Krystal(US:KRYS)2024-08-05 12:08PART I. FINANCIAL INFORMATION Item 1. Financial Statements Presents unaudited condensed consolidated financial statements, reflecting a shift to profitability driven by VYJUVEK revenue and significant asset growth Condensed Consolidated Balance Sheets Total assets increased to $917.7 million by June 30, 2024, driven by accounts receivable, while liabilities and stockholders' equity also grew | Balance Sheet Items (in thousands) | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $345,786 | $358,328 | | Total current assets | $682,772 | $587,909 | | Total assets | $917,658 | $818,355 | | Total current liabilities | $71,851 | $33,094 | | Total liabilities | $78,765 | $39,714 | | Total stockholders' equity | $838,893 | $778,641 | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) Reports significant net income for Q2 and H1 2024, driven by VYJUVEK revenue, marking a turnaround from prior-year losses despite increased operating expenses | Metric (in thousands, except per share) | Q2 2024 | Q2 2023 | H1 2024 | H1 2023 | | :--- | :--- | :--- | :--- | :--- | | Product revenue, net | $70,284 | $0 | $115,535 | $0 | | Total operating expenses | $61,718 | $38,048 | $113,652 | $86,871 | | Income (loss) from operations | $8,566 | $(38,048) | $1,883 | $(86,871) | | Net income (loss) | $15,568 | $(33,210) | $16,501 | $(78,507) | | Diluted EPS | $0.53 | $(1.25) | $0.56 | $(3.00) | Condensed Consolidated Statements of Stockholders' Equity Total stockholders' equity increased to $838.9 million by June 30, 2024, primarily due to net income and stock option exercises - Total stockholders' equity grew by $60.3 million in the first half of 2024, from $778.6 million to $838.9 million, mainly due to net income and stock-based compensation activities9 Condensed Consolidated Statements of Cash Flows Generated $11.7 million cash from operations in H1 2024, a significant improvement, with overall cash and equivalents decreasing to $345.8 million | Cash Flow Activity (in thousands) | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $11,720 | $(60,346) | | Net cash (used in) investing activities | $(45,333) | $(12,394) | | Net cash provided by financing activities | $21,221 | $186,743 | | Net (decrease) increase in cash | $(12,542) | $113,975 | Notes to Condensed Consolidated Financial Statements Provides detailed accounting policies and disclosures, including strong liquidity, VYJUVEK revenue recognition, litigation settlements, and stock-based compensation - The company believes its cash, cash equivalents, and short-term investments of approximately $559.6 million as of June 30, 2024, are sufficient to fund planned operations for at least the next 12 months17 - The company recorded litigation settlement expenses of $12.5 million and $25.0 million for the three and six months ended June 30, 2024, respectively, related to contingent milestone payments to PeriphaGen triggered by VYJUVEK sales reaching $100.0 million and the probability of reaching $200.0 million38 - As of June 30, 2024, there was a total of $120.1 million in unrecognized stock-based compensation expense related to stock options, RSAs, RSUs, and PSUs, expected to be recognized over weighted-average periods ranging from 8 months to 3.5 years474950 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's transition to a commercial-stage entity, driven by VYJUVEK's success, pipeline advancement, and strong liquidity Overview Krystal Biotech, a commercial-stage genetic medicines company, highlights VYJUVEK's strong Q2 2024 performance, global expansion plans, and advancing clinical pipeline | Metric | Value | | :--- | :--- | | Q2 2024 Net VYJUVEK Revenue | $70.3 million | | Cumulative Net Revenue (since launch) | $166.2 million | | Q2 2024 Gross Margin | 91% | | Reimbursement Approvals (U.S.) | Over 400 | | Patient Compliance | 90% | - The company is advancing its global commercialization strategy for B-VEC (VYJUVEK), with an EMA decision expected in H2 2024 and a Japanese New Drug Application filing planned for H2 202462 - The clinical pipeline is progressing with multiple Phase 1 trials, including KB407 for cystic fibrosis, KB408 for AATD, and KB707 for solid tumors636468 Interim data for KB408 and KB707 are expected in Q4 2024636468 Results of Operations Details operating results, highlighting VYJUVEK revenue as the primary driver of change, alongside increases in R&D, SG&A, and litigation settlement expenses | (in thousands) | Q2 2024 | Q2 2023 | Change | | :--- | :--- | :--- | :--- | | Product revenue, net | $70,284 | $0 | $70,284 | | Cost of goods sold | $6,009 | $0 | $6,009 | | Research and development | $15,583 | $12,144 | $3,439 | | Selling, general and administrative | $27,626 | $25,904 | $1,722 | | Litigation settlement | $12,500 | $0 | $12,500 | | Net income (loss) | $15,568 | $(33,210) | $48,778 | | (in thousands) | H1 2024 | H1 2023 | Change | | :--- | :--- | :--- | :--- | | Product revenue, net | $115,535 | $0 | $115,535 | | Cost of goods sold | $8,428 | $0 | $8,428 | | Research and development | $26,539 | $24,432 | $2,107 | | Selling, general and administrative | $53,685 | $49,939 | $3,746 | | Litigation settlement | $25,000 | $12,500 | $12,500 | | Net income (loss) | $16,501 | $(78,507) | $95,008 | Liquidity and Capital Resources Reports a strong liquidity position with $559.6 million in cash and investments, sufficient for 12 months, and positive cash flow from operations - The company's cash, cash equivalents, and short-term investments balance was approximately $559.6 million as of June 30, 202496 - Management believes that existing cash and investments are sufficient to fund operations for at least 12 months from the filing date of the report96 | Cash Flow Summary (in thousands) | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :--- | :--- | :--- | | Net cash from Operating Activities | $11,720 | $(60,346) | | Net cash from Investing Activities | $(45,333) | $(12,394) | | Net cash from Financing Activities | $21,221 | $186,743 | Item 3. Quantitative and Qualitative Disclosures About Market Risk Discusses primary market risks, including interest rate fluctuations on its $559.6 million investment portfolio and minor foreign currency exposure - The company's primary market risk is interest rate risk on its investment portfolio of $559.6 million as of June 30, 2024104 - Management does not believe that a 10% immediate change in interest rates or foreign currency exchange rates would materially affect the company's financial position or results of operations104105 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2024, with no material changes to internal controls - The Chief Executive Officer and Chief Accounting Officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2024106 - There were no material changes to the company's internal control over financial reporting during the second quarter of 2024107 PART II. OTHER INFORMATION Item 1. Legal Proceedings Details legal proceedings, primarily the PeriphaGen settlement agreement and contingent milestone payments triggered by VYJUVEK sales - The company's legal proceedings are detailed in Note 7 of the financial statements, primarily concerning the settlement agreement with PeriphaGen, Inc. and associated milestone payments10938 Item 1A. Risk Factors Outlines significant risks, including dependence on VYJUVEK, intense competition, manufacturing complexities, market acceptance, and financial uncertainties - The company's near-term prospects and future growth are substantially dependent on the continued commercial success of its only FDA-approved product, VYJUVEK111 - The company faces significant competition and the possibility that competitors may develop more effective therapies or achieve regulatory approval sooner, which could adversely affect financial condition and commercialization efforts113 - Risks related to manufacturing include potential delays in regulatory approval of processes, disruptions, contamination, and reliance on a limited number of third-party suppliers for key components150152153 - Commercial success depends on market acceptance by physicians, patients, and third-party payors, as well as obtaining and maintaining adequate insurance coverage and reimbursement, which is uncertain159161 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Reports no unregistered sales of equity securities during the reporting period - None192 Item 3. Defaults Upon Senior Securities Reports no defaults upon senior securities - None192 Item 4. Mine Safety Disclosures This item is not applicable to the company's business - Not applicable192 Item 5. Other Information Discloses corporate governance and compensation updates, including Rule 10b5-1 trading plans and new executive severance and equity vesting plans - On June 14, 2024, CEO Krish Krishnan and President, R&D Suma Krishnan each adopted a Rule 10b5-1 trading arrangement for the sale of up to 100,000 shares of common stock until September 13, 2025193 - On August 2, 2024, the Board adopted the Krystal Biotech, Inc. Executive Change in Control Severance Plan, which provides specified severance benefits to named executive officers upon a qualifying termination following a change in control194 - The 2017 IPO Stock Incentive Plan was amended on August 2, 2024, to provide for accelerated vesting of outstanding equity awards upon a participant's termination without Cause within 24 months following a Change in Control195197 Item 6. Exhibits Lists exhibits filed with the report, including new executive severance and stock incentive plan amendments, and required certifications - Lists the exhibits filed with the report, including the Executive Change in Control Severance Plan and the First Amendment to the 2017 IPO Stock Incentive Plan196198