Krystal Biotech, Inc. — Q3 2022 Form 10-Q
Business context and period. The biotechnology company develops genetic medicines using an engineered HSV-1 platform and operates in one segment. This unaudited report covers the three and nine months ended September 30, 2022; it was filed November 7, 2022. Krystal had no approved products or product revenue.
Financial results and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Research and development expense | $11.5 million | $6.1 million | $31.7 million | $18.9 million |
| General and administrative expense | $19.9 million | $9.6 million | $53.7 million | $27.5 million |
| Litigation settlement expense | — | — | $25.0 million | — |
| Net loss | $29.9 million | $15.6 million | $107.9 million | $47.8 million |
| Net loss per share, diluted | $1.17 | $0.70 | $4.24 | $2.18 |
| Operating cash used | Not reported by quarter | Not reported by quarter | $78.2 million | $27.0 million |
At September 30, 2022, cash and cash equivalents were $186.4 million, short-term investments $208.0 million, and long-term investments $12.6 million. Current assets were $397.6 million versus current liabilities of $28.0 million. Total liabilities were $35.6 million, including $9.1 million of lease liabilities; the filing reports no borrowings. Stockholders’ equity was $540.8 million and accumulated deficit was $248.7 million.
Investing cash use for the nine months was $108.9 million, including $47.8 million of property and equipment purchases; financing provided $32.3 million, primarily from ATM stock sales and option exercises. Cash and cash equivalents declined $154.8 million from year-end 2021. The company reported no product margins; profitability and margin measures are not meaningful while it has no product revenue.
Material changes and notable items
- Q3 net loss increased by $14.3 million year over year. Higher headcount and stock-based compensation contributed to increased R&D and G&A costs. Nine-month operating expenses also included the $25.0 million PeriphaGen settlement.
- Nine-month R&D expense rose $12.8 million and G&A expense rose $26.2 million year over year. Stock-based compensation expense was $23.7 million for the period, versus $10.2 million in 2021.
- Interest and other income increased to $2.5 million for the nine months from $0.1 million, reflecting increased investment activity and interest rates. The prior-year period included $1.5 million of interest expense related to ASTRA; none was recorded in 2022.
- Property and equipment, net, increased to $157.8 million from $112.4 million at year-end, principally reflecting construction and equipment spending for the ASTRA manufacturing facility. The facility’s interior build-out was expected to be completed in the first half of 2023.
Outlook, risks, and contingencies
- Management said cash, cash equivalents, and short-term investments of approximately $394.4 million should fund planned operations for at least 12 months from the filing date. It expects continued losses and increasing development, regulatory, manufacturing, and commercialization costs; additional financing may be needed, and may not be available on acceptable terms.
- The B-VEC biologics license application was accepted for FDA priority review, with a PDUFA target date of February 17, 2023. In October, the FDA said it did not plan an advisory committee meeting and had not identified a need for REMS. Management said product revenue could begin as early as Q1 2023, assuming approval on its anticipated schedule.
- Management planned an EMA marketing authorization application for B-VEC in Q4 2022. It anticipated KB105 patient dosing in the first half of 2023, a KB104 Phase 1 study in the first half of 2023, and a KB301 Phase 2 study in the first half of 2023. It planned to initiate the U.S. KB407 Phase 1 study in Q4 2022; Australian trial initiation had experienced pandemic-related delays.
- PeriphaGen settlement terms include $12.5 million upon FDA approval of the company’s first product and three additional $12.5 million payments upon cumulative sales milestones of $100 million, $200 million, and $300 million. These contingent payments were not accrued because achievement was not deemed probable at September 30, 2022.
- Remaining disclosed commitments included approximately $10.3 million for ASTRA construction and materials, $6.2 million for commercial preparedness, and $2.4 million under certain CRO/CMO agreements. The company also cited clinical, regulatory, manufacturing, competition, intellectual-property, financing, and COVID-19-related risks. It reported no material changes to previously disclosed risk factors.
Investor facts to verify
- FDA review outcome and timing for B-VEC, including the February 17, 2023 target date, and whether commercialization and revenue timing assumptions are achieved.
- Progress and timing of the KB407, KB105, KB104, and KB301 clinical programs, including any continuing trial delays.
- Cash burn, capital requirements, and whether the stated minimum 12-month runway remains adequate as development and commercialization spending rises.
- ASTRA construction costs and completion schedule, and the timing and amount of PeriphaGen contingent payments.
- Further ATM or other equity financing, potential dilution, and the impact of unrecognized stock-based compensation.