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Kala Pharmaceuticals(KALA) - 2021 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Presents unaudited condensed consolidated financial statements for Q1 2021, including balance sheets, statements of operations, equity, and cash flows, with notes detailing policies, debt, and a significant May 2021 refinancing Condensed Consolidated Balance Sheets Total assets increased to $229.8 million from $221.6 million, while liabilities slightly decreased and stockholders' equity rose to $109.8 million Condensed Consolidated Balance Sheet Highlights (in thousands) | | March 31, 2021 ($ in thousands) | December 31, 2020 ($ in thousands) | | :--- | :--- | :--- | | Total Current Assets | $179,065 | $171,379 | | Total Assets | $229,827 | $221,606 | | Total Current Liabilities | $19,989 | $22,225 | | Total Liabilities | $120,035 | $121,611 | | Total Stockholders' Equity | $109,792 | $99,995 | Condensed Consolidated Statements of Operations and Comprehensive Loss Net loss widened to $30.4 million in Q1 2021 due to increased SG&A expenses for EYSUVIS launch, despite growth in net product revenues Q1 2021 vs Q1 2020 Statement of Operations (in thousands) | | Three Months Ended March 31, 2021 ($ in thousands) | Three Months Ended March 31, 2020 ($ in thousands) | | :--- | :--- | :--- | | Product revenues, net | $3,266 | $1,071 | | Total costs and expenses | $31,580 | $21,196 | | Selling, general and administrative | $27,699 | $15,408 | | Research and development | $3,126 | $5,434 | | Loss from operations | $(28,314) | $(20,125) | | Net loss | $(30,412) | $(21,955) | | Net loss per share | $(0.49) | $(0.54) | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities was $32.6 million, offset by $48.0 million from investing and $35.3 million from financing, resulting in a $50.7 million cash increase Q1 2021 vs Q1 2020 Cash Flow Summary (in thousands) | | Three Months Ended March 31, 2021 ($ in thousands) | Three Months Ended March 31, 2020 ($ in thousands) | | :--- | :--- | :--- | | Net cash used in operating activities | $(32,640) | $(19,880) | | Net cash provided by (used in) investing activities | $48,031 | $(292) | | Net cash provided by financing activities | $35,315 | $131,181 | Notes to Condensed Consolidated Financial Statements Details commercial products EYSUVIS and INVELTYS, liquidity expectations for twelve months, and a significant May 2021 debt refinancing - The company's two commercial products are EYSUVIS®, for the short-term treatment of dry eye disease, and INVELTYS®, for post-operative inflammation and pain following ocular surgery. The full promotional launch of EYSUVIS commenced in early January 20212122 - Management expects that cash, cash equivalents, and short-term investments as of March 31, 2021, along with anticipated net revenue, will be sufficient to fund operations for at least twelve months from the issuance date of the financial statements25 - On May 4, 2021, the company entered into a new loan agreement for up to $125 million with Oxford Finance LLC and used the initial $80 million tranche to repay and terminate its existing $75 million Athyrium Credit Facility9296 Management's Discussion and Analysis of Financial Condition and Results of Operations Discusses financial performance driven by EYSUVIS launch, increased SG&A, COVID-19 impact, and a major debt refinancing, with capital expected to fund operations for two years Results of Operations Net product revenues increased to $3.3 million due to EYSUVIS launch, but net loss widened to $30.4 million primarily from higher SG&A expenses Q1 2021 vs Q1 2020 Operations Summary (in thousands) | | Three Months Ended March 31, 2021 ($ in thousands) | Three Months Ended March 31, 2020 ($ in thousands) | Change ($ in thousands) | | :--- | :--- | :--- | :--- | | Product revenues, net | $3,266 | $1,071 | $2,195 | | Selling, general and administrative | $27,699 | $15,408 | $12,291 | | Research and development | $3,126 | $5,434 | $(2,308) | | Net loss | $(30,412) | $(21,955) | $(8,457) | - The increase in product revenues was driven by sales of EYSUVIS, which launched in late December 2020, and a higher per-unit gross selling price and increased volume for INVELTYS129 - The increase in SG&A expenses was primarily due to a $5.5 million increase in external sales and marketing costs for the EYSUVIS launch and a $4.2 million increase in employee-related expenses from increased headcount132 Liquidity and Capital Resources Company holds $156.0 million in cash, raised $34.7 million from ATM offering, secured a new $125 million debt facility, and expects to fund operations for two years - In May 2021, the company entered into a new loan agreement with Oxford Finance LLC for up to $125.0 million and used the initial $80.0 million tranche to repay its $75.0 million Athyrium Credit Facility140141 - During Q1 2021, the company sold 4,746,072 shares of common stock under its ATM Offering, resulting in net proceeds of $34.7 million145 - The company anticipates that its cash, cash equivalents and short-term investments as of March 31, 2021, along with anticipated revenue, will enable it to fund its operations for at least two years151 Quantitative and Qualitative Disclosures About Market Risk Primary market risk is interest rate risk, with a new floating rate loan introducing future exposure, though investments are short-term fixed-income securities - As of March 31, 2021, the company's $75.0 million debt facility bore a fixed interest rate of 9.875%161 - On May 4, 2021, the company entered a new loan agreement with a floating interest rate, thereby introducing exposure to interest rate changes161 Controls and Procedures Management concluded disclosure controls and procedures were effective as of March 31, 2021, with no material changes to internal control over financial reporting - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2021162 - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, internal controls163 PART II – OTHER INFORMATION Legal Proceedings The company is not currently a party to any material legal proceedings - The company is not currently subject to any material legal proceedings164 Risk Factors Outlines risks including financial losses, product commercial success, COVID-19 impact, competition, reliance on third-party manufacturers, intellectual property, and regulatory landscape - The company has a history of significant operating losses, with an accumulated deficit of $430.2 million as of March 31, 2021, and expects to incur additional losses166 - The COVID-19 pandemic has adversely impacted the market for INVELTYS due to moratoria on elective ocular surgeries and could disrupt the launch and commercialization of EYSUVIS197198 - The company relies on third-party contract manufacturers, including Woodstock Sterile Solutions, for the commercial supply of EYSUVIS and INVELTYS, which poses risks related to supply chain disruption and quality control226245246 - The company's technology and products, including EYSUVIS and INVELTYS, are protected by patents exclusively licensed from third parties like The Johns Hopkins University (JHU), and the loss of these licenses could harm its competitive position282 Unregistered Sales of Equity Securities and Use of Proceeds In Q1 2021, the company issued 56,700 stock options to new employees as inducement grants, unregistered under the Securities Act of 1933 - In Q1 2021, the company granted stock options to purchase 56,700 shares of common stock to new employees as inducement grants outside of its main equity plan369 Exhibits Lists exhibits filed with Form 10-Q, including the new Loan and Security Agreement and CEO/CFO certifications - Key exhibits filed include the new Loan and Security Agreement with Oxford Finance LLC and CEO/CFO certifications under Sarbanes-Oxley375