Krystal Biotech, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Filed August 8, 2022. Krystal is a clinical-stage biotechnology company developing redosable gene therapies using an engineered HSV-1 platform. It had no approved products and generated no revenue.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $10.9m | $6.6m | $20.2m | $12.8m |
| General and administrative expense | $17.9m | $9.8m | $33.8m | $18.0m |
| Litigation settlement expense | — | — | $25.0m | — |
| Net loss | $28.1m | $16.4m | $78.1m | $32.2m |
| Net loss per share, basic and diluted | $1.10 | $0.74 | $3.08 | $1.48 |
With no revenue, gross margin and operating margin are not meaningful. Operating expenses increased year over year, reflecting higher development and manufacturing activity, increased staffing and stock-based compensation, commercial-preparedness work, and the first-half settlement charge. Interest and other income was $0.6m for Q2 and $0.9m for the first half of 2022; the prior-year first-half period included $1.5m of interest expense related to ASTRA.
Liquidity, cash flow, and obligations
- At June 30, cash and cash equivalents were $218.7m, short-term investments $206.8m, and long-term investments $12.9m. Cash, cash equivalents and short-term investments totaled approximately $425.6m.
- Total assets were $601.3m; total liabilities were $42.1m, including $9.1m of lease liabilities. The filing reports no borrowings or off-balance-sheet arrangements.
- For the first six months, operating cash use was $58.6m, investing cash use was $94.1m, and financing cash provided was $30.2m. Cash and cash equivalents decreased $122.5m to $218.7m.
- Investing cash use included $33.7m of property and equipment purchases, primarily for the ASTRA facility, and net investment purchases. Financing cash was primarily from $29.1m of net ATM proceeds and stock-option exercises.
- Management said available cash, cash equivalents and short-term investments were expected to fund planned operations for at least 12 months from the filing date. The company remains loss-making and may need additional capital; future equity financing could dilute shareholders.
Material changes and notable items
- Q2 net loss widened to $28.1m from $16.4m. First-half net loss increased to $78.1m from $32.2m, including the $25.0m PeriphaGen settlement expense.
- On April 27, 2022, Krystal finalized its PeriphaGen settlement and paid $25.0m. Additional payments total up to $50.0m: $12.5m upon FDA approval of its first product and three $12.5m sales milestones. These contingent amounts were not accrued because achievement was not considered probable as of June 30.
- ASTRA, the second cGMP facility, remained under construction. Remaining estimated commitments under related construction and long-lead-material contracts were $17.9m; the filing said completion and validation were expected in 2022. Property and equipment, net, rose to $151.2m from $112.4m at year-end.
- Krystal filed a BLA for B-VEC for dystrophic epidermolysis bullosa on June 22, 2022. It expected to file an EU marketing application in the second half of 2022; approval and timing were uncertain. Management said product revenue was not expected before Q4 2022 at the earliest, assuming approval on the contemplated schedule.
- Subsequent to quarter-end, the company announced FDA acceptance of the KB407 IND on August 1, 2022 and plans to initiate a U.S. Phase 1 study in the second half of 2022. This was a post-period development, not a June 30 result.
Outlook, risks, and controls
Management anticipated higher R&D spending as it advanced B-VEC, resumed KB105 dosing, and initiated planned studies for KB301, KB407 and KB104. It also expected increased G&A and commercialization-preparation costs. Key uncertainties include clinical and regulatory outcomes, manufacturing and commercialization execution, access to additional financing, competition and intellectual-property matters. COVID-19 had minimal U.S. impact to date but had delayed Australian trial initiation. The company reported disclosure controls and procedures were effective and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- B-VEC BLA review progress, regulatory timing and any FDA approval or launch assumptions.
- Actual cash burn, investment balances and financing needs against management’s stated 12-month liquidity outlook.
- ASTRA construction and validation timing, total remaining costs and the $17.9m estimated commitments.
- PeriphaGen settlement payment triggers and potential additional consideration of up to $50.0m.
- Clinical milestones, spending plans and any changes in the disclosed product-candidate timelines.