SEC Filing - Kezar Life Sciences, Inc.

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kzr-10q_20200930.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 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, 2020

☐	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: 001-38542

Kezar Life Sciences, Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware

47-3366145

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

4000 Shoreline Court, Suite 300

South San Francisco, CA, 94080

(650) 822-5600

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

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


Title of each class	Trading symbol	Name of each exchange on which registered
Common Stock, $0.001 par value	KZR	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, 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 ☒

As of November 2, 2020, the registrant had 46,268,275 shares of common stock, $0.001 par value per share, outstanding.

Table of Contents

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	2
	Condensed Consolidated Balance Sheets	2
	Condensed Consolidated Statements of Operations	3
	Condensed Consolidated Statements of Comprehensive Loss	4
	Condensed Consolidated Statement of Stockholders’ Equity	5
	Condensed Consolidated Statements of Cash Flows	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25
Item 4.	Controls and Procedures	25
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	26
Item 1A.	Risk Factors	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	62
Item 3.	Defaults Upon Senior Securities	62
Item 4.	Mine Safety Disclosures	62
Item 5.	Other Information	62
Item 6.	Exhibits	63

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “should,” “would,” “potential,” “project,” “plan,” “expect,” “seek,” “should,” “target” or similar expressions, or the negative or plural of these words or expressions. These forward-looking statements include statements concerning the following:

•

statements regarding the impact of the COVID-19 pandemic and its effects on our operations, research and development, clinical trials and financial position, and its potential effects on the operations of third-party manufacturers, contract research organizations, other service providers, and collaborators with whom we conduct business;

•

our plans to develop and commercialize our product candidates;

•

the initiation, timing, progress and expected results of our current and future clinical trials and our research and development programs;

•

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

•

our ability to successfully acquire or in-license additional product candidates or other technology on reasonable terms;

•

our ability to maintain and establish collaborations or strategic relationships or obtain additional funding;

•

the timing and likelihood of obtaining regulatory approval of our current and future product candidates;

•

our expectations regarding the potential market size and the rate and degree of market acceptance of such product candidates;

•

our ability to fund our working capital requirements and expectations regarding the sufficiency of our capital resources;

•

the implementation of our business model and strategic plans for our business and product candidates;

•

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

•

developments or disputes concerning our intellectual property or other proprietary rights;

•

the scalability and commercial viability of our manufacturing methods and processes;

•

our expectations regarding government and third-party payor coverage and reimbursement;

•

our ability to compete in the markets for our product candidates;

•

the impact of government laws and regulations;

•

developments relating to our competitors and our industry; and

•

the factors that may impact our financial results.

These statements are only current predictions and are subject to known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from those anticipated by the forward-looking statements. We discuss many of these risks in greater detail under the heading “Risk Factors” and elsewhere in this report. You should not rely upon forward-looking statements as predictions of future events.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by law, we are under no duty to update or revise any of the forward-looking statements in this report, whether as a result of new information, future events or otherwise, after the date of this report.

Unless the context otherwise requires, the terms “Kezar,” “Kezar Life Sciences,” “the Company,” “we,” “us,” “our” and similar references in this Quarterly Report on Form 10-Q refer to Kezar Life Sciences, Inc. and our wholly owned Australian subsidiary, Kezar Life Sciences Australia Pty Ltd.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

KEZAR LIFE SCIENCES, INC.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share amounts)

	September 30, 2020			December 31, 2019
	(Unaudited)			(Note 2)
Assets
Current assets:
Cash and cash equivalents	$	12,833		$	14,951
Marketable securities		137,121			63,255
Prepaid expenses		2,587			1,878
Other current assets		1,270			1,048
Total current assets		153,811			81,132
Property and equipment, net		3,669			4,282
Operating lease right-of-use asset		3,448			3,817
Other assets		282			282
Total assets	$	161,210		$	89,513
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	1,285		$	823
Accrued liabilities		3,872			4,218
Operating lease liabilities, current		1,005			900
Other liabilities, current		31			62
Total current liabilities		6,193			6,003
Operating lease liabilities, noncurrent		4,694			5,464
Total liabilities		10,887			11,467
Stockholders' equity:
Common stock, $0.001 par value, 125,000,000 shares authorized as of September 30, 2020 (unaudited) and December 31, 2019; 46,267,525 and 19,208,077 shares issued and outstanding as of September 30, 2020 (unaudited) and December 31, 2019, respectively		46			19
Preferred stock, $0.001 par value, 10,000,000 shares authorized, zero shares issued and outstanding as of September 30, 2020 (unaudited) and December 31, 2019		—			—
Additional paid-in capital		265,472			162,505
Accumulated other comprehensive loss		(112	)		(196	)
Accumulated deficit		(115,083	)		(84,282	)
Total stockholders' equity		150,323			78,046
Total liabilities and stockholders' equity	$	161,210		$	89,513

See accompanying notes to the unaudited interim condensed consolidated financial statements

KEZAR LIFE SCIENCES, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except share and per share amounts)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020			2019			2020			2019
Operating expenses:
Research and development	$	8,259		$	7,080		$	22,864		$	19,932
General and administrative		3,292			2,601			9,018			7,413
Total operating expenses		11,551			9,681			31,882			27,345
Loss from operations		(11,551	)		(9,681	)		(31,882	)		(27,345	)
Interest income		262			533			1,081			1,837
Net loss	$	(11,289	)	$	(9,148	)	$	(30,801	)	$	(25,508	)
Net loss per common share, basic and diluted	$	(0.23	)	$	(0.48	)	$	(0.73	)	$	(1.34	)
Weighted-average shares used to compute net loss per common share, basic and diluted		49,999,239			19,095,870			41,964,042			19,070,937

See accompanying notes to the unaudited interim condensed consolidated financial statements

KEZAR LIFE SCIENCES, INC.

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)

(In thousands)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020			2019			2020			2019
Net loss	$	(11,289	)	$	(9,148	)	$	(30,801	)	$	(25,508	)
Other comprehensive income (loss)
Foreign currency translation adjustments		35			(42	)		15			(83	)
Unrealized (loss) gain on marketable securities		(172	)		(26	)		69			62
Total other comprehensive (loss) income, net of tax		(137	)		(68	)		84			(21	)
Comprehensive loss	$	(11,426	)	$	(9,216	)	$	(30,717	)	$	(25,529	)

See accompanying notes to the unaudited interim condensed consolidated financial statements

KEZAR LIFE SCIENCES, INC.

Condensed Consolidated Statements of Stockholders' Equity

(Unaudited)

(In thousands, except share amounts)

	COMMON STOCK				ADDITIONAL PAID-IN		ACCUMULATED OTHER COMPREHENSIVE			ACCUMULATED			TOTAL STOCKHOLDERS'
	SHARES		AMOUNTS		CAPITAL		INCOME/(LOSS)			DEFICIT			EQUITY
Balance at December 31, 2019		19,208,077	$	19	$	162,505	$	(196	)	$	(84,282	)	$	78,046
Issuance of common stock and pre-funded warrants through underwritten offering, net of offering costs of $3,447		18,965,385		19	$	53,341		—			—			53,360
Issuance of common stock under employee stock incentive plans		3,000		—		3		—			—			3
Vesting related to shares of common stock issued pursuant to early exercises		—		—		10		—			—			10
Stock-based compensation expense		—		—		1,173		—			—			1,173
Other comprehensive income		—		—		—		74			—			74
Net loss		—		—		—		—			(10,012	)		(10,012	)
Balance at March 31, 2020		38,176,462	$	38	$	217,032	$	(122	)	$	(94,294	)	$	122,654
Issuance of common stock and pre-funded warrants through underwritten offering, net of offering costs of $3,087		7,590,909		8		43,655		—			—			43,663
Issuance of common stock under employee stock incentive plans		59,427		—		125		—			—			125
Vesting related to shares of common stock issued pursuant to early exercises		—		—		10		—			—			10
Stock-based compensation expense		—		—		1,219		—			—			1,219
Other comprehensive income		—		—		—		147			—			147
Net loss		—		—		—		—			(9,500	)		(9,500	)
Balance at June 30, 2020		45,826,798	$	46	$	262,041	$	25		$	(103,794	)	$	158,318
Issuance of common stock through underwritten offering, net of offering costs of $214		427,707		—		2,138		—			—			2,138
Issuance of common stock under employee stock incentive plans		13,020		—		11		—			—			11
Vesting related to shares of common stock issued pursuant to early exercises		—		—		11		—			—			11
Stock-based compensation expense		—		—		1,271		—			—			1,271
Other comprehensive loss		—		—		—		(137	)		—			(137	)
Net loss		—		—		—		—			(11,289	)		(11,289	)
Balance at September 30, 2020		46,267,525	$	46	$	265,472	$	(112	)	$	(115,083	)	$	150,323


	COMMON STOCK				ADDITIONAL PAID-IN		ACCUMULATED OTHER COMPREHENSIVE			ACCUMULATED			TOTAL STOCKHOLDERS'
	SHARES		AMOUNTS		CAPITAL		LOSS			DEFICIT			EQUITY
Balance at December 31, 2018		19,114,421	$	19	$	158,176	$	(203	)	$	(49,195	)	$	108,797
Issuance of common stock under employee stock incentive plans		4,000		—		4		—			—			4
Vesting related to shares of common stock issued pursuant to early exercises		—		—		12		—			—			12
Stock-based compensation expense		—		—		901		—			—			901
Other comprehensive income		—		—		—		73			—			73
Net loss		—		—		—		—			(7,642	)		(7,642	)
Balance at March 31, 2019		19,118,421	$	19	$	159,093	$	(130	)	$	(56,837	)	$	102,145
Issuance of common stock under employee stock incentive plans		14,224		—		180		—			—			180
Vesting related to shares of common stock issued pursuant to early exercises		—		—		13		—			—			13
Stock-based compensation expense		—		—		1,009		—			—			1,009
Other comprehensive loss		—		—		—		(26	)		—			(26	)
Net loss		—		—		—		—			(8,718	)		(8,718	)
Balance at June 30, 2019		19,132,645	$	19	$	160,295	$	(156	)	$	(65,555	)	$	94,603
Issuance of common stock under employee stock incentive plans		9,000		—		8		—			—			8
Vesting related to shares of common stock issued pursuant to early exercises		—		—		12		—			—			12
Stock-based compensation expense		—		—		1,090		—			—			1,090
Other comprehensive loss		—		—		—		(68	)		—			(68	)
Net loss		—		—		—		—			(9,148	)		(9,148	)
Balance at September 30, 2019		19,141,645	$	19	$	161,405	$	(224	)	$	(74,703	)	$	86,497

See accompanying notes to the unaudited interim condensed consolidated financial statements

KEZAR LIFE SCIENCES, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

	Nine Months Ended
	September 30,
	2020			2019
Cash flows from operating activities:
Net loss	$	(30,801	)	$	(25,508	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,176			961
Stock-based compensation		3,663			3,000
Amortization of premiums and discounts on marketable securities		(91	)		(896	)
Changes in operating assets and liabilities
Prepaid expenses, other current assets and other long-term assets		(931	)		(1,187	)
Accounts payable, accrued liabilities and other current liabilities		7			1,534
Operating lease liabilities		(665	)		(571	)
Net cash used in operating activities		(27,642	)		(22,667	)
Cash flows from investing activities:
Purchases of property and equipment		(110	)		(589	)
Purchases of marketable securities		(182,667	)		(86,571	)
Maturities of marketable securities		108,961			105,901
Net cash (used in) provided by investing activities		(73,816