Amid another soft performance for the benchmark equities index, rare-eye disease specialist Kala Pharmaceuticals (NASDAQ:KALA) lit up the overcast sky with a stunning triple-digit performance. Yesterday afternoon, the company announced that it received approval by the Food and Drug Administration (FDA) for its investigational new drug (IND) application centered on its flagship therapeutic candidate KPI-012. In response, KALA stock gained nearly 46% in premarket trading before soaring by 240% this afternoon.
Specifically, KPI-012 represents a human mesenchymal stem cell secretome (MSC-S) initially developed for the treatment of persistent corneal epithelial defect (PCED). According to a definition provided by a National Library of Medicine-published research paper, PCED results from “failure of re-epithelialization and complete healing within two weeks of corneal epithelial insult, even after conventional treatment.” An insult in medical terminology refers to an injury, irritation or trauma.
“The acceptance of the KPI-012 IND is an important milestone for Kala, as we work to translate the promise of our MSC-S platform into better outcomes for people living with rare ocular surface diseases,” said Kim Brazzell, Ph.D., head of research and development and Chief Medical Officer of Kala Pharmaceuticals.
“We are now turning our focus to clinical execution. We are working closely with investigators to initiate our Phase 2b clinical trial of KPI-012 for PCED in the first quarter of 2023,” added Brazzell.
According to MarketWatch, with the IND approval and based on terms of a private placement announced last month, Kala stated that it raised $25 million by selling a total of 43,478 shares of Series E convertible preferred stock at $575 per share to “a life sciences-focused investor.”
Steep Challenges Remain for KALA Stock
Per Kala’s IND approval announcement, its upcoming “Phase 2b clinical trial will be a multicenter, randomized, double-masked, vehicle-controlled, parallel-group study to evaluate the safety and efficacy of two doses of KPI-012 ophthalmic solution compared to vehicle when dosed topically four times per day (QID) for 56 days.”
Further, management expects the trial to enroll 90 adult patients with PCED. Enrollment in the trial should commence in the first quarter of 2023 and the company anticipates reporting topline data in Q1 2024. Assuming positive results, Kala believes it may help wider efforts to submit a biologics license application (BLA) to the FDA.
If so, the narrative should provide a powerful catalyst for KALA stock. However, investors need to be careful as the second clinical phase often imposes significant hurdles.
According to another paper published by the National Library of Medicine, the probability of success (POS) to transition from Phase 1 to Phase 2 pings at 66.4%. However, to move from Phase 2 to Phase 3 features a POS of 58.3%. Interestingly, the Phase 3 to APP (application) is 59%, meaning that moving up from Phase 2 represents the greatest challenge.
Yet another research paper confirms that Phase 2 clinical trials “represent a critical point in determining drug costs, and phase II is a poor predictor of drug success: >30% of drugs entering phase II studies fail to progress, and >58% of drugs go on to fail in phase III.” Therefore, it’s important to keep perspective on KALA stock.
For all the underlying company’s heroics in the midweek session, shares plunged around 80% on a year-to-date basis. Over the life of the security, Kala lost approximately 98% of market value. Thus, investors must exercise extreme caution with KALA stock.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.