Today marks the expiration of the quiet period for Kala Pharmaceuticals (KALA), allowing firms involved with its IPO to publish research and establish estimates for the first time. As we discuss in more detail below, analysts appear to be decisively bullish on this recent IPO, setting price targets that are well above its current price. The news has shares popping by about 8% in pre-market action with the stock poised to hit post-IPO highs at the open.
Despite its strong performance, KALA is not a household name, so we wanted to provide some background on the company. KALA is a biopharmaceutical company focused on the development and commercialization of therapeutics with an initial focus on the treatment of eye diseases. The company has applied its nanoparticle-based Mucus Penetrating Particles (MPP) technology to create nanosuspensions of loteprednol etabonate, a corticosteroid designed for ocular applications. This has resulted in two product candidates in Phase 3 clinical development: KPI-121 1.0% for the treatment of inflammation and pain following ocular surgery, and KPI-121 0.25% for the temporary relief of the signs and symptoms of dry eye disease. KALA expects to submit a New Drug Application for KPI-121 1.0% by the end of the year, and for KPI-121 0.25% in the first half of next year, following the expected release of top-line results later this year.
The company states that if approved, KPI-121 1.0% could be the first FDA-approved ocular corticosteroid product for the treatment of post-operative inflammation and pain with twice daily dosing. Additionally, KPI-121 0.25% could be the first FDA-approved product for the short-term treatment of dry eye disease.
After achieving positive results in a Phase 2 clinical trial, KALA initiated two parallel Phase 3 clinical trials of KPI-121 0.25% in June 2016. Each of these Phase 3 clinical trials has a target enrollment of at least 900 dry eye patients and the company has enrolled over 1,550 dry eye patients across the two trials as of June 30. At mentioned earlier, KALA expects to receive topline results from these clinical trials by the end of 2017.
As a clinical stage company, KALA's financials are limited. In 1Q17, KALA reported a net loss of $9.76 million vs. $5.25 million in the year earlier period as R&D costs jumped 106% to $8.04 million. There were no revenues generated in either period. Cash as of March 31, 2017 was $36.02 million. The company expects that with the proceeds of this IPO, it will have cash runway through mid-2019.
High Hopes for KALA
Analysts are clearly bullish on KALA's prospects, as illustrated by this morning's initiations. The one that stood out the most was Wedbush's Outperform and $46 price target, which is a whopping 134% higher from Friday's closing price. Another initiation that caught our attention was JP Morgan's Overweight and $35 target, with the firm adding KALA to its "Focus List." BofA Merrill also initiated it with a Buy and $33 target, rounding out a trio of very bullish initiations.
Given their high degree of optimism, these firms are obviously expecting KALA to report positive trial results later this year. And should KALA successfully gain approval for its products, it will have a very large market to tap into. It is estimated that dry eye disease affects approximately 33 million in the United States alone.