Krystal Biotech, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Krystal is a clinical-stage gene therapy company; it had no approved products and generated no revenue.
Financial results and position
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $5.1 million | $3.9 million | $12.3 million | $11.3 million |
| General and administrative expense | $4.6 million | $1.5 million | $10.3 million | $4.7 million |
| Operating loss | $9.7 million | $5.3 million | $22.6 million | $15.9 million |
| Net loss | $9.6 million | $4.3 million | $21.8 million | $13.7 million |
| Net loss per share, basic and diluted | $0.49 | $0.25 | $1.18 | $0.89 |
| Net cash used in operating activities | Not reported quarterly | $18.1 million | $11.7 million |
Cash and cash equivalents were $282.4 million and short-term investments $4.0 million at September 30, 2020, totaling approximately $286.4 million. The company reported total assets of $311.5 million, current liabilities of $7.2 million, total liabilities of $9.7 million, and stockholders’ equity of $301.7 million. It reported no borrowings; liabilities principally included operating lease obligations. Gross margin is not applicable because there were no product sales.
For the first nine months, investing activities used $5.0 million, including $7.6 million of property and equipment purchases, partly offset by investment maturities. Financing provided $117.9 million, primarily from the May 2020 public offering. Cash increased $94.9 million over the period.
Changes versus prior comparable periods
- Q3 net loss more than doubled year over year, as operating expenses rose $4.3 million and interest and other income fell $1.0 million.
- Q3 R&D expense rose $1.2 million, reflecting higher outsourcing, laboratory supplies, and payroll/headcount costs. Q3 G&A rose $3.1 million, with increases in payroll and stock-based compensation, market research, and legal and professional fees.
- Nine-month operating expenses increased $6.7 million; G&A accounted for $5.7 million of the increase. Lower interest income also contributed to the higher net loss.
- Cash and investments increased substantially from year-end 2019, largely due to the May 2020 equity offering, which generated $117.2 million in net proceeds. Common shares outstanding rose from 17.4 million at year-end to 19.7 million at September 30.
- Property and equipment, net, increased to $17.5 million from $8.5 million, reflecting facility and equipment investment.
Outlook, developments, and risks
- Management said available cash, cash equivalents, and short-term investments were expected to fund planned operations for at least 12 months from the filing date. The company expects continuing losses and rising expenses and may need additional capital; profitability depends on successful development, approval, and commercialization.
- B-VEC: The Phase 3 GEM-3 trial for dystrophic epidermolysis bullosa began in July 2020. Management expected enrollment completion in early 2021, top-line results and a U.S. BLA filing in 2021, and a European MAA filing shortly afterward. These are forward-looking expectations, not assurances.
- Pipeline: The company began the Phase 2 portion of the KB105 study in August 2020 and initiated a Phase 1 study of KB301 in August 2020. It expected to file an IND for preclinical cystic fibrosis candidate KB407 in the first half of 2021.
- Manufacturing and facilities: The ANCORIS facility produced clinical material for the B-VEC pivotal trial. ASTRA, a planned 150,000-square-foot facility, was expected to be completed and validated in 2022. In October 2020, after quarter-end, the company gave notice of intent to purchase ASTRA for approximately $9.5 million, subject to a purchase agreement; the financial statement impact was not yet reasonably estimable.
- Commitments: Estimated remaining manufacturing commitments were approximately $4.8 million; market research commitments were approximately $1.2 million. Future operating lease payments totaled $17.2 million, including $13.2 million attributable to ASTRA before lease-related adjustments.
- Litigation: PeriphaGen sued the company and two executives, alleging breach of contract and trade-secret misappropriation. Krystal denied the allegations, filed counterclaims and a third-party complaint, and said it intended to defend the case. The company could not estimate litigation costs, timing, or potential damages.
- Risks: Key uncertainties include clinical-trial outcomes and timing, regulatory review, manufacturing scale-up and supply, competition, intellectual-property protection and the PeriphaGen dispute, future financing and dilution, and possible COVID-19 effects on trials, operations, suppliers, and capital markets. Management said the pandemic’s impact had been minimal to date but remained uncertain.
- The company recorded no impairment losses and disclosed no off-balance-sheet arrangements. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether GEM-3 enrollment, data readout, and BLA timing remain consistent with management’s stated 2021 expectations.
- Updated cash burn and runway against the company’s expanded clinical, manufacturing, and facility plans.
- Progress, costs, and timing for ASTRA, including the proposed purchase and resulting financial obligations.
- Developments, potential exposure, and any material updates in the PeriphaGen litigation.
- Whether COVID-19, trial execution, regulatory requirements, or manufacturing issues change program timelines or capital needs.