gain on sale of Commercial Business was $47.0 million for the three months
ended September 30, 2022, which was comprised of the $65.0 million in cash
consideration received from Alcon less $4.2 million of deferred gain on sale of
Commercial business, $11.7 million net book value of assets transferred and $2.1
million of transaction costs. There was no gain on sale of Commercial Business
for the three months ended September 30, 2021.
Other income (expense), net
Other income and expense was $0.4 million for the three months ended September
30, 2022. There was no other income and expense for the three months ended
September 30, 2021. The other income and expense during the three months ended
September 30, 2022 represents $2.4 million of reimbursable transition related
services we provided to Alcon following the sale of the Commercial Business to
Alcon, partially offset by a $1.9 million expense recorded for expiring
inventory and a loss on the sale of property and equipment of $0.1 million.
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Comparison of the Nine Months Ended September 30, 2022 and 2021
The following table summarizes the results of our operations for the nine months
ended September 30, 2022 and 2021:
Nine Months Ended
September 30,
2022 2021 Change
(in thousands)
Product revenues, net $ 3,892 $ 9,384 $ (5,492)
Costs and expenses:
Cost of product revenues 2,560 2,679 (119)
Selling, general and administrative 59,204 81,034 (21,830)
Research and development 14,330 9,101 5,229
Loss on fair value remeasurement of deferred
purchase consideration 205 - 205
Gain on fair value remeasurement of contingent
consideration (952) - (952)
Total operating expenses 75,347 92,814 (17,467)
Loss from operations (71,455) (83,430) 11,975
Other income (expense)
Interest income 310 92 218
Interest expense (5,689) (6,304) 615
Loss on extinguishment of debt (2,583) (5,395) 2,812
Gain on sale of Commercial Business 46,995 - 46,995
Other income (expense), net 443 - 443
Net loss $ (31,979) $ (95,037) $ 63,058
Product revenues, net
Product revenues, net was $3.9 million for the nine months ended September 30,
2022, consisting of $2.3 million from EYSUVIS sales and $1.6 million from
INVELTYS sales, compared to product revenues, net of $9.4 million for the nine
months ended September 30, 2021, which consisted of $5.1 million from EYSUVIS
sales and $4.3 million from INVELTYS sales. The decrease in product revenues,
net of $5.5 million was largely due to the sale of our Commercial Business to
Alcon in July 2022 as well as higher estimated allowances per unit sold on both
products during the nine months ended September 30, 2022 as compared to those
allowances per unit during the nine months ended September 30, 2021 and
a decrease in the total units of INVELTYS sold in the first two quarters of 2022
as compared to the first two quarters of 2021, partially offset by a higher per
unit gross selling price of both products during the nine months ended September
30, 2022 as compared to those sold during the nine months ended September 30,
2021. As a result of the sale of our Commercial Business, we no longer have any
commercial products in our portfolio.
Cost of product revenues
Cost of product revenues was $2.6 million for the nine months ended September
30, 2022, compared to $2.7 million in the nine months ended September 30, 2021,
a decrease of $0.1 million. The decrease was due to a decrease in units of
INVELTYS sold during the nine months ended September 30, 2022 as compared to the
nine months ended September 30, 2021, partially offset by $0.8 million
of reserves recorded for expiring inventory or inventory that did not pass
quality inspection which did not occur in the nine months ended September 30,
2021.
Selling, general and administrative expenses
Selling, general and administrative expenses were $59.2 million for the nine
months ended September 30, 2022, compared to $81.0 million for the nine months
ended September 30, 2021, which was a decrease of $21.8 million. The decrease in
selling, general and administrative expenses for the nine months ended September
30, 2022 was primarily due to the sale of our commercial product portfolio to
Alcon and includes a $12.2 million decrease in employee-related expenses, a $5.3
million decrease in stock-based compensation costs, a $3.9 million decrease in
external sales and marketing costs and a decrease in certain medical affairs
costs attributable to our former commercial products. Also
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contributing to the decrease as compared to the nine months ended September 30,
2021, was a $4.1 million decrease in facility related costs. These decreases, as
compared to the nine months ended September 30, 2021, were partially offset by
$1.5 million recorded to selling, general and administrative expenses related to
the workforce reduction, a $1.4 million increase in administrative and
professional service fees and $0.8 million of transaction costs related to the
Alcon Transaction which were not incurred in the nine months ended September 30,
2021.
Research and development expenses
The following table summarizes the research and development expenses incurred
during the nine months ended September 30, 2022 and 2021:
Nine Months Ended
September 30,
2022 2021 Change
(in thousands)
KPI-012 development costs $ 4,698 $ - $ 4,698
Employeerelated costs 7,279 6,170 1,109
Other research and development costs 2,353 2,931 (578)
Total research and development $ 14,330 $ 9,101 $ 5,229
Research and development expenses were $14.3 million for the nine months ended
September 30, 2022, compared to $9.1 million for the nine months ended September
30, 2021, a $5.2 million increase. The increase was primarily the result of a
$4.7 million in KPI-012 development costs and a $1.1 million increase in
employee-related costs, partially offset by a $0.6 million decrease in other
research and development costs, which primarily included preclinical studies
related to our former pipeline programs and other facility related costs.
Loss on fair value remeasurement of deferred purchase consideration
Loss on fair value remeasurement of deferred purchase consideration for the nine
months ended September 30, 2022 was $0.2 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 nine
months ended September 30, 2021.
Gain on fair value remeasurement of contingent consideration
Gain on fair value remeasurement of contingent consideration for the nine months
ended September 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 nine months
ended September 30, 2021.
Interest income
Interest income was $0.3 million for the nine months ended September 30 2022 and
was $0.1 million for the nine months ended September 30, 2021. Interest income
consists of interest earned on our cash, cash equivalents and short-term
investments, if any.
Interest expense
We incurred interest expense of $5.7 million for the nine months ended September
30, 2022 and $6.3 million for the nine months ended September 30, 2021. Interest
expense for the nine months ended September 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 nine months ended September 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
nine months ended September 30, 2022, $80.0 million of indebtedness was
outstanding under our Loan Agreement until $36.7 million was repaid on July 8,
2022 resulting in an outstanding indebtedness of $43.3
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million. During the nine months ended September, 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 nine months ended September
30, 2021, $80.0 million of indebtedness was outstanding under our Loan Agreement
after we drew down the tranche A term loan under the Loan Agreement on May 4,
2021.
Loss on extinguishment of debt
The loss on extinguishment of debt for the nine months ended September 30, 2022
and 2021 was $2.6 million and $5.4 million, respectively. Upon the partial
repayment of $36.7 million of indebtedness under our Loan Agreement in the nine
months ended September 30, 2022, the prepayment premium, unaccreted amount of
the final payment fee due and a pro-rata portion of the debt discount were
recorded as loss on extinguishment of debt. Upon the repayment in full of all
amounts owed under the Athyrium Credit Facility in the nine months ended
September 30, 2021, the unamortized debt discount and issuance costs, prepayment
premium and unaccreted exit fee were recorded as loss on extinguishment of debt.
Gain on sale of Commercial Business
The gain on sale of Commercial Business was $47.0 million for the nine months
ended September 30, 2022, which was comprised of the $65.0 million in cash
consideration received from Alcon less $4.2 million of deferred gain on sale of
Commercial business, $11.7 million net book value of assets transferred and $2.1
million of transaction costs. There was no gain on sale of Commercial Business
for the nine months ended September 30, 2021.
Other income (expense), net
Other income and expense was $0.4 million for the nine months ended September
30, 2022. There was no other income and expense for the nine months ended
September 30, 2021. The other income and expense during the nine months ended
September 30, 2022 represents $2.4 million of reimbursable transition related
services we provided to Alcon following the sale of the Commercial Business to
Alcon, partially offset by a $1.9 million expense recorded for expiring
inventory and a loss on the sale of property and equipment of $0.1 million.
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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 only generated 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 138,000
shares of our common stock, which included 18,000 shares sold pursuant to the
exercise of the underwriters' option to purchase additional shares, at a price
of $750.00 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 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 150,000 shares of common stock in an underwritten
offering pursuant to the 2018 Shelf Registration at a public offering price of
$412.50 per share, before underwriting discounts and commissions. In addition,
the underwriters were granted an overallotment option to purchase an additional
22,500 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
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the offering was 172,500 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 98,913 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 320,000 shares of our common stock in an underwritten
offering pursuant to the 2018 Shelf Registration at a public offering price of
$394.50 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 48,000 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 19,588 shares of common stock at $394.50 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 339,588, 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 611,000 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 171,626 shares of
our common stock under the ATM Offering, resulting in net proceeds of $61.8
million, which included 2,283 and 113,950 shares of common stock issued and sold
during the three and nine months ended September 30, 2021, respectively,
resulting in net proceeds of $6.0 million and $40.7 million, respectively. As of
September 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.
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.
A delisting of our common stock from the Nasdaq Global Select Market after a
specified cure period is also an event of default under our Loan Agreement.
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
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connection with the closing of the Alcon Transaction. The Loan Agreement, as
amended by the Loan Amendment, extended the start date for amortization payments
under the Loan Agreement 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 11, "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 September 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 17,
"Commitments and Contingencies", of our condensed consolidated financial
statements.
Cash Flows
As of September 30, 2022 and 2021, we had $52.4 million and $124.5 million in
cash and cash equivalents, respectively. As of September 30, 2022 and 2021, we
had $43.3 and $80.0 million in indebtedness, respectively, which represented the
aggregate principal amount that was outstanding under the Loan Agreement with
Oxford Finance.
The following table summarizes our sources and uses of cash for each of the
periods presented:
Nine Months Ended
September 30,
2022 2021 Change
(in thousands)
Net cash used in operating activities $ (65,173) $ (80,331) $ 15,158
Net cash provided by investing activities 62,666 75,426 (12,760)
Net cash (used in) provided by financing activities (39,728) 42,394 (82,122)
(Decrease) increase in cash and restricted cash $ (42,235) $ 37,489 $ (79,724)
Operating Activities
Net cash used in operating activities for the nine months ended September 30,
2022 was $65.2 million, compared to $80.3 million for the nine months ended
September 30, 2021, a decrease of $15.1 million, primarily due to the timing of
working capital fluctuations which accounted for $11.4 million of the decrease
and the decrease in the net
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loss adjusted for non-cash charges of $3.7 million. Notable working capital
fluctuations include a decrease to accounts receivable in the nine months ended
September 30, 2022 of $15.1 million as a result of the sale of our Commercial
Business on July 8, 2022, whereas accounts receivable had increased by $3.0
million in the nine months ended September 30, 2021 driven by an increase in
sales largely due to the launch of EYSUVIS. Prepaid expenses and other current
assets increased $16.9 million during the nine months ended September 30, 2022,
as compared to an increase of $1.2 million during the nine months ended
September 30, 2021 as a result of receivables due from Alcon and third-parties
in connection with transition related services.
Investing Activities
Net cash provided by investing activities for the nine months ended September
30, 2022 was $62.7 million compared to $75.4 million for the nine months ended
September 30, 2021, a decrease of $12.7 million. Net cash provided by investing
activities for the nine months ended September 30, 2022 related to proceeds from
the disposition of the Commercial Business, net of transaction costs, of $62.9
million, proceeds from the sales or maturities of short-term investments of $5.0
million and proceeds from the sale of property and equipment of less than $0.1
million, partially offset by the purchases of short-term investments of $5.0
million and purchases of property and equipment and other assets of $0.3
million. Net cash provided by investing activities for the nine months ended
September 30, 2021 consisted of the proceeds from the sales or maturities of
short-term investments of $76.3 million, partially offset by purchases of
property and equipment and other assets of $0.9 million.
Financing Activities
Net cash used in financing activities for the nine months ended September 30,
2022 was $39.7 million, a decrease of $82.1 million compared to net cash
provided by financing activities of $42.4 million in the nine months ended
September 30, 2021. Net cash used in financing activities for the nine months
ended September 30, 2022 largely consisted of $40.0 million of repayment of
principal, prepayment premium and final payment fee on our Loan Agreement,
partially offset by $0.3 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 nine months ended September 30,
2021 consisted of $77.8 million of net proceeds from the tranche A term loan
under our Loan Agreement, $41.1 million of net proceeds from the sale of shares
of our common stock under the ATM Offering and $1.5 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.
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;
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? 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 and cash equivalents as of September 30, 2022, 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 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. In particular, the
delisting of our common stock from the Nasdaq Global Select Market or the
transfer of the listing of our common stock to the Nasdaq Capital Market or any
other nationally recognized stock exchange having listing standards that are
less restrictive than the Nasdaq Global Select Market, in each case after a
specified cure period, are events of default under our Loan Agreement. We have
received a deficiency letter from Nasdaq advising us that we are not in
compliance with the Nasdaq Listing Rules for trading on the Nasdaq Global Select
Market, and that if we are unable to regain compliance with such listing rules
by January 2, 2023, our common stock will be subject to delisting. If an event
of default or a breach of the covenants under our Loan Agreement occurs,
including as a result of the delisting of our common stock from the Nasdaq
Global Select Market, and we fail to secure a waiver or forbearance from the
third-party lender, such breach or failure would accelerate the repayment of the
outstanding indebtedness under the Loan Agreement. In such event, we may not be
able to make accelerated payments, and the lender could seek to enforce security
interests in the collateral securing such indebtedness. Acceleration of the
repayment of the outstanding indebtedness would raise substantial doubt about
the Company's ability to continue as a going concern, shorten the period for
which we will be able to fund our operations and capital expenditure
requirements and would adversely affect our financial condition and ability to
pursue our business strategy. 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. If our common stock is delisted from Nasdaq, we will be in default
under our Loan Agreement." and "Risk Factors - Our substantial indebtedness may
limit cash flow available to invest in the ongoing needs of our business and a
failure to comply with the covenants under our Loan Agreement, such as the
requirement that our common stock
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continue to be listed on the Nasdaq Global Select Market, could result in an
event of default and acceleration of amounts due."
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
? 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.
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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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