Krystal Biotech, Inc. — FY2019 Form 10-K
Reporting period: Year ended December 31, 2019; filed March 10, 2020. This is an annual report, not a standalone Q4 report, and the supplied filing does not provide a separate Q4 financial breakdown. Krystal is a clinical-stage gene therapy company with no approved products or product revenue. Its STAR-D platform is designed to deliver genes to skin.
Financial performance and position
| Metric | FY2019 | FY2018 |
|---|---|---|
| Product revenue | None | None |
| Research and development expense | $15.6 million | $7.8 million |
| General and administrative expense | $6.5 million | $4.2 million |
| Total operating expenses / operating loss | $22.1 million | $11.9 million |
| Interest and other income, net | $3.0 million | $1.0 million |
| Net loss | $19.1 million | $10.9 million |
| Net loss per share, basic and diluted | $1.20 | $0.97 |
| Net cash used in operating activities | $18.7 million | $9.4 million |
- Research and development expense increased about $7.9 million, principally due to manufacturing, preclinical and clinical services, increased staffing, and laboratory supplies. G&A expense increased about $2.3 million.
- At year-end, cash and cash equivalents were $187.5 million, short-term investments $6.2 million, and long-term investments $0.5 million. Working capital was $192.6 million; total assets were $209.0 million.
- Total liabilities were $6.1 million, including $3.3 million current liabilities and $3.3 million of lease liabilities. The filing shows no outstanding promissory notes or other financial borrowings at year-end.
- Net cash provided by financing was $107.5 million, primarily from a June 2019 public offering. Cash increased $83.8 million during the year. Capital spending on property and equipment was $6.4 million.
- No operating margin is meaningful because the company had no revenue. Accumulated deficit was $39.0 million.
Material developments and outlook
- For B-VEC, the lead candidate for dystrophic epidermolysis bullosa (DEB), the Phase 1/2 trial reported 9 of 10 treated wounds closed completely. Average time to full closure was 17.4 days; no serious adverse events were reported. These are early-study results, not evidence of approval or confirmed commercial benefit.
- Management expected to begin pivotal Phase 3 B-VEC trials in the first half of 2020. KB105, for TGM1-deficient ARCI, entered Phase 1/2 in September 2019; interim results were expected in the first half of 2020. An IND filing for KB104 was anticipated in the second half of 2020; an IND for KB301 was also anticipated in the second half of 2020.
- Management estimated year-end cash, cash equivalents and short-term investments of approximately $193.7 million would fund operations for at least 12 months from the filing date and support the planned B-VEC Phase 3 trial and ongoing KB105 trial. It also warned that further funding would be needed to complete development, obtain approvals, and commercialize candidates; additional financing may be unavailable or dilutive.
- The company expected no product revenue before 2022 at the earliest, assuming B-VEC approval on its contemplated schedule. Profitability is uncertain and may never be achieved.
- ANCORIS, the company’s first commercial-scale cGMP facility, was completed in January 2019; the filing says clinical and initial potential commercial B-VEC material would be produced there. A second, 100,000-square-foot facility, ASTRA, was under construction and expected to be completed by early 2021. Manufacturing scale-up, validation, regulatory inspection, and supply execution remain risks.
- B-VEC and KB105 had FDA orphan-drug and Fast Track designations; B-VEC also had FDA RMAT and EMA PRIME designations. These designations do not guarantee approval or faster development.
Risks, contingencies and other notable items
- Key risks include clinical-trial failure or delay, regulatory uncertainty, adverse effects, manufacturing and supply constraints, competition, intellectual-property challenges, reimbursement and pricing uncertainty, and the need for additional capital.
- Future minimum operating lease payments were $19.9 million at year-end, and the company reported a $3.3 million remaining contract-manufacturing obligation in its contractual-obligations table. A separate note estimates approximately $3.6 million of remaining manufacturing commitments; verify the difference in the filing.
- No material litigation was reported. The company reported effective disclosure controls and management concluded internal controls over financial reporting were effective; the auditor did not provide an internal-control attestation because of the company’s emerging-growth-company exemption.
- FY2019 public equity offerings increased shares outstanding; the company reported 17,354,310 shares at December 31, 2019. There were no share repurchases in 2019.
Important facts for investors to verify
- Whether the B-VEC Phase 1/2 wound-closure findings are replicated in the pivotal trial, including durability, safety, and the trial’s endpoints and patient population.
- Actual timing, enrollment, results, and regulatory milestones for B-VEC, KB105, KB104, and KB301 versus management’s stated expectations.
- Current cash runway and expected cash burn, including costs of clinical development, manufacturing facilities, and commercialization; assess the likelihood and dilution of future financing.
- Manufacturing readiness, facility validation and inspection status, production yields, and any dependence on third-party manufacturers.
- The reconciliation of the filing’s $3.3 million contractual manufacturing obligation with the approximately $3.6 million estimate in the commitments note.