Q2 2022 Kala Pharmaceuticals Inc Earnings Call

Yeah.

Good day my name is shantou and I'll be your conference operator today at this time I would like to welcome everyone to the California, Masuda Kohl's second quarter 2022 financial results Conference call. As a reminder, today's conference call is being recorded all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer.

Session, if you'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad.

We would like to withdraw your question. Please press star one again, thank you Heather the reservoir from Stern Investor Relations you May begin your conference.

Thank you operator, and thank you all for participating in today's call joining.

Joining me from the company are Mark <unk>, Chairman and Chief Executive.

Kim Brazzell head of R&D, and Chief Medical Officer, and Mary <unk>, Chief Financial Officer, Gary Bobby or keep it off.

There will also be joining us for the Q&A portion of today's call.

During this call we will be referring to non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles. A reconciliation of the non-GAAP financial measures the most directly comparable GAAP.

Is available in our press release issued today, which can also be found on our website.

On this call, we will make certain comments about call it future expectations plans and prospects that are forward looking statements.

The meaning of the private Securities Litigation reform.

95.

These statements will include statements regarding thinking about new programs and market potential of K P. I want to put on production and operating.

And the sufficiency of our cash resources.

Other forward looking statements are based on the beliefs and expectations of management.

Conference call, our actual results may differ materially.

The company undertakes no obligation to revise or update any forward looking statements to reflect events or circumstances.

After this conference call, except as required by law.

Investors should carefully read the risks and uncertainties described in today's press release.

Well as the risk factors, which identify specific factors that may cause actual results or events to differ materially from those described in our forward looking statements.

Included in the company's quarterly report on Form 10-Q, and other filings we make with the SEC.

I will now turn the call over to call as CEO .

Yeah.

Thanks, Sandra and thank you everyone for joining us this morning.

We're entering the second half of 2020 to focus on transitioning from a commercial stage company back to our roots as an R&D organization with our efforts targeted on developing novel medicines that can improve the care and treatment of serious eye diseases.

In July we completed the sale of <unk> and in deltas and transitioned all responsibilities for the global commercialization of both assets to Alcon incorporated.

This was an important transaction for Kala and more importantly for the patients and health care providers, we aimed to help.

<unk> made meaningful progress in launching these products in the United States, including building awareness among health care professionals and securing strong payer coverage.

We believe alcon is particularly well suited to expand the reach of both medicines.

<unk> has decades of experience delivering market, leading vision care products around the world and benefits from robust franchises in dry eye disease, and surgical care, including long standing relationships with the eye care professionals and patients.

To this end in deltas are targeted to.

We are excited about the alcon transaction and look forward to seeing many more patients benefit as a result of their efforts.

With tsuga, San and belt as in Alcon hands, we've turned our focus to our mezzanine claim will stem cell secret tone platform, which we are evaluating for the treatment of multiple rare diseases of the front and back of the eye.

As Kevin will describe shortly we are on track to initiate a phase two three clinical trial of Kpis 012 for the treatment of persistent corneal epithelium defect in the fourth quarter of this year.

And we anticipate expanding development of Kpis 012 into two additional indications.

Our show Limbo stem cell deficiency and Shoguns disease.

Together these rare diseases affect nearly 300000 people in the United States alone.

Results in significant morbidity, including potential loss of vision.

These indications represent large markets for which there are currently no approved prescription treatments and provide ample opportunity for us to positively impact the treatment of patients in need.

R&D is at the core of who we are as a company and our team is eager to leverage our development expertise to advance <unk> through the clinic and to further develop our secret tone platform <unk>.

Importantly, we also have the means to invest substantially in these efforts at the close of the transaction, we received $65 million from Alcon, which included an upfront cash payment of $60 million plus an additional $5 million for the purchase of inventory and going forward we are eligible.

To receive up to $325 million and commercial based milestone payments, we believe our existing cash resources and recent reductions in operating expenses will allow us to fund our operations beyond the data readout from the planned phase three trial of <unk> 012.

In PCB.

Now I'd like to turn the call over to Kim to discuss our pipeline programs.

Thank you Mark I'm happy to share our progress with the <unk> program and additional work, we're doing with our message.

So secret to open platform.

As Mark mentioned, we're on track to file an IND for <unk> two in furniture, eight phase three clinical trial and persistent corneal epithelium defect patients in the fourth quarter of this year.

We've also made significant progress towards identifying additional front of the eye indications.

We're currently evaluating potential <unk> for the treatment of partial limbo stem cell deficiency.

And the ocular manifestations are moderate to severe showrooms, both of which are areas of significant unmet medical need.

In addition, we're also exploring some exciting retinal applications for the secret drilling program.

As we've discussed previously Kpis. So your one two is an application of our novel technology utilizing secret total harvested from human bone marrow derived that's accomplished himself.

The secret foam approach allows us to produce a cell free therapy comprised of the central bio molecule to <unk>.

Created by the message Com will stem cell, including growth factors protease inhibitors matrix proteins, and neuro trophic factors with the potential for multiple therapeutic applications. Because our approach is so free allows for many of the same benefits as more traditional cell therapy with <unk>.

The need for the administration of the Tech sales, which we believe will avoid many of the safety and logistics concerns associated with current cell therapy approaches.

We are initially advancing kpis 012 for the treatment of persistent corneal epithelium defects or PCE.

Which is defined as a non healing corneal wound or defect that is refractory to conventional treatments.

<unk> is a disease of impaired corneal healing that can be the result of numerous underlying etiologies, including but not limited to neurotrophic keratitis textures, keratitis surgical or non surgical trauma and severe ocular surface disease of various causes.

Corneal healing is a highly regulated multifactorial process.

Above numerous biological pathways and molecules and we believe the effective treatment of PCE across its various various etiologies require a multifactorial mechanism of action such as that or Kpis 012 to address the impaired healing, though this is a hallmark of the disease.

Do you see the effects, an estimated 100000 patients each year in the U S and we believe it represents a potential market opportunity in excess of a billion dollars.

There is one approved therapy in the PC space, Oxford rate, which has only been shown to be effective for the treatment of neurotrophic keratitis, which is estimated to be the underlying etiology for only one third of all <unk> cases.

Therapies quite burdensome for the patient is dosed six times, a day to our interval for eight weeks and requires a multi step reconstitution process priority each dose.

We believe there is a clear unmet need for new therapy that can provide benefit for all of the various etiologies of Pcbs deep and approve the vision and quality of life of all <unk> patients.

As we've shared previously the initial clinical trial conducted with <unk> 012 in <unk> patients with various etiologies demonstrated benefit at all eight evaluable <unk> patients with complete healing of the PCE lesion in six of these patients.

Kick out 012 was well tolerated in the trial with no significant safety issues.

Pending FDA clearance of our planned R&D, we plan to initiate a phase three trial in <unk> patients in the fourth quarter of 2022.

Which if positive could serve as one of the two require pivotal trials necessary for FDA approval.

We expect topline results from this phase III trial in the first quarter of 2024.

Based on the compelling mechanism of action and numerous interactions with key opinion leaders. We're also evaluating a conjectural kpis 012 for the treatment of partial limbal stem cell deficiency or partial LSC D. As we call it and for the ocular manifestations of moderate to severe show.

Limbaugh stem cell deficiencies ocular surface disease characterized by the law or deficiency of stem cells in the junction of the cornea Limbus, where they play in a central role in the generation and Repopulation of Corning went to Peel yourself when the limbo stem cell population has reduced order.

Depleted the ability of the corneal epithelium to prepare and renew itself compromise, which can result in recurrent in particular breakdown neovasc sclerotization contract payable overgrowth in other so quite a lot of that can lead to loss of <unk> 20 of clarity and vision impairment as well as significant pain.

And diminished quality of life there.

There are currently no approved pharmaceutical products for the treatment of the Mil STD approximately 70% of <unk> patients or about 70000 patients in the U S.

Partial LSC D, meaning they have some level of remaining stem cells, but still suffer significant pathology and symptomatology we.

We believe these patients would be an appropriate candidates for kpis 012 to maintaining the integrity of the ocular surface and invoice the vision impairment and pain associated with the disease.

In addition to the effects of KPN 0121, corneal healing observed at both animal models and in <unk> patients in the previous trial. The stack on the literature that suggests that MSC secret totals could also restore limbal stem cell niche, which would be a significant benefit in <unk>.

Both partial and complete L. S D D.

The other ocular surface indication of interested shoguns, a chronic multi system autoimmune disease characterized by insufficient fluid production.

Certain glance of the body leading to substantial driving this primarily of the eyes of the mouth.

Approximately 90% of Shoguns patients suffer from ocular manifestation and experienced significant ocular symptoms with off when the impact.

Patient's daily life, and productivity and as a result, the quality of life and showrooms patients can be significantly diminished.

<unk> current treatments, many shoguns patients do not achieve significant improvement in our ocular symptoms.

The significant need for new therapies that can provide meaningful improvement in the ocular symptoms. These are one pair and quality of life to the approximately 50% of showrooms patients or roughly 95000 people in the U S who suffer with moderate to severe disease.

We estimate that partial limbal stem cell deficiency, and the ocular manifestations of moderate to severe show groups together represent a total potential market opportunity of between one five and $2 billion in the United States alone.

Finally, as we mentioned earlier, we're also believe our secret tone platform has potential utility for retinal degenerative diseases.

Such as retinitis Pigmentosa and startups disease, we plan to initiate preclinical trial is evaluating the utility of our secrets home platform for retinal degenerative diseases in the coming months with a goal of selecting a retinal indications for further development in the second half of 2023.

Taken together, we believe our efforts with <unk>, two and our secret told platform provide ample opportunity to improve the treatment of a number of severe ocular surface diseases that impact thousands of patients around the world. We look forward to providing additional updates as we initiate our phase III three clinics.

<unk> trial, if PCE planned for later this year and to potentially expand our efforts in two additional indications in 2023.

Now I'd like to pass the call to Mary to go over our financial results.

Thanks, Ken.

This discussion of our financial results I will reference certain non-GAAP financial measures. These non-GAAP financial measures exclude stock based compensation noncash interest depreciation and amortization loss on extinguishment of debt transaction costs related to the alpine transaction and gain or loss on fair value measurement earned.

Earn purchase consideration and contingent consideration for a full reconciliation of our GAAP to non-GAAP financial measures. Please refer to today's press release, which is available on our website.

Turning to a recap of the second quarter, our cash position as of June 32022 was $44 6 million compared to $92 1 million December 31 2021 is.

This decrease primarily reflects cash used in operation.

Our cash position as of June 30th did not include the net proceeds received in early July in connection with the closing of the Alcon transaction.

We anticipate that our cash resources together with the net payments received from alpine and planned reductions in operating expenses will enable us to fund operations into the second quarter of 2024.

Over the course of the year, we have been working to reduce our operating expenses and extend our cash runway.

Following the closing of the Alcon transaction, we have streamlined our corporate infrastructure and plan to reduce our non-GAAP operating expenses by more than 50% as compared to our non-GAAP total operating expenses for the first half of the year and by 60% to 70% for the full year 2023 compared to a non-GAAP total operating expenses for the.

Full year 2021.

SG&A expenses were $22 $7 million for the second quarter of 2022 compared to $27 million for the first quarter of 2022, primarily reflecting reductions in employee related spending.

SG&A expenses were $20 $4 million for the second quarter of 2022 compared to $24 7 million for the first quarter of 2022.

R&D expenses were $4 5 million for the second quarter of 2022, which was consistent with the first quarter of 2022 and includes expenses related to the development of <unk>.

That concludes our prepared remarks for today I will now pass the call over to the operator for questions.

At this time I'd like to remind everyone to ask a question. Please press star one our first question comes from <unk> Chen with H C. Wainwright. Your line is open.

Congratulations on all the progress I'm Kate on behalf of the churn.

First on your pipeline progress where are you with those two programs.

The C D and children's pre clinically do you are you still waiting on some preclinical data before.

Pushing them to the clinic and the second question I have is on <unk> I'm pretty sure you must have commented on this previously but.

Do you need to see some data from your phase II III study before you start thinking about the other would be what Youll study that is required for the.

The eventual approval and lastly, if you could comment on your cash runway.

And when you would potentially need to raise further funds that'll be helpful. Thank you.

Arthur.

Sure Tom.

This is Kim Brazzell I'd comment on your first couple of questions.

With regard to your second question.

We certainly will be doing preparation prior to the topline data readout, but we will need the results from that readout to finalize the second pivotal.

<unk> III trial around dose and duration of dosing and so forth.

What's the other two indications, where we're still doing our analysis.

Uh huh.

<unk>.

Development pathways going forward and are looking into clinical designs for the protocols. So we're still a bit of a way off from being able to go in the clinic one of the advantages of these two indications is that we can utilize the CMC.

And the clinical supplies that we are developing for the.

Our <unk> program. So we won't have to do additional CMC work and we will be able to move into the clinic without having to.

Do additional work on the product itself.

Okay.

Okay.

And I think there was a question on runway for mark or for Mary.

Sure I can take that run rate question.

So we said that our cash resources.

The net proceeds.

Fees that we receive from Alcon would last us until the second quarter of 2024 and that gets us beyond the data readouts from our <unk> phase III trial.

Excellent. Thank you.

Again, if he would like to ask a question. Please press star one.

We have reached the end of the question and answer session I'll now turn the call back over to Mark for closing remarks.

Well. Thank you everyone for joining us today, and we look forward to continuing to update you as we make progress during the year.

Have a great day.

This concludes today's conference call you may now disconnect.

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