Quarterly Report (10-q)

Date : 11/12/2019 @ 9:03PM
Source : Edgar (US Regulatory)
Stock : Kodiak Sciences Inc (KOD)
Quote : 67.89  3.42 (5.30%) @ 12:56AM
Kodiak Sciences share price Chart
After Hours
Last Trade
Last $ 67.89 ◊ 0.00 (0.00%)

Quarterly Report (10-q)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended September 30, 2019

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: 001-38682

 

KODIAK SCIENCES INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

27-0476525

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

2631 Hanover Street

Palo Alto, California

94304

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code: (650) 281-0850

 

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

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, par value $0.0001

KOD

The Nasdaq Stock Market LLC

 

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 (§232.405 of this chapter) 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, 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

As of October 31, 2019, the registrant had 37,058,168 shares of common stock, $0.0001 par value per share, outstanding.

 

 

 


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or Exchange Act. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends affecting the financial condition of our business. Forward-looking statements should not be read as a guarantee of future performance or results and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the time those statements are made and/or management’s good faith beliefs as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements.

Forward-looking statements include all statements that are not historical facts. In some cases, you can identify forward-looking statements by terms such as “may,” “might,” “will,” “objective,” “intend,” “should,” “could,” “can,” “would,” “expect,” “believe,” “anticipate,” “project,” “target,” “design,” “estimate,” “predict,” “potential,” “plan” or the negative of these terms, or similar expressions and comparable terminology intended to identify forward-looking statements. These statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties, including those set forth under the section of this Quarterly Report on Form 10-Q titled “Part II, Item 1A — Risk Factors” and elsewhere in this report. Forward-looking statements include, but are not limited to, statements about:

 

the success, cost and timing of our development activities, preclinical studies, clinical trials and regulatory filings;

 

the translation of our preclinical results and data and early clinical trial results in particular relating to safety, efficacy and durability into future clinical trials in humans;

 

the number, size and design of clinical trials that regulatory authorities may require to obtain marketing approval, including the order and number of clinical studies required to support an initial Biologics License Application, or BLA, in retinal vein occlusion, or RVO, and supplemental BLAs, or sBLAs, in wet age-related macular degeneration, or wet AMD, diabetic macular edema, or DME, and diabetic retinopathy, or DR;

 

the timing or likelihood of regulatory filings and approvals, including the potential to achieve initial FDA approval of KSI-301 in 2022 for RVO and supplemental BLA submissions in 2022 for wet AMD, DME and DR;

 

our ability to obtain and maintain regulatory approval of our product candidates, and any related restrictions, limitations and/or warnings in the label of any approved product candidate;

 

our ability to obtain funding for our operations, including funding necessary to develop, manufacture and commercialize our product candidates;

 

the rate and degree of market acceptance of our product candidates;

 

the success of competing products or platform technologies that are or may become available;

 

our plans and ability to establish sales, marketing and distribution infrastructure to commercialize any product candidates for which we obtain approval;

 

future agreements with third parties in connection with the commercialization of our product candidates;

 

the size and growth potential of the markets for our product candidates, if approved for commercial use, and our ability to serve those markets;

 

existing regulations and regulatory developments in the United States and foreign countries;

 

the expected potential benefits of strategic collaboration agreements and our ability to attract collaborators with development, regulatory and commercialization expertise;

 

the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates and technology;

 

potential claims relating to our intellectual property and third-party intellectual property;

 

our ability to contract with third-party suppliers and manufacturers and their ability to perform adequately;

 

the pricing and reimbursement of our product candidates, if approved;

 

our ability to attract and retain key managerial, scientific and medical personnel;

 

our ability to continue as a going concern;

 

our ability to remain listed on The Nasdaq Stock Market;

 

the accuracy of our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;

 

our financial performance;

i


 

our expectations regarding the period during which we qualify as an emerging growth company under the JOBS Act; and

 

our anticipated use of proceeds of any offering.

All forward-looking statements are based on information available to us on the date of this Quarterly Report on Form 10-Q and we will not update any of the forward-looking statements after the date of this Quarterly Report on Form 10-Q, except as required by law. Our actual results could differ materially from those discussed in this Quarterly Report on Form 10-Q. The forward-looking statements contained in this Quarterly Report on Form 10-Q, and other written and oral forward-looking statements made by us from time to time, are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements, and you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. Factors that might cause such a difference include, but are not limited to, those discussed in the following discussion and within the section of this Quarterly Report on Form 10-Q titled “Part II, Item 1A — Risk Factors”.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and although we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted a thorough inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.

All brand names or trademarks appearing in this report are the property of their respective holders. Unless the context requires otherwise, references in this report to “Kodiak” the “Company,” “we,” “us,” and “our” refer to Kodiak Sciences Inc.

ii


Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

1

Item 1.

Financial Statements (Unaudited)

1

 

Condensed Consolidated Balance Sheets

1

 

Condensed Consolidated Statements of Operations and Comprehensive Loss

2

 

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)

3

 

Condensed Consolidated Statements of Cash Flows

4

 

Notes to Unaudited Condensed Consolidated Financial Statements

5

Item 2.

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

12

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

33

Item 4.

Controls and Procedures

33

PART II.

OTHER INFORMATION

34

Item 1.

Legal Proceedings

34

Item 1A.

Risk Factors

34

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

70

Item 3.

Defaults Upon Senior Securities

70

Item 4.

Mine Safety Disclosures

70

Item 5.

Other Information

70

Item 6.

Exhibits

71

Signatures

72

 

iii


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited).

Kodiak Sciences Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share amounts)

(Unaudited)

 

 

 

 

September 30,

2019

 

 

December 31,

2018

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

37,033

 

 

$

88,254

 

Marketable securities

 

 

23,571

 

 

 

 

Prepaid expenses and other current assets

 

 

440

 

 

 

2,195

 

Total current assets

 

 

61,044

 

 

 

90,449

 

Restricted cash

 

 

140

 

 

 

140

 

Property and equipment, net

 

 

1,114

 

 

 

1,097

 

Operating lease right-of-use asset

 

 

1,887

 

 

 

 

Other assets

 

 

4,731

 

 

 

503

 

Total assets

 

$

68,916

 

 

$

92,189

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,670

 

 

$

1,050

 

Accrued and other current liabilities

 

 

5,210

 

 

 

3,776

 

Operating lease liability

 

 

421

 

 

 

 

Total current liabilities

 

 

7,301

 

 

 

4,826

 

Operating lease liability, net of current portion

 

 

1,616

 

 

 

 

Other liabilities

 

 

308

 

 

 

530

 

Total liabilities

 

 

9,225

 

 

 

5,356

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock, $0.0001 par value, 490,000,000 shares authorized at

    September 30, 2019 and December 31, 2018; 37,008,997 and 36,829,857

    shares issued and outstanding at September 30, 2019 and

    December 31, 2018, respectively

 

 

4

 

 

 

4

 

Additional paid-in capital

 

 

202,183

 

 

 

197,595

 

Accumulated other comprehensive loss

 

 

19

 

 

 

 

Accumulated deficit

 

 

(142,515

)

 

 

(110,766

)

Total stockholders’ equity

 

 

59,691

 

 

 

86,833

 

Total liabilities and stockholders’ equity

 

$

68,916

 

 

$

92,189

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

1


Kodiak Sciences Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except share and per share amounts)

(Unaudited)

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

10,115

 

 

$

4,709

 

 

$

24,676

 

 

$

11,942

 

General and administrative

 

 

2,617

 

 

 

1,671

 

 

 

8,330

 

 

 

5,075

 

Total operating expenses

 

 

12,732

 

 

 

6,380

 

 

 

33,006

 

 

 

17,017

 

Loss from operations

 

 

(12,732

)

 

 

(6,380

)

 

 

(33,006

)

 

 

(17,017

)

Interest income

 

 

354

 

 

 

 

 

 

1,265

 

 

 

 

Interest expense (includes $1,076 and $2,944 attributable to

   related parties for the three and nine months ended

   September 30, 2018, respectively)

 

 

(2

)

 

 

(1,982

)

 

 

(8

)

 

 

(5,329

)

Other income (expense), net (includes $1,129 and $2,714

   other expense attributable to related parties for the three

   and nine months ended September 30, 2018, respectively)

 

 

 

 

 

(2,090

)

 

 

 

 

 

(4,435

)

Net loss

 

$

(12,380

)

 

$

(10,452

)

 

$

(31,749

)

 

$

(26,781

)

Net loss per common share, basic and diluted

 

$

(0.33

)

 

$

(1.33

)

 

$

(0.85

)

 

$

(3.45

)

Weighted-average common shares outstanding used in

   computing net loss per common share, basic and diluted

 

 

37,330,066

 

 

 

7,851,560

 

 

 

37,291,328

 

 

 

7,764,888

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized gains related to available-for-sale

   debt securities, net of tax

 

 

7

 

 

 

 

 

 

19

 

 

 

 

Total other comprehensive income

 

 

7

 

 

 

 

 

 

19

 

 

 

 

Comprehensive loss

 

$

(12,373

)

 

$

(10,452

)

 

$

(31,730

)

 

$

(26,781

)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

2


Kodiak Sciences Inc.

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(in thousands, except share and per share amounts)

(Unaudited)

 

 

 

Redeemable

Convertible

Preferred Stock

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders’

Equity

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

(Deficit)

 

Balances at December 31, 2018

 

 

 

 

$

 

 

 

 

36,829,857

 

 

$

4

 

 

$

197,595

 

 

$

 

 

$

(110,766

)

 

$

86,833

 

Issuance of common stock upon

   exercise of stock options

 

 

 

 

 

 

 

 

 

80,000

 

 

 

 

 

 

83

 

 

 

 

 

 

 

 

 

83

 

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,157

 

 

 

 

 

 

 

 

 

1,157

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6

 

 

 

 

 

 

6

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,984

)

 

 

(7,984

)

Balances at March 31, 2019

 

 

 

 

 

 

 

 

 

36,909,857

 

 

 

4

 

 

 

198,835

 

 

 

6

 

 

 

(118,750

)

 

 

80,095

 

Issuance of common stock upon

   exercise of stock options

 

 

 

 

 

 

 

 

 

21,284

 

 

 

 

 

 

59

 

 

 

 

 

 

 

 

 

59

 

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,244

 

 

 

 

 

 

 

 

 

1,244

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6

 

 

 

 

 

 

6

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(11,385

)

 

 

(11,385

)

Balances at June 30, 2019

 

 

 

 

 

 

 

 

 

36,931,141

 

 

 

4

 

 

 

200,138

 

 

 

12

 

 

 

(130,135

)

 

 

70,019

 

Issuance of common stock upon

   exercise of stock options

 

 

 

 

 

 

 

 

 

77,855

 

 

 

 

 

 

272

 

 

 

 

 

 

 

 

 

272

 

Issuance of common stock upon

   exercise of common stock

   warrant

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,773

 

 

 

 

 

 

 

 

 

1,773

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7

 

 

 

 

 

 

7

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12,380

)

 

 

(12,380

)

Balances at September 30, 2019

 

 

 

 

$

 

 

 

 

37,008,997

 

 

$

4

 

 

$

202,183

 

 

$

19

 

 

$

(142,515

)

 

$

59,691

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Redeemable

Convertible

Preferred Stock

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders’

Equity

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

(Deficit)

 

Balances at December 31, 2017

 

 

12,385,154

 

 

$

50,017

 

 

 

 

7,936,434

 

 

$

1

 

 

$

584

 

 

$

 

 

$

(69,323

)

 

$

(68,738

)

Issuance of common stock upon

   exercise of stock options

 

 

 

 

 

 

 

 

 

300

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

92

 

 

 

 

 

 

 

 

 

92

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,920

)

 

 

(8,920

)

Balances at March 31, 2018

 

 

12,385,154

 

 

 

50,017

 

 

 

 

7,936,734

 

 

 

1

 

 

 

676

 

 

 

 

 

 

(78,243

)

 

 

(77,566

)

Issuance of restricted stock awards

 

 

 

 

 

 

 

 

 

27,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

748

 

 

 

 

 

 

 

 

 

748

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,409

)

 

 

(7,409

)

Balances at June 30, 2018

 

 

12,385,154

 

 

 

50,017

 

 

 

 

7,964,234

 

 

 

1

 

 

 

1,424

 

 

 

 

 

 

(85,652

)

 

 

(84,227

)

Issuance of common stock upon

   exercise of stock options

 

 

 

 

 

 

 

 

 

47,500

 

 

 

 

 

 

49

 

 

 

 

 

 

 

 

 

49

 

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

800

 

 

 

 

 

 

 

 

 

800

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,452

)

 

 

(10,452

)

Balances at September 30, 2018

 

 

12,385,154

 

 

$

50,017

 

 

 

 

8,011,734

 

 

$

1

 

 

$

2,273

 

 

$

 

 

$

(96,104

)

 

$

(93,830

)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

3


Kodiak Sciences Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

 

 

 

Nine Months Ended

September 30,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(31,749

)

 

$

(26,781

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

405

 

 

 

367

 

Non-cash interest expense and amortization of debt discount and issuance cost

 

 

 

 

 

5,295

 

Change in fair value of redeemable convertible preferred stock warrant liability

 

 

 

 

 

2,700

 

Change in fair value of derivative instrument

 

 

 

 

 

1,914

 

Stock-based compensation

 

 

4,174

 

 

 

1,549

 

Accretion of discount on available-for-sale securities

 

 

(195

)

 

 

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

1,782

 

 

 

(503

)

Operating lease right-of-use asset

 

 

276

 

 

 

 

Other assets

 

 

(4,365

)

 

 

 

Accounts payable

 

 

620

 

 

 

(1,754

)

Accrued and other current liabilities

 

 

1,480

 

 

 

(3,511

)

Operating lease liability

 

 

(281

)

 

 

 

Other liabilities

 

 

 

 

 

33

 

Net cash used in operating activities

 

 

(27,853

)

 

 

(20,691

)

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(284

)

 

 

(56

)

Purchase of available-for-sale securities

 

 

(40,231

)

 

 

 

Proceeds from maturities of available-for-sale securities

 

 

16,800

 

 

 

 

Net cash used in investing activities

 

 

(23,715

)

 

 

(56

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from issuance of convertible notes (includes $9,560 from related

   parties for the nine months ended September 30, 2018)

 

 

 

 

 

33,000

 

Deferred offering costs

 

 

 

 

 

(1,815

)

Debt issuance cost

 

 

 

 

 

(140

)

Proceeds from issuance of common stock

 

 

414

 

 

 

49

 

Principal payments of capital lease

 

 

(41

)

 

 

(81

)

Principal payments of tenant improvement allowance payable

 

 

(26

)

 

 

(71

)

Net cash provided by financing activities

 

 

347

 

 

 

30,942

 

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

(51,221

)

 

 

10,195

 

Cash, cash equivalents and restricted cash, at beginning of period

 

 

88,394

 

 

 

1,535

 

Cash, cash equivalents and restricted cash, at end of period

 

$

37,173

 

 

$

11,730

 

Reconciliation of cash, cash equivalents and restricted cash to statement of financial

   position

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

37,033

 

 

$

11,590

 

Restricted cash

 

 

140

 

 

 

140

 

Cash, cash equivalents and restricted cash in statement of financial position

 

$

37,173

 

 

$

11,730

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of non-cash investing and financing information:

 

 

 

 

 

 

 

 

Issuance of derivative instrument related to convertible notes payable

 

$

 

 

$

6,603

 

Unpaid offering costs

 

$

 

 

$

1,577

 

Deferred offering costs paid in restricted stock awards

 

$

 

 

$

91

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

4


 

Kodiak Sciences Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(in thousands, except share and per share data)

1. The Company

Kodiak Sciences Inc. (the “Company”) is a clinical stage biopharmaceutical company specializing in novel therapeutics to treat chronic, high-prevalence retinal diseases. The Company devotes substantially all of its time and efforts to performing research and development, raising capital and recruiting personnel.

Liquidity

In accordance with Accounting Standards Codification (“ASC”) 205-40, Going Concern, the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial statements are issued. The Company has incurred significant losses and negative cash flows from operations since inception and had an accumulated deficit of $142.5 million as of September 30, 2019. The Company had $60.6 million in cash and cash equivalents and marketable securities as of September 30, 2019. The Company has historically financed its operations primarily through the sale of redeemable convertible preferred stock, convertible notes, warrants and the sale of common stock in its initial public offering (“IPO”). To date, none of the Company’s product candidates have been approved for sale, and the Company has not generated any revenue from product sales. Management expects operating losses to continue for the foreseeable future. The Company currently plans to raise additional funding as required based on the status of its development programs and projected cash flows, and the Company believes that its cash and cash equivalents and marketable securities as of September 30, 2019 are sufficient to fund its existing operational commitments and objectives at least through the first half of 2020. If the Company is unable to obtain other financing, the Company would be forced to delay, reduce or terminate some or all of its development programs and clinical trials or sell or license rights to its product candidates in certain territories or indications to others that may not be favorable to the Company.

The uncertainties inherent in the Company’s future operations and in its ability to obtain additional funding raise substantial doubt about its ability to continue as a going concern beyond one year from the date these financial statements are issued. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

2. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) applicable to interim periods and, in the opinion of management, include all normal and recurring adjustments which are necessary to present fairly the Company's financial position and results of operations for the reported periods.

These condensed consolidated financial statements have been prepared on a basis substantially consistent with, and should be read in conjunction with the audited financial statements for the year ended December 31, 2018 and notes thereto, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 27, 2019. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. Certain information and note disclosures normally included in the audited financial statements prepared in accordance with GAAP have been condensed or omitted from this report, as is permitted by such rules and regulations. The results of operations for any interim period are not necessarily indicative of the results for the year ending December 31, 2019, or for any future period.

The accompanying condensed consolidated financial statements reflect the operations of the Company and its wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements and expenses during the reporting period. Actual results could differ from those estimates.

Summary of Significant Accounting Policies

The significant accounting policies used in preparation of these condensed consolidated financial statements for the three and nine months ended September 30, 2019 are consistent with those discussed in Note 2 to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, except as noted below with respect to the Company’s lease and marketable securities accounting policies and as noted within the “Recent Accounting Pronouncements – Recently Adopted Accounting Pronouncements” section.

5


Kodiak Sciences Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

 

Leases

The Company determines if an arrangement is, or contains, a lease at inception and then classifies the lease as operating or financing based on the underlying terms and conditions of the contract. Leases with terms greater than one year are initially recognized on the balance sheet as right-of-use assets and lease liabilities based on the present value of lease payments over the expected lease term. The interest rate implicit in lease contracts is typically not readily determinable. As such, the Company utilizes the incremental borrowing rate, which is the rate incurred to borrow, on a collateralized basis, an amount equal to the lease payments over a similar term and in a similar economic environment. The Company has elected not to recognize leases with terms of one year or less on the balance sheet.

Marketable Securities

The Company invests excess cash balances in short-term marketable securities. The investments in marketable securities are classified as either held-to-maturity or available-for-sale based on facts and circumstances present at the time of purchase. Debt securities are carried at fair value with the unrealized gains and losses included in other comprehensive income (loss) as a component of stockholders’ equity until realized. Any premium or discount arising at purchase is amortized and/or accreted to interest income and/or expensed over the life of the instrument. Equity securities with readily determinable fair values are also carried at fair value with unrealized gains and losses included in other income (expense), net. Realized gains and losses on both debt and equity securities are determined using the specific identification method and are included in other income (expense), net.

If any adjustment to fair value reflects a decline in value of the investment, the Company considers all available evidence to evaluate the extent to which the decline is “other-than-temporary” and, if so, marks the investment to market through a charge to the Company’s statement of operations and comprehensive loss.

Recent accounting pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”), under its ASC or other standard setting bodies, and adopted by the Company as of the specified effective date, unless otherwise discussed below.

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which set out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). In July 2018, the FASB issued ASU 2018-10, Leases (Topic 842), Codification Improvements, and ASU 2018-11, Leases (Topic 842), Targeted Improvements. ASU 2018-10 clarified certain provisions and corrected unintended applications of the guidance such as the application of implicit rate, lessee reassessment of lease classification, and certain transition adjustments that should be recognized to earnings rather than to stockholders' equity. ASU 2018-11 provided an alternative transition method and practical expedient for separating contract components for the adoption of Topic 842. ASU 2016-02, ASU 2018-10, and ASU 2018-11 (collectively, "the new lease standards") superseded the previous leases standard, ASC 840 Leases.

The Company adopted the new lease standards as of January 1, 2019 using the modified retrospective approach to recognize a cumulative-effect adjustment on the effective date and to not adjust financial information and disclosures required under the new lease standards for comparative prior periods. The Company did not elect for the package of practical expedients and assessed all contracts at the transition date. The Company did not utilize the practical expedient which allows the use of hindsight in determining lease term and assessing impairment in right-of-use assets. The Company elected to apply the practical expedient and accounted for each lease component and related non-lease component as one single component. The Company elected not to recognize leases with terms of one year or less on the balance sheet. 

The adoption of the new lease standards on January 1, 2019 resulted in the initial recognition of right-of-use asset of $2.2 million and operating lease liability of $2.3 million related to the operating lease for the Company’s office and laboratory space in Palo Alto, California on the consolidated balance sheets with no material impact to the consolidated statements of operations, stockholders’ equity or cash flows. Refer to Note 6.

In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260) Distinguishing Liabilities from Equity (Topic 480) Derivatives and Hedging (Topic 815) (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. This update simplifies the accounting for certain financial instruments with down round features, a provision in an equity-linked financial instrument (or embedded feature) that provides a downward adjustment of the current exercise price based on the price of future equity offerings. Down round features are common in warrants, preferred shares, and convertible debt instruments issued by private companies and early-stage public companies. This update requires companies to disregard the down round feature when assessing whether the instrument is indexed to its own stock, for purposes of determining liability or equity classification. ASU 2017-11 is effective for interim and annual periods beginning after December 15, 2018. The Company adopted this new guidance as of January 1, 2019, which did not result in a material impact on its consolidated financial statements and related disclosures.

6


Kodiak Sciences Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

 

In June 2018, the FASB issued ASU 2018-07, Compensation — Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which expands the scope of Topic 718 to include all share-based payment transactions for acquiring goods and services from nonemployees. ASU 2018-07 specifies that Topic 718 applies to all share-based payment transactions in which the grantor acquires goods and services to be used or consumed in its own operations by issuing share-based payment awards. ASU 2018-07 also clarifies that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under ASC 606. ASU 2018-07 is effective for interim and annual periods beginning after December 15, 2018. The Company adopted this new guidance as of January 1, 2019, which did not result in a material impact on its consolidated financial statements and related disclosures.

New Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 362): Measurement of Credit Losses on Financial Statements, which intends to improve financial reporting by requiring earlier recognition of credit losses on certain financial assets, such as available-for-sale debt securities. The standard is effective for interim and annual periods after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact of adopting this guidance on its consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurements, which eliminates, adds and modifies certain disclosure requirements for fair value measurements as part of the FASB’s disclosure framework project. The standard is effective for interim and annual periods beginning after December 15, 2019. The standard specifies certain amendments which should be applied prospectively while all other amendments should be applied retrospectively. Early adoption is permitted. The Company is currently evaluating the impact of adopting this guidance on its consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which clarifies the accounting for implementation, set-up, and other upfront costs incurred in cloud computing arrangements. The standard is effective for interim and annual periods beginning after December 15, 2019. Early adoption is permitted. The Company is currently evaluating the impact of adopting this guidance on its consolidated financial statements and related disclosures.

 

3. Accrued and Other Current Liabilities

Accrued and other current liabilities consist of the following (in thousands):

 

 

 

September 30,

2019

 

 

December 31,

2018

 

Accrued research and development

 

$

3,090

 

 

$

1,387

 

Accrued salaries and benefits

 

 

1,824

 

 

 

2,061

 

Accrued legal fees

 

 

91

 

 

 

82

 

Accrued professional fees

 

 

80

 

 

 

117

 

Accrued other liabilities

 

 

125

 

 

 

129

 

Total accrued and other current liabilities

 

$

5,210

 

 

$

3,776

 

 

7


Kodiak Sciences Inc.

Notes to Unaudited Condensed Consolidated Financial Statements (Continued)

 

4. Fair Value Measurements

The following tables present the Company’s fair value hierarchy for assets measured at fair value on a recurring basis (in thousands):

 

 

 

Fair Value Measurements at September 30, 2019

 

 

 

Quoted

Price

in Active

Markets

(Level 1)

 

 

Significant

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

 

Total

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

36,654

 

 

$

 

 

$

 

 

$

36,654

 

Marketable securities: