Krystal Biotech, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. The company is a commercial-stage biotechnology business developing genetic medicines. FDA-approved VYJUVEK, its first product, began U.S. sales in the third quarter.
Financial performance and position
- Revenue: Q3 and nine-month net product revenue was $8.6 million, all from VYJUVEK; there was no comparable-period revenue in 2022. Accounts receivable was $9.3 million.
- Profit and expenses: Q3 operating loss was $26.0 million, versus $31.5 million a year earlier. Net income was $80.7 million, driven chiefly by a one-time $100.0 million gain from selling a rare pediatric disease priority review voucher (PRV). Nine-month operating loss was $112.9 million and net income was $2.2 million, also including the PRV gain. Nine-month R&D expense was $35.1 million; SG&A was $73.6 million.
- Margins: Q3 cost of goods sold was $0.2 million, but this is not a reliable guide to ongoing product margins: some commercial inventory costs were expensed as R&D before FDA approval.
- Cash flow: Operating cash use was $81.6 million for the first nine months, compared with $78.2 million in 2022. Net cash increased $211.3 million, including $100.0 million PRV proceeds and $200.1 million of financing cash flow.
- Liquidity and debt: Cash and cash equivalents were $373.2 million; short-term investments were $188.8 million, for management-reported combined liquidity of $562.1 million. Long-term investments were another $36.5 million. Total liabilities were $34.4 million, including $8.3 million in lease liabilities; the filing reports no borrowings. Management expects available cash, cash equivalents and short-term investments to fund planned operations for at least 12 months from filing.
- Equity: A May private placement generated $160.0 million net proceeds. Shares outstanding were 28.2 million at September 30.
Material changes versus prior comparable periods
- VYJUVEK’s launch generated the company’s first product revenue. By September 30, Krystal had received 284 Patient Start Forms; 20% were for patients with dominant DEB.
- Q3 SG&A rose $3.8 million year over year, mainly from commercial and administrative hiring and launch-related costs. Nine-month SG&A increased $19.9 million.
- Nine-month R&D increased $3.3 million, including higher payroll and KB707 development spending; some manufacturing costs moved from R&D expense to inventory after approval.
- Net income turned positive largely because of the PRV sale. The company also recorded $12.5 million of PeriphaGen settlement expense in 2023, compared with $25.0 million in the first nine months of 2022.
Outlook, risks and unusual items
- Commercial outlook: Management expects revenue to fluctuate and depends on successful VYJUVEK commercialization. It plans to report Patients on Therapy starting in Q1 2024, viewing that measure as a better predictor of sales. Coverage from most mandatory Medicaid states was expected in Q4 2023, with remaining coverage expected in Q1 2024.
- Pipeline milestones: Management anticipated EU approval of VYJUVEK in the second half of 2024 after an October 2023 marketing-authorization filing, and a Japanese application in the first half of 2024 after an extension study. KB408 Phase 1 dosing was planned for Q1 2024; KB407 data were anticipated in 2024. The company dosed the first patient in the intratumoral KB707 Phase 1 trial in October 2023 and expected first dosing of inhaled KB707 in the first half of 2024.
- Investment and spending: Management expects R&D and SG&A to increase as it advances trials, expands commercialization and prepares for international operations. ASTRA facility validation was expected to be completed in 2023; $11.1 million of remaining contractual commitments primarily related to its build-out and qualification.
- Contingencies: The PeriphaGen settlement includes three additional contingent payments of $12.5 million each at cumulative sales milestones of $100 million, $200 million and $300 million. None was accrued at September 30.
- Key risks: The company has a limited commercial track record and is substantially dependent on VYJUVEK acceptance, reimbursement, manufacturing and supply. It expects continuing losses and may need additional financing; future equity issuance could dilute shareholders. Other risks include clinical and regulatory uncertainty, competition, product safety, manufacturing compliance, intellectual property disputes and healthcare regulation. One customer accounted for product revenue in the period.
Important facts for investors to verify
- Whether VYJUVEK patient starts convert into treated patients, sustained demand and net revenue, and how payer coverage develops.
- Whether product gross margins improve after pre-approval inventory is sold and ongoing manufacturing costs are reflected in cost of goods sold.
- Whether the company meets stated pipeline and regulatory milestones, including EU and Japan plans and clinical trial timelines.
- Whether ASTRA validation is completed as expected, and whether manufacturing capacity and third-party supply can support commercial and clinical needs.
- Potential timing and amounts of PeriphaGen milestone payments, and the pace of cash use relative to management’s stated liquidity runway.