What changed in this filing

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2021-03-01 compared with 2020-03-16 · 288 added, 237 removed, 557 unchanged (49% of the section changed)

1 unchanged sentence

We are exposed to market risk related to changes in interest rates.

As of December 31, 2019, we had cash, cash equivalents and marketable securities of $348.2 million, primarily invested in money market funds, overnight repurchase agreements, U.S.

As of December 31, 2020, we had cash, cash equivalents and marketable securities of $969.0 million, primarily invested in money market funds.

As of December 31, 2019, we had cash and cash equivalents of $348.2 million, primarily invested in money market funds, overnight repurchase agreements, U.S.

treasury securities, commercial paper and corporate notes.

As of December 31, 2018, we had cash and cash equivalents of $88.3 million, invested in money market funds.

Changes in the general level of interest rates can affect the fair value of our investment portfolio.

If market interest rates were to increase immediately and uniformly by 100 basis points, or one percentage point, from levels at December 31, 2019, the net fair value of our interest-sensitive marketable securities would have resulted in a hypothetical decline of $0.9 million.

If market interest rates were to increase immediately and uniformly by 100 basis points, or one percentage point, from levels at December 31, 2020, the net fair value of our interest-sensitive marketable securities would have resulted in a hypothetical decline of less than $0.1 million.

We do not believe that other market risks, like foreign currency exchange rate risk, had a significant impact on our results of operations for any periods presented herein.

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Notes to Consolidated Financial Statements

Report of Independent Regist ered Public Accounting Firm

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Kodiak Sciences Inc.

Opinion on the Financial Statements

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Kodiak Sciences Inc.

and its subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of operations and comprehensive loss, of redeemable convertible preferred stock and stockholders’ equity (deficit) and of cash flows for each of the three years in the period ended December 31, 2020, including the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America.

We also have audited the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A.

Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audits also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the

and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Accrued Clinical Trial and Related Costs

As described in Notes 2 and 4 to the consolidated financial statements, the Company recorded $11.1 million in accrued clinical trial and related costs as of December 31, 2020.

Accrued c linical trial and related costs are estimated using data such as patient enrollment, clinical site activations or information provided by outside service providers regarding their actual costs incurred.

Management determined accrual estimates through reports from and discussions with clinical personnel and outside service providers as to the progress of trials, or the services completed.

The principal considerations for our determination that performing procedures relating to accrued clinical trial and related costs is a critical audit matter are the judgment by management in evaluating the data used in developing the accrued clinical trial and related cost estimates, which in turn led to a high degree of auditor judgment and effort in performing procedures to evaluate audit evidence obtained related to patient enrollment, clinical site activations and services rendered by outside service providers used by management in developing the estimates.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to the completeness and accuracy of clinical trial accruals, including controls relating to the reliability of data used in the development of the estimates.

These procedures also included, among others, (1) testing management’s process for developing the estimated a ccrued clinical trial and related costs , (2) evaluating the appropriateness of the approach used by management to develop the estimates, (3) testing the completeness and accuracy of the data used in developing the estimates, including data related to patient enrollment, clinical site activations and services rendered by outside service providers, (4) confirming clinical costs and contracted fees with the clinical vendors on a test basis, and (5) examining clinical vendor contracts on a test basis to evaluate the completeness of costs considered in the estimates.

/s/ PricewaterhouseCoopers LLP

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Operating lease liability, net of current portion

Liability related to sale of future royalties

Other liabilities

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Interest income

Interest expense (includes $0, $3,030 and $914 attributable to

related parties for the years ended December 31, 2019, 2018

and 2017, respectively)

Other income (expense), net (includes $0, $2,736 and

Interest expense (includes $nil, $nil and $ 3,030

attributable to related parties for the years ended

December 31, 2020, 2019 and 2018, respectively)

Loss on extinguishment of debt (includes $1,587 attributable to

related parties for the year ended December 31, 2018)

Net loss per common share, basic and diluted

Weighted-average common shares outstanding used in computing

Other income (expense), net (includes $ 49 , $nil, and

$ 2,736 expenses attributable to related parties for

the years ended December 31, 2020, 2019, and

2018, respectively)

Loss on extinguishment of debt (includes $ 1,587

attributable to related parties for the year ended

December 31, 2018)

Net loss per common share, basic and diluted

Weighted-average common shares outstanding used in

computing net loss per common share, basic and diluted

Other comprehensive income

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Stockholders’

Income (Loss)

Balance at December 31, 2017

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exercise of stock options

Vesting of early exercised stock options

Stock-based compensation expense

Balance at December 31, 2017

Issuance of common stock upon

exercise of stock options

Issuance of restricted stock awards

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notes into common stock

Issuance of common stock upon

initial public offering, net of

issuance cost of $10,542

Issuance of common stock in conection

with initial public offering, net of

offering costs of $ 10,542

Stock-based compensation expense

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exercise of common stock warrants

Issuance of common stock in connection

with follow-on offering, net of

offering costs of $ 19,784

Stock-based compensation expense

Other comprehensive income

Balance at December 31, 2019

Issuance of common stock upon

follow-on offering, net of

issuance cost of $19,784

exercise of stock options

Issuance of common stock in connection

with follow-on offering, net of

offering costs of $ 32,984

Vesting of restricted stock units, net of

taxes withheld

Stock-based compensation expense

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Amortization of operating lease right-of-use asset

Amortization of issuance costs

Changes in assets and liabilities:

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Maturities of marketable securities

Net cash used in investing activities

Net cash provided by (used in) investing activities

Cash flows from financing activities

Proceeds from issuance of common stock, net of offering costs

Proceeds from issuance of common stock in connection with offering, net of offering costs

Proceeds from issuance of common stock upon option exercise

Payments for restricted stock units, net of taxes withheld

Proceeds from issuance of convertible notes (includes $9,560 and $8,000 from

related parties for the years ended December 31, 2018 and 2017, respectively)

Proceeds from issuance of convertible notes (includes $ 9,560 from

related parties for the years ended December 31, 2018)

Debt issuance cost

Proceeds from sale of future royalties, net of issuance costs

Principal payments of capital lease

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Net cash provided by financing activities

Net increase (decrease) in cash, cash equivalents and restricted cash

Net increase in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash, at beginning of year

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operating lease liability

Purchase of property and equipment under accounts payable

Unpaid offering costs

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Derivative instrument related to convertible notes

Redeemable convertible preferred stock warrant issued in

connection with convertible notes

Acquisition of equipment through capital lease

The accompanying notes are an integral part of these consolidated financial statements.

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Initial Public Offering

In October 2018, the Company sold and issued 9,000,000 shares of common stock at a price to the public of $10.00 per share for gross proceeds of $90.0 million.

In November 2018, the Company sold and issued an additional 400,000 shares of common stock at $10.00 per share to the underwriters of the initial public offering (“IPO”) following the partial exercise of their over-allotment option for gross proceeds of $4.0 million.

In 2018, the Company sold and issued 9,400,000 shares of common stock, including the underwriters’ full exercise of their over-allotment option, at a price to the public of $ 10.00 per share for gross proceeds of $ 94.0 million.

The aggregate net proceeds to the Company from the IPO, inclusive of the partial over-allotment option exercise, were $ 83.5 million after deducting underwriting discounts and commissions and other offering costs.

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The aggregate net proceeds to the Company from the follow-on offering were $ 297.6 million after deducting underwriting discounts and commissions and other offering costs.

In November 2020, the Company sold and issued 5,972,222 shares of common stock, including the underwriters’ full exercise of their over-allotment option, at a price to the public of $ 108.00 per share for gross proceeds of $ 645.0 million.

The aggregate net proceeds to the Company from the follow-on offering were $ 612.0 million after deducting underwriting discounts and commissions and other offering costs.

Summary of Significant Accounting Policies

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Principles of Consolidation

The consolidated financial statements include the Company’s accounts and the accounts of Kodiak Sciences Financing Corporation and Kodiak Sciences China, the Company’s direct wholly owned subsidiaries, incorporated in the United States and Cayman Islands, respectively, and Kodiak Sciences GmbH, the Company’s indirect wholly owned subsidiary, incorporated in Switzerland.

The consolidated financial statements include the Company’s accounts and the accounts of Kodiak Sciences Financing Corporation and Kodiak Sciences China, the Company’s direct wholly owned subsidiaries, incorporated in the United States and Cayman Islands, respectively, and Kodiak Sciences GmbH and Kodiak Sciences Valais GmbH, the Company’s indirect wholly owned subsidiaries, both incorporated in Switzerland.

All intercompany accounts and transactions have been eliminated.

The functional and reporting currency of the Company and its subsidiaries is the U.S.

The aggregate foreign currency transaction loss included in determining net loss was less than $0.1 million, $0.3 million and less than $0.1 million for the years ended December 31, 2019, 2018 and 2017, respectively.

The aggregate foreign currency transaction loss included in determining net loss was $ 0.3 million, less than $ 0.1 million and $ 0.3 million for the years ended December 31, 2020, 2019 and 2018, respectively.

The Company operates and manages its business as one reportable and operating segment, which is the business of research and development of drugs for ophthalmic diseases.

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GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and expenses during the reporting period.

Such estimates include, but are not limited to, the accrual for research and development expenses, the valuation of deferred tax assets, useful lives of property and equipment, the measurement of right-of-use assets and lease liabilities, stock-based compensation, and the valuation of common shares, convertible debt, derivatives and redeemable convertible preferred stock warrants prior to the Company’s IPO.

The impact of the ongoing COVID-19 pandemic continues to evolve.

As a result, certain estimates and assumptions required increased judgment and carried a higher degree of variability and volatility, including but not limited to, the fair value of marketable securities, performance-based equity awards, and research and development accruals.

As events continue to unfold and additional information becomes available, these estimates may change materially in future periods.

Actual results could differ from those estimates.

Risk and Uncertainties

In March 2020, the World Health Organization declared a pandemic due to the global COVID-19 outbreak.

The significant uncertainties caused by the ongoing COVID-19 pandemic may negatively impact the Company’s operations, liquidity, and capital resources and will depend on certain evolving developments, including the duration and spread of the outbreak, regulatory and private sector responses and the impact on employees and vendors including supply chain and clinical partners, all of which are uncertain and cannot be predicted.

During this pandemic, the Company continues to work closely with clinical sites towards maximal patient safety and the lowest number of missed visits and study discontinuations.

The Company has taken and continues to take proactive measures to maintain the integrity of its ongoing clinical studies.

Despite these efforts, the ongoing COVID-19 pandemic could significantly impact clinical trial enrollment and completion of its clinical studies.

The Company will continue to monitor the COVID-19 situation and its impact on the ability to continue the development of, and seek regulatory approvals for, the Company’s product candidates, and begin to commercialize any approved products.

The Company’s future results of operations involve a number of risks and uncertainties common to clinical-stage companies in the biotechnology industry.

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Investments are restricted, in accordance with the Company’s investment policy, to a concentration limit per issuer or sector.

Kodiak Sciences Inc.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

Cash and Cash Equivalents

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Realized gains and losses are determined using the specific identification method and are included in other income (expense), net.

Kodiak Sciences Inc.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

If any adjustment to fair value reflects a decline in value of the investment, the Company considers all available evidence to evaluate the extent to which the decline is “other-than-temporary” and, if so, marks the investment to market through a charge to the Company’s statement of operations and comprehensive loss.

Restricted Cash

As of December 31, 2019, and 2018, the Company had $0.1 million of long-term restricted cash deposited with a financial institution.

The entire amount is held in a separate bank account to support a letter of credit agreement related to the Company’s headquarter facility lease which expires in 2023.

As of December 31, 2020, and 2019, the Company had $ 6.3 million and $ 0.1 million, respectively, of long-term restricted cash deposited with a financial institution.

The entire amount is held in separate bank accounts to support letter of credit agreements related to the Company’s U.S.

corporate offices.

Fair Value of Financial Instruments

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The carrying amounts of the Company’s financial instruments consisting of cash and cash equivalents, prepaid expenses and other current assets, accounts payable and accrued liabilities and other current liabilities, approximate fair value due to their relatively short maturities.

Kodiak Sciences Inc.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

The Company determines if an arrangement is, or contains, a lease at inception and then classifies the lease as operating or financing based on the underlying terms and conditions of the contract.

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Variable lease payments are excluded from the right of use assets and operating lease liabilities and are recognized in the period in which the obligation for those payments is incurred.

Kodiak Sciences Inc.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

Property and Equipment, Net

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Accrued Research and Development

The Company has entered into various agreements with contract research organizations (“CROs”) and contract manufacturing organizations (“CMOs”).

The Company’s research and development accruals are estimated based on the level of services performed, progress of the studies, including the phase or completion of events, and contracted costs.

The Company has entered into various agreements with various third parties, including clinical investigator sites, contract research organizations (“CROs”) and contract manufacturing organizations (“CMOs”), to provide research and development activities.

The Company’s accrued research and development costs are estimated based on the level of services performed, including the phase or completion of events, and contracted costs.

Accrued clinical trial and related costs are estimated using data such as patient enrollment, clinical site activations or information provided by outside service providers regarding their actual costs incurred.

Management determined accrual estimates through reports from and discussions with clinical personnel and outside service providers as to the progress of trials, or the services completed.

The estimated costs of research and development provided, but not yet invoiced, are included in accrued and other current liabilities on the consolidated balance sheets.

If the actual timing of the performance of services or the level of effort varies from the original estimates, the Company will adjust the accrual accordingly.

Payments made to CROs or CMOs under these arrangements in advance of the performance of the related services are recorded as prepaid expenses and other current assets until the services are rendered.

Payments made to third parties under these arrangements in advance of the performance of the related services are recorded as prepaid expenses or other assets until the services are rendered.

Stock-Based Compensation

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The Company accounts for forfeitures as they occur.

Kodiak Sciences Inc.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

Prior to the adoption of Accounting Standards Update ("ASU") No.

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Compensation expense is recorded over the appropriate service period based upon the Company's assessment of accomplishing each performance provision.

Kodiak Sciences Inc.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

The Company accounts for income taxes under the asset and liability method, which requires, among other things, that deferred income taxes be provided for temporary differences between the tax basis of the Company’s assets and liabilities and their financial statement reported amounts.

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Other comprehensive income (loss) consists primarily of unrealized gains and losses on debt securities.

Liability related to Sale of Future Royalties

On December 1, 2019, the Company and its subsidiary Kodiak Sciences GmbH entered into a funding agreement with Baker Bros.

Advisors, LP (“BBA”), which holds more than 5 % of the Company’s stock, pursuant to which BBA purchased the right to receive a capped 4.5 % royalty on future net sales of KSI-301, the Company’s anti-VEGF antibody biopolymer conjugate therapy, in exchange for $ 225.0 million.

Under the terms of the funding agreement, there is no obligation to repay any funding amount received, other than through the capped royalty payments on future product revenues.

The Company recorded the funding amount paid by BBA as a liability on the consolidated balance sheet net of issuance costs , in accordance with ASC 730, Research and Development .

Under ASC 730, the significant related party relationship between the Company and BBA creates an implicit obligation to repay the funding amount paid to the Company.

Once royalty payments to BBA are determined to be probable and estimable, and if such amounts exceed the liability balance, the Company will impute interest to accrete the liability on a prospective basis based on such estimates.

If and when the Company makes royalty payments under the funding agreement, it would reduce the liability balance at such time.

Refer to Note 14.

Credit Losses – Available-for-Sale Debt Securities

For available-for-sale debt securities in an unrealized loss position, the Company will periodically assess its portfolio for impairment.

The assessment first considers the intent or requirement to sell the security.

If either of these criteria are met, the amortized cost basis will be written down to fair value through earnings.

If not met, the Company will evaluate whether the decline resulted from credit losses or other factors by considering the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and any adverse conditions specifically related to the security, among other factors.

If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security is compared to the amortized cost basis of the security.

If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses will be recorded, limited by the amount that the fair value is less than the amortized cost basis.

Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income or loss, as applicable.

Kodiak Sciences Inc.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

Net Loss per Share Attributable to Common Stockholders

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The Company elected the practical expedient not to recognize leases with terms of one year or less on the balance sheet.

Kodiak Sciences Inc.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

The adoption of the new lease standards on January 1, 2019 resulted in the initial recognition of right-of-use asset of $ 2.2 million and operating lease liability of $ 2.3 million and derecognition of noncurrent deferred liabilities of $ 0.2 million related to the operating lease for the Company’s office and laboratory space in Palo Alto, California on the consolidated balance sheets with no material impact to the consolidated statements of operations, stockholders’ equity or cash flows.

Refer to Note 7.

In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260) Distinguishing Liabilities from Equity (Topic 480) Derivatives and Hedging (Topic 815) (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception .

This update simplifies the accounting for certain financial instruments with down round features, a provision in an equity-linked financial instrument (or embedded feature) that provides a downward adjustment of the current exercise price based on the price of future equity offerings.

Down round features are common in warrants, preferred shares, and convertible debt instruments issued by private companies and early-stage public companies.

This update requires companies to disregard the down round feature when assessing whether the instrument is indexed to its own stock, for purposes of determining liability or equity classification.

ASU 2017-11 is effective for interim and annual periods beginning after December 15, 2018.

The Company adopted this new guidance as of January 1, 2019, which did not impact its consolidated financial statements and related disclosures.

In June 2018, the FASB issued ASU 2018-07, Compensation — Stock Compensation (Topic 718):

Improvements to Nonemployee Share-Based Payment Accounting , which expands the scope of Topic 718 to include all share-based payment transactions for acquiring goods and services from nonemployees.

ASU 2018-07 specifies that Topic 718 applies to all share-based payment transactions in which the grantor acquires goods and services to be used or consumed in its own operations by issuing share-based payment awards.

ASU 2018-07 also clarifies that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under ASC 606.

ASU 2018-07 is effective for interim and annual periods beginning after December 15, 2018.

The Company adopted this new guidance as of January 1, 2019, which did not result in a material impact on its consolidated financial statements and related disclosures.

New Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 362):

Measurement of Credit Losses on Financial Statements and ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses , which intends to improve financial reporting by requiring earlier recognition of credit losses on certain financial assets, such as available-for-sale debt securities.

The standard is effective for interim and annual periods after December 15, 2019.

Early adoption is permitted.

The Company is currently evaluating the impact of adopting this guidance on its consolidated financial statements and related disclosures.

The Company assessed the impact of ASU 2016-13 on its available-for-sale debt securities and determined there were no credit losses within the portfolio requiring an allowance upon adoption.

The Company adopted this new guidance as of January 1, 2020, which did not impact its consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurements , which eliminates, adds and modifies certain disclosure requirements for fair value measurements as part of the FASB’s disclosure framework project.

The standard is effective for interim and annual periods beginning after December 15, 2019.

The standard specifies certain amendments which should be applied prospectively while all other amendments should be applied retrospectively.

Early adoption is permitted.

The Company is currently evaluating the impact of adopting this guidance on its consolidated financial statements and related disclosures.

Among the changes, entities will no longer be required to disclose the amount of and reasons for transfers between Levels 1 and 2 of the fair value hierarchy but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements.

The Company adopted this new guidance as of January 1, 2020, which did not impact its consolidated financial statements and related disclosures.

Kodiak Sciences Inc.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40):

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which clarifies the accounting for implementation, set-up, and other upfront costs incurred in cloud computing arrangements.

The standard is effective for interim and annual periods beginning after December 15, 2019.

Early adoption is permitted.

The Company is currently evaluating the impact of adopting this guidance on its consolidated financial statements and related disclosures.

The Company adopted this new guidance as of January 1, 2020, which did not impact its consolidated financial statements and related disclosures.

New Accounting Pronouncements Not Yet Adopted

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes ("ASU 2019-12"), which is intended to simplify the accounting for income taxes.

ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application.

The new standard will be effective beginning January 1, 2021.

The Company is currently evaluating the impact of adopting this guidance on its consolidated financial statements and related disclosures.

Kodiak Sciences Inc.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

ASU 2019-12 removes certain exceptions to the general principles in Topic 740.

This guidance is effective for fiscal years beginning after December 15, 2020, including interim periods therein, and early adoption is permitted.

The Company has early adopted ASU 2019-12 in 2020;

the effect was not material on the Company’s financial statements.

Property and Equipment, net

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Furniture and fixtures

Computer hardware

Computer software

Office equipment

Construction in progress

Total property and equipment

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Property and equipment, net

All property and equipment are maintained in the United States.

All property and equipment are maintained in the United States and Switzerland.

Depreciation expense, including depreciation of assets under capital leases, was $ 0.5 million, $ 0.5 million and $ 0.5 million for the years ended December 31, 2020, 2019 and 2018, respectively.

1 unchanged sentence

Accrued liabilities and other current liabilities consist of the following (in thousands):

Accrued clinical trial and related costs

Accrued research and development

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Total accrued and other current liabilities

Kodiak Sciences Inc.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

Fair Value Measurements

3 unchanged sentences

Money market funds

Repurchase agreement

Commercial paper

Marketable securities:

treasury securities

Commercial paper

Corporate notes

2 unchanged sentences

Money market funds

Kodiak Sciences Inc.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

There were no liabilities measured at fair value on a recurring and non-recurring basis as of December 31, 2019 and 2018.

Repurchase agreement

Commercial paper

Marketable securities:

treasury securities

Commercial paper

Corporate notes

As of December 31, 2020, the fair value of the liability related to sale of future royalties is based on our current estimates of future royalties expected to be paid to BBA, which are considered Level 3 inputs.

Refer to Note 14.

There were no liabilities measured at fair value on a recurring and non-recurring basis as of December 31, 2019.

There were no transfers of assets or liabilities between the fair value measurement levels during the years ended December 31, 2020 and 2019.

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The Company validates the prices provided by the third-party pricing services by understanding the valuation methods and data sources used and analyzing the pricing data in certain instances.

The following table summarizes the marketable securities held at December 31, 2019 (in thousands):

The following table summarizes the marketable securities (in thousands):

December 31, 2020

treasury securities

Corporate notes

Total marketable securities, current

Kodiak Sciences Inc.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

December 31, 2019

treasury securities

Commercial paper

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Total marketable securities, noncurrent

All marketable securities held at December 31, 2019 had effective maturities of less than two years.

All marketable securities held at December 31 , 2020 had effective maturities of less than one year .

There were no realized gains or losses recognized on the sale or maturity of available-for-sale debt securities during the year ended December 31 , 2020 and as a result, the Company did not reclassify any amounts out of accumulated comprehensive loss.

No marketable securities with unrealized losses as of December 31 , 2020 .

All marketable securities with unrealized losses as of December 31, 2019 have been in a loss position for less than twelve months and the loss is not material.

These marketable securities were not considered to be other-than-temporarily impaired as of December 31, 2019.

These marketable securities were not considered to be other-than-temporarily impaired.

Commitments and Contingencies

In January 2013, the Company executed a non-cancellable lease agreement for office and laboratory space in Palo Alto, California.

The lease began in October 2013 and would expire in October 2018.

In March 2016, the Company executed a lease amendment agreement which was effective March 2016 and extended the lease term until October 2023.

The Company recognizes rent expense on a straight-line basis over the lease period.

Rent expense recognized under all leases was $0.6 million and $0.6 million and $0.6 million for the years ended December 31, 2019, 2018 and 2017, respectively.

Note that the Company adopted ASC 842 using the required modified retrospective approach effective January 1, 2019.

Therefore, the amounts disclosed for the years ended December 31, 2018 and 2017 are presented under previous accounting guidance and are therefore not comparable to the amounts recorded in the current period under ASC 842.

The Company recognized an operating lease right-of-use asset and corresponding liability on January 1, 2019 based on the present value of remaining lease payments discounted at the Company’s estimated incremental borrowing rate of 8.5% over the remaining lease term of 4.83 years for the facility in Palo Alto, California.

For the year ended December 31, 2019, the operating lease cost was $0.6 million and the variable lease costs were $0.2 million.

The cash paid for amounts included in the measurement of the operating lease liability was $0.6 million for the year ended December 31, 2019.

The short-term lease costs were immaterial for the year ended December 31, 2019.

Palo Alto, California Leases

In June 2020, the Company entered into lease agreements for two buildings at 1200 and 1250 Page Mill Road in Palo Alto, California, which are now the Company’s U.S.

corporate offices.

The facilities are approximately 82,662 square feet and 72,812 square feet, respectively and include office and laboratory space.

For 1200 Page Mill Road, the monthly rent during the initial 6.5 -year term will be approximately $ 0.6 million, with annual year-over-year increases of 3 % plus certain operating expenses and taxes and total rent abatement of approximately $ 7.2 million.

The Company has an option to extend the lease term for a period of 6.5 years .

For 1250 Page Mill Road, the monthly rent during the initial 13 -year term will be approximately $ 0.5 million, with annual year-over-year increases of 3 % plus certain operating expenses and taxes and total rent abatement of approximately $ 6.3 million.

The Landlord will provide a tenant improvement allowance of approximately $ 1.2 million and $ 10.6 million for each building, respectively.

The Company has two options to extend the lease term for a period of 5 years each.

The Company determined that the renewal options were not reasonably certain at lease inception for the two buildings.

The Company executed a $ 10.9 million cash-collateralized letter of credit, which was subsequently reduced to $ 6.2 million as a result of meeting certain reduction requirements specified therein.

The cash collateralizing the letter of credit is classified as restricted cash on the Company’s consolidated balance sheets.

Under ASC 842, the Company classified these leases as operating leases and recorded right-of-use assets and lease liabilities on the lease commencement date.

The Company continues to lease office and laboratory space at 2631 Hanover Street in Palo Alto, California.

The Company entered into a lease agreement in January 2013 which was amended in March 2016 and extended the lease term until October 2023.

The Company classified this lease as an operating lease and recorded a right-of-use asset and lease liability on January 1, 2019 and recognized rent expense on a straight-line basis throughout the remaining lease term.

Switzerland Lease

In April 2020, the Company entered into a lease agreement for office and laboratory space at Rottenstrasse 5 in Visp, Switzerland.

The space is approximately 1,000 square meters.

The initial lease term is 5 years, with automatic renewals every 5 years for a maximum lease term of 15 years.

The monthly rent during the initial 5 -year term will be approximately 32 thousand Swiss Francs plus certain operating expenses and taxes.

Under ASC 842, the Company classified these leases as operating leases and recorded right-of-use assets and lease liabilities on the lease commencement date.

Kodiak Sciences Inc.

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Total operating lease liabilities

The future minimum lease payments under all non-cancelable operating lease obligations as of December 31, 2018 were as follows (in thousands):

Year ending December 31,

December 31, 2018

Total payments

Other Commitments and Contingencies

The minimum lease payments above do not include any related common area maintenance charges or real estate taxes.

The weighted-average remaining lease terms and weighted-average discount rates were as follows:

Weighted-average remaining lease term (in years)

Weighted-average discount rate

Embedded lease

In August 2020, the Company and its subsidiary Kodiak Sciences GmbH entered into a manufacturing agreement with a contract manufacturing organization for the clinical and commercial supply of drug substance for KSI-301, the Company’s proprietary therapeutic candidate for the treatment and prevention of retinal vascular diseases.

A custom-built manufacturing suite is planned to be completed and dedicated to the manufacture of the Company’s drug substance with an estimated capital contribution of 40 million Swiss Francs from the Company.

Construction of the manufacturing suite is targeted for completion in 2021.

The Company will be required to pay annual suite fees of 12 million Swiss Francs for 2021 and 16 million Swiss Francs for each year thereafter, which covers the manufacturing fees for a specified number of batches, and the Company may pay for additional batches to be manufactured.

The manufacturing agreement has an initial term of eight years , and the Company has the right to extend the term up to a total of 16 years.

The Company concluded that this agreement contains an embedded lease as the custom-built manufacturing suite will be dedicated for the Company’s use.

As of December 31, 2020, the Company did not have control of this manufacturing space and therefore, did no t record a right-of-use asset and corresponding lease liability.

These commitments are not included in the above table.

Manufacturing Agreement

The Company has entered into service agreements with Lonza AG and its affiliates (“Lonza”), pursuant to which Lonza agreed to perform activities in connection with the manufacturing process of certain compounds.

Such agreements, and related amendments, state that planned activities that are included in the signed work orders are, in some cases, binding and, hence, obligate the Company to pay the full price of the work order upon satisfactory delivery of products and services.

Per the terms of the agreements, the Company has the option to cancel signed orders at any time upon written notice, which may or may not be subject to payment of a cancellation fee.

The level of cancellation fees may be dependent on the timing of the written notice in relation to the commencement date of the work, with the maximum cancellation fee equal to the full price of the work order.

As of December 31, 2019 and 2018, the total amount of unconditional purchase obligations, including accrued amounts, under these agreements were $4.7 million and $3.2 million, respectively.

The level of cancellation fees may be dependent on the timing of the written notice in relation to the commencement date of the work, with the maximum cancellation amount dependent on the agreement or the work order.

Under these agreements, the total amount of contractual obligations, over a period of ten years , are cancellable and subject to varying levels of cancellation fees, were $ 242.3 million and $ 4.7 million, including accrued amounts, as of December 31, 2020 and 2019, respectively.

Purchases under this agreement for the years ended December 31, 2020, 2019 and 2018 were $ 16.8 million, $ 7.9 million and $ 2.8 million, respectively.

As of December 31, 2019, the Company had not incurred any cancellation fees for the work performed by Lonza.

In the normal course of business, the Company enters into purchase commitments to support research and development activities that cannot be terminated without incurring cancellation fees.

The level of cancellation fees may vary and are generally based on the passage of time within a 12-month period.

As of December 31, 2019, the total amount of cancellation fees related to manufacturing equipment was $0.7 million and none as of December 31, 2019 and 2018, respectively.

As of December 31, 2020 , the Company had no t incurred any cancellation fees for the work performed by Lonza.

Other Funding Commitments

Kodiak Sciences Inc.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

In the normal course of business, the Company enters into agreements with third-parties for services to be provided to the Company.

Generally, these agreements provide for termination upon notice, with specified amounts due upon termination based on the timing of termination and the terms of the agreement.

The actual amounts and timing of payments under these agreements are uncertain and contingent upon the initiation and completion of services to be provided to the Company.

As of December 31, 2020 and 2019, the total amount of noncancellable purchase commitments, including potential cancellation fees were $ 0.5 million and $ 0.7 million, respectively.

The Company is also party to a cancellable assignment and license agreement that would require the Company to make milestone payments of up to $ 33.2 million and royalty payments on net sales of products utilizing KSI-201 and related technology.

Such milestones and royalties are dependent on future activity or product sales and are not estimable.

The Company has also entered into various cancellable license agreements for certain technology.

The Company may be obligated to make payments on future sales of specified products associated with such license agreements.

Such payments are dependent on future product sales and are not estimable.

Tenant Improvement Allowance Payable

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Principal and interest are payable on the first day of every month.

Kodiak Sciences Inc.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

As of December 31, 2020 and 2019 , the current portion of the tenant improvement allowance payable in accrued and other current liabilities was less than $ 0.1 million and less than $ 0.1 million, respectively.

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The Company believes the estimated fair value of these indemnification agreements in excess of applicable insurance coverage is minimal.

The Company has not recorded any income tax expense.

The Company has a net operating loss and has provided a valuation allowance against net deferred tax assets due to uncertainties regarding the Company’s ability to realize these assets.

The components of loss before income taxes were as follows (in thousands):

United States

Total loss before income taxes

The provision (benefit) for income taxes consists of the following (in thousands):

Kodiak Sciences Inc.

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(in thousands, except share and per share data)

Total current

Total deferred

Provision (Benefit) for income taxes

The components of loss before income taxes were as follows (in thousands):

United States

Total loss before income taxes

The tax effects of temporary differences that give rise to significant components of the net deferred tax assets are as follows (in thousands):

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The net change in the total valuation allowance for the years ended December 31, 2020, 2019 and 2018 was an increase of approximately $ 24.8 million, $ 15.9 million and $ 8.2 million, respectively.

On December 22, 2017, H.R.

1 (the “Tax Act”) was enacted and included broad tax reforms.

The Tax Act reduced the U.S.

corporate tax rate from 35% to 21% effective January 1, 2018.

The rate change resulted in a $2.5 million reduction in the Company’s deferred tax assets from 2016 to 2017.

The Tax Act also imposed a deemed repatriation of foreign earnings of subsidiaries;

Kodiak Sciences GmbH is considered an E&P deficit corporation for the purposes of this provision and thus no income inclusion was required.

The Company has elected to treat taxes on Global Intangible Low Tax Income (“GILTI”) as period costs starting in 2018.

Kodiak Sciences Inc.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

NOLs and tax credit carry-forwards are subject to review and possible adjustment by the Internal Revenue Service (“IRS”) and may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50% as defined under Sections 382 and 383 in the Internal Revenue Code, which could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities.

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The California tax credit can be carried forward indefinitely .

Kodiak Sciences Inc.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

A reconciliation of the Company’s effective tax rate to the statutory U.S.

5 unchanged sentences

Research tax credit

Remeasurement of deferred tax due to tax law change

Sale of future royalties

Section 162(m)

Fair value adjustments

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The Company does not anticipate the uncertain tax positions will materially change in the next 12 months.

It is the Company’s policy to include interest and penalties as a component of income tax expense or benefit as necessary.

It is the Company's policy to include penalties and interest expense related to income taxes as a component of other expense, net as necessary.

The beginning and ending unrecognized tax benefits amounts are as follows (in thousands):

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All tax returns remain open for examination by the federal and state authorities for three and four years , respectively, from the date of utilization of any net operating loss or credits.

Kodiak Sciences Inc.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

Preferred Stock

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The Company has never declared or paid any dividends on common stock.

Kodiak Sciences Inc.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

The Company had reserved common stock for future issuances as follows:

Exercise of options outstanding

Exercise of options outstanding and release of restricted shares

Exercise of common stock warrants outstanding

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Options granted generally vest over four years .

The 2015 Equity Incentive Plan was terminated in connection with the adoption of the 2018 Plan and the 63,359 shares that were then unissued and available for future award under the 2015 Equity Incentive Plan became available under the 2018 Plan.

The awards outstanding under the 2015 Equity Incentive Plan continue to be governed by their existing terms.

The number of shares available for issuance increased by 1,776,761 shares in 2020 and there were 2,742,183 shares available for grant under the 2018 Plan as of December 31, 2020.

2015 Equity Incentive Plan

In September 2015, the Company adopted the 2015 Equity Incentive Plan (“2015 Plan”) under which 2,810,513 shares of common stock were reserved for issuance through grants of incentive stock options, nonqualified stock options and restricted stock awards (“RSAs”) to employees, directors and consultants of the Company.

During 2018, the board of directors approved an increase of 2,125,000 shares to the common stock reserved under the 2015 Plan.

The awards outstanding under the previously terminated 2009 Share Incentive Plan continue to be governed by their existing terms.

Kodiak Sciences Inc.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

Stock Options

Stock option activity under the 2018 Plan and 2015 Plan is summarized as follows (in thousands, except share and per share data):

Outstanding Awards

Balance, January 1, 2017

Options granted

Options exercised

Options forfeited or canceled

Balance, December 31, 2017

Shares authorized

Options granted

Options exercised

Options forfeited or canceled

Balance, December 31, 2018

Shares authorized

Options granted

Options exercised

Shares withheld related to net share settlement of RSUs

Options forfeited or canceled

Balance, December 31, 2019

Shares exercisable, December 31, 2018

Vested and expected to vest, December 31, 2018

Shares exercisable, December 31, 2019

Vested and expected to vest, December 31, 2019

Shares Subject to Repurchase

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At December 31, 2020 and 2019, there are no early exercised stock options that remained subject to the Company’s right of repurchase.

Employee Stock Options

Prior to the Company’s IPO, the fair value of the shares of common stock underlying the stock options was determined by the board of directors with assistance from management and external appraisers as there has been no historical public market for the Company’s common stock.

Subsequent to the Company’s IPO, the fair value of the Company’s common stock is determined based on its closing market price.

Kodiak Sciences Inc.

1 unchanged sentence

(in thousands, except share and per share data)

During the years ended December 31, 2019, 2018 and 2017, the Company granted 2,354,343, 3,888,653 and 107,500 stock options, respectively, to employees with a weighted-average grant date fair value of $34.11, $4.36 and $0.61 per share, respectively.

Stock Options

Stock option activity under the 2018 Plan and 2015 Plan is summarized as follows:

(in thousands)

Outstanding at December 31, 2019

Forfeited or canceled

Outstanding at December 31, 2020

Shares exercisable December 31, 2020

Vested and expected to vest December 31, 2020

The weighted-average grant date fair value of the stock options granted for 2020, 2019 and 2018 was $ 32.44 , $ 34.11 and $ 4.36 per share, respectively.

The aggregate intrinsic value represents the value of the Company’s closing stock price on the last trading day of the period in excess of the weighted-average exercise price multiplied by the number of options outstanding or exercisable.

Employee Stock Options

Subsequent to the Company’s IPO, the fair value of the Company’s common stock is determined based on its closing market price.

The Company estimated the fair value of employee stock options using the Black-Scholes valuation model.

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Expected Volatility .

The Company used an average historical stock price volatility of a peer group of publicly traded companies to be representative of its expected future stock price volatility, as the Company does not have sufficient trading history for its common stock.

As the Company does not have sufficient trading history for its common stock, our approach to estimating expected volatility is to phase in our own common stock trading history and supplement the remaining historical information with an average historical stock price volatility of a peer group of publicly traded companies to be representative of its expected future stock price volatility.

For purposes of identifying these peer companies, the Company considered the industry, stage of development, size and financial leverage of potential comparable companies.

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Treasury zero-coupon issues with a remaining term equivalent to the expected term of a stock award.

Kodiak Sciences Inc.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

Expected Dividend Rate .

The Company has not paid and does not anticipate paying any dividends in the near future.

The Company has no t paid and does no t anticipate paying any dividends in the near future.

Accordingly, the Company has estimated the dividend yield to be zero .

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Expected term

Stock-based compensation expense recognized during the years ended December 31, 2019, 2018 and 2017 for options granted to non-employees was $0.1 million, $0.4 million and less than $0.1 million, respectively.

Stock-based compensation expense recognized during the years ended December 31, 2020, 2019 and 2018 for options granted to non-employees was $ 0.7 million, $ 0.1 million and $ 0.4 million, respectively.

Restricted Shares

Restricted share activity, including restricted stock awards (“RSAs”), restricted stock units (“RSUs”), and performance-based restricted stock units (“PSUs”), under the 2018 Plan and 2015 Plan is summarized as follows:

Unvested at December 31, 2019

Shares withheld related to net share settlement of RSUs

Unvested at December 31, 2020

Restricted Stock Awards

Under the terms of the restricted stock agreements, the awards vest over four years , which is the requisite service period.

Recipients of restricted stock awards generally have voting and dividend rights with respect to such shares upon grant without regard to vesting.

Shares of restricted stock that do not vest are subject to forfeiture.

The Company recognizes stock-based compensation expense for RSAs on a straight-line basis over the requisite service period for the entire award.

The Company did not grant any RSA to employees in 2020.

The total fair value of RSAs vested during the years ended December 31, 2020, 2019 and 2018 was $nil million, less than $ 0.1 million and $ 0.2 million, respectively.

Stock-based compensation expense recognized during the years ended December 31, 2020, 2019 and 2018 for RSAs was $nil million, less than $ 0.1 million and $ 0.2 million, respectively.

Kodiak Sciences Inc.

1 unchanged sentence

(in thousands, except share and per share data)

Restricted Stock Units

RSUs will vest in four equal annual installments over four years , which is the requisite service period after that date.

The Company granted 236,045 RSUs to employees in 2020.

The total fair value of RSUs vested during the year ended December 31, 2020 and 2019 was $ 0.3 million and $ 0.3 million, respectively.

Stock-based compensation expense recognized during the years ended December 31, 2020, 2019 and 2018 for RSUs was $ 1.9 million, $ 0.3 million, and less than $ 0.1 million, respectively.

Performance-Based Stock Options and Restricted Stock Units

The Company granted 170,150 performance-based stock options and 128,900 performance-based restricted stock units (“RSUs”) to employees in 2019.

These performance-based equity awards will vest one-quarter upon the achievement of specific clinical development milestones.

The remaining shares will then vest in three equal annual installments after that date.

Performance-based stock options and performance-based restricted stock units are recorded as expense beginning when vesting events are determined to be probable.

Performance-based stock options are recorded as expense beginning when vesting events are determined to be probable.

The Company did no t grant performance-based equity awards to employees in 2020.

None of these performance-based equity awards vested during 2020 or 2019.

The Company believes that the achievement of the requisite performance condition continues to be probable.

Stock-based compensation expense recognized during the years ended December 31, 2020, 2019 and 2018 for the performance-based equity awards was $ 7.2 million, less than $ 0.1 million and $nil million, respectively.

The fair value of performance-based stock options was estimated using the following weighted-average assumptions:

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The weighted-average grant date fair value was $ 47.89 per share for performance-based stock options and $ 73.51 per share for performance-based restricted stock units.

None of these performance-based equity awards vested during 2019.

The Company believes that the achievement of the requisite performance condition is probable and stock-based compensation expense recognized during the year ended December 31, 2019 was less than $0.1 million related to these awards.

Restricted Stock Awards

Restricted stock award (“RSAs”) activity is summarized as follows:

Unvested, December 31, 2016

Unvested, December 31, 2017

Unvested, December 31, 2018

Unvested, December 31, 2019

Under the terms of the restricted stock agreements, 1/48th of the award vests monthly over four years, which is the requisite service period.

Recipients of restricted stock awards generally have voting and dividend rights with respect to such shares upon grant without regard to vesting.

Shares of restricted stock that do not vest are subject to forfeiture.

The Company recognizes stock-based compensation expense for RSAs on a straight-line basis over the requisite service period for the entire award.

The total fair value of RSAs vested during the years ended December 31, 2019, 2018 and 2017 was less than $0.1 million, $0.2 million and $0.1 million, respectively.

Stock-based compensation expense recognized during the years ended December 31, 2019, 2018 and 2017 for RSAs was less than $0.1 million, $0.2 million and $0.1 million, respectively.

Kodiak Sciences Inc.

Notes to Consolidated Financial Statements

(in thousands, except share and per share data)

Restricted Stock Units

RSUs activity is summarized as follows:

Unvested, December 31, 2017

Unvested, December 31, 2018

Shares withheld related to net share settlement of RSUs

Unvested, December 31, 2019

The total fair value of RSUs vested during the year ended December 31, 2019 was $0.3 million.

Stock-based compensation expense recognized during the years ended December 31, 2019 and 2018 for RSUs was $0.3 million and less than $0.1 million, respectively.

2018 Employee Share Purchase Plan

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A total of 460,000 shares of common stock were initially reserved for issuance under the ESPP.

The offering period and purchase period will be determined by the board of directors.

As of December 31, 2019, no offerings have been authorized to date.

The initial offering period of the ESPP was authorized by the Company’s board of directors and commenced on January 4, 2021.

Stock-Based Compensation Expense

3 unchanged sentences

Total stock-based compensation

As of December 31, 2019, the Company had $59.4 million and $0.2 million of unrecognized compensation expense related to unvested stock options and unvested restricted stock awards and units, respectively, that is expected to be recognized over a weighted-average period of 3.07 years and 0.77 years, respectively.

As of December 31, 2020, the Company had $ 91.4 million of unrecognized compensation expense related to unvested stock options and unvested restricted stock awards and units that is expected to be recognized over a weighted-average period of 2.9 years .

Kodiak Sciences Inc.

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Unvested restricted shares

Unvested early exercised common stock options

Conversion of redeemable convertible preferred stock

Conversion of convertible notes outstanding

Exercise of preferred stock warrants outstanding

In 2011, the Company adopted a 401(k) retirement and savings plan covering all employees.

2 unchanged sentences

The Company will make matching contributions of 100 % of employee contributions up to a maximum of 50 % of the individual maximum contribution limit allowed under the IRS rules.

For the year ended December 31, 2019, the expense related to the matching contributions was $0.3 million.

Subsequent Events

F unding Agreement with Baker Bros.

On December 1, 2019, the Company and its subsidiary Kodiak Sciences GmbH entered into a funding agreement with Baker Bros.

Advisors, LP (“BBA”), pursuant to which BBA purchased the right to receive a capped 4.5% royalty on future net sales of KSI-301, the Company’s anti-VEGF antibody biopolymer conjugate therapy, in exchange for $225.0 million.

The funding agreement with BBA, which holds more than 5% of the Company’s stock , was the result of a competitive process overseen by independent and disinterested members of the board of directors of the Company with the assistance of outside counsel .

For the year ended December 31, 2020 and 2019, the expense related to the matching contributions was $ 0.6 million and $ 0.3 million, respectively.

Liability related to Sale of Future Royalties

On December 1, 2019, the Company and its subsidiary Kodiak Sciences GmbH entered into a funding agreement with BBA, which holds more than 5 % of the Company’s stock, pursuant to which BBA purchased the right to receive a capped 4.5 % royalty on future net sales of KSI-301, the Company’s anti-VEGF antibody biopolymer conjugate therapy, in exchange for $ 225.0 million.

The royalty terminates upon the date that BBA has received an aggregate amount equal to 4.5 times the funding amount paid to the Company, unless earlier terminated or repurchased by the Company.

Under the terms of the funding agreement, there is no obligation to repay any funding amount received, other than through the capped royalty payments on future product revenues.

The Company has the option, exercisable at any point during the term of the funding agreement, to repurchase 100 % of the royalties due to BBA for a purchase price equal to 4.5 times the funding amount paid to the Company as of such time, less amounts paid by the Company to BBA.

The closing of the funding agreement was subject to certain conditions and occurred in February 2020.

The Company received $ 100.0 million of the funding on February 4, 2020.

The remaining $ 125.0 million, subject to delivery of notice by the Company, payable upon enrollment of 50 % of the patients in the RVO clinical program.

Kodiak Sciences Inc.

1 unchanged sentence

(in thousands, except share and per share data)

The closing of the funding agreement was subject to certain conditions and occurred in February 2020.

The Company received $100.0 million of the funding on February 4, 2020.

The remaining $125.0 million shall be payable to the Company upon enrollment of 50% patients in the planned Phase 3 clinical trials of KSI-301 for branch retinal vein occlusion and central retinal vein occlusion .

The Company recorded the initial $ 100.0 million payment as a liability on the consolidated balance sheet net of issuance costs.

If and when the Company makes royalty payments under the funding agreement, it would reduce the liability balance at such time.

As of December 31, 2020, royalty payments are not probable and estimable.

For the year ended December 31, 2020, no interest expense was recognized for the liability related to the sale of future royalties.

Selected Quarterly Financial Data (unaudited)

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Loss from operations

Net loss and comprehensive loss

Net loss per share attributable to common

stockholders, basic and diluted

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE S

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk