Krystal Biotech, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Krystal is a clinical-stage biotechnology company developing genetic medicines using an engineered HSV-1 platform. It had no approved products or product revenue during the quarter.
Financial results and liquidity
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Revenue | None | None |
| Research and development expense | $12.3 million | $9.3 million; up $3.0 million |
| General and administrative expense | $24.0 million | $15.9 million; up $8.1 million |
| Litigation settlement expense | $12.5 million | $25.0 million |
| Total operating expenses | $48.8 million | $50.2 million |
| Net loss | $45.3 million | $50.0 million |
| Basic and diluted loss per share | $1.76 | $1.99 |
| Net cash used in operating activities | $26.2 million | $15.5 million used |
Gross margin and operating margin are not meaningful because the company had no revenue. Interest and other income rose to $3.5 million from $0.3 million, primarily reflecting higher investment activity and interest rates.
At March 31, 2023, cash and cash equivalents were $140.7 million, short-term investments $209.6 million, and long-term investments $5.1 million. The company cited $350.4 million of cash, cash equivalents and short-term investments and expects this amount to fund planned operations for at least 12 months from the filing date. Total assets were $531.8 million and stockholders’ equity $489.6 million. Reported liabilities consisted chiefly of lease liabilities; the filing does not report borrowings. Lease liabilities totaled $8.8 million.
Cash and cash equivalents declined $21.2 million in the quarter. Investing activities provided $3.6 million, largely because investment maturities exceeded purchases; financing activities provided $1.5 million, mainly from option exercises.
Material changes and notable items
- Net loss narrowed year over year, primarily as the litigation settlement expense fell by $12.5 million; this partly offset higher R&D and G&A spending.
- G&A increased with higher staffing and stock-based compensation as the company prepared for commercialization. R&D growth reflected payroll, outsourced research, facilities and other costs.
- Operating cash use increased year over year. The 2023 cash flow included a $12.5 million increase in accrued litigation settlement, while the prior-year period included a $25.0 million increase in that accrual.
- The company accrued an additional $12.5 million PeriphaGen settlement payment after concluding FDA approval of its first product was probable. Further $12.5 million payments are contingent on cumulative sales milestones; the company had not accrued those amounts.
- ASTRA, the second commercial-scale CGMP facility, received a permanent occupancy permit and portions were placed in service. Validation was expected to be completed in 2023; remaining contractual commitments were estimated at $11.9 million.
Outlook, risks and management commentary
The FDA action date for B-VEC (Vyjuvek) was May 19, 2023, following Priority Review of its BLA. Management said product revenue was not expected before the third quarter of 2023 at the earliest, assuming approval on the contemplated schedule. The filing does not provide revenue or earnings guidance beyond these statements.
Management expected R&D and G&A costs to rise as clinical programs advance and the company builds manufacturing and commercialization capabilities. Planned activities included B-VEC follow-up work; development of KB105 and KB301; and planned clinical trials for KB104 and KB407. Management cautioned that trial timing, costs, regulatory outcomes, commercialization, financing needs and market acceptance are uncertain. It stated that additional capital may be needed and may not be available on acceptable terms.
The company submitted a European marketing application for B-VEC in November 2022; following a requested change to its pediatric investigation plan, it expected the formal procedure to start in the second half of 2023, with approval expected in early 2024. These are management expectations, not assurances. The ATM program expired May 4, 2023; $102.5 million had remained available as of March 31. The company reported no material changes to the risk factors in its 2022 Form 10-K and said disclosure controls were effective.
Important facts for investors to verify
- Whether B-VEC received FDA approval by the stated action date, and the timing and terms of any launch and initial revenue.
- Whether the company meets B-VEC and other pipeline milestones, including the timelines for European review and planned trials.
- Cash burn, investment balances and the adequacy of the stated liquidity runway as commercialization and clinical costs grow.
- The likelihood and timing of the $12.5 million FDA-approval settlement payment and potential sales-based milestone payments.
- ASTRA validation completion, remaining build-out costs and the effect of commercialization spending on future operating expenses.