Kala Pharma: Rare Eye Disease Biotech Lottery Ticket Based On Stem Cell Platform

Kala Pharmaceuticals (NASDAQ:KALA) is a great speculative biotech play to look into. The reason why I state that is because it received IND clearance from the FDA to initiate a phase 2b study, using its therapy known as KPI-012, for the treatment of patients with persistent corneal epithelial defect (PCED). It expects to initiate this late-stage study in Q1 of 2023, which will be a major catalyst for traders/investors to look forward to. The reason why I state that this is a lottery ticket is because the biotech expects to report final results from this phase 2b study in Q1 of 2024. If the results are positive, not only would it provide proof that its Mesenchymal Stem Cell Secretome (MSC-S) Platform works in treating PCED, but that it could also work in treating other rare eye diseases as well. The only downside is that such a “lottery ticket” would take time to materialize since this phase 2b study only serves as one of the first two studies necessary to eventually receive FDA approval of KPI-012 for the treatment of patients with PCED. It ended Q3 of 2022 with about $54.2 million in cash, which it believed would be enough to fund its operations into Q2 of 2024. While an ideal amount of cash on hand, it was able to establish a private placement agreement with an investor to receive two tranches of cash. The first tranche of $6 million was achieved and then the second tranche of $25 million was obtained with the IND acceptance of KPI-012 for PCED. With this newly acquired cash by this private placement agreement of $31 million, there is no major risk of dilution for traders/investors to worry about. With a data readout of its phase 2b study using KPI-012 for PCED in Q1 of 2024, plus the ability to use its MSC-C platform technology towards other rare eye diseases, these are the reasons why I believe it is a great speculative biotech play to look into.

KPI-012 For The Treatment Of Patients With Rare Eye Disease

The IND of KPI-012 for the treatment of patients with persistent corneal epithelial defect (PCED) was accepted by the FDA on December 27, 2022. KPI-012 was developed using Kala Pharmaceuticals’ proprietary mesenchymal stem cell secretome (MSC-S) platform. Persistent corneal epithelial defect is a non-healing corneal defect or wound in the eye which is rare. However, what makes this a good target for the biotech to go after is because many patients who receive conventional treatments don’t respond. As such, this remains a huge unmet medical need that it can tap into. It is not a very large patient population, as only about an estimated 100,000 cases per year arise. The thing is that the wound that these PCED patients receive fails to close within a period of time of about 10 to 14 days after an injury.

Besides this rare eye disease being an unmet medical need, a reason for Kala to develop a product such as KPI-012 would be because of no responsive treatment options for PCED, which can ultimately lead to infection and vision loss. No responsive treatment, meaning that despite patients receiving conventional standard of care (SOC) therapies, they don’t respond to them. This particular therapy was developed for the treatment of PCED as noted above, but since it is part of the MSC-S platform, there might be success in targeting other rare eye diseases. There is massive potential with the use of the MSC-S platform towards PCED and other rare eye diseases, because of the advantages it has over other stem cell treatment types. That is, the secretome protein from the MSC-S platform provides multiple functions, which may be suitable to treat a host of rare eye diseases. These multiple factors include:

• Tissue Repair
• Wound Healing
• Immunomodulatory (modulating cell functions)
• Anti-inflammatory
• Neuroprotective (protection against further injury)

How does the secretome in the MSC-S platform achieve such functions? Well, the secretome protein holds the ability to decrease apoptosis (decrease cell death rate), induce proliferation (increase number of healthy cells active) and promote ability to develop extracellular matrix (large protein network developed outside of the cell to act as a bridge to other cells). All of these reasons highlighted above, are the reasons why the secretome MSC-S platform holds potential to address not only PCED, but multiple types of rare eye diseases. Matter of fact, Kala is in preclinical development of using its platform towards other rare eye disease like: Partial Limbal Stem Cell Deficiency (LSCD), Ocular manifestation of Sjorgen’s Syndrome and rare inherited retinal diseases.

The phase 2b study, using KPI-012 for the treatment of patients with PCED, is expected to begin in Q1 of 2023. This study will explore the use of KPI-012 ophthalmic solution compared to vehicle when dosed topically up to 4 times per day for 56 days. It is expected that about 90 adults with PCED will be enrolled in this trial. The primary endpoint is going to be complete healing of PCED, which will be measured by corneal fluorescein staining. Traders/investors have a major catalyst to look forward to, because final results from this phase 2b study using KPI-012 for the treatment of patients with PCED, are expected to be released in Q1 of 2024. A downside, which I noted above, is that this trial will only serve as one of the two pivotal trials needed to possibly submit a Biologics Licensing Application (BLA) to the FDA. This means, it will have to eventually initiate another late-stage study to support potential approval of KPI-012 for this specific patient population.

It’s hard to say for sure whether or not this study is going to be successful. However, prior released results from a phase 1b study lends a lot of confidence going forward. It was shown that 6 out of 8 patients recruited who took KPI-012 were able to achieve complete healing of their PCED. That’s not bad considering how other conventional treatments tend not to work. Also, there are two other patients to point out and the outcome was as follows:

• One patient just ended up withdrawing, but had nothing to do with efficacy of the drug itself
• One patient achieved improvement of PCED, but complete healing was not observed

I believe this therapy holds great potential, thus if proven in the phase 2b study, could mean a huge lottery ticket for traders/investors. The basis of being so upbeat about the data is that it didn’t take a lot of time for most of these patients to achieve complete healing when given KPI-012. The quickest healing was observed with 4 patients, in which complete healing was achieved within the first week. The rest of the patients followed with complete healing after 2 to 4 weeks of treatment. Those who did achieve complete healing of PCED, did so all the way through the end of their follow-up period. Most importantly, no safety issues were noted for those who received this MSC-S therapy. I am encouraged by this data, but at the very same time this was only tested in a total of 8 patients. That’s why I still think proof of concept has not yet been fully accomplished. It is also why the phase 2b study is recruiting 90 patients. I still urge caution with respect to the phase 1b data, because once the “n” number changes (number of patients) recruited just like the phase 2b study, then the results at the end may be radically different compared to this already released data.

Financials

According to the 10-Q SEC Filing, Kala Pharmaceuticals had cash and cash equivalents of $52.4 million as of September 30, 2022. It believed that this cash on hand would be enough to fund its operations into Q2 of 2024. Despite that, it was able to develop a private placement agreement with an investor for $31 million. This was done in two tranches, both of which have already been received. Based on its prior guidance of cash of $52.4 million lasting until Q2 of 2024, plus the newly acquired private placement agreement of $31 million, it should have no need to raise any additional cash until at least 2025. The only way I believe it might need to go out and raise cash earlier is if it obtains positive results from the phase 2b study using KPI-012 for PCED in Q1 of 2024. In that case, then I believe it will raise cash immediately.

Risks To Business

There are several risks that traders/investors should be aware of before investing in this biotech. The first risk to consider would be with respect to the upcoming phase 2b study, which is using KPI-012 for the treatment of patients with PCED. That’s because even though complete healing of PCED was achieved in the prior phase 1b study noted above, there were only a total of 8 patients tested. There is no guarantee that similar or better results will be achieved in the upcoming phase 2b study with 90 patients being recruited. The second risk to consider would be with respect to the MSC-S platform. That’s because the entire biotech’s pipeline hinges on establishing proof of concept of this platform against rare retinal disorders. While a failure in one indication doesn’t automatically mean a failure in others, it won’t be in a good position to make a case for new investors to speculate. The final risk to consider would be with respect to the financials. It had completed a private placement agreement, but as I stated above, if the phase 2b results in Q1 of 2024 are positive, then I expect an immediate cash raise.

Conclusion

The final conclusion is that Kala Pharmaceuticals is a great speculative biotech play to look into. The reason why I state that is because it has been able to achieve complete healing of PCED in about 6 out of 8 patients. It’s important to note that one of the eight patients withdrew early not due to efficacy of KPI-012 and then the other patient saw an improvement but didn’t achieve complete healing. It will be important to see if this data can be achieved in the upcoming phase 2b study, which is expected to have results released in Q1 of 2024. If KPI-102 is proven to work in most of the 90 patients, then that bodes well for the MSC-S platform doing well against the other indications that are in the pipeline. The downside again is that the phase 2b study, which is expected to begin any day now in Q1 of 2023, is only one of the two studies necessary for a BLA to be filed of KPI-012 for PCED. A second late-stage study is going to be necessary for Kala to eventually be able to receive FDA approval of this MSC-C treatment. Based on initial proof of concept established of using KPI-012 for PCED, plus the ability to use its MSC-S platform tech towards other rare eye diseases, these are the reasons why I believe that Kala Pharmaceuticals is a great speculative biotech play to look into.

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