Krystal Biotech, Inc. — Q1 2020 Form 10-Q
Reporting period: Unaudited quarter ended March 31, 2020; comparisons are with the quarter ended March 31, 2019 unless stated otherwise. Krystal is a clinical-stage gene therapy company focused primarily on skin diseases, with preclinical work in pulmonary indications.
Financial results and liquidity
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Revenue | None | No product or other revenue reported |
| Research and development expense | $3.525 million | $3.167 million; up $0.358 million |
| General and administrative expense | $2.421 million | $1.527 million; up $0.894 million |
| Total operating expenses / operating loss | $5.946 million | $4.694 million; expenses increased $1.252 million |
| Interest and other income, net | $0.605 million | $0.583 million |
| Net loss | $5.341 million | $4.111 million |
| Net loss per share, basic and diluted | $0.31 | $0.29 |
| Net cash used in operating activities | $6.227 million | $3.215 million |
| Net cash used in investing activities | $1.305 million | $2.482 million |
At March 31, cash and cash equivalents were $180.225 million and short-term investments were $6.479 million, totaling $186.704 million. Total assets were $205.131 million and stockholders’ equity was $198.369 million. Current liabilities were $4.061 million. The filing reports lease liabilities of $3.210 million in total; it does not disclose borrowings or other financial debt. No revenue means operating margins are not meaningful.
Cash and cash equivalents declined $7.289 million during the quarter, from $187.514 million at year-end 2019. Cash used in operations increased year over year, reflecting the larger net loss and changes in operating assets and liabilities. Investing cash use included $1.508 million of property and equipment purchases, partly offset by investment maturities. Financing provided $0.243 million, mainly from option exercises.
Material changes and operating developments
- Net loss increased $1.230 million year over year. R&D expense rose $0.358 million, primarily from payroll and other R&D costs; G&A expense rose $0.894 million, primarily from payroll and other administrative costs.
- Property and equipment, net, increased to $10.264 million from $8.475 million at December 31, 2019. The company paid $2.4 million into escrow for the ASTRA facility, recorded as prepaid rent.
- Common shares outstanding were 17,370,564 at March 31, 2020, compared with 17,354,310 at year-end 2019. The company reported 17,385,809 shares issued and outstanding as of April 30, 2020.
Outlook, risks and commitments
- Management said the $186.7 million of cash, cash equivalents and short-term investments was expected to fund planned operations for at least 12 months from the May 1, 2020 filing date. The company expects continued losses, says it may never become profitable, and anticipates needing additional capital to develop and commercialize candidates.
- Management expected to begin pivotal Phase 3 trials of B-VEC for dystrophic epidermolysis bullosa in the first half of 2020; anticipated Phase 1/2 interim data for KB105 in the first half of 2020 and Phase 2 initiation in the second half of 2020; and anticipated KB301 entering the clinic in the second half of 2020. An IND filing for preclinical cystic fibrosis candidate KB407 was anticipated in 2021. These are forward-looking expectations, not reported outcomes.
- ASTRA, a planned 100,000-square-foot manufacturing facility, was under construction. Completion was expected in the first half of 2021, with interior build-out and validation anticipated in the first half of 2022. Future minimum operating lease commitments were $17.426 million, including $13.195 million attributed to ASTRA. Remaining estimated commitments were approximately $3.0 million under clinical supply agreements and $0.530 million for B-VEC market research.
- COVID-19 had prompted restricted facility access and remote work for many employees. The company said the pandemic’s effects on trials, operations, suppliers, workforce, liquidity and access to capital were uncertain and could be materially adverse.
- Key risks include clinical-trial and regulatory uncertainty, manufacturing scale-up and compliance, competition, intellectual property disputes, dependence on future financing, and uncertainty about reimbursement and market acceptance. The company reported no litigation expected to result in a material loss. 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 B-VEC pivotal-trial plans and the KB105 and KB301 development timelines were achieved, and how COVID-19 affected clinical progress.
- Whether the stated cash runway remains adequate as operating losses, clinical spending and manufacturing investment increase.
- ASTRA construction, validation, lease costs and the company’s ability to establish reliable commercial-scale manufacturing.
- Future financing needs and potential dilution, given the absence of product revenue and management’s expectation of continued losses.
- Any subsequent material changes in clinical results, regulatory requirements, manufacturing commitments or intellectual property matters.