KALA BIO, INC. You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes thereto appearing at the end of this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. See "Special Note Regarding Forward-Looking Statements and Industry Data." Because of many factors, including those factors set forth in the "Risk Factors" section of this Annual Report on Form 10-K, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Unless otherwise indicated, all information in this Annual Report on Form 10-K
gives effect to a 1-for-50 reverse stock split of our common stock that became
effective on
Overview
We are a clinical-stage biopharmaceutical company dedicated to the research,
development and commercialization of innovative therapies for rare and severe
diseases of the eye. Our product candidate, KPI-012, which we acquired from
We believe the multifactorial mechanism of action of KPI-012 also makes MSC-S a
platform technology. We are evaluating the potential development of KPI-012 for
additional rare front-of-the-eye diseases, such as for the treatment of Limbal
Stem Cell Deficiency and ocular manifestations of moderate-to-severe Sjögren's.
In addition, we have initiated preclinical studies under our KPI-014 program to
evaluate the utility of our MSC-S platform for inherited retinal degenerative
diseases, such as Retinitis Pigmentosa and Stargardt Disease. In connection with
the determination to focus our research and development efforts on KPI-012, in
2022, we determined to cease the development of our preclinical pipeline
programs that are unrelated to our MSC-S platform. We expect to commercialize in
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
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Transaction. For a further description of the Alcon Transaction, see Item 1, "Business," "Liquidity and Capital Resources" below and Note 3, "Acquisitions and Divestitures" of our consolidated financial statements.
On
Since inception, we have incurred significant losses from operations and
negative cash flows from operations. Our net losses were
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
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. 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. The COVID-19 pandemic had negatively impacted our revenues from INVELTYS. 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. Any impact of the COVID-19 pandemic on our development of KPI-012 and any other product candidate we may develop in the future, Alcon's commercialization efforts of EYSUVIS and INVELTYS, 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 treatments, and the full extent of the impact on employees, vendors and government agencies, all of which are uncertain and cannot be predicted.
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Management is actively monitoring the COVID-19 pandemic and its effects on our financial condition, liquidity, operations, vendors, contractors, and workforce. For additional information on risks posed by the COVID-19 pandemic, please see Part I, Item 1A - "Risk Factors" of this Annual Report on Form 10-K, including the risk factor entitled "The ongoing 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
We currently have no commercial products in our portfolio. Moreover, we only
recently commenced the CHASE Phase 2b clinical trial of KPI-012 for PCED in
Cost of Product Revenues
Cost of product revenues consisted 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. We expensed cost of product
revenues related to INVELTYS as research and development expenses prior to
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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 related to EYSUVIS and INVELTYS prior to the sale of the Commercial Business to Alcon, 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 will decrease in
2023 as compared to such expenses for the year ended
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 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 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 will increase in 2023 as
compared to such expenses for the year ended
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KPI-012 is in Phase 2b clinical development and all of our other research and development programs are in preclinical development. 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. 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.
We include costs to acquire or in-license product candidates in acquired
in-process research and development, or IPR&D, expenses. When we acquire the
right to develop and commercialize a new product candidate, any upfront payments
or any future milestone payments that are recorded at fair value that relate to
the acquisition or licensing of such a right are immediately expensed as
acquired IPR&D in the period in which they are incurred. These costs are
immediately expensed provided that the payments do not also represent processes
or activities that would constitute a "business" as defined under
Loss (Gain) on Fair Value Remeasurement of Deferred Purchase Consideration
In connection with the closing of the Combangio Acquisition on
Gain on Fair Value Remeasurement of Contingent Consideration
In addition to the Deferred Purchase Consideration, consideration payable to the
Combangio Equityholders includes potential payments of up to
Interest Income
Interest income consists of interest earned on our cash, cash equivalents and short-term investments, if any.
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.
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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
upon extinguishment of a debt agreement. For the year ended
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
Gain on Lease Modification
Gain on lease modification represents the gain recognized in connection with the
lease termination agreement we entered into in
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
While our significant accounting policies are described in more detail in the notes to our financial statements appearing at the end of this Annual Report on Form 10-K, we believe that the following critical accounting estimates are those most critical to the judgments and estimates used in the preparation of our financial statements and that involve a significant level of estimation uncertainty.
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Revenue
Following the sale of our Commercial Business to Alcon in
Product revenues, net
We sold EYSUVIS and INVELTYS primarily to wholesalers in
The goods promised in our product sales contracts represented a single performance obligation. We recognized revenue from product sales at the point the Customer obtained control of the product, which occurred upon delivery. The transaction price ("net sales price") that was recognized as revenue for product sales included the selling price to the Customer and an estimate of variable consideration. Components of variable consideration included prompt pay and other discounts, product returns, government rebates, third-party payor rebates, coverage gap rebates, incentives such as patient co-pay assistance, and other fees paid to Customers and other third-party payors where a distinct good or service was not received. Variable consideration was recorded on the consolidated balance sheet as either a reduction of accounts receivable, if payable to a Customer, or as a current liability, if payable to a third-party other than a Customer. We considered all relevant information when estimating variable consideration such as assessment of our then current and anticipated sales and demand forecasts, actual payment history, information from third parties regarding the payor mix for products, information from third parties regarding the units remaining in the distribution channel, specific known market events and trends, industry data and current contractual and statutory requirements that were reasonably available. We included estimated amounts for variable consideration in the net sales price to the extent it was determined probable that a significant reversal of cumulative revenue recognized would not occur when the uncertainty associated with the variable consideration was resolved.
Payment terms with Customers did not exceed one year and, therefore, we did not account for a significant financing component in our arrangements. We expensed the incremental cost of obtaining a contract with a Customer when incurred as the period of benefit was generally less than one year.
Reserves for Variable Consideration:
Trade Discounts and Allowances
We provided our Customers with certain trade discounts and allowances including discounts for prompt payments and other discounts and fees paid for distribution, data and administrative services. These discounts and fees were based on contractually-determined percentages and were recorded as a reduction of revenue and accounts receivable in the period in which the related product revenue was recognized.
Chargebacks
Chargebacks for fees and discounts to providers represent the estimated obligations resulting from contractual commitments to sell products to qualified healthcare providers at prices lower than the list prices charged to Customers who directly purchased the product from us. Customers charged us for the difference between what they paid for the product and the ultimate selling price to the qualified healthcare providers. These components of variable consideration were established in the same period that the related revenue was recognized, resulting in a reduction of product revenue
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and accounts receivable. Reserves for chargebacks consisted of credits we expected to issue for units that remained in the distribution channel at the end of each reporting period and that we expected would be sold to qualified healthcare providers, as well as chargebacks that Customers had claimed, but for which we had not yet issued a credit.
Product Returns
Consistent with industry practice, we had a product returns policy that provides Customers right of return for product purchased within a specified period prior to and subsequent to the product's expiration date. We estimated the amount of our products that may be returned and presented this amount as a reduction of revenue in the period the related product revenue was recognized, in addition to establishing a liability. Our estimates for product returns were based upon available industry data and our own sales information, including our visibility into the inventory remaining in the distribution channel as well as historical returns, which developed over time.
Commercial Payor and Medicare Part D Rebates
We contracted with certain third-party payors, primarily pharmacy benefit managers, or PBM's, and health plans, or Plans, for the payment of rebates with respect to utilization of our product. These rebates were based on contractual percentages applied to the amount of product prescribed to patients who were covered by the PBMs or the Plans with which it contracted. We estimated the rebates for commercial and Medicare Part D payors based on the contractual discount percentage, the various payor mix for EYSUVIS and INVELTYS as well as future rebates that would be made for product that had been recognized as revenue but remained in the distribution channel at the end of each reporting period. We also estimated the number of patients in the prescription drug coverage gap for whom we would owe an additional liability under the Medicare Part D program. Such estimates were recorded in the same period the related revenue was recognized, resulting in a reduction of product revenue and the establishment of a current liability.
Government Rebates
We were subject to discount obligations under Medicaid and other government
programs. For Medicaid, reserves were based on actual payment history, and
estimates of future Medicaid beneficiary utilization applied to the Medicaid
unit rebate formula established by the
Co-pay Assistance Programs
We offered co-pay assistance programs (the "co-pay programs"), which were intended to provide financial assistance to patients who may or may not be covered by commercial insurance or, with respect to INVELTYS, who opt out of Medicare Part D programs. The calculation of accruals for the co-pay programs were based on actual claims processed during the period as well as an estimate of the number and cost per claim that we expected to receive associated with product that had been recognized as revenue but remained in the distribution channel at the end of each reporting period. Allowances for estimated co-pay claims are recorded in the same period the related revenue was recognized, resulting in a reduction of product revenue and the establishment of a current liability.
Inventory
Inventory is stated at the lower of cost or net realizable value, on a first-in, first-out method. Costs include amounts related to third party manufacturing, transportation, internal labor and overhead. We capitalize pre-launch inventory when we believe regulatory approval and subsequent commercialization of the product candidate is probable and expect the future economic benefit of the drug to be realized. In doing so, we consider a number of factors in order to determine the amount of inventory to be capitalized, including the historical experience of achieving regulatory approvals for our similar products, the amount of inventory that is likely to be used in commercial production, receipt and analysis of positive Phase 3 clinical trial results for the underlying product candidate, results from meetings with the relevant regulatory authorities prior to the filing of regulatory applications and the compilation of the regulatory
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application. We also monitor the status of the product within the regulatory
review and approval process, including all relevant communication with
regulatory authorities. For inventories capitalized in preparation for product
launch, anticipated future sales, expected shelf life and expected approval date
are taken into account when evaluating realizability. The shelf life of a
product is determined as part of the regulatory approval process; however, in
assessing whether to capitalize pre-launch inventory, we consider the product
stability data of all of the pre-launch inventory procured or produced to date
to determine whether there is adequate shelf life. If management is aware of any
specific material risks or contingencies other than the normal regulatory review
and approval process, or if the criteria for capitalizing inventory produced
prior to regulatory approval are otherwise not met, we would not capitalize such
inventory costs, choosing instead to recognize such costs as a research and
development expense in the period incurred. For INVELTYS, capitalization of
costs as inventory began upon
We perform an assessment of the recoverability of capitalized inventory during
each reporting period, including quality control and assurance reserves for
defective inventories, and we also write-down any excess and obsolete
inventories to their estimated realizable value in the period in which the
impairment is first identified. The determination of whether inventory costs
will be realizable requires estimates by management. Prior to the sale of our
Commercial Business in
Shipping and handling costs for product shipments are recorded as incurred in costs of revenues along with costs associated with manufacturing the product, and any inventory write-downs. Inventory produced that will be used in a promotional sample program is expensed to selling, general and administrative expense when it is designated as a sample. Long-term inventory includes raw materials, work-in-progress and/or finished goods inventory with an anticipated consumption or sale beyond one year from the balance sheet date based on our forecasted expectations.
Acquisition Accounting
We are required to make significant judgments and estimates to determine whether an acquisition constitutes an acquisition of a business or assets. For asset acquisitions, this includes whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. We are also required to make several significant judgments and estimates in order to determine the total consideration transferred for the asset acquisition and then allocate it to the assets that we have acquired and the liabilities that we have assumed on a relative fair value basis. If the asset related to acquired IPR&D has no alternative future use, it is expensed immediately upon the completion of the transaction.
In addition to upfront consideration, our asset acquisitions may also include contingent consideration payments to be made for future milestone events or royalties on net sales of future products. We assess whether such contingent consideration is required to be recorded at fair value on the date of the acquisition and subsequently remeasured to fair value at each reporting date. Contingent consideration payments in an asset acquisition not required to be recorded at fair value are recognized when the contingency is resolved, and the consideration is paid or becomes payable. Changes in the fair value of the contingent milestone payments can result from changes to one or more inputs, including adjustments to the probability of achievement, timing of the contingent milestone payments and changes to the applicable discount rates. Significant judgment is used in determining these assumptions and estimates during each reporting period. Reasonable changes in these assumptions can cause material changes to the fair value of our contingent consideration liability. Any changes in the fair value of these contingent consideration liabilities are included in loss from operations in the consolidated statements of operations and comprehensive loss. For information related to the unobservable inputs related to the contingent consideration, see Note 5, "Fair Value of Financial Instruments", of our consolidated financial statements.
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Results of Operations
Comparison of the Years ended
The following table summarizes the results of our operations for the years endedDecember 31, 2022 and 2021: Year Ended December 31, 2022 2021 Change (in thousands) Product revenues, net$ 3,892 $ 11,240 $ (7,348) Costs and expenses: Cost of product revenues 2,560 4,097 (1,537) Selling, general and administrative 65,035 105,061 (40,026) Research and development 17,653 11,515 6,138 Acquired in-process research and development - 26,617 (26,617)
Loss (gain) on fair value remeasurement of Deferred Purchase Consideration
638 (5,805) 6,443
Gain on fair value remeasurement of contingent
consideration (288) - (288)
Total operating expenses 85,598 141,485 (55,887)
Loss from operations (81,706) (130,245) 48,539
Other income (expense)
Interest income 664 104 560
Interest expense (7,266) (8,380) 1,114
Loss on extinguishment of debt (2,583) (5,395) 2,812
Gain on sale of Commercial Business 46,995 - 46,995
Gain on lease modification - 1,311 (1,311)
Other income (expense), net (926) - (926)
Net loss $ (44,822) $ (142,605) $ 97,783
Product revenues, net
Product revenues, net was
Cost of product revenues
Cost of product revenues was
Selling, general and administrative expenses
Selling, general and administrative expenses were
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products. Also contributing to the decrease as compared to the year ended
Research and development expenses
The following table summarizes the research and development expenses incurred
during the years ended
Year Ended
December 31,
2022 2021 Change
(in thousands)
KPI-012 development costs $ 5,803 $ - $ 5,803
Employeerelated costs 9,256 7,417 1,839
Other research and development costs 2,594 4,098 (1,504)
Total research and development
Research and development expenses were
Acquired in-process research and development expenses
Acquired IPR&D expenses for the year ended
Loss (gain) on fair value remeasurement of Deferred Purchase Consideration
The loss on fair value remeasurement of Deferred Purchase Consideration for the
year ended
Gain on fair value remeasurement of contingent consideration
Gain on fair value remeasurement of contingent consideration for the year ended
Interest income
Interest income was
Interest expense
Interest expense was
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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
Loss on extinguishment of debt
The loss on extinguishment of debt was
Gain on sale of Commercial Business
The gain on sale of Commercial Business was
Gain on lease modification
The gain on lease modification was
Other income (expense), net
Other income and expense was a net expense of
Liquidity and Capital Resources
Since our inception, we have incurred significant operating losses. As we
commercially launched our first product, INVELTYS, in
On
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Loan B in the aggregate principal amount of
On
On
On
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The Second Amendment Prepayment, which represented a partial prepayment of
principal in the amount of
In
On
Pursuant to the Third Loan Amendment, in addition to the Third Amendment
Prepayments, if we make an additional prepayment under the Loan Agreement equal
to
Under the Third Loan Amendment, the Lender and Agent also agreed to waive the
prepayment fees for the Third Amendment Prepayments, the First Extension
Prepayment, the Second Extension Prepayment and any other prepayments under the
Loan Agreement. Pursuant to the Loan Agreement, we also will be required to pay
all accrued and unpaid interest on the principal amounts of the term loan being
repaid at the time of repayment. On
We paid a facility fee of
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On
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,
contingent 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 which are in the mid-to-high single digits. The
total potential maximum payout for the milestone payments which are contingent
upon the achievement of specified development, regulatory and commercialization
milestones is
Our other material cash requirements from known contractual and other
obligations as of
Cash Flows
As of
The following table summarizes our sources and uses of cash for each of the
periods presented:
Year Ended
December 31,
2022 2021 Change
(in thousands)
Net cash used in operating activities $ (78,908) $ (108,235) $ 29,327
Net cash provided by investing activities 62,717 70,803 (8,086)
Net cash (used in) provided by financing activities (7,942) 42,554 (50,496)
(Decrease) increase in cash and restricted cash
Operating Activities
Net cash used in operating activities for the year ended
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decrease in the net loss adjusted for non-cash charges and the timing of working
capital fluctuations which accounted for
Investing Activities
Net cash provided by investing activities for the year ended
Financing Activities
Net cash used in financing activities for the year ended
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 in the future 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 ongoing 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:
? 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;
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? seek regulatory approval for KPI-012 for PCED in
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 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 our 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
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-
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.
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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 for the foreseeable future, if at all. Achieving and maintaining profitability will require us to be successful in a range of challenging activities, including:
? completing the clinical development of KPI-012 for PCED and any other
indications we determine to pursue;
? subject to obtaining favorable results from our ongoing and 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, including under our KPI-014 program;
? 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. We may never succeed in the foregoing activities 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. In addition, under
the Securities Purchase Agreement, we also agreed that we will not, without the
prior approval of the requisite Purchasers, (i) issue or authorize the issuance
of any equity security that is senior or pari passu to the Series E Preferred
Stock with respect to liquidation preference, (ii) incur any additional
indebtedness for borrowed money in excess of
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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.
Recently Issued Accounting Pronouncements
From time to time the
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