kzr-10q_20190930.htm

75

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended September 30, 2019

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 November 4, 2019, the registrant had 19,141,645 shares of common stock, $0.001 par value per share, outstanding.

 

 

 

 


Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

2

 

Condensed Consolidated Balance Sheets

2

 

Condensed Consolidated Statements of Operations

3

 

Condensed Consolidated Statements of Comprehensive Loss

4

 

Condensed Consolidated Statement of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)

5

 

Condensed Consolidated Statements of Cash Flows

6

 

Notes to Unaudited Condensed Consolidated Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

17

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

24

Item 4.

Controls and Procedures

24

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

24

Item 1A.

Risk Factors

25

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

59

Item 3.

Defaults Upon Senior Securities

59

Item 4.

Mine Safety Disclosures

59

Item 5.

Other Information

59

Item 6.

Exhibits

60

 

 

 

 

 

i


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

 

our plans to develop and commercialize our product candidates;

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

the impact of government laws and regulations;

 

developments relating to our competitors and our industry; and

 

the factors that may impact our financial results.

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

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

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

 

 

1


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

KEZAR LIFE SCIENCES, INC.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share amounts)

 

 

 

September 30, 2019

 

 

December 31, 2018

 

 

 

(Unaudited)

 

 

(Note 2)

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

20,365

 

 

$

24,182

 

Marketable securities

 

 

64,878

 

 

 

83,250

 

Prepaid expenses

 

 

2,462

 

 

 

1,884

 

Other current assets

 

 

1,098

 

 

 

489

 

Total current assets

 

 

88,803

 

 

 

109,805

 

Property and equipment, net

 

 

4,509

 

 

 

4,595

 

Operating lease right-of-use asset

 

 

3,929

 

 

 

 

Other assets

 

 

282

 

 

 

282

 

Total assets

 

$

97,523

 

 

$

114,682

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

824

 

 

$

193

 

Accrued liabilities

 

 

3,560

 

 

 

2,678

 

Operating lease liabilities, current

 

 

868

 

 

 

 

Deferred rent, current

 

 

 

 

 

354

 

Other liabilities, current

 

 

75

 

 

 

112

 

Total current liabilities

 

 

5,327

 

 

 

3,337

 

Operating lease liabilities, noncurrent

 

 

5,699

 

 

 

 

Deferred rent

 

 

 

 

 

2,548

 

Total liabilities

 

 

11,026

 

 

 

5,885

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Common stock, $0.001 par value, 125,000,000 shares authorized as of September 30,

   2019 (unaudited) and December 31, 2018; 19,141,645 and 19,114,421 shares issued

   and outstanding as of September 30, 2019 (unaudited) and December 31, 2018,

   respectively

 

 

19

 

 

 

19

 

Preferred stock, $0.001 par value, 10,000,000 shares authorized as of

   September 30, 2019 (unaudited) and December 31, 2018; zero shares issued and

   outstanding as of September 30, 2019 (unaudited) and December 31, 2018

 

 

 

 

 

 

Additional paid-in capital

 

 

161,405

 

 

 

158,176

 

Accumulated other comprehensive loss

 

 

(224

)

 

 

(203

)

Accumulated deficit

 

 

(74,703

)

 

 

(49,195

)

Total stockholders' equity

 

 

86,497

 

 

 

108,797

 

Total liabilities and stockholders' equity

 

$

97,523

 

 

$

114,682

 

 

See accompanying notes to the unaudited interim condensed consolidated financial statements

 

 

2


KEZAR LIFE SCIENCES, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except share and per share amounts)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

7,080

 

 

$

4,664

 

 

$

19,932

 

 

$

13,463

 

General and administrative

 

 

2,601

 

 

 

1,600

 

 

 

7,413

 

 

 

4,837

 

Total operating expenses

 

 

9,681

 

 

 

6,264

 

 

 

27,345

 

 

 

18,300

 

Loss from operations

 

 

(9,681

)

 

 

(6,264

)

 

 

(27,345

)

 

 

(18,300

)

Interest income

 

 

533

 

 

 

601

 

 

 

1,837

 

 

 

915

 

Net loss

 

$

(9,148

)

 

$

(5,663

)

 

$

(25,508

)

 

$

(17,385

)

Net loss per common share, basic and diluted

 

$

(0.48

)

 

$

(0.30

)

 

$

(1.34

)

 

$

(2.38

)

Weighted-average shares used to compute net loss per common

   share, basic and diluted

 

 

19,095,870

 

 

 

18,955,384

 

 

 

19,070,937

 

 

 

7,319,012

 

 

See accompanying notes to the unaudited interim condensed consolidated financial statements

 

3


KEZAR LIFE SCIENCES, INC.

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)

(In thousands)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net loss

 

$

(9,148

)

 

$

(5,663

)

 

$

(25,508

)

 

$

(17,385

)

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(42

)

 

 

(14

)

 

 

(83

)

 

 

(23

)

Unrealized (loss) gain on marketable securities

 

 

(26

)

 

 

(26

)

 

 

62

 

 

 

(26

)

Total other comprehensive loss, net of tax

 

 

(68

)

 

 

(40

)

 

 

(21

)

 

 

(49

)

Comprehensive loss

 

$

(9,216

)

 

$

(5,703

)

 

$

(25,529

)

 

$

(17,434

)

 

See accompanying notes to the unaudited interim condensed consolidated financial statements

 

 

 

4


KEZAR LIFE SCIENCES, INC.

Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit)

(Unaudited)

(In thousands, except share amounts)

 

 

 

REDEEMABLE

CONVERTIBLE

PREFERRED STOCK

 

 

 

COMMON STOCK

 

 

ADDITIONAL

PAID-IN

 

 

ACCUMULATED

OTHER

COMPREHENSIVE

 

 

ACCUMULATED

 

 

TOTAL

STOCKHOLDERS'

 

 

 

SHARES

 

 

AMOUNTS

 

 

 

SHARES

 

 

AMOUNTS

 

 

CAPITAL

 

 

INCOME (LOSS)

 

 

DEFICIT

 

 

EQUITY

 

Balance at December 31, 2018

 

 

 

 

$

 

 

 

 

19,114,421

 

 

$

19

 

 

$

158,176

 

 

$

(203

)

 

$

(49,195

)

 

$

108,797

 

Issuance of common stock upon exercise of

   stock options

 

 

 

 

 

 

 

 

 

4,000

 

 

 

 

 

 

4

 

 

 

 

 

 

 

 

 

4

 

Vesting related to shares of common stock issued

   pursuant to early exercises

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12

 

 

 

 

 

 

 

 

 

12

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

901

 

 

 

 

 

 

 

 

 

901

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

73

 

 

 

 

 

 

73

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,642

)

 

 

(7,642

)

Balance at March 31, 2019

 

 

 

 

$

 

 

 

 

19,118,421

 

 

$

19

 

 

$

159,093

 

 

$

(130

)

 

$

(56,837

)

 

$

102,145

 

Issuance of common stock upon exercise of

   stock options

 

 

 

 

 

 

 

 

 

14,224

 

 

 

 

 

 

180

 

 

 

 

 

 

 

 

 

180

 

Vesting related to shares of common stock issued

   pursuant to early exercises

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13

 

 

 

 

 

 

 

 

 

13

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,009

 

 

 

 

 

 

 

 

 

1,009

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(26

)

 

 

 

 

 

(26

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,718

)

 

 

(8,718

)

Balance at June 30, 2019

 

 

 

 

$

 

 

 

 

19,132,645

 

 

$

19

 

 

$

160,295

 

 

$

(156

)

 

$

(65,555

)

 

$

94,603

 

Issuance of common stock upon exercise of

   stock options

 

 

 

 

 

 

 

 

 

9,000

 

 

 

 

 

 

8

 

 

 

 

 

 

 

 

 

8

 

Vesting related to shares of common stock issued

   pursuant to early exercises

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12

 

 

 

 

 

 

 

 

 

12

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,090

 

 

 

 

 

 

 

 

 

1,090

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(68

)

 

 

 

 

 

(68

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,148

)

 

 

(9,148

)

Balance at September 30, 2019

 

 

 

 

$

 

 

 

 

19,141,645

 

 

$

19

 

 

$

161,405

 

 

$

(224

)

 

$

(74,703

)

 

$

86,497

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

REDEEMABLE

CONVERTIBLE

PREFERRED STOCK

 

 

 

COMMON STOCK

 

 

ADDITIONAL

PAID-IN

 

 

ACCUMULATED

OTHER

COMPREHENSIVE

 

 

ACCUMULATED

 

 

TOTAL

STOCKHOLDERS'

EQUITY

 

 

 

SHARES

 

 

AMOUNTS

 

 

 

SHARES

 

 

AMOUNTS

 

 

CAPITAL

 

 

INCOME (LOSS)

 

 

DEFICIT

 

 

(DEFICIT)

 

Balance at December 31, 2017

 

 

12,263,126

 

 

$

77,931

 

 

 

 

948,578

 

 

$

1

 

 

$

451

 

 

$

(111

)

 

$

(26,028

)

 

$

(25,687

)

Issuance of common stock upon exercise of stock

   options, net of amount related to early

   exercised options

 

 

 

 

 

 

 

 

 

109,818

 

 

 

 

 

 

25

 

 

 

 

 

 

 

 

 

25

 

Vesting related to shares of common stock issued

   pursuant to early exercises

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17

 

 

 

 

 

 

 

 

 

17

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

126

 

 

 

 

 

 

 

 

 

126

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(23

)

 

 

 

 

 

(23

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,947

)

 

 

(4,947

)

Balance at March 31, 2018

 

 

12,263,126

 

 

$

77,931

 

 

 

 

1,058,396

 

 

$

1

 

 

$

619

 

 

$

(134

)

 

$

(30,975

)

 

$

(30,489

)

Conversion of redeemable convertible preferred stock

   to common stock

 

 

(12,263,126

)

 

 

(77,931

)

 

 

 

12,263,126

 

 

 

12

 

 

 

77,919

 

 

 

 

 

 

 

 

 

 

 

77,931

 

Issuance of common stock upon initial public offering,

   net of issuance costs

 

 

 

 

 

 

 

 

 

5,750,000

 

 

 

6

 

 

 

77,635

 

 

 

 

 

 

 

 

 

77,641

 

Issuance of common stock upon exercise of stock

   options, net of amount related to early

   exercised options

 

 

 

 

 

 

 

 

 

26,510

 

 

 

 

 

 

24

 

 

 

 

 

 

 

 

 

24

 

Issuance of common stock upon vesting of

   restricted stock units

 

 

 

 

 

 

 

 

 

10,189

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vesting related to shares of common stock issued

   pursuant to early exercises

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7

 

 

 

 

 

 

 

 

 

7

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

988

 

 

 

 

 

 

 

 

 

988

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14

 

 

 

 

 

 

14

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,775

)

 

 

(6,775

)

Balance at June 30, 2018

 

 

 

 

$

 

 

 

 

19,108,221

 

 

$

19

 

 

$

157,192

 

 

$

(120

)

 

$

(37,750

)

 

$

119,341

 

Issuing costs of common stock related to

   initial public offering

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

54

 

 

 

 

 

 

 

 

 

54

 

Vesting related to shares of common stock issued

   pursuant to early exercises

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5

 

 

 

 

 

 

 

 

 

5

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

430

 

 

 

 

 

 

 

 

 

430

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(40

)

 

 

 

 

 

(40

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,663

)

 

 

(5,663

)

Balance at September 30, 2018

 

 

 

 

$

 

 

 

 

19,108,221

 

 

$

19

 

 

$

157,681

 

 

$

(160

)

 

$

(43,413

)

 

$

114,127

 

 

See accompanying notes to the unaudited interim condensed consolidated financial statements

 

 

5


KEZAR LIFE SCIENCES, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(25,508

)

 

$

(17,385

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

961

 

 

 

486

 

Stock-based compensation

 

 

3,000

 

 

 

1,544

 

Amortization of premiums and discounts on marketable securities

 

 

(896

)

 

 

(192

)

Loss on disposal of property and equipment

 

 

 

 

 

97

 

Changes in operating assets and liabilities

 

 

 

 

 

 

 

 

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

 

 

(1,187

)

 

 

(1,272

)

Accounts payable, accrued liabilities and other current liabilities

 

 

1,534

 

 

 

1,619

 

Deferred rent

 

 

 

 

 

(216

)

Operating lease liabilities

 

 

(571

)

 

 

 

Net cash used in operating activities

 

 

(22,667

)

 

 

(15,319

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(589

)

 

 

(1,003

)

Purchases of marketable securities

 

 

(86,571

)

 

 

(72,995

)

Maturities of marketable securities

 

 

105,901

 

 

 

 

Proceeds from sale of property and equipment

 

 

 

 

 

10

 

Net cash provided by (used in) investing activities

 

 

18,741

 

 

 

(73,988

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock, net of issuance costs

 

 

 

 

 

77,695

 

Proceeds from issuance of common stock under employee equity plans

 

 

192

 

 

 

213

 

Net cash provided by financing activities

 

 

192

 

 

 

77,908

 

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

 

(83

)

 

 

(53

)

Net decrease in cash, cash equivalents and restricted cash

 

 

(3,817

)

 

 

(11,452

)

Cash, cash equivalents and restricted cash at the beginning of period

 

 

24,182

 

 

 

51,046

 

Cash, cash equivalents and restricted cash at the end of period

 

$

20,365

 

 

$

39,594

 

Supplemental disclosures of noncash investing and financing information:

 

 

 

 

 

 

 

 

Reclassification of employee stock liability to equity upon vesting

 

$

37

 

 

$

29

 

Addition of tenant improvement paid by landlord