SEC Filing - Kezar Life Sciences, Inc.

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10-Q

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 March 31, 2023


☐	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 May 5, 2023, the registrant had 72,407,215 shares of common stock, $0.001 par value per share, outstanding.

Table of Contents


		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations	2
	Condensed Consolidated Statements of Comprehensive Loss	3
	Condensed Consolidated Statement of Stockholders’ Equity	4
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Unaudited Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4.	Controls and Procedures	24
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	25
Item 1A.	Risk Factors	25
Item 6.	Exhibits	61

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that involve substantial risks and uncertainties. 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,” “target” or similar expressions, or the negative or plural of these words or expressions. These forward-looking statements include statements concerning the following:

•

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 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;

•

general economic, political, and market conditions and overall fluctuations in the financial markets in the United States and abroad, including as a result of bank failures, public health crisis or geopolitical tensions;

•

the impact of government laws and regulations;

•

developments relating to our competitors and our industry; and

•

other 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)


	March 31, 2023			December 31, 2022
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	36,129		$	40,456
Marketable securities		221,542			236,105
Prepaid expenses		6,785			8,241
Other current assets		777			920
Total current assets		265,233			285,722
Property and equipment, net		4,656			3,431
Operating lease right-of-use asset		9,203			9,741
Other assets		5,088			674
Total assets	$	284,180		$	299,568
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	4,136		$	2,479
Accrued and other current liabilities		6,836			5,953
Operating lease liabilities, current		2,672			2,565
Total current liabilities		13,644			10,997
Operating lease liabilities, noncurrent		8,153			8,865
Debt, noncurrent		9,893			9,834
Total liabilities		31,690			29,696
Stockholders' equity:
Common stock, $0.001 par value, 125,000,000 shares authorized as of March 31, 2023 (unaudited) and December 31, 2022; 70,816,000 and 68,493,429 shares issued and outstanding as of March 31, 2023 (unaudited) and December 31, 2022, respectively		71			68
Preferred stock, $0.001 par value, 10,000,000 shares authorized, zero shares issued and outstanding as of March 31, 2023 (unaudited) and December 31, 2022		—			—
Additional paid-in capital		524,034			519,620
Accumulated other comprehensive loss		(523	)		(923	)
Accumulated deficit		(271,092	)		(248,893	)
Total stockholders' equity		252,490			269,872
Total liabilities and stockholders' equity	$	284,180		$	299,568

See accompanying notes to the unaudited 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
	March 31,
	2023			2022
Operating expenses:
Research and development	$	18,318		$	10,944
General and administrative		6,206			4,934
Total operating expenses		24,524			15,878
Loss from operations		(24,524	)		(15,878	)
Interest income		2,695			108
Interest expense		(370	)		(254	)
Net loss	$	(22,199	)	$	(16,024	)
Net loss per common share, basic and diluted	$	(0.31	)	$	(0.26	)
Weighted-average shares used to compute net loss per common share, basic and diluted		72,328,231			60,630,389

See accompanying notes to the unaudited condensed consolidated financial statements

KEZAR LIFE SCIENCES, INC.

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)

(In thousands)


	Three Months Ended
	March 31,
	2023			2022
Net loss	$	(22,199	)	$	(16,024	)
Other comprehensive loss
Foreign currency translation adjustments		(12	)		25
Unrealized gain (loss) on marketable securities		412			(516	)
Total other comprehensive gain (loss), net of tax		400			(491	)
Comprehensive loss	$	(21,799	)	$	(16,515	)

See accompanying notes to the unaudited 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			GAIN (LOSS)			DEFICIT			EQUITY
Balance as of December 31, 2022		68,493,429	$	68	$	519,620		$	(923	)	$	(248,893	)	$	269,872
Cashless exercise of pre-funded warrants		2,236,233		2		(2	)		—			—			-
Issuance of common stock under equity incentive plans		86,338		1		153			—			—			154
Stock-based compensation expense		—		—		4,263			—			—			4,263
Other comprehensive gain		—		—		—			400			—			400
Net loss		—		—		—			—			(22,199	)		(22,199	)
Balance as of March 31, 2023		70,816,000	$	71	$	524,034		$	(523	)	$	(271,092	)	$	252,490

	COMMON STOCK				ADDITIONAL PAID-IN			ACCUMULATED OTHER COMPREHENSIVE			ACCUMULATED			TOTAL STOCKHOLDERS'
	SHARES		AMOUNTS		CAPITAL			LOSS			DEFICIT			EQUITY
Balance as of December 31, 2021		56,259,747	$	56	$	377,765		$	(291	)	$	(180,654	)	$	196,876
Issuance of common stock under the ATM Agreement, net of offering costs of $1,504		3,245,738		4		48,638			—			—			48,642
Issuance of common stock under equity incentive plans		59,174		—		208			—			—			208
Stock-based compensation expense		—		—		3,104			—			—			3,104
Other comprehensive loss		—		—		—			(491	)		—			(491	)
Net loss		—		—		—			—			(16,024	)		(16,024	)
Balance as of March 31, 2022		59,564,659	$	60	$	429,715		$	(782	)	$	(196,678	)	$	232,315

See accompanying notes to the unaudited condensed consolidated financial statements

KEZAR LIFE SCIENCES, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)


	Three Months Ended
	March 31,
	2023			2022
Cash flows from operating activities:
Net loss	$	(22,199	)	$	(16,024	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		259			417
Stock-based compensation		4,263			3,104
Amortization of premiums and discounts on marketable securities		(1,713	)		339
Amortization of debt discount and issuance costs and other non-cash interest		59			53
Changes in operating assets and liabilities
Prepaid expenses, other current assets and other long-term assets		(2,815	)		(86	)
Accounts payable, accrued and other current liabilities		1,353			(834	)
Operating lease assets and liabilities		(67	)		(283	)
Net cash used in operating activities		(20,860	)		(13,314	)
Cash flows from investing activities:
Purchases of property and equipment		(297	)		(450	)
Purchases of marketable securities		(54,062	)		(74,522	)
Maturities of marketable securities		70,750			15,439
Net cash provided by (used in) investing activities		16,391			(59,533	)
Cash flows from financing activities:
Proceeds from issuance of common stock and warrants, net of issuance costs		—			48,642
Proceeds from issuance of common stock under equity incentive plans		154			206
Net cash provided by financing activities		154			48,848
Effect of exchange rate changes on cash and cash equivalents		(12	)		25
Net decrease in cash and cash equivalents		(4,327	)		(23,974	)
Cash and cash equivalents at the beginning of period		40,456			62,882
Cash and cash equivalents at the end of period	$	36,129		$	38,908
Supplemental disclosures of noncash investing and financing information:
Purchases of property and equipment in accounts payable	$	1,234		$	—
Supplemental disclosures
Cash paid for interest	$	310		$	201

See accompanying notes to the unaudited condensed consolidated financial statements

Kezar Life Sciences, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

1. Organization and Description of the Business

Description of Business

Kezar Life Sciences, Inc. (the “Company,” “we,” “us,” or “our”) was incorporated in the state of Delaware in February 2015 and commenced operations in June 2015. The Company is a clinical-stage biotechnology company discovering and developing breakthrough treatments in immune-mediated and oncologic disorders. The Company’s principal operations are in South San Francisco, California, and it operates in one segment.

Liquidity

Since commencing operations in mid-2015, substantially all of the Company’s efforts have been focused on research, development, and the advancement of the Company’s product candidates, zetomipzomib (KZR-616) and KZR-261. The Company’s ultimate success depends on the outcome of these ongoing research and development activities. The Company has not yet generated product sales and as a result has experienced operating losses since inception and had an accumulated deficit of $271.1 million as of March 31, 2023. The Company expects to incur additional losses in the future to conduct research and development and will need to raise additional capital to fully implement management’s business plan. The Company intends to raise such capital through the issuance of additional equity, and potentially through borrowings, strategic alliances with partner companies and other licensing transactions. However, if such financing is not available at adequate levels, the Company may need to reevaluate its operating plans. Management believes that its existing cash, cash equivalents and marketable securities will be sufficient to fund the Company’s cash requirements for at least 12 months following the issuance of these financial statements.

In December 2021, the Company entered into a Sales Agreement (the “ATM Agreement”) with Cowen and Company, LLC (“Cowen”), pursuant to which the Company can offer and sell, from time to time at its sole discretion through Cowen, as its sales agent, shares of its common stock having an aggregate offering price of up to $200.0 million. Any shares of its common stock sold will be issued pursuant to the Company’s shelf registration statement on Form S-3 (File No. 333-261774). The Company will pay Cowen a commission up to 3.0% of the gross sales proceeds of any shares of its common stock sold through Cowen under the ATM Agreement and also has provided Cowen with indemnification and contribution rights. As of March 31, 2023, we have sold an aggregate of 11,986,003 shares of our common stock for gross proceeds of approximately $131.7 million at a weighted average purchase price of $10.98 per share pursuant to the ATM Agreement. As of March 31, 2023, approximately $68.3 million remains available under the ATM Agreement. No shares were sold under the ATM Agreement during the three months ended March 31, 2023.

2. Summary of Significant Accounting Policies

Significant Accounting Policies

The Company’s significant accounting policies are disclosed in the audited consolidated financial statements for the year ended December 31, 2022 and the notes thereto, which are included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the U.S. Securities and Exchange Commission (“SEC”) on March 14, 2023 (the “Annual Report”), and there have been no material changes during the three months ended March 31, 2023.

Basis of Presentation and Consolidation

The condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and include the Company’s accounts and those of its wholly owned Australian subsidiary, Kezar Life Sciences Australia Pty Ltd., which is a proprietary company limited by shares. All intercompany balances and transactions have been eliminated upon consolidation.

The condensed consolidated balance sheet as of December 31, 2022 has been derived from the audited consolidated financial statements at that date but does not include all information and footnotes required by GAAP for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements included in the Annual Report.

Unaudited Condensed Consolidated Financial Statements

The accompanying financial information as of March 31, 2023 is unaudited. The interim condensed consolidated financial statements included in this report reflect all adjustments (consisting only of normal recurring adjustments) that our management considers necessary for the fair statement of the results of operations for the interim periods covered and of our financial condition at the date of

the interim balance sheet. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. The results for interim periods are not necessarily indicative of the results for the entire year or any other interim period. The accompanying condensed consolidated financial statements and related financial information should be read in conjunction with the audited financial statements and the related notes thereto included in our Annual Report.

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 and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Significant items subject to such estimates and assumptions include the valuation of marketable securities, stock-based compensation, and accrued research and development costs. Management bases its estimates on historical experience and on various other market-specific relevant assumptions that management believes to be reasonable under the circumstances. Actual results may differ from those estimates.

Estimates and assumptions about future events and their effects cannot be determined with certainty and therefore require the exercise of judgment. As of the date of issuance of these financial statements, the Company is not aware of any specific event or circumstance that would require the Company to update its estimates, assumptions and judgments or revise the carrying value of its assets or liabilities. These estimates may change as new events occur and additional information is obtained and are recognized in the consolidated financial statements as soon as they become known. Actual results could differ from those estimates and any such differences may be material to the Company’s consolidated financial statements.

Recent Accounting Pronouncements

There have been no recent accounting pronouncements, changes in accounting pronouncements or recently adopted accounting guidance during the three months ended March 31, 2023 that are of significance or potential significance to the Company.

3. Fair Value Measurements

Financial assets and liabilities are recorded at fair value. The carrying amount of certain financial instruments, including cash, cash equivalents, other current assets, accounts payable and accrued liabilities, approximate fair value due to their relatively short maturities. Assets and liabilities recorded at fair value on a recurring basis in the condensed consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair values. Fair value is defined as the exchange price that would be received for an asset or an exit price that would be paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The authoritative guidance on fair value measurements establishes a three-tier fair value hierarchy for disclosure of fair value measurements as follows:

Level 1: Quoted prices in active markets for identical assets or liabilities.

Level 2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability.

The Company applies fair value accounting for all financial assets and liabilities and nonfinancial assets and liabilities that are required to be recognized or disclosed at fair value in the financial statements. The Company determines the fair value of Level 1 assets using quoted prices in active markets for identical assets. The Company reviews trading activity and pricing for Level 2 investments as of each measurement date. Level 2 inputs, which are obtained from various third-party data providers, represent quoted prices for similar assets in active markets and were derived from observable market data, or, if not directly observable, were derived from or corroborated by other observable market data.

In certain cases, where there is limited activity or less transparency around inputs to valuation, securities are classified as Level 3 within the valuation hierarchy. The Company did not have any assets or liabilities measured using Level 3 inputs as of March 31, 2023 or December 31, 2022.

The following table summarizes the Company’s financial assets measured at fair value on a recurring basis and classified under the appropriate level of the fair value hierarchy as described above (in thousands):


	March 31, 2023
	Total		Level 1		Level 2		Level 3
Financial Assets:
Cash equivalents:
U.S. Treasury money market funds	$	34,378	$	34,378	$	—	$	—
Marketable securities:
U.S. Treasury securities		18,111		18,111		—		—
Commercial paper		105,106		—		105,106		—
Corporate debt securities		1,999		—		1,999		—
U.S. agency bonds		96,326		—		96,326		—
Total	$	255,920	$	52,489	$	203,431	$	—


	December 31, 2022
	Total		Level 1		Level 2		Level 3
Financial Assets:
Cash equivalents:
U.S. Treasury money market funds	$	38,745	$	38,745	$	—	$	—
Marketable securities:
U.S. Treasury securities		40,141		40,141		—		—
Commercial paper		117,478		—		117,478		—
Corporate debt securities		1,978		—		1,978		—
U.S. agency bonds		76,508		—		76,508		—
Total	$	274,850	$	78,886	$	195,964	$	—

4. Available-for-Sale Securities

The following table is a summary of available-for-sale securities recorded in cash and cash equivalents or marketable securities in the Company’s condensed consolidated balance sheets (in thousands):


	March 31, 2023
	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
Cash equivalents:
U.S. Treasury money market funds	$	34,378	$	—	$	—		$	34,378
Marketable securities:
U.S. Treasury securities		18,135		—		(24	)		18,111
Commercial paper		105,274		3		(171	)		105,106
Corporate debt securities		1,999		—		—			1,999
U.S. agency bonds		96,401		37		(112	)		96,326
Total available-for-sale securities	$	256,187	$	40	$	(307	)	$	255,920
Cash