In this section, "KindredBio," "we," "our," "ours," "us" and the "Company"
refer to Kindred Biosciences, Inc. and our wholly owned subsidiaries KindredBio
Equine, Inc. and Centaur Biopharmaceutical Services, Inc. You should read the
following discussion and analysis of our consolidated financial condition and
results of operations together with our consolidated financial statements and
the related notes and other financial information included elsewhere in this
Quarterly Report on Form 10-Q. Some of the information contained in this
discussion and analysis or set forth elsewhere in this Quarterly Report on Form
10-Q consists of forward-looking statements such as statements regarding our
expectations about the trials, regulatory approval, manufacturing, distribution
and commercialization of our current and future product candidates and
statements regarding our anticipated revenues, expenses, margins, profits and
use of cash. In this Quarterly Report on Form 10-Q, the words "anticipates,"
"believes," "expects," "intends," "future," "could," "estimates," "plans,"
"would," "should," "potential," "continues" and similar words or expressions (as
well as other words or expressions referencing future events, conditions or
circumstances) often identify forward-looking statements.

  These forward-looking statements are based on our current expectations. These
statements are not promises or guarantees, but involve known and unknown risks,
uncertainties and other important factors that may cause our actual results to
be materially different from any future results expressed or implied by the
forward-looking statements. These risks include, but are not limited to, the
following: our limited operating history and expectations of losses for the
foreseeable future; the absence of significant revenue from our products and our
product candidates for the foreseeable future; the likelihood that our revenue
will vary from quarter to quarter; our potential inability to obtain any
necessary additional financing; our substantial dependence on the success of our
products and our lead product candidates which may not be successfully
commercialized even if they are approved for marketing; the effect of
competition; our potential inability to obtain regulatory approval for our
existing or future product candidates; our dependence on third parties to
conduct some of our development activities; our dependence upon third-party
manufacturers for supplies related to our products and our product candidates
and the potential inability of these manufacturers to deliver a sufficient
amount of supplies on a timely basis; the uncertain effect of the COVID-19
pandemic on our business, results of operations and financial condition;
uncertainties regarding the outcomes of trials regarding our product candidates;
our potential failure to attract and retain senior management and key scientific
personnel; uncertainty about our ability to enter into satisfactory agreements
with third-party licensees of our biologic products and uncertainty about the
amount of revenue that we will receive from such agreements; our significant
costs of operating as a public company; potential cyber-attacks on our
information technology systems or on our third-party providers' information
technology systems, which could disrupt our operations; our potential inability
to repay the secured indebtedness that we have incurred from third-party
lenders, and the restrictions on our business activities that are contained in
our loan agreement with these lenders; the risk that our 2020 strategic
realignment and restructuring plans will result in unanticipated costs or
revenue shortfalls; uncertainty about the amount of royalties that we will
receive from the sale of Mirataz® to Dechra Pharmaceuticals PLC; the risk that
the revenue from our delivery of services or products under any contract may be
less than we anticipate if the other party to the contract exercises its right
to terminate the contract prior to the completion of the contract or if such
party is unable or unwilling to satisfy its payment obligations under the
contract; our potential inability to obtain and maintain patent protection and
other intellectual property protection for our products and our product
candidates; potential claims by third parties alleging our infringement of their
patents and other intellectual property rights; our potential failure to comply
with regulatory requirements, which are subject to change on an ongoing basis;
the potential volatility of our stock price; and the significant control over
our business by our principal stockholders and management.

  For a further description of these risks and uncertainties and other risks and
uncertainties that we face, please see the "Risk Factors" sections that are
contained in our filings with the U.S. Securities and Exchange Commission (the
"SEC"), including the "Risk Factors" section of our Annual Report on Form 10-K
for the year ended December 31, 2020, which was filed with the SEC on March 16,
2021, and any subsequent updates that may be contained in the "Risk Factors"
sections of this Quarterly Report on Form 10-Q and our other Quarterly Reports
on Form 10-Q filed with the SEC. As a result of the risks and uncertainties
described above and in our filings with the SEC, actual results may differ
materially from those indicated by the forward-looking statements made in this
Quarterly Report on Form 10-Q. Forward-looking statements contained in this
Quarterly Report on Form 10-Q speak only as of the date of this report and we
undertake no obligation to update or revise these statements, except as may be
required by law.
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Overview
We are a commercial-stage biopharmaceutical company focused on saving and
improving the lives of pets. Our mission is to bring to our pets the same kinds
of safe and effective medicines that our human family members enjoy. Our core
strategy is to identify compounds and targets that have already demonstrated
safety and effectiveness in humans and to develop therapeutics based on these
validated compounds and targets for pets, primarily dogs and cats. We believe
this approach will lead to shorter development times and higher approval rates
than pursuing new, non-validated targets. Our current portfolio includes over 20
product candidates in development, predominantly biologics. We also have
state-of-the-art biologics manufacturing capabilities and a broad intellectual
property portfolio.
Our first product, Mirataz® (mirtazapine transdermal ointment) was approved in
May 2018 and became commercially available to veterinarians in the United States
in July 2018. In November 2019, our second product, Zimeta™ (dipyrone injection)
for the control of fever in horses was approved by the FDA and became
commercially available in December 2019. In addition, we have multiple other
product candidates, predominantly biologics, in various stages of development.
We believe there are significant unmet medical needs for pets, and that the pet
therapeutics segment of the animal health industry is likely to grow
substantially as new therapeutics are identified, developed and marketed
specifically for pets.
In March 2020, we sold Mirataz to Dechra Limited for a cash purchase price of
$43 million. In December 2020, we entered into a Distribution and Licensing
Agreement granting Dechra Veterinary Products, LLC, an exclusive license under
our Patents and Marketing Authorizations to promote, market, sell and distribute
Zimeta in the U.S. and Canadian territories.

Biologic Product Development Updates

KIND-016, Tirnovetmab (Interleukin-31)



In October 2018, we announced positive topline results from our pilot laboratory
effectiveness study of tirnovetmab, KIND-016, a fully caninized, high-affinity
monoclonal antibody targeting interleukin-31 (IL-31), for the treatment of
atopic dermatitis in dogs. In addition, we announced that the U.S. Patent and
Trademark Office has issued a patent (Patent No. 10,093,731) for KindredBio's
anti-IL31 antibody.

In July 2019, we reported positive topline results from a pilot field
effectiveness study for our IL-31antibody that confirmed the results from our
pilot laboratory study. The manufacturing scale up process proceeded and the
pivotal efficacy study of KIND-016 was initiated in December 2020.

Canine atopic dermatitis is an immune-mediated inflammatory skin condition in
dogs and is the leading reason owners take their dog to the veterinarian. Atopic
dermatitis is a large market, with the leading two products on the market
selling over $900 million per year. We are pursuing a multi-pronged approach
toward atopic dermatitis, with a portfolio of promising biologics. Our market
research tells us there is strong demand for new biological treatments for
pruritic dogs, with 70% of veterinarians, and a higher percentage of
dermatologists, expressing a need for alternatives to current therapies.

KIND-039



On April 20, 2021, we unveiled positive results in a new long-acting interleukin
(IL)-31 antibody program that integrates our novel half-life extension
technology. Results from the pharmacokinetic study of the molecule demonstrated
that the fully caninized, high-affinity antibody has up to a three-fold longer
half-life compared to tirnovetmab. This extended half-life is expected to allow
for up to three-fold longer interval between dosing.

KindredBio's half-life extension technology is intended to reduce dosing frequency, lower doses, and/or reduce cost of goods sold, while increasing patient convenience and compliance.


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KIND-032

In December 2019 we announced the outcome of a positive pilot laboratory study
of KIND-032, a fully caninized monoclonal antibody targeting interleukin-4
(IL-4) receptor, for the treatment of atopic dermatitis in dogs. In the study,
14 laboratory dogs with clinical signs consistent with atopic dermatitis were
dosed with placebo or with KIND-032 at two different doses. The Canine Atopic
Dermatitis Extent and Severity Index (CADESI) scores were assessed by
board-certified veterinary dermatologists who were blinded to treatment
assignments. The study demonstrated that KindredBio's antibody was
well-tolerated. Although the study was a single-dose study designed primarily to
assess safety and pharmacokinetics, evidence of positive efficacy and dose
response was observed at Week 1, as measured by CADESI-04. A second pilot study
to further assess dosing commenced in the third quarter of 2020. The KIND-032
program is proceeding as expected with preparations underway for a pivotal
study.

The IL-4 pathway is a key driver of the inflammation that underlies atopic
dermatitis and several other allergic diseases. Unlike KIND-025, which binds to
IL-4 and IL-13 circulating in blood, KIND-032 binds to the IL-4 receptor on the
surface of immune cells.

KIND-025

On March 24, 2020, we announced positive results from our pilot field efficacy
study of KIND-025, a canine fusion protein targeting IL-4 and IL-13, for the
treatment of atopic dermatitis in dogs. A higher treatment success rate was
observed in the KIND-025 group over the placebo group from week 1 through week
4. Positive efficacy signals were also detected with other endpoints including
20mm or higher reduction from baseline in PVAS score. Cell line development is
being continued as we further evaluate this program. The IL-4 and IL-13 pathways
are key drivers of the inflammation that underlies atopic dermatitis and other
allergic diseases. The IL-4/13 SINK molecule binds to both IL-4 and IL-13
circulating in the blood and inhibits their interactions with their respective
receptors, thereby modifying the clinical signs associated with atopic
dermatitis. We currently do not have plans to prioritize KIND-025 ahead of our
other programs.

KIND-030

In August 2019, we announced positive results from our pilot efficacy study of
KIND-030, a chimeric, high-affinity monoclonal antibody targeting canine
parvovirus (CPV). This was a 12-dog study, of which 4 dogs were treated
prophylactically and 2 dogs were treated after establishment of the infection.
All treated dogs survived, compared to none in the applicable placebo group. The
effect was seen in both prophylaxis setting, as well as in a treatment setting
after establishment of infection.

In December 2020, we announced an agreement granting Elanco Animal Health, Inc.
("Elanco") exclusive global rights to KIND-030. Under the terms of the
agreement, we received an upfront non-refundable payment of $500,000, and will
receive development milestone payments of up to $16 million upon achievement of
certain development, regulatory and manufacturing targets, and sales milestones
in an aggregate amount of up to $94 million payable throughout the term of the
agreement. Furthermore, royalty payments are to range from the low to high
teens. The agreement specifies that KindredBio will supply the licensed product
to Elanco, and that Elanco will conduct the necessary regulatory activities to
achieve approvals in Europe and other key international markets.

KIND-030 is being pursued for two indications in dogs: prophylactic therapy to
prevent clinical signs of canine parvovirus infection and treatment of
established parvovirus infection. On September 16, 2020, we reported positive
results from our pivotal efficacy study of KIND-030 in prevention of parvovirus
infection in prophylactic treatment. In the randomized, blinded,
placebo-controlled study, KIND-030 was administered to dogs as prophylactic
therapy to prevent clinical signs of CPV infection. The primary objectives of
the study were met. All of the placebo-control dogs developed parvovirus
infection as predefined in the study protocol, while none of the KIND-030
treated dogs developed the disease. Furthermore, the parvovirus challenge
resulted in 60% mortality rate in the control dogs compared to 0% mortality rate
in the KIND-030 treated dogs. On April 28, 2021, we announced that the United
States Department of Agriculture (USDA) Center for Veterinary Biologics has
accepted efficacy data to support the prophylactic indication for KIND-030.

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The pivotal efficacy study for the treatment indication is expected to be
completed in the second quarter of 2021. It is part of the overall project data
package required for full approval, along with safety, manufacturing and
additional data. KIND-030 is a monoclonal antibody targeting canine parvovirus
(CPV), and is partnered with Elanco. There is no set review timeline at the
United States Department of Agriculture Center for Veterinary Biologics.
Regulatory approval and review timeline are subject to the typical risks
inherent in such a process.

CPV is the most significant cause of viral enteritis in dogs, especially
puppies, with mortality rates
reportedly as high as 91% if untreated. Banfield Medical records report that at
least 250,000 dogs are infected with parvoviruses each year, excluding emergency
hospitals, shelters, specialty hospitals or undiagnosed cases. While there are
vaccines available for CPV, they have to be administered multiple times and many
puppies do not receive the vaccine at all, or do not receive the complete
series. This will not replace the need for vaccination; it may just change the
timing of the vaccination post administration. There are currently no approved
or unapproved treatments for CPV. Currently, owners spend up to thousands of
dollars for supportive care for dogs infected with CPV.

KIND-509



On December 21, 2020, we announced positive results from the pilot field
efficacy study of our monoclonal antibody against tumor necrosis factor alpha
(anti-TNF antibody) for canine inflammatory bowel disease (IBD). The study was a
randomized, blinded, placebo-controlled pilot effectiveness study that enrolled
10 dogs diagnosed with IBD to assess the efficacy and safety of KindredBio's
anti-TNF? antibody over a 4-week treatment period. The primary effectiveness
variable for this exploratory study was reduction in Canine Inflammatory Bowel
Disease Activity Index (CIBDAI) score, which was assessed at Screening and Days
0, 7, 14, 21 and 28. Complete remission, defined as ? 75% reduction in average
post-dose CIBDAI score from baseline, was achieved in 75% of the anti-TNF? group
compared to 17% in the placebo group. The treatment effect was early-onset and
durable. At Day 7, the first post-dose visit, 75% of the anti-TNF? treated dogs
showed ? 75% reduction of CIBDAI score from baseline, compared to 17% in the
placebo group. Furthermore, 50% of the anti-TNF? treated dogs achieved and
maintained 100% reduction of CIBDAI score from baseline throughout all post-dose
visits, whereas none in the placebo group achieved the same result.

IBD is a chronic disease of the gastrointestinal tract and can affect dogs at
any age, but is more common in middle-aged and older dogs. The majority of
canine IBD cases involve chronic states of diarrhea, vomiting, gastroenteritis,
inappetence, and other symptoms, certain of which are cited as among the most
frequent disorders impacting dogs. For certain dog breeds, the prevalence of
diarrhea exceeds 5%. Existing treatments can have significant drawbacks,
including limited diets and excessive antibiotic use, which can lead to owner
frustration, lapses in treatment adherence, or poor quality of life for the
affected animal.

In addition to the product candidates discussed above, we are in the early
stages of development for
multiple additional indications, including interleukin antibodies and canine
checkpoint inhibitors, with the potential to attain approval for one or more
products annually for several years. In all, we have over 20 programs for
various indications for dogs and cats.

Manufacturing



We have constructed a Good Manufacturing Practice, or GMP, biologics
manufacturing plant in Burlingame, CA which is fully commissioned. We have
proceeded to GMP manufacturing of our feline erythropoietin product candidate in
January 2018. In addition, construction and commissioning of our biologics
manufacturing lines in our manufacturing plant in Elwood, Kansas have also been
completed. The Elwood facility includes approximately 180,000 square feet with
clean rooms, utility, equipment, and related quality documentation suitable for
biologics and small molecule manufacturing.

In May 2020, we entered into an agreement with Vaxart, Inc. for the manufacture
of Vaxart's oral vaccine candidate for COVID-19. We recorded contract
manufacturing revenue based on the percentage completion of specific milestones
for the quarter. In October 2020, we announced the expansion of our
manufacturing agreement with Vaxart for COVID-19 and other vaccine candidates
which will extend our contract manufacturing activities through at least the end
of 2021.


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Funding

We are a commercial-stage company with two products approved for marketing and
sale. On April 15, 2020, we completed the sale of one of the products, Mirataz,
to Dechra. In December 2020, we entered into a Distribution and Licensing
Agreement granting Dechra an exclusive license under our patents and marketing
authorizations to promote, market, sell and distribute Zimeta in the U.S. and
Canadian territories. We have incurred significant net losses since our
inception. We incurred cumulative net losses of $254,595,000 through March 31,
2021. These losses have resulted principally from costs incurred in connection
with investigating and developing our product candidates, research and
development activities and general and administrative costs associated with our
operations.

Historically, our funding has been a combination of private and public
offerings. From our initial public offering in December 2013 through December
2019, we raised approximately $257.4 million in net proceeds, after deducting
underwriting discounts and commissions and offering expenses. On April 8, 2020,
we entered into an At Market Offering Agreement ("ATM") whereby we may offer and
sell shares of our common stock from time to time up to $25 million. Through
December 31, 2020, 59,211 shares were sold through the ATM, for total gross
proceeds of approximately $298,000. Net proceeds, after deducting underwriting
discounts and commissions and offering expense, were approximately $201,000. In
January 2021, we sold an additional 1,456,497 shares, for total gross proceeds
of approximately $7,059,000. Net proceeds, after deducting underwriting
discounts and commissions and offering expense, were approximately $6,876,000.
On January 15, 2021, we entered into an amendment to the ATM. In accordance with
the terms of the amended ATM, we may offer and sell shares of our common stock
up to $24,366,000. From February 3, 2021 through March 31, 2021, 3,625,470
shares were sold through the amended ATM, for total gross proceeds of
approximately $17,620,000. Net proceeds, after deducting underwriting discounts
and commissions and offering expense, were approximately $17,167,000. Among
them, 2,250,000 shares were sold on March 31, 2021 and settled on April 5, 2021,
with gross proceeds of approximately $10,652,000. Net proceeds, after deducting
underwriting discounts and commissions and offering expense, were approximately
$10,378,000, which has been recorded as an other receivable as of March 31,
2021.

On September 30, 2019, we entered into a Loan and Security Agreement (the "Loan
Agreement") with Solar Capital Ltd., to make available to KindredBio an
aggregate principal amount of up to $50 million under the Loan Agreement. The
Loan Agreement provides for a term loan commitment of $50 million in three
tranches: (1) a $20 million term A loan that was funded on September 30, 2019;
(2) a $15 million term B loan that is to be funded at our request, subject to
certain conditions described in the Loan Agreement being satisfied, no later
than December 31, 2020; and (3) a $15 million term C loan that is to be funded
at our request, subject to certain conditions described in the Loan Agreement
being satisfied, on or before June 30, 2021. Each term loan has a maturity date
of September 30, 2024. We elected not to draw down on the $15 million term B
loan before the December 31, 2020 deadline. Each term loan bears interest at a
floating per annum rate equal to the one-month LIBOR rate (with a floor of
2.17%) plus 6.75%. We are permitted to make interest-only payments on each term
loan through October 31, 2021. The entire debt facility will mature on September
30, 2024.

As of March 31, 2021, we had cash, cash equivalents and investments of
$63,309,000. Our sale of Mirataz to Dechra was completed on April 15, 2020 with
proceeds of $38.7 million received. Of the remaining $4.3 million, $2.15 million
will be paid out of escrow beginning in 12 months after the closing date and the
balance of $2.15 million will be paid out 18 months after closing date, assuming
no escrow claims.

For the foreseeable future, we expect to continue to incur losses as we continue
our product development activities, seek regulatory approvals for our product
candidates and begin to commercialize or partner them if they are approved by
the Center for Veterinary Medicine branch, or CVM, of the FDA, the U.S.
Department of Agriculture, or USDA, or the European Medicines Agency, or EMA. If
we are required to further fund our operations, we expect to do so through
public or private equity offerings, debt financings, corporate collaborations
and licensing arrangements. We cannot assure you that such funds will be
available on terms favorable to us, if at all. The strategic realignment of our
business model whereby we rely more on a partnership-based model for
commercialization strategy similar to the traditional human biotech
commercialization strategy whereby pipeline assets are partnered with larger
commercial partners that can maximize product opportunity in return for upfront
payments, contingent milestones, and royalties on future sales may require us to
relinquish rights to certain of our technologies. In addition, we may never
successfully
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complete development of, obtain adequate patent protection for, obtain necessary
regulatory approval, or achieve commercial viability for any other product
candidates besides Mirataz and Zimeta. If we are not able to raise additional
capital on terms acceptable to us, or at all, as and when needed, we may be
required to curtail our operations, and we may be unable to continue as a going
concern.

Critical Accounting Policies and Significant Judgments and Estimates
Our management's discussion and analysis of financial condition and results of
operations is based on our unaudited condensed consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States, or U.S. GAAP. The preparation of our
unaudited condensed consolidated financial statements and related disclosures
requires us to make estimates and assumptions that affect the reported amounts
of assets and liabilities, and revenue, costs and expenses and related
disclosures during the reporting periods. On an ongoing basis, we evaluate our
estimates and judgments, including those described below. We base our estimates
on historical experience and on various other factors that we believe are
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
Our critical accounting policies are described in the "Management's Discussion
and Analysis of Financial Condition and Results of Operations" section of our
Annual Report on Form 10-K for the year ended December 31, 2020, which was filed
with the SEC on March 16, 2021.

Results of Operations
In March 2020, we announced a strategic realignment of our business model
whereby we plan to rely more on a partnership-based model for commercialization
strategy similar to the traditional human biotech commercialization strategy
whereby pipeline assets are partnered with larger commercial partners that can
maximize product opportunity in return for upfront payments, contingent
milestones, and royalties on future sales. Our focus is on accelerating our deep
pipeline of late-stage biologics candidates in canine and feline markets and to
strengthen our strategic position by prioritizing our most attractive late stage
programs and substantially reducing our expenses to best position the company
for success.

In May 2020, we entered into an agreement with Vaxart, Inc. for the manufacture
of Vaxart's oral vaccine candidate for COVID-19. In October 2020, we announced
the expansion of our manufacturing agreement with Vaxart for COVID-19 and other
vaccine candidates. We recorded contract manufacturing revenue based on the
percentage completion of specific milestones for the quarter. While our primary
focus is on the development of our late-stage biologics candidates, we expect
income from contract manufacturing to offset a portion of our operating
expenses.
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The following table summarizes the results of our operations for the periods
indicated (in thousands):
                                                                Three months ended March 31,
                                                               2021                        2020
Revenues:
Net product revenues                                 $                 227          $            603

Partner royalty revenue                                                326                         -
Contract manufacturing revenue                                       1,842                         -
Total revenues                                                       2,395                       603

Operating costs and expenses:
Cost of product revenues (1)                                           207                     3,577
Contract manufacturing costs                                           383                         -
Research and development                                             6,287                     8,867
Selling, general and administrative                                  4,684                     8,873
Restructuring costs                                                      -                     1,676
Total operating costs and expenses                                  11,561                    22,993
Loss from operations                                                (9,166)                  (22,390)
Interest and other income (expenses), net                             (574)                     (371)
Net loss                                             $              (9,740)

$ (22,761)

(1) Includes $3,494 Finished Goods write-off in the first quarter of 2020 related to the Dechra Asset Purchase Agreement, due to the transition to proprietary Dechra brand labelling on asset sale.

Revenues


We recorded $2.4 million in net revenues in the three months ended March 31,
2021 compared with $0.6 million for the same period in 2020. The increase in
revenue was primarily due to $1.8 million in contract manufacturing revenue and
royalty revenues of $0.3 million.
Our net product revenue was generated entirely from sales within the United
States. As a result of our Distribution and Licensing Agreement with Dechra, we
sold the remaining Zimeta inventory to them in the first quarter of 2021 and
recorded $225,000 in net revenue, with the balance $2,000 to a distributor.
Revenue of $603,000 for the same period in 2020 was mainly from Mirataz of which
approximately 73% were shipped to three distributors.
Our partner royalty revenue for the quarter ended March 31, 2021 was $326,000,
resulting from Dechra's net sales of Mirataz. There was no partner royalty
revenue for the same period in 2020.
Our contract manufacturing agreement with Vaxart, Inc. for the manufacture of
their oral vaccine candidate for COVID-19 generated revenue of $1.8 million for
the first quarter of 2021. We did not have any contract manufacturing for the
same period in 2020.

Our accounts receivable from amounts billed for contract manufacturing services
require an up-front payment and installment payments during the service period.
We perform periodic evaluations of the financial condition of our customers and
generally do not require collateral, but we can terminate any contract if a
material default occurs.

Cost of Product Revenues
Cost of product revenues consists primarily of the cost of direct materials,
direct labor and overhead costs associated with manufacturing, inbound shipping
and other third-party logistics costs.

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For the quarter ended March 31, 2021, cost of Zimeta product sales was $207,000.
The 8.8% gross margin was the result of an agreement to sell excess Zimeta
inventory to Dechra at an amount close to cost. Cost of product sales for the
same period in 2020 was primarily due to the write-off of approximately $3.5
million in obsolete Mirataz inventory.

Contract Manufacturing Costs



Contract manufacturing costs of $383,000 in the quarter ended March 31, 2021
consist primarily of the cost of direct materials, direct labor and overhead
costs associated with manufacturing, rent, facility costs and related machinery
depreciation. We did not have any contract manufacturing costs in the same year
ago period.

Research and Development Expense



All costs of research and development are expensed in the period incurred.
Research and development costs consist primarily of salaries and related
expenses for personnel, stock-based compensation expense, fees paid to
consultants, outside service providers, professional services, travel costs and
materials used in clinical trials and research and development. We typically use
our employee and infrastructure resources across multiple development programs.

Research and development expense was as follows for the periods indicated (in thousands, except for percentages):


                                                    Three months ended March 31,                      %
                                                   2021                     2020                   Change
Payroll and related                          $        2,274          $         3,817                (40)%
Consulting                                               61                      164                (63)%
Field trial costs, including materials                  889                    1,127                (21)%
Biologics development and supplies                      820                    1,415                (42)%
Stock-based compensation                                436                      553                (21)%
Other                                                 1,807                    1,791                 1%
                                             $        6,287          $         8,867                (29)%

During the three months ended March 31, 2021, research and development expense related primarily to advancing the development of KIND-030, CAD programs, KIND-510a and other early stage biologic programs.



Research and development expenses for the three months ended March 31, 2021,
decreased by 29% to $6,287,000 compared with $8,867,000 for the same period in
2020. The $2,580,000 decrease was primarily due to lower costs across the board
consistent with our decision to discontinue small molecule development in favor
of late-stage biologics programs for dogs and cats. Outsourced research and
development expenses related to KIND-030 Parvo Dog, CAD programs, KIND-510a, and
other product development programs for three months ended March 31, 2021 were
$709,000, $56,000, $46,000 and $49,000, respectively. Outsourced research and
development expense consists primarily of costs related to CMC, clinical trial
costs and consulting.

We expect research and development expense to increase for the rest of the year
due to the pivotal studies on KIND-016 and KIND-030. Due to the inherently
unpredictable nature of our development, we cannot reasonably estimate or
predict the nature, specific timing or estimated costs of the efforts that will
be necessary to complete the development of our product candidates.

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Selling, General and Administrative Expense
Selling, general and administrative expense was as follows for the periods
indicated (in thousands, except for percentages):
                                                  Three months ended March 31,                      %
                                                   2021                   2020                   Change
Payroll and related                          $        1,020          $      3,127                 (67)%
Consulting, legal and professional services             684                 1,754                 (61)%
Stock-based compensation                              2,060                 1,511                  36%
Corporate and marketing expenses                        475                 1,263                 (62)%
Other                                                   445                 1,218                 (63)%
                                             $        4,684          $      8,873                 (47)%



Selling, general and administrative expenses for the three months ended March
31, 2021 decreased by 47% to $4,684,000, when compared to the same periods in
2020. The $4,189,000 year-over-year decrease was mainly due to the elimination
of our companion animal sales force.

We expect selling, general and administrative expense to increase slightly going
forward to put more focus on business development. We plan to rely more on a
partnership-based model for commercialization whereby our pipeline assets are
partnered with larger commercial partners that can maximize product opportunity
in return for upfront payments, contingent milestones, and royalties on future
sales.

Restructuring costs

We did not record any restructuring charges for the three months ended March 31, 2021.



In March 2020, we announced a strategic realignment of our business model
whereby KindredBio becomes a biologics-only company focused on accelerating our
deep pipeline of late-stage biologics candidates in canine and feline markets,
while discontinuing small molecule development for these species. We plan to
rely more on a partnership-based model for commercialization strategy whereby
pipeline assets are partnered with larger commercial partners that can maximize
product opportunity in return for upfront payments, contingent milestones, and
royalties on future sales. Accordingly, the companion animal commercial
infrastructure will be substantially reduced. In connection with this strategic
shift, we eliminated 53 positions, representing about one-third of our current
workforce. The eliminated positions primarily relate to the companion animal
sales force and research and development for small molecule programs.
Restructuring expenses and retirement costs related to severance and health care
benefits are expected to be approximately $1.7 million, exclusive of stock
compensation.

In June 2020, we announced a plan to strengthen our strategic position by, among
other things, prioritizing our most attractive late stage programs and
substantially reducing our expenses to best position the Company for success
with the previously announced business model. This restructuring reduced our
workforce by approximately 24 employees and involved a restructuring charge of
approximately $2.3 million related to severance payments and health care
benefits, exclusive of stock compensation. We further eliminated another 5
positions and incurred a restructuring charge of approximately $0.3 million
related to severance payments and health care benefits in the third quarter of
2020. We have completed our restructuring and do not anticipate any further
reductions in our workforce for the foreseeable future.

Interest and Other Income, Net
(In thousands)
                                                         Three months ended March 31,
                                                          2021                   2020                Change
Interest and other (expense) income, net           $          (574)

$ (371) $ (203)


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The decrease of approximately $203,000 in the three months ended March 31, 2021
compared to the same period in 2020 was primarily due to $256,000 lower interest
income from lower interest rate offset by lower other expense. During the same
period in 2020, other expense included a charge of $100,000 in loan amendment
fee.

Income Taxes
We have historically incurred operating losses and maintain a full valuation
allowance against our net deferred tax assets. Our management has evaluated the
factors bearing upon the realizability of our deferred tax assets, which are
comprised principally of net operating loss carryforwards and concluded that,
due to the uncertainty of realizing any tax benefits as of March 31, 2021, a
valuation allowance was necessary to fully offset our deferred tax assets.

Liquidity and Capital Resources



We have incurred losses and negative cash flows from operations since our
inception in September 2012 through March 31, 2021. As of March 31, 2021, we had
an accumulated deficit of $254.6 million. Since inception and through March 31,
2021, we raised approximately $271.3 million in net proceeds. In April 2020, we
entered into an At Market Offering ("ATM") whereby we may offer and sell shares
of our common stock from time to time up to $25 million. Through December 31,
2020, 59,211 shares were sold through the ATM, for total gross proceeds of
approximately $298,000. Net proceeds, after deducting underwriting discounts and
commissions and offering expense, were approximately $201,000. In January 2021,
we sold another 1,456,497 shares, for total gross proceeds of approximately
$7,059,000. Net proceeds, after deducting underwriting discounts and commissions
and offering expense, were approximately $6,876,000. On January 15, 2021, we
entered into an amendment to the ATM. In accordance with the terms of the
amended ATM, we may offer and sell shares of our common stock up to $24,366,000.
From February 3, 2021 through March 31, 2021, 3,625,470 shares were sold through
the amended ATM, for total gross proceeds of approximately $17,620,000. Net
proceeds, after deducting underwriting discounts and commissions and offering
expense, were approximately $17,167,000. Among them, 2,250,000 shares were sold
on March 31, 2021 and settled on April 5, 2021, with gross proceeds of
approximately $10,652,000. Net proceeds after deducting underwriting discounts
and commissions and offering expense, were approximately $10,378,000, which has
been recorded as an other receivable as of March 31, 2021.

On September 30, 2019, we entered into a Loan and Security Agreement (the "Loan
Agreement") with Solar Capital Ltd., to make available to KindredBio an
aggregate principal amount of up to $50 million under the Loan Agreement. The
Loan Agreement provides for a term loan commitment of $50 million in three
tranches: (1) a $20 million term A loan that was funded on September 30, 2019;
(2) a $15 million term B loan that is to be funded at our request no later than
December 31, 2020; and (3) a $15 million term C loan that is to be funded at our
request on or before June 30, 2021. Each term loan has a maturity date of
September 30, 2024. We elected not to draw down on the $15 million term B loan
before December 31, 2020 deadline. Each term loan bears interest at a floating
per annum rate equal to the one-month LIBOR rate (with a floor of 2.17%) plus
6.75%. We are permitted to make interest-only payments on each term loan through
October 31, 2021. The interest-only period can be extended by six months upon
our satisfaction of the minimum liquidity requirements described in the Loan
Agreement.

Cash, cash equivalents and investments was $63.3 million as of March 31, 2021.
We believe that our cash, cash equivalents and investments, remaining proceeds
from the Mirataz sale, and revenues from royalties and contract manufacturing
will be sufficient to fund our planned operations through the end of 2023. In
addition, our January 2021 ATM facility will provide us with access to
additional cash and extend our runway, if required.

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Cash Flows
The following table summarizes our cash flows for the periods set forth below:
                                                                  Three months ended March 31,
                                                                   2021                   2020
                                                                         (In thousands)
Net cash used in operating activities                        $       (9,405)         $    (17,112)
Net cash (used in) provided by investing activities          $       (2,483)         $     15,631
Net cash provided by (used in) financing activities          $       13,179

$ (545)




Net cash used in operating activities
During the three months ended March 31, 2021, net cash used in operating
activities was $9,405,000. The net loss of $9,740,000 for the three months ended
March 31, 2021 included non-cash charges of $2,496,000 for stock-based
compensation expense, $1,202,000 for depreciation and amortization, $128,000 for
amortization of the debt discount of long-term loan, and further impacted by
$73,000 for the amortization of discount on marketable securities. Net cash used
in operating activities was further increased by net changes in operating assets
and liabilities of $3,564,000.

During the three months ended March 31, 2020, net cash used in operating
activities was $17,112,000. The net loss of $22,761,000 for the three months
ended March 31, 2020 included non-cash charges of $2,064,000 for stock-based
compensation expenses, $1,053,000 for depreciation and amortization, $85,000 for
amortization of the debt discount of long-term loan, $3,494,000 for Mirataz
finished goods write-off related to Dechra asset purchase, and partially offset
by $109,000 for the amortization of premium on marketable securities. Net cash
used in operating activities was further increased by net changes in operating
assets and liabilities of $938,000.

Net cash (used in) provided by investing activities During the three months ended March 31, 2021, net cash used in investing activities was $2,483,000, which resulted from proceeds from maturities of marketable securities of $16,246,000, offset by $18,469,000 related to purchases of marketable securities and $260,000 related to purchases of equipment.



During the three months ended March 31, 2020, net cash provided by investing
activities was $15,631,000, due to proceeds from maturities of marketable
securities of $33,769,000, offset by the purchases of marketable securities of
$16,720,000 and purchases of property and equipment of $1,418,000.

Net cash provided by (used in) financing activities
During the three months ended March 31, 2021, net cash provided by financing
activities of $13,179,000 was related to net proceeds of $13,665,000 from the
sale of common stock from a public offering, offset by payment of $507,000
related to restricted stock awards and restricted stock units tax liability on
net settlement, increased by proceeds of $21,000 from exercises of stock
options.

During the three months ended March 31, 2020, net cash used in financing
activities of $545,000 was related to proceeds of $124,000 from the purchases of
common stock through exercise of stock options, offset by payment of $669,000
related to restricted stock awards and restricted stock units tax liability on
net settlement.

Future Funding Requirements
We anticipate that we will continue to incur losses for the next several years
due to expenses relating to:
•pivotal trials of our product candidates;
•toxicology (target animal safety) studies for our product candidates;
•biologic clinical material manufacturing; and
•maintain the operations of the biologics manufacturing plant in Kansas.

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We believe that our cash, cash equivalents and investments, remaining proceeds
from the Mirataz sale, and revenues from royalties and contract manufacturing
will be sufficient to fund our planned operations through the end of 2023. In
addition, our January 2021 amended ATM facility will provide us with access to
additional cash and extend our runway, if required. However, our operating plan
may change as a result of many factors currently unknown to us, and we may need
to seek additional funds sooner than planned, through public or private equity
or debt financings or other sources, such as strategic collaborations. Such
financing may result in dilution to stockholders, imposition of debt covenants
and repayment obligations or other restrictions that may affect our business. In
addition, we may seek additional capital due to favorable market conditions or
strategic considerations even if we believe we have sufficient funds for our
current or future operating plans.

Our future capital requirements depend on many factors, including, but not
limited to:
•the scope, progress, results and costs of researching and developing our
current or future product candidates;
•the timing of, and the costs involved in, obtaining regulatory approvals for
any of our current or future product candidates;
•the number and characteristics of the product candidates we pursue;
•the cost of manufacturing our current and future product candidates and any
products we successfully commercialize, including the cost of internal biologics
manufacturing capacity;
•the cost of commercialization activities if any of our current or future
product candidates are approved for sale, including marketing, sales and
distribution costs;
•the expenses needed to attract and retain skilled personnel;
•the costs associated with being a public company;
•our ability to establish and maintain strategic collaborations, licensing or
other arrangements and the financial terms of such agreements; and
•the costs involved in preparing, filing, prosecuting, maintaining, defending
and enforcing possible patent claims, including litigation costs and the outcome
of any such litigation.

Since inception, we have not engaged in the use of any off-balance sheet arrangements, such as structured finance entities, special purpose entities or variable interest entities.



Contractual Obligations
We have non-cancelable operating leases for two office spaces and expanded
laboratory space under which we are obligated to make minimum lease payments
totaling $3,888,000 through May 2025, the timing of which is described in more
detail in the notes to the consolidated financial statements. In addition, we
have five operating leases for equipment under which we are obligated to make
minimum lease payments totaling $75,000 through 2027.

Off-Balance Sheet Arrangements

As of March 31, 2021, we did not have any material off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.



Recently Issued Accounting Pronouncements
In March 2020, the FASB issued ASU No. 2020-04, "Reference Rate Reform (Topic
848)", changes to the interbank offered rates (IBORs), and, particularly, the
risk of cessation of the London Interbank Offered Rate (LIBOR). The amendments
provide optional expedients and exceptions for applying U.S. GAAP to contracts
that reference LIBOR expected to be discontinued because of reference rate
reform. The expedients and exceptions do not apply to contract modifications
made after December 31, 2022. The following optional expedients are permitted
for contracts that are modified because of reference rate reform and that meet
certain scope guidance: Modifications of contracts within the scope of Topics
470, Debt, should be accounted for by prospectively adjusting the effective
interest rate. The amendments also permit an entity to consider contract
modifications due to reference rate reform to be an event that does not require
contract remeasurement at the modification date or reassessment of a previous
accounting determination. When elected, the optional expedients for contract
modifications must be applied consistently for all contracts. It applies to all
entities within the scope of the affected accounting guidance and will take
effect as of March 12, 2020 through
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December 31, 2022. We have one loan contract which references LIBOR rate. We
have not modified the contract with our lenders yet. We are currently evaluating
the new guidance and have not determined the impact this standard may have on
our financial statements.

We do not believe there are any other recently issued standards not yet effective that will have a material impact on our financial statements when the standards become effective.


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