Kadmon Holdings, Inc.

Form 10-Q

Table of Contents


		Page
PART I – Financial Information
Item 1	Consolidated financial statements:	45
	Consolidated balance sheets as of March 31, ~~2019~~2020 (unaudited) and December 31, ~~2018~~2019	45
	Consolidated statements of operations for the three months ended March 31, ~~2019~~2020 and ~~2018~~2019 (unaudited)	56
	Consolidated statements of stockholders’ equity for the three months ended March 31, 2020 and 2019 (unaudited) ~~and the year ended December 31, 2018~~	67
	Consolidated statements of cash flows for the three months ended March 31, ~~2019~~2020 and ~~2018~~2019 (unaudited)	78
	Notes to consolidated financial statements (unaudited)	89
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2521
Item 3	Quantitative and Qualitative Disclosures About Market Risk	3226
Item 4	Controls and Procedures	3226

PART II – Other Information
Item 1	Legal Proceedings	3226
Item 1A	Risk Factors	3227
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	3329
Item 3	Defaults Upon Senior Securities	3329
Item 4	Mine Safety Disclosures	3329
Item 5	Other Information	3329
Item 6	Exhibits	3329

Signatures		3531

Table of Contents

~~FORWARD-LOOKING~~FORWARD‑LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q may be forward-looking statements. Statements regarding our future results of operations and financial position, business strategy and plans and objectives of management for future operations, including, among others, statements regarding future capital expenditures and ~~debt service~~ obligations, are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “targets,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions.

~~Forward-looking~~Forward‑looking statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the ~~forward-looking~~forward‑looking statements. We believe that these factors include, but are not limited to, the following:

the initiation, timing, progress and results of our preclinical studies and clinical trials, and our research and development programs;

our ability to advance product candidates into, and successfully complete, clinical trials;

the impact of the COVID-19 pandemic on our business, workforce, patients, collaborators and suppliers, including delays in anticipated timelines and milestones of our clinical trials;

our reliance on the success of our product candidates;

the timing or likelihood of regulatory filings and ~~approvals;~~approvals, especially in light of the COVID-19 pandemic;

our ability to expand our sales and marketing capabilities;

the commercialization, ~~of our product candidates, if approved;~~

~~the~~ pricing and reimbursement of our product candidates, if approved;

the implementation of our business model, strategic plans for our business, product candidates and technology;

the scope of protection we are able to establish and maintain for intellectual property rights covering our product candidates and technology;

our ability to operate our business without infringing, misappropriating or otherwise violating the intellectual property rights and proprietary technology of third parties;

cost associated with defending or enforcing, if any, intellectual property infringement, misappropriation or

other intellectual property violation, product liability and other claims;

regulatory and governmental policy developments in the United States, Europe and other jurisdictions;

estimates of our expenses, future revenues, capital requirements and our needs for additional financing;

the potential benefits of strategic collaboration agreements and our ability to enter into strategic arrangements;

our ability to maintain and establish ~~collaborations or obtain additional grant funding;~~collaborations;

the rate and degree of market acceptance, if any, of our product candidates, if approved;

developments relating to our competitors and our industry, including competing therapies;

our ability to effectively manage our anticipated growth;

our ability to attract and retain qualified employees and key personnel;

our ability to achieve cost savings and benefits from our efforts to streamline our operations and to not harm our business with such efforts;

our expectations regarding the period during which we qualify as an emerging growth company under the Jumpstart Our Business Startups Act ~~(JOBS Act)~~(the “JOBS Act”);

statements regarding future revenue, hiring plans, expenses, capital expenditures, capital requirements and share performance;

litigation, including costs associated with prosecuting or defending pending or threatened claims and any adverse outcomes or settlements not covered by insurance;

our expected use of cash and cash equivalents and other sources of liquidity;

~~our ability to amend or refinance the 2015 Credit Agreement due July 1, 2020;~~

the future trading price of the shares of our common stock and the impact of securities analysts’ reports on these prices;

the future trading price of our investments and our potential inability to sell those securities;

our ability to apply unused federal and state net operating loss carryforwards against future taxable income; and

other risks and uncertainties, including those listed under the caption “Risk Factors.”

The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions, and we may not actually achieve the plans, intentions or expectations included in our forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements.

Table of Contents

PART I. FINANCIAL INFORMATION

Kadmon Holdings, Inc.

Consolidated balance sheets

(in thousands, except share and per share amounts)



	March 31,		December 31,		March 31,		December 31,
	2019		2018		2020		2019
	(unaudited)				(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	99,358	$	94,740	$	120,046	$	139,597
Accounts receivable, net		1,501		1,690		1,234		954
Inventories, net		936		925		500		640
Investment, equity securities						28,194		41,997
Prepaid expenses and other current assets		1,969		1,581		2,854		1,416
Total current assets		103,764		98,936		152,828		184,604
Fixed assets, net		3,566		3,654		2,159		2,444
Right of use lease asset		22,006		—		18,782		19,651
Goodwill		3,580		3,580		3,580		3,580
Restricted cash		2,116		2,116		2,117		2,116
Investment, equity securities		60,903		34,075
Investment, at cost		2,300		2,300		2,300		2,300
Other noncurrent assets						11		103
Total assets	$	198,235	$	144,661	$	181,777	$	214,798

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	8,657	$	9,986	$	6,751	$	9,043
Accrued expenses		11,280		13,508		11,714		14,248
Lease liability - current		3,742		—		4,024		3,966
Fair market value of financial instruments		748		524
Secured term debt – current		2,250		—
Warrant liabilities						1,329		1,485
Total current liabilities		26,677		24,018		23,818		28,742
Lease liability - noncurrent		22,610		—		18,732		19,759
Deferred rent		—		4,290
Deferred tax liability		415		415		461		461
Other long term liabilities		—		47		—		101
Secured term debt – net of current portion and discount		25,325		27,480
Total liabilities		75,027		56,250		43,011		49,063
Commitments and contingencies (Note 15 and 16)
Commitments and contingencies (Note 12)
Stockholders’ equity:
Convertible Preferred Stock, $0.001 par value; 10,000,000 shares authorized at March 31, 2019 and December 31, 2018; 30,000 shares issued and outstanding at March 31, 2019 and December 31, 2018		42,746		42,231
Common Stock, $0.001 par value; 200,000,000 shares authorized at March 31, 2019 and December 31, 2018; 126,909,522 and 113,130,817 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively		127		113
Convertible preferred stock, $0.001 par value; 10,000,000 shares authorized at March 31, 2020 and December 31, 2019; 28,708 shares issued and outstanding at March 31, 2020 and December 31, 2019.						42,950		42,433
Common stock, $0.001 par value; 400,000,000 shares authorized at March 31, 2020 and December 31, 2019; 159,830,774 and 159,759,996 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively						160		160
Additional paid-in capital		346,901		315,710		458,539		456,211
Accumulated deficit		(266,566)		(269,643)		(362,883)		(333,069)
Total stockholders’ equity		123,208		88,411		138,766		165,735
Total liabilities and stockholders’ equity	$	198,235	$	144,661	$	181,777	$	214,798



	Three Months Ended				Three Months Ended
	March 31,				March 31,
	2019		2018		2020		2019
Revenues
Revenues:
Net sales	$	67	$	274	$	589	$	67
Other revenue		174		159		6,146		174
Total revenue		241		433		6,735		241
Cost of sales		31		199		328		31
Write-down of inventory		—		147		284		—
Gross profit		210		87		6,123		210
Operating expenses:
Research and development		14,991		9,780		12,874		14,991
Selling, general and administrative		7,946		8,250		9,366		7,946
Total operating expenses		22,937		18,030		22,240		22,937
Loss from operations		(22,727)		(17,943)		(16,117)		(22,727)
Other (income) expense:
Other (expense) income:
Interest income		(656)		(69)		466		656
Interest expense		932		1,465		—		(932)
Change in fair value of financial instruments		224		(141)
Loss on equity method investment		—		1,242
Unrealized gain on equity securities		(26,828)		—
Other expense		9		1
Total other (income) expense		(26,319)		2,498
Income (loss) before income tax expense		3,592		(20,441)
Change in fair value of warrant liabilities						156		(224)
Unrealized (loss) gain on equity securities						(13,803)		26,828
Other income (expense)						1		(9)
Total other (expense) income						(13,180)		26,319
(Loss) income before income tax expense						(29,297)		3,592
Income tax expense		—		—		—		—
Net income (loss)	$	3,592	$	(20,441)
Net (loss) income					$	(29,297)	$	3,592
Deemed dividend on convertible preferred stock		515		490		517		515
Net income (loss) attributable to common stockholders	$	3,077	$	(20,931)
Net (loss) income attributable to common stockholders					$	(29,814)	$	3,077

Basic net income (loss) per share of common stock	$	0.02	$	(0.27)
Diluted net income (loss) per share of common stock	$	0.02	$	(0.27)
Basic net (loss) income per share of common stock					$	(0.19)	$	0.02
Diluted net (loss) income per share of common stock					$	(0.19)	$	0.02
Weighted average basic shares of common stock outstanding		126,330,788		78,650,143		158,031,405		126,330,788
Weighted average diluted shares of common stock outstanding		126,406,039		78,650,143		158,031,405		126,406,039


For the Three Months Ended March 31, 2020													For the Three Months Ended March 31, 2020

	Preferred stock			Common stock			Additional paid-in		Accumulated					Preferred stock			Common stock			Additional paid-in		Accumulated
	Shares	Amount		Shares	Amount		capital		Deficit		Total			Shares	Amount		Shares	Amount		capital		Deficit		Total
Balance, December 31, 2017	30,000	$	40,220	78,643,954	$	79	$	198,856	$	(237,397)	$	1,758
Balance, January 1, 2020														28,708	$	42,433	159,759,996	$	160	$	456,211	$	(333,069)	$	165,735
Share-based compensation expense	—		—	—		—		2,572		—		2,572		—		—	—		—		2,037		—		2,037
Common stock issued for warrant exercises	—		—	8,195		—		26		—		26		—		—	2,777		—		7		—		7
Cumulative effect of change in accounting principle - ASC 606 adoption	—		—	—		—		—		24,017		24,017
Common stock issued for option exercises														—		—	68,001		—		284		—		284
Beneficial conversion feature on convertible preferred stock	—		98	—		—		—		(98)		—		—		103	—		—		—		(103)		—
Accretion of dividends on convertible preferred stock	—		392	—		—		—		(392)		—		—		414	—		—		—		(414)		—
Net loss	—		—	—		—		—		(20,441)		(20,441)		—		—	—		—		—		(29,297)		(29,297)
Balance, March 31, 2018	30,000	$	40,710	78,652,149	$	79	$	201,454	$	(234,311)	$	7,932
Share-based compensation expense	—		—	—		—		3,023		—		3,023
Common stock issued in public offering, net	—		—	34,303,030		34		105,727		—		105,761
Common stock issued for warrant exercises	—		—	123,639		—		562		—		562
Common stock issued under ESPP plan	—		—	22,958		—		65		—		65
Beneficial conversion feature on convertible preferred stock	—		98	—		—		—		(98)		—
Accretion of dividends on convertible preferred stock	—		393	—		—		—		(393)		—
Net income	—		—	—		—		—		21,505		21,505
Balance, June 30, 2018	30,000	$	41,201	113,101,776	$	113	$	310,831	$	(213,297)	$	138,848
Share-based compensation expense	—		—	—		—		2,833		—		2,833
Beneficial conversion feature on convertible preferred stock	—		103	—		—		—		(103)		—
Accretion of dividends on convertible preferred stock	—		412	—		—		—		(412)		—
Net loss	—		—	—		—		—		(13,799)		(13,799)
Balance, September 30, 2018	30,000	$	41,716	113,101,776	$	113	$	313,664	$	(227,611)	$	127,882
Share-based compensation expense	—		—	—		—		1,963		—		1,963
Common stock issued under ESPP plan	—		—	29,041		—		83		—		83
Beneficial conversion feature on convertible preferred stock	—		103	—		—		—		(103)		—
Accretion of dividends on convertible preferred stock	—		412	—		—		—		(412)		—
Net loss	—		—	—		—		—		(41,517)		(41,517)
Balance, December 31, 2018	30,000	$	42,231	113,130,817	$	113	$	315,710	$	(269,643)	$	88,411
Share-based compensation expense	—		—	—		—		2,156		—		2,156
Common stock issued in public offering, net	—		—	13,778,705		14		29,035		—		29,049
Beneficial conversion feature on convertible preferred stock	—		103	—		—		—		(103)		—
Accretion of dividends on convertible preferred stock	—		412	—		—		—		(412)		—
Net income	—		—	—		—		—		3,592		3,592
Balance, March 31, 2019	30,000	$	42,746	126,909,522	$	127	$	346,901	$	(266,566)	$	123,208
Balance, March 31, 2020														28,708	$	42,950	159,830,774	$	160	$	458,539	$	(362,883)	$	138,766


	Three Months Ended				Three Months Ended
	March 31,				March 31,
	2019		2018		2020		2019
Cash flows from operating activities:
Net income (loss)	$	3,592	$	(20,441)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Net (loss) income					$	(29,297)	$	3,592
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Depreciation and amortization of fixed assets		467		349		418		467
Amortization of right of use lease asset		818		—
Non-cash operating lease cost						869		818
Write-down of inventory		—		147		284		—
Amortization of deferred financing costs		—		127
Amortization of debt discount		95		575		—		95
Amortization of debt premium		—		(188)
Share-based compensation		2,156		2,572		2,037		2,156
Change in fair value of financial instruments		224		(141)
Loss on equity method investment		—		1,242
Unrealized gain on equity securities		(26,828)		—
Change in fair value of warrant liabilities						(156)		224
Unrealized loss (gain) on equity securities						13,803		(26,828)
Changes in operating assets and liabilities:
Accounts receivable, net		189		643		(280)		189
Inventories, net		(11)		(412)		(144)		(11)
Prepaid expenses and other assets		(388)		(424)		(1,346)		(388)
Accounts payable		(1,311)		285		(2,399)		(1,311)
Lease liability		(908)		—		(969)		(908)
Accrued expenses, other liabilities and deferred rent		(2,228)		(1,443)
Accrued expenses and other liabilities						(2,635)		(2,228)
Net cash used in operating activities		(24,133)		(17,109)		(19,815)		(24,133)

Cash flows from investing activities:
Purchases of fixed assets		(298)		(127)		(26)		(298)
Net cash used in investing activities		(298)		(127)		(26)		(298)

Cash flows from financing activities:
Proceeds from issuance of common stock, net		29,049		—		—		29,049
Principal payments on secured term debt		—		(1,140)
Proceeds from exercise of options						284		—
Proceeds from exercise of warrants		—		26		7		—
Net cash provided by (used in) financing activities		29,049		(1,114)
Net increase (decrease) in cash, cash equivalents and restricted cash		4,618		(18,350)
Net cash provided by financing activities						291	��	29,049
Net (decrease) increase in cash, cash equivalents and restricted cash						(19,550)		4,618
Cash, cash equivalents and restricted cash, beginning of period		96,856		69,633		141,713		96,856
Cash, cash equivalents and restricted cash, end of period	$	101,474	$	51,283	$	122,163	$	101,474

Components of cash, cash equivalents, and restricted cash
Components of cash, cash equivalents and restricted cash
Cash and cash equivalents		99,358		49,167		120,046		99,358
Restricted cash		2,116		2,116		2,117		2,116
Total cash, cash equivalents, and restricted cash		101,474		51,283
Total cash, cash equivalents and restricted cash						122,163		101,474

Supplemental cash flow disclosures:
Cash paid for interest	$	836	$	961	$	—	$	836
Non-cash investing and financing activities:
Beneficial conversion feature on convertible preferred stock		103		98		103		103
Accretion of dividends on convertible preferred stock		412		392		414		412
Unpaid fixed asset additions		81		—		107		81
Operating cash flows paid for amounts included in the measurement of lease liabilities						1,192		1,150
Operating lease liabilities arising from obtaining right-of-use assets		31		—		—		31
Cumulative effect of change in accounting principle - ASC 842 adoption		27,083		—		—		27,083
Cumulative effect of change in accounting principle - ASC 606 adoption		—		24,017

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Kadmon Holdings, Inc.

Notes to consolidated financial statements (unaudited)

1. Organization

Nature of Business

Kadmon Holdings, Inc. (together with its subsidiaries, “Kadmon” or “Company”) is a ~~fully integrated~~ biopharmaceutical company engaged in the discovery, development and commercialization of small molecules and biologics to address ~~disease areas of~~ significant unmet medical needs, with a near-term clinical focus on ~~inflammatory~~immune and fibrotic diseases as well as immuno-oncology. The Company leverages its ~~multi-disciplinary~~multi‑disciplinary research and clinical development team members to identify and pursue a diverse portfolio of novel product candidates, both through in-licensing products and employing its small molecule and biologics platforms. By retaining global commercial rights to its lead product candidates, the Company believes that it has the ability to develop these candidates while maintaining flexibility for commercial and licensing arrangements. The Company expects to continue to progress its clinical candidates and have further clinical trial events throughout 2019.

Liquidity

The Company maintained cash and cash equivalents of ~~$99.4~~$120.0 million at March 31, ~~2019.~~2020. The Company had an accumulated deficit of ~~$266.6~~$362.9 million and working capital of ~~$77.1~~$129.0 million at March 31, ~~2019.~~2020. The Company ~~entered into a Sales Agreement with Cantor Fitzgerald & Co. in August 2017 under which the Company may sell up to $40.0 million in shares of~~expects that its common stock in one or more placements at prevailing market prices for its common stock (the “ATM Offering”). Any such sales would be effected pursuant to the Company’s registration statement on Form S-3 (File No. 333-222364), declared effective by the ~~Securities Exchange Commission~~ (“SEC”) on January 10, 2018. As of December 31, 2018, the Company had not sold any shares of common stock under the ATM Offering. In January 2019, the Company sold 13,778,705 shares of common stock at a weighted average price of $2.17 per share through the ATM Offering and received total gross proceeds of $29.9 million ($29.0 million net of $0.9 million of commissions payable by the Company). In April 2019, the Company sold 2,538,100 shares of common stock at a price of $2.70 per share through the ATM Offering and received total gross proceeds of $6.9 million ($6.7 million net of $0.2 million of commissions payable by the Company) (Note 19). The Company’s existing cash and cash equivalents ~~are expected to~~will enable it to advance its ~~planned~~ Phase 2 clinical studies ~~for~~of KD025, ~~and~~ advance certain of its other pipeline product candidates and provide for other working capital purposes.

Management’s plans include continuing to finance operations through the issuance of additional equity securities, monetization of assets, including the Company’s ownership of MeiraGTx Holding plc (“MeiraGTx”) ordinary shares with a fair value of $28.2 million at March 31, 2020, and expanding the Company’s commercial portfolio through the development of ~~the~~its current pipeline or through strategic collaborations. Any transactions ~~which~~that occur may contain covenants that restrict the ability of management to operate the business or may have rights, preferences or privileges senior to the Company’s common stock and may dilute current stockholders of the Company.

The Company filed a shelf registration statement on Form S-3 (File No. 333-233766) on September 13, 2019, which was declared effective by the Securities Exchange Commission (“SEC”) on September 24, 2019. Under this registration statement, the Company may sell, in one or more transactions, up to $200.0 million of common stock, preferred stock, debt securities, warrants, purchase contracts and units, an amount which includes $50.0 million of shares of its common stock that may be issued in one or more “at-the-market” placements at prevailing market prices under the Company’s Controlled Equity OfferingSM Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co. (“Cantor Fitzgerald”). The Company had sold securities totaling an aggregate of $101.6 million pursuant to this registration statement as of March 31, 2020.

Going Concern

The accompanying financial statements have been prepared in ~~conformity~~accordance with accounting principles generally accepted in the United States of America (“GAAP”), which contemplate continuation of the Company as a going concern. The Company has not established a source of revenues sufficient to cover its operating costs, and as such, has been dependent on funding operations through the issuance of debt and sale of equity securities. Since inception, the Company has experienced significant ~~loses~~losses and incurred negative cash flows from operations. The Company expects to incur further losses over the next several years as it develops its business. The Company has spent, and expects to continue to spend, a substantial amount of funds in connection with implementing its business strategy, including its planned product development efforts, preparation for its planned clinical trials, performance of clinical trials and its research and discovery efforts.

The Company’s cash and cash equivalents are ~~not~~ expected to enable the Company to advance its ongoing clinical studies for KD025, advance certain of its other pipeline product candidates, including KD033 and KD045, and provide for other working capital purposes. Cash and cash equivalents will not be sufficient to enable the Company to meet its long-term expected plans, including commercialization of clinical pipeline products, if approved, or initiation or completion of future registrational studies. Additionally, the outlook for the spread and eventual containment of the COVID-19 pandemic remains unpredictable, as does its potential impact on the economy (domestically and globally) and the biotechnology industry in particular. The COVID-19 pandemic has had a negative near-term impact on capital markets and may impact the Company’s ability to access capital.

The Company has no current commitments for ~~any~~ additional financing and may not be successful in its efforts to raise additional funds or achieve profitable operations, and there can be no assurance that additional financing will be available to the Company on commercially acceptable terms or at all. Any amounts raised will be used for further development of the Company’s product candidates, for marketing and promotion, to secure additional property and equipment and for other working capital purposes.

Table of Contents

If the Company is unable to obtain additional capital (which is not assured at this time), its long-term business plan may not be accomplished and the Company may be forced to curtail or cease operations. Further, the 2015 Credit Agreement contains certain developmental milestones that must be achieved by December 31, 2019, which are considered to be outside of the Company’s control, as well as a minimum liquidity covenant. As such, if achievement of the developmental milestones does not occur as anticipated by December 31, 2019 or the Company violates its minimum liquidity covenant, the Company may need to use cash and cash equivalents to fund certain repayment commitments, as any such non-compliance could, under the remedies set forth in the 2015 Credit Agreement, trigger a termination of the Commitments (as defined in the 2015 Credit Agreement) or a declaration by the Lender that the Loan (as defined in the 2015 Credit Agreement) be due and payable in whole or part, together with any applicable fees and/or interest thereon. These factors individually and collectively ~~continue to~~ raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments or classifications that may result from the possible inability of the Company to continue as a going concern.

2. Summary of Significant Accounting Policies

Basis of Presentation

The Company operates in one segment considering the nature of the Company’s products and services, class of customers, methods used to distribute ~~the~~its products and the regulatory environment in which the Company operates.

~~Principles of Consolidation~~

The accompanying consolidated financial statements, ~~have been prepared in conformity with GAAP. The consolidated financial statements~~ which include the accounts of Kadmon Holdings, Inc. and its domestic and international subsidiaries, all of which are wholly ~~owned.~~

~~Interim Financial Statements~~

owned by Kadmon Holdings, Inc.,~~The accompanying financial statements~~ have been prepared in accordance with GAAP for interim financial information and ~~with~~pursuant to the ~~instructions to Form 10-Q~~rules and ~~Article 10~~regulations of ~~Regulation S-X.~~the SEC. Accordingly, they do not include all of the information and footnotes required by ~~generally accepted accounting principles~~GAAP for complete financial statements. In ~~our~~the Company’s opinion, the financial statements include all adjustments (consisting of normal recurring ~~accruals)~~adjustments) and disclosures considered necessary in order to make the financial statements not misleading. Operating results for the three months ended March 31, ~~2019~~2020 are not necessarily indicative of the final results that may be expected for the year ~~ended~~ending December 31, ~~2019.~~2020. These unaudited financial statements should be read in conjunction with the audited financial statements included in Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019.

Use of Estimates

The preparation of financial statements in ~~conformity~~accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Actual results could differ from those estimates. The most significant estimates are related to share-based compensation (Note 10), the accrual of research and development and clinical trial expenses (Note 11), and the valuation of the Company’s investment in MeiraGTx ordinary shares (Note 8).

Critical Accounting Policies

The Company’s significant accounting policies are disclosed in the audited financial statements included in Item 8 of the Company’s Annual Report on Form 10-K ~~as of and~~ for the year ended December 31, ~~2018.~~2019. Since the date of such financial statements, there have been no changes to the Company’s significant accounting policies, other than those described below.

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~~Accounting for Leases~~

~~In February 2016, the~~ ~~Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)~~ No. 2016 02, “Leases” (“ASC 842”) to enhance the transparency and comparability of financial reporting related to leasing arrangements. Under this new lease standard, most leases are required to be recognized on the balance sheet as right-of-use assets and lease liabilities. Disclosure requirements have been enhanced with the objective of enabling financial statement users to assess the amount, timing, and uncertainty of cash flows arising from leases. Prior to January 1, 2019, GAAP did not require lessees to recognize assets and liabilities related to operating leases on the balance sheet. The new standard establishes a right-of-use model (“ROU”) that requires a lessee to recognize a ROU asset and corresponding lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement as well as the reduction of the right of use asset. The Company has adopted the standard effective January 1, 2019 and has chosen to use the effective date as our date of initial application. Consequently, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods prior to January 1, 2019. The new standard provides a number of optional practical expedients in transition. The Company has elected to apply the ‘package of practical expedients’ which allow us to not reassess (i) whether existing or expired arrangements contain a lease, (ii) the lease classification of existing or expired leases, or (iii) whether previous initial direct costs would qualify for capitalization under the new lease standard. The Company has also elected to apply (i) the practical expedient which allows us to not separate lease and non-lease components, for new leases entered into after adoption and (ii) the short-term lease exemption for all leases with an original term of less than 12 months, for purposes of applying the recognition and measurements requirements in the new standard. In preparation for adoption of the standard, the Company implemented internal controls to enable the preparation of financial information including the assessment of the impact of the standard. For the impact to the Company’s consolidated financial statement upon adoption of the new leasing standard, see Note 8 to our unaudited consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on specific facts and circumstances, the existence of an identified asset(s), if any, and the Company’s control over the use of the identified asset(s), if applicable. Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of future lease payments over the expected lease term. The interest rate implicit in lease contracts is typically not readily determinable. As such, the Company will utilize the incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. As of the ASC 842 effective date, the Company’s incremental borrowing rate ranges from approximately 4.0%-5.6% based on the remaining lease term of the applicable leases.

The Company has elected to combine lease and non-lease components as a single component. Operating leases are recognized on the balance sheet as ROU lease assets, lease liabilities current and lease liabilities non-current. Fixed rents are included in the calculation of the lease balances while variable costs paid for certain operating and pass-through costs are excluded. Lease expense is recognized over the expected term on a straight-line basis.

Revenue Recognition

The Company adopted FASB ASC 606, Revenue from Contracts with Customers (“ASC 606”), on January 1, 2018 using the modified retrospective method for all contracts not completed as of the date of adoption– i.e. by recognizing the cumulative effect of initially applying ASC 606 as an adjustment to the opening balance of stockholders equity at January 1, 2018. The Company recognizes revenue in accordance with ASC 606, the core principle of which is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to receive in exchange for those goods or services. To achieve this core principle, five basic criteria must be met before revenue can be recognized: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to performance obligations in the contract; and (5) recognize revenue when or as the Company satisfies a performance obligation.

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Disaggregation of Revenue

The Company’s revenues have primarily been generated through product sales, collaborative research, development and commercialization license agreements, and other service agreements. The following table summarizes revenue from contracts with customers for the three months ended March 31, 2020 and 2019 ~~and 2018:~~(in thousands):



	Three Months Ended
	March 31,
	2020		2019
Product sales	$	589	$	67
License revenue		6,000		—
Other revenue		146		174
Total revenue	$	6,735	$	241

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Three Months Ended

Three Months Ended

March 31, 2019

March 31, 2018
Product sales

$
67

$
274
Other revenue

174

159
Total revenue

$
241

$
433

Product Sales

The Company markets CLOVIQUE™ (Trientine Hydrochloride Capsules, USP), a room-temperature stable innovative product developed in-house at Kadmon and ~~distributes a portfolio~~generic Trientine Hydrochloride Capsules USP, 250 mg (collectively, “CLOVIQUE”), for the treatment of ~~products, including ribavirin and tetrabenazine.~~Wilson’s Disease. These contracts typically include a single promise to deliver a fixed amount of product to the customer with payment due within 3030-60 days of shipment. Revenues are recognized when control of the promised goods is transferred to the customer, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods.

As is typical in the pharmaceutical industry, gross product sales are subject to a variety of deductions, primarily representing rebates, chargebacks, returns, and discounts to government agencies, wholesalers, and managed care organizations. These deductions represent management’s best estimates of the related reserves and, as such, judgment is required when estimating the impact of these sales deductions on gross sales for a reporting period. If estimates are not representative of the actual future settlement, results could be materially affected.

~~Other Revenue~~

The other revenue generated by the Company is primarily related to a transition services agreement and sublease agreement with MeiraGTx Holdings plc (“MeiraGTx”) (Note 11). The Company performed various professional services under a transition services agreement (“TSA”) that supported MeiraGTx until the expiration of the agreement in April 2018. The Company continues to provide office space to MeiraGTx under a sublease agreement. The Company recognizes revenue related to transition services and sublease agreements as they are performed.

~~Contract Balances~~

The timing of revenue recognition may differ from the timing of invoicing to customers. Accounts receivable are recorded at the invoiced amount, net of an allowance for doubtful accounts. A receivable is recognized in the period we deliver goods or provide services or when our right to consideration is unconditional. The Company has not recognized any assets for costs to obtain or fulfill a contract with a customer as of March 31, ~~2019.~~2020.

~~Transaction Price Allocated~~License Revenue

License revenue consists of a milestone payment earned pursuant to ~~Future Performance Obligations~~

~~ASC 606 requires that~~a joint venture and license agreement entered into with Meiji Seika Pharma Co., Ltd (“Meiji”) to develop KD025 in Japan (Note 9). As of December 31, 2019, the Company ~~disclose~~had one performance obligation related to a license agreement with Meiji that had not yet been satisfied and for which the ~~aggregate amount of~~upfront cash payment had not been received. The transaction price ~~that is~~of $6.0 million was allocated to the single combined performance obligation under the contract and the performance obligation was completed during the first quarter of 2020. There are no performance obligations that have not yet been satisfied as of March 31, ~~2019. The guidance provides certain practical expedients that limit this requirement. The Company has various contracts that meet the following practical expedients provided by ASC 606:~~

~~1. The performance obligation is part of a contract that has an original expected duration of one year or less.~~

~~2. Revenue is recognized from the satisfaction of the performance obligations in the amount billable to the customer.~~

3. The variable consideration is allocated entirely to a wholly unsatisfied performance obligation or to a wholly unsatisfied promise to transfer a distinct good or service that forms part of a single performance obligation.

~~The Company does not have any performance obligations that have not yet been satisfied as of March 31, 2019~~2020 and ~~therefore~~ there is no transaction price allocated to future performance obligations under ASC 606.

Other Revenue

The other revenue generated by the Company is primarily related to a sublease agreement with MeiraGTx (Note 8). The Company recognizes revenue related to sublease agreements as they are performed.

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Recent Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, “Income Taxes: Simplifying the Accounting for Income Taxes”, which removes certain exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods. The ASU is effective for annual or interim periods beginning after December 15, 2020, with early adoption permitted. The Company does not expect the standard to have a significant impact on its consolidated financial statements.

In November 2018, the FASB issued ASU No. 2018-18, ~~“Collaborative~~“Collaborative Arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and Topic 606”, which requires transactions in collaborative arrangements to be accounted for under ASC 606 if the counterparty is a customer for a good or service (or bundle of goods and services) that is a distinct unit of account. The ~~amendments~~ASU also ~~preclude~~precludes entities from presenting consideration from transactions with a collaborator that is not a customer together with revenue recognized from contracts with customers. The ~~ASU is effective for annual or interim periods beginning after December 15, 2019. Early adoption is permitted for entities~~Company adopted this standard on January 1, 2020, and the standard did not have a significant impact on its consolidated financial statements as the Company does not have any material agreements that ~~have adopted ASC 606. The Company is evaluating~~are within the ~~impact~~scope of ~~adopting~~ this ~~standard.~~ASU.

In August 2018, the FASB issued ASU No. 2018-15, ~~“Intangibles—~~“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 (a consensus of the FASB Emerging Issues Task Force)”, which requires customers in a cloud computing arrangement that is a service contract to follow the internal-use software guidance in ~~Accounting Standards Codification~~ASC 350-40 to determine which implementation costs to ~~capitalize as assets. This ASU is effective for annual or any interim periods beginning after December 15, 2019.~~capitalize. The Company ~~does not expect~~adopted this standard on January 1, 2020, and the standard todid not have a significant impact on its consolidated financial statements as the Company’s cloud computing contracts are not material.

In June 2018, the FASB issued ASU No. 2018-07, “Compensation – Stock Compensation”, which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees, except for specific exceptions. This ASU is effective for annual or any interim periods beginning after December 15, 2018. The Company adopted this standard on January 1, 2019, which did not have a significant impact on its consolidated financial statements as the fair value of the Company’s awards to nonemployees is immaterial.

In January 2017, the FASB issued ASU No. 2017-04, ~~“Intangibles~~“Intangibles – Goodwill and Other”, which simplifies the subsequent measurement of goodwill by eliminating “Step 2” from the goodwill impairment test. Instead of performing Step 2 to determine the amount of an impairment charge, the fair value of a reporting unit will be compared with its carrying amount and an impairment charge will be recognized for the value by which the carrying amount exceeds the reporting unit’s fair value. For smaller reporting companies, ASU 2017-04 is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, ~~2019. Early~~2022, with early adoption ~~is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.~~permitted. The Company does not expect the standard to have a significant impact on its consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, “Measurement of Credit Losses on Financial Instruments”, to require financial assets carried at amortized cost to be presented at the net amount expected to be collected based on historical experience, current conditions and forecasts. For smaller reporting companies, the ASU is effective for interim and annual periods beginning after December 15, 2022, with early adoption permitted. Adoption of the ASU is on a modified retrospective basis. The Company does not expect this guidance to have a material impact on its financial statements.

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3. Stockholders’ Equity

5% Convertible Preferred Stock

The Company had ~~30,000~~28,708 shares of 5% convertible preferred stock outstanding at March 31, ~~2019,~~2020, which ~~converts~~shares convert into shares of the Company’s common stock at a 20% discount to the initial public offering price per share of common stock in the Company’s initial public offering ~~(“IPO”~~(the “IPO”) of $12.00 per share, or $9.60 per share. The Company accrued $0.4 million of dividends on the 5% convertible preferred stock ~~of $0.4 million~~ during each of the three months ended March 31, ~~2019~~2020 and ~~2018.~~2019. The Company calculated a deemed dividend of $0.1 million on the $0.4 million of accrued dividends during each of the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, which is a beneficial conversion feature. The stated liquidation preference amount on the 5% convertible preferred stock totaled ~~$33.0~~$33.1 million at March 31, ~~2019.~~2020.

Common Stock

The Company’s restated certificate of incorporation authorizes the issuance of up to ~~200,000,000~~400,000,000 shares of the Company’s common stock, par value $0.001 per share.

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4. Net (Loss) Income ~~(Loss)~~ per Share Attributable to Common Stockholders

Basic net (loss) income ~~(loss)~~ attributable to common stockholders per share is computed by dividing the net (loss) income ~~(loss)~~ attributable to common stockholders by the ~~weighted-average~~weighted average number of shares of common ~~shares~~stock outstanding for the period. Shares issued during the period are weighted for the portion of the period ~~that~~during which they were outstanding. Because the Company has reported a net loss for the three months ended March 31, ~~2018,~~2020, diluted net loss per common share is the same as basic net loss per common share for that period. For the three months ended March 31, 2019, diluted net income per share is calculated in a manner consistent with that of basic net income per share while giving effect to all potentially dilutive common shares that were outstanding during the period. The following table summarizes the computation of basic and diluted net (loss) income ~~(loss)~~ per share attributable to common stockholders of the Company (in thousands, except share and per share amounts):

Three Months Ended

March 31,

2019

2018
Numerator – basic and diluted:

Net income (loss) available to common stockholders - basic and diluted

$
3,077

$
(20,931)

Denominator – basic and diluted:

Weighted average common shares outstanding used to compute basic net income (loss) per share

126,330,788

78,650,143
Effect of dilution:

Options to purchase common stock

75,251

—
Weighted average common shares outstanding used to compute diluted net income (loss) per share

126,406,039

78,650,143

Net income (loss) per share, basic

$
0.02

$
(0.27)
Net income (loss) per share, diluted

$
0.02

$
(0.27)


	Three Months Ended
	March 31,
	2020			2019
Numerator – basic and diluted:
Net (loss) income available to common stockholders - basic and diluted	$	(29,814)	$	3,077
Denominator – basic and diluted:
Weighted average common shares outstanding used to compute basic net (loss) income per share		158,031,405		126,330,788
Effect of dilution:
Options to purchase common stock		—		75,251
Weighted average shares of common stock outstanding used to compute diluted net (loss) income per share		158,031,405		126,406,039
Net (loss) income per share, basic	$	(0.19)	$	0.02
Net (loss) income per share, diluted	$	(0.19)	$	0.02

The amounts in the table below were excluded from the calculation of diluted net (loss) income ~~(loss)~~ per share, due to their anti-dilutive effect:


	Three Months Ended			Three Months Ended
	March 31,			March 31,
	2019		2018	2020	2019
Options to purchase common stock	8,816,778		8,374,489	15,837,954	8,816,778
Warrants to purchase common stock	11,999,852		14,713,790	11,917,052	11,999,852
Convertible preferred stock	3,562,221	��	3,392,592	3,579,249	3,562,221
Total shares of common stock equivalents	24,378,851		26,480,871	31,334,255	24,378,851

~~5. Debt~~

~~The Company is a party to one credit agreement in the following amount (in thousands):~~

March 31,

December 31,

2019

2018

Secured term debt due July 1, 2020

$
28,046

$
28,046
Total debt before debt discount

28,046

28,046
Less: Debt discount

(471)

(566)
Total debt payable

$
27,575

$
27,480

Debt payable, current portion

$
2,250

$
—
Debt payable, long-term

$
25,325

$
27,480

1312

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~~Secured Term Debt~~

~~August 2015 Secured Term Debt~~

In August 2015, the Company entered into a secured term loan in the amount of $35.0 million with two lenders (“2015 Credit Agreement”). The interest rate on the loan is LIBOR plus 9.375% with a 1% floor. As of March 31, 2019, there were five amendments to the 2015 Credit Agreement, which, among other things, have extended the maturity date and due date of principal payments under the 2015 Credit Agreement, repaid all amounts due to one of the lenders, revised terms of certain warrants issued in connection with the 2015 Credit Agreement (Note 6), and amended certain covenants, including adding non-financial developmental milestones which must be met by December 31, 2019. As amended, the basic terms of the loan require monthly payments of interest only through December 31, 2019, with principal payments in the amount of $750,000 payable monthly beginning on January 31, 2020. Any outstanding balance of the loan and accrued interest is to be repaid on July 1, 2020, the maturity date. The secured term loan is collateralized by a first priority perfected security interest in all the tangible and intangible property of the Company.

The Company entered into a sixth waiver agreement to the 2015 Credit Agreement in March 2019 under which the lenders under the 2015 Credit Agreement agreed to refrain from exercising certain rights under the 2015 Credit Agreement, including the declaration of a default and to forbear from acceleration of any repayment rights with respect to existing covenants. The report and opinion of our independent registered public accounting firm, BDO USA, LLP, for the year ended December 31, 2018 contains an explanatory paragraph regarding our ability to continue as a going concern, which is an event of default under the 2015 Credit Agreement.

~~The minimum payments required on the outstanding balances of the 2015 Credit Agreement at March 31, 2019 are (in thousands):~~

2015 Credit Agreement
2019

$
—
2020

28,046

$
28,046

~~The following table provides components of interest expense and other related financing costs (in thousands):~~

Three Months Ended

March 31,

2019

2018
Interest expense and other financing costs

$
837

$
951
Amortization of deferred financing costs, debt discount and debt premium

95

514
Interest expense

$
932

$
1,465

6.5. Financial Instruments

Equity Issued Pursuant to Credit Agreements

In connection with ~~the~~a credit agreement entered into in 2015, ~~Credit Agreement (Note 5),~~ as fees to the lenders thereunder, the Company issued warrants to purchase an aggregate of $6.3 million of the Company’s Class A units with an expiration date of August 2022, which were exchanged for 617,651 warrants with a strike price of $10.20 per share to purchase the same number of shares of the Company’s common stock upon consummation of the Company’s IPO in August 2016 ~~(“2015~~(the “2015 Warrants”).

As of March 31, ~~2019,~~2020, the exercise price of a portion of the 2015 Warrants to purchase an aggregate of 529,413 shares of the Company’s common stock iswas $3.30 per warrant share and the exercise price of the remaining 2015 Warrants to purchase an aggregate of 88,238 shares of the Company’s common stock iswas $4.50 per warrant share. Since these warrants are exercisable and are redeemable at the option of the holder upon the occurrence of, and during the continuance of, an event of default, the fair value of the ~~warrants is~~2015 Warrants was recorded as a short-term liability of ~~$0.7 million and $0.5~~approximately $1.3 million at March 31, ~~2019~~2020 and approximately $1.5 million at December 31, ~~2018, respectively.~~2019.

~~Table of Contents~~

The Company used the Black-Scholes pricing model to value the warrant liability at March 31, ~~2019~~2020 with the following assumptions: risk-free interest rate of ~~2.2%~~0.3%, expected term of ~~3.4~~2.4 years, expected volatility of ~~74.2%~~79.0% and a dividend rate of 0%. The change in fair value of the ~~warrants~~2015 Warrants was ~~$0.2~~approximately $(0.2) million for the three months ended March 31, 2020 and ~~$0.3~~approximately $0.2 million for the three months ended March 31, 2019, ~~and 2018,~~ respectively. None of these instruments ~~have~~had been exercised as of March 31, ~~2019~~2020 and December 31, ~~2018~~2019.

~~Other Warrants~~

In connection with the sale of common stock in March 2017, warrants to purchase 2,707,138 shares of common stock were issued at an exercise price of $4.50 per share. During April 2018, warrants to purchase 119,047 shares of common stock were exercised for which the Company received proceeds of $0.5 million. The remaining 2,588,091 warrants expired in April 2018. These warrants included a cash settlement option requiring the Company to record a liability for the fair value of the warrants at the time of issuance and at each reporting period with any change in the fair value reported as other income or expense. During the three months ended March 31, 2018, the decline in the fair value of these warrants was $(0.4) million.

~~Fair Value of Long-term Debt~~

The Company maintained a long-term secured debt balance of $25.3 million and $27.5 million at March 31, 2019 and December 31, 2018, respectively. As the secured debt becomes due on July 1, 2020 and monthly principal payments of $750,000 are due starting January 31, 2020, it has been recorded as long-term secured debt at December 31, 2018. At March 31, 2019, $2.3 million of principal payments due in the first quarter of 2020 have been recorded as short-term secured debt and the remaining balance is recorded as long-term secured debt. The underlying agreements for these balances were negotiated with third parties on an arms-length basis, at an interest rate which is considered to be in line with over-arching market conditions. Based on these factors, management considers the carrying value of the debt to approximate fair value at March 31, 2019.

Fair Value Classification

The Company held certain warrant liabilities that are required to be measured at fair value on a recurring basis. ~~Fair value guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These~~
~~tiers include:~~

~~Level 1—Quoted prices in active markets for identical assets or liabilities.~~

Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, 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 that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.~~

The table below represents the values of the Company’s ~~financial instruments~~warrant liabilities at March 31, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):



	Fair Value Measurement Using Significant Other Observable Inputs (Level 2)				Fair Value Measurement Using Significant Other Observable Inputs (Level 2)
	March 31,		December 31,		March 31,		December 31,
Description	2019		2018		2020		2019
Warrants	$	748	$	524	$	1,329	$	1,485
Total	$	748	$	524	$	1,329	$	1,485

The table below represents a ~~rollforward~~roll-forward of ~~the~~warrant liabilities measured using Level 2 ~~financial instruments~~inputs from January 1, ~~2018~~2019 to March 31, ~~2019~~2020 (in thousands):

The Level 2 inputs used to value ~~our financial instruments~~the Company’s warrant liabilities were determined using prices that can be directly observed or corroborated in active markets. Although the fair value of this obligation is calculated using the observable market price of ~~Kadmon Holdings Inc.~~the Company’s common stock, an active market for this financial instrument does not exist and therefore the Company has classified the fair value of this liability as a Level 2 liability in the table above.

The following table ~~summarizes information about~~represents a roll-forward of warrants outstanding atfrom January 1, 2020 to March 31, ~~2019 and December 31, 2018:~~2020:

Inventories are stated at the lower of cost or net realizable value (on a first-in, first-out basis) using standard costs. Standard costs include an allocation of overhead rates, which include those costs attributable to managing the supply chain and are evaluated regularly. Variances are expensed as incurred.

The Company regularly reviews the expiration dates of its inventories and maintains a reserve for inventories that are probable to expire before shipment. Inventories recorded on the Company’s consolidated balance sheets are net of a reserve for expirable inventory of ~~$2.1~~$1.8 million and ~~$2.2~~$3.0 million at March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. The Company expensed inventory that it believes will not be sold prior to reaching its expiration date totaling $0.1 million during March 31, 2018, while no such expense was recorded for the March 31, 2019. If the amount and timing of future sales differ from management’s assumptions, adjustments to the estimated inventory reserves may be required.

The Company capitalizes inventories produced in preparation for product launches sufficient to support estimated initial market demand. Typically, capitalization of such inventory begins when positive results have been obtained for the clinical trials that the Company believes are necessary to support regulatory approval, uncertainties regarding ultimate regulatory approval have been significantly reduced and the Company has determined it is probable that these capitalized costs will provide some future economic benefit in excess of capitalized costs. The material factors considered by the Company in evaluating these uncertainties include the receipt and analysis of positive clinical trial results for the underlying product candidate, results from meetings with the relevant regulatory authorities prior to the filing of regulatory applications, and the compilation of the regulatory application. The Company closely monitors the status of each respective product within the regulatory approval process, including all relevant communication with regulatory authorities. If the Company is aware of any specific material risks or contingencies other than the normal regulatory review and approval process or if there are any specific issues identified relating to safety, efficacy, manufacturing, marketing or labeling, the related inventory would generally not be capitalized.

For inventories that are capitalized in preparation of product launch, anticipated future sales, expected approval date and shelf lives are evaluated in assessing realizability. The shelf life of a product is determined as part of the regulatory approval process; however in evaluating whether to capitalize pre-launch inventory production costs, the Company considers the product stability data of all of the pre-approval production to date to determine whether there is adequate expected shelf life for the capitalized pre-launch production costs.

The Company has concluded that KD034, its generic version of trientine hydrochloride, is commercially viable since it is the chemical equivalent of the original drug approved by the U.S. Food and Drug Administration (“FDA”). The Company has submitted two ANDAs with the FDA, and economic benefits of the pre-launch inventory recorded at March 31, 2019 are probable. Accordingly, the pre-launch costs are realizable as the Company expects the inventory will be sold or used prior to expiration. An assessment of likelihood that regulatory approval will not be obtained will be made at each reporting period. If at any time regulatory approval is deemed to not be probable, the inventory will be written down to its net realizable value, which is presumably zero, as the product would have no alternative future use. The Company maintained $0.9 million and $0.9 million of work-in-process inventory related to KD034 at March 31, 2019 and December 31, 2018, respectively.

~~On January 1, 2019, the Company adopted ASC 842 using the modified retrospective transition approach allowed under ASU 2018-11 which releases companies from presenting comparative periods~~Depreciation and ~~related disclosures under ASC 842 and requires a cumulative-effect adjustment to the opening balance~~amortization of retained earnings in the period of adoption (Note 2). The Company is party to six operating leases for office or laboratory space and three finance leases for office IT equipment. The Company’s finance leases are immaterial both individually and in the aggregate. The Company has elected to apply the short-term lease exception to all leases of one year or less. As of March 31, 2019, this exception applies to two operating leases for office space, which are for a term of one year. Further, the Company has applied the guidance in ASC 842 to our corporate office and laboratory leases and have determined that these should be classified as operating leases. Consequently, as a result of the adoption of ASC 842, we recognized a ROU lease asset of approximately $22.7 million with a corresponding lease liability of approximately $27.0 million based on the present value of the minimum rental payments of such leases. In accordance with ASC 842, the beginning balance of the ROU lease asset was reduced by the existing deferred rent liability at inception of approximately $4.3 million. In the consolidated balance sheets at March 31, 2019, the Company has a ROU asset balance of $22.0fixed assets totaled $0.4 million and a current and non-current lease liability of $3.7 million and $22.6 million, respectively, relating to the ROU lease asset. The balance of both the ROU lease asset and the lease liabilities primarily consists of future payments under the Company’s office lease in New York, New York.

The Company is party to an operating lease in New York, New York for office and laboratory space for its headquarters. The lease commenced in October 2010 with the initial term set to expire in February 2021and opened a secured letter of credit with a third party financial institution in lieu of a security deposit for $2.0 million which is included in restricted cash at March 31, 2019. As of March 31, 2019, there were six amendments to this lease agreement, which altered office and laboratory capacity and extended the lease term through October 2025, with total lease cost of $1.2$0.5 million for the three months ended March 31, 2020 and 2019, respectively. Unamortized computer software costs were$0.3 million at March 31, 2020 and December 31, 2019. ~~This office lease contains the ability~~The amortization of computer software costs amounted to ~~extend portions of the lease at fair market value but does not have any renewal options.~~

The Company is party to an operating lease in Warrendale, Pennsylvania (the Company’s specialty-focused commercial operation). In March 2019, the Company entered into an amendment to this lease which extended the lease term to September 30, 2022, with two five-year renewal options which would extend the term to September 30, 2032, if exercised. Rental payments under the renewal period would be at market rates determined from the average rentals of similar tenants in the same industrial park. The option to renew this office lease was not considered when assessing the value of the ROU asset because the Company was not reasonably certain that it will assert its option to renew the lease. Total lease cost for this lease was $0.2$0.1 million for each of the three months ended March 31, 2020 and 2019.

At both March 31, 2020 and December 31, 2019, the Company ~~entered into an operating office lease agreement~~maintained a 5.7% ownership in ~~Cambridge, Massachusetts (the Company’s clinical office) effective January 2016~~the ordinary shares of MeiraGTx with a fair value of $28.2 million and ~~expiring in April 2023.~~$42.0 million, respectively. The Company ~~opened a secured letter~~has recorded an unrealized (loss) gain on the MeiraGTx ordinary shares of ~~credit with a third party financial institution in lieu of a security deposit for $0.1~~$(13.8) million which is included in restricted cash at March 31, 2019. The Company is also party to an operating lease for laboratory space in Princeton, NJ, which expires in February 2021. Neither of these office leases contain any renewal options. Total lease cost for these leases was $0.1and $26.8 million for the three months ended March 31, ~~2019.~~

~~Quantitative information regarding~~2020 and 2019, respectively. The Company’s ownership of MeiraGTx ordinary shares is valued using Level 1 inputs, which includes quoted prices in active markets for identical assets in accordance with the ~~Company’s leases for~~fair value hierarchy. The Company did not realize any gains related to the ordinary shares of MeiraGTx during the three months ended March 31, 2020 or 2019.

The table below represents a rollforward of the Company’s ownership of MeiraGTx ordinary shares from January 1, 2019 ~~is as follows~~to March 31, 2020 (in thousands):

~~Future lease payments under noncancellable leases are as follows (in thousands)~~ at March 31, ~~2019:~~

Note: As most of the Company’s leases do not provide an implicit rate, we use the Company’s incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company uses the incremental borrowing rate on January 1, 2019 for operating leases that commenced prior to that date.

~~Future minimum rental payments under noncancellable leases are as follows (in thousands) at~~2020 or December 31, ~~2018: ~~

Depreciation and amortization of fixed assets totaled $0.5 million and $0.3 million for the three months ended March 31, 2019 and 2018, respectively. The construction-in-progress balance is related to costs of leasehold improvements not yet placed in service and still under development. Unamortized computer software costs were$0.6 million and $0.7 million at March 31, 2019 and December 31, 2018, respectively. The amortization of computer software costs amounted to $0.1 million for each of the three months ended March 31, 2019 and 2018.

The Company’s goodwill relates to the 2010 acquisition of Kadmon Pharmaceuticals, LLC, a Pennsylvania limited liability company that was formed in April 2000. There were no changes in the carrying amount of goodwill for three months ended March 31, 2019 and the year ended December 31, 2018.

On June 12, 2018, MeiraGTx completed its initial public offering (the “MeiraGTx IPO”) whereby it sold 5,000,000 shares of common stock at $15.00 per share. MeiraGTx, a limited company under the laws of the Cayman Islands, is a clinical-stage biotech company developing novel gene therapy treatments for a wide range of inherited and acquired disorders for which there are no effective treatments available. The shares began trading on the Nasdaq Global Select Market on June 7, 2018 under the symbol “MGTX.”

Prior to the MeiraGTx IPO, for the period beginning January 1, 2018 through June 12, 2018, the Company recorded its share of MeiraGTx’s net loss under the equity method of accounting of $1.2 million. The Company had no remaining basis in any of the investments held in MeiraGTx prior to the MeiraGTx IPO. Upon completion of the MeiraGTx IPO, the Company’s investment was diluted to a 13.0% ownership in MeiraGTx common stock and the Company no longer has the ability to exert significant influence over MeiraGTx. The Company discontinued the equity method of accounting for the investment in MeiraGTx on June 12, 2018 and determined the remaining investment to be an equity security accounted for in accordance with ASC 321 at the date the investment no longer qualifies for the equity method of accounting. ASC 321 requires the investments to be recorded at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer. As the Company’s investment in MeiraGTx common stock had a readily determinable market value, the Company recorded an unrealized gain of $40.5 million in June 2018 related to the fair value of its ownership of common stock of MeiraGTx. As of March 31, 2019 and December 31, 2018, the Company maintained a 10.7% and 12.9% ownership, respectively, in the common stock of MeiraGTx with a fair value of $60.9 million and $34.1 million, respectively, recorded as a noncurrent investment in equity securities as depending on certain circumstances, the Company may, at times, be deemed to be an affiliate of MeiraGTx. The Company has recorded an unrealized gain on the MeiraGTx common stock investment of $26.8 million for the three months ended March 31, 2019. The investment in MeiraGTx is valued using Level 1 inputs which includes quoted prices in active markets for identicial assets in accordance with the fair value hierarchy (Note 6). The Company has not realized any gains related to the investment in common stock of MeiraGTx.

The Company was party to a TSA with MeiraGTx which expired in April 2018. Upon expiration of the TSA, the Company continued to provide office space to MeiraGTx. On October 1, 2018, the Company and MeiraGTx entered into a sublease agreement which is effective from October 1, 2018 for a period of two months and will automatically be renewed on a monthly basis unless MeiraGTx provides 30 days prior written notice. The Company’s accounting for this sublease as a lessor was not impacted by the adoption of the new leasing standard ASC 842 (Note 2). As part of the TSA and sublease agreement with MeiraGTx, the Company recognized $0.1 million to other revenue during each of the three months ended March 31, 2019 and 2018. The Company received cash payments of $0.1 million and $1.0 million million from MeiraGTx for the three months ended March 31, 2019 and 2018. The Company has no amounts receivable from MeiraGTx at March 31, 2019 or December 31, 2018.

The Company has entered into several license agreements for products currently under development. The Company’s license agreements are disclosed in the audited financial statements included in Item 8 of ~~the~~its Annual Report on Form 10-K ~~as of and~~ for the year ended December 31, ~~2018~~2019. Since the date of such financial statements, there have been no significant changes to the Company’s license ~~agreements.~~agreements other than described below.

In December 2019, the Company entered into a collaboration agreement with Meiji, a Tokyo-based wholly owned subsidiary of Meiji Holdings Co., Ltd., to form a joint venture to exclusively develop and commercialize KD025 in Japan and certain other Asian countries. The joint venture was entered into through the creation of Romeck Pharma, LLC (“Romeck”), whereby the Company entered into a royalty-bearing exclusive license agreement with Romeck and Meiji in exchange for a 50% interest in Romeck. Romeck is domiciled in Japan with shared oversight between the Company and Meiji.

Under the terms of the license agreement, the Company received an upfront payment of $6.0 million in January 2020 and is eligible to receive an additional $23.0 million in development, regulatory and commercial milestone payments upon the occurrence of specified events over the term of the agreement. In addition, the Company is eligible to receive double-digit percentage royalty payments on sales of KD025 for GVHD in Japan.

The Company assessed the applicability of ASC 810 to the aforementioned agreements and based on the corporate structure, voting rights and contributions of the various parties in connection with these agreements, determined that Romeck was a VIE, however consolidation was not required as the Company was not the primary beneficiary based upon the voting and managerial structure of the entity. The purpose of the VIE is to develop and commercialize KD025 in Japan and the operations of Romeck will be financed entirely by Meiji. The Company has not and is not required to provide financial support under the agreements and has no exposure to loss as a result of its involvement in the VIE. The Company’s investment in Romeck was accounted for under the equity method as the Company has the ability to exercise significant influence over Romeck. The equity method investment was recorded at immaterial cost representing the Company’s initial capital contribution for its ownership. This value was determined based upon the corporate structure which does not allocate profits or losses to the Company. An adjustment to this recorded investment will only occur upon a sales transaction or liquidation event, as defined in the agreement.

The Company evaluated the arrangement under ASC 808 and determined that the license agreement and related joint venture with Romeck is not within the scope of ASC 808, and that the license agreement represents a contract with a customer under ASC 606. The Company has determined that the license agreement contains a single combined performance obligation that consists of the exclusive license to Kadmon’s intellectual property and related initial technology transfer. All other promises included in the license agreement were deemed to be immaterial in the context of the contract including clinical supply, participation in a JSC, and limited technical assistance as requested by Romeck and Meiji.

The Company determined that the $6.0 million non-refundable, upfront payment under the license agreement constituted the entire consideration to be included in the transaction price at the inception of the arrangement. As such, this amount was allocated to the single performance obligation. The potential development, regulatory and commercial milestone payments and sales-based royalties that the Company is eligible to receive represent variable consideration under the license agreement. The development and regulatory milestone amounts were excluded from the transaction price and were fully constrained based on their probability of achievement and the fact that Company cannot reasonably conclude that a significant reversal of revenue related to these milestones would not occur. Any future sales-based royalties, including commercial milestone payments based on the level of sales, will be included in the transaction price and recognized as revenue when the related sales occur and the milestones are achieved. The Company will reevaluate the transaction price at the end of each reporting period as uncertain events are resolved or other changes in circumstances occur, and, if necessary, adjust its estimate of the transaction price.

The single combined performance obligation represents a license of functional intellectual property. The Company had not received the upfront payment or completed the single combined performance obligation as of December 31, 2019. The Company recognized $6.0 million in license revenue in the first quarter of 2020 upon completion of the initial technology transfer. No other milestone or royalty revenues have been earned as of March 31, 2020.

A total of 16,194,138 shares of the Company’s common stock were authorized and reserved for issuance under the Company’s Amended and Restated 2016 Equity Incentive Plan (the “2016 Equity Plan”) at December 31, 2019. On January 1, 2020, pursuant to the evergreen provision contained in the 2016 Equity Plan, the number of shares reserved for future grants was increased by 5,591,600 shares, which was three and one half percent (3.5%) of the outstanding shares of common stock on December 31, 2019. This reserve will increase each subsequent anniversary through January 1, 2025, by an amount equal to the smaller of (a) 4% of the number of shares of common stock issued and outstanding on the immediately preceding December 31, or (b) an amount determined by the Company’s board of directors (the “Board”). At March 31, 2020, there were options to purchase an aggregate of 15,837,954 shares of common stock outstanding at a weighted average price of $5.27 per share under the 2016 Equity Plan.

Total unrecognized compensation expense related to unvested options granted under the Company’s share-based compensation plan was $16.7 million and $6.5 million at March 31, 2020 and December 31, 2019, respectively. That expense is expected to be recognized over a weighted average period of 2.6 years and 2.2 years as of March 31, 2020 and December 31, 2019, respectively. The Company recorded share-based compensation expense under the 2016 Equity Plan of $2.0 million and $2.2 million for the three months ended March 31, 2020 and 2019, respectively.

The following table summarizes information about stock options outstanding, not including performance stock options, from January 1, 2020 to March 31, 2020:

The aggregate intrinsic value in the table above represents the total pre‑tax intrinsic value calculated as the difference between the fair value of the Company’s common stock at March 31, 2020 ($4.19 per share) and December 31, 2019 ($4.53 per share) and the exercise price, multiplied by the related in‑the‑money options that would have been received by the option holders had they exercised their options at the end of the fiscal year. This amount changes based on the fair value of the Company’s common stock. There were 68,001 options exercised during the three months ended March 31, 2020 with an aggregate intrinsic value of $0.1 million. There were no options exercised during the three months ended March 31, 2019.

There were 4,247,000 stock options granted during the three months ended March 31, 2020 with a weighted-average exercise price of $4.34. During the three months ended March 31, 2019, 529,870 stock options were granted with a weighted‑average exercise price of $2.19. The fair value of each stock option award, not including performance stock options, was estimated at the date of grant using the Black-Scholes option-pricing model and the assumptions noted in the following table:

A total of 1,290,000 Performance Options with an exercise price of $4.06 were outstanding at March 31, 2020 with an intrinsic value of $0.2 million and at December 31, 2019 with no intrinsic value. The weighted average remaining contractual life of outstanding Performance Options at March 31, 2020 was 6.4 years. Compensation expense for Performance Awards is recognized on a straight-line basis over the awards’ requisite service period. At March 31, 2020, there was $0.4 million of total unrecognized compensation expense related to unvested Performance Options, which is expected to be recognized over a weighted-average period of 0.9 years. At both March 31, 2020 and December 31, 2019, 853,335 Performance Options had vested and no Performance Options had been exercised.

A total of 835,000 stock appreciation rights (“SARs”) with an exercise price of $3.64 were outstanding at March 31, 2020 with an intrinsic value of $0.5 million and December 31, 2019 no intrinsic value. The weighted average remaining contractual life of outstanding SARs at March 31, 2020 was 6.3 years. Compensation expense for SARs is recognized on a straight-line basis over the awards’ requisite service period. At March 31, 2020, there was $0.4 million of total unrecognized compensation cost related to unvested SARs that is expected to be recognized over a weighted-average period of 0.7 years. At March 31, 2020 and December 31, 2019, 616,667 SARs had vested and no SARs had been exercised.

A total of 9,750 units have been granted under the LTIP as of both March 31, 2020 and December 31, 2019. The LTIP is payable upon the fair market value of the Company’s common stock exceeding 333% of the $6.00 grant price (or $20.00) per share prior to December 7, 2024. The holders of the LTIP awards have no right to demand a particular form of payment, and the Company reserves the right to make payment in the form of cash or common stock. No LTIP awards were exercisable or had been exercised at March 31, 2020.

A total of 2,551,180 shares of the Company’s common stock were reserved for issuance under the Amended and Restated 2016 Employee Stock Purchase Plan (the “2016 ESPP”) at December 31, 2019. The Board elected not to increase the shares reserved for issuance under the 2016 ESPP on January 1, 2020. No shares were issued under the 2016 ESPP during either of the three months ended March 31, 2020 and 2019. No meaningful compensation expense was recognized for the ESPP during the three months ended March 31, 2020 and 2019.

Short-term accrued expenses at March 31, 2020 and December 31, 2019 include the following (in thousands):

The Company recorded $2.4 million in accrued liabilities at both March 31, 2020 and December 31, 2019 relating to commissions to third parties for Class E redeemable convertible unit raises during 2014 and 2015.

Compensation, benefits and severance represent earned and unpaid employee wages and bonuses, as well as contractual severance to be paid to former employees. At March 31, 2020 and December 31, 2019, these accrued expenses totaled $2.2 million and $4.7 million, respectively.

The Company has contracts with third parties for the development of the Company’s product candidates. The timing of the expenses varies depending upon the timing of initiation of clinical trials and enrollment of patients in clinical trials. At March 31, 2020 and December 31, 2019, accrued research and development expenses for which the Company has not yet been invoiced totaled $5.3 million and $5.0 million, respectively.

The Company’s commitments are disclosed in the audited financial statements included in Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. Since the date of such financial statements, there have been no material changes to the Company’s commitments or contingencies, including leases.

The Company may be obligated in future periods to make additional payments, which would become due and payable only upon the achievement of certain research and development, regulatory and approval milestones. The specific timing of such milestones cannot be predicted and depends upon future discretionary clinical developments as well as regulatory agency actions which cannot be predicted with certainty (including action which may never occur). These additional contingent milestone payments aggregate to $215.9 million at March 31, 2019. Any payments made prior to FDA approval will be expensed as research and development. Payments made after FDA approval will be capitalized.

Further, under the terms of certain licensing agreements, the Company may be obligated to pay commercial milestones contingent upon the realization of sales revenues and sublicense revenues. Due to the long-range nature of such commercial milestones, they are neither probable at this time nor predictable, and consequently are not included in the additional contingent milestone payment amount.

A total of ~~11,668,905 shares of the Company’s common~~835,000 stock ~~were authorized and reserved for issuance under the Company’s 2016 Equity Incentive Plan, as amended (the “2016 Equity Plan”~~appreciation rights (“SARs”) at December 31, 2018. This reserve automatically increased to 16,194,138 on January 1, 2019 and will automatically increase each subsequent anniversary through January 1, 2025, by an amount equal to the smaller of (a) 4% of the number of shares of common stock issued and outstanding on the immediately preceding December 31, or (b) an amount determined by the board of directors. At March 31, 2019, there were options to purchase an aggregate of 9,881,148 shares of common stock outstanding at a weighted average price of $6.05 per share under the 2016 Equity Plan.

Total unrecognized compensation expense related to unvested options granted under the Company’s share-based compensation plan was $6.2 million and $6.8 million at March 31, 2019 and December 31, 2018, respectively. That expense is expected to be recognized over a weighted average period of 1.4 years and 1.5 years as of March 31, 2019 and December 31, 2018, respectively. The Company recorded share-based compensation expense under the 2016 Equity Plan of $2.2 million and $2.6 million for the three months ended March 31, 2019 and 2018, respectively.

~~The following table summarizes information about stock options outstanding, not including performance stock options, at March 31, 2019 and December 31, 2018:~~

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value calculated as the difference between the fair value of the Company’s common stock at March 31, 2019 ($2.64 per share) and the exercise price, multiplied by the related in-the-money options that would have been received by the option holders had they exercised their options at the end of the period. This amount changes based on the fair value of the Company’s common stock. There were no options exercised during the three months ended March 31, 2019 and 2018.

There were 529,870 stock options granted during the three months ended March 31, 2019 with a weighted-average exercise price of $2.19. During the three months ended March 31, 2018, 5,077 stock options were granted with a weighted‑average exercise price of $8.70. The fair value of each stock option award, not including performance stock options, was estimated at the date of grant using the Black-Scholes option-pricing model and the assumptions noted in the following table:

On April 3, 2018 the Company granted 1,597,500 nonqualified performance-based stock options (“Performance Options”) to certain executive officers (each, a “Grantee”) under the 2016 Equity Plan, which represents the maximum number of Performance Options that may be earned if all three performance milestones (each, a “Performance Goal”) are achieved during the three-year period following the Grant Date (the “Performance Period”). The Performance Options may be earned based on the achievement of three separate Performance Goals related to the Company’s operating and research and development activities during the Performance Period, subject to the Grantee’s employment through the achievement date. If no Performance Goals are achieved during the Performance Period, the Performance Options will be forfeited. Each Performance Option was granted with an exercise price of ~~$4.06 per share and does not contain any voting rights. No other Performance Options have been granted under the 2016 Equity Plan.~~

~~The weighted-average fair~~$3.64 were outstanding at March 31, 2020 with an intrinsic value of ~~the Performance Options granted~~$0.5 million and December 31, 2019 no intrinsic value. The weighted average remaining contractual life of outstanding SARs at March 31, 2020 was $2.71 and was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions: risk-free interest rate of 2.67%, expected term of 6.0 years, expected volatility of 74.50%, and a dividend rate of 0%.

6.3 years. Compensation expense for ~~the Performance Options~~SARs is recognized on a straight-line basis over the awards’ requisite service period. At March 31, 2020, there was $0.4 million of total unrecognized compensation cost related to unvested SARs that is expected to be recognized over a weighted-average period of 0.7 years. At March 31, 2020 and December 31, 2019, 616,667 SARs had vested and no SARs had been exercised.

A total of 9,750 units have been granted under the LTIP as of both March 31, 2020 and December 31, 2019. The ~~Performance Options vest~~LTIP is payable upon the ~~satisfaction~~fair market value of ~~both~~the Company’s common stock exceeding 333% of the $6.00 grant price (or $20.00) per share prior to December 7, 2024. The holders of the LTIP awards have no right to demand a ~~service condition and the satisfaction~~particular form of one or more performance conditions, therefore the Company initially determined which outcomes are probable of achievement. The Company believes that the three-year service condition (explicit service period) and all three performance conditions (implicit service periods) will be satisfied. The requisite service period would be three years as that is the longest period of both the explicit service period and the implicit service periods. The first two performance conditions were satisfied during 2018payment, and the Company ~~expects~~reserves the right to make payment in the form of cash or common stock. No LTIP awards were exercisable or had been exercised at March 31, 2020.

Short-term accrued expenses at March 31, 2020 and December 31, 2019 include the following (in thousands):

The Company recorded $2.4 million in accrued liabilities at both March 31, 2020 and December 31, 2019 relating to commissions to third ~~performance condition~~parties for Class E redeemable convertible unit raises during 2014 and 2015.

Compensation, benefits and severance represent earned and unpaid employee wages and bonuses, as well as contractual severance to be ~~satisfied~~paid to former employees. At March 31, 2020 and December 31, 2019, these accrued expenses totaled $2.2 million and $4.7 million, respectively.

The Company has contracts with third parties for the development of the Company’s product candidates. The timing of the expenses varies depending upon the timing of initiation of clinical trials and enrollment of patients in clinical trials. At March 31, 2020 and December 31, 2019, accrued research and development expenses for which the ~~second quarter of 2019.~~ Company has not yet been invoiced totaled $5.3 million and $5.0 million, respectively.

~~During~~The Company’s commitments are disclosed in the audited financial statements included in Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018, 307,500 Performance Options were forfeited. A total~~2019. Since the date of ~~1,290,000 Performance Options are outstanding at both March 31, 2019 and December 31, 2018 with an exercise price of $4.06 per share and~~such financial statements, there have been no instrinsinc value. The weighted average remaining contractual life of outstanding Performance Options at March 31, 2019 is 9.0 years. At March 31, 2019, there was $1.2 million of total unrecognized compensation expense relatedmaterial changes to ~~unvested Performance Options which is expected to be recognized over a weighted-average period of 1.6 years. No Performance Options have vested~~the Company’s commitments or ~~been exercised as of March 31, 2019. In April 2019, 286,668 Performance Options vested and became exercisable in accordance with the terms of the awards.~~contingencies, including leases.

A total of 835,000 stock appreciation rights (“SARs”) ~~are outstanding at both March 31, 2019 and December 31, 2018,~~ with an exercise price of $3.64 ~~per share~~were outstanding at March 31, 2020 with an intrinsic value of $0.5 million and December 31, 2019 no intrinsic value. The weighted average remaining contractual life of outstanding SARs at March 31, ~~2019 is 8.7~~2020 was 6.3 years. Compensation expense for SARs is recognized on a straight-line basis over the awards’ requisite service period. At March 31, ~~2019,~~2020, there was ~~$1.1~~$0.4 million of total unrecognized compensation cost related to unvested SARs ~~which~~that is expected to be recognized over a weighted-average period of ~~1.7~~0.7 years. At ~~both~~ March 31, ~~2019~~2020 and December 31, ~~2018, 278,335~~2019, 616,667 SARs ~~are~~had vested and no SARs ~~have~~had been exercised.

A total of 9,750 units have been granted under the LTIP as of both March 31, ~~2019~~2020 and December 31, ~~2018.~~2019. The LTIP is payable upon the fair market value of the Company’s common stock exceeding 333% of the $6.00 grant price ~~($20.00)~~(or $20.00) per share prior to December 7, 2024. The holders of the LTIP awards have no right to demand a particular form of payment, and the Company reserves the right to make payment in the form of cash or common stock. No LTIP awards ~~are~~were exercisable or ~~have~~had been exercised at March 31, ~~2019.~~2020.

A total of 2,551,180 shares of the Company’s common stock were reserved for issuance under the Amended and Restated 2016 Employee Stock Purchase Plan ~~as amended~~ (the “2016 ESPP”) at December 31, ~~2018.~~2019. The Board elected not to increase the shares reserved for issuance under the 2016 ESPP on January 1, ~~2019.~~ 2020. No shares were issued under the 2016 ESPP during either of the three months ended March 31, ~~2019. 32,273 shares were issued under the 2016 ESPP in April~~2020 and 2019. No meaningful compensation expense was recognized for the ESPP during the three months ended March 31, ~~2019~~2020 and ~~2018.~~2019.

Short-term accrued expenses at March 31, ~~2019~~2020 and December 31, ~~2018~~2019 include the following (in thousands):

~~During 2014 and 2015, the~~The Company raised $40.4 million in gross proceeds, $37.2 million net of $3.2 million in transaction costs, through the issuance of 3,514,859 Class E redeemable convertible units. Of the $3.2 million in transaction costs,recorded $2.4 million ~~remains~~ in accrued liabilities at both March 31, ~~2019~~2020 and December 31, ~~2018~~2019 relating to commissions to third parties for Class E redeemable convertible unit raises during 2014 and 2015.

Compensation, benefits and severance represent earned and unpaid employee wages and bonuses, as well as contractual severance to be paid to former employees. At March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, these accrued expenses totaled ~~$1.6~~$2.2 million and ~~$3.8~~$4.7 million, respectively. A separation agreement with Dr. Samuel D. Waksal, which expired on February 8, 2019, contained severance payments and certain supplement conditional payments. The Company paid $0.1 million of severance payments during the three months ended March 31, 2019 related to amounts accrued at December 31, 2018 and has not recorded any expense related to these conditional payments as of March 31, 2019 as none of the conditional payments were met as of the expiration of the agreement on February 8, 2019.

The Company has contracts with third parties for the development of the Company’s product candidates. The timing of the expenses varies depending upon the timing of initiation of clinical trials and enrollment of patients in clinical trials. At ~~both~~ March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, accrued research and development expenses for which the Company has not yet been invoiced totaled ~~$4.8 million.~~$5.3 million and $5.0 million, respectively.

The Company’s commitments are disclosed in the audited financial statements included in Item 8 of the Company’s Annual Report on Form 10-K ~~as of and~~ for the year ended December 31, ~~2018~~2019. Since the date of such financial statements, there have been no material changes to the Company’s ~~commitments. Further, the Company’s~~ commitments ~~related to lease agreements are disclosed in~~ ~~Note 8~~ ~~to our unaudited consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.~~or contingencies, including leases.

The Company has ~~been subject~~entered into several license agreements for products currently under development (Note 9).The Company may be obligated in future periods to ~~various legal proceedings that arise from time~~make additional payments, which would become due and payable only upon the achievement of certain research and development, regulatory and approval milestones. The specific timing of such milestones cannot be predicted and depends upon future discretionary clinical developments as well as regulatory agency actions which cannot be predicted with certainty (including action which may never occur). These additional contingent milestone payments aggregate to time in the ordinary course of its business. Although the Company believes that the various proceedings brought against it have been without merit, and that it has adequate product liability and other insurance to cover any claims, litigation is subject to many factors which are difficult to predict and there can be no assurance that the Company will not incur material costs in the resolution of legal matters. Should the Company determine that any future obligations will exist, the Company will record expense equal to the amount which is deemed probable and estimable. The Company has no significant contingencies related to legal proceedings$225.9 million at March 31, ~~2019.~~2020. Any payments made prior to FDA approval will be expensed as research and development. Payments made after FDA approval will be capitalized.

Under the terms of certain licensing agreements, the Company may be obligated to pay commercial milestones contingent upon the realization of sales revenues and sublicense revenues. Due to the long-range nature of such commercial milestones, they are neither probable at this time nor predictable, and consequently are not included in the additional contingent milestone payment amount.

The Company’s related party transactions are disclosed in the audited financial statements included in Item 8 of the Company’s Annual Report on Form 10-K ~~as of and~~ for the year ended December 31, ~~2018~~2019. Since the date of such financial statements, there have been no changes to the Company’s related party transactions other than those related to MeiraGTx (Note ~~11)~~ 8).

The Company files a consolidated tax return for Kadmon Holdings, Inc. and its domestic subsidiaries and the required information returns for its international subsidiaries, all of which are wholly owned. Where permitted, the Company files combined state returns, but in some instances separate company returns for certain subsidiaries on a stand-alone basis are required.

There was no change in deferred tax liability for the three months ended March 31, 2020 or 2019 and no income tax expense was recorded for the three months ended March 31, 2020 or 2019. Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company’s deferred tax assets relate primarily to its net operating loss (“NOL”) carryforwards and other balance sheet basis differences. In accordance with ASC 740, ~~“Income~~Income Taxes,” the Company recorded a valuation allowance to fully offset the gross deferred tax asset, because it is more likely than not that the Company will not realize future benefits associated with these deferred tax assets at March 31, ~~2019~~2020 and December 31, ~~2018. There was no change in deferred tax liability for the three months ended March 31, 2019 and no income tax expense was recorded for the three months ended March 31, 2019 and 2018.~~

2019. At December 31, ~~2018,~~2019, the Company had unused federal and state ~~net operating loss (“NOL”) carry-forwards~~NOL carryforwards of ~~$460.3~~$371.1 million and ~~$404.3~~$307.2 million, respectively, that may be applied against future taxable income. The Company has fully reserved the deferred tax asset related to these NOL ~~carry-forwards~~carryforwards as reflected in ~~our~~its consolidated financial statements. These ~~carry-forwards~~carryforwards expire at various dates through December 31, 2037, with the exception of approximately ~~$44.0~~$79.9 million of federal ~~net operating loss carry-forwards which~~NOL carryforwards that will not expire.

In the United States, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) on March 27, 2020, which provides relief to taxpayers affected by COVID-19. The ~~20-year limitation was eliminated~~CARES Act includes several business provisions that may impact a company’s accounting for ~~losses generated after January 1, 2018, giving~~income taxes. In addition, the ~~taxpayer the ability~~impact of COVID-19 itself on businesses draws attention to ~~carry forward losses indefinitely. However, NOL carry-forwards arising after January 1, 2018, will now be limited to 80 percent of taxable income.~~

~~The use of the Company’s NOL carry-forwards may, however, be subject to limitations as a result of an ownership change. A corporation undergoes an “ownership change,”~~certain provisions in general, if a greater than 50% change (by value) in its equity ownership by one or more five-percent stockholders (or certain groups of non-five-percent stockholders) over a three-year period occurs. After such an ownership change, the corporation’s use of its pre-change NOL carry-forwards and other pre-change tax attributes to offset its post-change income is subject to an annual limitation determined by the equity value of the corporation on the date the ownership change occurs multiplied by a rate determined monthly by the Internal Revenue Service. This rate for April 2019 equals 2.20 percent.ASC 740. The Company ~~experienced ownership changes under Section 382 of~~analyzed the Code in 2010, 2011 and 2016, but the Company did not reduce the gross deferred tax assets related to the NOL carry-forwards because the limitations do not hinder the Company’s ability to potentially utilize all of the NOL carry-forwards.

~~The Company is likely to experience another ownership change~~business provisions in the ~~future, possibly in 2019, as~~CARES Act and determined that the Act does not have a result of shifts in stock ownership due to any future equity offerings. A renewed ownership change will likely materially and substantially reduce the Company’s ability to fully utilize the NOL carry-forwards and, consequently, will likely reduce the gross deferredsignificant impact on its income tax assets related to the NOL carry-forwards. If an ownership change occurred and if the Company earned net taxable income, our ability to use the pre-change NOLs to offset U.S. federal taxable income would be subject to these limitations, which could potentially result in increased future tax liability compared to the tax liability the Company would incur if the use of NOL carry-forwards were not so limited.

In April 2019, the Company sold 2,538,100 shares of common stock at a price of $2.70 per share through the ATM Offering and received total gross proceeds of $6.9 million ($6.7 million net of $0.2 million of commissions payable). As of March 31, 2019, the Company had sold 13,778,705 shares of common stock under the ATM Offering.

The Company considers events or transactions that occur after the balance sheet date but prior to the issuance of the financial statements to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure.

Paycheck Protection Program Loan under the Coronavirus Aid, Relief, and Economic Security Act

On April 15, 2020, the Company received the proceeds from a loan in the amount of approximately $3.1 million (the “PPP Loan”) from PNC Bank, National Association, as lender, pursuant to the Paycheck Protection Program (“PPP”) of the CARES Act. The PPP Loan matures on April 15, 2022 and bears interest at a rate of 1% per annum. Commencing November 15, 2020, the Company is required to pay the lender equal monthly payments of principal and interest as required to fully amortize by April 15, 2022 the principal amount outstanding on the PPP Loan as of October 15, 2020. The PPP Loan is evidenced by a promissory note dated April 15, 2020 (the “Note”), which contains customary events of default relating to, among other things, payment defaults and breaches of representations and warranties. The PPP Loan may be prepaid by the Company at any time prior to maturity with no prepayment penalties.

The application for these funds required the Company to certify in good faith that the current economic uncertainty made the loan request necessary to support the ongoing operations of the Company. This certification further required the Company to take into account our current business activity and our ability to access other sources of liquidity sufficient to support ongoing operations in a manner that is not significantly detrimental to the business. The Company made this good faith assertion based upon the degree of uncertainty introduced to the capital markets as a result of the COVID-19 pandemic and the Company’s dependency on its ability to raise capital to fund ongoing operations. While the Company has made this assertion in good faith based upon all available guidance, management will continue to assess their continued qualification if and when updated guidance is released by the Treasury Department.

All or a portion of the PPP Loan may be forgiven by the U.S. Small Business Administration (“SBA”) upon application by the Company beginning 60 days but not later than 120 days after loan approval and upon documentation of expenditures in accordance with the SBA requirements. Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, covered rent payments, covered mortgage interest and covered utilities during the eight-week period beginning on the date of loan approval. For purposes of the CARES Act, payroll costs exclude compensation of an individual employee in excess of $100,000, prorated annually. Not more than 25% of the forgiven amount may be for non-payroll costs. Forgiveness is reduced if full-time headcount declines, or if salaries and wages for employees with salaries of $100,000 or less annually are reduced by more than 25%. The ultimate forgiveness of the PPP loan is also predicated upon regulatory authorities concurring with management’s good faith assessment that the current economic uncertainty made the loan request necessary to support ongoing operations. If, despite the Company’s good-faith belief that given the circumstances the Company satisfied all eligibility requirements for the PPP Loan, the Company is later determined to have violated any applicable laws or regulations or it is otherwise determined that the Company was ineligible to receive the PPP Loan, the Company may be required to repay the PPP Loan in its entirety and/or be subject to additional penalties. In the event the PPP Loan, or any portion thereof, is forgiven pursuant to the PPP, the amount forgiven is applied to outstanding principal.

The Company intends to use all proceeds from the PPP Loan to retain employees, maintain payroll and make lease, rent and utility payments. Under the terms of the loan, the Company may be eligible for full or partial loan forgiveness in the second quarter of 2020, however, no assurance is provided that the Company will apply for, or obtain forgiveness for, any portion of the Loan.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

In this Quarterly Report on Form 10-Q, unless otherwise stated or the context otherwise requires, references to the “Company,” “Kadmon,” “we,” “us” and “our” refer to Kadmon Holdings, Inc. and its consolidated subsidiaries. You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing in this Quarterly Report on Form 10-Q and those in included in Item 8 of ~~the~~our Annual Report on Form 10-K ~~as of and~~ for the year ended December 31, ~~2018.~~2019. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in ~~the “Risk Factors” section of~~ this Quarterly Report on Form 10-Q (including in the section titled “Forward-Looking Statements”) and our most recent Annual Report on Form 10-K, our actual results could differ materially from the results described in, or implied by, the forward-looking statements contained in the following discussion and analysis.

We are a ~~fully integrated~~ biopharmaceutical company engaged in the discovery, development and commercialization of small molecules and biologics to address significant unmet medical needs, with a near-term clinical focus on ~~autoimmune,~~ inflammatory and fibrotic ~~diseases. Our~~diseases, as well as immuno-oncology. We leverage our multi-disciplinary research and development team ~~which has~~members to identify and pursue a ~~proven track record~~diverse portfolio of ~~successful drug development~~novel product candidates, both through in-licensing products and ~~commercialization, identifies and develops novel candidates from~~employing our small molecule and biologics ~~platforms as well as develops our in-licensed product candidates. By retaining global commercial rights to our lead product candidates, we~~platforms. We believe that we have the ability to progress these candidates ourselves while maintaining flexibility for commercial and licensing arrangements. We expect to continue to progress our clinical candidates and have further clinical trial ~~data~~events to report ~~throughout 2019.~~in the remainder of in 2020.

The recent global pandemic caused by a novel strain of the coronavirus SARS-COV-2, which causes a disease that is referred to as coronavirus disease 2019 (COVID-19), may materially affect us economically. While the economic impact of the COVID-19 pandemic may be difficult to assess or predict, this widespread pandemic has resulted in a significant disruption of global financial markets, which may reduce our ability to access capital. If the disruption to the financial markets is protracted, our liquidity could be negatively affected in the future. In addition, a recession or market correction resulting from the COVID-19 pandemic could materially affect our business and the value of our common stock. During these uncertain times, the Company’s top priorities are to ensure the health and welfare of its employees, maintain product safety and continue to advance its clinical studies. However, our clinical trials have been impacted, and we may experience delays in anticipated timelines and milestones. For instance, due to interruptions at clinical sites, enrollment has been delayed in our ongoing Phase 2 clinical trial of KD025 in systemic sclerosis and in our planned clinical trial of KD033. In addition we may experience disruptions in our supply chain, including our supply of our product candidates, which may adversely affect the conduct of our clinical trials. We rely on contract research organizations (CROs) to conduct our clinical trials. Our CROs may be unable to conduct clinical trials for product candidates as a result of the COVID-19 pandemic. The COVID-19 pandemic could impact our healthcare systems and our clinical trial sites’ ability to conduct trials to varied degrees and times. COVID-19 creates risk of interrupting availability of necessary clinical supplies as well as local regulatory reviews, hospital ethics committee reviews and site monitors.

Our operations to date have been focused on developing first-in-class innovative therapies for indications with significant unmet medical needs while leveraging our commercial infrastructure. We have never been profitable and had an accumulated deficit of ~~$266.6~~$362.9 million at March 31, ~~2019.~~2020. Our net (loss) income was $(29.3) million and $3.6 million for the three months ended March 31, ~~2019~~2020 and ~~our net loss was $20.4 million for the three months ended March 31, 2018. The net income for the three months ended~~ March 31, 2019, ~~is driven by~~respectively.

We currently market CLOVIQUE™ (Trientine Hydrochloride Capsules, USP), a ~~$26.8 million non-cash unrealized gain related to our investment in MeiraGTx common stock.~~

room-temperature stable innovative product developed in-house at Kadmon and generic Trientine Hydrochloride Capsules USP, 250 mg (collectively, “CLOVIQUE”). Although our commercial business generates revenue, the revenues generated for the three months ended March 31, 2020 and 2019 ~~and 2018 are~~were not significant, and we expect to incur significant losses for the foreseeable future and expect these losses to increase as we continue our development of, and seek regulatory approvals for, our additional product candidates, hire additional personnel and initiate commercialization of any products that receive regulatory approval. We anticipate that our expenses will increase substantially if, or as, we:

~~Our revenue is substantially derived from sales~~The components of our ~~portfolio~~statement of ~~products, including ribavirin and tetrabenazine. We also recognize service revenue from our TSA and sublease agreement with MeiraGTx.~~

~~Cost of sales consists of product costs, including ingredient costs and costs of contract manufacturers~~operations are disclosed in the audited financial statements for ~~production, and shipping and handling of~~ the ~~products. Also included are costs related to quality release testing and stability testing of the products. Other costs~~year ended December 31, 2019 included in ~~cost~~our Annual Report on Form 10-K filed on March 5, 2020 with the Securities Exchange Commission (“SEC”). Since the date of ~~sales are packaging costs, warehousing costs and certain allocated costs related~~such financial statements, there have been no significant changes to ~~management, facilities, and other expenses associated with supply chain logistics.~~

~~Research and development expenses consist primarily of costs incurred for~~ the ~~development~~components of our ~~product candidates, which include:~~

~~Our research and development expenses may vary substantially from period to period based on the timing~~statement of our research and development activities, including due to timing of initiation of clinical trials and enrollment of patients in clinical trials. We do not allocate personnel-related costs, including share-based compensation, costs associated with broad technology platform improvements and other indirect costs to specific product candidates. We do not allocate these costs to specific product candidates because they are deployed across multiple overlapping projects under development, making it difficult to specifically and accurately allocate such costs to a particular product candidate.

~~The successful development of our product candidates is highly uncertain and subject to numerous risks including, but not limited to:~~

~~A change in the outcome of any of these variables could mean a significant change in the expenses and timing associated with the development of any product candidate.~~

Selling, general and administrative expenses consist primarily of salaries and related costs for non-research personnel, including stock-based compensation and travel expenses for our employees in executive, operational, finance, legal, commercial, regulatory, pharmacovigilance and human resource functions. Other selling, general and administrative expenses include facility-related costs, business insurance, director compensation, accounting and legal services, consulting costs and programs and marketing costs to support the commercial business.

Other income (expense) is comprised of interest income earned on cash and cash equivalents and restricted cash and interest expense on our outstanding indebtedness, including non-cash interest related to the amortization of debt discount, debt premium and deferred financing costs associated with our indebtedness. Our loss on equity method investment in MeiraGTx, as well as gains and losses arising from changes in fair value of our common stock ownership in MeiraGTx are recognized in other income (expense) in the consolidated statements of operations. Changes in the fair value of financial instruments, based upon the fair value of the underlying security at the end of each reporting period as calculated using the Black-Scholes option pricing model, are also recognized in other income (expense). Such financial instruments include warrant liabilities for which cash settlement features exist.

In addition, we operate in currencies other than the U.S. dollar to fund certain research and development and commercial activities performed by various third-party vendors. The translation of these currencies into U.S. dollars results in foreign currency gains or losses, depending on the change in value of these currencies against the U.S. dollar. These gains and losses are included in other income (expense).

We file a consolidated tax return for Kadmon Holdings, Inc. and its domestic subsidiaries and the required information returns for its international subsidiaries, all of which are wholly owned. Where permitted, we file combined state returns, but in some instances separate company returns for certain subsidiaries on a stand alone basis are required. At both March 31, 2019 and December 31, 2018, we had a deferred tax liability of $0.4 million and a full valuation allowance for our deferred tax assets.

Management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reporting amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to ~~investments, goodwill, fair value of financial instruments,~~ share-based compensation, the accrual of research and ~~accrued expenses.~~development and clinical trial expenses and the valuation of our investment in MeiraGTx. We base our estimates on historical experience, known trends and events and various other factors that we believe to be 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.

~~The Company’s~~Our significant accounting policies are disclosed in ~~the~~our audited financial statements for the year ended December 31, ~~2018~~2019 included in ~~the Company’s~~our Annual Report on Form 10-K filed on March ~~7, 2019~~5, 2020 with the ~~Securities Exchange Commission (“SEC”) pursuant to the Securities Act of 1933, as amended.~~SEC. Since the date of such financial statements, there have been no changes to ~~the Company’s~~our significant accounting ~~policies except for the change in lease accounting upon adoption of ASC 842 (See Note 2 and Note 8~~ ~~to our unaudited consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q~~).policies.

See Note 2 of the notes to our unaudited consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for a summary of recently issued and adopted accounting pronouncements.

~~Total revenue decreased by 44.3%, or approximately $0.2 million, from $0.4 million for the three months ended March 31, 2018 to $0.2 million for the three months ended March 31, 2019.~~ The ~~decrease~~increase in total revenue on a quarterly basis was primarily attributable to ~~the decline~~a milestone payment earned pursuant to a joint venture and license agreement entered into with Meiji Seika Pharma Co., Ltd (“Meiji”) to develop KD025 in Japan, as well as an increase in CLOVIQUE sales ~~of tetrabenazine from $0.2 million for the three months ended March 31, 2018~~in 2020 as compared to ~~less than $0.1 million for the three months ended March 31,~~ 2019. ~~Total revenue also included service and sublease revenue from MeiraGTx of $0.1 million for each of the three months ended March 31, 2019 and 2018.~~

~~Cost~~The increase in cost of sales was ~~less than $0.1 million and $0.2 million~~primarily attributable to the increase in CLOVIQUE net sales revenue for the three months ended March 31, ~~2019 and 2018, respectively. We recognized $0.1 million of~~2020.

The increase in inventory write-downs during the three months ended March 31, ~~2018~~2020 as compared to the three months ended March 31, 2019 was related to write-downs of our ~~Ribasphere~~CLOVIQUE inventory based on our expectation that such inventory will not be sold prior to reaching its product expiration date. ~~There were no significant inventory write-downs recroded in the three months ended March 31, 2019.~~

~~Research~~The decrease in research and development expenses ~~increased by 53.3%, or approximately $5.2 million, to $15.0 million~~ for the three months ended March 31, ~~2019 from $9.8 million for the three months ended March 31, 2018. The increase in research and development expense for the three months ended March 31, 2019~~2020 as compared to the three months ended March 31, ~~2018,~~2019 was primarily related to a decrease in development ~~of the Company’s most advanced product candidate KD025, as well as the development of KD045~~costs for KD033 and ~~KD033.~~KD045.

~~Selling,~~The increase in selling, general and administrative expenses ~~decreased by 3.7%, or approximately $0.3 million, to $7.9 million~~ for the three months ended March 31, 2019 from $8.3 million for the three months ended March 31, 2018. The decrease in selling, general and administrative expense is primarily related to a decrease in legal and marketing costs for the three months ended March 31, 20192020 as compared to the three months ended March 31, ~~2018.~~ 2019 was primarily related to increased commercial, programs and marketing expenses, as well as IT expenses.

The following table provides components of other ~~(income) expense:~~(expense) income:

~~For~~The increase in other (expense) for the three months ended March 31, ~~2019,~~2020 as compared to other income consisted primarily of unrealized gains related to our investment in MeiraGTx common stock of $26.8 million and interest income of $0.7 million, partially offset by a change in the fair value of financial instruments of $0.2 million and interest expense and other costs related to our debt of $0.9 million.

For the three months ended March 31, 2018, other expense consisted primarily of interest expense and other costs related to our debt of $1.5 million and a loss on equity method investment in MeiraGTx of $1.2 million, partially offset by interest income of $0.1 million and a change in the fair value of financial instruments of $0.1 million.

~~No income tax expense was recorded~~ for the three months ended March 31, 2019 was primarily attributable to the fluctuations in our investment in MeiraGTx ordinary shares. This increase in other (expense) is partially offset by a decrease in interest and ~~2018.~~debt related costs as we repaid our remaining outstanding term debt in the fourth quarter of 2019.

We have ~~30,000~~28,708 shares of 5% convertible preferred stock outstanding, which accrue dividends at a rate of 5% and ~~converts~~convert into shares of our common stock at a 20% discount to the initial public offering price per share of common stock in the Company’s IPO of $12.00 per share, or $9.60 per share. In May 2019, the holders of ~~our~~1,292 shares of 5% convertible preferred stock exercised their right to convert their convertible preferred shares into 154,645 shares of the Company’s common stock. WeThe Company accrued dividends on the 5% convertible preferred stock of $0.4 million ~~for~~during each of the three months ended March 31, ~~2019~~2020 and ~~2018.~~2019. The Company ~~also~~ calculated a deemed dividend of $0.1 million on the $0.4 million of accrued dividends ~~for~~during each of the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, which is a beneficial conversion feature. The stated liquidation preference ofamount on the 5% convertible preferred stock totaled ~~$33.0~~$33.1 million at March 31, ~~2019.~~2020.

We maintained cash and cash equivalents of $99.4 million at March 31, 2019. We had an accumulated deficit of $266.6 million and working capital of $77.1 million at March 31, 2019.We entered into a Sales Agreement with Cantor Fitzgerald & Co. in August 2017 under which we may sell up to $40.0 million in shares of its common stock in one or more placements at prevailing market prices for its common stock (the “ATM Offering”). Any such sales would be effected pursuant to our registration statement on Form S-3 (File No. 333-222364), declared effective by the SEC on January 10, 2018. In January 2019, we sold 13,778,705 shares of common stock at a weighted average price of $2.17 per share through the ATM Offering Program and received total gross proceeds of $29.9 million ($29.0 million net of $0.9 million of commissions). In April, 2019, the Company sold 2,538,100 shares of common stock at a price of $2.70 per share through the ATM Offering and received total gross proceeds of $6.9 million ($6.7 million net of $0.2 million of commissions payable by us) (see Note 19 to our unaudited consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q). Our existing cash and cash equivalents are expected to enable us to advance our planned Phase 2 clinical studies for KD025 and advance certain of our other pipeline product candidates and provide for other working capital purposes.

Our plans include continuing to finance operations through the issuance of additional equity securities and increasing the commercial portfolio through the development of the current pipeline or through strategic collaborations. Any transactions which occur may contain covenants that restrict the ability of management to operate the business or may have rights, preferences or privileges senior to the our common stock and may dilute our current stockholders.

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate our continuation as a going concern. We have not established a source of revenues sufficient to cover our operating costs, and as such, have been dependent on funding operations through the issuance of debt and sale of equity securities. Since inception, we have experienced significant loses and incurred negative cash flows from operations. We expect to incur further losses over the next several years as we develops our business. We have spent, and expect to continue to spend, a substantial amount of funds in connection with implementing our business strategy, including our planned product development efforts, preparation for our planned clinical trials, performance of clinical trials and our research and discovery efforts.

Our cash and cash equivalents are not expected to be sufficient to enable us to meet our long-term expected plans, including commercialization of clinical pipeline products, if approved, or initiation or completion of future registrational studies. We have no commitments for any additional financing and may not be successful in our efforts to raise additional funds or achieve profitable operations, and there can be no assurance that additional financing will be available to us on commercially acceptable terms or at all. Any amounts raised will be used for further development of our product candidates, for marketing and promotion, to secure additional property and equipment and for other working capital purposes.

If we are unable to obtain additional capital, our long-term business plan may not be accomplished and we may be forced to curtail or cease operations. Further, the 2015 Credit Agreement contains certain developmental milestones that must be achieved by December 31, 2019, which are considered to be outside of our control, as well as a minimum liquidty covenant. As such, if achievement of the developmental milestones does not occur as anticipated by December 31, 2019 or we violate our minimum liquidty covenant, we may need to use cash and cash equivalents to fund certain repayment commitments, as any such non-compliance could, under the remedies set forth in the 2015 Credit Agreement, trigger a termination of the Commitments (as defined in the 2015 Credit Agreement) or a declaration by the Lender that the Loan (as defined in the 2015 Credit Agreement) be due and payable in whole or part, together with any applicable fees and/or interest thereon. These factors individually and collectively continue to raise substantial doubt about our ability to continue as a going concern. The accompanying financial statements do not include any adjustments or classifications that may result from the possible inability of us to continue as a going concern

Since our inception through March 31, ~~2019,~~2020, we have raised net proceeds from the issuance of equity and debt. At March 31, 2019, we had $28.0 million of outstanding loans under the 2015 Credit Agreement that matures in July 2020. As of the date hereof, we are not in default under the terms of the 2015 Credit Agreement. The CompanyWe maintained cash and cash equivalents of ~~$99.4~~$120.0 million at March 31, ~~2019.~~2020.

The following table sets forth the primary sources and uses of cash, ~~and~~ cash equivalents and restricted cash for each period set forth below:

The net cash used in operating activities was $19.8 million for the three months ended March 31, 2020, and consisted primarily of a net loss of $(29.3) million adjusted for $17.2 million in net non-cash items, including unrealized loss on equity securities of $13.8 million, offset by the depreciation and amortization of fixed assets and noncash operating lease cost of $1.3 million, write-down of inventory of $0.3 million, change in fair value of warrant liabilities of $(0.2) million and share-based compensation expense of $2.0 million, as well as a net decrease in operating assets and liabilities of $7.8 million. Once adjusted for the non-cash items above, the cash used in operating activities for the three months ended March 31, 2020 was primarily driven by selling, general and administrative expenses of $6.7 million and research and development expense related to the advancement of our clinical product candidates of $12.3 million.

The net cash used in operating activities was $24.1 million for the three months ended March 31, 2019, and consisted primarily of a net income of $3.6 million adjusted for $23.0 million in non-cash items, including unrealized gain on equity securities of $26.8 million, offset by the depreciation and amortization of fixed assets and ~~right-of-use~~noncash operating lease ~~assets~~cost of $1.3 million, amortization of deferred financing costs, debt discount and debt premium of $0.1 million, change in fair value of ~~financial instruments~~warrant liabilities of $0.2 million and share-based compensation expense of $2.2 million, as well as, a net decrease in operating assets and liabilities of $4.7 million. Once adjusted for the non-cash items above, the cash used in operating activities for the three months ended March 31, 2019 was primarily driven by selling, general and administrative expenses of $5.0 million and research and development expense related to the advancement of our clinical product candidates of $14.4 million and interest paid on our debt of $0.8 million.

The net cash used in operating activities was $17.1 million for the three months ended March 31, 2018, and consisted primarily of a net loss of $20.4 million adjusted for $4.6 million in non-cash items, including the depreciation and amortization of fixed assets of $0.3 million, amortization of deferred financing costs, debt discount and debt premium of $0.5 million, loss on equity method investment of $1.2 million and share-based compensation expense of $2.6 million, as well as, a net decrease in operating assets and liabilities of $1.4 million, primarily driven by a decrease of $1.1 million in accounts payable, accrued expenses and other liabilities due to timing of payments for certain services. The net loss was primarily driven by selling, general and administrative expenses of $8.3 million, research and development expense related to the advancement of our clinical product candidates of $9.8 million and interest paid on our debt of $1.0 million.

Net cash used in investing activities was negligible for the three months ended March 31, 2020, consisting of costs related to the purchase of laboratory and IT equipment. Net cash used in investing activities was $0.3 million for the three months ended March 31, 2019 consisting of costs related to leasehold improvements at our clinical office in Cambridge, MA and the purchase of laboratory equipment.

Net cash ~~used in investing~~provided by financing activities ~~was $0.1 million~~ for the three months ended March 31, ~~2018~~2020 was $0.3 million, consisting primarily of ~~costs related to~~net proceeds received from the ~~purchase~~exercise of ~~property~~outstanding warrants and ~~equipment, primarily related to in~~‑~~house software.~~

employee stock options. Net cash provided by financing activities for the three months ended March 31, 2019 was $29.0 million, consisting primarily of net proceeds from the issuance of common stock in our ATM Offering of $29.0 million. ~~Net cash used in financing activities for the three months ended March 31, 2018 was $1.1 million, consisting primarily of principal payments related to the 2015 Credit Agreement.~~

We expect our expenses to increase compared to prior periods in connection with our ongoing activities, particularly as we continue research and development, continue and initiate clinical trials and seek regulatory approvals for our product candidates. In anticipation of regulatory approval for any of our product candidates, we expect to incur significant pre-commercialization expenses related to product sales, marketing, distribution and manufacturing.

The expected use of our cash and cash equivalents at March 31, ~~2019~~2020 represents our intentions based upon our current plans and business conditions, which could change in the future as our plans and business conditions evolve. The ~~amounts~~amount and timing of our actual expenditures may vary significantly depending on numerous factors, including the progress of our development, the status of, and results from, clinical trials, the potential need to conduct additional clinical trials to obtain approval of our product candidates for all intended indications, as well as any additional collaborations that we may enter into with third parties for our product candidates and any unforeseen cash needs. Our funding requirements may be affected by the COVID-19 pandemic to the extent timelines for clinical trials and product approvals may be extended and access to capital may be reduced. As a result, our management will retain broad discretion over the allocation of our existing cash and cash equivalents. In addition, we anticipate the need to raise additional funds from the issuance of additional equity securities and monetization of assets, and our management will retain broad discretion over the allocation of those ~~funds as well.~~funds.

There have been no material changes in our contractual obligations and commitments during the three months ended March 31, ~~2019~~2020 from those set forth in our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~2019 and those disclosed in Note 12 to our unaudited consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

During the periods presented we did not have, and we do not currently have, any off-balance sheet arrangements, as defined under ~~the~~ SEC rules. We may be obligated in future periods to make contingent payments, which would become due and payable only upon the achievement of certain research and development, regulatory and approval milestones (see Note 12 to our unaudited consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q).

~~Our market risks as of March 31, 2019 have~~As a “smaller reporting company”, we are not ~~changed materially from those discussed in Item 7A of our Annual Report on Form 10-K for~~required to provide the ~~year ended December 31, 2018~~.information required by this item.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities and Exchange Act of 1934, as amended, is (1) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.

As of March 31, ~~2019,~~2020, our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended). Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our principal executive officer and principal financial officer have concluded based upon the evaluation described above that, as of March 31, ~~2019,~~2020, our disclosure controls and procedures were effective at the reasonable assurance level.

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities and Exchange ~~Act)~~Act of 1934, as amended) occurred during the fiscal quarter ended March 31, ~~2019~~2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

~~Please refer to Note 16 of the notes to our unaudited consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for a discussion related to our legal proceedings.~~None.

~~Investing~~ Although not required to provide the information required by this Item, the Company is supplementing and updating the risk factors in ~~our securities involves a high degree of risk. In addition to~~its prior filings with the ~~other information contained elsewhere in this report, you should carefully consider~~SEC, including those discussed under the ~~factors discussed in “Part I, Item~~heading “Item 1A. Risk ~~Factors”~~Factors,” in ~~our~~the Company’s most recent Annual Report on Form 10-K for the year ended December 31, ~~2018,~~2019, filed with the SEC on March 5, 2020:

Our business could be adversely affected by the effects of health epidemics and pandemics, including the recent COVID-19 pandemic, in regions where we or third parties on which we rely have significant concentrations of clinical trial sites or other business operations. The COVID-19 pandemic has impacted our operations, including at our corporate headquarters in New York, commercial operations in Pennsylvania, clinical operations in Massachusetts, research facility in New Jersey and at our clinical trial sites, as well as the business or operations of our CROs or other third parties with whom we conduct business. If these impacts continue for an extended period of time, our business could be materially and adversely affected.

Our business could be adversely affected by health epidemics in regions where we have clinical trial sites or other business operations and could cause significant disruption in the operations of CROs upon whom we rely. For example, in December 2019, a novel strain of coronavirus, SARS-CoV-2, causing a disease referred to as COVID-19, was reported to have surfaced in Wuhan, China. Since then, COVID-19 has spread to multiple countries, including the United States and several European countries. In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. Further, the President of the United States declared the COVID-19 pandemic a national emergency. The Governors of New York, Pennsylvania, New Jersey and Massachusetts declared a state of emergency related to the spread of COVID-19, and issued orders directing all individuals, including where our headquarters is located, to “stay at home” except to perform certain essential activities. The orders took effect in March 2020. We have temporarily implemented work-from-home policies for all employees. The impacts of the state orders and our work-from-home policies have impacted productivity in certain business units, impacted management attention, depleted resources, disrupted our business and delayed our clinical programs and timelines, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on our ability to conduct our business in the ordinary course. These and similar disruptions in our operations could materially and adversely impact our business, operating results and financial condition. In addition, our clinical trials may be affected by the COVID-19 pandemic. Clinical site initiation and patient enrollment may be delayed due to prioritization of hospital resources toward the COVID-19 pandemic. For instance, due to interruptions at clinical sites, enrollment has been delayed in our ongoing Phase 2 clinical trial of KD025 in systemic sclerosis and in our planned clinical trial of KD033. Also, some patients may not be able to comply with clinical trial protocols if quarantine impedes patient movement or interrupt healthcare services. Similarly, our ability to recruit and retain patients and principal investigators and site staff who, as healthcare providers, may have heightened exposure to COVID-19 and adversely impact our clinical trial operations. The COVID-19 pandemic may materially affect us economically. While the economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, the widespread pandemic has resulted in significant disruption of global financial markets, potentially reducing our ability to access capital, which could in the future negatively affect our liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect our business ~~financial condition or future results. These~~and the value of our common stock. The impacts of the COVID-19 pandemic may also exacerbate other risks ~~and uncertainties are not the only ones we face. You should recognize that other significant risks and uncertainties may arise~~discussed in the future, which we cannot foresee at this time. Also, the risks that we now foresee might affect us to a greater or different degree than expected. Certain risks and uncertainties, including ones that we currently deem immaterial or that are similar to those faced by other companies in our industry or business in general, may also affect our business. If anyRisk Factors section of ~~the risks actually occur, our business, financial condition or results of operations could be materially and adversely affected. There are no material changes to the risk factors described in~~ our Annual Report on Form 10-K for the year ended December 31, ~~2018.~~ 2019, any of which could have a material effect on us. This situation is changing rapidly and additional impacts may arise that we are not aware of currently.

Our business could be adversely affected by the cyber, privacy and productivity effects of remote working and disruption at management and board levels due to COVID-19.

We have transitioned all of our employee population to a remote work environment in an effort to mitigate the spread of COVID-19, which may exacerbate certain risks to our business, including an increased demand for information technology resources, increased risk of phishing and other cybersecurity attacks, and increased risk of unauthorized dissemination of sensitive personal information or proprietary or confidential information about us or our members or other third-parties. We may experience disruptions to our business operations resulting from quarantines, self-isolations, or other movement and restrictions on the ability of our employees to perform their jobs that may impact our ability to progress our clinical candidates in a timely manner or meet development milestones. The COVID-19 pandemic could also disrupt our operations due to absenteeism by infected or ill members of management or other employees, or absenteeism by members of management and other employees who elect not to come to work due to the illness affecting others in our office or laboratory facilities, or due to quarantines. COVID-19 illness could also impact members of our Board of Directors resulting in absenteeism from meetings of the directors or committees of directors, and making it more difficult to convene the quorums of the full Board of Directors or its committees needed to conduct meetings for the management of our affairs.

We may not be entitled to forgiveness of our recently received PPP Loan, and our application for the PPP Loan could in the future be determined to have been impermissible.

On April 14, 2020 we received proceeds of $3.1 million from a loan under the PPP of the CARES Act, which we intend to use to retain current employees, maintain payroll and make lease and utility payments. The PPP Loan matures on April 14, 2022 and bears annual interest at a rate of 1.0%. Commencing November 15, 2020, we are required to pay the lender equal monthly payments of principal and interest as required to fully amortize by April 14, 2022 any principal amount outstanding on the PPP Loan as of October 14, 2020. Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, covered rent payments, covered mortgage interest and covered utilities during the eight week period beginning on the date of loan approval. We will be required to repay any portion of the outstanding principal that is not forgiven, along with accrued interest, and we cannot provide any assurance that we will be eligible for loan forgiveness, that we will ultimately apply for forgiveness, or that any amount of the PPP Loan will ultimately be forgiven by the SBA. Furthermore, on April 28, 2020, the Secretary of the U.S. Department of the Treasury stated that the SBA will perform a full review of any PPP loan over $2.0 million before forgiving the loan. In order to apply for the PPP Loan, we were required to certify, among other things, that the current economic uncertainty made the PPP Loan request necessary to support our ongoing operations. We made this certification in good faith after analyzing, among other things, the maintenance of our entire workforce, notwithstanding certain obvious “work-from-home” limitations associated with the nature of our business, and managing risks to our development programs. In considering our position, the Company, an emerging growth biotechnology research and development company with approximately 120 employees (including 27 research staff ordinarily located within the Company’s laboratories), currently conducting 6 clinical trials to develop at least 3 medicines for currently unmet and under-served medical needs, took into account our classification as a smaller reporting Company under SEC rules, our ability to currently access alternative forms of capital in the current market environment, and that management expressed substantial doubt as described in Note 1 of the financial statements in the Company’s Annual Report on Form 10-K filed with the SEC on March 5, 2020 about our ability to continue as a going concern based upon our recurring and continuing losses from operations and our need for additional funding to continue operations. The report of our independent registered public accounting firm BDO USA LLP also included an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. Following this analysis, we believe that we satisfied all eligibility criteria for the PPP Loan, and that our receipt of the PPP Loan is consistent with the broad objectives of the PPP of the CARES Act, and following receipt of the loan, we have made no COVID-19 layoffs. The certification described above did not contain any objective criteria and is subject to interpretation. We will continue to assess our continued qualification if and when updated guidance is released by the Treasury Department. If, despite our good-faith belief that given our circumstances we satisfied all eligible requirements for the PPP Loan, we are later determined to have violated any applicable laws or regulations or it is otherwise determined that we were ineligible to receive the PPP Loan, we may be required to repay the PPP Loan in its entirety and/or be subject to additional penalties, which could also result in adverse publicity and damage to reputation. In addition, if these events were to transpire, they could have a material adverse effect on our business, results of operations and financial condition.

The exhibits filed as part of this Quarterly Report on Form 10-Q are set forth on the Exhibit Index, which is incorporated herein by reference.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


Delaware (State or other jurisdiction of incorporation or organization)		~~27‑3576929~~27-3576929 (I.R.S. Employer Identification No.)

450 East 29th Street, New York, NY (Address of principal executive offices)		10016 (Zip Code)


Large accelerated ~~filer~~Filer ☐		Accelerated ~~filer~~Filer ☒		Non-accelerated ~~filer~~Filer ☐		Smaller reporting company ☒		Emerging growth company ☒

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $0.001 per share	KDMN	The New York Stock Exchange



	Significant Other Observable Inputs
	(Level 2)
Balance at January 1, ~~2018~~	$	~~1,952~~
~~Change in fair value of financial instruments~~		~~(1,525)~~
~~Fair value of warrants modified in the Fifth Amendment~~		~~111~~
~~Exercise of warrants recorded as liability~~		~~(14)~~
~~Balance at December 31, 2018~~2019	$	524
Change in fair value of ~~financial instruments~~warrant liabilities		~~224~~961
Balance at ~~March~~December 31, 2019	$	~~748~~1,485
Change in fair value of warrant liabilities		(156)
Balance at March 31, 2020	$	1,329



	Warrants	Weighted Average Exercise Price
Balance, January 1, 2020	11,921,452	$	5.97
Exercised	(4,400)		—
Balance, March 31, 2020	11,917,052	$	5.97


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



	Three Months Ended		Three Months Ended
	March 31, 2019		March 31, 2018
Product sales	$	67	$	274
Other revenue		174		159
Total revenue	$	241	$	433



	Useful Lives	March 31,		December 31,
	(Years)	2020		2019
Leasehold improvements	4-8	$	10,398	$	10,397
Office equipment and furniture	3-15		1,254		1,234
Machinery and laboratory equipment	3-15		3,604		3,599
Software	1-5		4,044		3,971
Construction-in-progress	̶̶̶̶		79		45
			19,379		19,246
Less accumulated depreciation and amortization			(17,220)		(16,802)
Fixed assets, net		$	2,159	$	2,444


	Significant Observable Inputs				~~Three Months Ended~~
~~Lease Cost~~	~~Classification~~		~~March 31, 2019~~
~~Operating lease cost~~ ~~(a)~~	~~SG&A Expenses~~		$	~~1,168~~
~~Variable lease cost~~	~~SG&A Expenses~~			~~369~~
~~Sublease income~~ ~~(b)~~	~~Other Revenue~~			~~(173)~~
~~Net Lease Cost~~			$	~~1,364~~
	(Level 1)
Balance as of January 1, 2019	$	34,075
Unrealized gain on ordinary shares sold during the year		8,148
~~Other Information~~Realized gain on sale of ordinary shares		(22,000)
Unrealized gain on remaining ownership of ordinary shares		21,774
~~Operating cash flows paid for amounts included in the measurement~~Balance as of ~~lease liabilities~~December 31, 2019	$	41,997
Unrealized loss on ownership of ordinary shares		(13,803)
Balance as of March 31, 2020	$	~~1,150~~
~~Operating lease liabilities arising from obtaining right-of-use assets~~				31
			28,194
~~Weighted average remaining lease term (years)~~				~~6.2~~
~~Weighted average discount rate~~				~~4.1%~~


Future Lease Payments	Operating Leases		Finance Leases
2019	$	3,489	$	67
2020		4,753		48
2021		4,861		6
2022		4,823		—
2023		4,153		—
Thereafter		7,732		—
Total Lease Payments	$	29,811	$	121

Less: Imputed Interest		(3,567)		(13)
Total Lease Liabilities	$	26,244	$	108



Year ending December 31,	Amount
2019	$	4,672
2020		4,204
2021		4,177
2022		4,286
2023		4,153
Thereafter		7,731
Total	$	29,223



	Options Outstanding
	Number of Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)	Aggregate Intrinsic Value (in thousands)
Balance, January 1, 2020	11,802,601	$	5.59	7.52	$	9,520
Granted	4,247,000		4.34
Exercised	(68,001)		4.18			53
Forfeited	(143,646)		4.74
Balance, March 31, 2020	15,837,954	$	5.27	7.91	$	7,090
Options vested and exercisable, March 31, 2020	8,216,814	$	6.58	6.44	$	3,907



	Three Months Ended	Three Months Ended
	March 31, 2020	March 31, 2019
Weighted average fair value of grants	$2.87	$1.50
Expected volatility	75.46% - 76.05%	76.32% - 77.73%
Risk-free interest rate	0.82% - 1.64%	2.50% - 2.61%
Expected life (years)	6.00	6.00
Expected dividend yield	0%	0%


Exhibit Number	Description of Exhibit
3.1	Restated Certificate of Incorporation of Kadmon Holdings, Inc. (incorporated herein by reference to Exhibit 3.1 to the Registrant’s ~~Current~~Quarterly Report on Form ~~8-K~~10-Q (File No. 001-37841), filed with the SEC on August ~~1, 2016)~~5, 2019).
3.2	Certificate of Designations of Kadmon Holdings, Inc. creating the 5% Convertible Preferred Stock (incorporated herein by reference to Exhibit 3.3 to the Registrant’s Current Report on Form 8-K (File No. 001-37841), filed with the SEC on August 1, 2016).
3.3	Bylaws of Kadmon Holdings, Inc. (incorporated herein by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K (File No. 001-37841), filed with the SEC on August 1, 2016).
10.1*	~~Employment Agreement between Kadmon Corporation, LLC and Steven Meehan, dated effective as of February 8, 2019~~.
31.1*	Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of ~~The~~the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a) promulgated under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of ~~The~~the Sarbanes-Oxley Act of 2002.
32.1**	Certifications of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2**	Certifications of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002~~2002..
101*	The following materials from the Kadmon Holdings, Inc. Form 10-Q for the quarter ended March 31, ~~2019,~~2020, formatted in ~~Extensible~~eXtensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets as of March 31, ~~2019~~2020 and December 31, ~~2018,~~2019, (ii) Consolidated Statements of Operations for the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, (iii) Consolidated Statements of Cash Flows for the three months ended March 31, ~~2019~~2020 and ~~2018,~~2019, and (iv) Notes to the Financial Statements.
*	Filed herewith.
**	Furnished herewith.



Date: May ~~9, 2019~~7, 2020	By:	/s/ Harlan W. Waksal Harlan W. Waksal President and Chief Executive Officer (Principal Executive Officer)

Date: May ~~9, 2019~~7, 2020	By:	/s/ Steven Meehan Steven Meehan Executive Vice President, Chief Financial Officer (Principal Financial Officer)
Date: May ~~9, 2019~~7, 2020	By:	/s/ Kyle Carver
		Kyle Carver Principal Accounting Officer, Controller
		(Principal Accounting Officer)