UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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
(Exact name of Registrant as specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of principal executive offices) |
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Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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The |
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.
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).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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
The number of shares of Registrant’s Common Stock outstanding as of May 13, 2024 was
Table of Contents
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1 |
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PART I |
3 |
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Item 1. |
3 |
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3 |
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4 |
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Condensed Consolidated Statements of Shareholders' Equity (Deficit) |
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6 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
7 |
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
20 |
Item 3. |
27 |
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Item 4. |
27 |
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PART II |
29 |
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Item 1. |
29 |
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Item 1A. |
29 |
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Item 2. |
30 |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
31 |
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32 |
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i
CAUTIONARY STATEMENT
In February 2024, Kineta, Inc. (the “Company”) initiated a process to explore a range of strategic alternatives to maximize shareholder value. Potential strategic alternatives that may be evaluated include sale of assets of the Company, a sale of the Company, licensing of assets, a merger, liquidation or other strategic action. There is no set timetable for this process and there can be no assurance that this process will result in the Company pursuing a transaction or that any transaction, if pursued, will be completed on attractive terms. Additionally, there can be no assurances that any particular course of action, business arrangement or transaction, or series of transactions, will be pursued, successfully consummated, or lead to increased stockholder value. If the strategic process is unsuccessful, the Company’s Board of Directors (the “Board”) may decide to pursue a liquidation or obtain relief under the US Bankruptcy Code.
Kineta, Inc. cautions that trading in the Company’s securities is highly speculative and poses substantial risks. Trading prices for the Company’s securities may bear little or no relationship to the actual value realized, if any, by holders of the Company’s securities. Accordingly, the Company urges extreme caution with respect to existing and future investments in its securities.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains certain statements that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the “safe harbor” provisions of the United States Private Securities Litigation Reform Act of 1995. In some cases, you can identify these forward-looking statements by the use of terms such as “expect,” “will,” “continue,” “believe,” “estimate,” “aim,” “project,” “intend,” “should,” “is to be,” or similar expressions, and variations or negatives of these words, but the absence of these words does not mean that a statement is not forward-looking. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. These forward-looking statements are subject to known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance, or achievements to differ materially from results expressed or implied in this Quarterly Report on Form 10-Q. The following factors, among others, could cause actual results to differ materially from those described in these forward-looking statements:
1
The forward-looking statements contained in this Quarterly Report on Form 10-Q and the documents incorporated herein by reference are based on our current expectations and beliefs concerning future developments and their potential effects on our business. There can be no assurance that future developments affecting our business will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described under the caption “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q and under similar headings in the documents that are incorporated by reference herein.
Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all such risk factors, nor can we assess the effect of all such risk factors on our business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. Should one or more of these risks or uncertainties materialize, or should any of the assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements.
The forward-looking statements made by us in this Quarterly Report on Form 10-Q and the documents incorporated herein by reference speak only as of the date of such statement. Except to the extent required under the federal securities laws and rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”), we disclaim any obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. In light of these risks and uncertainties, there is no assurance that the events or results suggested by the forward-looking statements will in fact occur, and you should not place undue reliance on these forward-looking statements.
Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law, you are advised to consult any additional disclosures we make in the documents that we file with the SEC.
Additional Information
Unless the context otherwise requires, references to the “Company,” “Kineta,” “we,” “our” or “us” in this Quarterly Report on Form 10-Q refer to Kineta, Inc. and its subsidiaries.
2
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
KINETA, INC.
Condensed Consolidated Balance Sheets
(in thousands)
(Unaudited)
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March 31, |
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December 31, |
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2024 |
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2023 |
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Assets |
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Current assets: |
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Cash |
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$ |
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$ |
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Restricted cash |
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Prepaid expenses and other current assets |
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Total current assets |
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Operating right-of-use asset |
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Rights from Private Placement |
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Total assets |
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$ |
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$ |
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Liabilities and Stockholders’ Equity (Deficit) |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued expenses and other current liabilities |
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Notes payable, current portion |
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Operating lease liability, current portion |
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Total current liabilities |
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Notes payable, net of current portion |
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Total liabilities |
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Stockholders’ Equity (Deficit): |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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( |
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( |
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Total stockholders’ equity (deficit) attributable to Kineta, Inc. |
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( |
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Noncontrolling interest |
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Total stockholders’ equity (deficit) |
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( |
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Total liabilities and stockholders’ equity (deficit) |
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$ |
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$ |
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See the accompanying notes to the unaudited condensed consolidated financial statements.
3
KINETA, INC.
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
(Unaudited)
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Three Months Ended March 31, |
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2024 |
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2023 |
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Revenues: |
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Collaboration revenues |
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$ |
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$ |
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Total revenues |
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Operating expenses: |
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Research and development |
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General and administrative |
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Total operating expenses |
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Loss from operations |
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( |
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Other (expense) income: |
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Interest income |
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Interest expense |
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( |
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( |
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Change in fair value of rights from Private Placement |
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( |
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Change in fair value measurement of notes payable |
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( |
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( |
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Other income (expense), net |
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( |
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( |
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Total other (expense) income, net |
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( |
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Net loss |
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$ |
( |
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$ |
( |
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Net loss attributable to noncontrolling interest |
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( |
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( |
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Net loss attributable to Kineta, Inc. |
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$ |
( |
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$ |
( |
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Net loss per share, basic and diluted |
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$ |
( |
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$ |
( |
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Weighted-average shares outstanding, basic and diluted |
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See the accompanying notes to the unaudited condensed consolidated financial statements.
4
KINETA, INC.
(in thousands)
(Unaudited)
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Common Stock |
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Additional Paid-In Capital |
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Accumulated |
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Total Shareholders’ Equity (Deficit) Attributable |
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Noncontrolling |
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Total Shareholders’ |
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Shares |
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Amount |
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Amount |
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Deficit |
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to Kineta |
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Interest |
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Equity (Deficit) |
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Balance as of December 31, 2022 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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$ |
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Issuance of common stock |
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— |
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— |
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Issuance of common stock upon |
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— |
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— |
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— |
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Issuance of common stock upon vesting of RSUs |
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— |
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— |
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— |
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— |
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— |
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— |
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Issuance of common stock for services |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
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( |
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( |
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( |
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Balance as of March 31, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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$ |
( |
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Common Stock |
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Additional Paid-In Capital |
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Accumulated |
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Total Stockholders’ Equity (Deficit) Attributable |
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Noncontrolling |
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Total Stockholders’ |
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Shares |
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Amount |
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Amount |
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Deficit |
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to Kineta |
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Interest |
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Equity (Deficit) |
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Balance as of December 31, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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$ |
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Issuance of common stock upon exercise of warrants |
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— |
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— |
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— |
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Issuance of common stock for services |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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( |
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( |
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( |
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( |
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Balance as of March 31, 2024 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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$ |
( |
) |
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See the accompanying notes to the unaudited condensed consolidated financial statements.
5
KINETA, INC.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
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Three Months Ended March 31, |
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2024 |
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2023 |
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Operating activities: |
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Net loss |
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$ |
( |
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$ |
( |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Change in fair value of rights from Private Placement |
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Change in fair value of notes payable |
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Non-cash stock-based compensation |
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Non-cash operating lease expense |
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Depreciation and amortization |
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Common stock issued for services |
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Non-cash interest expense |
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Gain on disposal of asset |
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( |
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Changes in operating assets and liabilities: |
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Prepaid expenses and other current assets |
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( |
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Accounts payable |
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Accrued expenses and other current liabilities |
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( |
) |
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( |
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Operating lease liability |
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( |
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( |
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Deferred revenue |
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( |
) |
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Net cash used in operating activities |
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( |
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( |
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Investing activities: |
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Proceeds from sale of property and equipment |
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Net cash provided by investing activities |
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Financing activities: |
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Proceeds from issuance of common stock and pre-funded warrants |
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Proceeds from exercise of warrants |
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Repayments of finance lease liabilities |
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Net cash provided by financing activities |
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Net change in cash and restricted cash |
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( |
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( |
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Cash and restricted cash at beginning of year |
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Cash and restricted cash at end of year |
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$ |
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$ |
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Components of cash and restricted cash: |
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Cash |
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$ |
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$ |
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Restricted cash |
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Total cash and restricted cash |
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$ |
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$ |
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Supplemental disclosure of cash flow information: |
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Cash paid for interest |
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$ |
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$ |
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See the accompanying notes to the unaudited condensed consolidated financial statements.
6
KINETA, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Description of Business
Kineta, Inc. (together with its subsidiaries, “Kineta” or the “Company”) is headquartered in Mercer Island, Washington.
The Company is a clinical-stage biotechnology company with a mission to develop next-generation immunotherapies that transform patients’ lives. Kineta has leveraged its expertise in innate immunity and is focused on discovering and developing potentially differentiated immunotherapies that address the mechanisms of cancer immune resistance. Kineta Chronic Pain, LLC (“KCP”) was formed to develop new innovative therapies for pain management. Kineta Viral Hemorrhagic Fever, LLC (“KVHF”) was formed to develop a direct acting anti-viral therapy for the treatment of emerging diseases.
As of March 31, 2024 and December 31, 2023, the Company owned a majority interest of the outstanding issued equity of KCP and all of the outstanding issued equity of KVHF. On November 30, 2023, the Company dissolved KVHF and assumed all of the outstanding issued equity. As of March 31, 2024, the Company owns a majority interest of the outstanding issued equity of KCP.
Private Placement
On December 16, 2022, Yumanity Therapeutics, Inc. (“Yumanity”) completed its previously announced merger transaction with Kineta Operating, Inc. (formerly Kineta, Inc.) (“Private Kineta”) in accordance with the terms of the Agreement and Plan of Merger, dated as of June 5, 2022, as amended on December 5, 2022 (the “Merger Agreement”), by and among Yumanity, Private Kineta and Yacht Merger Sub, Inc., a wholly-owned subsidiary of Yumanity (“Merger Sub”), pursuant to which Merger Sub merged with and into Private Kineta, with Private Kineta surviving such merger as a wholly-owned subsidiary of Yumanity (the “Merger”). In connection and concurrently with the execution of the Merger Agreement, the Company entered into a financing agreement, dated as of June 5, 2022, as amended on October 24, 2022, December 5, 2022, March 29, 2023, May 1, 2023, July 21, 2023 and October 13, 2023 (such financing agreement, as amended, the “Securities Purchase Agreement”), to sell shares of the Company’s common stock in a private placement (the “Private Placement”). The first closing of the Private Placement occurred on December 16, 2022, and the Company issued
Going Concern and Capital Resources
The Company has incurred recurring net losses and negative cash flows from operations since inception and, as of March 31, 2024, had an accumulated deficit of $
Kineta is exploring strategic alternatives that may include, but are not limited to, sale of assets of the Company, a sale of the Company, licensing of assets, a merger, liquidation or other strategic action.
Kineta may seek additional funds through equity or debt financings or through collaborations, licensing transactions or other sources that may be identified through the Company’s strategic process. However, there can be no assurance that Kineta will be able to complete any such transactions on acceptable terms or otherwise. The failure to obtain sufficient funds on commercially acceptable terms when needed would have a material adverse effect on Kineta’s business, results of operations, and financial condition. These factors raise substantial doubt about Kineta’s ability to continue as a going concern.
Kineta does not currently have any commitments for future funding or additional capital. As noted above, the investors failed to fulfill their contractual obligation to consummate the Private Placement. The Company is pursuing litigation or seeking other settlements against the investors for the failure to fund. Due to the lack of commitments for future funding or additional capital, Kineta has paused or significantly scaled back the development or commercialization of its future product candidates or other research and development initiatives. If Kineta is unable to complete a strategic transaction or raise additional capital in sufficient amounts, Kineta will not be able to continue its business and the Company may need to file for bankruptcy protection.
Geopolitical Developments
Geopolitical developments, such as the current conflict in Ukraine and the conflict in Israel and the Gaza Strip or deterioration in the bilateral relationship between the United States and China, may impact government spending, international trade and market stability, and cause weaker macro-economic conditions. The impact of these developments, including any resulting sanctions, export controls or other restrictive actions that
7
may be imposed against governmental or other entities in, for example, Russia, have in the past contributed and may in the future contribute to disruption, instability and volatility in the global markets, which in turn could adversely impact the Company’s operations and weaken the Company’s financial results. Certain political developments may also lead to uncertainty to regulations and rules that may materially affect the Company’s business.
Unaudited Interim Financial Information
The unaudited condensed consolidated balance sheet as of December 31, 2023 was derived from the Company’s audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America (“U.S. GAAP”). The accompanying unaudited condensed consolidated financial statements, as of March 31, 2024 and for the three months ended March 31, 2024, are unaudited and have been prepared by the Company pursuant to the rules and regulations of the SEC for interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. The Company believes that the disclosures are adequate to make the information presented not misleading. There have been no changes to the Company’s significant accounting policies described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 21, 2024 (the “2023 Annual Report on Form 10-K”). These unaudited condensed financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto for the year ended December 31, 2023 included in the 2023 Annual Report on Form 10-K. In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the Company’s condensed consolidated financial position as of March 31, 2024 and condensed consolidated results of operations and cash flows for the three months ended March 31, 2024 and 2023 have been made. The results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2024.
Basis of Presentation and Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP and applicable SEC rules. The condensed consolidated financial statements include all accounts of the Company, its majority owned subsidiary KCP, and its wholly owned subsidiary, KVHF. All intercompany transactions and balances have been eliminated upon consolidation.
Noncontrolling interest in the accompanying condensed consolidated financial statements represents the proportionate share of equity which is not held by the Company. Net income (loss) of the non-wholly owned consolidated subsidiary is allocated to the Company and the holder(s) of the noncontrolling interests in proportion to their percentage ownership considering any preferences specific to the form of equity of the subsidiaries.
Revenue Recognition
Collaboration Revenues
In connection with the Merger, the Company became the successor in interest to an exclusive license and research collaboration agreement (the “Merck Neuromuscular License Agreement”) with Merck to support research, development and commercialization of products for treatment of neuromuscular diseases, including amyotrophic lateral sclerosis. The Company recognizes revenue using the cost-to-cost method, which it believes best depicts the transfer of control to the customer. Under the cost-to-cost method, the extent of progress towards completion is measured based on the ratio of actual costs incurred to the total estimated costs expected upon satisfying the identified performance obligation. Under this method, revenue is recognized as a percentage of actual cost incurred to the estimated costs to complete. The Company recognized collaboration revenues of
Net loss per share
Basic net loss per common share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding for the period. Diluted net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding for the period, including potential dilutive common shares assuming the dilutive effect of outstanding common share equivalents. Diluted net loss per share is the same as basic net loss per share, since the effects of potentially dilutive securities are antidilutive given the net loss for each period presented. In computing basic net loss per share, nominal issuances of common stock, including warrants to purchase the Company’s common stock with exercise prices of $
The carrying amounts of the Company’s financial instruments, including cash, restricted cash, and accounts payable, approximate fair value due to the short-term nature of those instruments.
8
Rights from Private Placement
The Company determined that the rights from Private Placement is a derivative asset, which requires the asset to be accounted for at fair value. The fair value was determined using a Monte Carlo simulation based on the contractual funding date at the measurement date, minimum contractual purchase price of $
The following table provides a summary of the changes in the fair value of the rights from Private Placement measured using Level 3 inputs:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
|
(in thousands) |
|
|||||
Balance at beginning of period |
|
$ |
|
|
$ |
|
||
Change in fair value of rights from Private Placement |
|
|
( |
) |
|
|
|
|
Balance at end of period |
|
$ |
|
|
$ |
|
||
2020 Note
The Company elected the fair value option to account for the 2020 note (see Note 5).
The Company did not obtain an independent valuation of the 2020 note as it matures on July 31, 2024 and the fair value approximates the principal amount.
The significant unobservable inputs used in the fair value measurement of the 2020 note for the three months ended March 31, 2023 were as follows: discount rate of
The following table provides a summary of the changes in the fair value of the 2020 notes payable measured using Level 3 inputs:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
|
(in thousands) |
|
|||||
Balance at beginning of period |
|
$ |
|
|
$ |
|
||
Change in fair value of 2020 notes |
|
|
|
|
|
|
||
Balance at end of period |
|
$ |
|
|
$ |
|
||
Property and Equipment, Net
There was
Depreciation and amortization expense was
Rights from Private Placement
In connection and concurrently with the execution of the Merger Agreement, the Company entered into the Securities Purchase Agreement to sell shares of the Company’s common stock in the Private Placement. The first closing of the Private Placement occurred on December 16, 2022, and the Company issued
9
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following as of the periods presented:
|
|
March 31, |
|
|
December 31, |
|
||
|
|
2024 |
|
|
2023 |
|
||
|
|
(in thousands) |
|
|||||
Accrued clinical trial and preclinical costs |
|
$ |
|
|
$ |
|
||
Accrued interest |
|
|
|
|
|
|
||
Compensation and benefits |
|
|
|
|
|
|
||
Professional services |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total accrued expenses and other current liabilities |
|
$ |
|
|
$ |
|
||
Notes payable outstanding consisted of the following as of the periods presented:
|
|
March 31, 2024 |
|
|
December 31, 2023 |
|
||||||||||
|
|
Principal |
|
|
Fair Value |
|
|
Principal |
|
|
Fair Value |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Notes payable: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
2020 notes |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Other notes payable |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Small Business Administration loan |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total notes payable |
|
$ |
|
|
|
|
|
$ |
|
|
|
|
||||
Less: current portion |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Notes payable, net of current portion |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
The Company elected the fair value option for the 2020 notes (see Note 3). The other notes payable and Small Business Administration loan approximate their fair value because interest rates are at prevailing market rates.
Expected future minimum principal payments under the Company’s notes payables as of March 31, 2024 were as follows:
|
|
Total |
|
|
|
|
(in thousands) |
|
|
Years |
|
|
|
|
Remainder of 2024 |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
Thereafter |
|
|
|
|
Total notes payable |
|
$ |
|
|
Less: current portion |
|
|
|
|
Notes payable, net of current portion |
|
$ |
|
|
2020 Notes
In October 2020, the Company refinanced certain notes payable (the “2020 notes”), with an aggregate principal amount of $
In August 2022, the Company settled $
10
to July 31, 2024 and reduced the interest rate to
Other Notes Payable
The Company issued several other notes payable in 2019 and early 2020 at a
The other notes payable were amended in October 2020 to increase the interest rate to
Small Business Administration Loan
In August 2020, the Company received a U.S. Small Business Administration loan of $
Leases
Operating Lease
The Company leases office and laboratory premises in Seattle, Washington pursuant to a lease agreement that commenced in April 2011 and expires in . The agreement requires monthly lease payments, is subject to annual rent escalations during the lease term, and
Under the lease agreement, the Company is required to pay certain operating costs, in addition to rent, such as common area maintenance, taxes and utilities. Such additional charges are considered variable lease costs and are recognized in the period in which they are incurred. Rent expense was $
The Company’s operating leases include various covenants, indemnities, defaults, termination rights, security deposits and other provisions customary for lease transactions of this nature.
Future undiscounted payments due under the operating lease as of March 31, 2024 were as follows:
Years |
|
(in thousands) |
|
|
2024 |
|
$ |
|
|
Less: Imputed interest |
|
|
( |
) |
Operating lease liability |
|
|
|
|
Less: Operating lease liability, current portion |
|
|
( |
) |
Operating lease liability, net of current portion |
|
$ |
|
|
Supplemental information on the Company’s operating leases was as follows:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Cash paid for operating lease agreement (in thousands) |
|
$ |
|
|
$ |
|
||
Remaining lease term (in years) |
|
|
|
|
|
|
||
Incremental borrowing rate |
|
|
% |
|
|
% |
||
The Company subleases portions of its premises in Seattle, Washington to third parties. Under the first sublease agreement, which commenced in December 2017, the Company subleases approximately
11
Indemnification
In the ordinary course of business, the Company enters into agreements that may include indemnification provisions. Pursuant to such agreements, the Company may indemnify, hold harmless and defend an indemnified party for losses suffered or incurred by the indemnified party. Some of the provisions will limit losses to those arising from third-party actions. In some cases, the indemnification will continue after the termination of the agreement. The maximum potential amount of future payments the Company could be required to make under these provisions is not determinable. The Company has not incurred material costs to defend lawsuits or settle claims related to these indemnification provisions. The Company has also entered into indemnification agreements with its directors and officers that may require the Company to indemnify its directors and officers against liabilities that may arise by reason of their status or service as directors or officers to the fullest extent permitted under the Delaware General Corporation Law. The Company currently has directors’ and officers’ insurance.
Other Commitments
The Company has various manufacturing, clinical, research and other contracts with vendors in the conduct of the normal course of its business. Such contracts are generally terminable with advanced written notice and payment for any products or services received by the Company through the effective time of termination and any noncancelable and nonrefundable obligations incurred by the vendor at the effective time of the termination. In the case of terminating a clinical trial agreement at a particular site, the Company would also be obligated to provide continued support for appropriate medical procedures at that site until completion or termination.
Executive Employment and Separation Agreements
On September 20, 2022, the Company entered into an at-will employment agreement (“Baker Employment Agreement”), which became effective on October 3, 2022, with Keith Baker, its Chief Financial Officer. On September 28, 2022, the Company entered into at-will employment agreements (together with the Baker Employment Agreement, the “Executive Employment Agreements”), which became effective on December 16, 2022 upon the closing of the Merger, with Shawn Iadonato, its former Chief Executive Officer, Craig Philips, its President, and Pauline Kenny, its former General Counsel. On April 23, 2023, the Company’s board of directors (the “Board”) approved salary increases effective at the next payroll period and bonus increases for fiscal year 2023 to Shawn Iadonato, Craig Philips, Keith Baker, and Pauline Kenny.
As part of the Company’s reduction in workforce plan, the Company terminated the employment of Shawn Iadonato and Pauline Kenny, each effective as of March 1, 2024, without cause. In connection with Dr. Iadonato’s departure, the Company entered into a separation and release agreement with Dr. Iadonato (the “Iadonato Separation Agreement”). Pursuant to the Iadonato Separation Agreement, Dr. Iadonato received payment equal to 80 hours of accrued but unused paid time off and two weeks worth of wages, which, in aggregate, is equal to $
In connection with Ms. Kenny’s departure, the Company entered into a separation and release agreement with Ms. Kenny (the “Kenny Separation Agreement”). Pursuant to the Kenny Separation Agreement, Ms. Kenny received payment equal to 80 hours of accrued but unused paid time off and two weeks worth of wages, which, in aggregate, is equal to $
The Executive Employment Agreements referenced above provide that, if the executive’s employment is terminated without Cause (as defined in the Executive Employment Agreements) or the executive resigns for Good Reason (as defined in the Executive Employment Agreements), provided that the executive signs the Release (as defined in the Executive Employment Agreement), the executive will be entitled to (i) accrued compensation, (ii) 39 weeks of pay (currently estimated at approximately $
Anti-VISTA Antibody Program In-License Agreement
In August 2020, Kineta entered into an Option and License Agreement with GigaGen, Inc. (“GigaGen”), which was amended in November 2020 and further amended in May 2023 (such agreement, as amended, the “VISTA Agreement”) to in-license certain intellectual property and antibodies for the VISTA/KVA12123 drug program. Pursuant to the terms of the VISTA Agreement, GigaGen granted Kineta an exclusive (even as to GigaGen) world-wide license, with the right to grant sublicenses to research, develop, make, have made, use, have used, offer for sale, sell, have sold, distribute, import, have imported, export and have exported and otherwise exploit the licensed antibodies and licensed products. License expenses for the VISTA Agreement were
Under the VISTA Agreement, GigaGen is eligible to receive approximately $
12
The VISTA Agreement shall remain in effect on a licensed product-by-licensed product and country-by-country basis, until the expiration of the royalty term for a licensed product in a country, which, based on the expiration of the last-to-expire valid claim of the two current patent applications (without any patent term adjustment or extensions) would be February 2042 and March 2044, respectively. Kineta may terminate the VISTA Agreement with 30 days’ written notice to GigaGen. Either party has the right to terminate the VISTA Agreement upon a material breach of the other party that is not cured within 90 days after the breaching party receives written notice of such breach from the non-breaching party.
Anti-CD27 Agonist Antibody Program In-License Agreement
In June 2021, Kineta entered into an Option and License Agreement with GigaGen, as amended in July 2022, December 2022, May 2023 and December 2023 (such agreement, as amended, the “CD27 Agreement”) to in-license certain intellectual property rights and antibodies for the CD27 drug program. Pursuant to the terms of the CD27 Agreement, GigaGen granted Kineta an exclusive (even as to GigaGen) world-wide license, with the right to grant sublicenses to research, develop, make, have made, use, have used, offer for sale, sell, have sold, distribute, import, have imported, export and have exported and otherwise exploit the licensed antibodies and licensed products. License expenses for the CD27 Agreement were $
Under the CD27 Agreement, GigaGen is eligible to receive approximately $
The CD27 Agreement shall remain in effect on a licensed product-by-licensed product and country-by-country basis, until the expiration of the royalty term for a licensed product in a country, which, based on the expiration of the last-to-expire valid claim of the current provisional patent application (without any patent term adjustment or extensions) would be September 2044. Kineta may terminate the CD27 Agreement with 30 days’ written notice to GigaGen. Either party has the right to terminate the CD27 Agreement upon a material breach of the other party that is not cured within 90 days after the breaching party receives written notice of such breach from the non-breaching party.
Merck Neuromuscular License Agreement
In connection with the Merger, the Company became the successor in interest to an exclusive license and research collaboration agreement (the “Merck Neuromuscular License Agreement”) with Merck to support research, development and commercialization of products for treatment of neuromuscular diseases, including amyotrophic lateral sclerosis. In June 2023, the Company achieved a development milestone pursuant to the Merck Neuromuscular License Agreement, which triggered a $
Warrants to Purchase Common Stock
As of March 31, 2024, the Company had issued and outstanding warrants to purchase shares of the Company’s common stock as follows, which all met the condition for equity classification (in thousands):
Year |
|
Expiration |
|
Number Outstanding as of December 31, 2023 |
|
|
Issued |
|
|
Exercised |
|
|
Cancelled/Expired |
|
|
Number Outstanding as of March 31, 2024 |
|
|
Range of |
|||||
2017 |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
$ |
|||
2019 |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
$ |
|||
2022 |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
$ |
|||
2023 |
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
$ |
|||
Total number of shares |
|
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
||
13
Warrant Exercises
During the three months ended March 31, 2024, the Company issued
As of March 31, 2023, the Company had issued and outstanding warrants to purchase shares of the Company’s common stock as follows, which all met the condition for equity classification (in thousands):
Year |
|
Expiration |
|
Number Outstanding as of December 31, 2022 |
|
|
Issued |
|
|
Exercised |
|
|
Cancelled/Expired |
|
|
Number Outstanding as of March 31, 2023 |
|
|
Range of |
|
||||||
2013 |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
$ |
|
||||
2017 |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
$ |
|
||||
2019 |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
$ |
|
||||
2020 |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
$ |
|
||||
2022 |
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
$ |
|
||||
Total number of shares underlying warrants |
|
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
|
|||
During the three months ended March 31, 2023, the Company issued
Common Stock
As of March 31, 2024, there were
Common stock reserved for future issuance consisted of the following as the period presented:
|
|
March 31, |
|
|
|
|
(in thousands) |
|
|
Shares reserved for stock options and restricted stock units to purchase |
|
|
|
|
Shares reserved for future issuance of equity awards |
|
|
|
|
Shares reserved for exercise of warrants |
|
|
|
|
Total |
|
|
|
|
During the three months ended March 31, 2024, the Company issued
During the three months ended March 31, 2024, the Company issued
During the three months ended March 31, 2024, the Company issued
During the three months ended March 31, 2023, the Company sold
During the three months ended March 31, 2023, the Company issued
During the three months ended March 31, 2023, the Company issued
14
Private Placement
The Private Placement (see Note 1) provides for the issuance of shares of the Company’s common stock in two closings, one of which occurred immediately following the closing of the Merger and one of which was expected to occur on April 15, 2024. The first closing of the Private Placement occurred on December 16, 2022 and the Company issued
In connection with the Private Placement in December 2022, the Company issued
The second closing of the Private Placement was expected to occur on April 15, 2024, however, the investors failed to fulfill their contractual obligation to fund and the second closing did not occur. Had the second closing of the Private Placement occurred, the Company would have been obligated to issue a number of shares of its common stock based on the aggregate purchase price of $
The following table shows the activity for the Company’s collaboration revenue agreement and deferred revenue (in thousands):
|
|
March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
|
(in thousands) |
|
|||||
Balance as of beginning of period |
|
$ |
|
|
$ |
|
||
Decrease for provision of research services |
|
|
|
|
|
( |
) |
|
Balance as of end of period |
|
$ |
|
|
$ |
|
||
Merck
In connection with the Merger, the Company became the successor in interest to the Merck Neuromuscular License Agreement with Merck to support research, development and commercialization of products for treatment of neuromuscular diseases, including amyotrophic lateral sclerosis (“ALS”). The Company recognized
2008 Equity Incentive Plan
The Company’s 2008 Equity Incentive Plan (the “2008 Plan”) provided for the grant of incentive stock options, non-statutory stock options, restricted stock awards and restricted stock units to employees and non-employee service providers of the Company. Under the 2008 Plan, the exercise price of stock options granted were at
In 2018, the 2008 Plan expired and
2010 Equity Incentive Plan
The Company’s 2010 Equity Incentive Plan (the “2010 Plan”) provided for the grant of incentive stock option, non-statutory stock options, stock appreciation rights, restricted stock awards and restricted stock unit awards to employees and non-employee service providers of the Company. Under the 2010 Plan, the exercise price of stock options granted were at
15
based on terms determined by the Company’s board of directors or other plan administrator on the date of grant, which is continued employment or service as defined in each option agreement. Stock appreciation rights (“SARs”) provide a participant with the right to receive the aggregate appreciation in stock price over the market price of the Company’s common stock at the date of grant, payable in cash. The rights granted have varying vesting terms, including SARs that vest immediately on the grant date and upon satisfaction of the service-based requirement, typically three to five years. The maximum fair value is limited to four times the exercise price.
In February 2020, the 2010 Plan expired and
2020 Equity Incentive Plan
The Company’s 2020 Equity Incentive Plan (the “2020 Plan”) authorizes the grant of equity awards for up to
The 2020 Plan provides for the grant of incentive stock options, non-statutory stock options and restricted stock to employees and non-employee service providers. Under the 2020 Plan, the contractual term of stock options shall not exceed ten years and the exercise price of stock options granted shall not be less than
In December 2022, the 2020 Plan expired and
2022 Equity Incentive Plan
In December 2022, the Company approved the 2022 Equity Incentive Plan (the “2022 Plan”). The 2022 Plan provides for the grant of incentive stock option, non-statutory stock options, restricted stock, restricted stock units, stock appreciation rights (“SARs”), performance units and performance shares to employees, directors and independent contractors of the Company. Under the 2022 Plan, the exercise price of stock options grants shall be at
Stock Option Activity
The following table summarizes stock option activity under the Company’s equity incentive plans:
|
|
Outstanding Stock Options |
|
|
Weighted-Average Exercise Price Per Share |
|
|
Weighted-Average Remaining Contractual Term (years) |
|
|
Aggregate Intrinsic Value |
|
||||
|
|
(in thousands, except per share amounts and years) |
|
|||||||||||||
December 31, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Granted |
|
|
|
|
$ |
|
|
|
|
|
|
|
||||
Exercised |
|
|
|
|
$ |
|
|
|
|
|
|
|
||||
Forfeited |
|
|
( |
) |
|
$ |
|
|
|
|
|
|
|
|||
Expired |
|
|
( |
) |
|
$ |
|
|
|
|
|
|
|
|||
Outstanding as of March 31, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Exercisable as of March 31, 2024 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Fair Value of Stock Options
The Company did
Restricted Stock
The Company has granted restricted stock units (“RSUs”) under its equity incentive plans with both service-based and performance-based vesting conditions. As of March 31, 2024, the Company’s outstanding RSUs are time-based and have a grant date fair value of $
16
The following table summarizes the Company’s restricted stock activity consisting of RSUs:
|
|
Number of Restricted Stock (RSUs) |
|
|
Weighted-Average Grant Date Fair Value Per Share |
|
||
|
|
(in thousands, excepts per share amounts) |
|
|||||
Outstanding and unvested as of December 31, 2023 |
|
|
|
|
$ |
|
||
Exercised/Released |
|
|
( |
) |
|
$ |
|
|
Cancelled/Forfeited |
|
|
|
|
$ |
|
||
Outstanding and unvested as of March 31, 2024 |
|
|
|
|
$ |
|
||
Stock-Based Compensation
The following table summarizes total stock-based compensation included in the Company’s consolidated statements of operations:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
|
(in thousands) |
|
|||||
Research and development |
|
$ |
|
|
$ |
|
||
General and administrative |
|
|
|
|
|
|
||
Total stock-based compensation |
|
$ |
|
|
$ |
|
||
As of March 31, 2024, there was $
The following table summarizes the computation of basic and diluted net loss per share:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
(in thousands, excepts per share amounts) |
|
||||||
Numerator: |
|
|
|
|
|
|
||
Net loss attributable to Kineta, Inc. |
|
$ |
( |
) |
|
$ |
( |
) |
Denominator: |
|
|
|
|
|
|
||
Weighted-average common shares outstanding, basic and diluted(1) |
|
|
|
|
|
|
||
Net loss per share, basic and diluted |
|
$ |
( |
) |
|
$ |
( |
) |
(1)
The following outstanding potentially dilutive common stock equivalents were excluded from the computation of diluted net loss per share as of the periods presented because including them would have been antidilutive:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
|
(in thousands) |
|
|||||
Warrants to purchase common stock |
|
|
|
|
|
|
||
Common stock options |
|
|
|
|
|
|
||
Vested restricted stock subject to recall |
|
|
|
|
|
|
||
Unvested restricted stock subject to repurchase |
|
|
|
|
|
|
||
Total |
|
|
|
|
|
|
||
Defined Contribution Plan
The Company sponsors a 401(k) Plan whereby all employees are eligible to participate in the 401(k) Plan after meeting certain eligibility requirements. Participants may elect to have a portion of their salary deferred and contributed to the 401(k) plan, subject to certain limitations. The Company provided matching contributions of $
17
Stock Purchases
During the three months ended March 31, 2023, five members of the Company’s executive management purchased
The Company evaluated subsequent events through the date these consolidated financial statements were issued.
Annual Stock Awards and Employee Retention Policy
On April 11, 2024, the Compensation Committee of the Board approved and on April 14, 2024, the Board approved and adopted the Annual Stock Awards and Employee Retention Policy (the “Policy”), which will provide retention awards to key employees, including certain of the Company’s named executive officers. Under the Policy, the Company’s former Chief Executive Officer and the Company’s Chair of the Board, Shawn Iadonato, Ph.D., the Company’s President, Craig W. Philips, the Company’s Chief Financial Officer, Keith A. Baker, and the Company’s Chief Scientific Officer, Thierry Guillaudeux, Ph.D., received option awards to purchase
Cash Retention Plan
On April 11, 2024, the Compensation Committee approved and on April 14, 2024, the Board approved and adopted the Cash Retention Plan (the “Plan”) to further align management’s interest with that of investors and to ensure retention of key employees, including certain of the Company’s named executive officers. Under the Plan, the following one-time bonuses will be paid within 30 days of the funding of a Qualified Transaction (as defined in the Plan): $
Nasdaq Bid Price Deficiency Letter
On April 18, 2024, the Company received written notice (the “Notice”) from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) stating that the Company is not in compliance with Nasdaq Listing Rule 5550(a)(2) (the “Rule”) because the Company has not maintained a minimum closing bid price of the Company’s common stock of at least $
The Company has 180 calendar days from the date of the Notice, or until
Compliance can be achieved during any compliance period by meeting the applicable standard for a minimum of
If the Company does not regain compliance with the bid price requirement within the compliance period, the Company’s common stock will be subject to delisting. In the event the Company receives notice that the Company’s common stock is being delisted, Nasdaq’s rules permit the Company to appeal the delisting determination by the Nasdaq staff to a hearings panel.
The Company intends to monitor the bid price of the Company’s listed securities and may, if appropriate, consider available options to regain compliance with the bid price requirement.
There can be no assurance that the Company will be able to regain compliance with the bid price requirement.
18
Settlement Agreement and Mutual Release
On April 22, 2024, the Company entered into a settlement agreement and mutual release (the “Settlement Agreement”) by and between the Company and RLB Holdings Connecticut, LLC (“RLB”) to continue RLB’s investment in the Company and to resolve any and all potential claims or causes of action in connection with RLB’s failure to purchase $
Pursuant to the Settlement Agreement, within five (5) days of the Agreement, RLB shall purchase $
19
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, 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 this Quarterly Report on Form 10-Q, 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.
Overview
On February 29, 2024, we announced that we had completed a review of our business, including the status of our programs, resources and
capabilities. Following this review, we implemented a significant corporate restructuring to substantially reduce expenses and preserve cash. The restructuring included a reduction in our workforce by approximately 64% and the termination of enrollment of new patients in our ongoing VISTA-101 Phase 1/2 clinical trial evaluating KVA12123 in patients with advanced solid tumors. Patients currently enrolled in the trial will be permitted to continue to participate. We have made this decision, in part, because certain investors have indicated they will not be able to fulfill their contractual obligation to consummate the Private Placement (as defined below).
Due to the fact that we are unable to consummate the Private Placement, management and the Board has determined that it was in the best interests of the stockholders to seek a strategic alternative so that we could continue to operate. If the strategic process is unsuccessful, the Board may decide to pursue a liquidation or obtain relief under the US Bankruptcy Code.
The Company cautions that trading in the Company’s securities is highly speculative and poses substantial risks. Trading prices for the Company’s securities may bear little or no relationship to the actual value realized, if any, by holders of the Company’s securities. In the event of liquidation, bankruptcy or other wind-down event, holders of our securities will likely suffer a total loss of their investment. Accordingly, the Company urges extreme caution with respect to existing and future investments in its securities.
We are a clinical-stage biotechnology company with a mission to develop next-generation immunotherapies that transform patients’ lives. We have leveraged our expertise in innate immunity and are focused on discovering and developing potentially differentiated immunotherapies that address the mechanisms of cancer immune resistance:
Our pipeline of assets and research interests includes (i) KVA12123, a monoclonal antibody (“mAb”) immunotherapy targeting VISTA (V-domain Ig suppressor of T cell activation) and (ii) an anti-CD27 agonist mAb immunotherapy. These immunotherapies have the potential to address disease areas with unmet medical needs and significant commercial potential.
KVA12123 is a VISTA blocking immunotherapy in development as an intravenous infusion dosed every two weeks. We dosed the first patient in a Phase 1/2 clinical trial of KVA12123 in the United States in April 2023. The ongoing Phase 1/2 clinical study is designed to evaluate KVA12123 as a monotherapy and in combination with the immune checkpoint inhibitor pembrolizumab in patients with advanced solid tumors. Initial monotherapy safety, pharmacokinetic and biomarker data were presented at the Society for Immunotherapy of Cancer’s (SITC) annual meeting in November 2023. KVA12123 was designed to be a differentiated VISTA blocking immunotherapy to address the problem of immunosuppression in the TME. It is a fully human engineered IgG1 monoclonal antibody that binds to VISTA through a unique epitope and across neutral and acidic pHs. KVA12123 may be an effective immunotherapy for many types of cancer, including non-small cell lung cancer (“NSCLC”), colorectal cancer (“CRC”), ovarian cancer (“OC”), renal cell carcinoma (“RCC”) and head and neck squamous cell carcinoma (“HNSCC”). These indications represent a significant unmet medical need with a large worldwide commercial opportunity for KVA12123.
We are also developing an anti-CD27 agonist mAb immunotherapy to address the problem of exhausted T cells. The nominated lead candidate is a fully human mAb that demonstrates nanomolar (“nM”) binding affinity to CD27 in humans. In preclinical studies, our lead anti-CD27 candidate demonstrated antitumor efficacy as a single agent and in combination with other immunotherapies in multiple solid and hematological preclinical tumor models. CD27 is a clinically validated target that may be an effective immunotherapy for advanced solid tumors including RCC, CRC and OC. We continue to conduct preclinical studies to optimize its lead anti-CD27 agonist mAb clinical candidate and to evaluate it in combination with other checkpoint inhibitors.
According to Market Data Forecast, the immuno-oncology market generated sales of approximately $111 billion in 2023 and is forecast to reach $201 billion in 2028. If we successfully complete the clinical trial program for KVA12123 and if we subsequently obtain regulatory approval for KVA12123, we will focus on initial target indications in NSCLC, CRC and OC. Initially the clinical development of KVA12123 will be as a second-line therapy in these indications. These three cancer therapy segments represent a forecasted $48 billion market opportunity in 2027 according to GlobalData.
We are a leader in the field of innate immunity and are focused on developing potentially differentiated immunotherapies. With KVA12123 in clinical development and the lead anti-CD27 agonist mAb in preclinical development, we believe we are positioned to achieve multiple value-driving
20
catalysts. We have assembled an experienced management team, a seasoned research and clinical team, an immuno-oncology focused scientific advisory board, and a leading intellectual property position to advance our pipeline of potential novel immunotherapies for cancer patients.
Since our inception in 2007, we have devoted substantially all of our resources to raising capital, licensing certain technology and intellectual property rights, identifying and developing potential product candidates, conducting research and development activities, including preclinical studies and clinical trials, organizing and staffing operations and providing general and administrative support for these operations.
We have no products approved for commercial sale and have not generated any revenue from product sales. To date, revenue has been generated from the out-licensing of certain rights to third parties, providing research services under licensing and collaboration agreements as well as revenue from government grants.
We have never been profitable and have incurred operating losses in each period since inception. Our net losses were $10.2 million for the three months ended March 31, 2024 and $6.5 million for the three months ended March 31, 2023. As of March 31, 2024, we had an accumulated deficit of $176.0 million.
We expect to incur significant expenses and continued operating losses for at least the next several years as we initiate and continue the clinical development of, and seek regulatory approval for, our product candidates and add personnel necessary to advance our pipeline of clinical-stage product candidates. In addition, operating as a publicly-traded company will involve the hiring of additional financial and other personnel, and the incurrence of substantial other costs associated with operating as a public company. We expect that our operating losses will fluctuate significantly from quarter to quarter and year to year due to timing of clinical development programs and efforts to achieve regulatory approval.
From inception to March 31, 2024, we have raised cash from sales and issuances of common stock and borrowings under notes payable. As of March 31, 2024, we had cash of $1.8 million, and there is substantial doubt about our ability to continue as a going concern. For more information, see the risk factor in Item 1A. of this Quarterly Report on Form 10-Q entitled, “Kineta identified conditions and events that raise substantial doubt about its ability to continue as a going concern, Kineta needs substantial additional funding, and if Kineta is unable to raise capital when needed or on favorable terms, its business, financial condition, and results of operation could be materially and adversely affected.”
Private Placement
In connection and concurrently with the execution of the Merger Agreement, we entered into the Securities Purchase Agreement with certain investors to sell shares of our common stock to such investors in the Private Placement. We and the investors entered into an amendment to the Securities Purchase Agreement on October 13, 2023 to, among other things, extend the date of the second closing from October 31, 2023 to April 15, 2024.
The first closing of the Private Placement occurred on December 16, 2022 and we issued 649,346 shares of our common stock and received net proceeds of $7.4 million. The second closing of the Private Placement for an aggregate purchase price of $22.5 million was expected to occur on April 15, 2024, however, the investors failed to fulfill their contractual obligation to fund and the second closing did not occur. We are pursuing litigation or seeking other settlements against the investors for the failure to fund.
Geopolitical Developments
Geopolitical developments, such as the Russian invasion of Ukraine, the conflict in Israel and the Gaza Strip or deterioration in the bilateral relationship between the United States and China, may impact government spending, international trade and market stability, and cause weaker macro-economic conditions. The impact of these developments, including any resulting sanctions, export controls or other restrictive actions that may be imposed against governmental or other entities in, for example, Russia, have in the past contributed and may in the future contribute to disruption, instability and volatility in the global markets, which in turn could adversely impact our operations and weaken our financial results. Certain political developments may also lead to uncertainty to regulations and rules that may materially affect our business.
Nasdaq Bid Price Deficiency Letter
On April 18, 2024, the Company received written notice (the “Notice”) from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) stating that the Company is not in compliance with Nasdaq Listing Rule 5550(a)(2) (the “Rule”) because the Company has not maintained a minimum closing bid price of the Company’s common stock of at least $1.00 per share for the last 30 consecutive business days. The Notice has no immediate effect on the listing or trading of the Company’s securities.
The Company has 180 calendar days from the date of the Notice, or until October 15, 2024, to regain compliance. If the Company is not deemed in compliance before the expiration of the 180 day compliance period, it will be afforded an additional 180 day compliance period, provided that on the 180th day of the first compliance period it meets the applicable market value of publicly held shares requirement for continued listing and all other applicable standards for initial listing on The Nasdaq Capital Market (except the bid price requirement) based on the Company's most recent public filings and market information and provides written notice to Nasdaq of its intention to cure this deficiency during the second compliance period.
Compliance can be achieved during any compliance period by meeting the applicable standard for a minimum of 10 consecutive business days during the applicable compliance period, unless Nasdaq exercises its discretion to extend this 10 day period as discussed in Rule 5810(c)(3)(H).
21
If the Company does not regain compliance with the bid price requirement within the compliance period, the Company’s common stock will be subject to delisting. In the event the Company receives notice that the Company’s common stock is being delisted, Nasdaq’s rules permit the Company to appeal the delisting determination by the Nasdaq staff to a hearings panel.
The Company intends to monitor the bid price of the Company’s listed securities and may, if appropriate, consider available options to regain compliance with the bid price requirement.
There can be no assurance that the Company will be able to regain compliance with the bid price requirement.
Financial Operations Overview
Revenues
To date, we have not generated any revenue from product sales and do not expect to generate any revenue from product sales in the near future. Our revenues have been primarily derived from our collaboration, research and license agreements as well as grants awarded by government agencies.
We have completed research and development services under the grant agreements and do not expect to recognize any revenue during 2024.
Operating Expenses
Research and Development Expenses
Research and development expenses represent costs incurred in connection with the discovery, research, preclinical and clinical development, and manufacture of our product candidates. We recognize all research and development costs as they are incurred. Research and development expenses consist primarily of the following:
Subject to receiving adequate funding, we expect our research and development expenses to increase in the future as we advance our product candidates into and through clinical trials and pursue regulatory approvals, which will require a significant investment in costs of clinical trials, regulatory support and contract manufacturing. In addition, we continue to evaluate opportunities to acquire or in-license other product candidates and technologies, which may result in higher research and development expenses due to license fee and/or milestone payments, as well as added clinical development costs.
As we are working on multiple research and development programs at any one time, we track our external expenses by the stage of program, clinical or preclinical. However, our internal expenses, including unallocated costs, personnel costs and infrastructure costs, are not directly related to any one program and are deployed across multiple programs. As such, we do not track internal expenses on a specific program basis.
The process of conducting clinical trials necessary to obtain regulatory approval is costly and time consuming. We may never succeed in timely developing and achieving regulatory approval for our product candidates. The probability of success of our product candidates may be affected by numerous factors, including clinical data, competition, manufacturing capability and commercial viability. As a result, we are unable to determine the duration and completion costs of our development projects or when and to what extent we will generate revenue from the commercialization and sale of any of our future product candidates.
General and Administrative Expenses
General and administrative expenses consist primarily of employee-related expenses, including salaries, benefits and stock-based compensation for personnel in executive, finance and accounting, and other administrative functions, as well as fees paid for legal, accounting and tax services, consulting fees and facilities costs not otherwise included in research and development expenses. Legal costs include general corporate legal fees and patent costs. We also incur expenses to operate as a public company, including expenses related to compliance with the rules and regulations of the
22
SEC and Nasdaq, additional insurance, investor relations and other administrative expenses and professional services. Subject to receiving adequate funding, we expect our general and administrative expenses to be lower in 2024 as a result of the corporate restructuring announced in February 2024.
Other (Expense) Income
Interest Income
Interest income consists of interest earned on short-term money market accounts.
Interest Expense
Interest expense consists of interest charged on outstanding invoices and outstanding borrowings under several notes payable agreements.
Change in Fair Value Measurement of Rights from Private Placement
Change in fair value of other asset relates to the remeasurement of the rights from Private Placement that we determined was a derivative, which requires the asset to be accounted for at fair value. Until settlement, the rights from Private Placement is remeasured at fair value at each reporting period with the changes in fair value recorded in the statement of operations. As of March 31, 2024, the rights from Private Placement was deemed to have no value, as the second closing of the Private Placement was not expected to occur, and therefore the rights from Private Placement was written off and recorded in the statement of operations.
Change in Fair Value Measurement of Notes Payable
Change in fair value of notes payable relates to the remeasurement of the notes payable that we elected to account for under the fair value option. Until settlement, these notes payable are remeasured at fair value at each reporting period with the changes in fair value recorded in the statement of operations.
Other (Expense) Income, Net
Other (expense) income, net consists of interest income and other items that are of a non-recurring nature and primarily relate to items that are immaterial.
Net (Loss) Income Attributable to Noncontrolling Interest
Net (loss) income attributable to noncontrolling interest reflects investors’ share of net (loss) income in our majority owned subsidiary.
Results of Operations
Comparison of the three months ended March 31, 2024 to the three months ended March 31, 2023
The following table summarizes our results of operations for the periods presented:
23
|
|
Three Months Ended March 31, |
|
|
|
|
||||||
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|||
|
|
(in thousands) |
|
|||||||||
Revenues: |
|
|
|
|
|
|
|
|
|
|||
Collaboration revenues |
|
$ |
— |
|
|
$ |
281 |
|
|
$ |
(281 |
) |
Total revenues |
|
|
— |
|
|
|
281 |
|
|
|
(281 |
) |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|||
Research and development |
|
|
2,726 |
|
|
|
2,843 |
|
|
|
(117 |
) |
General and administrative |
|
|
3,680 |
|
|
|
3,924 |
|
|
|
(244 |
) |
Total operating expenses |
|
|
6,406 |
|
|
|
6,767 |
|
|
|
(361 |
) |
Loss from operations |
|
|
(6,406 |
) |
|
|
(6,486 |
) |
|
|
80 |
|
Other (expense) income: |
|
|
|
|
|
|
|
|
|
|||
Interest income |
|
48 |
|
|
54 |
|
|
|
(6 |
) |
||
Interest expense |
|
|
(42 |
) |
|
|
(23 |
) |
|
|
(19 |
) |
Change in fair value of rights from Private Placement |
|
|
(3,832 |
) |
|
|
— |
|
|
|
(3,832 |
) |
Change in fair value of measurement of notes payable |
|
|
(9 |
) |
|
|
(6 |
) |
|
|
(3 |
) |
Other income (expense), net |
|
|
(8 |
) |
|
|
(19 |
) |
|
|
11 |
|
Total other (expense) income, net |
|
|
(3,843 |
) |
|
|
6 |
|
|
|
(3,849 |
) |
Net loss |
|
|
(10,249 |
) |
|
|
(6,480 |
) |
|
|
(3,769 |
) |
Net income (loss) attributable to noncontrolling interest |
|
|
(11 |
) |
|
|
(29 |
) |
|
|
18 |
|
Net loss attributable to Kineta, Inc. |
|
$ |
(10,238 |
) |
|
$ |
(6,451 |
) |
|
$ |
(3,787 |
) |
Revenues
Collaboration revenues were zero for the three months ended March 31, 2024 and $281,000 for the three months ended March 31, 2023 as a result of research services provided under the Merck Neuromuscular License Agreement pursuant to which the Company became a successor in interest in connection with the Merger. Upon completion of the Merger, we had $442,000 in deferred revenue under the Merck Neuromuscular License Agreement. As of December 31, 2023, we have completed the project services and had zero in deferred revenue under the Merck Neuromuscular License Agreement. We do not expect to earn any revenue from this license in 2024 or 2025.
Research and Development Expenses
The following table summarizes our research and development expenses by program and category for the periods presented:
|
|
Three Months Ended March 31, |
|
|
|
|
||||||
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|||
|
|
(in thousands) |
|
|||||||||
Direct external program expenses: |
|
|
|
|
|
|
|
|
|
|||
KVA12123 program |
|
$ |
1,838 |
|
|
$ |
1,784 |
|
|
$ |
54 |
|
CD27 program |
|
|
430 |
|
|
|
271 |
|
|
|
159 |
|
KCP-506 program |
|
|
23 |
|
|
|
104 |
|
|
|
(81 |
) |
Internal and unallocated expenses: |
|
|
|
|
|
|
|
|
|
|||
Personnel-related costs |
|
|
348 |
|
|
|
349 |
|
|
|
(1 |
) |
Facilities and related costs |
|
|
40 |
|
|
|
300 |
|
|
|
(260 |
) |
Other costs |
|
|
47 |
|
|
|
35 |
|
|
|
12 |
|
Total research and development expenses |
|
$ |
2,726 |
|
|
$ |
2,843 |
|
|
$ |
(117 |
) |
Research and development expenses were $2.7 million for the three months ended March 31, 2024 and $2.8 million for the three months ended March 31, 2023 and decreased by $117,000, or 4%. The increase in direct external program expenses of $132,000 was primarily due to higher activities for KVA12123, our lead product candidate, and licensing costs for CD27, partially offset by lower activities for KCP-506 as we focused on our lead product candidates. Subject to receiving adequate funding, we expect our direct external program expenses to increase during the next few years as we advance our clinical trials of KVA12123. The decrease in our internal and unallocated research and development expenses of $249,000 was primarily due to lower facilities allocations expense as we transitioned to clinical trials in 2023 and ceased using our laboratory space.
General and Administrative Expenses
General and administrative expenses were $3.7 million for the three months ended March 31, 2024 and $3.9 million for the three months ended March 31, 2023 and decreased by $244,000, or 6%. The decrease was primarily due to a decrease in personnel costs of $538,000 and other administrative expenses of $328,000, partially offset by an increase in professional services of $441,000 and higher facilities allocation of $181,000. Personnel costs decreased primarily due to lower stock-based compensation of $574,000 as the result of stock-compensation expense related to RSUs with performance conditions for the three months ended March 31, 2023. Other administrative expenses decreased primarily due to non-recurring settlement expense of $250,000 incurred for the three months ended March 31, 2023. Professional expenses increased primarily due to higher consulting costs, partially offset by lower legal fees. Facilities allocation expenses increased as a greater percentage of overall facilities costs
24
were expensed to general and administrative once we ceased using our laboratory space in 2023. Subject to receiving adequate funding, we expect our general and administrative expenses to decrease in 2024 due to lower administrative headcount and lower facility costs.
Other Income and expense, net
Interest Income
Interest income was $48,000 for the three months ended March 31, 2024 and $54,000 for the three months ended March 31, 2023 and decreased by $6,000. Interest income decreased due to lower balances in interest-bearing accounts in 2024.
Interest Expense
Interest expense was $42,000 for the three months ended March 31, 2024 and $23,000 for the three months ended March 31, 2023 and increased by $19,000. Interest expense increased primarily due to interest on an outstanding vendor invoice.
Change in Fair Value Measurement of Private Placement
Change in fair value of other asset was a loss of $3.8 million for the three months ended March 31, 2024 and zero for the three months ended March 31, 2023. We determined the fair value of the rights from private placement to be zero as the second closing of the Private Placement did not occur. As a result, we wrote off the balance of the rights from Private Placement.
Change in Fair Value Measurement of Notes Payable
Change in fair value of notes payable was a loss of $9,000 for the three months ended March 31, 2024 and was a loss of $6,000 for the three months ended March 31, 2023.
Going Concern and Capital Resources
Exploring Strategic Alternatives
We require substantial additional capital to sustain our operations and pursue our growth strategy, including the development of our product candidates. We are exploring strategic alternatives that may include, but are not limited to, sale of assets of the Company, a sale of the Company, licensing of assets, a merger, liquidation or other strategic action. If a strategic process is unsuccessful, the Board may decide to pursue a liquidation or obtain relief under the US Bankruptcy Code. These factors raise substantial doubt about our ability to continue as a going concern.
Sources of Liquidity
Since our inception through March 31, 2024, our operations have been financed primarily by net cash proceeds from the sale and issuance of our common stock and borrowings under notes payable. We have also received upfront and milestone payments from our license agreements. As of March 31, 2024, we had $1.8 million in cash and an accumulated deficit of $176.0 million. Subject to receiving adequate funding, we expect that our operating expenses will increase, and, as a result, anticipate that we will continue to incur increasing losses for the foreseeable future. Therefore, we will need to raise additional capital to fund our operations, which may be through the issuance of additional equity or through borrowings.
Future Funding Requirements
Our revenues to date have been primarily derived from our collaboration, research and license agreements as well as grants awarded by government agencies. We, however, have not generated any revenue from product sales, and do not know when, or if, we will generate any revenue from product sales. We do not expect to generate any revenue from product sales unless and until we obtain regulatory approval of and commercialize any of our product candidates. At the same time, we expect our expenses to increase in connection with our ongoing development activities, particularly as we continue the research, development and clinical trials of, and seeks regulatory approval for, our product candidates. In addition, subject to obtaining regulatory approval of any of our product candidates, we anticipate that we will need substantial additional funding in connection with our continuing operations. We plan to continue to fund our operations and capital requirements through equity and/or debt financing, but there are no assurances that we will be able to raise sufficient amounts of funding in the future on acceptable terms, or at all.
Our future funding requirements will depend on many factors, including:
25
As of March 31, 2024, we had cash of $1.8 million, and there is substantial doubt about our ability to continue as a going concern. Based on our current operating plans, we do not have sufficient cash and cash equivalents to fund our operating expenses and capital expenditures for at least the next 12 months from the filing date of this Quarterly Report on Form 10-Q.
We are exploring strategic alternatives that may include, but are not limited to, sale of assets of the Company, a sale of the Company, licensing of assets, a merger, liquidation or other strategic action.
We may seek additional funds through equity or debt financings or through collaborations, licensing transactions or other sources that may be identified through our strategic process. However, there can be no assurance that we will be able to complete any such transactions on acceptable terms or otherwise. The failure to obtain sufficient funds on commercially acceptable terms when needed would have a material adverse effect on our business, results of operations, and financial condition. These factors raise substantial doubt about our ability to continue as a going concern.
We do not currently have any commitments for future funding or additional capital. As noted above, the investors failed to fulfill their contractual obligation to consummate the Private Placement. We are pursuing litigation or seeking other settlements against the investors for the failure to fund. Due to the lack of commitments for future funding or additional capital, we have paused or significantly scaled back the development or commercialization of our future product candidates or other research and development initiatives. If we are unable to complete a strategic transaction or raise additional capital in sufficient amounts, we will not be able to continue our business and we may need to file for bankruptcy protection.
Cash Flows
The following table summarizes our cash flows for the periods indicated:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
|
|
(in thousands) |
|
|||||
Net cash provided by (used in): |
|
|
|
|||||
Operating activities |
|
$ |
(4,011 |
) |
|
$ |
(4,940 |
) |
Investing activities |
|
|
— |
|
|
|
285 |
|
Financing activities |
|
|
1 |
|
|
|
750 |
|
Net change in cash and cash equivalents |
|
$ |
(4,010 |
) |
|
$ |
(3,905 |
) |
Operating Activities
Cash used in operating activities for the three months ended March 31, 2024 was $4.0 million, consisting of a net loss of $10.2 million, partially offset by noncash charges of $5.0 million and a change in other net operating assets and liabilities of $1.3 million. The noncash charges primarily consisted of a $3.8 million change in fair value of rights from Private Placement, $477,000 in stock-based compensation, $469,000 in common stock issued for services and $199,000 noncash operating lease expense. Our change in net operating assets and liabilities primarily resulted from an increase in accounts payable and accrued liabilities of $1.7 million and prepaid expenses and other current assets of $193,000, partially offset by a decrease in operating lease liability of $228,000.
Cash used in operating activities for the three months ended March 31, 2023 was $4.9 million, consisting of a net loss of $6.5 million, partially offset by noncash charges of $1.2 million and a change in other net operating assets and liabilities of $0.4 million. The noncash charges primarily consisted of $1.1 million in stock-based compensation and $0.2 million noncash operating lease expense, partially offset by a $0.1 million gain on disposal of fixed assets. Our change in net operating assets and liabilities primarily resulted from a $3.2 million increase in accounts payable, partially offset by a $2.5 million reduction in accrued expenses and other current liabilities, a $0.2 million decrease in operating lease liability and a $0.3 million decrease in deferred revenue due to recognition of collaboration revenue in connection with the Merck Collaboration Agreement.
Investing Activities
26
Cash provided by investing activities was zero for the three months ended March 31, 2024 and $285,000 for the three months ended March 31, 2023 consisting of cash received from the sale of certain property and equipment.
Financing Activities
Cash provided by financing activities for the three months ended March 31, 2024 was insignificant and was $750,000 for the three months ended March 31, 2023, primarily related to net proceeds from the issuance of our common stock to investors pursuant to the Open Market Sale AgreementSM, dated February 10, 2023, by and between the Company and Jefferies LLC.
Debt Obligations
Notes Payable
As of March 31, 2024, we had outstanding notes payable in an aggregate principal amount of $779,000 at interest rates that range from 3.75% to 6%, of which $629,000 is due within the next 12 months. The principal amount of each note payable is due at a specified periodic repayment date and/or at maturity, with such dates ranging from June 2024 to on or after September 2050.
See Note 5 to our consolidated financial statements included in this Quarterly Report for additional information regarding our notes payable.
Other Contractual Obligations and Commitments
Our cash requirements greater than 12 months are related to other contractual obligations and commitments related to license agreements and leases.
We have entered into a number of strategic license agreements pursuant to which we have acquired rights to specific assets, technology and intellectual property. In accordance with these agreements, we are obligated to pay, among other items, future contingent payments that are dependent upon future events such as our achievement of certain development, regulatory and commercial milestones royalties, and sublicensing revenue in the future, as applicable. As of March 31, 2024, the timing and likelihood of achieving the milestones and generating future product sales, and therefore payments that may become payable to these third parties, are uncertain.
We lease office and laboratory space for our corporate headquarters in Seattle, Washington under a lease agreement that expires in July 2024. As of March 31, 2024, undiscounted future minimum lease payments of $323,000 remain pursuant to the lease agreement.
We have entered into an engagement letter with an investment bank whereby we may be obligated to pay certain fees for financings and investment related transaction costs. This engagement letter expires on May 22, 2024.
In addition, we enter into agreements in the normal course of business with various third parties for preclinical research studies, clinical trials, testing and other research and development services. Such agreements generally provide for termination upon notice, although obligate us to reimburse vendors for any time or costs incurred through the date of termination.
Critical Accounting Estimates
Our management’s discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses, and related disclosures. Our estimates are based on historical experience and on various assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results may differ materially from these estimates. Our critical accounting estimates used in the preparation of our financial statements for the three months ended March 31, 2024 were consistent with those in Part II, Item 7 of our Annual Report on Form 10-K.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are a smaller reporting company, as defined in Rule 12b-2 under the Exchange Act, for this reporting period and are not required to provide the information required under this item.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Prior to completion of the Merger, we were a private company and had limited accounting and financial reporting personnel and other resources with which to address our internal controls and related procedures. In connection with the audit of our financial statements for the year ended December 31, 2022 and in connection with the review of our financial statements for the six months ended June 30, 2023, our management and our independent
27
registered public accounting firm identified material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting as defined under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and by the Public Company Accounting Oversight Board (United States), such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses for the year ended December 31, 2023 relate to accounting for complex financial instruments related to the derivative asset, accounting for offering costs and accounting for allocated facilities costs. The material weakness for the year ended December 31, 2022 relates to accounting for complex financial instruments related to warrants issued to certain existing stockholders. The material weaknesses are still present and have not been remediated.
Our management, with the participation of our President and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the fiscal quarter ended March 31, 2024. Based on this evaluation and for the reasons set forth above, our President and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of March 31, 2024.
We are in the process of implementing measures designed to improve our internal control over financial reporting to remediate the material weaknesses. For example, we began to address the material weaknesses by implementing certain Sarbanes-Oxley controls during the first half of 2022. In October 2022, we hired a Chief Financial Officer to enhance internal controls and address the material weaknesses and other control deficiencies identified during the 2021 audit of the financial statements. We have designed and implemented improved processes and internal controls, including ongoing senior management review and audit committee oversight. We have also implemented and upgraded accounting and reporting systems to improve accounting and financial reporting processes. Additionally, we have enhanced, developed and implemented formal policies, processes and documentation procedures relating to our financial processes, including the oversight of third-party service providers. Our actions are subject to ongoing executive management review and will also be subject to audit committee oversight.
Notwithstanding the material weaknesses in internal control over financial reporting described above, our management has concluded that our consolidated financial statements included in this Quarterly Report on Form 10-Q are fairly stated in all material respects in accordance with accounting principles generally accepted in the United States of America.
Changes in Internal Control over Financial Reporting
Except as disclosed above, there has been no change in our internal control over financial reporting that occurred during the first quarter of 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over current or future financial reporting.
28
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
On March 20, 2024, Kineta filed a complaint in the Court of Chancery of the State of Delaware against Growth & Value Development Inc. (“GVDI”), alleging breach of contract in connection with GVDI’s recent repudiation of its obligation to provide a substantial tranche of funding for Kineta as required under the Securities Purchase Agreement. The complaint provides that Kineta will seek specific performance of GVDI’s obligations under the Securities Purchase Agreement and damages equal to the amount of the unpaid funding and any damages resulting from GVDI’s breach.
Except as disclosed in the preceding paragraph, Kineta is currently not a party to any other material legal proceedings. From time to time, however, Kineta may be a party to litigation or subject to claims incident to the ordinary course of business. Although the results of litigation and claims cannot be predicted with certainty, Kineta currently believes that the final outcome of these ordinary course matters will not have a material adverse effect on Kineta’s business. Regardless of the outcome, litigation can have an adverse impact on Kineta because of defense and settlement costs, diversion of management resources and other factors.
Item 1A. Risk Factors.
Except as set forth below, there have been no material changes to our risk factors included in our 2023 Annual Report on Form 10-K. The following risk factor, together with the risks and uncertainties referenced above, should be considered carefully before making an investment decision. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. We may disclose changes to such risk factors or disclose additional risk factors from time to time in our future filings with the SEC.
The second closing of the Private Placement did not close as anticipated, and Kineta currently does not have any commitments for future funding or additional capital.
As previously disclosed, we entered into the Securities Purchase Agreement with certain investors to sell shares of our common stock to such investors in the Private Placement. The first closing of the Private Placement occurred on December 16, 2022 and we issued 649,346 shares of our common stock and received net proceeds of $7.4 million. The second closing of the Private Placement for an aggregate purchase price of $22.5 million was scheduled to occur on April 15, 2024, however, the investors failed to fulfill their contractual obligation to fund and the second closing did not occur. Kineta does not have any commitments for future funding or additional capital. Kineta is pursuing litigation or seeking other settlements against the investors for the failure to fund. Due to the lack of commitments for future funding or additional capital, Kineta has paused or significantly scaled back the development or commercialization of its future product candidates or other research and development initiatives. If Kineta is unable to complete a strategic transaction or raise additional capital in sufficient amounts, Kineta will not be able to continue its business and the Company may need to file for bankruptcy protection.
Kineta identified conditions and events that raise substantial doubt about its ability to continue as a going concern, Kineta needs substantial additional funding, and if Kineta is unable to raise capital when needed or on favorable terms, its business, financial condition, and results of operation could be materially and adversely affected.
Kineta may be forced to wind-down its operations if it is unable to consummate a strategic transaction and/or obtain sufficient funding.
As of March 31, 2024, Kineta had $1.8 million in cash, and there is substantial doubt about its ability to continue as a going concern. Based on Kineta’s current operating plans, Kineta does not have sufficient cash and cash equivalents to fund its operating expenses and capital expenditures for at least the next 12 months from the filing date of this Quarterly Report on Form 10-Q.
Kineta is exploring strategic alternatives that may include, but are not limited to, sale of assets of the Company, a sale of the Company, licensing of assets, a merger, liquidation or other strategic action.
Kineta may seek additional funds through equity or debt financings or through collaborations, licensing transactions or other sources that may be identified through the Company’s strategic process. However, there can be no assurance that Kineta will be able to complete any such transactions on acceptable terms or otherwise. The failure to obtain sufficient funds on commercially acceptable terms when needed would have a material adverse effect on Kineta’s business, results of operations, and financial condition. These factors raise substantial doubt about Kineta’s ability to continue as a going concern.
Kineta does not currently have any commitments for future funding or additional capital. As noted above, the investors failed to fulfill their contractual obligation to consummate the Private Placement. The Company is pursuing litigation or seeking other settlements against the investors for the failure to fund. Due to the lack of commitments for future funding or additional capital, Kineta has paused or significantly scaled back the development or commercialization of its future product candidates or other research and development initiatives. If Kineta is unable to complete a strategic transaction or raise additional capital in sufficient amounts, Kineta will not be able to continue its business and the Company may need to file for bankruptcy protection.
29
We are currently not in compliance with Nasdaq’s continued listing requirements. If we are unable to comply with Nasdaq’s continued listing requirements, our common stock could be delisted, which could affect the price of our common stock and liquidity and reduce our ability to raise capital.
Our common stock is currently listed on The Nasdaq Capital Market. The Nasdaq Capital Market has established certain quantitative criteria and qualitative standards that companies must meet to remain listed for trading on this market.
On April 18, 2024, the Company received the Notice from the Listing Qualifications Department of Nasdaq stating that Kineta was not in compliance with Nasdaq Listing Rule 5550(b)(2) because Kineta did not maintain a minimum closing bid price of the Company’s common stock of at least $1.00 per share for the last 30 consecutive business days. The Notice has no immediate effect on the listing or trading of the Company’s securities.
The Company has 180 calendar days from the date of the Notice, or until October 15, 2024, to regain compliance. If the Company is not deemed in compliance before the expiration of the 180 day compliance period, it will be afforded an additional 180 day compliance period, or until April 13, 2025, provided that on the 180th day of the first compliance period it meets the applicable market value of publicly held shares requirement for continued listing and all other applicable standards for initial listing on The Nasdaq Capital Market (except the bid price requirement) based on the Company’s most recent public filings and market information and provides written notice to Nasdaq of its intention to cure this deficiency during the second compliance period.
The Company intends to monitor the bid price of the Company’s listed securities and may, if appropriate, consider available options to regain compliance with the bid price requirement. There can be no assurance that the Company will be able to regain compliance with the bid price requirement.
Any delisting of our common stock could adversely affect the market liquidity of our common stock and the market price of our common stock could decrease. In addition, delisting of our common stock could result in the loss of confidence by investors and adversely affect our ability to raise capital on terms acceptable to us, or at all.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
During the three months ended March 31, 2024, none of our directors or officers informed us of the
30
Item 6. Exhibits.
Exhibit Number |
|
Description |
2.1++ |
|
|
2.2 |
|
|
3.1 |
|
|
3.2 |
|
|
3.3 |
|
|
3.4 |
|
|
3.5 |
|
|
3.6 |
|
|
4.1 |
|
|
4.2 |
|
|
4.3 |
|
|
31.1* |
|
|
31.2* |
|
|
32.1** |
|
|
101.INS |
|
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. |
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
104 |
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* Filed herewith.
** Furnished herewith.
++ Certain schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished to the SEC upon request.
31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
Kineta, Inc. |
|
|
|
|
|
Date: May 15, 2024 |
|
By: |
/s/ Craig Philips |
|
|
|
Craig Philips |
|
|
|
President |
|
|
|
(Principal Executive Officer) |
|
|
|
|
Date: May 15, 2024 |
|
By: |
/s/ Keith A. Baker |
|
|
|
Keith A. Baker |
|
|
|
Chief Financial Officer |
|
|
|
(Principal Financial Officer) |
32