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EX-32.1 - EX-32.1 - KalVista Pharmaceuticals, Inc.kalv-ex321_6.htm
EX-31.2 - EX-31.2 - KalVista Pharmaceuticals, Inc.kalv-ex312_7.htm
EX-31.1 - EX-31.1 - KalVista Pharmaceuticals, Inc.kalv-ex311_8.htm
EX-10.2 - EX-10.2 - KalVista Pharmaceuticals, Inc.kalv-ex102_524.htm
EX-10.1 - EX-10.1 - KalVista Pharmaceuticals, Inc.kalv-ex101_523.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 January 31, 2017

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 No. 001-36830

 

KALVISTA PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

20-0915291

(State or other jurisdiction of incorporation or organization)

 

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

 

One Kendall Square

Building 200, Suite 2203

Cambridge, Massachusetts

 

02139

(Address of principal executive offices)

 

(Zip Code)

857-999-0075

(Registrant’s telephone number, including area code)

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 and 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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    YES      NO  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer

Accelerated filer

 

 

 

 

Non-accelerated filer

  (Do not check if a smaller reporting company)

Smaller reporting company

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 February 28, 2017, the registrant had 9,713,042 shares of common stock, $0.001 par value per share, issued and outstanding.

 

 


 

Table of Contents

 

 

 

Page

PART I. FINANCIAL INFORMATION

 

 

 

Item 1.

Financial Statements (unaudited)

1

 

 

 

 

Condensed Consolidated Balance Sheets (unaudited)

1

 

 

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss (unaudited)

2

 

 

 

 

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

3

 

 

 

 

Condensed Consolidated Statements of Cash Flows (unaudited)

4

 

 

 

 

Notes to the Condensed Consolidated Financial Statements (unaudited)

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

18

 

 

 

Item 4.

Controls and Procedures

19

 

 

PART II. OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

20

 

 

 

Item 1A.

Risk Factors

20

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

37

 

 

 

Item 3.

Defaults Upon Senior Securities

37

 

 

 

Item 4.

Mine Safety Disclosures

38

 

 

 

Item 5.

Other Information

38

 

 

 

Item 6.

Exhibits

39

 

 

 

Signatures

40

 

 

 

 


 

PART I. FINANCIAL INFORMATION

Item 1.

FINANCIAL STATEMENTS

KalVista Pharmaceuticals, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share amounts)

(Unaudited)

 

 

 

January 31,

 

 

April 30,

 

 

 

2017

 

 

2016

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

33,498

 

 

$

21,764

 

Research and development tax credit receivable

 

 

2,840

 

 

 

1,883

 

Grants receivable

 

 

398

 

 

 

356

 

Prepaid expenses and other current assets

 

 

1,217

 

 

 

668

 

Total current assets

 

 

37,953

 

 

 

24,671

 

Property and equipment, net

 

 

97

 

 

 

74

 

Total assets

 

$

38,050

 

 

$

24,745

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

755

 

 

$

1,135

 

Accrued expenses

 

 

2,446

 

 

 

2,114

 

Total current liabilities

 

 

3,201

 

 

 

3,249

 

Commitments and contingencies (Note 5)

 

 

 

 

 

 

 

 

Redeemable Convertible Preferred Stock, $0.0016 par value

 

 

 

 

 

 

 

 

Shares issued and outstanding: None at January 31, 2017 and 24,322,898 at April 30, 2016

 

 

 

 

 

58,608

 

Stockholders’ equity (deficit)

 

 

 

 

 

 

 

 

Ordinary shares, $0.0016 par value

 

 

 

 

 

 

 

 

Shares issued and outstanding: None at January 31, 2017 and 2,167,367 at April 30, 2016

 

 

 

 

 

3

 

Common stock, $0.001 par value;

 

 

 

 

 

 

 

 

Shares authorized:  100,000,000 at January 31, 2017

 

 

 

 

 

 

 

 

Shares issued and outstanding: 9,713,042 at January 31, 2017 and none at April 30, 2016

 

 

10

 

 

 

 

Additional paid-in capital

 

 

89,399

 

 

 

212

 

Accumulated deficit

 

 

(51,653

)

 

 

(37,252

)

Accumulated other comprehensive loss

 

 

(2,907

)

 

 

(75

)

Total stockholders’ equity (deficit)

 

 

34,849

 

 

 

(37,112

)

Total liabilities and stockholders’ equity

 

$

38,050

 

 

$

24,745

 

 

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

 

 

1


 

KalVista Pharmaceuticals, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except share and per share amounts)

(Unaudited)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

January 31,

 

 

January 31,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Grant income

 

$

248

 

 

$

348

 

 

$

1,390

 

 

$

1,850

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

3,339

 

 

 

3,622

 

 

 

9,670

 

 

 

10,111

 

General and administrative

 

 

5,026

 

 

 

541

 

 

 

8,973

 

 

 

1,525

 

Total operating expenses

 

 

8,365

 

 

 

4,163

 

 

 

18,643

 

 

 

11,636

 

Operating Loss

 

 

(8,117

)

 

 

(3,815

)

 

 

(17,253

)

 

 

(9,786

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

7

 

 

 

20

 

 

 

31

 

 

31

 

Foreign currency exchange gain (loss)

 

 

(195

)

 

 

1,297

 

 

 

1,511

 

 

 

2,196

 

Other income

 

 

661

 

 

 

546

 

 

 

1,310

 

 

 

1,304

 

Total other income (expense)

 

 

473

 

 

 

1,863

 

 

 

2,852

 

 

 

3,531

 

Net loss

 

$

(7,644

)

 

$

(1,952

)

 

$

(14,401

)

 

$

(6,255

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Currency translation adjustments

 

 

166

 

 

 

(3,622

)

 

 

(2,832

)

 

 

(4,529

)

Comprehensive loss

 

$

(7,478

)

 

$

(5,574

)

 

$

(17,233

)

 

$

(10,784

)

Net loss per share to common stockholders, basic and diluted

 

$

(1.03

)

 

$

(4.85

)

 

$

(5.50

)

 

$

(16.05

)

Weighted average common shares outstanding, basic and diluted

 

 

7,657,874

 

 

 

630,921

 

 

 

3,013,073

 

 

 

576,181

 

 

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

 

 

 

2


 

KalVista Pharmaceuticals, Inc.

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

(in thousands, except share and per share amounts)

(Unaudited)

 

 

Series B

 

 

Series A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Convertible Preferred

 

 

Convertible Preferred

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Other

 

 

Total

 

 

Stock

 

 

Stock

 

 

Total Preferred Stock

 

 

 

Ordinary Shares

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Comprehensive

 

 

Stockholders'

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income (Loss)

 

 

Equity (Deficit)

 

Balance at April 30, 2015

 

 

 

$

 

 

 

15,900,000

 

 

$

25,606

 

 

 

15,900,000

 

 

$

25,606

 

 

 

 

1,302,367

 

 

$

2

 

 

 

 

 

$

 

 

$

94

 

 

$

(25,816

)

 

$

2,165

 

 

$

(23,555

)

Issuance of Series B

   preferred shares, net of

   issuance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

costs of approximately   $186,000

 

 

8,422,898

 

 

 

33,002

 

 

 

 

 

 

 

 

 

8,422,898

 

 

 

33,002

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of ordinary

   shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

865,000

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

118

 

 

 

 

 

 

 

 

 

118

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(11,436

)

 

 

 

 

 

(11,436

)

Foreign currency

   translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,240

)

 

 

(2,240

)

Balance at April 30, 2016

 

8,422,898

 

 

 

33,002

 

 

 

15,900,000

 

 

 

25,606

 

 

 

24,322,898

 

 

 

58,608

 

 

 

 

2,167,367

 

 

 

3

 

 

 

 

 

 

 

 

 

212

 

 

 

(37,252

)

 

 

(75

)

 

 

(37,112

)

Issuance of ordinary shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

396,719

 

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

Carbylan  transaction

 

(8,422,898

)

 

 

(33,002

)

 

 

(15,900,000

)

 

 

(25,606

)

 

 

(24,322,898

)

 

 

(58,608

)

 

 

 

(2,564,086

)

 

 

(5

)

 

 

9,713,042

 

 

 

10

 

 

 

88,959

 

 

 

 

 

 

 

 

 

 

 

88,964

 

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

228

 

 

 

 

 

 

 

 

 

228

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(14,401

)

 

 

 

 

 

(14,401

)

Foreign currency

   translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,832

)

 

 

(2,832

)

Balance at January 31,

   2017

 

 

 

$

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

 

 

$

 

 

 

9,713,042

 

 

$

10

 

 

$

89,399

 

 

$

(51,653

)

 

$

(2,907

)

 

$

34,849

 

 

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

 

 

 

3


 

KalVista Pharmaceuticals, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands, unaudited)

 

 

 

Nine Months Ended

 

 

 

January 31,

 

 

 

2017

 

 

2016

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

 

Net loss

 

$

(14,401

)

 

$

(6,255

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

29

 

 

 

26

 

Stock-based compensation

 

 

228

 

 

 

16

 

Foreign currency remeasurement gain

 

 

(1,464

)

 

 

(2,230

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Research and development tax credit receivable

 

 

(1,303

)

 

 

(1,309

)

Prepaid expenses and other current assets

 

 

(689

)

 

 

(389

)

Grants receivable

 

 

36

 

 

 

(53

)

Accounts payable

 

 

(1,957

)

 

 

(203

)

Accrued expenses

 

 

(1,560

)

 

 

(371

)

Net cash used in operating activities

 

 

(21,081

)

 

 

(10,768

)

Cash Flows from Investing Activities

 

 

 

 

 

 

 

 

Cash acquired in transaction

 

 

34,139

 

 

 

 

Acquisition of property and equipment

 

 

(67

)

 

 

(9

)

Net cash provided by (used in) investing activities

 

 

34,072

 

 

 

(9

)

Cash Flows from Financing Activities

 

 

 

 

 

 

 

 

Proceeds from issuance of redeemable convertible preferred stock

 

 

 

 

 

33,002

 

Proceeds from issuance of common stock, net

 

 

2

 

 

 

 

Net cash provided by financing activities

 

 

2

 

 

 

33,002

 

Effect of exchange rate changes on cash

 

 

(1,259

)

 

 

(583

)

Net increase in cash and cash equivalents

 

 

11,734

 

 

 

21,642

 

Cash and cash equivalents at beginning of period

 

 

21,764

 

 

 

2,526

 

Cash and cash equivalents at end of period

 

$

33,498

 

 

$

24,168

 

 

 

 

 

 

 

 

 

 

Supplemental Disclosures of Non-cash Financing Activities

 

 

 

 

 

 

 

 

Conversion of preferred stock to common stock

 

$

58,608

 

 

 

 

 

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

 

 

4


 

Notes to the Condensed Consolidated Financial Statements (unaudited)

 

 

1.

The Company

KalVista Pharmaceuticals, Inc. (the “Company” or “KalVista”) is a clinical-stage pharmaceutical company focused on the discovery, development, and commercialization of small molecule serine protease inhibitors as new treatments for diseases with significant unmet need.  The Company’s initial focus is on developing a portfolio of oral inhibitors of plasma kallikrein for two indications: hereditary angioedema, or HAE, and diabetic macular edema or DME.  The first oral program, KVD818, is currently in Phase I clinical testing and additional programs are in preclinical development.  KalVista also has developed an intravitreally administered plasma kallikrein inhibitor for DME that has completed a Phase I clinical trial and is anticipated to commence Phase II testing later in 2017.  The Company’s headquarters is located in Cambridge, Massachusetts.

On November 21, 2016, KalVista Pharmaceuticals Limited (“KalVista Limited”) completed a share purchase transaction with Carbylan Therapeutics Inc. (“Carbylan”) in an all-stock transaction whereby immediately following the transaction Carbylan’s equity holders owned 19% and KalVista Limited’s equity holders owned 81% of the combined company, respectively (see Note 3).  As a result, Carbylan issued approximately eight million shares of common stock to the stockholders of KalVista Limited in exchange for their common shares of KalVista Limited. The combined company was renamed KalVista Pharmaceuticals, Inc. following the transaction.  Following the completion of the transaction, the business being conducted by the Company became primarily the business conducted by KalVista Limited, which is a clinical-stage pharmaceutical company focused on the discovery and development of small molecule protease inhibitors.

KalVista has devoted substantially all of its efforts to research and development, including clinical trials of its product candidates. The Company has not completed the development of any product candidates.  Pharmaceutical drug product candidates, like those being developed by the Company, require approvals from the U.S. Food and Drug Administration (“FDA”) or foreign regulatory agencies prior to commercial sales. There can be no assurance that any product candidates will receive the necessary approvals and any failure to receive approval or delay in approval may have a material adverse impact on the business and financial statements of the Company.  The Company has never been profitable and has not yet commenced commercial operations.  KalVista is subject to a number of risks and uncertainties similar to those of other life science companies developing new products, including, among others, the risks related to the necessity to obtain adequate additional financing, to successfully develop product candidates, to obtain regulatory approval of product candidates, to comply with government regulations, to successfully commercialize its potential products, to the protection of proprietary technology and to the dependence on key individuals.

The Company has funded its operations primarily through the issuance of preferred stock and grant income. As of January 31, 2017, KalVista had an accumulated deficit of $51.7 million and $33.5 million of cash and cash equivalents.  The Company’s working capital, including cash obtained through the share purchase transaction with Carbylan, is anticipated to fund the Company’s operations for at least the next twelve months from the date these interim condensed consolidated financial statements are issued. Accordingly, the unaudited interim condensed consolidated financial statements have been prepared on a going concern basis.

2.

Summary of Significant Accounting Policies and Basis of Presentation

Basis of Presentation

The unaudited interim condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary.  All intercompany transactions and balances have been eliminated in consolidation.  

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.  Such financial statements reflect all adjustments that are, in management’s opinion, necessary to present fairly, in all material respects, the Company’s consolidated financial position, results of operations, and cash flows. There were no adjustments other than normal recurring adjustments.  The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual financial statements. These unaudited interim condensed consolidated financial results are not necessarily indicative of the results to be expected for the year ending April 30, 2017, or for any other future annual or interim period. The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the audited financial statements as of and for the year ended April 30, 2016 and the related notes thereto included in the Company’s Form 8K/A filed on November 23, 2016 with the Securities and Exchange Commission. KalVista was determined to be the accounting acquirer in the reverse acquisition with Carbylan, therefore all prior periods are those of KalVista Pharmaceuticals Limited.

5


 

Use of Estimates

The preparation of financial statements in conformity with U.S. 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 revenues and expenses during the reporting period. Actual results could differ from these estimates.

Foreign Currency Translation

The functional currency of the Company’s foreign subsidiary is the Great Britain Pound Sterling.  Assets and liabilities of the foreign subsidiary are translated using the exchange rate existing on each respective balance sheet date. Revenues and expenses are translated using the monthly average exchange rates prevailing throughout the year. The translation adjustments resulting from this process are included as the only component of the accumulated other comprehensive loss.

Segment Reporting

The Company manages its operations as a single operating segment for the purposes of assessing performance and making operating decisions.

Cash and Cash Equivalents

Cash and cash equivalents consist of bank deposits and money market accounts. Cash equivalents are carried at cost which approximates fair value due to their short-term nature. The Company considers all highly liquid investments with an original maturity of 90 days or less to be cash equivalents.

The Company maintains its cash and cash equivalent balances with financial institutions that management believes are creditworthy. The Company’s cash and cash equivalent accounts at times may exceed federally insured limits. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk of cash and cash equivalents.

Research and Development

Research and development costs consist primarily of clinical trial expenses, salaries and related expenses for personnel, and fees paid to outside consultants and outside service providers, including costs associated with licensing, milestone and grant revenue. Research and development costs are expensed as incurred.

Stock-Based Compensation 

The Company maintains performance incentive plans under which stock options may be granted to employees and non-employees. The Company accounts for stock-based compensation arrangements at fair value.

The Company’s determination of the fair value of stock options on the date of grant utilizes the Black-Scholes option-pricing model, and is impacted by its common stock price as well as assumptions regarding a number of subjective variables. These variables include the expected term that options will remain outstanding, expected common stock price volatility over the term of the option awards, risk-free interest rates and expected dividends. 

The fair value is recognized over the period during which an optionee is required to provide services (usually the vesting period), on a straight-line basis. Stock-based compensation expense recognized at fair value includes the impact of estimated forfeitures. The Company estimates future forfeitures at the date of grant and revises the estimates, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

6


 

Net Loss per Share Attributable to Common Stockholders

Basic and diluted net income (loss) per share is presented in conformity with the two-class method required for participating securities. Under the two-class method, basic net income (loss) per share is computed by dividing the net income (loss) attributable to common shareholders by the weighted-average number of common shares outstanding during the period. Net income (loss) attributable to common shareholders is determined by allocating undistributed earnings between holders of common and convertible preferred shares, based on the contractual dividend rights contained in our preferred share agreement. Where there is an undistributed loss, no amount is allocated to the convertible preferred shares. Diluted net income (loss) per share is computed by dividing net income (loss) by the sum of the weighted average number of common shares and the number of dilutive potential common share equivalents outstanding during the period. Potential dilutive common share equivalents consist of the incremental common shares issuable upon the exercise of vested share options or the conversion of preferred stock.

 

 Potential dilutive common share equivalents consist of:

 

 

January 31,

 

 

 

2017

 

 

2016

 

Preferred Stock

 

 

 

 

 

7,080,395

 

Stock Options

 

 

120,127

 

 

 

73,640

 

 

In computing diluted earnings per share, common share equivalents are not considered in periods in which a net loss is reported, as the inclusion of the common share equivalents would be anti-dilutive. As a result, there is no difference between the Company’s basic and diluted loss per share for the periods presented.

 

Basic and diluted net loss per share

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

 

January 31,

 

 

January 31,

 

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

 

Net loss

 

$

(7,644

)

 

$

(1,952

)

 

$

(14,401

)

 

$

(6,255

)

 

Less: dividend on Series A

 

 

(91

)

 

 

(477

)

 

 

(935

)

 

 

(1,469

)

 

Less: dividend on Series B

 

 

(120

)

 

 

(630

)

 

 

(1,237

)

 

 

(1,521

)

 

Loss available to common shareholders for the purpose of

   calculating basic and diluted net loss per share

 

$

(7,855

)

 

$

(3,059

)

 

$

(16,573

)

 

$

(9,245

)

 

Weighted average common shares, basic and diluted

 

 

7,657,874

 

 

 

630,921

 

 

 

3,013,073

 

 

 

576,181

 

 

Net loss per share, basic and diluted

 

$

(1.03

)

 

$

(4.85

)

 

$

(5.50

)

 

$

(16.05

)

 

 

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards update (“ASU”) 2014-09, “Revenue from Contracts with Customers,” requiring an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The updated standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either the retrospective or cumulative effect transition method. In July 2015, the FASB voted to defer the effective date for annual reporting periods beginning after December 15, 2017 (including interim reporting periods within those periods) and permitted early adoption of the standard, but not before the original effective date of December 15, 2016. The Company expects to adopt the updated standard in the first quarter of fiscal 2018. The Company has not yet selected a transition method, and is currently evaluating the effect that the updated standard will have on the financial statements and related disclosures.

 

In August 2014, the FASB issued Accounting Standards Update 2014-15, Presentation of Financial Statements—Going Concern, on disclosure of uncertainties about an entity’s ability to continue as a going concern. This guidance addresses management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and to provide related footnote disclosures. The guidance is effective for fiscal years beginning after December 15, 2016 and for interim periods within those fiscal years, with early adoption permitted. The Company is still evaluating the impact of this standard on its financial statements.

In February 2016, the FASB issued new lease accounting guidance in Accounting Standards Update No. 2016-02, Leases (Topic 842). Under the new guidance, lessees will be required to recognize for all leases (with the exception of short-term leases) at the commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Lessor accounting, however, remains largely unchanged. In addition, the new lease guidance

7


 

simplified the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. Lessees will no longer be provided with a source of off-balance sheet financing. The new lease guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted, however, the Company does not intend to early adopt. The Company also believes that adoption of this new guidance will not have a material impact on the financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Compensation –Stock Compensation (Topic 718) (“ASU 2016-09”) to require changes to several areas of employee share-based payment accounting in an effort to simplify share-based reporting. The update revises requirements in the following areas: minimum statutory withholding, accounting for income taxes and forfeitures. ASU 2016-09 is effective for annual reporting periods beginning after December 15, 2017. The Company is currently evaluating the impact that the adoption of this guidance may have on the Company’s financial statements.

 

3.

Share Purchase Transaction

On November 21, 2016, KalVista Pharmaceuticals Limited (“KalVista Limited”) completed a share purchase transaction with Carbylan Therapeutics Inc. (“Carbylan”) in an all-stock transaction whereby immediately following the transaction Carbylan’s equity holders owned 19% and KalVista Limited’s equity holders owned 81% of the combined company, respectively. As a result, Carbylan issued approximately eight million shares of common stock to the stockholders of KalVista Limited in exchange for all shares of KalVista Limited.  Carbylan was a clinical-stage specialty pharmaceutical company focusing on the development of Hydros-TA, its proprietary, intra-articular injectable product candidate to treat pain associated with osteoarthritis of the knee.  The combined company was renamed KalVista Pharmaceuticals, Inc. following the transaction.  For accounting purposes, KalVista Limited is considered to be acquiring Carbylan in the transaction, which was determined based upon the terms of the Share Purchase Agreement and other factors including: (i) KalVista Limited security holders own approximately 81% of the voting interests of the combined company immediately following the closing of the transaction; (ii) directors appointed by KalVista Limited hold a majority of board seats in the combined company; and (iii) KalVista Limited management hold all of the key positions in the management of the combined company. As the accounting acquirer, KalVista Limited’s assets and liabilities will be recorded at their pre-combination carrying amounts and the historical operations that are reflected in the financial statements are those of KalVista Limited.  The Company incurred $1.2 million and $2.9 million of expenses for the three and nine months ended January 31, 2017, respectively, related to severance, legal and other professional services in connection with the transaction.

The Company’s consolidated financial statements reflect Carbylan’s results of operations beginning after November 21, 2016.  The results of operations subsequent to November 21, 2016 have not been significant.

The following table sets forth the unaudited pro forma results of operations of KalVista for the three month and year to date periods ended January 31, 2017 and 2016 as if KalVista Limited had acquired Carbylan at May 1, 2015. The pro forma information contains the combined results of actual operations for those periods.  The pro forma amounts have been adjusted to eliminate costs that are nonrecurring and directly attributable to the transaction, including expenses of $3.4 million and $8.4 million for the three and nine months ended January 31, 2017, respectively, related to severance and change in control obligations, directors and officers tail insurance coverage, and legal and other professional service expenses.  These pro forma amounts do not purport to be indicative of the results that would have actually been obtained if the acquisition occurred at the beginning of the period or that may be obtained in the future.

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

January 31,

 

 

January 31,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Total revenues

 

$

252

 

 

$

355

 

 

$

1,408

 

 

$

1,872

 

Net loss

 

 

(9,564

)

 

 

(7,035

)

 

 

(19,963

)

 

 

(21,862

)

 

KalVista has concluded that the transaction represents a business combination pursuant to Financial Accounting Standards Board Accounting Standards Codification Topic 805, Business Combinations.  Under the acquisition method of accounting, the total purchase price is allocated to the acquired tangible and intangible assets and assumed liabilities of Carbylan based on their estimated fair values as of the transaction closing date.  Carbylan had no significant commercial operations and its only significant pre-combination net assets were cash and cash equivalents, accounts payable and accrued expenses which were already recognized at fair value. Pursuant to this reverse acquisition, the Company recorded the shares of common stock held by Carbylan shareholders at the fair value of Carbylan’s net monetary assets received at November 21, 2016 as these values were considered a more reliable indicator of fair value than the trading value of the shares.  No goodwill or intangible assets were recorded in the transaction.

8


 

The preliminary allocation of the total purchase price to the acquired assets and liabilities assumed of Carbylan based on the fair values as of November 21, 2016 is as follows (in thousands):

 

Cash and cash equivalents

 

$

34,139

 

Prepaid expenses and other current assets

 

 

70

 

Accounts payable, accrued expenses and other liabilities

 

 

(3,881

)

Net assets acquired

 

$

30,328

 

 

In connection with the share purchase transaction in November 2016, the Company modified certain options previously granted to purchase shares of KalVista Limited to instead purchase shares of KalVista Pharmaceuticals, Inc.  The Company assessed the modification and determined there was no compensation expense to record related to the modification.

 

4.

Accrued Expenses

Accrued expenses consisted of the following as of (in thousands):

 

 

 

January 31,

 

 

April 30,

 

 

 

2017

 

 

2016

 

Accrued payroll and related expenses

 

$

672

 

 

$

967

 

Accrued research and clinical trial expenses

 

 

959

 

 

 

1,059

 

Accrued professional services

 

 

349

 

 

 

59

 

Other accrued expenses

 

 

466

 

 

 

29

 

 

 

$

2,446

 

 

$

2,114

 

 

 

5.

Commitments and Contingencies

Commitments

The Company is party to several operating leases for office and laboratory space in Cambridge, Massachusetts and Salisbury, United Kingdom that expire at various times in 2017.  The Company pays approximately $20,000 per month for its Cambridge spaces under a lease that expires in April 2017, at which time it can be renewed or cancelled with 30 days’ notice.  The Company pays approximately $11,000 per month for its Salisbury spaces under a lease that expires in November 2017.  The Company is currently evaluating alternatives for both United States and United Kingdom locations to better accommodate existing operations and future growth and anticipates entering into arrangements for new offices and laboratory locations during 2017.  

Contingencies

From time to time, the Company may have certain contingent liabilities that arise in the ordinary course of business activities. The Company accrues a liability for such matters when it is probable that such expenditures can be reasonably estimated. There are no contingent liabilities requiring accrual at January 31, 2017.

As a result of the terms of grant income received in prior years, upon successful regulatory approval and following the first commercial sale of certain products, the Company will be required to pay royalty fees of up to $1 million within 90 days of the first commercial sale of the product subject to certain limitations and follow on payments depending upon commercial success and type of product. Given the stage of development of the current pipeline of products it is not possible to predict with certainty the amount or timing of any such liability.

6.

Grant Income

Grant income is recognized through two agreements. The first agreement is with the Technology Strategy Board (TSB), a United Kingdom government organization. The Company recognizes revenue for reimbursements of research and development costs as the services are performed up to an agreed upon threshold. The Company records these reimbursements as revenue and not as a reduction of research and development expenses, as the Company has the risks and rewards as the principal in the research and development activities. Any services performed and not yet collected upon are shown as a receivable. During the three months ended January 31, 2017 and 2016, revenue recognized through the TSB grant amounted to $235,000 and $313,000, respectively, and amounted to $1.1 million and $1.4 million for the nine months ended January 31, 2017 and 2016, respectively.

9


 

The second agreement is with the JDRF, a non-profit organization. The Company applies the milestone method of accounting to recognize revenue from milestone payments when earned, as evidenced by written acknowledgement from the grantor and other persuasive evidence that the milestone has been achieved and the payment is non-refundable, provided that the milestone event is substantive. A milestone event is defined as an event (i) that can only be achieved based in whole or in part on either the Company’s performance or on the occurrence of a specific outcome resulting from the Company’s performance; (ii) for which there is substantive uncertainty at the inception of the arrangement that the event will be achieved; and (iii) that would result in additional payments being due to the Company. Events for which the occurrence is either contingent solely upon the passage of time or the result of a counterparty’s performance are not considered to be milestone events. A milestone event is substantive if all of the following conditions are met: (i) the consideration is commensurate with either the Company’s performance to achieve the milestone, or the enhancement of the value to the delivered item(s) as a result of a specific outcome resulting from the Company’s performance to achieve the milestone; (ii) the consideration relates solely to past performance; and (iii) the consideration is reasonable relative to all the deliverables and payment terms (including other potential milestone consideration) within the arrangement.

The Company assesses whether a milestone is substantive at the inception of the arrangement. If a milestone is deemed non-substantive, the Company accounts for that milestone payment in accordance with the multiple element arrangements guidance and recognizes revenue consistent with the related units of accounting for the arrangement over the related performance period.

The Company has one contract in process with JDRF accounted for under the milestone method. Milestones may include, for example, the successful completions of clinical trials, development of certain reports, and different review/approval processes. All milestones under the contract in process were deemed substantive based on the fact that the payments are commensurate with the Company’s efforts to achieve the milestone event and the milestones are related to past performance and are non-refundable. During the three months ended January 31, 2017 and 2016, revenue recognized through the achievement of multiple milestones amounted to $0 and $0, respectively, and amounted to $194,000 and $293,000 for the nine months ended January 31, 2017 and 2016, respectively. The last milestone in the JDRF contract was met in May 2016 and no additional revenue is due from this contract.  There are no performance, cancellation, termination or refund provisions in the arrangement that contain material financial consequences to the Company.

The Company evaluates the terms of sponsored research agreement grants and federal grants to assess the Company’s obligations and if the Company’s obligations are satisfied by the passage of time, revenue is recognized as described above. For grants with refund provisions, the Company reviews the grant to determine the likelihood of repayment. If the likelihood of repayment of the grant is determined to be remote, the grant is recognized as revenue. If the probability of repayment is determined to be more than remote, the Company records the grant as a deferred revenue liability, until such time that the grant requirements have been satisfied.

7.

Income Taxes

The Company generated a net loss for the three and nine months ended January 31, 2017 and incurred no tax expense for the three and nine months ended January 31, 2017.  The Company’s effective tax rate is 0% for income tax for the three and nine months ended January 31, 2017 and the Company expects that its effective tax rate for the full fiscal 2017 year will be 0%. Based on the weight of available evidence, including cumulative losses since inception and expected future losses, the Company has determined that it is more likely than not that the deferred tax asset amount will not be realized and therefore a valuation allowance has been provided on net deferred tax assets.

The Company has substantial net operating loss carry forwards available to offset future taxable income for federal and state income tax purposes.  Our ability to utilize our net operating losses is limited due to changes in our ownership as defined by Section 382 of the Internal Revenue Code (the “Code”).  Under the provisions of Sections 382 and 383 of the Code, a change of control, as defined in the Code, imposes an annual limitation on the amount of the Company’s net operating loss and tax credit carryforwards, and other tax attributes that can be used to reduce future tax liabilities.  We determined that an ownership change occurred as a result of the Company’s acquisition in November 2016.  As a result of the November 2016 ownership change, the Company will be limited to utilizing approximately $278,000 of pre-ownership change U.S. federal and California NOLs annually for each of the next 20 years, thereby limiting pre-ownership change net operating loss carryovers to only $5.5 million for both U.S. federal and California purposes.  Furthermore, none of the Company’s federal R&D credit carryforwards will be available due to the Section 383 limitations.  Because California R&D credit carryforwards never expire, none of the California R&D credit carryforwards will expire unutilized, but all of the pre-ownership change California R&D credit carryforwards will be subject to a $24,000 annual limitation.

The Company files tax returns in the United Kingdom as well as U.S. Federal and State of California and Massachusetts tax returns. The Company is not currently subject to any income tax examinations. Since the Company’s inception, the Company has incurred losses from operations, which generally allows all tax years to remain open.

 

10


 

Uncertain Tax Positions

The Company recognizes the financial statement effects of a tax position when it becomes more likely than not, based upon the technical merits, that the position will be sustained upon examination.  The gross amount of unrecognized tax benefits as of January 31, 2017 is approximately $333,000 related to the unrecognized tax benefit on R&D credits, none of which will affect the effective tax rate if recognized due to the valuation allowance. The Company does not expect any material changes in the next 12 months in unrecognized tax benefits.

The Company recognizes interest and/or penalties related to uncertain tax positions. To the extent accrued interest and penalties do not ultimately become payable, amounts accrued will be reduced and reflected in the period that such determination is made. The interest and penalties are recognized as other expense and not tax expense. The Company currently has no interest and penalties related to uncertain tax positions.

 

 

11


 

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing in this report. Some of the information contained in this discussion and analysis or set forth elsewhere in this report, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of our definitive proxy statement filed October 28, 2016 and our Form 8-K/A filed December 20, 2016, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. As used in this report, unless the context suggests otherwise, “we,” “us,” “our,” “the Company” or “KalVista” refer to KalVista Pharmaceuticals, Inc.

Overview

We are a pharmaceuticals company focused on the discovery, development and commercialization of small molecule serine protease inhibitors as new treatments for diseases with significant unmet needs.

Our initial focus is on inhibitors of plasma kallikrein, which is an important component of the body’s inflammatory response, and which in excess can lead to increased vascular permeability, edema and inflammation. We are developing a proprietary portfolio of novel, small molecule plasma kallikrein inhibitors initially targeting hereditary angioedema (HAE) and diabetic macular edema (DME). The first of this planned portfolio of programs, KVD818, is currently in a Phase 1 first-in-human study that commenced in the second half of 2016.  Our most advanced program, an intravitreally administered plasma kallikrein inhibitor known as KVD001, has successfully completed its first-in-human study in patients with DME and is being prepared for Phase II studies later in 2017.

Recent Developments

On November 21, 2016, KalVista Pharmaceuticals Ltd. (“KalVista Limited”) completed a share purchase transaction with Carbylan Therapeutics Inc. (“Carbylan”) in an all-stock transaction whereby, immediately following the transaction, Carbylan’s equity holders owned 19% and KalVista Limited’s equity holders owned 81% of the combined company, respectively. As a result, Carbylan issued approximately eight million shares of common stock to the stockholders of KalVista Limited in exchange for their common shares of KalVista Limited. The combined company was renamed KalVista Pharmaceuticals, Inc. following the transaction.  For accounting purposes, KalVista Limited is considered to be acquiring Carbylan in the transaction, which was determined based upon the terms of the Share Purchase Agreement and other factors including: (i) KalVista Limited security holders own approximately 81% of the voting interests of the combined company immediately following the closing of the transaction; (ii) directors appointed by KalVista Limited hold a majority of board seats in the combined company; and (iii) KalVista Limited management hold all of the key positions in the management of the combined company. As the accounting acquirer, KalVista Limited’s assets and liabilities will be recorded at their pre combination carrying amounts and the historical operations that are reflected in the financial statements are those of KalVista Limited.  The Company’s consolidated financial statements reflect Carbylan’s results of operations beginning after November 21, 2016.  Carbylan has no ongoing operations so the impact of the share purchase transaction on the Company is not significant except for the equity issued and the cash acquired in the transaction.

Grant Income

We have received grant income to support our research and development activities from two main sources; JDRF, a charitable organization based in New York and the Technology Strategy Board (“TSB”), the U.K. Government’s Biomedical Catalyst funding initiative. Through January 31, 2017 JDRF has provided $2.2 million in milestone-based financial support to advance the intravitreal drug program but this program has concluded and no further receipts are expected.  Under the terms of a grant approved in the second calendar quarter of 2015, the TSB will provide a total amount of $7.3 million over the lifetime of the agreements between us and the TSB, to accelerate the development of the oral drug program, of which $5.8 million was received or was due to be received as of January 31, 2017.

Research and Development Expenses

Research and development expenses primarily consist of costs associated with our research activities, including the preclinical and clinical development of product candidates. We contract with clinical research organizations to manage our clinical trials under agreed upon budgets for each study, with oversight by our clinical program managers. We account for all goods and services, including non-refundable advance payments, as expenses, and all research and development costs are expensed as incurred.

12


 

We expect to continue to incur substantial expenses related to development activities for the foreseeable future as we conduct clinical development, manufacturing and toxicology studies. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials, additional drug manufacturing requirements, and later stage toxicology studies such as carcinogenicity studies. The process of conducting preclinical studies and clinical trials necessary to obtain regulatory approval is costly and time consuming. The probability of success for each product candidate is affected by numerous factors, including preclinical data, clinical data, competition, manufacturing capability and commercial viability. Accordingly, we may never succeed in achieving marketing approval for any of our product candidates.

Completion dates and costs for clinical development programs as well as our research program can vary significantly for each current and future product candidate and are difficult to predict. As a result, we cannot estimate with any degree of certainty the costs associated with development of our product candidates at this point in time. We anticipate making determinations as to which programs and product candidates to pursue and how much funding to direct to each program and product candidate on an ongoing basis in response to the scientific success of early research programs, results of ongoing and future clinical trials, our ability to enter into collaborative agreements with respect to programs or potential product candidates, as well as ongoing assessments as to each current or future product candidate’s commercial potential.

General and Administrative Expenses

General and administrative expenses consist primarily of the costs associated with general management, obtaining and maintaining our patent portfolio, professional fees for accounting, auditing, consulting and legal services, and general overhead expenses.

We expect ongoing general and administrative expenses to increase in the future as we expand our operating activities, maintain and expand the patent portfolio and incur additional costs associated with the management of a public company and maintaining compliance with exchange listing and SEC requirements. These potential increases will likely include management costs, legal fees, accounting fees, directors’ and officers’ liability insurance premiums and expenses associated with investor relations.

Other Income

Other income consists of bank interest, research and development tax credits from the U.K. government’s tax incentive programs set up to encourage research and development in the United Kingdom and realized and unrealized exchange rate gains/losses on cash held in foreign currencies.

Income Taxes

We historically have incurred net losses and have no corporation tax liabilities. Under the U.K. government’s research and development tax incentive scheme, we have surrendered tax losses in exchange for research and development tax credits in accordance with the relevant tax legislation.

Results of Operations

Comparison of three months ended January 31, 2017 and 2016

The following table sets forth the key components of our results of operations for the three months ended January 31, 2017 and 2016 (in thousands):

 

 

 

Three Months Ended

 

 

 

 

 

 

 

 

January 31,

 

 

Increase

 

 

 

 

2017

 

 

2016

 

 

(decrease)

 

 

Income

 

 

 

 

 

 

 

 

 

 

 

 

 

Grant Income

 

$

248

 

 

$

348

 

 

$

(100

)

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development expenses

 

 

3,339

 

 

 

3,622

 

 

 

(283

)

 

General and administrative expenses

 

 

5,026

 

 

 

541

 

 

 

4,485

 

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest, exchange rate gain (loss) and other income