Business context and reporting period
Krystal Biotech, Inc. filed this Form 10-K for the fiscal year ended December 31, 2017; it is an annual report, not a standalone fourth-quarter report. The company is a pre-revenue gene-therapy developer focused on dermatological diseases. Its lead candidate, KB103, was in preclinical development for dystrophic epidermolysis bullosa (DEB), using its HSV-1-based STAR-D platform. The company began operations in 2016 and completed its IPO in September 2017.
Financial and operating metrics
| Metric | 2017 | 2016 |
|---|---|---|
| Revenue | None | None |
| Research and development expense | $3.208 million | $0.741 million |
| General and administrative expense | $1.564 million | $0.402 million |
| Total operating expenses / operating loss | $4.772 million | $1.143 million |
| Interest and other expense, net | $3.148 million | $0.007 million |
| Net loss | $7.920 million | $1.150 million |
| Basic and diluted loss per share | $1.48 | $1.31 |
| Cash used in operating activities | $3.890 million | $1.311 million |
| Cash used in investing activities | $0.210 million | $0.015 million |
| Cash provided by financing activities | $51.768 million | $3.249 million |
At December 31, 2017, cash was $49.591 million, working capital $49.274 million, total assets $50.114 million, total liabilities $0.640 million, and accumulated deficit $9.070 million. No convertible promissory notes remained outstanding: the notes converted into preferred stock in August 2017, and preferred stock converted into common stock at the IPO. The filing reports no product revenue or gross margin; margins are not meaningful for this pre-commercial business. Management reported no off-balance-sheet arrangements.
Changes versus the prior comparable period
Net loss widened by $6.770 million year over year, as operating expenses rose by $3.629 million and net interest and other expense rose by $3.141 million. R&D spending increased primarily with outsourced manufacturing and in-vivo studies, laboratory costs, and payroll; G&A increased mainly with legal and professional services and public-company-related costs. Operating cash use increased by $2.579 million. The large increase in cash and financing inflows mainly reflected the IPO, which generated approximately $40.7 million in net proceeds, alongside other equity financing.
Outlook, commentary, risks and unusual items
- Management expected the $49.6 million cash balance to fund operations for at least 12 months from the March 2018 filing date and to support clinical data from the planned KB103 Phase 1/2 trial. It stated that funds would not be sufficient to obtain marketing approval or commercialize candidates and that additional financing would be needed.
- At filing, management intended to submit a KB103 IND in Q1 2018 and begin a Phase 1/2 trial, initially involving three adults with RDEB, with possible expansion to six patients aged five and older. It expected trial results in the second half of 2018. These were plans and expectations, not reported outcomes.
- Management planned an IND for KB105, a candidate for lamellar ichthyosis, in Q4 2018 and clinical studies in Q1 2019. It also planned to develop an in-house commercial-scale cGMP manufacturing facility; clinical manufacturing was outsourced at the time.
- The FDA granted KB103 Orphan Drug Designation in November 2017; this does not ensure approval or exclusivity. The company also had rare pediatric disease designation and planned to seek expedited-development designations. The FDA protocol-registration process for the planned trial was completed without additional NIH review.
- Preclinical studies reported COL7 expression in cells and animal models, including after topical and intradermal administration. KB103 had not been tested in human clinical trials, and preclinical findings may not predict human safety or efficacy.
- An unusual noncash charge of approximately $3.2 million was recorded when convertible notes converted into preferred stock, reflecting a beneficial conversion feature. The company also received $770,000 from an equity sale to EBMRF and EBRP, subject to terms requiring use for a research plan and providing for redemption in specified circumstances.
- Key risks include clinical and regulatory failure or delay, adverse effects, uncertain patient and market estimates, dependence on third-party manufacturing, the need for additional capital, limited operating history and personnel, and intellectual-property and reimbursement uncertainty. The filing reported no material litigation. Management said disclosure controls and internal control over financial reporting were effective; the auditor did not provide an internal-control attestation under the emerging-growth-company exemption.
Most important facts for investors to verify
- Whether KB103’s IND, trial initiation, enrollment, safety findings and clinical results matched the timelines and expectations stated in the filing.
- Actual cash burn and subsequent financing needs, including whether the stated cash runway proved sufficient; the filing’s runway estimate was not a guarantee.
- Progress, cost, timing and regulatory readiness of outsourced and planned in-house cGMP manufacturing.
- Whether the company secured durable and sufficiently broad patent protection for STAR-D and KB103; the filing noted a U.S. platform patent granted in January 2018 and pending applications.
- How the conditional research funding, related-party financing history, ownership concentration and potential share dilution affect shareholder interests.