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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from           to       

Commission file number 001-38150

KALA BIO, Inc.

(Exact name of registrant as specified in its charter)

Delaware

27-0604595

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

1167 Massachusetts Avenue

Arlington, MA

02476

(Address of principal executive offices)

(Zip Code)

(781) 996-5252

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act

Title of each class

Common Stock, $0.001 par value per share

Trading symbol(s)

KALA

Name of each exchange on which registered

The Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer 

Accelerated filer 

Non-accelerated filer 

Smaller reporting company 

Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No  

There were 2,693,116 shares of Common Stock, $0.001 par value per share, outstanding as of November 10, 2023.

TABLE OF CONTENTS

    

Page

PART I – FINANCIAL INFORMATION

7

Item 1.

Financial Statements (Unaudited)

7

Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022

7

Condensed Consolidated Statement of Operations and Comprehensive (Loss) Income for the three and nine months ended September 30, 2023 and 2022

8

Condensed Consolidated Statements of Changes in Mezzanine Equity and Stockholders’ Equity (Deficit) for the three and nine months ended September 30, 2023 and 2022

9

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022

11

Notes to Condensed Consolidated Financial Statements

12

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

38

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

58

Item 4.

Controls and Procedures

58

PART II – OTHER INFORMATION

59

Item 1.

Legal Proceedings

59

Item 1A.

Risk Factors

59

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

115

Item 6.

Exhibits

115

SIGNATURES

117

2

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA

This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical fact, contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans and objectives of management, are forward-looking statements. 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.

The forward-looking statements in this Quarterly Report on Form 10-Q include, among other things, statements about:

our expectations with respect to the potential impacts the sale of our commercial business to Alcon Pharmaceuticals Ltd. and Alcon Vision, LLC, which we refer collectively as Alcon, will have on our business, results of operations and financial condition;
our expectations with respect to, and the amount of, future milestone payments we may receive from Alcon in connection with the sale of our commercial business;
our expectations with respect to our dependency on and potential advantages of KPI-012, our product candidate for the treatment of persistent corneal epithelial defects, or PCED;
our expectations with respect to the potential financial impact, synergies, growth prospects and benefits of our acquisition of Combangio, Inc., or Combangio, or the Combangio Acquisition, including our expectations with respect to, and the amount of, future milestone payments we may pay in connection with the Combangio Acquisition;
our development efforts for KPI-012 and our ability to discover and develop new programs and product candidates;
the timing, progress and results of clinical trials for KPI-012, including statements regarding the timing of initiation and completion of clinical trials, dosing of subjects and the period during which the results of the trials will become available;
the timing, scope and likelihood of regulatory filings, including the filing of any biologics license applications for KPI-012 and any other product candidate we may develop in the future;
our ability to obtain regulatory approvals for KPI-012;
our commercialization, marketing and manufacturing capabilities and strategy for KPI-012, if approved;
our estimates regarding potential future revenue from sales of KPI-012, if approved;
our ability to negotiate, secure and maintain adequate pricing, coverage and reimbursement terms and processes on a timely basis, or at all, with third-party payors for KPI-012, if approved;
the rate and degree of market acceptance and clinical utility of KPI-012 and our estimates regarding the market opportunity for KPI-012, if approved;
plans to pursue the development of KPI-012 for indications in addition to PCED, including Limbal Stem Cell Deficiency;

3

our expectations with respect to our determination to cease the development of our preclinical pipeline programs that are unrelated to our mesenchymal stem cell secretome, or MSC-S, platform;
the timing, progress and results of preclinical studies for our KPI-014 program;
our expectations regarding our ability to fund our operating expenses, lease and debt service obligations, and capital expenditure requirements with our cash on hand;
our expectations regarding our ability to achieve the specified milestones under our award from the California Institute for Regenerative Medicine, or CIRM, and obtain the full funding under the CIRM Award;
our expectations regarding our ability to comply with the covenants under our loan agreement;
our intellectual property position, including intellectual property acquired in the Combangio Acquisition;
our ability to identify additional products, product candidates or technologies with significant commercial potential that are consistent with our commercial objectives;
our estimates regarding expenses, future revenue, timing of any future revenue, capital requirements and needs for additional financing;
the impact of government laws and regulations;
our competitive position;
developments relating to our competitors and our industry;
our ability to maintain and establish collaborations or obtain additional funding;
our business and business relationships, including with employees and suppliers; and
our anticipated annualized reduction in operating expenses associated with our workforce reduction completed during the second half of 2022.

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 “Risk Factors” section, 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 we may make.

You should read this Quarterly Report on Form 10-Q and the documents that we have filed as exhibits to this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. The forward-looking statements contained in this Quarterly Report on Form 10-Q are made as of the date of this Quarterly Report on Form 10-Q, and we do not assume any obligation to update any forward-looking statements except as required by applicable law.

4

This Quarterly Report on Form 10-Q includes statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by us and third parties as well as our estimates of potential market opportunities. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. Our estimates of the potential market opportunity for KPI-012 include several key assumptions based on our industry knowledge, industry publications, third-party research and other surveys, which may be based on a small sample size and may fail to accurately reflect market opportunities. While we believe that our internal assumptions are reasonable, no independent source has verified such assumptions.

Risk Factor Summary

Our business is subject to a number of risks that if realized could materially affect our business, financial condition, results of operations, cash flows and access to liquidity. These risks are discussed more fully in the “Risk Factors” section of this Quarterly Report on Form 10-Q. Our principal risks include the following:

We have incurred significant losses from operations and negative cash flows from operations since our inception. We expect to incur additional losses and may never achieve or maintain profitability. As of September 30, 2023, we had an accumulated deficit of $620.8 million.
Our limited operating history and our limited experience in developing biologics may make it difficult for you to evaluate the success of our business to date and to assess our future viability.
We will need substantial additional funding. If we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate our product development efforts.
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 continue to be listed on The Nasdaq Stock Market, could result in an event of default and acceleration of amounts due.
The milestone consideration we are eligible to receive in connection with the sale of our commercial business to Alcon is subject to various risks and uncertainties.
If we are unable to successfully complete the clinical development of, and obtain marketing approval for, KPI-012 or any other product candidate we may develop in the future, or experience significant delays in doing so, or if, after obtaining marketing approvals, we fail to successfully commercialize such product candidates, our business will be materially harmed.
If clinical trials of KPI-012 or any other biological product candidate that we develop fail to demonstrate potency, safety and purity to the satisfaction of the U.S. Food and Drug Administration, or FDA, or other regulatory authorities or do not otherwise produce favorable results, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of such product candidate. The outcome of preclinical testing and early clinical trials may not be predictive of the success of later stage clinical trials, and interim results of a clinical trial do not necessarily predict final results.
If we experience any of a number of possible unforeseen events in connection with our clinical trials, potential marketing approval or commercialization of our product candidates could be delayed or prevented, and our competitors could bring products to market before we do.
We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.
KPI-012 has been evaluated in a clinical trial outside of the United States, and we may in the future conduct clinical trials for product candidates at sites outside the United States. The FDA may not accept data from trials conducted in such locations.

5

Public health epidemics, including the COVID-19 pandemic, could impact the development of KPI-012 or any other product candidate we develop, and may adversely affect our business, results of operations and financial condition.
Even if KPI-012 or any other product candidates that we may develop in the future receives marketing approval, such products may fail to achieve market acceptance by clinicians and patients, or adequate formulary coverage, pricing or reimbursement by third-party payors and others in the medical community, and the market opportunity for these products may be smaller than we estimate.
If we are unable to establish and maintain sales, marketing and distribution capabilities or enter into sales, marketing and distribution agreements with third parties, if and when necessary, we may not be successful in commercializing KPI-012 or any other product candidate that we may develop if and when they are approved.
We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do. Our competitors include major pharmaceutical companies with significantly greater financial resources. KPI-012 and any other product candidate we may develop, if approved, may also compete with existing branded, generic and off-label products.
We have relied, and expect to continue to rely, on third parties to conduct our clinical trials, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such trials.
We contract with third parties for the manufacture of KPI-012 and plan to contract with third parties for preclinical, clinical and commercial supply of any other product candidates we develop. This reliance on third parties increases the risk that we will not have sufficient quantities of our product candidates or such quantities at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts.
The manufacture of biologics is complex and our third-party manufacturers may encounter difficulties in production. If any of our third-party manufacturers encounter such difficulties, our ability to provide supply of product candidates for clinical trials or products for patients, if approved, could be delayed or prevented.
Our reliance on CIRM funding for KPI-012 adds uncertainty to our research and development efforts, imposes certain compliance obligations on us and imposes requirements that may increase the costs of commercializing KPI-012.
We may be unable to obtain and maintain patent protection for our technology or product candidates, or the scope of the patent protection obtained may not be sufficiently broad or enforceable, such that our competitors could develop and commercialize technology, products and product candidates similar or identical to ours, and our ability to successfully commercialize our technology product candidates may be impaired.
KPI-012 is protected by patent rights exclusively licensed from other companies or institutions. If these third parties terminate their agreements with us or fail to maintain or enforce the underlying patents, or we otherwise lose our rights to these patents, our competitive position and our market share in the markets for any of our products, if and when approved, will be harmed.

6

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

KALA BIO, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(In thousands, except share and per share amounts)

September 30, 

December 31, 

    

2023

    

2022

Assets

Current assets:

Cash and cash equivalents

$

56,063

$

70,495

Prepaid expenses and other current assets (Note 8)

1,839

7,852

Current assets held for sale (Note 4)

7,595

Total current assets

57,902

85,942

Non-current assets:

Property and equipment, net

802

400

Right-of-use assets

2,102

16

Restricted cash and other long-term assets

314

462

Total assets

$

61,120

$

86,820

Liabilities and Stockholders' Equity

Current liabilities:

Accounts payable

$

787

$

2,832

Accrued expenses and other current liabilities

6,260

8,910

Deferred gain on sale of commercial business

4,189

Deferred grant income

2,930

Current portion of lease liabilities

324

13

Current portion of long-term debt

5,000

Current portion of contingent consideration

4,146

Current portion of deferred purchase consideration

595

Total current liabilities

10,301

25,685

Long-term liabilities:

Long-term lease liabilities

1,880

Long-term debt

33,878

37,937

Long-term contingent consideration

3,838

4,224

Total long-term liabilities

39,596

42,161

Total liabilities

49,897

67,846

Commitments and Contingencies (Note 17)

Stockholders' equity:

Preferred stock, $0.001 par value; 5,000,000 shares authorized as of September 30, 2023 and December 31, 2022; 51,246 and 53,144 shares of Series E Convertible Non-Redeemable Preferred Stock issued and outstanding as of September 30, 2023 and December 31, 2022, respectively

Common stock, $0.001 par value; 120,000,000 shares authorized as of September 30, 2023 and December 31, 2022; 2,693,116 and 1,706,971 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively

3

2

Additional paid-in capital

632,001

606,182

Accumulated other comprehensive income

1

Accumulated deficit

(620,782)

(587,210)

Total stockholders' equity

11,223

18,974

Total liabilities and stockholders' equity

$

61,120

$

86,820

See accompanying notes to these unaudited condensed consolidated financial statements.

7

KALA BIO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

(UNAUDITED)

(In thousands, except share and per share amounts)

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2023

    

2022

    

2023

    

2022

Product revenues, net

$

$

420

$

$

3,892

Costs and expenses:

Cost of product revenues

11

2,560

Selling, general and administrative

4,952

9,549

15,944

59,204

Research and development

5,554

5,391

13,868

14,330

(Gain) loss on fair value remeasurement of deferred purchase consideration

(57)

(230)

205

(Gain) loss on fair value remeasurement of contingent consideration

(1,744)

95

462

(952)

Total costs and expenses

8,762

14,989

30,044

75,347

Loss from operations

(8,762)

(14,569)

(30,044)

(71,455)

Other income (expense):

Interest income

708

234

2,101

310

Interest expense

(1,459)

(1,447)

(4,346)

(5,689)

Grant income

2,970

2,970

Loss on extinguishment of debt

(2,583)

(2,583)

Gain on sale of commercial business

46,995

46,995

Other (expense) income, net

(2,161)

443

(4,253)

443

Total other income (expense)

58

43,642

(3,528)

39,476

Net (loss) income

$

(8,704)

$

29,073

$

(33,572)

$

(31,979)

Net (loss) income per share attributable to common stockholders—basic

$

(3.41)

$

19.39

$

(14.36)

$

(21.46)

Net (loss) income per share attributable to common stockholders—diluted

$

(3.41)

$

19.25

$

(14.36)

$

(21.46)

Weighted average shares outstanding—basic

2,550,210

1,499,001

2,337,492

1,490,159

Weighted average shares outstanding—diluted

2,550,210

1,510,421

2,337,492

1,490,159

Net (loss) income

$

(8,704)

$

29,073

$

(33,572)

$

(31,979)

Other comprehensive (loss) income:

Change in unrealized (loss) gain on investments

(8)

1

1

Total other comprehensive (loss) income

(8)

1

1

Total comprehensive (loss) income

$

(8,712)

$

29,074

$

(33,571)

$

(31,979)

See accompanying notes to these unaudited condensed consolidated financial statements.

8

KALA BIO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY (DEFICIT)

(UNAUDITED)

(In thousands, except share and per share amounts)

Three Months Ended September 30, 2023

Mezzanine Equity

Stockholders' Equity

Accumulated

Series D Preferred Stock

Series E Preferred Stock

Common Stock

Additional

Other

Total

$0.001 Par Value

$0.001 Par Value

$0.001 Par Value

Paid-In

Comprehensive

Accumulated

Stockholders'

  

Shares

  

Amount

  

  

Shares

  

Amount

  

Shares

  

Amount

  

Capital

  

(Loss) Income

  

Deficit

  

Equity

Balance as of June 30, 2023

$

52,750

$

2,538,687

$

3

$

629,558

$

9

$

(612,078)

$

17,492

Issuance of common stock for vested restricted stock units

800

Issuance of common stock under employee stock purchase plan

3,229

40

40

Issuance of common stock upon conversion of Series E Preferred Stock

(1,504)

150,400

Stock-based compensation expense

2,403

2,403

Change in fair value of investments

(8)

(8)

Net loss

(8,704)

(8,704)

Balance as of September 30, 2023

$

51,246

$

2,693,116

$

3

$

632,001

$

1

$

(620,782)

$

11,223

Three Months Ended September 30, 2022

Mezzanine Equity

Stockholders' Equity (Deficit)

Accumulated

Series D Preferred Stock

Series E Preferred Stock

Common Stock

Additional

Other

Total

$0.001 Par Value

$0.001 Par Value

$0.001 Par Value

Paid-In

Comprehensive

Accumulated

Stockholders'

  

Shares

  

Amount

  

  

Shares

  

Amount

  

Shares

  

Amount

  

Capital

  

(Loss) Income

  

Deficit

  

Equity (Deficit)

Balance as of June 30, 2022

$

$

1,465,949

$

1

$

571,886

$

(1)

$

(603,440)

$

(31,554)

Issuance of common stock under employee stock purchase plan

10,688

138

138

Issuance of redeemable Series D preferred stock

73,208

Stock-based compensation expense

1,374

1,374

Change in fair value of investments

1

1

Net income

29,073

29,073

Balance as of September 30, 2022

73,208

$

$

1,476,637

$

1

$

573,398

$

$

(574,367)

$

(968)

See accompanying notes to these unaudited condensed consolidated financial statements.

9

KALA BIO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY (DEFICIT)

(UNAUDITED)

(In thousands, except share and per share amounts)

Nine Months Ended September 30, 2023

Mezzanine Equity

Stockholders' Equity

Accumulated

Series D Preferred Stock

Series E Preferred Stock

Common Stock

Additional

Other

Total

$0.001 Par Value

$0.001 Par Value

$0.001 Par Value

Paid-In

Comprehensive

Accumulated

Stockholders'

  

Shares

  

Amount

  

  

Shares

  

Amount

  

Shares

  

Amount

  

Capital

  

Income

  

Deficit

  

Equity

Balance as of December 31, 2022

$

53,144

$

1,706,971

$

2

$

606,182

$

$

(587,210)

$

18,974

At the market offering, net of offering costs of $446

665,265

1

17,965

17,966

Issuance of common stock for vested restricted stock units

3,002

Issuance of common stock under employee stock purchase plan

3,690

46

46

Issuance of common stock to satisfy deferred purchase consideration

19,350

365

365

Issuance of common stock to satisfy contingent consideration

105,038

2,354

2,354

Issuance of common stock upon conversion of Series E Preferred Stock

(1,898)

189,800

Stock-based compensation expense

5,089

5,089

Change in fair value of investments

1

1

Net loss

(33,572)

(33,572)

Balance as of September 30, 2023

$

51,246

$

2,693,116

$

3

$

632,001

$

1

$

(620,782)

$

11,223

Nine Months Ended September 30, 2022

Mezzanine Equity

Stockholders' Equity (Deficit)

Accumulated

Series D Preferred Stock

Series E Preferred Stock

Common Stock

Additional

Other

Total

$0.001 Par Value

$0.001 Par Value

$0.001 Par Value

Paid-In

Comprehensive

Accumulated

Stockholders'

  

Shares

  

Amount

  

  

Shares

  

Amount

  

Shares

  

Amount

  

Capital

  

Income

  

Deficit

  

Equity (Deficit)

Balance as of December 31, 2021

$

$

1,322,464

$

1

$

559,191

$

$

(542,388)

$

16,804

Exercise of stock options

102

3

3

Issuance of common stock for vested restricted stock units

3,966

Issuance of common stock under employee stock purchase plan

13,791

298

298

Issuance of common stock to satisfy deferred purchase consideration

136,314

7,936

7,936

Issuance of redeemable Series D preferred stock

73,208