Kala Pharmaceuticals (KALA) Acquires Combangio

Kala Pharmaceuticals, Inc. (NASDAQ: KALA), a commercial-stage biopharmaceutical company focused on the discovery, development and commercialization of innovative therapies for diseases of the eye, today announced that it has acquired Combangio, Inc., a private, clinical-stage company developing regenerative biotherapies for severe ocular surface diseases. Combangio is developing CMB-012, a novel investigational secretome therapy, now known as KPI-012, to address the complex wound healing process in persistent corneal epithelial defect (PCED) and other severe ocular diseases driven by impaired corneal healing.

“Today’s acquisition marks a pivotal moment for Kala and a meaningful acceleration toward our goal of strengthening Kala’s pipeline for the treatment of front and back of the eye diseases,” said Mark Iwicki, Chief Executive Officer of Kala. “KPI-012 is a highly innovative product, which leverages a multifactorial mechanism of action to address the complex process of healing severe corneal defects. KPI-012 is currently in development for PCED, with potential application across a wide range of orphan diseases of the eye. This product candidate is a natural fit with our R&D and commercial expertise, and along with our internal pipeline provides an additional opportunity to leverage our deep ophthalmic expertise to address substantial, underserved markets. We are excited to have completed the acquisition of Combangio and look forward to working alongside their talented team to integrate KPI-012 into our portfolio and ultimately deliver this therapy to transform the treatment of rare ocular surface diseases.”

KPI-012 is a novel bone marrow-derived mesenchymal stem cell (MSC) secretome comprised of biomolecules secreted by MSCs, including protease inhibitors, growth factors and neurotrophic factors, processed into a topical ocular solution. KPI-012 is currently in clinical development for the treatment of PCED, which is defined as a persistent non-healing corneal defect or wound that is refractory to conventional treatments. It is a rare disease with an estimated incidence in the U.S. of 100,000 cases and 238,000 cases in the U.S., E.U. and Japan combined and KPI-012 has received Orphan Designation for the treatment of PCED by the U.S. Food and Drug Administration (FDA). PCED can have various etiologies including neurotrophic keratitis, epithelial debridement, microbial/viral keratitis, corneal transplant, limbal stem cell deficiency and trauma, and can lead to corneal ulceration, perforation, scarring, infection and significant vision loss.

In a Phase 1b clinical trial, seven of eight PCED patients treated with KPI-012 twice-daily showed improvement in their PCED, with six of the eight achieving complete healing during the treatment period, which ranged from one to eight weeks. Four of eight patients had complete healing within one week of treatment with the other two that achieved complete healing doing so within two to four weeks of initiation of treatment with KPI-012. All six of the healed patients remained healed through the end of follow-up, which ranged between eight and 19 weeks. There was also significant pain relief in the six patients who reported pain at baseline, with all six achieving a zero-pain score within three weeks of initiation of dosing with KPI-012. KPI-012 was well-tolerated in the trial with no treatment-related safety issues observed.

“KPI-012 is an exciting addition to the Kala pipeline and is an important component of our strategy to develop novel therapies for significant unmet needs in ophthalmic diseases. People living with severe ocular surface diseases are in desperate need of new and better therapeutic options to not only provide symptomatic relief but to avoid the potential vision-threatening consequences of these diseases,” said Kim Brazzell, Ph.D., Chief Medical Officer of Kala. “The Phase 1b clinical data are very encouraging for PCED as well as for other rare ocular diseases that involve impaired corneal wound healing. We look forward to working together with our extensive network of corneal specialists to advance this program through clinical development and regulatory approval.”

Clinical Development Plan for KPI-012 in PCED

Kala plans to submit an investigational new drug (IND) application to the FDA and, subject to regulatory clearance, initiate a Phase 2/3 trial of KPI-012 in the third quarter of 2022. Kala believes this trial could serve as the first of two required pivotal trials. The FDA has granted KPI-012 orphan drug designation for the treatment of PCED and the Company believes KPI-012 should meet the criteria for fast-track and breakthrough designations.

In addition to PCED, Kala is evaluating other orphan diseases driven by impaired corneal wound healing, such as thermal/chemical injury, corneal ulcers, ocular graft vs host disease, Stevens-Johnson syndrome and limbal cell deficiency, and is looking to initiate clinical evaluation for an additional indication after the IND submission and initiation of the PCED trial.

Board and Management Appointments

In conjunction with the acquisition, Mark S. Blumenkranz, M.D., Chairman of Combangio, has been appointed to the Kala Board of Directors, and Darius Kharabi, President and Chief Executive Officer of Combangio, has been appointed as Chief Business Officer of Kala, both effective November 15, 2021.

Mark S. Blumenkranz, M.D.

“I am delighted to join the Kala Board of Directors and look forward to working with the team in its ongoing efforts to advance Kala’s pipeline of innovative therapies for ocular diseases,” said Dr. Blumenkranz. “As an ophthalmologist, I am acutely aware of the unmet needs that continue to exist in the treatment of eye diseases and committed to supporting the development of innovative new medicines that can deliver better outcomes to patients. I have been excited about the potential of KPI-012 for many years and I am eager to partner with the Kala team, both to continue advancing this asset, and to support the development of Kala’s broader pipeline of programs for the front and back of the eye diseases.”

Dr. Blumenkranz is an ophthalmologist and vitreoretinal surgeon who is Chairman and CEO of Kedalion Therapeutics. He is also H.J. Smead Professor Emeritus in the Department of Ophthalmology at Stanford University where he served as Chairman from 1997 to 2015. He is an internationally known vitreo-retinal specialist, with notable contributions in the area of new laser systems, novel pharmaceuticals for macular diseases, ocular gene therapy and ophthalmic tele-health and technology development. Over the course of his career, Dr. Blumenkranz held leadership roles at Oculex Pharmaceuticals (acquired by Allergan), Macusight (acquired by Santen), Peak Surgical (acquired by Medtronics), Optimedica (acquired by AMO), and Oculeve (acquired by Allergan), as well as Adverum, where he served as both co-founder and Chairman of the Board. He is also co-founder and served as a director of Verana Health for ten years, and currently serves as Managing Director of Lagunita Biosciences, a biotechnology and medical investment company and incubator in Menlo Park California.. Dr. Blumenkranz received his Undergraduate, Master’s in Biochemical Pharmacology, and M.D. at Brown University, completed his Ophthalmic residency training at Stanford University, and his Fellowship in vitreo-retinal diseases at the Bascom Palmer Eye Institute.

Darius Kharabi, J.D., M.B.A

“On behalf of my colleagues at Combangio, we are extremely excited to join forces with Kala to accelerate the development of KPI-012 and deliver this novel therapy to people living with severe ocular surface diseases, beginning with PCED. Kala has the R&D and commercial expertise, as well as the established relationships with eye care professionals, to advance this program successfully through development and to market,” said Darius Kharabi, President and Chief Executive Officer of Combangio. “I look forward to working with the Kala leadership team in my new role as Chief Business Officer to help improve outcomes and quality of life for people suffering from debilitating ocular diseases.”

Mr. Kharabi is the President and Chief Executive Officer of Combangio, as well as the co-founder of Lagunita Biosciences LLC, a biotechnology and medical investment company and incubator. He previously served in executive management for xCella and Kedalion, two Lagunita portfolio companies, helping to build early value, raise financing and recruit full-time leadership teams. Prior to Lagunita, he served as Vice President, Corporate Development and International Sales at OrthAlign Inc., a commercial stage orthopedic surgery navigation company, where his responsibilities included the launch of the KneeAlign® total knee arthroplasty navigation product line in North America, Europe, Asia and Australia. Mr. Kharabi started his career as a biotechnology licensing attorney at Wilson, Sonsini Goodrich & Rosati PC. He received his B.S. in Biochemistry from Georgetown University and his J.D. and M.B.A. degrees from Stanford University.

Transaction Terms

Under the terms of the agreement, Kala acquired all of the outstanding equity of Combangio, and the former Combangio equityholders are entitled to receive an upfront payment of an aggregate of $5.0 million in cash, subject to customary adjustments, and an aggregate of 7,788,667 shares of Kala common stock with an aggregate value of approximately $16,122,541, consisting of (i) an aggregate of 6,815,129 shares of common stock to be issued on January 3, 2022 and (ii) an aggregate of 973,538 shares of common stock that will be held back by Kala and will be issuable fifteen months after the closing of the transaction and will serve as partial security for the satisfaction of indemnification obligations and other payment obligations of the former Combangio equityholders. The aggregate value of the post-closing stock consideration was calculated using the closing price of Kala’s common stock on the Nasdaq Global Select Market on November 12, 2021, the last trading day prior to the closing. The former Combangio equityholders are also entitled to receive up to an aggregate of $105 million in cash and Kala stock upon the achievement by KPI-012 of specified development, regulatory and sales milestones and tiered royalties on worldwide net sales of KPI-012, if any, at a rate in the mid to high single digits. In addition, the former Combangio equityholders are entitled to receive a percentage rate in the high single digits of any income received by Kala from a commercial out-license of KPI-012.

The Board of both companies have approved the transaction and the transaction closed simultaneously with execution of definitive agreements on November 15, 2021.

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