Krystal Biotech, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Unaudited results. Krystal is a clinical-stage gene therapy company with no approved products and no revenue to date.
Financial results and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development | $6.6 million | $3.6 million | $12.8 million | $7.2 million |
| General and administrative | $9.8 million | $3.3 million | $18.0 million | $5.7 million |
| Net loss | $16.4 million | $6.8 million | $32.2 million | $12.2 million |
| Basic and diluted loss per share | $0.74 | $0.37 | $1.48 | $0.68 |
- Operating expenses were $16.4 million in Q2, up $9.4 million year over year. For the first half, they rose $17.8 million to $30.7 million. The company attributed increases mainly to higher staffing and stock-based compensation, research and clinical activity, market research, and legal and professional fees. Profit margins are not meaningful because the company has no revenue.
- Cash and cash equivalents were $329.5 million; short-term investments were $38.2 million; long-term investments were $21.4 million at June 30. The company reported $367.7 million in cash, cash equivalents and short-term investments. Total liabilities were $25.0 million, including $7.8 million of lease liabilities; no conventional debt balance is reported.
- First-half operating cash use was $19.8 million, investing cash use was $63.1 million, and financing cash inflow was $144.1 million. Cash increased by $61.3 million to $329.5 million. Financing included $134.9 million net proceeds from a February public offering and approximately $16.9 million net proceeds from ATM share sales. ASTRA building purchase payments included $8.0 million.
- Property and equipment, net, increased to $45.0 million from $30.9 million at year-end, largely reflecting construction and facility investments. Accumulated deficit was $103.4 million. Common shares outstanding increased to 22.2 million from 19.7 million at December 31, 2020.
Material changes and business developments
- Net loss more than doubled year over year in both the quarter and first half as operating costs expanded. First-half 2021 also included $1.5 million of non-cash interest expense related to the ASTRA build-to-suit financing obligation; there was no comparable expense in 2020.
- Interest and other income fell to $30,000 in Q2 from $121,000, and to $64,000 for the first half from $725,000.
- ASTRA, the planned second 150,000-square-foot cGMP manufacturing facility, remained under construction. Completion and validation were expected in 2022. Estimated remaining construction and long-lead-material commitments were $38.0 million as of June 30; a guaranteed maximum construction price had not yet been agreed.
- Remaining estimated commitments were approximately $3.8 million under certain CMO/CRO agreements and $4.0 million for B-VEC market research activities.
Outlook, risks and contingencies
- Management said cash, cash equivalents and short-term investments were expected to fund planned operations for at least 12 months from the filing date. The company expects continued losses and states additional capital may be needed; financing may not be available on acceptable terms.
- Management said product revenue was not expected before 2022 at the earliest, and only if B-VEC received marketing approval on the contemplated schedule. No formal earnings or revenue guidance was provided.
- B-VEC’s Phase 3 GEM-3 study had completed enrollment; top-line data were expected in Q4 2021. An open-label extension began enrolling during Q2. The company cautioned that milestones may be delayed or not achieved.
- Other stated development expectations included initiating KB407 clinical testing in Q3 2021 and a KB104 Phase 1 study in 2022. The filing also reported July 1 KB105 trial data and an August 2 Jeune KB301 study update, both after quarter-end.
- Key risks include clinical-trial outcomes and timing, regulatory approval, manufacturing scale-up and validation, competition, future financing needs, COVID-19 disruptions, and the possibility that candidates never achieve commercial success.
- PeriphaGen litigation alleges breach of contract and misappropriation of trade secrets involving product candidates and the STAR-D platform. Krystal denies the allegations and intends to defend itself; it cannot estimate litigation costs, timing, or potential damages.
- The company reported effective disclosure controls. It completed implementation of financial reporting and consolidation modules of its new ERP system during Q2; phased implementation continues.
Important facts for investors to verify
- Whether GEM-3 top-line results were delivered on the stated Q4 2021 timeline and what the results showed.
- Actual cash burn, available liquidity, and financing needs as development and commercialization spending increases.
- ASTRA’s final construction cost, completion and validation schedule, and the effect of facility spending on liquidity.
- Regulatory and clinical progress for B-VEC and other candidates, including whether stated trial-start expectations were met.
- Developments and potential financial exposure in the PeriphaGen lawsuit.