kzr-10q_20190930.htm

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

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

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

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

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

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

See accompanying notes to the unaudited interim condensed consolidated financial statements

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

	REDEEMABLE CONVERTIBLE PREFERRED STOCK						COMMON STOCK				ADDITIONAL PAID-IN		ACCUMULATED OTHER COMPREHENSIVE			ACCUMULATED			TOTAL STOCKHOLDERS'
	SHARES			AMOUNTS			SHARES		AMOUNTS		CAPITAL		INCOME (LOSS)			DEFICIT			EQUITY
Balance at December 31, 2018		—		$	—			19,114,421	$	19	$	158,176	$	(203	)	$	(49,195	)	$	108,797
Issuance of common stock upon exercise of stock options		—			—			4,000		—		4		—			—			4
Vesting related to shares of common stock issued pursuant to early exercises		—			—			—		—		12		—			—			12
Stock-based compensation expense		—			—			—		—		901		—			—			901
Other comprehensive income		—			—			—		—		—		73			—			73
Net loss		—			—			—		—		—		—			(7,642	)		(7,642	)
Balance at March 31, 2019		—		$	—			19,118,421	$	19	$	159,093	$	(130	)	$	(56,837	)	$	102,145
Issuance of common stock upon exercise of stock options		—			—			14,224		—		180		—			—			180
Vesting related to shares of common stock issued pursuant to early exercises		—			—			—		—		13		—			—			13
Stock-based compensation expense		—			—			—		—		1,009		—			—			1,009
Other comprehensive loss		—			—			—		—		—		(26	)		—			(26	)
Net loss		—			—			—		—		—		—			(8,718	)		(8,718	)
Balance at June 30, 2019		—		$	—			19,132,645	$	19	$	160,295	$	(156	)	$	(65,555	)	$	94,603
Issuance of common stock upon exercise of stock options		—			—			9,000		—		8		—			—			8
Vesting related to shares of common stock issued pursuant to early exercises		—			—			—		—		12		—			—			12
Stock-based compensation expense		—			—			—		—		1,090		—			—			1,090
Other comprehensive loss		—			—			—		—		—		(68	)		—			(68	)
Net loss		—			—			—		—		—		—			(9,148	)		(9,148	)
Balance at September 30, 2019		—		$	—			19,141,645	$	19	$	161,405	$	(224	)	$	(74,703	)	$	86,497

	REDEEMABLE CONVERTIBLE PREFERRED STOCK						COMMON STOCK				ADDITIONAL PAID-IN		ACCUMULATED OTHER COMPREHENSIVE			ACCUMULATED			TOTAL STOCKHOLDERS' EQUITY
	SHARES			AMOUNTS			SHARES		AMOUNTS		CAPITAL		INCOME (LOSS)			DEFICIT			(DEFICIT)
Balance at December 31, 2017		12,263,126		$	77,931			948,578	$	1	$	451	$	(111	)	$	(26,028	)	$	(25,687	)
Issuance of common stock upon exercise of stock options, net of amount related to early exercised options		—			—			109,818		—		25		—			—			25
Vesting related to shares of common stock issued pursuant to early exercises		—			—			—		—		17		—			—			17
Stock-based compensation expense		—			—			—		—		126		—			—			126
Other comprehensive loss		—			—			—		—		—		(23	)		—			(23	)
Net loss		—			—			—		—		—		—			(4,947	)		(4,947	)
Balance at March 31, 2018		12,263,126		$	77,931			1,058,396	$	1	$	619	$	(134	)	$	(30,975	)	$	(30,489	)
Conversion of redeemable convertible preferred stock to common stock		(12,263,126	)		(77,931	)		12,263,126		12		77,919								77,931
Issuance of common stock upon initial public offering, net of issuance costs		—			—			5,750,000		6		77,635		—			—			77,641
Issuance of common stock upon exercise of stock options, net of amount related to early exercised options		—			—			26,510		—		24		—			—			24
Issuance of common stock upon vesting of restricted stock units		—			—			10,189		—		—		—			—			—
Vesting related to shares of common stock issued pursuant to early exercises		—			—			—		—		7		—			—			7
Stock-based compensation expense		—			—			—		—		988		—			—			988
Other comprehensive income		—			—			—		—		—		14			—			14
Net loss		—			—			—		—		—		—			(6,775	)		(6,775	)
Balance at June 30, 2018		—		$	—			19,108,221	$	19	$	157,192	$	(120	)	$	(37,750	)	$	119,341
Issuing costs of common stock related to initial public offering		—			—			—		—		54		—			—			54
Vesting related to shares of common stock issued pursuant to early exercises		—			—			—		—		5		—			—			5
Stock-based compensation expense		—			—			—		—		430		—			—			430
Other comprehensive loss		—			—			—		—		—		(40	)		—			(40	)
Net loss		—			—			—		—		—		—			(5,663	)		(5,663	)
Balance at September 30, 2018		—		$	—			19,108,221	$	19	$	157,681	$	(160	)	$	(43,413	)	$	114,127

See accompanying notes to the unaudited interim condensed consolidated financial statements

	Nine Months Ended
	September 30,
	2019			2018
Cash flows from operating activities:
Net loss	$	(25,508	)	$	(17,385	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		961			486
Stock-based compensation		3,000			1,544
Amortization of premiums and discounts on marketable securities		(896	)		(192	)
Loss on disposal of property and equipment		—			97
Changes in operating assets and liabilities
Prepaid expenses, other current assets and other long-term assets		(1,187	)		(1,272	)
Accounts payable, accrued liabilities and other current liabilities		1,534			1,619
Deferred rent		—			(216	)
Operating lease liabilities		(571	)		—
Net cash used in operating activities		(22,667	)		(15,319	)
Cash flows from investing activities:
Purchases of property and equipment		(589	)		(1,003	)
Purchases of marketable securities		(86,571	)		(72,995	)
Maturities of marketable securities		105,901			—
Proceeds from sale of property and equipment		—			10
Net cash provided by (used in) investing activities		18,741			(73,988	)
Cash flows from financing activities:
Proceeds from issuance of common stock, net of issuance costs		—			77,695
Proceeds from issuance of common stock under employee equity plans		192			213
Net cash provided by financing activities		192			77,908
Effect of exchange rate changes on cash, cash equivalents and restricted cash		(83	)		(53	)
Net decrease in cash, cash equivalents and restricted cash		(3,817	)		(11,452	)
Cash, cash equivalents and restricted cash at the beginning of period		24,182			51,046
Cash, cash equivalents and restricted cash at the end of period	$	20,365		$	39,594
Supplemental disclosures of noncash investing and financing information:
Reclassification of employee stock liability to equity upon vesting	$	37		$	29
Addition of tenant improvement paid by landlord	$	—		$	2,703


Title of each class	Trading symbol	Name of each exchange on which registered
Common Stock, $0.001 par value	KZR	The Nasdaq Stock Market LLC

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	2
	Condensed Consolidated Balance Sheets	2
	Condensed Consolidated Statements of Operations	3
	Condensed Consolidated Statements of Comprehensive Loss	4
	Condensed Consolidated Statement of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)	5
	Condensed Consolidated Statements of Cash Flows	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4.	Controls and Procedures	24
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	24
Item 1A.	Risk Factors	25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	59
Item 3.	Defaults Upon Senior Securities	59
Item 4.	Mine Safety Disclosures	59
Item 5.	Other Information	59
Item 6.	Exhibits	60

	September 30, 2019			December 31, 2018
	(Unaudited)			(Note 2)
Assets
Current assets:
Cash and cash equivalents	$	20,365		$	24,182
Marketable securities		64,878			83,250
Prepaid expenses		2,462			1,884
Other current assets		1,098			489
Total current assets		88,803			109,805
Property and equipment, net		4,509			4,595
Operating lease right-of-use asset		3,929			—
Other assets		282			282
Total assets	$	97,523		$	114,682
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	824		$	193
Accrued liabilities		3,560			2,678
Operating lease liabilities, current		868			—
Deferred rent, current		—			354
Other liabilities, current		75			112
Total current liabilities		5,327			3,337
Operating lease liabilities, noncurrent		5,699			—
Deferred rent		—			2,548
Total liabilities		11,026			5,885
Stockholders' equity:
Common stock, $0.001 par value, 125,000,000 shares authorized as of September 30, 2019 (unaudited) and December 31, 2018; 19,141,645 and 19,114,421 shares issued and outstanding as of September 30, 2019 (unaudited) and December 31, 2018, respectively		19			19
Preferred stock, $0.001 par value, 10,000,000 shares authorized as of September 30, 2019 (unaudited) and December 31, 2018; zero shares issued and outstanding as of September 30, 2019 (unaudited) and December 31, 2018		—			—
Additional paid-in capital		161,405			158,176
Accumulated other comprehensive loss		(224	)		(203	)
Accumulated deficit		(74,703	)		(49,195	)
Total stockholders' equity		86,497			108,797
Total liabilities and stockholders' equity	$	97,523		$	114,682

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Operating expenses:
Research and development	$	7,080		$	4,664		$	19,932		$	13,463
General and administrative		2,601			1,600			7,413			4,837
Total operating expenses		9,681			6,264			27,345			18,300
Loss from operations		(9,681	)		(6,264	)		(27,345	)		(18,300	)
Interest income		533			601			1,837			915
Net loss	$	(9,148	)	$	(5,663	)	$	(25,508	)	$	(17,385	)
Net loss per common share, basic and diluted	$	(0.48	)	$	(0.30	)	$	(1.34	)	$	(2.38	)
Weighted-average shares used to compute net loss per common share, basic and diluted		19,095,870			18,955,384			19,070,937			7,319,012

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☒