Krystal Biotech, Inc. — Q1 2018 10-Q Summary
Reporting period: Three months ended March 31, 2018; financial statements are unaudited. Krystal Biotech is a pre-revenue gene therapy company developing treatments for dermatological diseases using its STAR-D platform. Its lead candidate, KB103, targets dystrophic epidermolysis bullosa (DEB).
Financial results and liquidity
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Revenue | None | None |
| Research and development expense | $1.520 million | $319,000 |
| General and administrative expense | $757,000 | $146,000 |
| Total operating expenses | $2.277 million | $465,000 |
| Operating loss | $2.277 million | $465,000 |
| Net loss | $2.150 million | $494,000 |
| Net loss per share, basic and diluted | $0.21 | $0.14 |
| Cash used in operating activities | $2.369 million | $257,000 |
Interest and other income was $127,000 in Q1 2018, compared with net expense of $29,000 in Q1 2017. The company reported no product revenue, so operating margins are not meaningful.
At March 31, 2018, cash and cash equivalents were $47.228 million, total current assets were $47.669 million, and current liabilities were $452,000. Total liabilities were $452,000; the balance sheet reported no debt. Stockholders’ equity was $47.399 million, and accumulated deficit was $11.220 million. Cash declined $2.363 million during the quarter. Management said cash on hand was expected to fund operations for at least 12 months from the filing date, and expected to fund data from the planned KB103 Phase 1/2 trial, but not regulatory approval and commercialization.
Material changes and operating developments
- Operating expenses increased $1.812 million year over year. R&D rose by $1.201 million, principally due to outsourced manufacturing and in-vivo studies, payroll and benefits, and lab supplies. G&A rose by $611,000, largely from legal and professional services, payroll, and public-company insurance costs.
- Operating cash use increased from $257,000 to $2.369 million, reflecting the larger net loss and changes in operating assets and liabilities.
- On April 26, 2018, after quarter-end, FDA cleared the IND for KB103. The company expected to begin a Phase 1/2 study in May 2018. KB103 had received U.S. orphan drug designation in November 2017 and European orphan medicinal product designation on April 19, 2018.
- The company reported $801,000 of expenses under clinical supply and manufacturing agreements in Q1 2018 and estimated approximately $162,000 of remaining manufacturing commitments at March 31, 2018.
Outlook, risks and contingencies
Management expects R&D costs to increase as it conducts clinical and preclinical work, manufactures clinical materials, and expands its pipeline. G&A costs are also expected to rise as the company operates as a public company. The company has incurred losses since inception and may never achieve profitability; it expects to need substantial additional funding to obtain approval and commercialize its candidates. Equity financing could dilute shareholders, while debt financing could add fixed obligations and restrictive covenants. Management noted that clinical development costs, timing, and outcomes are uncertain and that capital may not be available on acceptable terms.
There were no material litigation matters, no reported material changes to previously disclosed risk factors, and no off-balance-sheet arrangements. The company disclosed $63,000 of remaining 2018 minimum lease payments. Its $47.2 million cash balance was primarily held in bank deposits and money market funds; management did not expect a 10% interest-rate change to materially affect results or financial position.
Important facts for investors to verify
- Whether the KB103 Phase 1/2 study began as expected, and subsequent enrollment, safety, and efficacy updates.
- Cash burn and runway as clinical activity expands; management’s runway estimate is based on assumptions and does not cover approval or commercialization.
- Future manufacturing, clinical-trial, and other development costs, including the terms and timing of additional financing.
- Potential dilution from future equity issuance and the status of the company’s commercial and regulatory plans for KB103.
- The stock purchase agreement with research foundations included a repurchase provision if specified work did not commence by September 1, 2018 or commercially reasonable efforts ceased; verify whether the conditions were met.