Executive Summary / Key Takeaways

• KALA BIO has strategically pivoted from a commercial-stage company focused on broad ocular markets to a clinical-stage R&D organization centered on its mesenchymal stem cell secretome (MSC-S) platform for rare and severe eye diseases.
• The core investment thesis hinges on the potential of the lead asset, KPI-12.00, a novel MSC-S therapy, to address the significant unmet need in Persistent Corneal Epithelial Defects (PCED) and potentially other ocular surface and retinal conditions.
• A critical near-term catalyst is the anticipated topline safety and efficacy data from the Phase 2b CHASE trial of KPI-12.00 in PCED, expected in the third quarter of 2025. Positive results could pave the way for pivotal development.
• Financially, KALA faces significant challenges, including historical losses, negative operating cash flow, and substantial doubt about its ability to continue as a going concern, with current cash projected to fund operations only into Q1 2026, necessitating further capital raises.
• The company operates in a highly competitive ophthalmology market dominated by larger players, relying on the potential technological differentiation of its MSC-S platform to carve out a niche in underserved rare disease indications.

The Strategic Pivot: From Commercial Ambition to R&D Focus

KALA BIO, Inc. has undergone a significant transformation, shifting its identity from a company with marketed products to a focused clinical-stage biotechnology firm. Founded in 2009, KALA initially built its foundation on the proprietary AMPPLIFY Drug Delivery Technology, which led to the development and commercialization of EYSUVIS for dry eye disease and INVELTYS for post-operative inflammation. While these products represented KALA's foray into the commercial market, the launch of EYSUVIS faced headwinds, including challenges in securing timely and broad payer coverage, which impacted net revenue despite prescription growth.

This commercial chapter concluded in July 2022 with the strategic sale of the Commercial Business, including the rights to EYSUVIS, INVELTYS, and the AMPPLIFY technology, to Alcon (ALC). This divestiture, which provided an upfront cash infusion and potential future commercial milestones, marked a deliberate pivot back to KALA's R&D roots. The company's strategic focus is now squarely on advancing its pipeline of novel therapies for rare and severe diseases of the front and back of the eye, primarily through the mesenchymal stem cell secretome (MSC-S) platform acquired via the Combangio acquisition in late 2021. This pivot is central to the current investment narrative, positioning KALA as a high-risk, high-reward play dependent on pipeline execution.

Unlocking Ocular Repair: The MSC-S Platform Technology

At the heart of KALA's current strategy is the MSC-S platform. This technology utilizes secretomes harvested from human bone marrow-derived mesenchymal stem cells to produce a cell-free therapy. Unlike traditional cell therapies, the MSC-S approach delivers a complex mixture of essential biomolecules secreted by the stem cells, including growth factors, protease inhibitors, matrix proteins, and neurotrophic factors. This multifactorial composition is designed to address the complex biological imbalances that underlie impaired healing in various ocular diseases.

The company believes this approach offers several potential advantages over single-molecule therapies or traditional cell-based treatments. The diverse array of bioactive molecules in the secretome is intended to promote wound healing, reduce inflammation, and protect tissue through multiple pathways simultaneously. Despite lacking proprietary, quantifiable technology differentiators, the strategic intent is clear: to provide a more comprehensive and potentially more effective treatment for diseases characterized by impaired tissue repair compared to existing, often suboptimal, therapies. KALA is actively exploring the potential of this platform beyond its lead program, including preclinical studies under the KPI-14.00 program targeting inherited retinal degenerative diseases like Retinitis Pigmentosa and Stargardt Disease. These initiatives aim to leverage the platform's regenerative potential for indications with significant unmet needs, representing the long-term vision for the technology.

KPI-12.00: Awaiting the Verdict in PCED

KALA's lead product candidate, KPI-12.00, is the most immediate focus of the company's R&D efforts and the primary driver of its near-term valuation potential. KPI-12.00 is currently in clinical development for the treatment of Persistent Corneal Epithelial Defects (PCED), a rare disease characterized by non-healing corneal wounds that can lead to severe vision loss. PCED affects an estimated 100,000 patients annually in the United States, representing a significant market opportunity with limited approved treatment options.

The clinical development of KPI-12.00 is highlighted by the ongoing Phase 2b CHASE trial. This multicenter, randomized, double-masked, vehicle-controlled trial is evaluating two doses of KPI-12.00 ophthalmic solution in approximately 90 adult patients with PCED across various etiologies in the United States and Latin America. The primary endpoint is the complete healing of the PCED as measured by corneal fluorescein staining. KALA is targeting the reporting of topline safety and efficacy data from the CHASE trial in the third quarter of 2025. The outcome of this trial is a critical catalyst. Positive results, subject to discussions with regulatory authorities, could position the CHASE trial as the first of two pivotal trials required to support a Biologics License Application (BLA) submission to the FDA. KPI-12.00 has already received Orphan Drug and Fast Track designations from the FDA for PCED, potentially facilitating a more expedited review pathway if clinical data are supportive.

Navigating a Competitive Arena

The ophthalmology market is characterized by intense competition, with established players holding significant market share and resources. KALA competes directly and indirectly with major pharmaceutical and biotechnology companies such as Alcon, Bausch + Lomb (BLCO), AbbVie (ABBV), and Novartis (NVS), as well as smaller specialty firms and academic institutions.

In the PCED space, the primary approved competitor is Oxervate (Dompe), indicated specifically for neurotrophic keratitis, which accounts for only about one-third of PCED cases. Oxervate is also described as having a burdensome administration protocol. KALA's KPI-12.00, with its multifactorial mechanism, aims to address a broader PCED population across various etiologies, potentially offering a differentiated profile if clinical data are positive. Other companies are developing treatments for NK and PCED, including Nexagon (Amber Ophthalmics) for broad PCED and various stem cell-based approaches for Limbal Stem Cell Deficiency, an indication KALA is also exploring for KPI-12.00.

Compared to larger competitors like Alcon, Bausch + Lomb, AbbVie, and Novartis, KALA operates at a vastly different scale. These larger companies boast significantly higher revenues (e.g., ALC with revenue growth of 7-9% in 2023, ABBV with 10-12%), robust profitability (e.g., ABBV with net margins of 25-30%), and strong cash flow generation (e.g., ABBV with $15 billion in free cash flow in 2023). In contrast, KALA reported no product revenue in recent periods following the Alcon sale and operates with significant net losses ($-8.9 million in Q1 2025) and negative operating cash flow ($-8.8 million in Q1 2025). KALA's competitive positioning relies on the potential of its differentiated MSC-S technology to address specific, underserved rare disease niches where the scale and broad portfolios of larger competitors may be less directly applicable. However, KALA's smaller scale and limited financial resources make it vulnerable to the pricing power, extensive distribution networks, and larger R&D budgets of its larger rivals, which could impact KALA's ability to gain market share and achieve profitability even if its product candidates are successful.

Financial Health and the Road Ahead

KALA's financial position reflects its transition back to an R&D-focused entity and the significant costs associated with clinical development. As of March 31, 2025, the company held $42.2 million in cash and cash equivalents. This follows a net loss of $8.9 million and cash used in operating activities of $8.8 million for the three months ended March 31, 2025. The accumulated deficit stood at $676.9 million as of the same date, underscoring the historical losses incurred.

General and administrative expenses saw a decrease in Q1 2025 compared to Q1 2024, primarily driven by lower employee-related and stock-based compensation costs. Research and development expenses also slightly decreased, reflecting fluctuations in medical affairs and other costs related to the KPI-12.00 program. Grant income from the CIRM award provided a partial offset to operating expenses, with $2.4 million recognized in Q1 2025, up from $1.1 million in Q1 2024, tied to milestone achievements and trial costs.

Despite expense management efforts and grant funding, KALA's cash burn remains significant. The company projects its current cash resources will be sufficient to fund operations only into the first quarter of 2026. This projection, coupled with the expectation of continued negative operating cash flows and the substantial accumulated deficit, has led KALA to conclude that there is substantial doubt about its ability to continue as a going concern within the next twelve months.

Funding its future operations and completing the clinical development of KPI-12.00 will require substantial additional capital. Management's plans include pursuing further equity or debt financings, collaborations, partnerships, or licensing transactions. However, the ability to secure such funding on acceptable terms, or at all, is uncertain and poses a significant risk. The company also has outstanding debt under a loan agreement with Oxford Finance, totaling $29.3 million in principal as of March 31, 2025. Amortization payments are set to begin in July 2025, with maturity in November 2026, adding further pressure on liquidity. While the company is eligible for potential commercial milestones from Alcon and remaining CIRM grant funds, these are contingent and their timing and amount are not assured.

Outlook and Critical Milestones

The immediate outlook for KALA is dominated by the upcoming data readout from the CHASE trial in Q3 2025. This milestone is paramount, as positive results are necessary to support further pivotal development and a potential BLA submission for KPI-12.00 in PCED. The company believes positive data could serve as the first of two required pivotal trials, outlining a potential path to market.

Beyond the CHASE trial, KALA's future hinges on its ability to successfully raise additional capital to fund subsequent clinical trials, regulatory activities, and potential commercialization efforts for KPI-12.00 and to advance its earlier-stage pipeline programs like KPI-14.00. The company's ability to achieve its strategic objectives, including expanding the MSC-S platform into additional indications and potentially bringing a product to market, is directly tied to its success in securing necessary funding.

Risks to the Thesis

Investing in KALA at this stage involves significant risks. The most prominent include the substantial doubt about the company's ability to continue as a going concern and the critical need for additional funding. Failure to raise sufficient capital would severely impact or halt development programs. Clinical trial risk is also high; the CHASE trial may not yield positive results, or regulatory authorities may not agree that the data support a BLA submission or serve as a pivotal trial. Even if approved, KPI-12.00 faces market acceptance challenges, competition from existing therapies (including off-label use), and hurdles in securing adequate pricing and reimbursement. Reliance on third parties for clinical trials and manufacturing introduces execution risks. Furthermore, the value of the MSC-S platform and licensed intellectual property is contingent on successful development and commercialization, which is uncertain. The company's debt obligations and compliance with covenants, such as maintaining its Nasdaq listing, also present financial risks.

Conclusion

KALA BIO is at a pivotal juncture, having shed its commercial assets to focus entirely on the potential of its MSC-S platform to address rare and severe ocular diseases. The investment thesis is concentrated on the successful clinical development and potential commercialization of KPI-12.00 for PCED, with the topline data from the CHASE trial in Q3 2025 representing a critical near-term value inflection point. While the MSC-S technology offers a potentially differentiated approach in areas of high unmet need, the company faces significant financial headwinds, including substantial doubt about its ability to continue as a going concern and a pressing need for further capital. KALA operates in a competitive landscape dominated by well-resourced players, requiring its technology and clinical execution to be truly disruptive to carve out a sustainable market position. For investors, KALA represents a high-stakes opportunity tied directly to the outcome of its lead clinical program and its ability to secure the funding necessary to translate scientific potential into commercial reality.