Krystal Biotech, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; filed May 9, 2022. Krystal is a clinical-stage gene-therapy biotechnology company and reported no product or other revenue.
Financial results and position
| Metric | Q1 2022 | Q1 2021 / prior balance |
|---|---|---|
| Revenue | None | None |
| Research and development expense | $9.3 million | $6.2 million |
| General and administrative expense | $15.9 million | $8.2 million |
| Litigation settlement expense | $25.0 million | None |
| Total operating expenses / operating loss | $50.2 million | $14.4 million |
| Net loss | $50.0 million | $15.8 million |
| Loss per share, basic and diluted | $1.99 | $0.74 |
| Net cash used in operating activities | $15.5 million | $9.7 million |
| Cash and cash equivalents | $269.3 million | $341.2 million at Dec. 31, 2021 |
| Short-term investments | $165.3 million | $96.9 million at Dec. 31, 2021 |
| Total current assets / liabilities | $438.0 million / $60.4 million | $442.3 million / $25.7 million at Dec. 31, 2021 |
| Total assets / stockholders’ equity | $616.9 million / $548.6 million | $626.3 million / $593.6 million at Dec. 31, 2021 |
Cash, cash equivalents and short-term investments totaled approximately $434.6 million at quarter-end. Including long-term investments, the portfolio’s fair value was approximately $468.0 million. The company reported no conventional borrowings; lease liabilities totaled $9.3 million. Operating margins are not meaningful because the company had no revenue.
Changes and cash flow
- Net loss increased by $34.2 million year over year, mainly reflecting the $25.0 million PeriphaGen litigation settlement accrual and higher R&D and G&A spending.
- R&D expense rose $3.1 million, primarily from preclinical, clinical and manufacturing activity and higher payroll. G&A rose $7.8 million, largely from increased payroll and stock-based compensation, alongside commercial-preparedness costs.
- Investing cash outflow was $55.9 million, including $17.2 million of property and equipment purchases, principally for the ASTRA facility, and net investment purchases. Financing cash outflow was $0.5 million; unlike Q1 2021, the quarter included no major equity offering proceeds.
- Cash and cash equivalents decreased $71.9 million during the quarter. Operating cash use was partly offset by the $25.0 million settlement accrual, which had not yet been paid at March 31.
Outlook, developments and risks
- Management said quarter-end cash, cash equivalents and short-term investments should fund planned operations for at least 12 months from the filing date. It warned that further capital may be needed; profitability depends on successful development, approval and commercialization, and may never be achieved.
- Management expected to file a B-VEC biologics license application with the FDA in Q2 2022 and a marketing authorization application with the EMA in the second half of 2022. Product revenue was not expected before Q4 2022 at the earliest, assuming approval on the anticipated schedule. These are expectations, not assurances.
- Other stated plans included resuming KB105 Phase 2 dosing later in 2022; initiating a KB407 Phase 1 study in Australia in Q2 and submitting a U.S. IND and starting a Phase 1 trial in the second half; initiating a KB104 Phase 1 study in 2022; and beginning a KB301 Phase 2 trial in Q4 2022 or early 2023.
- The PeriphaGen settlement resolved trade-secret litigation and included acquisition of certain assets and a dermatology license. Krystal accrued and paid $25.0 million on April 28, 2022. Further payments of $12.5 million upon first FDA product approval and three additional $12.5 million sales-based milestones are contingent; maximum total consideration is $75.0 million.
- ASTRA, the second cGMP facility, was under construction and expected to be completed and validated in 2022. Remaining ASTRA commitments were estimated at $20.2 million; the construction contract’s guaranteed maximum price was $82.3 million, stated to cover only part of total facility costs.
- Key risks include clinical and regulatory uncertainty, commercialization and manufacturing execution, future financing needs and potential dilution, competition and intellectual-property disputes. COVID-19 impact had been minimal in U.S. trials to date, but the company reported pandemic-related delays to clinical-trial initiation in Australia. Management reported effective disclosure controls and no material change to previously disclosed risk factors.
Investor verification priorities
- Check subsequent FDA and EMA filing, review and approval milestones for B-VEC, and whether the anticipated first revenue timing remains realistic.
- Confirm the settlement payment and monitor the probability and potential amount of contingent PeriphaGen milestone payments.
- Track cash burn, investment balances, financing activity and the stated 12-month liquidity runway against development and commercialization spending.
- Monitor ASTRA completion, validation, total cost and remaining contractual commitments.
- Assess progress, enrollment and timing across the B-VEC, KB105, KB301, KB407 and KB104 programs, including any delays or changes to management’s stated plans.