Krystal Biotech, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Unaudited results are compared with Q1 2023 unless otherwise noted. Krystal is a commercial-stage genetic-medicines company; VYJUVEK is its first FDA-approved product, for dystrophic epidermolysis bullosa (DEB).
Financial results and liquidity
| Metric | Q1 2024 | Q1 2023 / prior date |
|---|---|---|
| Net product revenue | $45.25 million | None |
| Cost of goods sold | $2.42 million | None |
| Gross profit and margin | $42.83 million; 94.7% | Not applicable |
| Research and development | $10.96 million | $12.29 million |
| Selling, general and administrative | $26.06 million | $24.04 million |
| Litigation settlement expense | $12.50 million | $12.50 million |
| Operating loss | $6.68 million | $48.82 million |
| Interest and other income, net | $7.62 million | $3.53 million |
| Net income (loss) | $0.93 million; $0.03 diluted EPS | $(45.30) million; $(1.76) diluted EPS |
| Operating cash flow | $15.89 million | $(26.16) million |
| Cash and cash equivalents | $359.01 million | $358.33 million at Dec. 31, 2023 |
| Short-term investments | $179.25 million | $173.85 million at Dec. 31, 2023 |
| Total assets / stockholders’ equity | $853.30 million / $799.24 million | $818.36 million / $778.64 million at Dec. 31, 2023 |
Gross profit and margin are calculated from reported revenue and cost of goods sold. Cash, cash equivalents and short-term investments totaled approximately $538.3 million; including long-term investments, total cash and investments were approximately $622.3 million. The company reported $54.1 million of total liabilities, principally lease liabilities and current operating accruals, and no borrowings or interest-bearing debt. Accumulated deficit was $268.9 million. Management believes cash, cash equivalents and short-term investments will fund planned operations for at least 12 months from the filing date.
Operating cash flow was helped by working-capital movements, including a $12.5 million accrued litigation settlement and a $5.3 million increase in accrued rebates; it should not be read as a recurring earnings measure. Investing cash outflow was $26.0 million, and financing cash inflow was $10.6 million, including $16.0 million from option exercises. Cash increased $0.7 million during the quarter.
Material changes and business developments
- Q1 2024 was the first comparable first quarter with VYJUVEK sales: the product was approved in May 2023 and U.S. sales began in Q2 2023. The company reported $95.9 million in cumulative net product revenue since August 2023.
- Management said Q1 revenue was affected by patient transitions to VYJUVEK’s permanent J-code and delays in reimbursement approvals after a cybersecurity incident at its specialty pharmacy provider. To maintain treatment continuity, approximately 400 vials were provided free in the quarter in place of commercial vials. The company expects no further impact from these events.
- Access and reimbursement had been achieved for 96% of covered commercial and Medicaid lives as of April 2024, with more than 330 U.S. reimbursement approvals. Patient compliance with weekly treatment was 91% through Q1 2024.
- R&D expense declined $1.3 million, mainly because certain commercial VYJUVEK manufacturing costs were capitalized in inventory rather than expensed as R&D. SG&A rose $2.0 million, primarily from launch and patient-access costs and professional services.
- Net income improved from a substantial loss, reflecting product revenue and higher investment income, but the quarter still included a $12.5 million litigation-settlement charge and $7.6 million of interest and other income.
Outlook, risks and unusual items
- Outlook: The filing gives no numerical revenue, earnings or cash-flow guidance. Management expects R&D and SG&A to increase as it advances clinical programs, expands commercialization and prepares for launches outside the U.S.; future product revenue may fluctuate.
- VYJUVEK and international plans: The company expects an EMA decision on its DEB application in the second half of 2024 and expects EMA GMP certification in that half. It anticipates filing a Japan application in the second half of 2024, with potential authorization in 2025.
- Manufacturing: A revised VYJUVEK process intended to more than quadruple output per production batch is planned for submission to the FDA in the second half of 2024. FDA approval is required before use. The company also plans to qualify ASTRA for commercial manufacturing through a technical transfer and FDA inspection; timing and approval are uncertain.
- Pipeline: Management planned to start the final KB407 Phase 1 cohort in Q2 2024, report interim KB408 data in the second half of 2024, and report KB707 intratumoral interim data before year-end. It planned to initiate an ophthalmic B-VEC study in the second half of 2024. These are forward-looking expectations, not reported outcomes.
- PeriphaGen settlement: The company recorded a further $12.5 million expense because reaching the $100 million cumulative-sales milestone was considered probable; payment becomes due following the Form 10-K reporting that milestone. Two additional $12.5 million milestones remain contingent and were not accrued at March 31, 2024. Total potential settlement consideration is $75 million, of which $37.5 million had been paid.
- Key risks: Results depend substantially on VYJUVEK’s commercial success, access and reimbursement, and the company’s ability to scale and qualify manufacturing. Other material uncertainties include clinical-trial and regulatory outcomes, competition, product safety, third-party supply and distribution, cybersecurity, intellectual-property disputes, and the possibility that additional capital may be needed. The filing identifies a specialty-pharmacy cybersecurity incident that affected Q1 revenue.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether VYJUVEK sales, paid-vial demand, reimbursement approvals and access continue to grow after the Q1 J-code transition and specialty-pharmacy disruption.
- Whether the FDA accepts and approves the planned manufacturing-process supplement, and whether ASTRA is inspected and qualified for commercial production on schedule.
- Progress and results for the EMA review, Japan application, and the clinical programs and data expected during 2024.
- Timing and cash impact of the $12.5 million PeriphaGen milestone payment and whether the further sales-linked milestones become probable.
- Whether cash generation and the stated 12-month liquidity outlook hold as commercial, manufacturing and R&D spending increase; monitor the concentration of revenue in one product and one customer noted for Q1.