10-Q
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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 June 30, 2023

OR

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

For the transition period from ______________ to ______________

Commission File Number: 001-38542

 

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 August 4, 2023, the registrant had 72,692,963 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

18

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

26

Item 4.

Controls and Procedures

26

PART II.

OTHER INFORMATION

Item 1.

Legal Proceedings

27

Item 1A.

Risk Factors

27

Item 6.

Exhibits

63

 

 

 

 

 

i


 

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.

 

 

 

 

 

ii


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

KEZAR LIFE SCIENCES, INC.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share amounts)

 

 

June 30, 2023

 

 

December 31, 2022

 

 

 

(Unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

28,109

 

 

$

40,456

 

Marketable securities

 

 

208,480

 

 

 

236,105

 

Prepaid expenses

 

 

5,982

 

 

 

8,241

 

Other current assets

 

 

933

 

 

 

920

 

Total current assets

 

 

243,504

 

 

 

285,722

 

Property and equipment, net

 

 

4,666

 

 

 

3,431

 

Operating lease right-of-use asset

 

 

8,647

 

 

 

9,741

 

Other assets

 

 

6,562

 

 

 

674

 

Total assets

 

$

263,379

 

 

$

299,568

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

2,492

 

 

$

2,479

 

Accrued and other current liabilities

 

 

8,463

 

 

 

5,953

 

Operating lease liabilities, current

 

 

2,782

 

 

 

2,565

 

Total current liabilities

 

 

13,737

 

 

 

10,997

 

Operating lease liabilities, noncurrent

 

 

7,413

 

 

 

8,865

 

Long-term debt

 

 

9,952

 

 

 

9,834

 

Total liabilities

 

 

31,102

 

 

 

29,696

 

Stockholders' equity:

 

 

 

 

 

 

Common stock, $0.001 par value, 250,000,000 and 125,000,000 shares authorized as of
   June 30, 2023 (unaudited) and December 31, 2022, respectively;
72,532,814
   and
68,493,429 shares issued and outstanding as of June 30, 2023 (unaudited)
   and December 31, 2022, respectively

 

 

73

 

 

 

68

 

Preferred stock, $0.001 par value, 10,000,000 shares authorized; zero shares issued
   and outstanding as of June 30, 2023 (unaudited) and December 31, 2022

 

 

 

 

 

 

Additional paid-in capital

 

 

528,434

 

 

 

519,620

 

Accumulated other comprehensive loss

 

 

(830

)

 

 

(923

)

Accumulated deficit

 

 

(295,400

)

 

 

(248,893

)

Total stockholders' equity

 

 

232,277

 

 

 

269,872

 

Total liabilities and stockholders' equity

 

$

263,379

 

 

$

299,568

 

 

See accompanying notes to the unaudited condensed consolidated financial statements

 

 

1


 

KEZAR LIFE SCIENCES, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except share and per share amounts)

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

20,999

 

 

$

11,346

 

 

$

39,317

 

 

$

22,290

 

General and administrative

 

 

5,785

 

 

 

4,977

 

 

 

11,991

 

 

 

9,911

 

Total operating expenses

 

 

26,784

 

 

 

16,323

 

 

 

51,308

 

 

 

32,201

 

Loss from operations

 

 

(26,784

)

 

 

(16,323

)

 

 

(51,308

)

 

 

(32,201

)

Interest income

 

 

2,861

 

 

 

408

 

 

 

5,556

 

 

 

516

 

Interest expense

 

 

(385

)

 

 

(272

)

 

 

(755

)

 

 

(526

)

Net loss

 

$

(24,308

)

 

$

(16,187

)

 

$

(46,507

)

 

$

(32,211

)

Net loss per common share, basic and diluted

 

$

(0.34

)

 

$

(0.25

)

 

$

(0.64

)

 

$

(0.52

)

Weighted-average shares used to compute net loss per common
   share, basic and diluted

 

 

72,461,850

 

 

 

64,279,634

 

 

 

72,395,410

 

 

 

62,465,092

 

 

See accompanying notes to the unaudited condensed consolidated financial statements

 

2


 

KEZAR LIFE SCIENCES, INC.

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)

(In thousands)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Net loss

 

$

(24,308

)

 

$

(16,187

)

 

$

(46,507

)

 

$

(32,211

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(5

)

 

 

(64

)

 

 

(17

)

 

 

(39

)

Unrealized (loss) gain on marketable securities

 

 

(302

)

 

 

(318

)

 

 

110

 

 

 

(834

)

Total other comprehensive (loss) gain, net of tax

 

 

(307

)

 

 

(382

)

 

 

93

 

 

 

(873

)

Comprehensive loss

 

$

(24,615

)

 

$

(16,569

)

 

$

(46,414

)

 

$

(33,084

)

 

See accompanying notes to the unaudited condensed consolidated financial statements

 

3


 

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

 

Cashless exercise of pre-funded warrants

 

 

1,556,643

 

 

 

2

 

 

 

(2

)

 

 

 

 

 

 

 

 

 

Issuance of common stock under equity incentive plans

 

 

160,171

 

 

 

 

 

 

382

 

 

 

 

 

 

 

 

 

382

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

4,020

 

 

 

 

 

 

 

 

 

4,020

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(307

)

 

 

 

 

 

(307

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(24,308

)

 

 

(24,308

)

Balance as of June 30, 2023

 

 

72,532,814

 

 

$

73

 

 

$

528,434

 

 

$

(830

)

 

$

(295,400

)

 

$

232,277

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Issuance of common stock under the ATM Agreement,
   net of offering costs of $
2,409

 

 

8,665,961

 

 

 

8

 

 

 

77,892

 

 

 

 

 

 

 

 

 

77,900

 

Issuance of common stock under equity incentive plans

 

 

111,022

 

 

 

 

 

 

420

 

 

 

 

 

 

 

 

 

420

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

3,298

 

 

 

 

 

 

 

 

 

3,298

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(382

)

 

 

 

 

 

(382

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(16,187

)

 

 

(16,187

)

Balance as of June 30, 2022

 

 

68,341,642

 

 

$

68

 

 

$

511,325

 

 

$

(1,164

)

 

$

(212,865

)

 

$

297,364

 

 

See accompanying notes to the unaudited condensed consolidated financial statements

 

4


 

KEZAR LIFE SCIENCES, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2023

 

 

2022

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(46,507

)

 

$

(32,211

)

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

 

 

 

 

 

 

Depreciation and amortization

 

 

508

 

 

 

848

 

Stock-based compensation

 

 

8,283

 

 

 

6,402

 

Amortization of premiums and discounts on marketable securities

 

 

(3,532

)

 

 

579

 

Amortization of debt discount and issuance costs and other
   non-cash interest

 

 

118

 

 

 

106

 

Loss on disposition of fixed assets

 

 

 

 

 

4

 

Changes in operating assets and liabilities

 

 

 

 

 

 

Prepaid expenses, other current assets and other long-term assets

 

 

(3,642

)

 

 

(1,191

)

Accounts payable, accrued and other current liabilities

 

 

2,453

 

 

 

(560

)

Operating lease assets and liabilities

 

 

(141

)

 

 

(580

)

Net cash used in operating activities

 

 

(42,460

)

 

 

(26,603

)

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(1,673

)

 

 

(632

)

Purchases of marketable securities

 

 

(95,233

)

 

 

(142,080

)

Maturities of marketable securities

 

 

126,500

 

 

 

84,689

 

Net cash provided by (used in) investing activities

 

 

29,594

 

 

 

(58,023

)

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from issuance of common stock and warrants, net of issuance costs

 

 

 

 

 

126,542

 

Proceeds from issuance of common stock under equity incentive plans

 

 

536

 

 

 

628

 

Net cash provided by financing activities

 

 

536

 

 

 

127,170

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(17

)

 

 

(39

)

Net (decrease) increase in cash and cash equivalents

 

 

(12,347

)

 

 

42,505

 

Cash and cash equivalents at the beginning of period

 

 

40,456

 

 

 

62,882

 

Cash and cash equivalents at the end of period

 

$

28,109

 

 

$

105,387

 

Supplemental disclosures of noncash investing and financing information:

 

 

 

 

 

 

Purchases of property and equipment in accounts payable

 

$

117

 

 

$

557

 

Par value of common stock upon cashless exercise of prefunded warrants

 

$

4

 

 

$

 

Supplemental disclosures

 

 

 

 

 

 

Cash paid for interest

 

$

637

 

 

$

219

 

 

 

 

 

 

 

 

 

See accompanying notes to the unaudited condensed consolidated financial statements

 

5


 

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 $295.4 million as of June 30, 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 June 30, 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 June 30, 2023, approximately $68.3 million remains available under the ATM Agreement