Krystal Biotech, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; filed August 7, 2023. Krystal is a commercial-stage genetic medicines company developing therapies using an engineered HSV-1 vector platform.
Business context
The FDA approved VYJUVEK on May 19, 2023, for dystrophic epidermolysis bullosa (DEB) in patients aged six months and older. The company began its U.S. commercial launch, but had generated no product revenue through June 30 and expected initial sales revenue in Q3 2023. It reported 121 Patient Start Forms by June 30, including 30 for patients with dominant DEB.
Financial performance and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Research and development | $12.1 million | $10.9 million | $24.4 million | $20.2 million |
| General and administrative | $25.9 million | $17.9 million | $49.9 million | $33.8 million |
| Litigation settlement expense | — | — | $12.5 million | $25.0 million |
| Net loss | $33.2 million | $28.1 million | $78.5 million | $78.1 million |
| Net loss per share, diluted | $1.25 | $1.10 | $3.00 | $3.08 |
| Operating cash used | Not separately stated | Not separately stated | $60.3 million | $58.6 million |
With no revenue reported, gross margin was not meaningful; the filing does not provide a clear value for a revenue-based margin. Q2 net loss widened by $5.1 million year over year, as higher operating expenses more than offset increased interest income. For the first half, net loss was nearly flat: operating expenses rose $7.9 million, while settlement expense fell $12.5 million and interest and other income increased $7.5 million.
At June 30, cash and cash equivalents were $275.9 million, short-term investments $201.6 million, and long-term investments $28.4 million. Cash, cash equivalents and short-term investments totaled $477.5 million. Total assets were $684.0 million; total liabilities were $30.9 million, including $8.5 million of lease liabilities. The filing reports no borrowings or other debt. Accumulated deficit was $359.3 million.
Cash increased $114.0 million during the first half. Financing provided $186.7 million, primarily from a $160.0 million net private placement and stock-option exercises; operating activities used $60.3 million and investing activities used $12.4 million. The company completed the private placement at $92.50 per share and had a new $150 million ATM program available, with no shares sold under it by June 30.
Material changes, outlook and commentary
- Q2 R&D expense rose 12% year over year, primarily due to increased payroll, stock-based compensation and depreciation, partly offset by lower pre-commercial manufacturing costs after VYJUVEK approval. Q2 G&A increased about 45%, largely reflecting commercial-launch staffing and related preparation.
- Management expected cash, cash equivalents and short-term investments on hand to fund planned operations for at least 12 months from the filing date. It cautioned that losses are expected to continue and profitability depends on successful commercialization and pipeline development.
- Management expected R&D and G&A expenses to increase as it advances clinical programs and builds commercial capabilities. It said previously expensed VYJUVEK inventory was expected to favorably affect future gross margin; the effect on future cost of goods sold was still being evaluated.
- Pipeline updates included first U.S. patient dosed in the KB407 cystic fibrosis Phase 1 trial in July 2023, with data anticipated in 2024; the Australian KB407 study was terminated. The company planned an EMA marketing application for VYJUVEK in the second half of 2023 and anticipated a potential EU launch in the second half of 2024. It also planned to dose the first KB707 patient in the second half of 2023.
- ASTRA, the second commercial-scale manufacturing facility, received a permanent occupancy permit in March 2023; validation was expected to be completed in 2023. Remaining ASTRA commitments were estimated at $10.6 million.
Risks, contingencies and unusual items
- Commercial success is substantially dependent on VYJUVEK. Key uncertainties include patient access and reimbursement, market size and acceptance, manufacturing capacity and compliance, competition, and the company’s limited commercial-launch experience.
- Krystal paid PeriphaGen $12.5 million following VYJUVEK approval, in addition to $25.0 million paid in 2022. Three further $12.5 million contingent payments are due at cumulative sales milestones of $100 million, $200 million and $300 million; none was accrued at June 30.
- Management cited continuing operating losses and the possibility that additional capital may be needed. Future equity financing could dilute shareholders; debt or other financing may not be available on acceptable terms.
- Chief Commercial Officer Andrew Orth resigned, with his last day on August 2, 2023. The filing also disclosed Rule 10b5-1 trading arrangements adopted by the CEO and the President of R&D, each covering sales of up to 100,000 shares.
Important facts for investors to verify
- Whether VYJUVEK commercial sales, patient starts and payer access develop as expected, and when reported sales begin.
- Cash burn, expense growth and the company’s stated minimum 12-month liquidity runway as commercialization and pipeline spending expand.
- Manufacturing readiness and validation progress at ASTRA, and whether supply can support commercial demand.
- Progress and timing for the stated clinical, regulatory and international milestones, including KB407, KB707 and the VYJUVEK EU application.
- Potential PeriphaGen milestone payments, contingent on cumulative sales, and the impact of future financing or share issuance on existing shareholders.