Kezar Life Sciences Inc.

05/11/2026 | Press release | Distributed by Public on 05/11/2026 04:06

Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following management's discussion and analysis of our financial condition and results of operations in conjunction with our unaudited condensed consolidated financial statements and related notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q, and with our audited consolidated financial statements and related notes thereto for the year ended December 31, 2025 included in our Annual Report on Form 10-K, as filed with the U.S. Securities and Exchange Commission, or the SEC, on March 27, 2026, or the Annual Report.
Overview
We are a clinical-stage biotechnology company developing novel small molecule therapeutics to treat unmet needs in immune-mediated diseases. We believe therapies that inhibit multiple drivers of disease by targeting fundamental upstream control processes within the cell have the potential for profound therapeutic benefit in a number of difficult-to-treat diseases.
Our product candidate, zetomipzomib, is a first-in-class selective immunoproteasome inhibitor that we have been evaluating for the treatment of severe autoimmune diseases of high unmet medical need. We believe that the immunoproteasome is a validated target for the treatment of a wide variety of immune-mediated diseases given its ability to regulate multiple drivers of the inflammatory disease process. Many inflammatory disorders are currently treated one cytokine or cell type at a time, but the immunoproteasome affects a broad spectrum of immune regulators. Based on clinical data generated to date, we believe that zetomipzomib has the potential to address multiple chronic immune-mediated diseases.
In October 2025, we announced plans to explore strategic alternatives focused on maximizing stockholder value after being unable to align with the U.S. Food and Drug Administration, or FDA, on a potential registrational clinical trial of zetomipzomib in patients with relapsed and refractory autoimmune hepatitis, or AIH.
On March 30, 2026, we entered into an Agreement and Plan of Merger, or the Merger Agreement, with Aurinia Pharma U.S., Inc., Aurinia Merger Sub, Inc., a wholly owned subsidiary of Aurinia Pharma U.S., and, solely for purposes of Section 10.13 of the Merger Agreement, Aurinia Pharmaceuticals Inc., the parent entity of Aurinia Pharma U.S. Pursuant to the Merger Agreement, Aurinia Pharma U.S. has made an offer, or the Offer, to purchase all of the outstanding shares of common stock of the company for (i) $6.955 per share, plus (ii) one contingent value right, or CVR, per share, which represents the right to receive certain payments in cash in accordance with the terms of a contingent value rights agreement, or CVR Agreement. On completion of the Offer, subject to the satisfaction or waiver of certain conditions set forth in the Merger Agreement and in accordance with the Delaware General Corporation Law, Aurinia Merger Sub will merge with and into our company, the Merger, with Kezar surviving the Merger, and without a meeting or vote of our stockholders.
There can be no assurance that the Merger will be completed, as the closing of the Offer is subject to certain conditions, including the tender of our common stock representing at least a majority of the total number of outstanding shares. The Merger Agreement contains customary termination rights for Aurinia Pharma U.S. and Aurinia Merger Sub, on the one hand, and us, on the other hand, including, among others, for failure to consummate the offer on or before June 28, 2026. If the Merger Agreement is terminated under certain circumstances specified in the Merger Agreement, including in connection with our entry into an agreement with respect to a superior company proposal (as defined in the Merger Agreement), we will be required to pay Aurinia Pharma U.S. a termination fee of $1.2 million.
Since our inception, we have incurred significant operating losses, and we expect to continue to incur significant expenses and increasing operating losses for at least the next several years. Our net losses may fluctuate significantly from period to period, depending on the timing of our clinical trials and expenditures on other research and development activities. Our net losses were $5.8 million and $16.6 million for the three months ended March 31, 2026 and 2025, respectively, and we expect to continue to incur significant losses for the foreseeable future. As of March 31, 2026, we had an accumulated deficit of $496.3 million.
In addition to general operating expenses and the costs associated with operating as a public company, we are incurring costs and expenditures related to the Merger. While we have entered into the Merger Agreement, there can be no assurance that the Merger will be completed within the expected timeframe or at all, as completion is subject to various closing conditions, including the minimum tender condition and other requirements set forth in the Merger Agreement. There can be no assurance that we will be able to successfully consummate the Merger, or any other favorable transaction. Our general operations and efforts regarding the consummation of the Merger may be costly, time-consuming and complex, and we are incurring significant costs, such as legal, accounting and advisory fees and expenses and other related charges. A considerable portion of these costs will be incurred regardless of whether any merger is completed. Any such expenses will decrease the remaining cash available to us for use in our business or that could be used in future distributions to our
stockholders in the event the Merger is not completed and we pursue liquidation or dissolution. If the Merger is not completed, we may pursue alternative strategic transactions or liquidation or dissolution, which could have a variety of negative consequences. We may also implement a course of action or consummate a transaction that yields unexpected results that adversely affect our business and decreases the remaining cash available for use in our business or the execution of our strategic plan. While we have entered into the Merger Agreement, there can be no assurances that the Merger will be completed, and if not completed, that any alternative transaction will be pursued, successfully consummated, lead to increased stockholder value or achieve the anticipated results.
Recent Developments
Executive Separation Agreements
On April 1, 2026, the Company entered into Separation Agreements with each of Christopher Kirk, Ph.D., the Company's Chief Executive Officer, Marc Belsky, the Company's Chief Financial Officer, and Mark Schiller, the Company's Chief Operating Officer, or collectively, the Separation Agreements. Pursuant to the Separation Agreements, each executive's employment will be terminated on the closing date of the Merger, or such earlier date as determined by the applicable executive and the Company's board of directors. Each Separation Agreement provides for severance benefits and acceleration of outstanding stock options, contingent upon a general release of claims. See Note 13 to our condensed consolidated financial statements for additional information.
Tender and Support Agreement
In connection with the execution of the Merger Agreement, Tang Capital Partners, LP, or the Supporting Stockholder, solely in its capacity as a holder of Shares, entered into a Tender and Support Agreement with Parent, Merger Sub and the Company, pursuant to which the Supporting Stockholder agreed, among other things, to tender all of the Shares held by the Supporting Stockholder in the Offer. The Supporting Stockholder held an aggregate of approximately 9.0% of the outstanding Shares as of March 30, 2026. See Note 13 to our condensed consolidated financial statements for additional information.
Lease termination
On April 1, 2026, the Company entered into an agreement with the landlord to terminate the operating lease of its corporate headquarters in exchange for a one-time payment of $2.0 million in fulfillment of its remaining obligations under the lease. See Note 5 to our condensed consolidated financial statements for additional information.
Commencement of the Offer
On April 13, 2026, pursuant to the Merger Agreement, Parent caused Merger Sub to commence the Offer to purchase all of the outstanding Shares at the Offer Price, consisting of (i) $6.955 per Share in cash, without interest, plus (ii) one CVR per Share. The Merger Agreement may be terminated by either the Company or Parent if the Offer has not been consummated on or before June 28, 2026, or the Outside Date, subject to certain conditions set forth in the Merger Agreement. See Note 13 to our condensed consolidated financial statements for additional information.
Financial Operations Overview
Collaboration Revenue
We have no products approved for commercial sale and, to date, have not generated any revenue from the sale of products, and we do not expect to generate any revenue from the sale of products in the near future.
Our revenue to date has been generated from the upfront payment pursuant to our collaboration with Everest Medicines II (HK) Limited, or Everest, under our license agreement with them, or the Everest License Agreement. Collaboration revenue consists of revenue received from upfront, milestone and contingent payments received from the strategic partner. We recognize collaboration revenue when the performance obligation is satisfied. In addition to receiving an upfront payment, we may also be entitled to milestones and other contingent payments upon achieving predefined objectives. If a milestone is considered probable of being reached, and if it is probable that a significant revenue reversal would not occur, the associated milestone amount would also be included in the transaction price.
We expect that any collaboration revenue we generate from the Everest License Agreement, and from any future collaboration partners, will fluctuate as a result of the timing and amount of upfront, milestones and other collaboration agreement payments and other factors.
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for the development of our product candidates, which include:
•employee-related expenses, which include salaries, benefits and stock-based compensation;
•fees paid to consultants for services directly related to our product development and regulatory effort;
•expenses incurred under agreements with third-party contract organizations, investigative clinical trial sites and consultants that conduct research and development activities on our behalf;
•costs associated with preclinical studies and clinical trials;
•costs associated with technology and intellectual property licenses;
•the costs related to production of clinical supplies; and
•facilities and other allocated expenses, which include expenses for rent and facility-related costs and supplies.
We expense all research and development costs in the periods in which they are incurred. Costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors, collaborators and third-party service providers.
In October 2025, we initiated a process to explore a full range of strategic alternatives focused on maximizing stockholder value. Due to the suspension of various development efforts related to our programs and the recent reduction in our workforce, we expect our research and development expenses to remain flat or decrease for the remainder of 2026.
General and Administrative Expenses
Our general and administrative expenses consist primarily of personnel costs, allocated facilities costs and expenses for outside professional services, including legal, human resources, information technology and audit services. Personnel costs consist of salaries, benefits and stock-based compensation. As a result of the ongoing strategic review and workforce reduction, we expect that our general and administrative expenses will remain flat or decrease for the remainder of 2026, and will include costs associated with operating as a public company, including expenses related to legal, audit, accounting, regulatory and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance costs, investor and public relations costs, and other administrative and professional services.
Restructuring and Impairment Charges
In October 2025, we announced the initiation of a process to explore a full range of strategic alternatives focused on maximizing stockholder value. In connection with the evaluation of strategic alternatives, we are in the process of implementing a restructuring plan including workforce reduction and other cost-containment and cash conservation measures, pursuant to which we reduced our workforce by approximately 70%.
We recognize an impairment loss when the total estimated future cash flows expected to result from the use of the asset and its eventual disposition are less than the carrying amount. See Note 11 to our condensed financial statements for additional information on the restructuring and impairment charges.
Interest Income
Our interest income consists of interest income earned on our cash, cash equivalents and marketable securities.
Gain on Sale of Nonfinancial Asset
Our gain on sale of nonfinancial asset was related to the upfront payments received under the Asset Purchase Agreement with Enodia.
Interest Expense
Our interest expense was related to our debt facility. A portion of the interest expense was non-cash expense relating to the accretion of the final payment fees and amortization of debt discount and debt issuance costs associated with our loan agreement, or the Loan Agreement, that we entered into in November 2021 with Oxford Finance, LLC, or Oxford Finance. On October 20, 2025, we made a repayment of $6.3 million in full satisfaction of the aggregate outstanding amount,
including accrued interest and final payment fee as of such date, under the Loan Agreement. Upon making the repayment, the Loan Agreement was terminated in accordance with its terms and all liens and security interests granted thereunder to secure the obligations were released. As a result, we expect the interest expense to decrease for the remaining 2026.
Results of Operations
Comparison of the Three Months Ended March 31, 2026 and 2025
Three Months Ended March 31,
(dollars in millions) 2026 2025 $ Change
Operating expenses:
Research and development $ 1.5 $ 12.2 $ (10.7)
General and administrative 5.2 5.5 (0.3)
Restructuring and impairment charges 0.6 - 0.6
Total operating expenses 7.4 17.7 (10.3)
Loss from operations (7.4) (17.7) 10.3
Interest income 0.6 1.4 (0.8)
Gain on sale of nonfinancial asset 1.0 - 1.0
Interest expense - (0.3) 0.3
Net loss $ (5.8) $ (16.6) $ 10.8
Research and Development Expenses
Research and development expenses decreased by $10.7 million for the three months ended March 31, 2026, compared to the three months ended March 31, 2025. The decline was primarily attributable to a decrease of $4.7 million in clinical expenses, a decrease in $4.1 million in personnel-related expenses, a decrease of $1.2 million in consulting expenses and other outside research and manufacturing expenses, and a decrease of $0.7 million in facility-related expenses. These decreases were primarily resulting from our strategic decision to terminate the PALIZADE trial in October 2024 and the completion of the PORTOLA trial, reduced headcount in our research and development organization following the restructuring activities.
General and Administrative Expenses
General and administrative expenses decreased by $0.3 million for the three months ended March 31, 2026, compared to the three months ended March 31, 2025. The decrease was primarily due to a decrease of $2.0 million in stock-based compensation and personnel-related expenses, offset by $1.5 million increase in legal and professional fees associated with pursuing and evaluating potential strategic alternatives for the Company and a $0.2 million increase in facilities related expenses.
Restructuring and Impairment Charges
Restructuring and impairment charges increased by $0.6 million for the three months ended March 31, 2026, compared to the three months ended March 31, 2025. The increase was primarily related to one-time severance-related costs and loss on fixed asset write-off following a corporate restructuring.
Interest Income
Interest income decreased by $0.8 million for the three months ended March 31, 2026, compared to the three months ended March 31, 2025. The decrease was primarily due to the decrease in the balance of cash equivalents and marketable securities and lower interest rates.
Gain on Sale of Nonfinancial Asset
Gain on sale of nonfinancial asset increased by $1.0 million for the three months ended March 31, 2026, compared to the three months ended March 31, 2025. The increase was related to the upfront payments received under the Asset Purchase Agreement with Enodia.
Interest Expense
Interest expense decreased by $0.3 million for the three months ended March 31, 2026, compared to the three months ended March 31, 2025. The decrease was primarily due to the early payoff of outstanding debt balance in October 2025.
Liquidity and Capital Resources
Overview
As of March 31, 2026, we had $66.2 million in cash and cash equivalents, which consisted of bank deposits and highly liquid U.S. Treasury money market funds.
We have incurred operating losses and experienced negative operating cash flows since our inception and anticipate that we will continue to incur losses for at least the foreseeable future. Our net loss was $5.8 million for the three months ended March 31, 2026, and we had an accumulated deficit of $496.3 million as of March 31, 2026.
We believe that our cash and cash equivalents as of March 31, 2026 will be sufficient to meet our projected operating requirements through at least the next 12 months from the date these financial statements were issued. We expect to incur additional losses in the future to fund our operations as we evaluate strategic alternatives. Failure to manage discretionary spending during this time may adversely impact our ability to achieve our intended business objectives.
Funding Requirements
We believe that our available cash, cash equivalents and short-term investments are sufficient to fund existing and planned cash requirements for the next 12 months. Our primary uses of capital are, and we expect will continue to be, compensation and related expenses, third-party clinical research and development services, clinical costs, legal and other regulatory expenses and general overhead costs. We have based our estimates on assumptions that may prove to be incorrect, and we could use our capital resources sooner than we currently expect.
Our future funding requirements will depend on many factors, including the following:
•the timing of Merger completion and, if the Merger is not completed, the outcome of our evaluation of strategic alternatives;
•realization of the benefits of our headcount reductions; and
•the cost of preparing, filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights.
Further, our operating plan may change, and we will need additional funds to meet operational needs and capital requirements. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated clinical studies.
Our material cash requirements as of March 31, 2026 primarily related to the operating leases for office space. As of March 31, 2026, we have $1.4 million payable within 12 months. On April 1, 2026, we entered into an agreement to terminate the lease in exchange for a one-time payment of $2.0 million in fulfillment of the remaining obligation under the lease. Refer to Note 5 to our condensed consolidated financial statements for additional information.
Our expected material cash requirements do not include any potential contingent payments upon the achievement by us of clinical, regulatory and commercial events, as applicable, or royalty payments that we may be required to make under license agreements we have entered into or may enter into with various entities pursuant to which we have in-licensed certain intellectual property, including our Onyx License Agreement. Under the Onyx License Agreement, we are obligated to pay Onyx milestone payments of up to $167.5 million in the aggregate upon the achievement of certain development, regulatory and sales milestones. We excluded the contingent payments given that the timing and amount (if any) of any such payments cannot be reasonably estimated at this time. We also have no material non-cancellable purchase commitments with service providers, as we have generally contracted on a cancellable, purchase order basis.
We will require additional financing to fund working capital and pay our obligations. We may pursue financing opportunities through a combination of equity offerings, debt financings and additional funding from license and collaboration agreements. Except for any obligations of Everest to reimburse us for research and development expenses or to make milestone or royalty payments under the Everest License Agreement, we have no committed external sources of funding. There can be no assurance that we will be successful in acquiring additional funding at levels sufficient to fund our operations or on terms favorable to us or at all. Funding may not be available to us on acceptable terms, or at all. If we
are unable to obtain adequate financing when needed, we may have to delay, reduce the scope of or suspend one or more of our preclinical studies, clinical trials, research and development programs or commercialization efforts. We may seek to raise any necessary additional capital through a combination of public or private equity offerings, debt financings, collaborations and other licensing arrangements. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.
Cash Flows
The following summarizes our cash flows for the periods indicated:
Three Months Ended March 31,
2026 2025
(dollars in millions) (unaudited)
Net cash used in operating activities $ (7.4) $ (17.2)
Net cash provided by investing activities $ 1.5 $ 13.7
Net cash provided (used in) by financing activities $ 0.3 $ (1.3)
Cash Flows from Operating Activities
During the three months ended March 31, 2026, cash used in operating activities was $7.4 million, which consisted of a net loss of $5.8 million, gain on sale of nonfinancial asset of $1.0 million under the Assets Purchase Agreement with Enodia and a net change of $1.5 million in our net operating assets and liabilities, adjusted by non-cash charges of $0.8 million. The non-cash charges consisted of $0.6 million for stock-based compensation expense, $0.1 million for depreciation and amortization, and $0.1 million of loss on fixed asset write-off. The change in our net operating assets and liabilities was primarily due to a decrease of $2.0 million in prepaid expenses, other current assets and other assets driven by the collection of receivable from Everest, a decrease of $0.7 million in operating lease asset and liabilities, and a decrease of $2.8 million in accounts payable and accrued liabilities due to decreased research and development activities.
During the three months ended March 31, 2025, cash used in operating activities was $17.2 million, which consisted of a net loss of $16.6 million and a net change of $3.1 million in our net operating assets and liabilities, adjusted by non-cash charges of $2.5 million. The non-cash charges consisted of $2.8 million for stock-based compensation expense, $0.3 million for depreciation and amortization, and $0.2 million of non-cash interest expense, offset by $0.7 million of amortization of premium and discounts on marketable securities. The change in our net operating assets and liabilities was primarily due to a decrease of $1.0 million in prepaid expenses, other current assets and other assets driven by the decrease in advance for clinical-related costs, a decrease of $0.6 million in operating lease asset and liabilities, and a decrease of $3.6 million in accounts payable and accrued liabilities due to decreased clinical expenditures from the termination of the PALIZADE trial.
Cash Flows from Investing Activities
Net cash provided by investing activities was $1.5 million for the three months ended March 31, 2026, primarily relating to the proceed from sale of nonfinancial asset of $1.0 million under the Assets Purchase Agreement with Enodia, and proceeds from sale of fixed assets of $0.5 million .
Net cash provided by investing activities was $13.7 million for the three months ended March 31, 2025, primarily relating to the maturities of marketable securities.
Cash Flows from Financing Activities
Net cash provided by financing activities for the three months ended March 31, 2026 was $0.3 million, primarily from the issuance of common stock under employee stock incentive plans.
Net cash used in financing activities for the three months ended March 31, 2025 was $1.3 million, primarily from the repayment of principal associated with the Loan Agreement with Oxford Finance.
Critical Accounting Estimates
Our management's discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with United States generally accepted
accounting principles. The preparation of these financial statements requires us to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
There have been no other material changes to our critical accounting judgments and estimates from those described under "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report.
Status as a Smaller Reporting Company and a Non-Accelerated Filer
We are a smaller reporting company as defined in the Securities Exchange Act of 1934, as amended, or the Exchange Act. As a result, we may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as (i) our voting and non-voting common stock held by nonaffiliates is less than $250.0 million measured on the last business day of our second fiscal quarter or (ii) our annual revenue is less than $100.0 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter.
Additionally, as a non-accelerated filer, we may continue to take advantage of the exception from compliance with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended.
Kezar Life Sciences Inc. published this content on May 11, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on May 11, 2026 at 10:07 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]