Krystal Biotech, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. The unaudited filing was signed November 8, 2021.
Business context
Krystal is a clinical-stage biotechnology company developing redosable gene therapies using an engineered HSV-1 platform. It had no approved products and generated no revenue in the periods reported.
Financial results and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Research and development expense | $6.1 million | $5.1 million | $18.9 million | $12.3 million |
| General and administrative expense | $9.6 million | $4.6 million | $27.5 million | $10.3 million |
| Net loss | $15.6 million | $9.6 million | $47.8 million | $21.8 million |
| Basic and diluted loss per share | $0.70 | $0.49 | $2.18 | $1.18 |
| Operating cash used | Not provided quarterly | Not provided quarterly | $27.0 million | $18.1 million |
| Investing cash used | Not provided quarterly | Not provided quarterly | $100.2 million | $5.0 million |
| Financing cash provided | Not provided quarterly | Not provided quarterly | $145.6 million | $117.9 million |
At September 30, 2021, cash and cash equivalents were $286.6 million, short-term investments $56.5 million, and long-term investments $19.2 million. Current assets were $345.8 million versus current liabilities of $35.8 million. Total assets were $451.1 million; total liabilities were $42.9 million, including $8.1 million of lease liabilities. The filing reports no off-balance-sheet arrangements and no conventional borrowings.
Stockholders’ equity was $408.2 million and accumulated deficit was $119.0 million. The company raised approximately $153.6 million net through equity issuance and option exercises during the first nine months. It reported no gross profit or operating margin because it had no revenue.
Changes versus prior comparable periods
- Q3 operating expenses increased $6.0 million year over year; net loss increased $6.0 million. R&D rose $1.0 million and G&A rose $5.0 million.
- For the first nine months, operating expenses increased $23.8 million and net loss increased $26.0 million. Higher payroll and stock-based compensation, clinical and preclinical work, and commercial-preparedness spending were key drivers.
- Operating cash use increased $9.0 million year over year. Investing cash use rose substantially, principally reflecting ASTRA construction and equipment spending and increased investment purchases.
- Property and equipment increased to $78.6 million from $30.9 million at year-end 2020, largely due to construction in progress for ASTRA. Cash, cash equivalents and short-term investments totaled $343.1 million, versus $271.3 million in cash and investments at December 31, 2020.
Outlook, risks and unusual items
- Management said cash, cash equivalents and short-term investments were expected to fund planned operations for at least 12 months from the filing date. It cautioned that profitability is uncertain and additional capital may be needed; product revenue was not expected before 2022 at the earliest, assuming B-VEC approval on the contemplated schedule.
- B-VEC: the company announced completion of its pivotal GEM-3 study on October 25, 2021 and expected top-line results in Q4 2021. An open-label extension was enrolling. The FDA also approved a physician’s compassionate-use request for topical eye-drop use in one patient.
- KB105’s Phase 1/2 study continued; the company reported repeat dosing was well tolerated in the fourth patient. KB407 received Australian ethics approval for a Phase 1 study, with initiation anticipated in Q4 2021. A KB104 Phase 1 study was expected in 2022. Jeune expected initial KB301 Cohort 2 data in early 2022.
- ASTRA’s interior construction and validation were expected to be completed in 2022. The Whiting-Turner contract had a $78.9 million guaranteed maximum price and a March 30, 2022 substantial-completion date for that contractor’s work; this was not the facility’s full completion date. Remaining ASTRA commitments were estimated at $39.4 million.
- Other estimated remaining commitments included $2.6 million under CMO/CRO agreements and $3.9 million for B-VEC commercial-preparedness activities. These are commitments, not reported-period expenses.
- PeriphaGen litigation alleges breach of contract and trade-secret misappropriation, including claims concerning product candidates and the STAR-D platform. Krystal denies the allegations and intends to defend itself; the company could not estimate litigation costs, timing, or potential damages. It received $954,000 of insurance proceeds and recorded an additional $619,000 approved for reimbursement as a receivable.
- Key risks include clinical-trial and regulatory uncertainty, manufacturing scale-up and facility completion, dependence on future financing, competition, COVID-19-related disruption, and the outcome of the PeriphaGen case. Management reported disclosure controls were effective; the company was implementing its ERP system in phases.
Investor verification points
- Verify GEM-3 top-line results, their timing, and the subsequent regulatory filing and approval path for B-VEC.
- Track clinical milestones and safety results for KB105, KB407, KB104 and KB301, including actual timing versus stated expectations.
- Monitor ASTRA total cost, remaining cash commitments, construction and validation progress, and readiness to support manufacturing.
- Assess operating cash burn, investment balances, equity issuance and dilution, and whether the stated cash runway remains adequate as development spending grows.
- Follow the PeriphaGen litigation, potential exposure and insurance reimbursements; the filing provides no reliable estimate of ultimate outcome or damages.