Anterior Segment Mesenchymal Dysgenesis

-- Planning to Initiate Phase 2/3 Trial of KPI-012 for Persistent Corneal Epithelial Defect (PCED) in 4Q 2022; Topline Data Expected in 1Q 2024 ---- Ended Quarter with $52.4 million in Cash; Sufficient for Funding Operations into 2Q 2024 -- ARLINGTON, Mass., Nov. 08, 2022 (GLOBE NEWSWIRE) -- Kala Pharmaceuticals, Inc. (NASDAQ:KALA), a clinical-stage biopharmaceutical company dedicated to the research, development and commercialization of innovative therapies for rare diseases of the eye, today reported financial results for the third quarter ended September 30, 2022 and provided a corporate update. “We continue to advance our proprietary mesenchymal stem cell secretome (MSC-S) platform and expect to submit an investigational new drug (IND) application with the U.S. Food and Drug Administration (FDA) during the fourth quarter of 2022 for KPI-012 for the treatment of PCED,” said Mark Iwicki, Chief Executive Officer and Chairman of Kala. “Pending IND clearance, we plan to initiate our Phase 2/3 clinical trial in the fourth quarter of 2022, marking a significant step toward our goal of delivering the promise of MSC-S-based therapies to people living with rare and severe ocular diseases.” PCED is a clinically burdensome condition with high unmet needs. It affects approximately 100,000 people in the United States each year and, if left untreated, can lead to infection, corneal ulceration or perforation, scarring, opacification and significant vision loss. Based on its multifactorial mechanism of action and preclinical and clinical data generated to-date, Kala believes KPI-012 may represent a significant advancement in the treatment of PCED and could become the first approved treatment for PCED across all its various etiologies. Kala also plans to explore the potential of its MSC-S platform for other rare corneal disease indications where it believes its secretome-based approach could deliver benefit. Third Quarter and Recent Business Highlights: Development-Stage Pipeline: KPI-012 is a human mesenchymal stem cell secretome, which contains numerous human-derived biofacters, such as growth factors, protease inhibitors, matrix proteins and neurotrophic factors that can potentially correct the impaired corneal healing that is an underlying etiology of multiple severe ocular diseases. Subject to submission and clearance of an IND, Kala plans to initiate a Phase 2/3 clinical trial of KPI-012 in PCED patients during the fourth quarter of 2022 with topline results expected in the first quarter 2024. The Phase 2/3 trial is designed to evaluate the efficacy and safety of two doses of KPI-012 in PCED patients with a broad range of underlying etiologies. Kala has received Orphan Drug Designation from the FDA for KPI-012 for the treatment of PCED. In addition, Kala is evaluating the potential of KPI-012 to treat other rare anterior segment diseases as follow-on indications, such as Partial Limbal Stem Cell Deficiency and ocular manifestations of moderate-to-severe Sjögren’s. Kala also plans to initiate preclinical studies for KPI-014, the Company’s program evaluating the utility of its MSC-S platform for retinal degenerative diseases such as Retinitis Pigmentosa and Stargardt Disease, with the goal of selecting a retinal indication for development in the second half of 2023. Corporate Updates: In November 2022, Kala announced the appointment of Marjan Farid, M.D., to its Board of Directors. Dr. Farid, who is currently Professor of Clinical Ophthalmology, Director of Cornea, Refractive & Cataract Surgery, and Vice Chair of Ophthalmic Faculty at the Gavin Herbert Eye Institute, University of California Irvine (UCI), founded the Severe Ocular Surface Disease Center at UCI and is an industry leader in the care and treatment of corneal diseases. On October 20, 2022, Kala effected a 1-for-50 reverse stock split of its shares of common stock either issued and outstanding or held by the Company as treasury stock. As a result of the reverse stock split, every 50 shares of issued and outstanding common stock were automatically combined into one issued and outstanding share of common stock, without any change in the par value per share. No fractional shares were issued as a result of the reverse stock split. Any fractional shares that would otherwise have resulted from the reverse stock split were rounded up to the next whole number. Financial Results: The financial results below contain both GAAP and non-GAAP financial measures. The non-GAAP financial measures exclude stock-based compensation expense, non-cash interest expense, depreciation and amortization, transaction costs related to the Alcon transaction, gain or loss on fair value remeasurement of deferred purchase and contingent consideration, gain on sale of the commercial business, loss on extinguishment of debt and other non-cash expenses. See “Non-GAAP Financial Measures” below; for a full reconciliation of Kala’s GAAP to non-GAAP financial measures, please refer to the tables at the end of this press release. Cash Position: As of September 30, 2022, Kala had cash and cash equivalents of $52.4 million, compared to $44.6 million of cash and cash equivalents as of June 30, 2022. This increase reflects the net proceeds received from the sale of Kala’s commercial portfolio and related intellectual property assets to Alcon Inc., which closed in July 2022, partially offset by cash used in operations. Included in Kala’s cash and cash equivalents of $52.4 million as of September 30, 2022 is $2.8 million of cash collected on behalf of Alcon from the sales of EYSUVIS and INVELTYS following the close of the transaction. Based on its current plans, Kala anticipates that its cash resources as of September 30, 2022 will enable it to fund its operations into the second quarter of 2024. Kala continues to anticipate approximately a 50% reduction in non-GAAP operating expenses in the second half of 2022 as compared to the first half of 2022 and a 60-70% reduction in non-GAAP total operating expenses for the full year 2023 compared to the full year 2021. Third Quarter 2022 Financial Results: Net Product Revenues: For the quarter ended September 30, 2022, Kala reported net product revenues of $0.4 million, representing approximately one week of net product revenues from sales of EYSUVIS and INVELTYS. Kala recognized net product revenues from EYSUVIS and INVELTYS until it completed the sale of its commercial portfolio to Alcon on July 8, 2022. For the quarter ended September 30, 2021, Kala reported net product revenues of $3.1 million.Cost of Product Revenues: For the quarter ended September 30, 2022, cost of product revenues was less than $0.1 million representing approximately one week of cost of product revenues as Kala completed the sale of its commercial portfolio to Alcon on July 8, 2022, compared to cost of product revenues of $0.9 million for the same period in 2021. Non-GAAP cost of product revenues were less than $0.1 million for the quarter ended September 30, 2022, compared to $0.9 million for the same period in 2021.SG&A Expenses: For the quarter ended September 30, 2022, selling, general and administrative (SG&A) expenses were $9.5 million, compared to $25.3 million for the same period in 2021. The decrease was primarily due to the sale of Kala’s commercial portfolio to Alcon, which closed on July 8, 2022. Non-GAAP SG&A expenses were $8.4 million for the quarter ended September 30, 2022, compared to $22.1 million for the same period in 2021.R&D Expenses: For the quarter ended September 30, 2022, research and development (R&D) expenses were $5.4 million, compared to $2.9 million for the same period in 2021. The increase was primarily due to development costs for KPI-012, including pre-clinical studies to support the planned IND submission. Non-GAAP R&D expenses were $5.1 million for the quarter ended September 30, 2022, compared to $2.0 million for the same period in 2021.Gain on Fair Value Remeasurement of Deferred Purchase Consideration: For the quarter ended September 30, 2022, the gain on fair value remeasurement of deferred purchase consideration, in connection with the acquisition of Combangio, Inc. (Combangio) in November 2021, was less than $0.1 million. There was no gain or loss on fair value remeasurement of deferred purchase consideration for the same period in 2021. Non-GAAP operating loss and non-GAAP net loss exclude the gain on fair value remeasurement of deferred purchase consideration.Loss on Fair Value Remeasurement of Contingent Consideration: For the quarter ended September 30, 2022, the loss on fair value remeasurement of contingent consideration, in connection with the Combangio acquisition, was $0.1 million. There was no gain or loss on fair value remeasurement of contingent consideration for the same period in 2021. Non-GAAP operating loss and non-GAAP net loss exclude the gain on fair value remeasurement of contingent consideration.Operating Loss: For the quarter ended September 30, 2022, loss from operations was $14.6 million, compared to $26.1 million for the same period in 2021. Non-GAAP operating loss was $13.1 million for the quarter ended September 30, 2022, compared to $21.9 million for the same period in 2021.Loss on Extinguishment of Debt: For the quarter ended September 30, 2022, Kala reported a loss on extinguishment of debt of $2.6 million as a result of a partial prepayment of outstanding principal and related fees on the Company’s loan agreement in connection with the closing of the sale of its commercial business. There was no loss on extinguishment of debt for the same period in 2021.Gain on Sale of Commercial Business: For the quarter ended September 20, 2022, Kala reported a gain on the sale of its commercial business to Alcon of $47.0 million. There was no gain on sale of commercial business for the same period in 2021.Net Income/Loss: For the quarter ended September 30, 2022, Kala reported net income of $29.1 million, or a basic net income per share of $19.39 and $19.25 per share on a fully diluted basis, compared to a net loss of $28.1 million, or $21.41 per share on a basic and diluted basis, for the same period in 2021. Non-GAAP net loss was $13.5 million for the quarter ended September 30, 2022, compared to $23.5 million for the same period in 2021. The weighted average number of shares used to calculate net income/loss per share was 1.5 million for the quarter ended September 30, 2022, and 1.3 million for the quarter ended September 30, 2021. On October 20, 2022, Kala effected a reverse stock split of its outstanding common stock at a ratio of 1 post-split share for every 50 pre-split shares. Proportional adjustments were also made to the number of shares of Kala’s common stock issuable upon exercise or conversion of Kala’s equity awards and warrants, as well as the applicable exercise price. The weighted average number of shares used to calculate net income/loss has been retroactively adjusted for all periods presented in this press release to reflect the reverse stock split. Nine Months ended September 30, 2022 Financial Results: Net Product Revenues: For the nine months ended September 30, 2022, Kala reported net product revenues of $3.9 million, which is reflective of the closing of the sale of Kala’s commercial portfolio to Alcon on July 8, 2022. For the same period in 2021, Kala reported net product revenues of $9.4 million.Cost of Product Revenues: For the nine months ended September 30, 2022, cost of product revenues was $2.6 million, compared to $2.7 million for the same period in 2021. Non-GAAP cost of product revenues was $2.4 million for the nine months ended September 30, 2022, compared to $2.5 million for the same period in 2021.SG&A Expenses: For the nine months ended September 30, 2022, SG&A expenses were $59.2 million, compared to $81.0 million for the same period in 2021. The decrease was primarily due to the sale of Kala’s commercial portfolio to Alcon, which closed on July 8, 2022. Non-GAAP SG&A expenses were $53.4 million for the nine months ended September 30, 2022, compared to $70.1 million for the same period in 2021.R&D Expenses: For the nine months ended September 30, 2022, R&D expenses were $14.3 million, compared to $9.1 million for the same period in 2021. The increase was primarily due to development costs for KPI-012, including pre-clinical studies to support the planned IND submission. Non-GAAP R&D expenses were $13.1 million for the nine months ended September 30, 2022, compared to $6.1 million for the same period in 2021.Loss on Fair Value Remeasurement of Deferred Purchase Consideration: For the nine months ended September 30, 2022, the loss on fair value remeasurement of deferred purchase consideration, in connection with the acquisition of Combangio, was $0.2 million. There was no gain or loss on fair value remeasurement of deferred purchase consideration for the same period in 2021. Non-GAAP operating loss and non-GAAP net loss exclude the loss on fair value remeasurement of deferred purchase consideration.Gain on Fair Value Remeasurement of Contingent Consideration: For the nine months ended September 30, 2022, the gain on fair value remeasurement of contingent consideration, in connection with the Combangio acquisition, was $1.0 million. There was no gain or loss on fair value remeasurement of contingent consideration for the same period in 2021. Non-GAAP operating loss and non-GAAP net loss exclude the gain on fair value remeasurement of contingent consideration.Operating Loss: For the nine months ended September 30, 2022, loss from operations was $71.5 million, compared to $83.4 million for the same period in 2021. Non-GAAP operating loss was $64.9 million for the nine months ended September 30, 2022, compared to $69.3 million for the same period in 2021.Loss on Extinguishment of Debt: For the nine months ended September 30, 2022, Kala reported a loss on extinguishment of debt of $2.6 million as a result of a partial prepayment of outstanding principal and related fees on the Company’s loan agreement in connection with the closing of the sale of its commercial business. There was no loss on extinguishment of debt for the same period in 2021.Gain on Sale of Commercial Business: For the nine months ended September 20, 2022, Kala reported a gain on the sale of its commercial business to Alcon of $47.0 million. There was no gain on sale of commercial business for the same period in 2021.Net Loss: For the nine months ended September 30, 2022, net loss was $32.0 million, or $21.46 per share, compared to a net loss of $95.0 million, or $73.80 per share, for the same period in 2021. Non-GAAP net loss was $68.7 million for the nine months ended September 30, 2022, compared to $74.5 million for the same period in 2021. The weighted average number of shares used to calculate net loss per share was 1.5 million for the nine months ended September 30, 2022, and 1.3 million for the nine months ended September 30, 2021. October 20, 2022, Kala effected a reverse stock split of its outstanding common stock at a ratio of 1 post-split share for every 50 pre-split shares. Proportional adjustments were also made to the number of shares of Kala’s common stock issuable upon exercise or conversion of Kala’s equity awards and warrants, as well as the applicable exercise price. The weighted average number of shares used to calculate net income/loss has been retroactively adjusted for all periods presented in this press release to reflect the reverse stock split. Non-GAAP Financial Measures: In this press release, the financial results of Kala are provided in accordance with accounting principles generally accepted in the United States (GAAP) and using certain non-GAAP financial measures. The items included in GAAP presentations but excluded for purposes of determining non-GAAP financial measures for the periods presented in this press release are stock-based compensation expense, non-cash interest expense, depreciation and amortization, transaction costs related to the Alcon transaction, acquired in-process research and development expense, gain or loss on fair value remeasurement of deferred purchase consideration and contingent consideration, gain on fair value remeasurement of deferred purchase consideration, gain on sale of the commercial business, loss on extinguishment of debt and other non-cash expenses, transaction costs related to the acquisition of Combangio, and the impact of the termination of the lease for the Company’s former corporate headquarters. Management believes this non-GAAP information is useful for investors, taken in conjunction with Kala’s GAAP financial statements, because it provides greater transparency and period-over-period comparability with respect to Kala’s operating performance. These measures are also used by management to assess the performance of the business. Investors should consider these non-GAAP measures only as a supplement to, not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP. In addition, these non-GAAP financial measures are unlikely to be comparable with non-GAAP information provided by other companies. A quantitative reconciliation of projected total non-GAAP operating expenses to total GAAP operating expenses is not available without unreasonable effort primarily due to Kala’s inability to predict with reasonable certainty the amount of future stock-based compensation expense. For a reconciliation of these non-GAAP financial measures to the most comparable GAAP measures, please refer to the table at the end of this press release. About Kala Pharmaceuticals, Inc. Kala is a clinical-stage biopharmaceutical company dedicated to the research, development and commercialization of innovative therapies for rare diseases of the eye. Kala’s biologics-based investigational therapies utilize Kala’s proprietary Mesenchymal Stem Cell Secretome (MSC-S) platform. Kala’s lead product candidate, KPI-012, is in clinical development for the treatment of persistent corneal epithelial defect (PCED), a rare disease of impaired corneal healing, which has received orphan drug designation from the U.S. Food and Drug Administration. Kala is also targeting the potential development of KPI-012 for the treatment of Partial Limbal Stem Cell Deficiency and ocular manifestations of moderate-to-severe Sjögren's and plans to initiate preclinical studies to evaluate the utility of its MSC-S platform for retinal degenerative diseases, such as Retinitis Pigmentosa and Stargardt Disease. For more information on Kala, please visit www.kalarx.com. Forward Looking Statements: This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve substantial risks and uncertainties. Any statements in this press release about Kala’s future expectations, plans and prospects, including but not limited to statements about Kala’s expectations with respect to potential advantages of KPI-012 and its MSC-S platform; the future development or commercialization of KPI-012; plans to submit regulatory filings; conduct and timelines of preclinical studies and clinical trials; the clinical utility of KPI-012 for PCED; plans to pursue research and development of KPI-012 and its MSC-S platform for other indications; Kala’s ability to realize potential milestones payments under the transaction with Alcon; Kala’s estimates regarding its projected reduction in non-GAAP operating expenses; the sufficiency of Kala’s existing cash resources, and other statements containing the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “target,” “potential,” “likely,” “will,” “would,” “could,” “should,” “continue,” and similar expressions constitute forward-looking statements. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, including: the effect that the reverse stock split may have on the price of Kala’s common stock; Kala’s ability to realize any milestone payments from Alcon Inc.; the impact of extraordinary external events, such as the current pandemic health event resulting from the novel coronavirus (COVID-19), and their collateral consequences; Kala’s ability to maintain its listing on the Nasdaq Global Select Market; Kala’s ability to comply with the covenants under its outstanding loan agreement; the uncertainties inherent in the initiation and conduct of preclinical studies and clinical trials; uncertainties regarding availability and timing of data from clinical trials; whether results of early clinical trials or trials in different disease indications will be indicative of the results of ongoing or future trials; whether results of the Phase 1b clinical trial of KPI-012 will be indicative of results for any future clinical trials and studies of KPI-012; uncertainties associated with regulatory review of clinical trials and applications for marketing approvals; Kala’s ability to retain and hire key personnel; the sufficiency of cash resources and need for additional financing and other important factors, any of which could cause the Kala’s actual results to differ from those contained in the forward-looking statements, discussed in the “Risk Factors” section of Kala’s Annual Report on Form 10-K, most recently filed Quarterly Report on Form 10-Q and other filings Kala makes with the Securities and Exchange Commission. These forward-looking statements represent Kala’s views as of the date of this press release and should not be relied upon as representing Kala’s views as of any date subsequent to the date hereof. Kala does not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Investor Contact: Hannah Deresiewiczhannah.deresiewicz@sternir.com 212-362-1200 Financial Tables Kala Pharmaceuticals, Inc.Balance Sheet Data(in thousands)(unaudited) September 30, December 31, 2022 2021Cash and cash equivalents $52,393 $92,136Total assets 85,698 139,427Working capital (1) 44,431 86,944Longterm debt, net of discounts 42,642 78,929Other longterm liabilities 3,783 6,272Total stockholders’ (deficit) equity (968) 16,804 (1) The Company defines working capital as current assets less current liabilities. See the Company's consolidated financial statements for further information regarding its current assets and current liabilities. Kala Pharmaceuticals, Inc.Consolidated Statement of Operations(In thousands, except share and per share data)(Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 2022 2021 Product revenues, net $420 $3,067 $3,892 $9,384 Costs and expenses: Cost of product revenues 11 908 2,560 2,679 Selling, general and administrative 9,549 25,349 59,204 81,034 Research and development 5,391 2,881 14,330 9,101 (Gain) loss on fair value remeasurement of deferred purchase consideration (57) — 205 — Loss (gain) on fair value remeasurement of contingent consideration 95 — (952) — Total operating expenses 14,989 29,138 75,347 92,814 Loss from operations (14,569) (26,071) (71,455) (83,430)Other income (expense): Interest income 234 16 310 92 Interest expense (1,447) (2,072) (5,689) (6,304)Loss on extinguishment of debt (2,583) — (2,583) (5,395)Gain on sale of Commercial Business 46,995 — 46,995 — Other income (expense), net 443 — 443 — Net income (loss) $29,073 $(28,127) $(31,979) $(95,037)Net income (loss) per share attributable to common stockholders—basic $19.39 $(21.41) $(21.46) $(73.80)Net income (loss) per share attributable to common stockholders—diluted $19.25 $(21.41) $(21.46) $(73.80)Weighted average shares outstanding—basic 1,499,001 1,313,466 1,490,159 1,287,772 Weighted average shares outstanding—diluted 1,510,421 1,313,466 1,490,159 1,287,772 Kala Pharmaceuticals, Inc.Reconciliation of GAAP to non-GAAP Financial Measures(In thousands)(Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 2022 2021 Net income (loss) (GAAP) $29,073 $(28,127) $(31,979) $(95,037)Add-back: stock-based compensation expense 1,327 3,928 6,048 13,340 Add-back: non-cash interest 258 435 1,130 1,080 Add-back: depreciation and amortization 151 259 457 763 Add-back: transaction costs related to the Alcon transaction — — 758 — Add (gain) loss on fair value remeasurement of deferred purchase consideration (57) — 205 — Add: gain on fair value remeasurement of contingent consideration 95 — (952) — Add-back: gain on sale of Commercial Business (46,955) — (46,955) — Add-back: loss on debt extinguishment 2,583 — 2,583 5,395 Add-back: other expense 94 — 94 — non-GAAP net loss $(13,471) $(23,505) $(68,651) $(74,459) Cost of product revenues (GAAP) $11 $908 $2,560 $2,679 Less: stock-based compensation expense 4 38 166 109 Less: depreciation and amortization 7 13 33 39 non-GAAP cost of product revenues $— $857 $2,361 $2,531 Selling, general and administrative expenses (GAAP) $9,549 $25,349 $59,204 $81,034 Less: stock-based compensation expense 1,085 3,021 4,797 10,410 Less: depreciation and amortization 101 185 273 553 Less: transaction costs related to the Alcon transaction — — 758 — non-GAAP selling, general and administrative expenses $8,363 $22,143 $53,376 $70,071 Research and development expenses (GAAP) $5,391 $2,881 $14,330 $9,101 Less: stock-based compensation expense 238 869 1,085 2,821 Less: depreciation and amortization 43 61 151 171 non-GAAP research and development expenses $5,110 $1,951 $13,094 $6,109 (Gain) loss on fair value remeasurement of deferred purchase consideration $(57) $— $205 $— Less: (gain) loss on fair value remeasurement of deferred purchase consideration (57) — 205 — non-GAAP gain or loss on fair value remeasurement of deferred purchase consideration $— $— $— $— Loss (gain) on fair value remeasurement of contingent consideration $95 $— $(952) $— Less: loss (gain) on fair value remeasurement of contingent consideration 95 — (952) — non-GAAP gain or loss on fair value remeasurement of contingent consideration $— $— $— $— Total operating loss (GAAP) $(14,569) $(26,071) $(71,455) $(83,430)Add-back: stock-based compensation expense 1,327 3,928 6,048 13,340 Add-back: depreciation and amortization 151 259 457 763 Add-back: transaction costs related to the Alcon transaction — — 758 — Add: (gain) loss on fair value remeasurement of deferred purchase consideration (57) — 205 — Add: gain on fair value remeasurement of contingent consideration 95 — (952) — non-GAAP total operating loss $(13,053) $(21,884) $(64,939) $(69,327) Kala Pharmaceuticals, Inc.Reconciliation of GAAP to non-GAAP Financial Measures(In thousands)(Unaudited) Year EndedDecember 31, 2021 Net loss (GAAP) $142,605 Add-back: stock-based compensation expense 16,088 Add-back: non-cash interest 1,519 Add-back: depreciation and amortization 975 Add-back: loss on extinguishment of debt 5,395 Add-back: acquired in-process research and development 26,617 Add-back: gain on fair value remeasurement of deferred purchase consideration (5,805)Add-back: gain on fair value remeasurement of contingent consideration — Add back: transaction costs related to acquisition of Combangio, Inc. 1,179 Add-back: impact of lease modification (2,467)non-GAAP net loss $(99,104) Cost of product revenues (GAAP) $4,097 Less: stock-based compensation expense 169 Less: depreciation and amortization 52 non-GAAP cost of product revenues $3,876 Selling, general and administrative expenses (GAAP) $105,061 Less: stock-based compensation expense 12,774 Less: depreciation and amortization 693 Less: transaction costs related to acquisition of Combangio, Inc. 1,179 Less: impact of lease modification (1,156)non-GAAP selling, general and administrative expenses $91,571 Research and development expenses (GAAP) $11,515 Less: stock-based compensation expense 3,145 Less: depreciation and amortization 230 non-GAAP research and development expenses $8,140 Acquired in-process research and development expenses (GAAP) $26,617 Less: acquired in-process research and development expenses 26,617 non-GAAP acquired in-process research and development expenses $— Gain on fair value remeasurement of deferred purchase consideration $(5,805)Less: gain on fair value remeasurement of deferred purchase consideration (5,805)non-GAAP gain on fair value remeasurement of deferred purchase consideration $— Gain on fair value remeasurement of contingent consideration $— Less: gain on fair value remeasurement of contingent consideration — non-GAAP gain on fair value remeasurement of contingent consideration $— Total operating expenses (GAAP) $141,485 Less: stock-based compensation expense 16,088 Less: depreciation and amortization 975 Less: transaction costs related to acquisition of Combangio, Inc. 1,179 Less: impact of lease modification (1,156)Less: acquired in-process research and development expenses 26,617 Less: gain on fair value remeasurement of deferred purchase consideration (5,805)Less: gain on fair value remeasurement of contingent consideration — non-GAAP total operating expenses $103,587 Total operating loss (GAAP) $(130,245)Add-back: stock-based compensation expense 16,088 Add-back: depreciation and amortization 975 Add-back: acquired in-process research and development 26,617 Add-back:gain on fair value remeasurement of deferred purchase consideration (5,805)Add-back: gain on fair value remeasurement of contingent consideration — Add-back: transaction costs related to acquisition of Combangio, Inc. 1,179 Add-back: impact of lease modification (1,156)non-GAAP total operating loss $(92,347)

The U.S. Food and Drug Administration (FDA) has approved Xenpozyme (olipudase alfa-rpcp) for the treatment of non-central nervous system (non-CNS) manifestations of acid sphingomyelinase deficiency (ASMD) in adult and pediatric patients. Xenpozyme is the first therapy indicated specifically for the treatment of ASMD, and is currently the only approved treatment for this disease. Bill Sibold, Executive Vice President, Head, Specialty Care at Sanofi, said: "Sanofi teams have been dedicated to bringing hope to patients living with ASMD and their families. This is a devastating and extremely rare disease that affects both children and adults. The approval of Xenpozyme represents the culmination of bold work done in research and development, and our unwavering commitment to this historically overlooked community." ASMD, historically known as Niemann-Pick disease types A, A/B, and B, is an extremely rare, progressive genetic disease with significant morbidity and mortality. It has been estimated that there are fewer than 120 patients diagnosed with ASMD in the U.S. Approximately two-thirds of patients with ASMD in the U.S. are pediatric. Signs and symptoms of ASMD can present in infancy, childhood, or adulthood, and may include enlarged spleen or liver, difficulty breathing, lung infections, and unusual bruising or bleeding, among other disease manifestations. Until now, management of ASMD included supportive care to address the impact of individual symptoms and careful monitoring to detect potential disease complications. David Guy, Parent to Kaila, age 16, living with ASMD, mentioned: "As young parents, it was initially devastating to me and my wife when our daughter, Kaila, received her diagnosis of ASMD. We faced so many unknowns when we first heard the diagnosis: what does this mean, how will this affect her, and most importantly what hope is there for a treatment option? We were grateful to find hope when we enrolled Kaila in the clinical trials for olipudase alfa." In the U.S., Xenpozyme received Breakthrough Therapy designation, which expedites the development and review of drugs intended to treat serious or life-threatening diseases and conditions. The FDA evaluated Xenpozyme under Priority Review, which is reserved for medicines that represent potentially significant improvements in efficacy or safety in treating serious conditions.. In March 2022, Xenpozyme was approved in Japan under the SAKIGAKE (or "pioneer") designation, marking the first approval for olipudase alfa anywhere in the world. In June 2022, the European Commission (EC) approved Xenpozyme for use in Europe. ASMD represents a spectrum of disease, with two types that may represent opposite ends of a continuum referred to as ASMD type A and ASMD type B. ASMD type A/B is an intermediate form that includes varying degrees of central nervous system (CNS) involvement. ASCEND and ASCEND-Peds clinical trials showed that Xenpozyme improved lung function and reduced spleen and liver volumes in adults and children The approval is based on positive data from the ASCEND and ASCEND-Peds clinical trials, in which Xenpozyme showed clinically relevant improvement in lung function (as measured by diffusing capacity of the lung for carbon monoxide, or DLco) and platelet count, and reduction of spleen and liver volumes, with a demonstrated safety profile. Melissa Wasserstein, MD, Pediatric Genetic Medicine, Albert Einstein College of Medicine and the Childrens Hospital at Montefiore, said: "ASMD is an extremely rare, progressive, and potentially fatal genetic disease that impacts children and adults around the world. Until now, those living with ASMD have had no FDA-approved treatment to combat this devastating condition. Im proud of the work that has been done and look forward to witnessing the impact that this treatment may have on those living with ASMD." The ASCEND trial evaluated the efficacy and safety of Xenpozyme; 31 adult patients with ASMD type A/B or type B were randomized to receive Xenpozyme or placebo for 52 weeks (primary analysis). In the trial, Xenpozyme improved lung function, assessed as the percent change from baseline to Week 52 in predicted diffusing capacity of the lung for carbon monoxide (DLco), and reduced spleen volume, evaluated as percent change from baseline in multiples of normal (MN). Twelve (12) patients treated with Xenpozyme had a mean change in percent predicted DLco from baseline (49.1%) to Week 52 (59.4%). This change represents a 23.9% relative improvement compared to a 3% improvement in DLco from baseline in the 17 patients from the placebo group (48.5%) to Week 52 (49.9%). The difference between the two arms (20.9%) was nominally statistically significant (p=0.0003). Thirteen (13) patients treated with Xenpozyme had a mean reduction in spleen volume by 38.9% from baseline (11.5 MN) to Week 52 (7.2 MN) compared to a mean increase by 0.5% for the 17 patients in the placebo group from baseline (11.2 MN) to Week 52 (11.2 MN). The difference between the two arms (39.4%) was nominally statistically significant (p<0.0001). Twelve (12) patients treated with Xenpozyme had a mean reduction in liver volume by 26.5% from baseline (1.4 MN) to Week 52 (1.0 MN) compared to a mean decrease of 1.8% for the 17 patients in the placebo group from baseline (1.6 MN) to Week 52 (1.6 MN). The difference between the two arms (24.7%) was nominally statistically significant (p<0.0001). Thirteen (13) patients treated with Xenpozyme had a mean improvement in platelet count by 18.3% from baseline (109.3x109/L) to Week 52 (126.4x109/L) compared to increase by 2.7% for the 16 patients in the placebo group from baseline (115.6x109/L) to Week 52 (120.2x109/L). The difference between the two arms (15.6%) was nominally statistically significant (p=0.0280). All ASCEND patients treated with Xenpozyme showed improvement in key endpoints (DLco and spleen and liver volume). Most frequently reported adverse drug reactions in adults (incidence 10%) were headache, cough, diarrhea, hypotension, and ocular hyperemia. The single-arm ASCEND-Peds trial studied 8 pediatric patients younger than 12 years of age with ASMD type A/B or type B who all received Xenpozyme, with a primary objective of evaluating the safety and tolerability of Xenpozyme for 64 weeks. All patients completed the study and continued in an extension trial. The ASCEND-Peds trial also explored efficacy endpoints of progressive lung disease, spleen and liver enlargement, and platelet count. After one year of treatment (52 weeks): Three (3) patients who were able to perform the test at baseline treated with Xenpozyme had a mean relative improvement of 45.9% in percent predicted DLco from baseline (48.5%) to Week 52 (70.9%) (children over the age of five were assessed if they were able to perform the test). Eight (8) patients treated with Xenpozyme had mean reduction in spleen volume by 46.7% from baseline (18.3 MN) to Week 52 (9.5 MN). Eight (8) patients treated with Xenpozyme had a mean reduction in liver volume by 38.1% from baseline (2.5 MN) to Week 52 (1.6 MN). Seven (7) patients treated with Xenpozyme had a mean improvement in platelet count by 37.6% from baseline (136.7x109/L; n=8) to Week 52 (184.5x109/L). Serious adverse reactions of anaphylactic reaction were reported in 2 (25%) Xenpozyme-treated pediatric patients. Treatment-related serious adverse reactions, hypersensitivity reactions including anaphylaxis, and infusion associated reactions occurred within 24 hours of infusion and were observed in a higher percentage of pediatric patients than in adult patients. Most frequently reported adverse drug reactions in pediatric patients (incidence 20%) were pyrexia, cough, diarrhea, rhinitis, abdominal pain, vomiting, headache, urticaria, nausea, rash, arthralgia, pruritus, fatigue, and pharyngitis. A scientific innovation for patients living with ASMD Xenpozyme, a hydrolytic lysosomal sphingomyelin-specific enzyme replacement therapy, is designed to replace deficient or defective acid sphingomyelinase (ASM), an enzyme that allows for the breakdown of the lipid sphingomyelin. In individuals with ASMD, the deficiency in the ASM enzyme leads to sphingomyelin accumulation in various tissues. Xenpozyme is not expected to cross the blood-brain barrier or modulate CNS manifestations of ASMD. Xenpozyme has not been studied in patients with ASMD type A. Xenpozyme is adminstered intravenously every two weeks, and its administration requires a dose escalation phase followed by a maintenance phase. Xenpozyme is expected to be available in the U.S. in the coming weeks. The U.S. list price, or wholesale acquisition cost, of Xenpozyme is $7,142.00 per vial. Actual patient out-of-pocket costs may be lower, as the list price does not reflect insurance coverage, co-pay support for eligible patients, or financial assistance from patient support programs. Sanofi is committed to helping eligible U.S. patients access the support they need and to help reduce barriers throughout their treatment journey. As part of its commitment to treatment access and affordability for innovative therapies, Sanofi provides disease education, financial and co-pay assistance programs, and other support services to eligible patients. For more information, patients can call 1-800-745-4447 and select Option 3, contact Info@CareConnectPSS.com, or visit www.Xenpozyme.com. About Sanofi We are an innovative global healthcare company, driven by one purpose: we chase the miracles of science to improve peoples lives. Our team, across some 100 countries, is dedicated to transforming the practice of medicine by working to turn the impossible into the possible. We provide potentially life-changing treatment options and life-saving vaccine protection to millions of people globally, while putting sustainability and social responsibility at the center of our ambitions. Sanofi is listed on EURONEXT: SAN and NASDAQ: SNY

Dive Brief:Sanofi has won Food and Drug Administration approval to sell Xenpozyme, the first treatment specifically for an extremely rare genetic disease known as acid sphingomyelinase deficiency, or ASMD.The condition affects less than 120 people in the U.S., almost two-thirds of whom are children, Sanofi said Wednesday. Infants with the most severe form usually die before they reach the age of three.As a reward for developing a treatment for a rare pediatric disease, the FDA also gave Sanofi a priority review voucher that it can use itself or sell to another drugmaker. The coveted regulatory fast passes can still command substantial prices: Marinus Pharmaceuticals recently sold one to Novo Nordisk for $110 million.Dive Insight:The approval comes after more than two decades of research and development by rare disease specialist Genzyme, which Sanofi bought in 2011 for $20.1 billion.Patients with ASMD suffer from a lack of an enzyme needed to break down a lipid known as sphingomyelin that can build up in cells and affect organ function, leading to debilitating symptoms. Xenpozyme, given by infusion every two weeks, is designed to replace the missing enzyme.There is a critical need to increase treatment options for patients who suffer from this rare disease, Christine Nguyen, deputy director of the FDAs pediatric rare disease office, said in the agencys press release Wednesday. ASMD has historically been known as Niemann-Pick Types A, A/B and B.With such a small patient base, the treatment will be expensive. The wholesale acquisition cost of one vial of the medicine is $7,142, Sanofi said. For an adult weighing about 142 pounds, the annual wholesale cost would run to nearly $1.56 million. It would be around $643,000 for a child weighing 51 pounds, which was the average patient weight in Sanofis pediatric trial.Actual costs to patients will vary depending on insurance and programs, such as those that offer co-pay support. Sanofi also said in an email to BioPharma Dive that its committed to helping eligible U.S. patients access the support they need and to help reduce barriers throughout their treatment journey.The FDA approved the medication based on study of 31 adult patients who either received Xenpozyme or a placebo. Researchers found significant improvements in lung function and reduced liver and spleen size among patients who got Xenpozyme.Sanofi also tested the drug in a single-arm trial of eight children under 12 years old. Some 75% of pediatric patients and 50% of adult participants suffered side effects in testing, ranging from headaches to vomiting.The treatment won European approval in June. Sanofi has 10 years of market exclusivity there after receiving an orphan drug designation. '