Kodiak Sciences Inc. 10-K

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK We are exposed to market risk related to changes in interest rates. 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. 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, 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. 118 ITEM 8. FINANCIAL STATEMEN TS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm 120 Consolidated Financial Statements Consolidated Balance Sheets 122 Consolidated Statements of Operations and Comprehensive Loss 123 Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) 124 Consolidated Statements of Cash Flows 125 Notes to Consolidated Financial Statements 126 119 Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Kodiak Sciences Inc. 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”). 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 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 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. 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 120 company; 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 San Jose, California March 1, 2021 We have served as the Company’s auditor since 2016. 121 Kodiak Sciences Inc. Consolidated Balance Sheets (in thousands, except share and per share amounts) December 31, 2020 December 31, 2019 Assets Current assets: Cash and cash equivalents $ 944,396 $ 211,797 Marketable securities 24,578 124,684 Prepaid expenses and other current assets 3,031 2,749 Total current assets 972,005 339,230 Marketable securities — 11,696 Restricted cash 6,324 140 Property and equipment, net 5,136 996 Operating lease right-of-use asset 73,672 1,790 Other assets 10,210 5,014 Total assets $ 1,067,347 $ 358,866 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 8,646 $ 2,619 Accrued and other current liabilities 20,402 8,658 Operating lease liability 2,374 434 Total current liabilities 31,422 11,711 Operating lease liability, net of current portion 75,028 1,501 Liability related to sale of future royalties 99,890 — Other liabilities 256 295 Total liabilities 206,596 13,507 Commitments and contingencies (Note 7) Stockholders’ equity: Preferred stock, $ 0.0001 par value, 10,000,000 shares authorized; 0 shares issued and outstanding at December 31, 2020 and 2019 — — Common stock, $ 0.0001 par value, 490,000,000 shares authorized at December 31, 2020 and 2019; 51,112,302 and 44,413,404 shares issued and outstanding at December 31, 2020 and 2019, respectively 5 5 Additional paid-in capital 1,151,920 503,475 Accumulated other comprehensive income 53 10 Accumulated deficit ( 291,227 ) ( 158,131 ) Total stockholders’ equity 860,751 345,359 Total liabilities and stockholders’ equity $ 1,067,347 $ 358,866 The accompanying notes are an integral part of these consolidated financial statements. 122 Kodiak Sciences Inc. Consolidated Statements of Operations and Comprehensive Loss (in thousands, except share and per share amounts) Year Ended December 31, 2020 Year Ended December 31, 2019 Year Ended December 31, 2018 Operating expenses Research and development $ 107,389 $ 37,506 $ 18,793 General and administrative 28,618 11,684 7,581 Total operating expenses 136,007 49,190 26,374 Loss from operations ( 136,007 ) ( 49,190 ) ( 26,374 ) Interest income 2,902 1,568 617 Interest expense (includes $nil, $nil and $ 3,030 attributable to related parties for the years ended December 31, 2020, 2019 and 2018, respectively) ( 25 ) ( 8 ) ( 5,519 ) 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) 34 265 ( 4,688 ) Loss on extinguishment of debt (includes $ 1,587 attributable to related parties for the year ended December 31, 2018) — — ( 5,479 ) Net loss $ ( 133,096 ) $ ( 47,365 ) $ ( 41,443 ) Net loss per common share, basic and diluted $ ( 2.91 ) $ ( 1.25 ) $ ( 2.77 ) Weighted-average common shares outstanding used in computing net loss per common share, basic and diluted 45,741,845 37,853,616 14,976,515 Other comprehensive income Change in unrealized gains related to available-for-sale debt securities, net of tax 43 10 — Total other comprehensive income 43 10 — Comprehensive loss $ ( 133,053 ) $ ( 47,355 ) $ ( 41,443 ) The accompanying notes are an integral part of these consolidated financial statements. 123 Kodiak Sciences Inc. Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit) (in thousands, except share and per share amounts) Redeemable Convertible Preferred Stock Common Stock Additional Paid-In Accumulated Other Comprehensive Accumulated Total Stockholders’ Equity Shares Amount Shares Amount Capital Income Deficit (Deficit) Balance at December 31, 2017 12,385,154 50,017 7,936,434 1 584 — ( 69,323 ) ( 68,738 ) Issuance of common stock upon exercise of stock options — — 47,800 — 49 — — 49 Issuance of restricted stock awards — — 27,500 — — — — — Conversion of redeemable convertible preferred stock into common stock ( 12,385,154 ) ( 50,017 ) 12,385,154 1 50,016 — — 50,017 Conversion of redeemable convertible preferred stock warrants into common stock warrants — — — — 5,000 — — 5,000 Issuance of common stock upon exercise of common stock warrants — — 100,000 — — — — — Conversion of 2017 and 2018 convertible notes into common stock — — 6,932,969 1 55,732 — — 55,733 Issuance of common stock in conection with initial public offering, net of offering costs of $ 10,542 — — 9,400,000 1 83,458 — — 83,459 Stock-based compensation expense — — — — 2,756 — — 2,756 Net loss — — — — — — ( 41,443 ) ( 41,443 ) Balance at December 31, 2018 — — 36,829,857 4 197,595 — ( 110,766 ) 86,833 Issuance of common stock upon exercise of stock options — — 662,079 — 2,287 — — 2,287 Vesting of restricted stock units, net of taxes withheld — — 21,467 — ( 132 ) — — ( 132 ) Issuance of common stock upon exercise of common stock warrants — — 1 — — — — — Issuance of common stock in connection with follow-on offering, net of offering costs of $ 19,784 — — 6,900,000 1 297,615 — — 297,616 Stock-based compensation expense — — — — 6,110 — — 6,110 Other comprehensive income — — — — — 10 — 10 Net loss — — — — — — ( 47,365 ) ( 47,365 ) Balance at December 31, 2019 — — 44,413,404 5 503,475 10 ( 158,131 ) 345,359 Issuance of common stock upon exercise of stock options — — 704,675 — 6,248 — — 6,248 Issuance of common stock in connection with follow-on offering, net of offering costs of $ 32,984 — — 5,972,222 — 612,016 — — 612,016 Vesting of restricted stock units, net of taxes withheld — — 22,001 — ( 487 ) — — ( 487 ) Stock-based compensation expense — — — — 30,668 — — 30,668 Other comprehensive income — — — — — 43 — 43 Net loss — — — — — — ( 133,096 ) ( 133,096 ) Balance at December 31, 2020 — $ — 51,112,302 $ 5 $ 1,151,920 $ 53 $ ( 291,227 ) $ 860,751 The accompanying notes are an integral part of these consolidated financial statements. 124 Kodiak Sciences Inc. Consolidated Statements of Cash Flows (in thousands) Year Ended December 31, 2020 Year Ended December 31, 2019 Year Ended December 31, 2018 Cash flows from operating activities Net loss $ ( 133,096 ) $ ( 47,365 ) $ ( 41,443 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 477 538 490 Non-cash interest expense and amortization of debt discount and issuance cost — — 5,482 Change in fair value of redeemable convertible preferred stock warrant liability — — 2,700 Change in fair value of derivative instrument — — 1,988 Extinguishment of debt — — 5,479 Stock-based compensation 30,668 6,110 2,665 Amortization (accretion) of premium (discount) on marketable securities ( 51 ) ( 241 ) — Amortization of operating lease right-of-use asset 3,731 373 — Amortization of issuance costs 49 — — Changes in assets and liabilities: Prepaid expense and other current assets ( 218 ) ( 168 ) ( 1,995 ) Other assets ( 1,814 ) ( 4,511 ) — Accounts payable 5,224 1,569 ( 2,323 ) Accrued and other current liabilities 11,748 4,932 ( 2,105 ) Operating lease liability ( 146 ) ( 383 ) — Other liabilities — — 31 Net cash used in operating activities ( 83,428 ) ( 39,146 ) ( 29,031 ) Cash flows from investing activities Purchase of property and equipment ( 3,814 ) ( 437 ) ( 78 ) Deposits on property and equipment ( 3,184 ) — ( 503 ) Purchases of marketable securities ( 86,317 ) ( 150,961 ) — Maturities of marketable securities 198,149 14,400 — Net cash provided by (used in) investing activities 104,834 ( 136,998 ) ( 581 ) Cash flows from financing activities Proceeds from issuance of common stock in connection with offering, net of offering costs 612,016 297,616 83,755 Proceeds from issuance of common stock upon option exercise 6,248 2,287 49 Payments for restricted stock units, net of taxes withheld ( 487 ) ( 132 ) — Proceeds from issuance of convertible notes (includes $ 9,560 from related parties for the years ended December 31, 2018) — — 33,000 Debt issuance cost — — ( 140 ) Proceeds from sale of future royalties, net of issuance costs 99,643 — — Principal payments of capital lease ( 5 ) ( 48 ) ( 108 ) Principal payments of tenant improvement allowance payable ( 38 ) ( 36 ) ( 85 ) Net cash provided by financing activities 717,377 299,687 116,471 Net increase in cash, cash equivalents and restricted cash 738,783 123,543 86,859 Cash, cash equivalents and restricted cash, at beginning of year 211,937 88,394 1,535 Cash, cash equivalents and restricted cash, at end of year $ 950,720 $ 211,937 $ 88,394 Reconciliation of cash, cash equivalents and restricted cash to consolidated balance sheets Cash and cash equivalents $ 944,396 $ 211,797 $ 88,254 Restricted cash 6,324 140 140 Cash, cash equivalents and restricted cash in consolidated balance sheets $ 950,720 $ 211,937 $ 88,394 Supplemental cash flow information: Cash paid for interest $ 25 $ 8 $ 19 Supplemental disclosures of non-cash investing and financing information: Operating lease right-of-use asset obtained in exchange for operating lease liability $ 75,614 $ 2,163 $ — Purchase of property and equipment under accounts payable $ 803 $ — $ — Unpaid offering costs $ 238 $ 459 $ 205 Offering costs paid in restricted stock awards $ — $ — $ 91 Derivative instrument related to convertible notes $ — $ — $ 6,603 The accompanying notes are an integral part of these consolidated financial statements. 125 Kodiak Sciences Inc. Notes to Consolidated Financial Statements (in thousands, except share and per share data) 1. The Company Kodiak Sciences Inc. (the “Company”) is a clinical stage biopharmaceutical company specializing in novel therapeutics to treat high-prevalence ophthalmic diseases. The Company devotes substantially all of its time and efforts to performing research and development, raising capital and recruiting personnel. Initial Public Offering 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. Upon the closing of the IPO, all convertible preferred shares then outstanding automatically converted into 12,385,154 shares of common stock, 500,000 redeemable convertible preferred stock warrants automatically converted into common stock warrants and 100,000 of such warrants were exercised immediately following the closing of the IPO. The 2017 convertible notes converted into 2,637,292 shares of common stock and the 2018 convertible notes converted into 4,295,677 shares of common stock upon closing of the IPO. In connection with the IPO, the Company amended and restated its certificate of incorporation and bylaws. Follow-On Offering In December 2019, the Company sold and issued 6,900,000 shares of common stock, including the underwriters’ full exercise of their over-allotment option, at a price to the public of $ 46.00 per share for gross proceeds of $ 317.4 million. 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. 2. Summary of Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). Reclassification Certain prior period amounts in the consolidated financial statements have been reclassified to conform to the current period presentation. 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 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. dollar. 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. Segments 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. The chief operating decision maker reviews financial information on an aggregate basis for purposes of allocating resources and evaluating financial performance. 126 Kodiak Sciences Inc. Notes to Consolidated Financial Statements (in thousands, except share and per share data) Use of Estimates The preparation of consolidated financial statements in conformity with U.S. 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. 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. The Company’s product candidates are in development and the Company operates in an environment of rapid change in technology and substantial competition from other pharmaceutical and biotechnology companies. Factors that could affect the Company’s future operating results and cause actual results to vary materially from expectations include, but are not limited to, uncertainty of results of clinical trials and reaching milestones, uncertainty of regulatory approval of the Company’s potential drug candidates, uncertainty of market acceptance of any of the Company’s product candidates that receive regulatory approval, competition from new technological innovations, substitute products and larger companies, securing and protecting proprietary technology, strategic relationships and dependence on key individuals, contract manufacturer and research organizations, and other suppliers. Products developed by the Company require approvals from the U.S. Food and Drug Administration (“FDA”) or other international regulatory agencies prior to commercial sales. There can be no assurance that any of the Company’s product candidates will receive the necessary approvals. If the Company is denied approval, approval is delayed or the Company is unable to maintain approvals, it could have a materially adverse impact on the Company. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will generate significant revenue from product sales. The Company expects to incur substantial operating losses for the next several years and will need to obtain additional financing in order to complete clinical trials and launch and commercialize any product candidates for which it receives regulatory approval. There can be no assurance that such financing will be available or will be on terms acceptable by the Company. Concentration of Credit Risk Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash, cash equivalents and marketable securities. As of December 31, 2020 and 2019, cash, cash equivalents and marketable securities were invested primarily in money market funds, overnight repurchase agreements, U.S. treasury securities, commercial paper and corporate notes through highly rated financial institutions. Investments are restricted, in accordance with the Company’s investment policy, to a concentration limit per issuer or sector. 127 Kodiak Sciences Inc. Notes to Consolidated Financial Statements (in thousands, except share and per share data) Cash and Cash Equivalents The Company considers all highly liquid investments with stated maturities of three months or less at the date of purchase to be cash equivalents. Marketable Securities The Company invests excess cash balances in marketable securities. The investments in marketable securities are classified as either held-to-maturity or available-for-sale based on facts and circumstances present at the time of purchase. Marketable securities with a remaining maturity date greater than one year are classified as non-current. The Company’s marketable securities consist of U.S. treasury securities, commercial paper, and corporate bonds. Marketable securities are carried at fair value with the unrealized gains and losses included in other comprehensive income (loss) as a component of stockholders’ equity until realized. Any premium or discount arising at purchase of marketable debt securities is amortized and/or accreted to other income (expense), net over the life of the instrument. Realized gains and losses are determined using the specific identification method and are included in other income (expense), net. 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, 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 Accounting Standards Codification (“ASC”) 820, Fair Value Measurement , establishes a fair value hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company's own assumptions (unobservable inputs). Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company's assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a three-tier fair value hierarchy that distinguishes between the following: Level 1 —Observable inputs, such as quoted prices in active markets for identical assets or liabilities at the measurement date. Level 2 —Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 —Unobservable inputs which reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and inputs to the model. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. 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. 128 Kodiak Sciences Inc. Notes to Consolidated Financial Statements (in thousands, except share and per share data) Leases 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. Leases with terms greater than one year are initially recognized on the balance sheet as right-of-use assets and lease liabilities based on the present value of lease payments over the expected lease term. The interest rate implicit in lease contracts is typically not readily determinable. As such, the Company utilizes the incremental borrowing rate, which is the rate incurred to borrow, on a collateralized basis, an amount equal to the lease payments over a similar term and in a similar economic environment of the applicable country or region. 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. Property and Equipment, Net Property and equipment are stated at cost less accumulated depreciation for acquired assets. Depreciation is computed using the straight-line method over the estimated useful lives of assets, which is generally four years for laboratory equipment, three years for computer equipment and office equipment, five years for computer software and five to seven years for furniture and fixtures. Leasehold improvements are stated at cost and amortized over the shorter of the useful life of the assets or the length of the lease. Upon sale or retirement of assets, the costs and related accumulated depreciation are removed from the consolidated balance sheet and the resulting gain or loss is reflected in operations. Maintenance and repairs are charged to operations as incurred. Impairment of Long-Lived Assets The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by comparison of the carrying amount to the future undiscounted net cash flows which the assets are expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the projected discounted future net cash flows arising from the assets. There have been no such impairments of long-lived assets in the years ended December 31, 2020 and 2019. Research and Development Expenses Costs related to research, design and development of products are charged to research and development expense as incurred. Research and development costs include, but are not limited to, payroll and personnel expenses, including stock-based compensation, laboratory supplies, outside services and allocated overhead, including rent, equipment, depreciation and utilities. Accrued Research and Development 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 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 The Company accounts for stock-based compensation in accordance with the provisions of ASC 718, Compensation-Stock Compensation. The Company measures stock-based compensation expense for stock options and restricted stock units granted to its employees, directors and non-employees based on the estimated fair value of the awards on the grant date. The fair value of options is calculated using the Black-Scholes valuation model, which requires the input of subjective assumptions, including (i) the expected stock price volatility, (ii) the calculation of expected term of the award, (iii) the risk-free interest rate, and (iv) expected dividends. The expense is recorded on a straight-line basis over the requisite service period, which is generally the vesting period, for the entire award. The Company accounts for forfeitures as they occur. 129 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. 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting ("ASU 2018-07"), the measurement date for non-employee awards was generally the date the services are completed, resulting in financial reporting period adjustments to stock-based compensation during the vesting terms for changes in the fair value of the awards. After adoption of ASU 2018-07 as of January 1, 2019 , the measurement date for non-employee awards is the date of grant without changes in the fair value of the award. The Company has certain stock options and restricted stock units that vest in conjunction with certain performance conditions. At each reporting date, the Company is required to evaluate whether achievement of the performance conditions is probable. Compensation expense is recorded over the appropriate service period based upon the Company's assessment of accomplishing each performance provision. Income Taxes 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. In addition, deferred tax assets are recorded for the future benefit of utilizing net operating losses (“NOLs”) and research and development credit carryforwards and are measured using the enacted tax rates and laws that will be in effect when such items are expected to reverse. A valuation allowance is provided against deferred tax assets unless it is more likely than not that they will be realized. The Company accounts for uncertain tax positions by assessing all material positions taken in any assessment or challenge by relevant taxing authorities. Assessing an uncertain tax position begins with the initial determination of the position’s sustainability and is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. The Company’s policy is to recognize interest and penalties related to the underpayment of income taxes as a component of income tax expense or benefit. To date, there have been no interest or penalties charged in relation to the unrecognized tax benefits. Comprehensive Loss Comprehensive loss is composed of net loss and other comprehensive income (loss). 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. 130 Kodiak Sciences Inc. Notes to Consolidated Financial Statements (in thousands, except share and per share data) Net Loss per Share Attributable to Common Stockholders Basic net loss per common share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of common stock outstanding during the period, without consideration of potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common stock and potentially dilutive securities outstanding for the period. For purposes of this calculation, the redeemable convertible preferred stock, preferred stock warrants, convertible notes, common stock subject to repurchase, and stock options are considered to be potentially dilutive securities. Basic and diluted net loss attributable to common stockholders per share is presented in conformity with the two-class method required for participating securities as the redeemable convertible preferred stock is considered a participating security. The Company’s participating securities do not have a contractual obligation to share in the Company’s losses. As such, the net loss is attributed entirely to common stockholders. Since the Company has reported net loss for all periods presented, diluted net loss per share is the same as basic net loss per common share for those periods. Recent a ccounting p ronouncements From time to time, new accounting pronouncements are issued by the FASB, under its ASC or other standard setting bodies, and adopted by the Company as of the specified effective date, unless otherwise discussed below. Recently Adopted Accounting Pronouncements In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) , which set out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract ( i.e., lessees and lessors). In July 2018, the FASB issued ASU 2018-10, Leases (Topic 842), Codification Improvements , and ASU 2018-11, Leases (Topic 842), Targeted Improvements . ASU 2018-10 clarified certain provisions and corrected unintended applications of the guidance such as the application of implicit rate, lessee reassessment of lease classification, and certain transition adjustments that should be recognized to earnings rather than to stockholders' equity. ASU 2018-11 provided an alternative transition method and practical expedient for separating contract components for the adoption of Topic 842. ASU 2016-02, ASU 2018-10, and ASU 2018-11 (collectively, "the new lease standards") superseded the previous leases standard, ASC 840 Leases . The Company adopted ASC 842 effective January 1, 2019 using the modified retrospective approach to recognize a cumulative-effect adjustment on the effective date and to not adjust financial information and disclosures required under the new lease standards for comparative prior periods. The Company did not elect for the package of practical expedients and assessed all contracts at the transition date. The Company did not utilize the practical expedient which allows the use of hindsight in determining lease term and assessing impairment in right-of-use assets. The Company elected to apply the practical expedient and accounted for each lease component and related non-lease component as one single component. The Company elected the practical expedient not to recognize leases with terms of one year or less on the balance sheet. 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 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 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. 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. 131 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 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. 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. 3. Property and Equipment, net Property and equipment, net consists of the following (in thousands): December 31, 2020 December 31, 2019 Leasehold improvement $ 1,285 $ 1,265 Laboratory equipment 3,351 1,125 Furniture and fixtures 214 204 Computer hardware 31 — Computer software 89 79 Office equipment 107 94 Construction in progress 2,229 — Total property and equipment 7,306 2,767 Less: Accumulated depreciation ( 2,170 ) ( 1,771 ) Property and equipment, net $ 5,136 $ 996 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. 4. Accrued Liabilities and Other Current Liabilities Accrued liabilities and other current liabilities consist of the following (in thousands): December 31, 2020 December 31, 2019 Accrued clinical trial and related costs $ 11,119 $ 4,056 Accrued research and development 3,082 838 Accrued salaries and benefits 5,094 3,108 Accrued legal fees 252 302 Accrued professional fees 253 195 Accrued other liabilities 602 159 Total accrued and other current liabilities $ 20,402 $ 8,658 132 Kodiak Sciences Inc. Notes to Consolidated Financial Statements (in thousands, except share and per share data) 5. Fair Value Measurements The following tables present the Company’s fair value hierarchy for assets and liabilities measured at fair value on a recurring basis (in thousands): Fair Value Measurements at December 31, 2020 Level 1 Level 2 Level 3 Total Cash equivalents: Money market funds $ 917,485 $ — $ — $ 917,485 Marketable securities: U.S. treasury securities — 10,006 — 10,006 Corporate notes — 14,572 — 14,572 Total $ 917,485 $ 24,578 $ — $ 942,063 Fair Value Measurements at December 31, 2019 Level 1 Level 2 Level 3 Total Cash equivalents: Money market funds $ 155,276 $ — $ — $ 155,276 Repurchase agreement 50,000 — — 50,000 Commercial paper — 5,987 — 5,987 Marketable securities: U.S. treasury securities — 50,185 — 50,185 Commercial paper — 34,533 — 34,533 Corporate notes — 51,662 — 51,662 Total $ 205,276 $ 142,367 $ — $ 347,643 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. 6. Marketable Securities The marketable securities are classified as available-for-sale and consist of U.S. treasury securities, corporate notes and commercial paper. The fair value measurement data for marketable securities is obtained from independent pricing services. 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 (in thousands): December 31, 2020 Amortized Cost Unrealized Gains Unrealized Losses Fair Value U.S. treasury securities $ 10,003 $ 3 — $ 10,006 Corporate notes 14,522 50 — 14,572 Total marketable securities, current $ 24,525 $ 53 $ — $ 24,578 133 Kodiak Sciences Inc. Notes to Consolidated Financial Statements (in thousands, except share and per share data) December 31, 2019 Amortized Cost Unrealized Gains Unrealized Losses Fair Value U.S. treasury securities $ 50,190 $ — $ ( 5 ) $ 50,185 Commercial paper 34,532 1 — 34,533 Corporate notes 39,956 13 ( 3 ) 39,966 Total marketable securities, current $ 124,678 $ 14 $ ( 8 ) $ 124,684 Corporate notes $ 11,692 $ 4 $ — $ 11,696 Total marketable securities, noncurrent $ 11,692 $ 4 $ — $ 11,696 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. 7. Commitments and Contingencies Leases 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. 134 Kodiak Sciences Inc. Notes to Consolidated Financial Statements (in thousands, except share and per share data) The maturities of the operating lease liabilities as of December 31, 2020 were as follows (in thousands): Year ending December 31, As of December 31, 2020 2021 $ 4,288 2022 7,660 2023 14,598 2024 15,037 2025 15,475 Thereafter 71,462 Total undiscounted lease payments 128,520 Less: imputed interest ( 51,118 ) Total operating lease liabilities $ 77,402 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: December 31, 2020 December 31, 2019 Weighted-average remaining lease term (in years) 9.5 3.8 Weighted-average discount rate 6.7 % 8.5 % 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 or obligate the Company to the binding amount regardless of whether such planned activities are in fact performed. 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 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, 2020 , the Company had no t incurred any cancellation fees for the work performed by Lonza. Other Funding Commitments 135 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 In May 2013, the Company entered into a tenant improvement allowance agreement with its landlord. The agreement allowed the Company to draw down $ 0.3 million for tenant improvements related to the office lease over the period from the execution of the agreement to October 2018 . The interest rate is 8 % per year over the lease period. This tenant improvement allowance was repaid in October 2018. In March 2016, the Company entered into a lease amendment, under which the Company is allowed to draw down an additional allowance of $ 0.4 million for tenant improvements related to the office lease over the period from the execution of the agreement to October 2023 . The interest rate is 8 % per year over 10 years. Principal and interest are payable on the first day of every month. 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. As of December 31, 2020 and 2019 , the non-current portion of the tenant improvement allowance payable in other liabilities was $ 0.3 million and $ 0.3 million, respectively. Legal Proceedings From time to time, the Company may become involved in legal proceedings arising from the ordinary course of its business. Management is currently not aware of any matters that could have a material adverse effect on the Company’s financial position, results of operations or cash flows. The Company records a legal liability when it believes that it is both probable that a liability may be imputed, and the amount of the liability can be reasonably estimated. Significant judgment by the Company is required to determine both probability and the estimated amount. Indemnification To the extent permitted under Delaware law, the Company has agreed to indemnify its directors and officers for certain events or occurrences while the director or officer is, or was serving, at the Company’s request in such capacity. The indemnification period covers all pertinent events and occurrences during the director’s or officer’s service. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is not specified in the agreements; however, the Company has director and officer insurance coverage that reduces its exposure and enables the Company to recover a portion of any future amounts paid. The Company believes the estimated fair value of these indemnification agreements in excess of applicable insurance coverage is minimal. 8. Income Taxes The provision (benefit) for income taxes consists of the following (in thousands): 136 Kodiak Sciences Inc. Notes to Consolidated Financial Statements (in thousands, except share and per share data) Year Ended December 31, 2020 Year Ended December 31, 2019 Year Ended December 31, 2018 Current: Federal $ — $ — $ — State — — — Foreign 14 — — Total current $ 14 $ — $ — Deferred: Federal $ — $ — $ — State — — — Foreign — — — Total deferred $ — $ — $ — Provision (Benefit) for income taxes $ 14 $ — $ — The components of loss before income taxes were as follows (in thousands): Year Ended December 31, 2020 Year Ended December 31, 2019 Year Ended December 31, 2018 United States $ ( 17,273 ) $ 2,633 $ ( 17,273 ) Foreign ( 115,809 ) ( 49,998 ) ( 24,170 ) Total loss before income taxes $ ( 133,082 ) $ ( 47,365 ) $ ( 41,443 ) The tax effects of temporary differences that give rise to significant components of the net deferred tax assets are as follows (in thousands): December 31, 2020 December 31, 2019 December 31, 2018 Deferred tax assets: Net operating loss carryforwards $ 28,451 $ 18,523 $ 11,044 Intangible assets 12,088 12,112 7,588 Research and development tax credits 10,527 4,037 1,559 Stock-based compensation 8,405 1,539 394 Accruals 1,367 885 700 Operating lease liability 22,276 577 - Property and equipment 127 143 109 Total deferred tax assets 83,241 37,816 21,394 Valuation allowance ( 62,005 ) ( 37,249 ) ( 21,394 ) Net deferred tax assets 21,236 567 — Deferred tax liabilities: Operating lease right-of-use asset ( 21,234 ) ( 534 ) — Capitalized legal fees ( 2 ) ( 33 ) — Total deferred tax liabilities ( 21,236 ) ( 567 ) — Total net deferred tax assets $ — $ — $ — The Company has recorded a full valuation allowance against its net deferred tax assets due to the uncertainty as to whether such assets will be realized. 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. 137 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. The amount of the annual limitation is determined based on the Company’s value immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. The Company has completed a Section 382 study through December 31, 2020 which concluded no such ownership change had occurred through December 31, 2020 . As of December 31, 2020, the Company had $ 50.1 million of federal and $ 171.0 million of state net operating loss available to offset future taxable income. A portion of the federal net operating loss carryforwards begin to expire in 2035 and the state net operating loss carryforwards begin to expire in 2035 , if not utilized. $ 32.0 million of the federal net operating loss are not subject to expiration. As of December 31, 2020, the Company also had federal and state research and development credit carryforwards of $ 10.2 million and $ 4.9 million, respectively. The federal research and development credit carryforwards expire beginning 2035 . The California tax credit can be carried forward indefinitely . A reconciliation of the Company’s effective tax rate to the statutory U.S. federal rate is as follows: December 31, 2020 December 31, 2019 December 31, 2018 Federal statutory income tax rate 21.0 % 21.0 % 21.0 % State taxes 4.3 11.0 5.6 Foreign tax rate differential ( 7.9 ) ( 12.4 ) ( 3.8 ) Change in valuation allowance ( 17.3 ) ( 30.5 ) ( 18.3 ) Stock-based compensation 6.7 7.7 ( 0.6 ) Research tax credit 3.8 3.3 1.3 Other — ( 0.1 ) ( 0.1 ) Sale of future royalties ( 9.4 ) — — Section 162(m) ( 1.2 ) — — Fair value adjustments — — ( 2.4 ) Extinguishment of convertible note — — ( 2.7 ) Provision for income taxes 0.0 % 0.0 % 0.0 % The Company recognizes benefits of uncertain tax positions if it is more likely than not that such positions will be sustained upon examination based solely on their technical merits, as the largest amount of benefit that is more likely than not to be realized upon the ultimate settlement. As of December 31, 2020, 2019 and 2018, none of the unrecognized tax benefits would affect income tax expense with consideration of the valuation allowance. 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 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): December 31, 2020 December 31, 2019 December 31, 2018 Unrecognized tax benefits at beginning of period $ 1,838 $ 398 $ 357 Increases related to prior year tax positions — — - Increases related to current year tax positions 2,812 1,440 41 Unrecognized tax benefits at end of period $ 4,650 $ 1,838 $ 398 The Company files income tax returns in the United States and Switzerland. The Company is not currently under examination by income tax authorities in federal, state or other jurisdictions. 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. 138 Kodiak Sciences Inc. Notes to Consolidated Financial Statements (in thousands, except share and per share data) 9. Preferred Stock As of December 31, 2020 and 2019 , the Company’s certificate of incorporation, as amended and restated, authorized the Company to issue up to 10,000,000 shares of preferred stock at the par value of $ 0.0001 per share. As of December 31, 2020, there are no holders of the Company’s preferred stock. 10. Common Stock As of December 31, 2020 and 2019 , the Company’s certificate of incorporation, as amended and restated, authorized the Company to issue 490,000,000 shares of common stock at the par value of $ 0.0001 per share. Each share of common stock is entitled to one vote. The board of directors may declare and pay dividends to holders of common stock. The Company has never declared or paid any dividends on common stock. The Company had reserved common stock for future issuances as follows: December 31, 2020 December 31, 2019 Exercise of options outstanding and release of restricted shares 7,257,221 6,830,442 Exercise of common stock warrants outstanding 399,999 399,999 Issuance of common stock under the 2018 Equity Incentive Plan 2,742,183 2,118,877 Issuance of common stock under the 2018 Employee Share Purchase Plan 460,000 460,000 Total 10,859,403 9,809,318 11. Stock-Based Compensation 2018 Equity Incentive Plan In August 2018, the Company adopted the 2018 Equity Incentive Plan (“2018 Plan”), which became effective on the business day prior to the effectiveness of the registration statement relating to the IPO. The 2018 Plan initially reserved 4,300,000 shares of common stock for the issuance of incentive stock options ("ISOs"), nonstatutory stock options, restricted stock, restricted stock units (“RSUs”), stock appreciation rights, performance units and performance shares to employees, directors and consultants of the Company. The number of shares available for issuance will increase annually on the first day of each fiscal year beginning in 2019 equal to the least of (1) 4,300,000 shares, and (2) 4 % of outstanding shares of common stock as of the last day of the immediately preceding year, and (3) such other amount as determined by the board of directors. The exercise price of options must be equal to at least the fair market value of the common stock on the grant date. For ISOs, the term may not exceed ten years , except in respect to any participant with more than 10% of voting power of all classes or stock, then the term may not exceed five years and the exercise price must be equal to at least 110 % of the fair market value of the common stock on the grant date. Options granted generally vest over four years . 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. Shares Subject to Repurchase The Company has a right of repurchase with respect to unvested shares issued upon early exercise of options at an amount equal to the lower of (1) the exercise price of each restricted share being repurchased and (2) the fair market value of such restricted share at the time the Company’s right of repurchase is exercised. The Company’s right to repurchase these shares lapses as those shares vest over the requisite service period. Shares purchased by employees pursuant to the early exercise of stock options are not deemed, for accounting purposes, to be issued until those shares vest according to their respective vesting schedules. Cash received for early exercised stock options is recorded as accrued liabilities and other current liabilities on the consolidated balance sheet and is reclassified to common stock and additional paid-in capital as such shares vest. At December 31, 2020 and 2019, there are no early exercised stock options that remained subject to the Company’s right of repurchase. 139 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: Number of Options Weighted Average Exercise Price Weighted Average Remaining Contractual Term (in years) Aggregate Intrinsic Value (in thousands) Outstanding at December 31, 2019 6,671,542 $ 17.90 8.73 $ 362,081 Granted 1,068,335 $ 55.27 Exercised ( 704,675 ) $ 8.89 Forfeited or canceled ( 137,926 ) $ 25.07 Outstanding at December 31, 2020 6,897,276 $ 24.52 8.07 $ 841,704 Shares exercisable December 31, 2020 3,769,990 Vested and expected to vest December 31, 2020 6,897,276 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 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. The Company estimated the fair value of employee stock options using the Black-Scholes valuation model. The fair value of employee stock options was estimated using the following weighted-average assumptions: Year Ended December 31, 2020 Year Ended December 31, 2019 Year Ended December 31, 2018 Expected volatility 66 % 68 % 59 % Risk-free interest rate 0.39 % 1.65 % 2.82 % Dividend yield 0 % 0 % 0 % Expected term 6.00 5.78 6.06 Expected Term . The expected term is calculated using the simplified method, which is available where there is insufficient historical data about exercise patterns and post-vesting employment termination behavior. The simplified method is based on the vesting period and the contractual term for each grant, or for each vesting-tranche for awards with graded vesting. The mid-point between the vesting date and the maximum contractual expiration date is used as the expected term under this method. For awards with multiple vesting-tranches, the times from grant until the mid-points for each of the tranches may be averaged to provide an overall expected term. Expected Volatility . 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. For each grant, the Company measured historical volatility over a period equivalent to the expected term. The Company will continue to apply this process until a sufficient amount of historical information regarding the volatility of its own stock price becomes available. Risk-Free Interest Rate . The risk-free interest rate is based on the implied yield currently available on U.S. Treasury zero-coupon issues with a remaining term equivalent to the expected term of a stock award. 140 Kodiak Sciences Inc. Notes to Consolidated Financial Statements (in thousands, except share and per share data) Expected Dividend Rate . 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 . The total fair value of employee options vested during the years ended December 31, 2020, 2019 and 2018 was $ 19.7 million, $ 4.6 million and $ 1.2 million, respectively. Stock-based compensation expense recognized during the years ended December 31, 2020, 2019 and 2018 for options granted to employees was $ 20.8 million, $ 5.7 million and $ 2.0 million, respectively. Non-Employee Stock Options The Company granted 41,500 , 15,000 and 215,000 stock options to non-employees during the years ended December 31, 2020, 2019 and 2018, respectively. Subsequent to the adoption of ASU 2018-07 effective January 1, 2019, existing stock options granted to non-employees will no longer be revalued, and the estimated fair value of new stock options granted to non-employees will be calculated on the date of grant and not remeasured, similar to stock options granted to employees. The fair value of non-employee stock options was estimated using the following weighted-average assumptions: Year Ended December 31, 2020 Year Ended December 31, 2019 Year Ended December 31, 2018 Expected volatility 67 % 73 % 68 % Risk-free interest rate 0.36 % 1.61 % 2.71 % Dividend yield 0 % 0 % 0 % Expected term 5.56 6.08 9.30 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: Number of Restricted Shares Weighted Average Grant Date Fair Value Unvested at December 31, 2019 160,747 $ 60.81 Granted 236,045 $ 52.18 Vested ( 23,848 ) $ 9.21 Shares withheld related to net share settlement of RSUs ( 7,999 ) $ 9.90 Canceled ( 5,000 ) $ 72.46 Unvested at December 31, 2020 359,945 $ 59.54 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. 141 Kodiak Sciences Inc. Notes to Consolidated Financial Statements (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 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 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: Year Ended December 31, 2019 Expected volatility 72 % Risk-free interest rate 1.67 % Dividend yield 0 % Expected term 6.31 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. 2018 Employee Share Purchase Plan In August 2018, the Company adopted the 2018 Employee Share Purchase Plan (“ESPP”), which became effective on the business day prior to the effectiveness of the registration statement relating to the IPO. A total of 460,000 shares of common stock were initially reserved for issuance under the ESPP. 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 Stock-based compensation is classified in the consolidated statements of operations and comprehensive loss as follows (in thousands): Year Ended December 31, 2020 Year Ended December 31, 2019 Year Ended December 31, 2018 Research and development $ 16,957 $ 3,496 $ 1,535 General and administrative 13,711 2,614 1,073 Total stock-based compensation $ 30,668 $ 6,110 $ 2,608 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 . 142 Kodiak Sciences Inc. Notes to Consolidated Financial Statements (in thousands, except share and per share data) 12. Net Loss per Share Attributable to Common Stockholders The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders which excludes shares which are legally outstanding, but subject to repurchase by the Company (in thousands, except share and per share data): Year Ended December 31, 2020 Year Ended December 31, 2019 Year Ended December 31, 2018 Numerator: Net loss attributable to common stockholders $ ( 133,096 ) $ ( 47,365 ) $ ( 41,443 ) Denominator: Weighted-average shares outstanding 45,741,845 37,869,291 15,136,197 Less: weighted-average unvested restricted shares and shares subject to repurchase — ( 15,675 ) ( 159,682 ) Weighted-average shares outstanding used in computing net loss per share attributable to common stockholders, basic and diluted 45,741,845 37,853,616 14,976,515 Net loss per share attributable to common stockholders, basic and diluted $ ( 2.91 ) $ ( 1.25 ) $ ( 2.77 ) The following potentially dilutive securities, presented on an as-converted to common stock basis, were excluded from the computation of diluted net loss per share attributable to common stockholders for the period presented because including them would have been antidilutive: Year Ended December 31, 2020 Year Ended December 31, 2019 Year Ended December 31, 2018 Exercise of options outstanding 6,897,276 6,671,542 5,135,267 Unvested restricted shares 359,945 160,747 50,450 Total 7,257,221 6,832,289 5,185,717 13. 401(k) Plan In 2011, the Company adopted a 401(k) retirement and savings plan covering all employees. The 401(k) plan allows employees to make pre- and post-tax contributions up to the maximum allowable amount set by the Internal Revenue Service. The 401(k) plan was amended to include an employer matching provision in 2019. 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, 2020 and 2019, the expense related to the matching contributions was $ 0.6 million and $ 0.3 million, respectively. 14. 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. 143 Kodiak Sciences Inc. Notes to Consolidated Financial Statements (in thousands, except share and per share data) The Company recorded the initial $ 100.0 million payment as a liability on the consolidated balance sheet net of issuance costs. 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. 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. 15. Selected Quarterly Financial Data (unaudited) The following table provides the selected quarterly financial information for the years , 2020 and 2019 (in thousands, except per share data): Three Months Ended March 31, 2020 June 30, 2020 September 30, 2020 December 31, 2020 Loss from operations $ ( 25,723 ) $ ( 26,779 ) $ ( 36,663 ) $ ( 46,842 ) Net loss $ ( 24,392 ) $ ( 25,999 ) $ ( 36,122 ) $ ( 46,583 ) Net loss per share attributable to common stockholders, basic and diluted $ ( 0.54 ) $ ( 0.58 ) $ ( 0.80 ) $ ( 0.97 ) Three Months Ended March 31, 2019 June 30, 2019 September 30, 2019 December 31, 2019 Loss from operations $ ( 8,460 ) $ ( 11,814 ) $ ( 12,732 ) $ ( 16,184 ) Net loss $ ( 7,984 ) $ ( 11,385 ) $ ( 12,380 ) $ ( 15,616 ) Net loss per share attributable to common stockholders, basic and diluted $ ( 0.21 ) $ ( 0.31 ) $ ( 0.33 ) $ ( 0.40 ) 144 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None.