Krystal Biotech, Inc. — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. The unaudited filing was signed August 7, 2020. Krystal is a clinical-stage gene therapy company with no approved products and no product revenue.
Financial results and liquidity
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $3.6M | $4.2M | $7.2M | $7.4M |
| General and administrative expense | $3.3M | $1.7M | $5.7M | $3.2M |
| Total operating expenses | $7.0M | $5.9M | $12.9M | $10.6M |
| Net loss | $6.8M | $5.3M | $12.2M | $9.5M |
| Basic and diluted loss per share | $0.37 | $0.37 | $0.68 | $0.65 |
| Net cash used in operations | Not stated by quarter | Not stated by quarter | $11.3M | $7.4M |
- At June 30, cash and cash equivalents were $291.7M and short-term investments were $5.5M, totaling $297.2M. Total assets were $318.1M; current liabilities were $5.8M.
- The company reported no borrowings; total lease liabilities were $3.2M. Accumulated deficit was $51.2M.
- Six-month investing cash outflow was $2.3M, including $3.5M of property and equipment purchases, partially offset by investment maturities. Financing provided $117.7M, primarily from the May stock offering.
- There is no meaningful operating margin to report because the company had no revenue.
Material changes versus prior comparable periods
- Q2 operating expenses increased $1.1M year over year and net loss increased $1.5M. For the first half, operating expenses rose $2.3M and net loss rose $2.7M.
- Q2 R&D expense fell $0.6M, reflecting lower outsourced research and lab-supply costs, partly offset by higher payroll and other costs. First-half R&D declined $0.2M.
- G&A increased $1.6M in Q2 and $2.5M in the first half, mainly due to headcount and stock compensation, market research, and other administrative spending.
- Cash and cash equivalents rose from $187.5M at year-end 2019 to $291.7M at June 30, 2020, substantially reflecting the May offering. The company issued 2.275M shares at $55 per share for net proceeds of approximately $117.2M.
Outlook, risks, and unusual items
- Management said cash, cash equivalents, and short-term investments should fund planned operations for at least 12 months from the filing date. The company expects losses and expenses to increase as it advances trials, expands manufacturing, and prepares for potential commercialization; it may need additional capital and may never become profitable.
- After quarter-end, Krystal initiated the B-VEC Phase 3 pivotal trial on July 28 and the KB105 Phase 2 study on August 4, 2020. It anticipated B-VEC top-line data and a U.S. biologics license application in 2021; these are forward-looking expectations, not reported outcomes.
- Management anticipated beginning a KB301 Phase 1 study in the second half of 2020 and filing an investigational new drug application for pulmonary candidate KB407 in the first half of 2021.
- The 150,000-square-foot ASTRA manufacturing facility was under construction, with completion and validation expected in 2022. A $2.4M contribution was paid into escrow and recorded as prepaid rent. Remaining clinical manufacturing commitments were approximately $3.3M; other market-research commitments were $0.5M.
- COVID-19 had minimal impact on the business and trials to date, according to management, but its duration and potential effects on trials, suppliers, operations, workforce, and access to capital remained uncertain.
- PeriphaGen sued the company and two executives, alleging breach of contract and trade-secret misappropriation relating to company candidates and its STAR-D platform. Krystal denied the allegations, counterclaimed, and said it would defend the case; it could not estimate litigation costs, timing, or potential damages.
- Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Progress, enrollment, safety, and efficacy results from the B-VEC Phase 3 trial, and whether the anticipated 2021 data and filing timeline remains achievable.
- KB105 trial progress and the development timelines for KB301, KB407, and other pipeline programs.
- Cash burn, spending on trials and ASTRA, and whether the stated cash runway remains adequate as programs advance.
- Manufacturing readiness, capacity, validation, and supply continuity at ANCORIS and ASTRA.
- Developments and potential financial exposure in the PeriphaGen litigation.
- Any COVID-19-related disruption, future financing needs, and the dilution or terms associated with additional capital raises.