Item 1. Business
Item 1. Business
In this Annual Report on Form 10-K, unless the context otherwise requires, references to “we,” “us,” “our,” “our company,” “KALA,” “KALA BIO” and “Company” refer to KALA BIO, Inc. and its subsidiaries.
Overview
We are a biopharmaceutical company in transition, evaluating the development of a dedicated, on-premises artificial intelligence (AI) infrastructure platform for the biotechnology industry. Our current focus is leveraging our mesenchymal stem cell secretome (“MSC-S”) platform to test development of a scalable AI platform-as-a-service business to deploy secure, purpose-built AI systems directly within biotech and pharmaceutical client environments. We have historically been engaged in the research, development and commercialization of innovative therapies for rare and severe diseases of the front and back of the eye. Our lead product candidate was KPI-012, MSC-S, which we acquired from Combangio, Inc. (“Combangio”) on November 15, 2021. KPI-012 was in clinical development for the treatment of persistent corneal epithelial defects (“PCED”), a rare disease of impaired corneal healing. Based on the results of a Phase 1b clinical safety and efficacy trial of KPI-012 in patients with PCED, we submitted an investigational new drug application to the U.S. Food and Drug Administration (“FDA”), which was accepted in December 2022. In February 2023, we dosed our first patient in the United States in our CHASE (Corneal Healing After SEcretome therapy) Phase 2b clinical trial of KPI-012 for PCED (the “CHASE trial”). By September 2025, the CHASE trial did not meet its primary endpoints, and we determined to discontinue our development of KPI-012 and the MSC-S platform. We have since expanded upon our business to evaluate strategic alternatives for our legacy MSC-S assets and capitalize on the substantial intellectual property (IP), proprietary biological datasets, and research experience generated during the clinical trials by starting development of an AI platform.
On March 3, 2026 (subsequent to the fiscal year ended December 31, 2025), we entered into an exclusive license for the Researgency AI research platform (“Researgency”) from Younet AI (“Younet”), through which we intend to test and assess the feasibility of offering a dedicated AI infrastructure partner for the biotechnology industry. Our goal is to enable companies of all sizes to unlock the value of their proprietary biological data without surrendering control of it through the development of a specialized agentic AI research platform.
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Strategic Transition
Suspension of Clinical Trial
On September 28, 2025, the board of directors of the Company (the “Board”) determined to cease development of KPI-012 and the MSC-S platform because the CHASE trial did not meet the primary endpoint of complete healing of PCED as measured by corneal fluorescein staining. The CHASE trial also failed to achieve statistical significance for key secondary efficacy endpoints, with no meaningful difference observed between either KPI-012 treatment arm and the placebo arm. In connection with such decision, we implemented a reduction in our workforce of approximately 19 employees, or approximately 51%.
Oxford Foreclosure and Workforce Terminations
On September 29, 2025, we received a notice of default under our senior secured credit facility with Oxford Finance LLC (“Oxford Finance”). Oxford Finance asserted its remedies under the Loan and Security Agreement, dated as of May 4, 2021, by and among us, Combangio and Oxford Finance, as lender and collateral agent (as amended, the “Loan Agreement”), including exercising control over substantially all of our cash, and informed us of its intention to foreclose on our remaining assets. As a result of these restrictions and the anticipated foreclosure process, we terminated substantially all of our remaining employees other than those needed to support limited activities associated with the foreclosure process.
Oxford Finance subsequently paused its foreclosure efforts to permit us to pursue a short-term financing transaction and related negotiations. In November 2025, we entered into a settlement arrangement with Oxford Finance, and in December 2025, we satisfied the amounts due under that arrangement, resolving the obligations under our credit facility with Oxford Finance. Also in November 2025, we entered into a short-term convertible loan arrangement with an individual lender to provide interim liquidity, which was repaid in full in December 2025.
Our current activities comprise of (i) evaluating strategic alternatives for our legacy MSC-S assets and related intellectual property and (ii) early-stage development of a prospective AI platform-as-a-service offering, Researgency, intended for deployment within biotechnology and pharmaceutical customer environments. While we intend to assess the commercial viability of offering dedicated, on-premises AI systems to biotechnology companies, there can be no assurance that we will successfully develop, commercialize or generate revenue from this initiative.
Younet AI Licensing Agreement and the Researgency Platform
Following the decision to suspend the CHASE trial, and as part of our strategic transition, on March 3, 2026 (subsequent to the year-end), we entered into an exclusive licensing agreement with Younet (the “Younet License Agreement”), pursuant to which we secured worldwide exclusive rights to Researgency, specifically adapted for biotechnology applications. Under our license for Researgency, we plan to evaluate whether the platform can be configured to support biotechnology research workflows and data-governance requirements. Specific technical configurations and commercialization plans, including pricing and service levels, remain under development and subject to customer requirements and applicable laws and guidance.
Changes in Leadership
During the fiscal year ended December 31, 2025, and through the date of this filing, the Company experienced significant changes in its executive leadership and the composition of its Board.
On February 11, 2025, Mark Iwicki resigned as Chief Executive Officer. The Board appointed Todd Bazemore as interim Chief Executive Officer and principal executive officer on the same date. On August 29, 2025, Mr. Bazemore was appointed as Chief Executive Officer and President of the Company and was elected as a Class II Director of the Board.
On October 19, 2025, in connection with a workforce reduction, the Board terminated Mr. Bazemore's employment as President and Chief Executive Officer, effective immediately. Mr. Bazemore continued to serve as a director of the Company and as the Company's principal executive officer.
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On November 21, 2025, the Board terminated the employment of Mary Reumuth, the Company's Chief Financial Officer and Secretary. On the same date, the Board appointed David Lazar as Chief Executive Officer, principal executive officer, and principal financial officer of the Company, each effective in connection with the closing of the transactions contemplated by the November 2025 Purchase Agreement (as defined herein). Mr. Lazar was also elected as a Class II Director and the Chair of the Board, replacing Mr. Iwicki as Chair. Mr. Iwicki continued to serve as a director.
On December 19, 2025, each of Marjan Farid, M.D., Andrew I. Koven, Mark Iwicki, Todd Bazemore, C. Daniel Meyers, and Howard B. Rosen tendered their resignations as directors of the Company, each effective as of January 30, 2026. Pursuant to the terms of the November 2025 Purchase Agreement (as defined herein), AK Holdings Group Inc. (“AK Holdings”) had the right to nominate up to eight individuals to serve as directors of the Company. On January 30, 2026, the Board, upon the recommendation of the Nominating and Corporate Governance Committee, appointed five nominees of AK Holdings as directors: Avi Minkowitz as a Class II Director, Hillel Posen and Chaim (Dovi) Berger as Class I Directors, and Yonatan Colman and Brendan Purdy as Class III Directors.
On February 2, 2026, Mr. Lazar resigned as Chief Executive Officer and Chief Financial Officer of the Company, effective immediately, while remaining a director. On the same date, the Board appointed Avi Minkowitz, a current director, as Chief Executive Officer and Chief Financial Officer. On February 16, 2026, Mr. Lazar resigned from the Board, effective immediately. Mr. Minkowitz currently serves as our Chief Executive Officer and Chief Financial Officer.
The Company’s Business Strategy
Our strategy is to pursue two complementary business lines: (i) the monetization of a proprietary biologics asset portfolio centered on the Company's MSC-S platform and its associated IP, and (ii) the development of the Researgency business, through which the Company intends to deploy Researgency to provide a dedicated, on-premises AI infrastructure solution for biotechnology and pharmaceutical companies. Key elements of our current strategy include:
● Preserve and seek to monetize our MSC-S biologics asset portfolio . We are preserving our MSC-S platform intellectual property, including the KPI-012 and KPI-014 product candidates and related patents and know-how, and are evaluating strategic options with respect to those assets, including licensing, sale, out-licensing, collaboration, and other arrangements with one or more third parties. We may evaluate preclinical activities in the future if we secure additional funding and identify suitable development partners. We do not have any ongoing clinical trials as of the date of this filing.
● Develop and aim to deploy Researgency as a dedicated biotechnology industry solution . Through our exclusive license for Researgency, we intend to serve as a dedicated AI infrastructure partner for biotechnology and pharmaceutical companies. Researgency is designed for on-premises deployment within client environments, enabling customers to leverage advanced AI capabilities while maintaining complete control over their proprietary biological data and intellectual property. We also intend to offer the platform on a platform-as-a-service basis, together with implementation support, maintenance subscriptions, and data analytics services, targeting mid-size biotechnology companies, contract research organizations, and pharmaceutical companies as our primary customer base. Any commercialization, pricing and feature set remain subject to further development, validation, applicable regulatory compliance and customer demand.
● Evaluate Researgency using our proprietary KPI-012 research dataset . As an initial step toward potential commercialization of Researgency, we intend to use our accumulated KPI-012 clinical development dataset, which includes data from 79 patients across 37 clinical trial sites together with related regulatory submission materials, as a proof-of-concept validation environment. This self-validation approach is designed to generate reference case studies and to refine platform capabilities using real-world biotechnology research data prior to commercial deployment with external customers. There can be no assurance that these efforts will identify commercially actionable opportunities.
● Pursue strategic arrangements across both business lines . We plan to pursue value-driven strategic transactions across both our biologics portfolio and our Researgency business, which may include licensing
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arrangements, collaborations, co-development agreements, and other strategic partnerships. With respect to our biologics portfolio, such transactions may include in-licensing or acquisition of complementary product candidates or technologies, particularly for rare ophthalmic diseases. With respect to our Researgency business, such transactions may include strategic partnerships with pharmaceutical companies, academic institutions, and other parties seeking dedicated AI research infrastructure.
Industry Background
The pharmaceutical and biotechnology sectors operate within regulatory frameworks where data management is a matter of compliance. Clinical trial data is governed by the FDA. Patient data must adhere to requirements of the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) and, where applicable, other domestic and foreign privacy laws, as well as contractual and regulatory obligations applicable to research activities. Regulatory submission documents can be used as evidence in enforcement actions. Intellectual property in active development has commercial value that partly relies on maintaining confidentiality until patent approval or publication. Our goal is to utilize biotechnology research from experimental methods to intelligent, predictive systems designed to minimize risk, speed up timelines, and enhance outcomes throughout the therapeutic development process.
We believe our proposed AI initiatives may address certain operational challenges observed in biotechnology research and development as set forth below:
1. Data Protection Requirements: Complex regulatory frameworks governing biological research data, requiring specialized security architectures and compliance monitoring systems.
2. Patient Data Privacy Obligations: HIPAA, state privacy laws, the General Data Protection Regulation (“GDPR”), and other privacy regulations thus create stringent requirements for data handling, storage, and processing in clinical research contexts, the scope and application of which continue to evolve.
3. Intellectual Property Security: Protection of proprietary research data, therapeutic targets, and competitive intelligence from unauthorized access or disclosure.
4. Substantial Regulatory Compliance Costs: FDA submission requirements, clinical trial protocols, and regulatory pathway navigation represent significant operational expenses.
5. Expensive Research Adaptation Requirements: Costs associated with modifying research protocols, clinical trial designs, informed consents and other study-related documents and therapeutic approaches based on evolving data and regulatory guidance.
6. Complex Commercialization Processes: Multi-stage pathway from research discovery through regulatory approval to market introduction, requiring coordinated expertise across multiple domains.
7. Extended Development Timelines: Multi-year development cycles create substantial capital requirements and opportunity costs for biotechnology companies.
We are evaluating AI capabilities, including autonomous task orchestration, integration with internal data sources and auditability, that may support biotechnology research workflows. Potential use cases under consideration include analysis of clinical datasets, literature synthesis and report generation within controlled environments. Any deployment would be designed to align with applicable regulatory expectations regarding clinical development, data integrity, validation and governance, to the extent such expectations are clarified and become applicable to our platform.
We anticipate that customer interest, if any, will focus on private deployments operated within customer infrastructure (on-premises or private cloud) so that proprietary data remain within the customer’s control. Features under evaluation include access controls, audit logging, model validation procedures and, where appropriate and permitted, fine-tuning on customer datasets with the customer retaining ownership of model artifacts. The specific
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features and capabilities offered may vary based on customer requirements, technical feasibility and applicable regulatory guidance.
Agentic AI and Private Enterprise LLM
One variation of “Agentic” AI is that it describes a system's ability to act on data. A typical AI assistant responds to questions when asked. An agentic AI system is generally designed to autonomously pursue specific goals, breaking down complex objectives into smaller tasks, completing each one step by one, assessing results, and adjusting its strategy based on what it learns along the way. Typical capabilities of agentic AI systems may include goal-directed execution, external tool and database integration, context persistence across extended workflows, self-correction when intermediate outputs fail to meet quality criteria, and multi-agent coordination in which specialized agents perform discrete tasks orchestrated into a unified deliverable.
In biotechnology research, this difference becomes practically important. Analyzing a failed clinical trial dataset for subgroup signals is a complex, multi-step process, involving loading and cleaning data, developing and testing hypotheses, cross-referencing findings with published literature, evaluating statistical significance, ranking results by biological plausibility, and preparing a structured report for scientific review. An agentic system can manage the entire workflow, while a conventional AI tool generally only answers individual questions.
A large language model (“LLM”) is a type of artificial intelligence trained on large volumes of text, which may include scientific literature, regulatory filings, clinical records, and financial documents. LLMs are designed to read, summarize, reason about, and generate language across a range of tasks by constructing internal representations of relationships between concepts, enabling them to synthesize information from multiple sources and produce analytical outputs. For example, when a researcher asks an LLM to identify patterns in a clinical dataset, a model maybe able reason through the data's structure, apply domain knowledge encoded during training, and produce interpretations more quickly than a human analyst.
A significant advance in enterprise AI is the development of deployment architectures that allow organizations to use models on their own proprietary data without sending it to external servers. Sending proprietary biological data, regulatory strategy documents, or unpublished efficacy results through a public AI interface introduces legal risks, intellectual property concerns, and potential regulatory non-compliance.
A private enterprise LLM deployment allows an organization to operate these models within its own infrastructure, whether on-premises or in a dedicated private cloud environment, so that proprietary data is not transmitted to external servers. This architecture is intended to mitigates the intellectual property, data sovereignty, and regulatory compliance risks associated with processing sensitive information, including unpublished clinical results, regulatory strategy documents, and other proprietary biological data. A private deployment may also enable, where appropriate and permitted by applicable governance requirements, fine-tuning of the model on the organization's proprietary datasets, with the organization retaining full ownership of any resulting model artifacts. Fine-tuning may allow the model to reason over organization-specific data, such as internal trial documentation, regulatory submissions, and laboratory results, with the same depth applied to publicly available information.
The Researgency Platform
Through our license for Researgency, we plan to evaluate whether the platform can be adapted to meet biotechnology research workflow, data security and governance requirements observed in our historical operations. We are in the early stages of assessment and have not recognized revenue from this initiative.
Younet: The Infrastructure Layer for Private Enterprise AI
Our ability to commercialize Researgency depends in part on Younet’s performance of development and infrastructure obligations and our successful integration, validation and deployment of the licensed technology for biotechnology research workflows. Researgency is intended to operate on infrastructure provided by Younet, which provides a technical environment for private enterprise AI deployment. For many biotechnology organizations, this is not a core competency, and the development costs and timelines are prohibitive. Under the Researgency license, Younet may provide certain infrastructure components that support private enterprise AI deployment, including model hosting,
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secure environments, data ingestion pipelines, retrieval systems, access controls, audit logging and maintenance. Any commercial offering would be designed to permit customers to control their proprietary data within their own environments. Specific terms and service levels will be finalized if and when we enter into customer agreements.
KPI-012 Dataset for Researgency
We expect to first evaluate the platform using our accumulated research data from the KPI-012 development program. Potential objectives include assessing platform functionality with real-world biotechnology data, informing future development priorities and, if appropriate, preparing internal case studies. This approach offers several expected strategic benefits including: (1) validating platform capabilities with real-world biotechnology data, (2) creating reference case studies for commercial use, (3) refining platform functionality based on actual research needs, and (4) demonstrating value creation from previously unsuccessful therapeutic development programs. These efforts may not result in commercially deployable features.
The KPI-012 dataset includes comprehensive clinical trial data from 79 patients across 37 sites, regulatory submission materials, safety profiles, efficacy metrics, and documentation of interactions with the FDA, which produces a vast amount of biological and clinical data. While the CHASE trial did not outperform placebo on the primary endpoint, we plan to analyze the dataset for potential signals, including subgroup responses, biomarkers, dosing or safety insights. Such analyses are exploratory and may not support further development.
Core features of KALA’s goals include:
● Multi-agent orchestration for biotechnology workflows (e.g., elements of regulatory submissions, clinical trial design and data analysis).
● Integration with biomedical databases, regulatory repositories and clinical research datasets.
● Audit trails, access controls and validation procedures designed to support compliance frameworks; accountability for compliance would remain with the sponsor organization.
● On-premises or private-cloud deployment options intended to support data sovereignty.
● Mechanisms for ongoing enhancement based on customer data, with data privacy and isolation.
● Application programming interfaces (APIs) for integration with laboratory information management, clinical trial management and regulatory submission systems.
We are evaluating specialized functional modules potentially applicable to biotechnology and pharmaceutical research, including:
● Clinical Trial Intelligence: AI agents that may specialize in protocol design, patient stratification, site selection, and regulatory submission preparation, potentially drawing on validated clinical development experience.
● Regulatory Pathway Optimization: Analysis of FDA guidance, submission requirements, and approval pathways using predictive modeling that may help to estimate regulatory success likelihood; conclusions will not be guaranteed, and accountability for compliance would remain with the sponsor organization.
● Biological Data Analysis: Advanced pattern recognition and hypothesis generation using biological datasets from KALA's clinical programs and regulatory submissions.
● Intellectual Property Management: Patent landscape analysis, competitive intelligence monitoring, and IP strategy development capabilities that may be integrated with research discovery processes.
● Safety and Efficacy Modeling: Predictive analytics that may help forecast therapeutic safety profiles and efficacy based on validated clinical trial data and regulatory feedback; conclusions will not be guaranteed.
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● Commercialization Strategy: Market analysis, competitive positioning, and go-to-market planning tailored specifically for biotechnology therapeutic development.
• Responder Analysis: Exploratory evaluation of biological plausibility in identified subgroups to inform any internal assessment of whether a targeted re-development program is scientifically warranted.
• Investment Recommendation: Evidence-based analyses on whether KPI-012 or KPI-014 warrants additional investment or out-licensing to a strategic partner.
• Partner-Ready Data Package: A structured data set suitable for sharing with potential licensing partners, co-development collaborators, or IP acquirers, subject to appropriate confidentiality and data-protection controls.
Our platform is being designed for use in customer environments that may include proprietary biological datasets, clinical trial data, draft regulatory submissions and other sensitive materials. As such, our product development emphasizes auditability, access controls, logging, and data-handling configurations intended to support customer compliance with applicable privacy, data-governance and research-integrity frameworks. We anticipate that customers will retain ownership and control over their data and, where applicable, any customer-specific model artifacts produced within their environment.
The Placebo Response Question
Our early approach focuses on early testing as to whether the CHASE trial had an unusually high placebo response rate, which is a well-documented phenomenon in eye disease trials. The act of applying any drop, combined with increased clinical attention, can produce meaningful improvement in the control arm, making it difficult for an active treatment to demonstrate statistical superiority. In such event, even a well-conducted responder subgroup analysis will not salvage the program. However, this is what the data review is intended to identify. We believe this analysis is useful to making go/no-go decisions, communicating transparently with future partners or licensors, and avoiding further capital investment in a structurally compromised trial design. There is no assurance that any such assessment will support further development.
Phased Implementation Strategy
Our implementation roadmap adopts a structured, phased approach with internal milestones, metrics and decision points. The timing and scope of each phase will depend on product development progress, funding and customer interest. There can be no assurance that we will be successful in executing any phase of this strategy, and our ability to do so is subject to significant risks and uncertainties, including the risks described in the “Risk Factors” section of this Annual Report on Form 10-K.
Phase 1 Goals: Self-Validation and Platform Refinement (next ~1-6 months)
• Deploy the platform on our KPI-012 dataset for internal evaluation
• Initiate development of internal case studies and assess feasibility of agent-based workflows
• Refine capabilities based on observed research needs and technical performance
• Develop validation and governance documentation aligned with applicable regulatory expectations
• Explore scientific collaborations to reassess potential development pathways
• Internal Metrics : Data processing accuracy benchmarks, system performance and documentation completeness
Phase 2 Goals: Strategic Customer Acquisition (next ~12 months)
• Engage with potential pilot customers to evaluate implementation feasibility and develop case studies
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• Define pricing, support and customer success metrics
• Expand capabilities based on feedback and market requirements
• Internal Metrics : Engagement pipeline, pilot outcomes, satisfaction indicators and utilization measures
Phase 3 Goals: Market Expansion and Scale (~2027 onwards)
1. Grow active customer base across target segments, if Phases 1–2 support commercialization
2. Develop strategic partnerships with pharmaceutical companies and CROs
3. Expand capabilities and market reach through product development and partnerships
4. Internal Metrics : Revenue scale, competitive positioning and partnership development
Our Historical Business
KPI-012 and our MSC-S Platform
Prior to our strategic transition, our lead product candidate was KPI-012, a novel, human bone-marrow derived MSC-S composed of biologically active components secreted from mesenchymal stem cells, such as growth factors, protease inhibitors, matrix proteins and neurotropic factors, that had been shown in preclinical studies by Combangio to facilitate corneal healing. KPI-012 had received Orphan Drug and Fast Track designations from the FDA for the treatment of PCED in April 2023.
We have retained worldwide commercial rights for our MSC-S platform, including KPI-012 and KPI-014. We own and/or exclusively license patents and patent applications relating to this platform, including U.S. and foreign issued patents and pending patent applications. The expiration dates of the issued U.S. patents that we control covering KPI-012 are scheduled to expire no earlier than 2040, and a portfolio of additional U.S. and ex-U.S. patent applications covering the MSC-S platform is currently in prosecution.
Our Previous Clinical-Stage Product Candidate
Persistent Corneal Epithelial Defects Overview
PCED is a persistent non-healing corneal defect or wound that is refractory to conventional treatments. PCED is a disease of impaired corneal healing and can be the result of numerous etiologies, including (but not limited to) neurotrophic keratitis, or NK, microbial/viral keratitis, surgical epithelial debridement, corneal transplant surgery, LSCD, mechanical/thermal trauma and exposure keratopathy. Normal healing is a highly regulated multifactorial process that involves numerous biologic pathways and molecules, including growth factors, cell signaling, proliferation, migration and extracellular matrix remodeling. In PCED, the normal healing process is impaired due to an imbalance of the key biomolecules that orchestrate the normal wound healing process. We believe that effective treatment of PCED across the various etiologies requires a multifactorial mechanism of action to address the impaired healing that is responsible for the defects.
PCED is a rare disease with an estimated incidence of 100,000 cases per year in the United States and 238,000 cases per year in the United States, European Union and Japan combined. Clinical symptoms of PCED include pain, foreign body sensation, redness, photophobia and tearing. Clinical signs include non-healing epithelial defects, stromal scarring and stomal thinning. A PCED may lead to infection, corneal ulceration, corneal perforation, scarring, opacification and significant vision loss.
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Limitations of Existing Treatments for Persistent Corneal Epithelial Defects
There is currently a significant unmet need for therapies to effectively treat PCED. Conventional therapies, which include bandage contact lenses, autologous serum and surgery, are usually ineffective in overcoming the dysregulation present in multiple cellular pathways that may need to be addressed to heal a PCED. Surgical procedures used in the treatment of PCED include tarsorrhaphy, corneal epithelial stem cell transplants and corneal transplants which are used to aid in restoration and maintenance of vision capabilities.
The only currently approved prescription product in the PCED space is Oxervate ® , indicated for the treatment of NK, which we believe to be the primary etiology for approximately one-third of PCED cases. Oxervate contains a single growth factor – nerve growth factor (NGF) – and has been demonstrated to be effective in only the subgroup of PCED cases whose underlying etiology is neurotrophic disease. Oxervate is a topical eye drop that is administered six times per day at two-hour intervals for eight weeks. Each administration of Oxervate requires the use of a vial containing the drug product, a vial adapter, a single-use pipette and disinfectant wipes.
KPI-012 Opportunity in Persistent Corneal Epithelial Defects
KPI-012 is a novel, human bone-marrow derived MSC secretome composed of biologically active components secreted from the MSCs, such as growth factors, protease inhibitors, matrix proteins and neurotropic factors, that have been shown in preclinical studies by Combangio to facilitate corneal healing. KPI-012 is cell-free and produced from a proprietary cell bank. The drug substance for KPI-012 is produced as a chemically-defined cell-free solution followed by formulation and filling of the drug product in non-preserved single dose units. Key biological factors contained in KPI-012 and their potential wound healing functions are shown below:
Key KPI-012 Components
Ocular Surface Wound-Healing Function
Protease Inhibitors
(TIMP-1, TIMP-2, Serpin E)
Inhibit destructive proteases that degrade matrix in the wound bed
Matrix Proteins
(Fibronectin)
Build a molecular scaffold in the wound bed for cells to migrate and adhere to
Growth Factors
(HGF)
Suppress inflammation and promote corneal epithelium repair
Neurotrophic Factors
(PEDF)
Promote maintenance of neurons to support corneal health
CHASE 2b Clinical Trial of KPI-012
Our initial goal was to develop KPI-012 for the treatment of PCED. Combangio completed a Phase 1b clinical efficacy trial in nine patients with PCED in Mexico City, Mexico. Based on the results of this Phase 1b clinical trial, we had initiated a full preclinical development program and submitted an Investigational New Drug (“IND”) application to the FDA for KPI-012, which was accepted in December 2022. In February 2023, we dosed the first patient in the CHASE trial of KPI-012 in patients with PCED in the United States. The CHASE trial was comprised of two patient cohorts. On March 27, 2023, we announced positive safety data from the first cohort of the CHASE trial, which was an open-label study to evaluate the safety of the high dose of KPI-012 ophthalmic solution (3 U/mL) dosed topically QID in two patients. Both patients in the first cohort successfully completed eight weeks of dosing with no safety issues observed.
The second cohort of the CHASE trial was a multicenter, randomized, double-masked, vehicle-controlled, parallel-group trial to evaluate the safety and efficacy of two doses of KPI-012 ophthalmic solution (3 U/mL and 1 U/mL) versus vehicle dosed topically QID for 56 days in approximately 90 adult patients with PCED. The trial had an 8-week treatment period with evaluations at frequent times during the dosing period and at 10 weeks and 26 weeks. We previously opened 45 trial sites for the CHASE trial in the United States and initiated clinical trial sites in Argentina . The primary endpoint of the CHASE trial was the complete healing of the PCED as measured by corneal fluorescein staining using a central-reading center assessment of corneal fluorescing staining photographs.
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Phase 1b Clinical Trial Results of KPI-012
Combangio had conducted a Phase 1b clinical trial of KPI-012 in Mexico City, Mexico during 2020 and 2021, consisting of three subjects without active corneal disease, or the safety cohort, who were dosed twice a day (1 U/mL) for one week and nine patients with PCED, or the PCED cohort, who were dosed twice a day (1 U/mL) for up to eight weeks. Key inclusion criteria for the PCED cohort included subjects with bilateral corneal burns who could only have one eye entered into the clinical trial; subjects whose previous treatment were stopped except for the study medication; and subjects with PCED of at least 10 days without improvement from one or more conventional non-surgical treatments in the study eye due to any of the following: NK (provided there was no active herpetic infection of the eye in the prior three months), corneal burns (alkali, acid, and thermal), post-photorefractive keratectomy, post-corneal transplant surgery, corneal epithelial debridement resulting from diabetic vitrectomy surgery, trauma, keratoconjunctivitis sicca, Sjögren's, or corneal cross-linking.
The participants in the Phase 1b trial were treated with KPI-012 topically twice a day, with the subjects in the safety cohort treated for one week and patients in the PCED cohort treated between one to eight weeks. KPI-012 was generally well tolerated in both cohorts, with only one subject experiencing treatment-related adverse events (mild and transient itching, red eye and blurred vision after study drug administration). There were no deaths or treatment-related serious adverse events during either cohort. One subject in the PCED cohort had to withdraw from the trial due to a protocol screening violation.
As depicted in Figure 1 below, six of the eight patients in the PCED cohort (75%) who completed the trial achieved complete healing of the lesion after four weeks of treatment, with the two other patients experiencing some clinical improvement but not complete healing. Four of eight patients in the PCED cohort (50%) achieved complete healing of the lesion after one week of treatment and the other two patients achieved complete healing within two to four weeks of initiation of treatment with KPI-012. All six of the patients who achieved complete healing remained healed through the follow-up period of the trial, which ranged between eight to 19 weeks. Of the two patients who did not show complete healing in the trial, clinical investigators noted some clinical improvement in both patients, but the corneal staining images did not show complete healing of the defect.
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Figure 1. Summary of Phase 1b clinical trial of KPI-012 for PCED, including representative images for a healed patient study eye. The Day 1 images were taken on the first day of treatment, prior to first KPI-012 administration, with the fluorescein (green) stain demarking the corneal wound boundary of the study eye image. The Day 7 images were taken on the last day of KPI-012 treatment showing the PCED completely healed. The images on the left depict the study eye viewed under blue light to visualize the PCED with fluorescein stain.
Significant pain relief was reported by patients in the PCED cohort within one week of treatment with KPI-012, as shown in Figure 2 below. Of the six patients who reported pain at the baseline, all six patients reported a reduction in pain after one week of treatment, four patients reported a pain score of zero after one week of treatment and all six patients reported a pain score of zero after three weeks of treatment.
Figure 2. PCED cohort patient-reported score of pain level due to defect using a visual analogue scale, or VAS, which is a subjective rating of pain levels on a scale of 0 to 10 where a score of 0 represents no pain at all and a score of 10 represents the worst possible pain.
KPI-012 Preclinical Studies and Results
KPI-012 was previously evaluated by Combangio in a number of preclinical studies. In these studies, KPI-012 promoted rapid ocular re-epithelialization and mitigated scarring and neovascularization in a number of well-established animal models.
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In vitro Human Corneal Epithelial Wound Closure Assay
The therapeutic mechanism of action of KPI-012 involves stimulating corneal re-epithelialization and ocular surface healing. Combangio evaluated KPI-012 in an in vitro wound gap assay developed using human corneal epithelial cells. In this assay, a mechanical defect (cell-free region) was introduced into a two-dimensional monolayer of epithelial cells to create a wound. The ‘injured’ monolayer was then treated with KPI-012 and the cell free region was monitored for wound closure as show in Figure 3 below. In this assay, KPI-012 exhibited a dose-dependent and potent wound closure response.
Figure 3. Representative images from an in vitro human corneal epithelial wound closure assay. A mechanical wound instilled to a corneal epithelial cell monolayer on Day 1 healed after treatment with KPI-012 (Day 4 of treatment), but not negative control (vehicle). Depicted images are wounded cell monolayers stained with Gentian Violet.
In vivo Mechanical Wound Studies of Activity
Combangio also previously evaluated the activity of KPI-012 in a mechanical corneal injury mouse model. In this model, a circular area on the surface of the cornea was debrided (mechanically scraped) to remove the epithelial layer and create a circular wound.
Topical formulations of vehicle or KPI-012 were administered twice daily to the wounded eyes. As shown in Figure 4 below, mice treated with KPI-012 exhibited prominent wound healing at day four of the treatment period, while the vehicle-treated wounded eyes remained largely unhealed. Further, treatment with KPI-012 resulted in reduced corneal haze and scarring relative to treatment with vehicle. Results of this mouse model suggested that at Day 4 of treatment KPI-012 promoted in vivo closure of cornea mechanical wounds relative to vehicle control.
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Figure 4. Representative images of wounded mouse corneas after mechanical injury (Day 1). Depicted is the fluorescein (green) stain, which demarks the corneal wound boundary. Treatment with KPI-012 rapidly healed the wound size (as indicated by the disappearance of the green stain by Day 4) relative to vehicle control-treated eyes.
A second confirmatory mechanical corneal injury mouse model study was performed according to the method described above using a different lot of KPI-012. The study yielded similar results, with KPI-012 promoting wound healing relative to vehicle as well as exhibiting dose-dependent potency dynamics. After four days of treatment, KPI-012 treated eyes exhibited more pronounced reduction in wound staining relative to vehicle-treated eyes, as shown in Figure 5A below, and after five days most KPI-012 treated eyes completely healed, as shown in Figure 5B below. Further, a KPI-012 formulation lacking key biologic factors known to mediate wound healing exhibited reduced healing capacity in the study, supporting the selection of KPI-012’s critical quality attributes.
Figure 5. Summary of second mouse corneal mechanical study. (A) Representative images of wounded mouse corneas after mechanical injury (Day 1) and after four days of treatment with KPI-012 or vehicle (Day 4). Depicted is the fluorescein (green) stain, which demarks the corneal wound boundary. Treatment with KPI-012 rapidly healed the wound size (as indicated by the disappearance of the green stain by Day 4) relative to vehicle control-treated eyes; (B) Treatment with KPI-012 resulted in more rapid complete healing and a greater percentage of completely healed eyes (dashed line), relative to vehicle-treated eyes (solid line).
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Potential Indications for KPI-014
Based on the manufacturing and delivery expertise gained from KPI-012 development, we had also initiated preclinical studies under our KPI-014 program to evaluate the utility of our MSC-S platform for inherited retinal degenerative diseases, such as Retinitis Pigmentosa and Stargardt Disease. These preclinical activities have since been suspended in connection with our determination to cease development of KPI-012 and our MSC-S platform.
MSC-S therapies have shown great promise to treat inherited retinal diseases (“IRDs”), with the recognition that they function through their secretome (i.e., the secretion of paracrine factors that enhance retinal cell function and survival). We believe an MSC-S engineered for intravitreal delivery may provide an improved treatment option for IRDs as compared to the traditional MSC-based approach.
IRDs are associated with mutations in over 280 different genes, where each IRD has one or more mutations that cause disease onset and results in vision loss. It is projected that over 200,000 individuals in the United States alone suffer from IRDs. While significant progress has been made with gene therapies, these are typically limited to a single gene or mutation. With over 280 different IRD-associated genes, a therapy broadly effective for most IRDs does not currently exist, leaving patients with little-to-no options to slow disease progression and vision loss. We were previously developing KPI-014 with the goal of providing a broad, genotype-agnostic, therapeutic benefit to reduce vision loss and improve quality of life for patients suffering from inherited retinal degenerative diseases.
Competition
Competition in Artificial Intelligence Platform Services
The market for artificial intelligence platforms serving the biotechnology and pharmaceutical industries is rapidly evolving and intensely competitive. We expect to face competition from companies that have developed, or are developing, AI platforms and tools specifically designed for drug discovery and development, as well as from large technology companies offering general-purpose AI infrastructure solutions. Many companies that have developed AI-enabled drug discovery and research platforms have developed computational platforms designed to accelerate drug discovery and development. Many of these companies have significantly greater financial resources, larger research and development teams, and more established commercial relationships than we do. We believe that the key competitive factors in the AI platform market for biotechnology include data sovereignty architecture, depth of domain expertise in biotechnology regulatory affairs and clinical development, breadth of functional platform capabilities, pricing, and the availability of validated reference use cases. We believe that our on-premises deployment architecture, combined with the domain expertise and proprietary biological datasets we have accumulated through our own clinical development programs, provides meaningful differentiation from existing competitors. However, there can be no assurance that we will be able to successfully compete in this market or that competitors will not develop superior technologies or capabilities before we are able to establish a commercial presence.
Biotechnology and Pharmaceutical Competition
The biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. While we believe that our technologies, knowledge, experience and scientific resources provide us with competitive advantages, we face competition from many different sources, including major pharmaceutical, specialty pharmaceutical and biotechnology companies, academic institutions and governmental agencies and public and private research institutions. Any product candidates that we successfully develop and commercialize will compete with existing therapies and new therapies that may become available in the future.
Our competitors include large pharmaceutical and biotechnology companies, and specialty pharmaceutical and generic drug companies. Many of our competitors have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. These competitors also compete with us in recruiting and retaining qualified scientific, sales and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. Smaller or early-stage companies
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may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.
The key competitive factors affecting the success of KPI-012 and any other product candidates that we develop are the product candidate’s efficacy, safety, method of administration, convenience, price, the level of generic competition and the availability of insurance coverage and reimbursement from government and other third-party payors.
Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than our products. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours. In addition, our ability to compete may be affected because in many cases insurers or other third-party payors seek to encourage the use of generic products.
Sales and Marketing
We have not yet established a commercial organization or distribution capabilities. With respect to our AI platform business, we intend to develop a direct sales capability targeting biotechnology and pharmaceutical companies, contract research organizations, and academic research institutions. We intend to supplement our direct sales efforts with strategic partnerships and channel arrangements as the AI platform business matures. With respect to any biologics product candidates that we may develop or acquire in the future, we would seek to establish appropriate sales and marketing capabilities at the time of any regulatory approval, either directly or through third-party arrangements.
Intellectual Property
Our success depends significantly on our ability to obtain and maintain proprietary protection for our products, product candidates, technology and know-how, to operate without infringing the proprietary rights of others and to prevent others from infringing our proprietary rights. We seek to protect our proprietary position by, among other methods, filing U.S. and certain foreign patent applications related to our proprietary technology, inventions and improvements that are important to the development of our business, where patent protection is available. We also rely on trade secrets, know-how, continuing technological innovation and in-licensing opportunities to develop and maintain our proprietary position.
As of March 13, 2026, we owned eight U.S. issued patents and seven U.S. patent applications, as well as two foreign patents and 49 foreign patent applications (including pending Patent Cooperation Treaty, or PCT, applications). We exclusively licensed one U.S. patent, as well as one foreign patent and one foreign patent application including original filings, continuations and divisional applications. Our patent portfolio includes the following patents and patent applications that we own or exclusively license:
● Eight U.S. patents, seven U.S. patent applications, and two foreign patents and 49 related foreign patent applications, all relating to pharmaceutical compositions including KPI-012 for treating ocular conditions, which are owned by us, and which, if granted with respect to the patent applications, and if the appropriate maintenance, renewal, annuity or other governmental fees are paid, are expected to expire beginning in 2040; and
● One U.S. patent, one foreign patent, and one foreign patent application, all related to secreted stem cell factors for tissue repairment and regeneration, and which are exclusively in-licensed from Stanford University, and which, if granted with respect to the patent applications, and if the appropriate maintenance, renewal, annuity or other governmental fees are paid, are expected to expire beginning in 2038;
The term of individual patents depends upon the legal term for patents in the countries in which they are granted. In most countries, including the United States, the patent term is generally 20 years from the earliest claimed filing date of a non-provisional patent application in the applicable country. In the United States, a patent’s term may, in certain cases, be lengthened by patent term adjustment, which compensates a patentee for administrative delays by the U.S. Patent and Trademark Office in examining and granting a patent, or may be shortened if a patent is terminally
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disclaimed over a commonly owned patent or a patent naming a common inventor and having an earlier expiration date. The Drug Price Competition and Patent Term Restoration Act of 1984, or the Hatch-Waxman Act, permits a patent term extension of up to five years beyond the expiration date of a U.S. patent as partial compensation for the length of time the drug is under regulatory review while the patent is in force. A patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval, only one patent applicable to each regulatory review period may be extended and only those claims covering the approved drug, a method for using it or a method for manufacturing it may be extended. We cannot provide any assurance that any patent term extension with respect to any U.S. patent will be obtained and, if obtained, the duration of such extension.
Similar provisions are available in the European Union and certain other foreign jurisdictions to extend the term of a patent that covers an approved drug. In the future, if and when our product candidates receive approval by the FDA or foreign regulatory authorities, we expect to apply for patent term extensions on issued patents covering those products, if permitted under the applicable laws, regulations, and rules and depending upon the length of the clinical trials for each drug and other factors. The expiration dates referred to above are without regard to potential patent term extension or other market exclusivity that may be available to us. However, we cannot provide any assurances that any such patent term extension of any patent will be obtained and, if obtained, the duration of such extension.
Trade Secrets
In addition to patents, we may rely, in some circumstances, on trade secrets to protect our technology. However, trade secrets can be difficult to protect. We seek to protect our proprietary technology and processes, and obtain and maintain ownership of certain technologies, in part, by confidentiality and invention assignment agreements with our employees, consultants, scientific advisors and contractors. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems.
Licensing and Other Arrangements
EYSUVIS and INVELTYS Milestone Payments
We previously developed and commercialized two marketed products, EYSUVIS® (loteprednol etabonate ophthalmic suspension) 0.25% (“EYSUVIS”), for the short-term (up to 2 weeks) treatment of the signs and symptoms of dry eye disease, and INVELTYS® (loteprednol etabonate ophthalmic suspension) 1% (“INVELTYS”), a topical twice-a-day ocular steroid for the treatment of post-operative inflammation and pain following ocular surgery. Both products applied a proprietary mucus-penetrating particle drug delivery technology (the “AMPPLIFY® Drug Delivery Technology”).
On July 8, 2022, we sold to Alcon Pharmaceuticals Ltd. and Alcon Vision, LLC (together, “Alcon”), the rights to manufacture, sell, distribute, market and commercialize EYSUVIS and INVELTYS and to develop, manufacture, market and otherwise exploit the AMPPLIFY Drug Delivery Technology (collectively, the “Commercial Business”) pursuant to an asset purchase agreement (the “Alcon Asset Purchase Agreement”). We are eligible to receive from Alcon up to four commercial-based sales milestone payments related to the aggregate worldwide net sales of EYSUVIS and INVELTYS in time frames ranging from 2023 to 2029. Each milestone payment is payable once upon the first time such milestone is achieved, and only one milestone payment may be paid with respect to a calendar year. To date, no milestones have been achieved, and we have not received any milestone payments from Alcon.
Stanford University License Agreement
As part of our acquisition of Combangio, we acquired Combangio’s exclusively in-licensed patent portfolio from Stanford University. In October 2019, Combangio entered into a license agreement with The Board of Trustees of The Leland Stanford Junior University (“Stanford”), which was amended in February 2020 (as amended, the “Stanford Agreement”). Pursuant to the license agreement with Stanford, or the Stanford Agreement, we hold a worldwide, exclusive, sublicensable license under certain patent rights, or licensed patents, directed to methods to promote eye wound healing, to make, have made, use, import, offer to sell and sell products that are covered by the licensed patents, or licensed products, for use in all fields.
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Under the Stanford Agreement, we owe Stanford certain milestone payments upon the achievement of specified development and regulatory milestones and specified sales milestones, as well as certain fees and royalties. A milestone payment to Stanford was triggered by the commencement of the CHASE trial in the United States. Stanford is also entitled to receive tiered royalties from us in a low single digit percentage range of our, our affiliates’ and our sublicensees’ net sales of licensed products that are covered by a valid claim of a licensed patent. Our obligation to pay royalties will continue, on a country-by-country and licensed product-by-licensed product basis, until the last-to-expire valid claim of a licensed patent covering such licensed product in the country of manufacture and sale. Additionally, we are required to pay Stanford a low double-digit percentage of certain consideration we receive as a result of granting sublicenses to the licensed patents.
Pursuant to the Stanford Agreement, Stanford retains the right, on behalf of itself, Stanford Health Care, Lucile Packard Children’s Hospital at Stanford, and all other non-profit research institutions, to practice the licensed patents for any non-profit purpose. In addition, the United States government retains nonexclusive rights under the licensed patents to practice or have practiced the licensed patents by or on behalf of the United States government or on behalf of any foreign government or international organization pursuant to treaty or agreement.
Combangio Merger Agreement
Pursuant to the Agreement and Plan of Merger (the “Combangio Merger Agreement”), we entered into with Combangio in connection with the acquisition of Combangio in November 2021, the former Combangio stockholders or other equityholders (the “Combangio Equityholders”), are entitled to receive from us up to $105.0 million in payments that are contingent upon the achievement of specified development, regulatory and commercialization milestones (the “Contingent Consideration”)..
Upon dosing of the first patient in our CHASE trial for PCED in the United States in February 2023, we paid the former Combangio Equityholders an aggregate of $2.5 million in cash and $2.4 million in shares of our Common Stock (representing an aggregate of 105,038 shares of our Common Stock ) in March 2023. The remaining amount of $0.1 million was paid in cash in January 2024. Any Contingent Consideration payable under the Merger Agreement in the future will be paid only in cash as follows:
● (i) $5.0 million payable upon the first patient dosed with any product candidate whose active ingredient comprises one or more biological factors secreted by MSCs or their progenitors, including KPI-012, or the Product Candidate, in a pivotal clinical trial, (ii) $12.5 million payable upon regulatory approval by the FDA of marketing and sale of a Product Candidate in the United States, subject to certain specified reductions; (iii) $17.5 million payable upon the first commercial sale of a Product Candidate in the United States, subject to certain specified reductions and (iv) an aggregate of up to $65.0 million payable upon the achievement of specified sales milestones;
● tiered cash royalties at percentage rates in the mid-to-high single digits payable on annual net sales of all Product Candidates; and
● a cash payment at a percentage rate in the high single digits of all income, including earnout payments, received by us or any of our affiliates from a product license granted by us to a third party to sell or otherwise commercialize the Product Candidate in countries where neither we nor our affiliates conduct sales of such Product Candidate, subject to certain exceptions set forth in the Merger Agreement.
If the aggregate amount of Contingent Consideration payable in any calendar year exceeds $2.5 million, or the Excess Cash Cap, such excess portion, or the Carry Forward Contingent Cash Consideration, will be carried forward and, subject to application of the Excess Cash Cap in the following calendar year, become payable on the first business day of the following calendar year. Any Carry Forward Contingent Cash Consideration outstanding on June 1, 2026 is payable in full on June 1, 2026.
CIRM Award
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Our development of KPI-012 was funded, in part, by an award from the California Institute for Regenerative Medicine (“CIRM”). On August 2, 2023, Combangio entered into an award agreement with CIRM for a $15.0 million grant (the “CIRM Award”), to support the KPI-012 program for the treatment of PCED as well as product and process characterization and analytical development for the program. The CIRM Award was subject to a co-funding requirement to spend a specified minimum amount on the development of KPI-012 to obtain the full award amount, with a significant portion of the award is payable upon the achievement of specified milestones that are primarily related to the progress in conducting the CHASE clinical trial. Additionally, there were significant compliance requirements associated with the CIRM Award, such as reporting, notification, recordkeeping and audit requirements, for which internal and external resources may be needed and which may increase our costs of doing business.
Under the CIRM Award, if we fail to satisfy the co-funding requirement under the CIRM Award or fail to achieve the milestones within the timeframe required by the CIRM Award, we may not receive full funding under the CIRM Award. CIRM may permanently cease disbursements under the CIRM Award if the milestones are not met within four months of their scheduled completion dates or if the delay is not addressed to CIRM’s satisfaction, as determined by CIRM in its sole discretion. Additionally, if CIRM determines, in its sole discretion, that Combangio has not complied with the terms and conditions of the CIRM Award, CIRM may suspend or permanently cease disbursements. Moreover, disbursements under the CIRM Award are contingent upon the availability of funds in the state of California’s Stem Cell Research and Cures Fund, which is outside of our control.
On September 29, 2025, we announced that the CHASE trial of KPI-012 for the treatment of PCED did not meet the primary endpoint of complete healing of PCED as measured by corneal fluorescein staining. The CHASE trial also failed to achieve statistical significance for key secondary efficacy endpoints and did not show any meaningful difference between either KPI-012 treatment arm and the placebo arm. Based on the CHASE trial results, we determined to cease development of KPI-012 and our MSC-S platform. As of December 31, 2025, no more funding is expected under the CIRM Award.
Government Regulation
Our business is subject to an evolving regulatory landscape. Although we do not currently believe Researgency constitutes a medical device, customer use of AI-generated analyses to inform drug discovery, clinical trial design, or regulatory submissions may implicate FDA expectations for credibility, reproducibility and explainability of analyses used in regulated activities the scope of which remains uncertain. In addition, deployment within customer environments may involve personal data subject to U.S. federal and state privacy laws (including HIPAA and the CCPA/CPRA) and foreign privacy regimes (including the GDPR), as well as emerging U.S. federal and state AI-specific statutes and regulations, each of which is subject to ongoing interpretation and enforcement priorities that may change over time.
In addition, our existing clinical trial data and IP, and any future clinical trial development is governed by government authorities in the United States, at the federal, state and local level, and in other countries and jurisdictions, including the European Union, extensively regulate, among other things, the research, development, testing, manufacture, pricing, quality control, approval, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, marketing, post-approval monitoring and reporting, reimbursement and import and export of biopharmaceutical products and certain artificial intelligence and machine learning platforms intended for use in life sciences. The processes for obtaining marketing approvals in the United States and in foreign countries and jurisdictions, along with compliance with applicable statutes and regulations and other regulatory authorities, require the expenditure.
U.S. Government Regulation of Artificial Intelligence in Life Sciences
In connection with our strategic decision to prioritize our Researgency business through the Researgency License, we are subject to a rapidly evolving regulatory environment governing the use of artificial intelligence and machine learning in life sciences applications. Although we do not believe Researgency would be considered a medical device, it is expected to be designed for deployment within biotechnology and pharmaceutical client environments to process proprietary biological data and clinical trial datasets, and its outputs may be used to inform or support drug discovery, clinical trial design, and regulatory submissions by our customers. As a result, both the platform itself and its use cases may implicate a range of existing and emerging regulatory frameworks.
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The FDA has issued guidance on the use of artificial intelligence and machine learning in drug development and in medical devices, including a framework for AI/ML-based software as a medical device (SaMD). Although we do not currently believe that our AI platform constitutes a medical device or SaMD, the FDA's regulatory framework in this area is evolving, and future guidance or rulemaking could expand the scope of FDA oversight to encompass AI platforms used in connection with drug discovery or clinical development activities. In October 2023, the FDA issued a discussion paper on the use of AI in drug manufacturing, and in March 2024, the FDA published a draft guidance on the use of AI and machine learning in the development of drug and biological products. These and other regulatory initiatives may impose requirements on AI platforms that are used to generate outputs in support of regulatory submissions, clinical trial design, or other activities subject to FDA, or similar state or foreign regulatory authority, oversight.
In addition, because Researgency is designed for on-premises deployment within client environments and may process proprietary biological data, clinical trial datasets, and other sensitive information of our biotechnology and pharmaceutical customers, the platform may be subject to data privacy and security requirements, including obligations that may arise under HIPAA, the GDPR, the CCPA, and other applicable federal, state, and international privacy laws that govern the handling of protected health information and other sensitive personal data. The regulatory landscape for data privacy is rapidly evolving, with numerous states having enacted or considering consumer data privacy statutes. We may also be subject to emerging state and federal legislation specifically governing the use of artificial intelligence, including requirements related to algorithmic transparency, bias testing, and disclosure obligations. The regulatory landscape for AI products is rapidly evolving in the United States and internationally, including through the EU Artificial Intelligence Act which establishes a risk-based governance framework for AI in the EU market, and there is significant uncertainty regarding the nature and scope of future AI-related regulation.
Furthermore, our customers' use of outputs generated by Researgency in their own regulatory submissions, clinical trial protocols, or product development activities may subject those outputs to scrutiny by the FDA and other regulatory authorities. To the extent the FDA or other regulators require that AI-generated analyses or recommendations used in regulatory submissions meet specific standards of credibility, reproducibility, or explainability, our platform may need to be designed and validated to satisfy those standards. If we are unable to meet such requirements, or if the regulatory environment develops in a manner that restricts the use of AI-generated outputs in drug development, our ability to commercialize the AI platform and generate revenue from our target customers could be adversely affected. We intend to monitor regulatory developments and adapt our platform capabilities as appropriate, but there can be no assurance that we will be able to anticipate or respond to all applicable requirements in a timely or cost-effective manner..
Our AI platform may incorporate or rely upon third-party LLMs or other machine learning technologies. LLMs process large amounts of data, including potentially sensitive customer information. Unauthorized access to or a breach of LLM software or related systems could lead to significant legal and financial repercussions. LLMs may produce incorrect, inaccurate or misleading outcomes, sometimes referred to as “hallucinations,” and the ongoing accuracy and reliability of AI-generated outputs is critical for the effectiveness of our platform. Inaccurate or unreliable outputs could lead to customer dissatisfaction, reputational harm, reduced demand for our platform and potential legal liabilities. Furthermore, rapid advancements in AI technology could render our existing LLM-powered tools obsolete, requiring the licensing or development of replacement technologies at significant cost.
LLMs and other AI models are typically trained on large datasets that may contain biases, and these biases can be reflected in the output of AI systems, potentially leading to ethical concerns, reputational harm, unfair or discriminatory outcomes, and potential liability. There may also be real or perceived social harm or other outcomes that undermine public confidence in the use and deployment of AI technologies. Any of the foregoing may result in decreased demand for our platform, harm to our reputation, regulatory scrutiny or legal action.
Our platform involves the collection, storage and transmission of confidential and proprietary information belonging to our customers, including personal identifying information, clinical trial data and other sensitive business data. Our systems may be targeted in cyber-attacks, including computer viruses, phishing attacks, malicious software programs, distributed denial of service attacks and other information security breaches, which could result in unauthorized access to, or release, monitoring, misuse, loss or destruction of, sensitive data. If threat actors are able to circumvent our security measures, sensitive data may be compromised. Because the techniques used to obtain unauthorized access or to sabotage systems change frequently and may utilize advanced technologies including AI, we
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may not be able to anticipate these techniques and implement adequate preventative or protective measures. Any actual or perceived breach of our security could damage our reputation, cause existing customers to discontinue the use of our platform, prevent us from attracting new customers, or subject us to third-party lawsuits, regulatory investigations, fines or other actions or liabilities.
U.S. Government Regulation of Biological Products
In the United States, biological products, or biologics, are licensed for marketing by the FDA under the Public Health Service Act, or the PHSA, and regulated by the FDA under the Food, Drug and Cosmetic Act, or FDCA. A company, institution, or organization which takes responsibility for the initiation and management of a clinical development program for such products, and for their regulatory approval, is typically referred to as a sponsor. Although the Company has suspended active clinical development of KPI-012 and its MSC-S platform following the results of the CHASE Phase 2b clinical trial, the Company retains its biologics intellectual property portfolio, including its existing IND, and continues to evaluate opportunities to resume preclinical and clinical development activities, subject to the availability of additional financing and the identification of a suitable development partner. Accordingly, the regulatory framework governing biological products remains relevant to the Company's business. A sponsor seeking approval to market and distribute a new biologic in the United States must satisfactorily complete each of the following steps:
● completion of preclinical laboratory tests, animal studies and formulation studies according to good laboratory practices, or GLP, regulations or other applicable regulations;
● design of a clinical protocol and submission to the FDA of an IND, which must become effective before human clinical trials may begin and must be updated when certain changes are made;
● approval by an independent institutional review board, or IRB, or ethics committee representing each clinical trial site before each clinical trial may be initiated;
● performance of adequate and well-controlled human clinical trials in accordance with applicable IND regulations, good clinical practices, or GCPs, and other clinical-trial related regulations to evaluate the safety, potency and purity of the investigational product for each proposed indication;
● preparation and submission to the FDA of a BLA, demonstrating the safety, purity and potency of the proposed product and requesting marketing approval for one or more proposed indications, including payment of application and program fees pursuant to the Prescription Drug User Fee Act, or PDUFA;
● review of the BLA by an FDA advisory committee, where applicable;
● satisfactory completion of one or more FDA inspections of the manufacturing facility or facilities at which the biologic is produced to assess compliance with current good manufacturing practice, or cGMP, requirements to assure that the facilities, methods and controls are adequate to preserve the product’s identity, strength, quality and purity;
● satisfactory completion of any FDA audits of clinical trial sites to assure compliance with GCPs and the integrity of the clinical data submitted in support of the BLA;
● FDA review and approval of the BLA authorizing marketing of the new biologic product for particular indications in the United States; and
● compliance with any post-approval requirements, including the potential requirement to implement a Risk Evaluation and Mitigation Strategy, or REMS, and any post-approval studies required by the FDA.
Regulatory Exclusivity Governing Biologics
When a biological product is licensed for marketing by the FDA with approval of a BLA, the product may be entitled to certain types of market and data exclusivity barring the FDA from approving competing products for certain
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periods of time. In March 2010, the Patient Protection and Affordable Care Act was enacted in the United States and included the Biologics Price Competition and Innovation Act of 2009, or the BPCIA. The BPCIA amended the PHSA to create an abbreviated approval pathway for biological products that are biosimilar to or interchangeable with an FDA-licensed reference biological product. To date, the FDA has approved a number of biosimilar products and interchangeable biosimilar products.
Under the BPCIA, a manufacturer may submit an application for a product that is “biosimilar to” a previously approved biological product, which the statute refers to as a “reference product.” In order for the FDA to approve a biosimilar product, it must find that there are no clinically meaningful differences between the reference product and the proposed biosimilar product in terms of safety, purity and potency. The biosimilar sponsor may demonstrate that its product is biosimilar to the reference product on the basis of data from analytical studies, animal studies and one or more clinical studies to demonstrate safety, purity and potency in one or more appropriate conditions of use for which the reference product is approved. In addition, the sponsor must show that the biosimilar and reference products have the same mechanism of action for the conditions of use on the label, route of administration, dosage and strength, and the production facility must meet standards designed to assure product safety, purity and potency.
For the FDA to approve a biosimilar product as interchangeable with a reference product, the FDA must find not only that the product is biosimilar to the reference product but also that it can be expected to produce the same clinical results as the reference product such that the two products may be switched without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biologic. Upon licensure by the FDA, an interchangeable biosimilar may be substituted for the reference product without the intervention of the health care provider who prescribed the reference product. Following approval of the interchangeable biosimilar product, the FDA may not grant interchangeability status for any second biosimilar until one year after the first commercial marketing of the first interchangeable biosimilar product. In December 2022, Congress clarified through FDORA that FDA may approve multiple first interchangeable biosimilar biological products so long as the products are all approved on the first day on which such a product is approved as interchangeable with the reference product.
A reference biological product is granted 12 years of exclusivity from the time of first licensure of the product, and the FDA will not accept an application for a biosimilar or interchangeable product based on the reference biological product until four years after the date of first licensure of the reference product. Even if a product is considered to be a reference product eligible for exclusivity, however, another company could market a competing version of that product if the FDA approves a full BLA for such product containing the sponsor’s own preclinical data and data from adequate and well-controlled clinical trials to demonstrate the safety, purity, and potency of their product.
The BPCIA also includes provisions to protect reference products that have patent protection. The biosimilar product sponsor and reference product sponsor may exchange certain patent and product information for the purpose of determining whether there should be a legal patent challenge. Based on the outcome of negotiations surrounding the exchanged information, the reference product sponsor may bring a patent infringement suit and injunction proceedings against the biosimilar product sponsor. The biosimilar applicant may also be able to bring an action for declaratory judgment concerning the patent.
The FDA maintains a publicly-available online database of licensed biological products, which is commonly referred to as the “Purple Book.” The Purple Book lists product names, dates of licensure, and applicable periods of exclusivity. Further, the reference product sponsor must provide patent information and patent expiry dates to FDA following the exchange of patent information between biosimilar and reference product sponsors. This information is then published in the Purple Book.
In an effort to increase competition in the drug and biologic product marketplace, Congress, the executive branch, and FDA have taken certain legislative and regulatory steps. For example, the 2020 Further Consolidated Appropriations Act included provisions requiring that sponsors of approved drug and biologic products, including those subject to REMS, provide samples of the approved products to persons developing biosimilar products within specified timeframes, in sufficient quantities, and on commercially reasonable market-based terms. Failure to do so can subject the approved product sponsor to civil actions, penalties, and responsibility for attorney’s fees and costs of the civil action. There have been recent government proposals to reduce the 12-year reference product exclusivity period, but none have been enacted to date. In addition, since passage of the BPCIA, many states have passed laws or amendments to laws, which address pharmacy practices involving biosimilar products.
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Orphan Drug Designation and Exclusivity
Orphan drug designation in the United States is designed to encourage sponsors to develop products intended for treatment of rare diseases or conditions. In the United States, a rare disease or condition is statutorily defined as a condition that affects fewer than 200,000 individuals in the United States or that affects more than 200,000 individuals in the United States and for which there is no reasonable expectation that the cost of developing and making available the product for the disease or condition will be recovered from sales of the product in the United States.
Orphan drug designation qualifies a company for tax credits and potentially market exclusivity for seven years following the date of the product’s approval if granted by the FDA. An application for designation as an orphan product can be made any time prior to the filing of an application for approval to market the product. A product becomes an orphan when it receives orphan drug designation from the Office of Orphan Products Development at the FDA based on acceptable confidential requests. The product must then go through the review and approval process like any other product.
A sponsor may request orphan drug designation of a previously unapproved product or new orphan indication for an already marketed product. In addition, a sponsor of a product that is otherwise the same product as an already approved orphan drug may seek and obtain orphan drug designation for the subsequent product for the same rare disease or condition if it can present a plausible hypothesis that its product may be clinically superior to the first approved product. More than one sponsor may receive orphan drug designation for the same product for the same rare disease or condition, but each sponsor seeking orphan drug designation must file a complete request for designation.
If a product with orphan designation receives the first FDA approval for the disease or condition for which it has such designation or for a select indication or use within the rare disease or condition for which it was designated, the product generally will receive orphan drug exclusivity. Orphan drug exclusivity means that the FDA may not approve another sponsor’s marketing application for the same product for the same disease or condition for seven years, except in certain limited circumstances. If a product designated as an orphan drug ultimately receives marketing approval for an indication broader than what was designated in its orphan drug application, it may not be entitled to exclusivity.
The period of market exclusivity begins on the date that the marketing application is approved by the FDA and applies only to the disease or condition for which the product has been designated. Orphan drug exclusivity will not bar approval of another product under certain circumstances, including if the company with orphan drug exclusivity is not able to meet market demand or the subsequent product is shown to be clinically superior to the approved product on the basis of greater efficacy or safety, or providing a major contribution to patient care. This is the case despite an earlier court opinion holding that the Orphan Drug Act unambiguously required the FDA to recognize orphan drug exclusivity regardless of a showing of clinical superiority. Under Omnibus legislation passed in December 2020, the requirement for a product to show clinical superiority applies to drug products that received orphan drug designation before enactment of amendments to the FDCA in 2017 but have not yet been approved by the FDA.
In September 2021, the Court of Appeals for the 11th Circuit, in Catalyst Pharms, Inc. v. Becerra , or Catalyst , held that, for the purpose of determining the scope of orphan drug exclusivity, the term “same disease or condition” in the statute means the designated “rare disease or condition” and could not be interpreted by the FDA to mean the “indication or use.” Thus, the court concluded, orphan drug exclusivity applies to the entire designated disease or condition rather than the approved “indication or use.” Although there have been legislative proposals to overrule this decision, they have not been enacted into law. On January 23, 2023, the FDA announced that, in matters beyond the scope of the Catalyst court order, the FDA will continue to apply its existing regulations tying orphan-drug exclusivity to the uses or indications for which the orphan drug is approved. More recently however, on February 14, 2025, a federal district court in Washington, D.C. fully embraced the reasoning of the Catalyst decision in another decision challenging the scope of orphan drug exclusivity. The implications of this decision, and its impact on the FDA’s implementation of the Orphan Drug Act, are unclear at this point.
Patent Term Restoration and Extension
In the United States, a patent claiming a new product, its method of use or its method of manufacture may be eligible for a limited patent term extension under the Hatch-Waxman Act, which permits a patent extension of up to five years for patent term lost during product development and FDA regulatory review. Assuming grant of the patent for
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which the extension is sought, the restoration period for a patent covering a product is typically one-half the time between the effective date of the IND involving human beings is begun and the submission date of the BLA, plus the time between the submission date of the application and the ultimate approval date. Patent term restoration cannot be used to extend the remaining term of a patent past a total of 14 years from the product’s approval date in the United States. Only one patent applicable to an approved product is eligible for the extension, and the application for the extension must be submitted prior to the expiration of the patent for which extension is sought. A patent that covers multiple products for which approval is sought can only be extended in connection with one of the approvals. The U.S. Patent and Trademark Office reviews and approves the application for any patent term extension or restoration in consultation with the FDA.
Healthcare Laws and Regulations
Arrangements with providers, consultants, third-party payors and customers may be subject to numerous federal and state healthcare laws, including broadly applicable fraud and abuse, anti-kickback, false claims, transparency, patient privacy, and other healthcare laws and regulations that may constrain business and/or financial arrangements. These laws include, among others, the federal Anti-Kickback Statute; federal civil and criminal false claims laws, including the False Claims Act; HIPAA and related privacy and security regulations; the federal false statements statute; the Foreign Corrupt Practices Act; the Physician Payments Sunshine Act; and analogous state and foreign laws. Further, some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government in addition to requiring manufacturers to report information related to payments to physicians and other health care providers or marketing expenditures. The scope and enforcement of federal and state healthcare laws and regulations are broad and often uncertain and subject to change. Violations of any such federal and state healthcare laws and regulations may include, among other things, penalties such as civil or criminal penalties, monetary damages, or exclusion from participation in government contracting, healthcare reimbursement or other government programs.
Federal and State Data Privacy Laws
There are multiple privacy and data security laws that may impact our business activities, in the United States and in other countries where we may conduct trials or where we may do business in the future. These laws are evolving and may increase both our obligations and our regulatory risks in the future. In the health care industry generally, under HIPAA, HHS has issued regulations to protect the privacy and security of protected health information used or disclosed by covered entities including certain healthcare providers, health plans and healthcare clearinghouses. HIPAA also imposes certain obligations on the business associates of covered entities that obtain protected health information in providing services to or on behalf of covered entities. HIPAA may apply to us in certain circumstances and may also apply to our business partners in ways that may impact our relationships with them. Our clinical trials are regulated by the Common Rule, which also includes specific privacy-related provisions. In addition to possible federal civil and criminal penalties for HIPAA violations, state attorneys general are authorized to file civil actions for damages or injunctions in federal courts to enforce HIPAA and seek attorney’s fees and costs associated with pursuing federal civil actions. Additionally, state attorney generals (along with private plaintiffs) have brought civil actions seeking injunctions and damages resulting from alleged violations of HIPAA’s privacy and security rules. Further, there are a number of state laws governing confidentiality and security of health information and personal information that may be applicable to our business including any new laws and regulations governing privacy and security may be adopted in the future as well.
Because of the breadth of these laws, it is possible that some of our current or future business activities, including certain clinical research, sales and marketing practices, our AI platform development, and the provision of certain items and services to our customers, could be subject to challenge under one or more of such privacy and data security laws. The heightening compliance environment and the need to build and maintain robust and secure systems to comply with different privacy compliance and/or reporting requirements in multiple jurisdictions could increase the possibility that a healthcare company may fail to comply fully with one or more of these requirements. If our operations are found to be in violation of any of the privacy or data security laws or regulations described above that are applicable to us, or any other laws that apply to us, we may be subject to penalties, including potentially significant criminal, civil and administrative penalties, damages, fines, contractual damages, reputational harm, diminished profits and future earnings, additional reporting requirements and/or oversight if we become subject to a consent decree or similar
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agreement to resolve allegations of non-compliance with these laws, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our results of operations.
Human Capital
Our ability to sustain and grow our business requires us to hire, retain and develop a highly skilled workforce. As of December 31, 2025 and March 31, 2026, we had a total of 6 full-time employees. As of the date of this Annual Report on Form 10-K, we have 3 full-time employees. We continually evaluate our business needs and opportunities and balance in-house expertise and capacity with outsourced expertise and capacity.
Following the reduction in our employees in September 2025, we focus our human-capital objectives on (i) recruiting and retaining personnel with expertise in AI engineering and architecture, data governance and security, quality and compliance, and biotechnology informatics; (ii) maintaining an ethical, compliance-oriented culture appropriate for companies operating in regulated life-sciences environments; and (iii) providing role-appropriate training related to data integrity, privacy and security, and workplace safety. We believe these measures are important to our ability to execute our strategic transition. We also engage third-party service providers, as needed, for specialized development and regulatory support. We value the health, safety and wellbeing of our employees and their families.
Our Corporate Information
We were incorporated under the laws of the State of Delaware in July 2009. On August 2, 2023, we changed our name from Kala Pharmaceuticals, Inc. to KALA BIO, Inc. Our website address is www.kalarx.com. The information on our website is not incorporated by reference into this Annual Report on Form 10-K and should not be considered to be a part of this Annual Report on Form 10-K. Our website address is included in this Annual Report on Form 10-K as an inactive technical reference only.
Available Information
Through our website, we make available free of charge our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Sections 13(a) and 15(d) of the Exchange Act. We make these reports available through our website as soon as reasonably practicable after we electronically file such reports with, or furnish such reports to the SEC. You can review our electronically filed reports and other information that we file with the SEC on the SEC’s web site at http://www.sec.gov. We also make available, free of charge on our website, the reports filed with the SEC by our executive officers, directors and 10% stockholders pursuant to Section 16 under the Exchange Act as soon as reasonably practicable after copies of those filings are provided to us by those persons. In addition, we regularly use our website to post information regarding our business, product development programs and governance, and we encourage investors to use our website, particularly the information in the section entitled “Investors,” as a source of information about us.
The information on our website is not incorporated by reference into this Annual Report on Form 10-K and should not be considered to be a part of this Annual Report on Form 10-K. Our website address is included in this Annual Report on Form 10-K as an inactive technical reference only.
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