Krystal Biotech, Inc. — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019; comparisons are with the corresponding 2018 periods. Krystal is a clinical-stage gene therapy company developing treatments for dermatological diseases. It reported no product or other revenue.
Financial results
| Metric | Q2 2019 | Q2 2018 | First half 2019 | First half 2018 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Research and development expense | $4.216 million | $1.525 million | $7.383 million | $3.045 million |
| General and administrative expense | $1.674 million | $0.924 million | $3.202 million | $1.681 million |
| Total operating expenses | $5.890 million | $2.449 million | $10.585 million | $4.726 million |
| Net loss | $5.348 million | $2.276 million | $9.459 million | $4.426 million |
| Net loss per share, basic and diluted | $0.37 | $0.22 | $0.65 | $0.43 |
| Interest and other income, net | $0.542 million | $0.173 million | $1.126 million | $0.300 million |
Cash flow: First-half operating cash use was $7.424 million, investing cash use was $3.718 million, and financing provided $94.059 million, principally from the June offering. Cash and cash equivalents increased $82.917 million to $186.587 million. Short-term investments were $8.879 million.
Balance sheet at June 30: Total assets were $205.156 million; current liabilities were $3.940 million and total liabilities were $6.866 million. The company reported lease liabilities of $3.364 million in total, but no borrowings are reported. Stockholders’ equity was $198.290 million and accumulated deficit was $29.418 million. No meaningful operating margin is available because the company had no revenue.
Changes versus prior comparable periods
- Q2 net loss increased $3.072 million year over year; first-half net loss increased $5.033 million.
- First-half R&D expense rose $4.338 million, driven mainly by lab supplies, payroll, and outsourced R&D. First-half G&A expense rose $1.521 million, mainly due to payroll and legal and professional costs.
- Cash and cash equivalents rose from $103.670 million at year-end 2018, substantially reflecting equity financing. Common shares outstanding increased from 14.429 million at December 31, 2018, to 16.945 million at June 30, 2019.
- The company adopted lease accounting guidance in January 2019, recording a right-of-use asset and lease liability; the June 30 right-of-use asset was $2.906 million.
Outlook, developments and risks
- Management said cash, cash equivalents and short-term investments of approximately $195.5 million at June 30 were expected to fund operations for at least 12 months from the filing date. It also said available funds were expected to support initiation of the planned KB103 Phase 3 and KB105 Phase 1/2 trials. Continued losses and the need for substantial additional funding remain risks; profitability is not assured.
- Management anticipated initiating a pivotal Phase 3 trial of KB103 in Q4 2019 and a U.S. Phase 1/2 trial of KB105 in the second half of 2019. R&D and G&A expenses were expected to increase. Trial costs and timing are uncertain.
- The company reported positive Phase 2 results for KB103 in June: seven of eight treated wounds across combined Phase 1 and 2 closed completely; average time to closure was 20.14 days. Preliminary Phase 2 closure duration at the 120-day assessment was 101 days. KB103 had FDA orphan, fast track, rare pediatric and RMAT designations, and EMA orphan and PRIME status. Designations do not ensure approval.
- In June, Krystal submitted an IND for KB105 for autosomal recessive congenital ichthyosis. The filing states FDA orphan and rare pediatric designations had been granted.
- The June 27 public offering of 2.5 million shares at $40 per share generated $93.8 million net proceeds. On July 3, after quarter-end, underwriters purchased another 353,946 shares for $13.3 million net proceeds. The company suspended its ATM program; $16.8 million remained available for future sale under the registration statement.
- Remaining estimated commitments under clinical manufacturing and supply agreements were approximately $2.5 million. The company disclosed a legal proceeding but did not expect a material loss. It reported no material changes to previously disclosed risk factors and no off-balance-sheet arrangements.
- A $54,000 impairment loss on equipment was recorded in the first half of 2019. The filing says the unaudited interim results are not necessarily indicative of full-year results.
Important facts for investors to verify
- Progress, timing, safety and efficacy results for the planned KB103 pivotal trial and KB105 clinical trial, including final KB103 wound-closure durability data.
- Actual cash burn and funding runway as clinical, manufacturing and facility spending increases; whether additional financing will be needed and on what terms.
- Potential dilution from the June offering, the post-quarter underwriters’ option, and any future ATM sales.
- Regulatory requirements and the distinction between expedited-development designations and marketing approval.
- Whether the approximately $2.5 million manufacturing commitment and lease obligations change materially, and the outcome of the disclosed legal proceeding.