Krystal Biotech, Inc. — Q2 2018 Form 10-Q
Business context and period. The clinical-stage gene therapy company develops treatments for skin diseases using its STAR-D platform. This unaudited filing covers the quarter and six months ended June 30, 2018. Its lead candidate, KB103, is being developed for dystrophic epidermolysis bullosa (DEB); the first patient entered a Phase 1/2 trial in May 2018. The company reported no product or other revenue.
Financial performance and position
- Q2 results: R&D expense was $1.525 million and G&A expense was $924,000, for operating expenses and operating loss of $2.449 million. Net loss was $2.276 million, or $0.22 per share, including $173,000 of interest and other income.
- Six-month results: R&D expense was $3.045 million and G&A expense was $1.681 million; operating loss was $4.726 million. Net loss was $4.426 million, or $0.43 per share, after $300,000 of interest and other income.
- Cash flow: For the six months, operating cash use was $3.987 million, investing cash use was $3.801 million, and financing provided $10,000. Cash and cash equivalents declined $7.778 million to $41.813 million; short-term investments were $3.637 million. Together, cash, cash equivalents and short-term investments totaled approximately $45.5 million.
- Liquidity and balance sheet: At June 30, total assets were $46.030 million, current liabilities and total liabilities were $759,000, and stockholders’ equity was $45.271 million. No debt balance is reported. Accumulated deficit was $13.496 million. Profit margins are not meaningful because the company had no revenue and incurred losses.
Material changes versus prior comparable periods
- Q2 operating expenses increased $1.734 million year over year; R&D rose $1.079 million and G&A rose $655,000. Q2 net loss increased from $759,000 to $2.276 million.
- For the six months, operating expenses increased $3.546 million year over year; R&D rose $2.280 million and G&A rose $1.266 million. Net loss increased from $1.253 million to $4.426 million.
- Management attributed the expense growth principally to outsourced manufacturing and clinical/preclinical work, payroll and related costs, lab supplies, professional services, and higher public-company insurance costs.
- Cash and cash equivalents fell from $49.591 million at year-end 2017, while the company added $3.637 million of short-term investments. The company completed its $40.7 million net-proceeds IPO in September 2017; the 2017 comparative periods preceded that IPO.
Outlook, risks, and unusual items
- Management expected available cash, cash equivalents and short-term investments to fund operations for at least 12 months from the filing date, and believed funds would support obtaining clinical data from the KB103 Phase 1/2 trial. It said funds would not be sufficient to seek marketing approval or commercialize candidates.
- Management expects R&D and G&A expenses and operating losses to increase. Profitability depends on successful development, approval and commercialization; the company may need additional equity, debt, partnership or other financing, which may not be available on acceptable terms.
- KB103 received U.S. Orphan Drug Designation, EU Orphan Medicinal Product Designation and FDA Fast Track designation. These designations do not assure approval. The trial is single-center, open-label and placebo-controlled, with safety and tolerability as primary focus and efficacy measures also planned.
- Material risks include clinical or regulatory failure, manufacturing and development costs, competition, intellectual-property protection, and financing needs. The filing reports no material change to previously disclosed risk factors and no material litigation.
- The laboratory and office lease was extended through February 2026; disclosed future minimum lease payments totaled $1.910 million. Remaining clinical manufacturing commitments were approximately $441,000.
- Management reported effective disclosure controls and no material change in internal control over financial reporting. The company had no off-balance-sheet arrangements.
Investor facts to verify
- Progress, enrollment, safety findings and timing for the KB103 Phase 1/2 trial, and the costs required to advance it.
- Whether the stated 12-month liquidity runway remains achievable given operating cash use and expected spending increases.
- Availability and terms of future financing, including potential dilution or debt restrictions.
- Clinical manufacturing commitments, the extended lease obligations, and any changes in those commitments.
- Share-count comparability: weighted-average shares were approximately 10.31 million in Q2 2018 versus 3.49 million in Q2 2017, reflecting the company’s transition from pre-IPO periods.