Kodiak(KOD) - 2018 Q4 - Annual Report

PART I Business Kodiak Sciences Inc. develops retinal disease therapies using its ABC Platform, with lead candidate KSI-301 for wet AMD and diabetic retinopathy in clinical trials - The company's most advanced product candidate is KSI-301, a biologic therapy built with its antibody biopolymer conjugate platform (ABC Platform), designed to maintain potent drug levels in ocular tissues for treating retinal vascular diseases like wet AMD and diabetic retinopathy[19] - The company initiated its first-in-human Phase 1a clinical study of KSI-301 in July 2018 for severe diabetic macular edema (DME), which demonstrated safety and durability of responses after a single dose[20] - Kodiak is currently enrolling a Phase 1b multiple-dose study of KSI-301 in patients with wet AMD, DME, and retinal vein occlusion, with plans to present data in 2019 and 2020[26] - The company plans to initiate a global Phase 2 pivotal study of KSI-301 in wet AMD in Q2 2019, comparing dosing intervals of up to 20 weeks against the standard 8-week regimen of EYLEA[29][54] Lead Product Candidate: KSI-301 KSI-301 is an anti-VEGF antibody biopolymer conjugate designed for enhanced durability in treating retinal diseases KSI-301 Phase 1a Single-Dose Study Results (12 Weeks) | Metric | Result (Pooled across all dose levels) | | :--- | :--- | | Vision Improvement (Median) | 9 eye chart letters (almost two lines) | | Retinal Edema Improvement (Median) | 121 microns | | Responders | 8 out of 9 patients | | Safety | No dose-limiting toxicities, drug-related adverse events, or intraocular inflammation | KSI-301 Design Feature Comparison | Feature | KSI-301 | EYLEA | Lucentis | | :--- | :--- | :--- | :--- | | Molecular Weight | 950 kDa | 115 kDa | 48 kDa | | Molar Dose (Equivalent) | 7x | 2x | 1x | | Ocular PK (Equivalent) | 4x | 1.5x | 1x | - Preclinical studies demonstrated that KSI-301 has an extended ocular tissue half-life of over 10 days in the retina, compared to published data of 2.9 days for Lucentis and 4-5 days for EYLEA[128] Market Opportunity and Current Limitations The primary target markets for KSI-301 are wet AMD and diabetic retinopathy, with existing treatments facing limitations due to frequent injection burden - Annual worldwide sales of Lucentis and EYLEA for all indications totaled approximately $10.5 billion in 2018, with a substantial majority from wet AMD and DR treatment[39][61] - Real-world studies, such as the AURA study, show a divergence between clinical trial efficacy and real-world outcomes for current anti-VEGFs, where less frequent treatment leads to diminished visual acuity improvement[41][78] - Data from the American Academy of Ophthalmology's IRIS registry showed that in 13,859 U.S. patients with wet AMD, the average number of injections in the first year was approximately six, far below the labeled regimens for Lucentis (12/year) and EYLEA (7-8/year)[83] ABC Platform and Pipeline The company's ABC Platform extends durability and bioavailability of retinal medicines, with KSI-501 as a dual inhibitor candidate - The ABC Platform is designed to extend the durability of soluble, injectable retinal medicines and fuel a pipeline of differentiated product candidates[144][145] - KSI-501 is a dual inhibitor Trap-Antibody-Fusion (TAF) bioconjugate designed to target both inflammation (via anti-IL-6) and abnormal angiogenesis (via anti-VEGF)[147] - Preclinical studies indicate that the TAF protein of KSI-501 binds with high affinity to both VEGF and IL-6 simultaneously, suggesting it can inhibit both targets with high potency[153] Competition, Manufacturing, and Commercialization Kodiak faces intense competition from established therapies and relies on third-party CMOs for manufacturing, planning U.S. commercialization with partners for ex-U.S. markets - The company faces competition from established anti-VEGF drugs (Avastin, Lucentis, EYLEA) and new therapies in development, such as Novartis's brolucizumab and Allergan's abicipar[174][176] - Kodiak relies on third-party contract manufacturers (CMOs), including Lonza AG, for the manufacture and supply of clinical materials for its product candidates[140][143] - The company plans to commercialize approved products in the United States with its own focused, specialty sales force and explore collaborations for commercialization outside the U.S[57][137] Intellectual Property The company protects its technology through patents, trade secrets, and know-how, with U.S. patents expected to expire between 2027 and 2035 Key Patent Portfolio for KSI-301 and ABC Platform | Patent/Application Series | Anticipated U.S. Expiration | Description of Representative Claims | | :--- | :--- | :--- | | US 8,846,021 Series | Feb 2027 | Conjugates | | US Appl. No. 15/368,376 Series | Apr 2031 | Conjugates | | US 8,765,432 Series | May 2030 | Copolymers and methods of making (ABC Platform) | | US Appl. No. 14/916,180 Series | Sep 2034 | Polymers and method of making polymers | | US Appl. No. 15/394500 Series | Dec 2036 | Antibody and antibody conjugate claims, methods of making and using | - As of December 31, 2018, the company was the assignee for approximately 3 U.S. issued patents, 10 U.S. pending applications, 14 foreign issued patents, and 51 pending foreign applications[263] Risk Factors The company faces substantial risks including limited operating history, significant net losses, dependence on KSI-301, manufacturing complexities, and IP challenges - The company is in the early clinical stage with a limited operating history, no products approved for sale, and has not generated any revenue, making it difficult to evaluate future success[276] - Kodiak has incurred significant net losses since inception, including $41.4 million for the year ended December 31, 2018, and anticipates continued losses for the foreseeable future[277] - The company's prospects are heavily dependent on its lead candidate, KSI-301. A failure of KSI-301 in clinical development could force the discontinuation of other product candidates based on the ABC Platform[291][295] - The company relies on third-party CMOs for manufacturing, which is a complex process. Any production difficulties, quality issues, or failure to meet regulatory standards could delay or stop the supply of product candidates for clinical trials[330][375] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None[471] Properties The company leases approximately 11,000 square feet of office, research, and lab space in Palo Alto, California, with a lease extending to October 2023 - The company leases approximately 11,000 square feet of office, research, and lab space in Palo Alto, California, with the lease term extending to October 31, 2023[472] Legal Proceedings The company is not a party to any material legal proceedings as of the report date - The company is not currently a party to any material legal proceedings[473] Mine Safety Disclosures This item is not applicable to the company - None[474] PART II Market for Registrant's Common Equity, Related Stockholders Matters and Issuer Purchases of Equity Securities The company's common stock began trading on Nasdaq in October 2018, raising $83.5 million net from its IPO, with no dividends paid or anticipated - The company's common stock has been listed on the Nasdaq Global Market under the symbol "KOD" since October 4, 2018[476] - On October 9, 2018, the company closed its IPO, selling 9.0 million shares at $10.00 per share. An additional 400,000 shares were sold in November 2018 via the underwriters' over-allotment option[484] - Aggregate net proceeds from the IPO were $83.5 million after deducting underwriting discounts and commissions[486] - Upon the IPO closing, all outstanding convertible preferred shares converted into 12,385,154 shares of common stock, and the 2017 and 2018 convertible notes converted into 2,637,292 and 4,295,677 shares of common stock, respectively[482] Selected Financial Data The company reported increasing net losses, reaching $41.4 million in 2018, with $88.3 million in cash and $86.8 million in stockholders' equity post-IPO Selected Consolidated Financial Data (in thousands) | | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | Statements of Operations Data: | | | | | Research and development | $18,793 | $22,022 | $14,053 | | General and administrative | $7,581 | $3,499 | $3,098 | | Loss from operations | $(26,374) | $(25,521) | $(17,151) | | Net loss | $(41,443) | $(27,936) | $(17,132) | | Balance Sheet Data (as of Dec 31): | | | | | Cash and cash equivalents | $88,254 | $1,395 | $9,622 | | Total assets | $92,189 | $3,244 | $12,114 | | Accumulated deficit | $(110,766) | $(69,323) | $(41,387) | | Total stockholders' equity (deficit) | $86,833 | $(68,738) | $(41,083) | Management's Discussion and Analysis of Financial Condition and Results of Operations Net loss increased to $41.4 million in 2018 due to higher G&A and debt-related expenses, while R&D decreased; $88.3 million cash post-IPO is sufficient for 12 months Results of Operations R&D expenses decreased by $3.2 million in 2018 due to fewer manufacturing runs, while G&A expenses rose by $4.1 million due to IPO-related costs and increased headcount Comparison of Operating Results (2018 vs. 2017, in thousands) | | Year Ended Dec 31, 2018 | Year Ended Dec 31, 2017 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Research and development | $18,793 | $22,022 | $(3,229) | (15)% | | General and administrative | $7,581 | $3,499 | $4,082 | 117% | | Loss from operations | $(26,374) | $(25,521) | $(853) | 3% | | Net loss | $(41,443) | $(27,936) | $(13,507) | 48% | - The decrease in 2018 R&D expenses was primarily due to a $5.8 million decrease in external expenses for the KSI-301 program related to fewer manufacturing runs, partially offset by a $3.5 million increase in payroll and personnel expenses from increased headcount[513][514][515] - The increase in 2018 G&A expenses was mainly due to a $2.2 million increase in professional services for accounting, legal, and consulting related to the IPO and public company costs, and a $1.8 million increase in salaries[516] Liquidity and Capital Resources The company had $88.3 million in cash and cash equivalents as of December 31, 2018, following its IPO, which is deemed sufficient for at least the next 12 months of operations - As of December 31, 2018, the company had cash and cash equivalents of $88.3 million[502][528] - The company believes its existing cash is sufficient to fund projected operations for at least the next 12 months[502][529] Summary Statement of Cash Flows (in thousands) | | Year Ended Dec 31, 2018 | Year Ended Dec 31, 2017 | | :--- | :--- | :--- | | Net cash used in operating activities | $(29,031) | $(17,655) | | Net cash used in investing activities | $(581) | $(209) | | Net cash provided by financing activities | $116,471 | $9,637 | Quantitative and Qualitative Disclosures About Market Risk The company's market risk primarily relates to interest rate sensitivity on its $88.3 million cash and equivalents, with a 100 basis point change deemed immaterial - The company's primary market risk is interest rate sensitivity on its $88.3 million in cash and cash equivalents. An immediate 100 basis point change in interest rates is not expected to have a material effect on their fair market value[566] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for fiscal year 2018, including balance sheets, statements of operations, equity, cash flows, and notes Changes in and Disagreements with Accountants on Accounting and Financial Disclosures The company reports no changes in or disagreements with its accountants on accounting and financial disclosures - None[737] Controls and Procedures Management concluded disclosure controls and procedures were effective as of December 31, 2018, with no material changes to internal control over financial reporting - Management concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2018[739] - No material changes were made to the company's internal control over financial reporting during the quarter ended December 31, 2018[740] Other Information The company reports no other information for this item - None[742] PART III Directors, Executive Officers and Corporate Governance Information for this item is incorporated by reference from the company's definitive 2019 Proxy Statement - Information for this item is incorporated by reference from the registrant's definitive Proxy Statement[745] Executive Compensation Information for this item is incorporated by reference from the company's definitive 2019 Proxy Statement - Information for this item is incorporated by reference from the registrant's definitive Proxy Statement[746] Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters Information for this item is incorporated by reference from the company's definitive 2019 Proxy Statement - Information for this item is incorporated by reference from the registrant's definitive Proxy Statement[747] Certain Relationships and Related Transactions, and Director Independence Information for this item is incorporated by reference from the company's definitive 2019 Proxy Statement - Information for this item is incorporated by reference from the registrant's definitive Proxy Statement[748] Principal Accounting Fees and Services Information for this item is incorporated by reference from the company's definitive 2019 Proxy Statement - Information for this item is incorporated by reference from the registrant's definitive Proxy Statement[749] PART IV Exhibits, Financial Statement Schedules This section lists documents filed as part of the Form 10-K, including consolidated financial statements and various corporate exhibits Form 10-K Summary The company indicates that no Form 10-K summary is provided - None[754]