Krystal Biotech, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; filing dated May 10, 2021. Krystal is a clinical-stage gene-therapy company with no approved products and no product revenue. It develops redosable therapies using an engineered HSV-1 platform and has in-house cGMP manufacturing capabilities.
Financial results and liquidity
| Metric | Q1 2021 | Q1 2020 / prior date |
|---|---|---|
| Revenue | None | None |
| Research and development expense | $6.2 million | $3.5 million |
| General and administrative expense | $8.2 million | $2.4 million |
| Total operating expenses | $14.4 million | $5.9 million |
| Net loss | $15.8 million | $5.3 million |
| Basic and diluted loss per share | $0.74 | $0.31 |
| Net cash used in operating activities | $9.7 million | $6.2 million |
| Cash and cash equivalents | $402.2 million | $268.3 million at Dec. 31, 2020 |
| Short-term investments | $1.2 million | $3.0 million at Dec. 31, 2020 |
| Total liabilities | $12.4 million | $18.8 million at Dec. 31, 2020 |
Cash, cash equivalents and short-term investments totaled $403.4 million at quarter-end. Stockholders’ equity was $430.7 million and accumulated deficit was $87.0 million. Operating cash outflow and net loss increased year over year. No meaningful operating margin is available because the company had no revenue.
Investing activities used $0.7 million; financing activities provided $144.3 million, primarily from equity issuance, partly offset by $8.0 million paid for ASTRA. Cash increased $133.9 million during the quarter. The company reported no conventional borrowings; liabilities principally included lease obligations. The ASTRA build-to-suit financing obligation was settled in connection with the facility purchase.
Material changes and unusual items
- R&D expense rose $2.7 million, principally from outsourced development activity, lab supplies and payroll/headcount.
- G&A expense rose $5.7 million, reflecting higher payroll and stock compensation, market research, and legal and professional costs.
- Interest income declined to $33,000 from $605,000, attributed to lower market interest rates. Q1 2021 included $1.5 million of non-cash interest expense related to accretion of the ASTRA financing obligation before its purchase closing.
- The February public offering raised $134.9 million net; Q1 ATM sales raised $16.9 million net. Common shares outstanding increased to 22.2 million from 19.7 million at year-end 2020.
- ASTRA was purchased for $9.4 million on March 5, 2021. Its interior remained under construction at quarter-end and was expected to be completed and validated in 2022.
Outlook, management commentary and risks
- Management said quarter-end cash and investments were expected to fund planned operations for at least 12 months from the filing date. The company expects continued losses and may need additional capital; future equity financing could dilute shareholders.
- Management said product revenue was not expected before 2022 at the earliest, contingent on B-VEC receiving approval on the contemplated schedule. No revenue guidance or profitability target was provided.
- B-VEC’s pivotal Phase 3 GEM-3 trial was ongoing; enrollment was completed March 30, and top-line data were expected in Q4 2021. After quarter-end, the company disclosed FDA-feedback-driven changes to the statistical analysis plan, including the primary wound-healing outcome measure.
- KB105 and KB301 trials were ongoing. Management expected to begin KB407 clinical testing in Q3 2021 and file an IND for KB104 in the second half of 2021. These are expectations, not assurances.
- COVID-19’s impact on operations and trials had been minimal to date, but management said future effects on trials, suppliers and operations remained uncertain.
- Contractual commitments at March 31 included approximately $3.0 million for clinical manufacturing, $3.5 million for B-VEC market research activities and $13.3 million for ASTRA construction and materials.
- PeriphaGen litigation alleges breach of contract and trade-secret misappropriation involving the company’s platform and candidates. Krystal denies the allegations and intends to defend itself; it said costs, timing and potential damages could not be estimated.
Most important facts for investors to verify
- Whether GEM-3 produces the expected Q4 2021 top-line results, and how the revised statistical analysis plan affects interpretation.
- Clinical and regulatory milestones for B-VEC and other candidates, including whether timelines and enrollment assumptions hold.
- Cash burn, planned spending and the adequacy of the stated 12-month-plus runway as development and ASTRA costs progress.
- Potential dilution from further ATM or other equity sales, and the status of the remaining ATM authorization.
- Progress, total cost and timing of ASTRA completion and validation, plus the remaining contractual commitments.
- Developments in the PeriphaGen case, which raises claims concerning intellectual property central to the business.