Krystal Biotech, Inc. — Q1 2019 Form 10-Q
Business context and reporting period. This clinical-stage gene therapy company reported for the three months ended March 31, 2019. It has no approved products and has not generated revenue. Its lead candidate, KB103, is being developed as a topical gene therapy for dystrophic epidermolysis bullosa (DEB); KB105 is in preclinical development for autosomal recessive congenital ichthyosis (ARCI).
Financial performance and position
| Metric | Q1 2019 | Q1 2018 / comparison |
|---|---|---|
| Revenue | None | None |
| Research and development expense | $3.167 million | $1.520 million |
| General and administrative expense | $1.527 million | $0.757 million |
| Total operating expenses / operating loss | $4.694 million | $2.277 million |
| Interest and other income, net | $0.583 million | $0.127 million |
| Net loss | $4.111 million | $2.150 million |
| Basic and diluted loss per share | $0.29 | $0.21 |
| Net cash used in operating activities | $3.215 million | $2.369 million |
At March 31, 2019, cash and cash equivalents were $98.013 million and short-term investments were $8.617 million, or approximately $106.6 million combined. Total assets were $115.704 million, total liabilities $6.218 million, and stockholders’ equity $109.486 million. The company reported no conventional borrowings; lease liabilities were $3.394 million, including $0.418 million current. No operating margin is meaningful because the company has no revenue.
Cash used in investing activities was $2.482 million, primarily for property and equipment, short-term investments, and other noncurrent assets. Financing activities provided $0.040 million, mainly from option exercises. Cash and cash equivalents declined by $5.657 million during the quarter. The company had an accumulated deficit of $24.1 million.
Material changes versus the prior comparable period
- Net loss increased by $1.961 million year over year. R&D expense rose by $1.647 million, primarily reflecting higher payroll and benefits, lab supplies, and other R&D costs.
- G&A expense rose by $0.770 million, mainly due to higher payroll, benefits and stock-based compensation, as well as public-company and other administrative costs.
- Interest and other income increased by $0.456 million, reflecting income on cash, cash equivalents, and investments.
- Operating cash use increased by $0.846 million. Investing cash use was $2.482 million versus none in Q1 2018, including spending on the GMP facility and equipment.
- Adoption of lease accounting in 2019 resulted in recognition of a $3.001 million right-of-use asset and a $3.394 million lease liability. The company also adopted updated nonemployee share-based payment guidance, with no material financial statement effect.
Outlook, commentary, and risks
- Management said the $106.6 million of cash, cash equivalents, and short-term investments was expected to fund operations for at least 12 months from the filing date. It also said these resources were not expected to be sufficient to obtain marketing approval for or commercialize product candidates.
- Management expected top-line data from the six-patient KB103 Phase 1/2 study in the first half of 2019 and anticipated starting pivotal Phase 3 trials in the second half of 2019 if results were successful. The filing reports positive interim results in two patients announced in October 2018, with reported efficacy and safety endpoints met in treated wounds.
- The FDA and EMA had granted KB103 orphan drug designation; the FDA had also granted fast track and rare pediatric designations. The EMA granted KB103 PRIME eligibility in March 2019.
- The company expected to file an IND for KB105 in the second half of 2019. In March, it inaugurated its commercial-scale cGMP facility after a KB103 manufacturing trial run; it planned to continue evaluating additional manufacturing capacity and third-party supply alternatives.
- A $50 million at-the-market equity program was established in March 2019; no shares had been sold under it by quarter-end. Additional financing may be required, with potential dilution from equity issuance or fixed obligations and covenants from debt financing.
- Remaining estimated clinical manufacturing commitments were approximately $2.2 million. Future minimum operating lease payments totaled $4.681 million undiscounted; the recorded lease liability was $3.394 million.
- Key risks include clinical and regulatory uncertainty, manufacturing scale-up, reliance on additional capital, and the possibility that the company may never achieve profitability. The filing reported no material litigation, no material changes to previously disclosed risk factors, and no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether the six-patient KB103 study produced the anticipated data and whether the results support the planned Phase 3 timing.
- Progress toward the KB105 IND and the timing of any clinical-trial initiation.
- Whether the in-house cGMP facility can reliably meet clinical and potential commercial manufacturing needs, and how manufacturing costs evolve.
- Cash runway assumptions, future spending, and whether additional financing will be needed; monitor any ATM sales and resulting dilution.
- Clinical manufacturing commitments, lease obligations, and other costs as the pipeline and operations expand.