Krystal(KRYS) - 2022 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements Presents Krystal Biotech's unaudited condensed consolidated financial statements for Q3 and nine months ended September 30, 2022 Condensed Consolidated Balance Sheets Total assets decreased to $576.4 million by September 30, 2022, primarily due to reduced cash and equivalents Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $186,409 | $341,246 | | Short-term investments | $208,011 | $96,850 | | Total current assets | $397,578 | $442,267 | | Property and equipment, net | $157,786 | $112,355 | | Total assets | $576,379 | $626,295 | | Liabilities & Equity | | | | Total current liabilities | $28,032 | $25,736 | | Total liabilities | $35,607 | $32,719 | | Total stockholders' equity | $540,772 | $593,576 | | Total liabilities and stockholders' equity | $576,379 | $626,295 | Condensed Consolidated Statements of Operations and Comprehensive Loss Net loss increased to $29.9 million in Q3 and $107.9 million for nine months, primarily due to higher operating expenses and a litigation settlement Operating Results Highlights (in thousands, except per share data) | Metric | Q3 2022 | Q3 2021 | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Research and development | $11,516 | $6,080 | $31,720 | $18,875 | | General and administrative | $19,935 | $9,572 | $53,705 | $27,524 | | Litigation settlement | $0 | $0 | $25,000 | $0 | | Total operating expenses | $31,451 | $15,652 | $110,425 | $46,399 | | Loss from operations | ($31,451) | ($15,652) | ($110,425) | ($46,399) | | Net loss | ($29,850) | ($15,589) | ($107,923) | ($47,764) | | Net loss per share (basic & diluted) | ($1.17) | ($0.70) | ($4.24) | ($2.18) | Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity decreased to $540.8 million by Q3 2022, primarily due to the $107.9 million net loss - Total stockholders' equity decreased by $52.8 million during the first nine months of 2022, from $593.6 million to $540.8 million[13] - The accumulated deficit increased from $140.8 million at the start of the year to $248.7 million by the end of Q3 2022, reflecting the ongoing net losses[13] Condensed Consolidated Statements of Cash Flows Net cash decreased by $154.8 million for nine months, with $78.2 million used in operations and $108.9 million in investing Cash Flow Summary (in thousands) | Activity | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | ($78,240) | ($27,038) | | Net cash used in investing activities | ($108,875) | ($100,230) | | Net cash provided by financing activities | $32,278 | $145,613 | | Net (decrease) increase in cash | ($154,837) | $18,345 | Notes to Condensed Consolidated Financial Statements Provides details on accounting policies, financial instruments, and commitments, highlighting liquidity and a $25.0 million litigation settlement - The company believes its cash, cash equivalents, and short-term investments of approximately $394.4 million as of September 30, 2022, are sufficient to fund planned operations for at least the next 12 months[20] - On April 27, 2022, the company entered into a final settlement agreement with PeriphaGen, making an upfront payment of $25.0 million, with potential contingent milestone payments up to $50.0 million[72] - The company has significant contractual obligations, including an estimated remaining commitment of $10.3 million for the interior build-out of its ASTRA manufacturing facility as of September 30, 2022[67] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition, pipeline progress, increased operating expenses, liquidity, and capital expenditure plans for the ASTRA facility - The company's lead product candidate, B-VEC (Vyjuvek), had its Biologics License Application (BLA) accepted by the FDA with a priority review target date of February 17, 2023[103] - Operating expenses for the nine months ended Sep 30, 2022, increased to $110.4 million from $46.4 million in the prior year, largely due to a $25.0 million litigation settlement and increased R&D and G&A spending[128] - The company expects to continue incurring significant capital expenditures for the construction of its ASTRA cGMP facility, anticipated to be completed in the first half of 2023[119] Pipeline Highlights and Recent Developments Highlights significant pipeline progress, including BLA acceptance for B-VEC, IND acceptance for KB407, and planned Phase 2 for KB301 - Dermatology (B-VEC): The FDA accepted the BLA for B-VEC, granted priority review, and set a PDUFA target date of February 17, 2023. The proposed brand name Vyjuvek was accepted[103] - Respiratory (KB407): The FDA accepted the IND for KB407 for cystic fibrosis. A Phase 1 clinical study (CORAL-1/US) is planned to start in the U.S. in Q4 2022[107] - Aesthetics (KB301): Following positive proof-of-concept data, the company plans to start a Phase 2 clinical study (PEARL-2) in the first half of 2023[109] Results of Operations Net loss significantly increased in Q3 and nine-month periods due to a $25.0 million litigation settlement and higher R&D and G&A expenses Comparison of Operating Results (in thousands) | Period | Metric | 2022 | 2021 | Change | | :--- | :--- | :--- | :--- | :--- | | Q3 | R&D Expenses | $11,516 | $6,080 | $5,436 | | | G&A Expenses | $19,935 | $9,572 | $10,363 | | | Net Loss | ($29,850) | ($15,589) | ($14,261) | | Nine Months | R&D Expenses | $31,720 | $18,875 | $12,845 | | | G&A Expenses | $53,705 | $27,524 | $26,181 | | | Litigation Settlement | $25,000 | $0 | $25,000 | | | Net Loss | ($107,923) | ($47,764) | ($60,159) | - The increase in R&D expenses was primarily due to higher payroll from increased headcount, and increased preclinical, clinical, and manufacturing activities[125][129] - The rise in G&A expenses was largely due to increased payroll to support overall growth, higher commercial preparedness expenses, and increased legal and administrative costs[126][130] Liquidity and Capital Resources The company holds $394.4 million in liquidity, sufficient for 12 months, despite significant cash usage in operations and investing - The company holds $394.4 million in cash, cash equivalents, and short-term investments as of September 30, 2022, which is deemed sufficient to fund operations for at least the next 12 months[134] - Net cash used in operating activities increased to $78.2 million for the nine months ended Sep 30, 2022, from $27.0 million in the same period of 2021, primarily due to a higher net loss[141][142][143] - Net cash provided by financing activities was $32.3 million for the first nine months of 2022, mainly from the At-The-Market (ATM) program and stock option exercises[146] Quantitative and Qualitative Disclosures About Market Risk Market risk primarily stems from interest rate fluctuations on its investment portfolio, with no material impact expected from a 10% rate change - The company's primary market risk exposure is interest rate risk on its $394.4 million portfolio of cash, cash equivalents, and short-term investments[152] - The company's investment policy prioritizes principal preservation, diversifying the portfolio across various security types and maturities[152] - Management asserts that a hypothetical 10% change in interest rates would not have a material impact on the company's financial results[152] Controls and Procedures Disclosure controls were effective as of September 30, 2022, with a new ERP system implementation expected to strengthen internal controls - The CEO and Chief Accounting Officer concluded that the company's disclosure controls and procedures were effective as of the end of the quarter[154] - The company is undergoing a phased implementation of a new ERP system (Microsoft Dynamics D365) to upgrade systems and processes, which is expected to result in changes to internal controls over time[155] PART II. OTHER INFORMATION Legal Proceedings Refers to Note 6 for details on legal proceedings, primarily the $25.0 million settlement of PeriphaGen litigation - The company refers to Note 6 for details on legal proceedings, which primarily discusses the settlement of the PeriphaGen litigation[157][72] Risk Factors No material changes to risk factors previously disclosed in the company's 2021 Annual Report on Form 10-K - No material changes have been made to the risk factors disclosed in the company's 2021 Annual Report on Form 10-K[158] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities were reported during the period - None[159] Exhibits Lists exhibits filed with Form 10-Q, including SOX certifications and Inline XBRL data files - Exhibits filed include Sarbanes-Oxley Act Section 302 and 906 certifications and Inline XBRL financial data[164]