Krystal(US:KRYS)2023-11-06 12:08PART I. FINANCIAL INFORMATION Item 1. Financial Statements The company's financial statements for the period ended September 30, 2023, reflect a significant transition to a commercial-stage entity, marked by initial product revenues, increased assets from financing and PRV sale, and a shift to net income in Q3 Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (unaudited) | (In thousands) | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $373,241 | $161,900 | | Total current assets | $582,128 | $383,779 | | Total assets | $790,350 | $558,450 | | Liabilities and Stockholders' Equity | | | | Total current liabilities | $27,583 | $28,847 | | Total liabilities | $34,402 | $36,219 | | Total stockholders' equity | $755,948 | $522,231 | - Total assets increased significantly to $790.4 million as of September 30, 2023, from $558.5 million at the end of 2022, primarily due to a rise in cash and cash equivalents. Total liabilities remained relatively stable8 Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) - The company reported its first product revenues of $8.6 million for the three and nine months ended September 30, 2023, following the FDA approval of VYJUVEK in May 202310 - A gain of $100 million from the sale of a priority review voucher in Q3 2023 was a major contributor to profitability, turning a significant operating loss into a net income of $80.7 million for the quarter10 Statement of Operations Summary (unaudited) | (In thousands, except per share data) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Product revenues, net | $8,556 | $— | $8,556 | $— | | Total operating expenses | $34,549 | $31,451 | $121,421 | $110,425 | | (Loss) from operations | ($25,993) | ($31,451) | ($112,865) | ($110,425) | | Gain from sale of PRV | $100,000 | $— | $100,000 | $— | | Net income (loss) | $80,747 | ($29,850) | $2,240 | ($107,923) | | Diluted net income (loss) per share | $2.79 | ($1.17) | $0.08 | ($4.24) | Condensed Consolidated Statements of Cash Flows Cash Flow Summary for the Nine Months Ended September 30 (unaudited) | (In thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Net cash (used in) operating activities | ($81,572) | ($78,240) | | Net cash provided by (used in) investing activities | $92,798 | ($108,875) | | Net cash provided by financing activities | $200,131 | $32,278 | | Net increase (decrease) in cash | $211,341 | ($154,837) | | Cash and cash equivalents at end of period | $373,241 | $186,409 | - Investing activities provided $92.8 million in cash, primarily due to the $100 million from the sale of the priority review voucher. Financing activities provided $200.1 million, largely from the net proceeds of common stock issuance16 Notes to Condensed Consolidated Financial Statements - On May 19, 2023, the company received FDA approval for its first product, VYJUVEK, for the treatment of Dystrophic Epidermolysis Bullosa (DEB). Commercial sales and revenue generation began in Q3 202320 - The company sold its Rare Pediatric Disease Priority Review Voucher (PRV) in August 2023 for $100.0 million, which was recorded as a gain as it had no carrying value103 - As part of a 2022 legal settlement with PeriphaGen, the company paid an additional $12.5 million in June 2023 following VYJUVEK's FDA approval. Three additional contingent milestone payments of $12.5 million each remain, tied to cumulative sales thresholds7576 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 following VYJUVEK's FDA approval and launch, detailing initial commercial traction, pipeline advancements, financial results, and sufficient liquidity for the next 12 months Overview and Pipeline Highlights - VYJUVEK was approved by the FDA on May 19, 2023, as the first re-dosable gene therapy for Dystrophic Epidermolysis Bullosa (DEB)114 - As of September 30, 2023, the company received 284 Patient Start Forms for VYJUVEK and has secured positive coverage determinations from all major commercial national health plans115 - The company is expanding its pipeline into oncology with KB707, which received FDA clearance for its IND and Fast Track designation for melanoma. The first patient was dosed in a Phase 1 trial in October 2023122123124 Results of Operations Comparison of Three Months Ended September 30, 2023 and 2022 | (In thousands) | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Product revenues, net | $8,556 | $— | $8,556 | | Research and development | $10,629 | $11,516 | ($887) | | Selling, general, and administrative | $23,697 | $19,935 | $3,762 | | Gain from sale of PRV | $100,000 | $— | $100,000 | | Net income (loss) | $80,747 | ($29,850) | $110,597 | - For Q3 2023, SG&A expenses increased by $3.8 million compared to Q3 2022, primarily due to a $2.2 million increase in payroll-related expenses from higher headcount for commercialization and a $733 thousand increase in selling expenses for the VYJUVEK launch161 Comparison of Nine Months Ended September 30, 2023 and 2022 | (In thousands) | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Product revenues, net | $8,556 | $— | $8,556 | | Research and development | $35,061 | $31,720 | $3,341 | | Selling, general, and administrative | $73,637 | $53,705 | $19,932 | | Litigation settlement | $12,500 | $25,000 | ($12,500) | | Net income (loss) | $2,240 | ($109,523) | $111,763 | Liquidity and Capital Resources - As of September 30, 2023, the company had approximately $562.1 million in cash, cash equivalents, and short-term investments177 - Management believes that current cash, cash equivalents, and short-term investments will be sufficient to fund operations for at least 12 months from the filing date of the report177 Sources and Uses of Cash for the Nine Months Ended September 30 | (In thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | ($81,572) | ($78,240) | | Net cash provided by (used in) investing activities | $92,798 | ($108,875) | | Net cash provided by financing activities | $200,131 | $32,278 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate fluctuations on its $562.1 million cash and investment portfolio, with a strategy focused on principal preservation and minimal material impact from a 10% rate change - The company's market risk is primarily related to interest rate fluctuations on its $562.1 million portfolio of cash, cash equivalents, and short-term investments193 - The company's investment policy aims to preserve principal and minimize risk by investing in a variety of securities like money market funds, government debt, and commercial paper. A hypothetical 10% change in interest rates is not expected to have a material impact193 Item 4. Controls and Procedures Management, including the CEO and Chief Accounting Officer, concluded that disclosure controls were effective as of September 30, 2023, with new procedures implemented for VYJUVEK's commercial launch - The Chief Executive Officer and Chief Accounting Officer concluded that the company's disclosure controls and procedures were effective as of the end of the period195 - During Q3 2023, new procedures and controls were implemented for revenue recognition, accounts receivable, and cost of goods sold to coincide with the commercial launch of VYJUVEK196 PART II. OTHER INFORMATION Item 1. Legal Proceedings The company's legal proceedings primarily involve a settlement with PeriphaGen, including a $12.5 million payment in June 2023 and future contingent milestone payments tied to VYJUVEK sales - The company refers to Note 7 for details on legal proceedings, which outlines the settlement with PeriphaGen, Inc19975 - Under the settlement, a $12.5 million payment was made in June 2023. Three additional $12.5 million payments are contingent upon reaching cumulative sales milestones of $100 million, $200 million, and $300 million75 Item 1A. Risk Factors This section outlines material changes to risk factors following VYJUVEK's FDA approval, emphasizing dependence on its commercial success, limited commercial experience, manufacturing complexities, and intellectual property challenges - The company's near-term prospects and future growth are substantially dependent on the commercial success of its only FDA-approved product, VYJUVEK210 - The company has limited experience as a commercial entity, and the sales, marketing, and distribution of VYJUVEK may be unsuccessful or less successful than anticipated212 - Manufacturing of biologics is complex and novel. Delays in regulatory approval of facilities, process disruptions, or contamination could delay product development and commercialization237238242 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities during the reporting period - None268 Item 5. Other Information The company disclosed that on August 29, 2023, its Chief Accounting Officer, Kathryn Romano, adopted a Rule 10b5-1 trading arrangement for the potential sale of up to 25,000 shares of common stock - On August 29, 2023, the Chief Accounting Officer adopted a Rule 10b5-1 trading plan for the sale of up to 25,000 shares of common stock, effective until June 28, 2024271 Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications by the Chief Executive Officer and Chief Accounting Officer as required by the Sarbanes-Oxley Act of 2002, and the Inline XBRL financial data - The report includes required certifications under Sections 302 and 906 of the Sarbanes-Oxley Act and financial data formatted in Inline XBRL272