KRYSTAL BIOTECH, INC. The following discussion and analysis of our financial condition and results of
operations should be read together with the unaudited condensed consolidated
financial statements and related notes included elsewhere in Item 1 of Part I of
this Quarterly Report on Form 10-Q and with the audited financial statements and
the related notes included in our Annual Report on Form 10-K for the fiscal year
ended
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933,as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Forward-looking statements include all statements that are not historical facts and can be identified by terms such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "plan," "potential," "predict," "project," "seek," "should," "target," "will," "would," or similar expressions and the negatives of those terms. These statements relate to future events or to our future operating or financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements.
Forward-looking statements appearing in a number of places throughout this Quarterly Report on Form 10-Q include, but are not limited to, statements about the following, among other things:
• the initiation, timing, progress and results of preclinical and clinical
trials for B-VEC (previously "KB103"), KB105 and any other product
candidates, including statements regarding the timing of initiation and
completion of studies or trials and related preparatory work, the period
during which the results of the trials will become available and our
research and development programs;
• the impact that the COVID-19 pandemic and measures to prevent its spread
may have on our business operations, access to capital, research and
development activities, and preclinical and clinical trials for B-VEC,
KB105 and any other product candidates;
• the timing, scope or results of regulatory filings and approvals, including
timing of final US Food and Drug Administration , or FDA, marketing and
other regulatory approval of B-VEC and KB105;
• our ability to achieve certain accelerated or orphan drug designations from
the FDA;
• our estimates regarding the potential market opportunity for B-VEC, KB105
and any other product candidates;
• our research and development programs for our product candidates;
• our plans and ability to successfully develop and commercialize our product
candidates, including B-VEC, KB105 and our other product candidates;
• our ability to identify and develop new product candidates;
• our ability to identify, recruit and retain key personnel;
• our commercialization, marketing and manufacturing capabilities and strategy;
• the implementation of our business model, strategic plans for our business,
product candidates and technology;
• the scalability and commercial viability of our proprietary manufacturing
methods and processes;
• the rate and degree of market acceptance and clinical utility of our
product candidates and gene therapy, in general;
• our competitive position;
• our intellectual property position and our ability to protect and enforce
our intellectual property;
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• our financial performance;
• developments and projections relating to our competitors and our industry;
• our ability to establish and maintain collaborations or obtain additional
funding;
• our estimates regarding expenses, future revenue, capital requirements and
needs for or ability to obtain additional financing;
• our ability to successfully resolve any intellectual property or other
claims that may be brought against us;
• any statements regarding compliance with the listing standards of The
NASDAQ Capital Market;
• the impact of laws and regulations; and
• any statements regarding economic conditions, including statements related
to the economic fallout from the COVID-19 pandemic and the impact on our
business, or performance and any statement of assumptions underlying any of
the foregoing.
Forward-looking statements are subject to a number of risks, uncertainties and
assumptions, including those described in "Risk Factors" below and in our Annual
Report on Form 10-K for the year ended
Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.
Throughout this Form 10-Q, unless the context requires otherwise, all references
to "Krystal," "the Company," we," "our," "us" or similar terms refer to
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Overview
We are a gene therapy company developing a new class of transformative medicines to treat diseases caused by gene or protein dysfunction. Using our patented platform that is based on engineered herpes simplex virus type 1, or HSV-1, we create vectors that encode functional proteins. Our vector is designed to be specifically and efficiently delivered to the target cell in an outpatient setting, via topical, intradermal or inhaled routes of administration, where the cell's own machinery transcribes and translates the encoded protein, restoring or augmenting protein function to treat or prevent disease.
We are primarily focused on applying our platform to treat rare monogenic skin conditions caused by insufficient or completely absent protein production. Presently, we have two product candidates in the clinic to treat rare skin diseases. We anticipate commencing pivotal trials on our most advanced product candidate, B-VEC to treat dystrophic epidermolysis bullosa, or DEB, in the first half of 2020. We recently completed a Phase 1 study on our second product candidate, KB105, to treat autosomal recessive congenital ichthyosis, or ARCI, and anticipate starting Phase 2 clinical trials in the second half of 2020.
We have expanded our pipeline products to develop medicines to treat chronic, non-monogenic skin diseases as well as aesthetic skin conditions. We anticipate our third product candidate, KB301, to treat an aesthetic skin condition to enter the clinic in the second half of 2020.
Recognizing the breadth and potential transformative power of our vector platform, we have expanded the scope of our product development beyond dermatology and have begun preclinical efforts in pulmonary diseases. The payload capacity of our HSV-1 modified backbone allows us to encode a fully functional protein and therefore our therapies are not limited to patients with specific genetic mutations. The large payload capacity, robust tropism to epithelial cells (including human airway epithelia), immune-evasive properties, and manufacturing scalability of our HSV-based vector platform gives us an advantage over other viral vector therapies for pulmonary indications. Our preclinical efforts have led to the development of a novel candidate, KB407, for the treatment of Cystic Fibrosis, or CF, which has been shown to successfully transduce human CF patient-derived epithelial cells and deliver functional CFTR in vitro in 2D and 3D organotypic systems, and is amendable to non-invasive inhaled administration in vivo, as indicated by successful delivery to the lungs through the use of a clinically relevant nebulizer in rodent healthy and diseased animal models. Based on feedback from regulatory agencies, IND-enabling safety and efficacy studies, including studies in non-human primates, are underway, and IND filing for KB407 is anticipated in 2021. Additional pulmonary diseases are also being evaluated.
We believe that gene therapy companies should control their manufacturing
destiny and having in-house cGMP facilities will allow a gene therapy company to
maintain better quality control, shorter lead times, lower costs and better
command over intellectual property. Last year, we completed the construction of
our own commercial scale cGMP-compliant manufacturing facility, ANCORIS, to
enhance supply chain control, increase supply capacity for clinical trials and
ensure commercial demand is met in the event that B-VEC and our other product
candidates receive marketing approval. The clinical material for the pivotal
trial and initial commercial launch material of B-VEC will be produced at
ANCORIS. Earlier this year, we announced the ground-breaking of our second
commercial gene therapy facility in the
We have five issued patents to date and believe that the granting of these patents, which are entirely owned by the Company, protects our core platform and products based thereupon, and affords us freedom to use this platform for the development of novel therapeutics for multiple applications. We continue to advance our IP portfolio actively through the filing of new patent applications, divisionals, and continuations relating to our technologies as we deem appropriate. In addition to our patents, we rely on trade secrets and know-how to develop and maintain our competitive position. However, trade secrets can be difficult to protect. We seek to protect our proprietary technology and processes, and obtain and maintain ownership of certain technologies, in part, through confidentiality agreements and intellectual property assignment agreements with our employees, consultants and commercial partners. We also seek to preserve the integrity and confidentiality of our data, trade secrets, and know-how, including by implementing measures intended to maintain the physical and electronic security of our research and manufacturing facilities, as well as our information technology systems.
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Our desire is to bring transformative medicines, using our platform, to patients suffering from debilitating diseases and conditions. A brief overview of our pipeline follows below.
Pipeline
The following table summarizes information regarding our product candidates in various stages of clinical and preclinical development presently:
[[Image Removed]]
Beremagene Geperpavec ("B-VEC")
Our lead product candidate, B-VEC, seeks to use topical gene therapy to treat dystrophic epidermolysis bullosa, or DEB, a rare and severe monogenic skin disease for which there is currently no approved treatment. DEB affects the skin and mucosal tissues and is caused by one or more mutations in a gene called COL7A1, which is responsible for the formation of the protein type VII collagen, or COL7, that forms anchoring fibrils that bind the dermis, or inner layer of the skin, to the epidermis, or outer layer of the skin. In DEB patients, the genetic defect in COL7A1 results in loss or malfunctioning of these anchoring fibrils, leading to extremely fragile skin that blisters and tears from minor friction or trauma. Those who are born with DEB are sometimes called "butterfly children," because their skin is likened to be as fragile as the wings of a butterfly. DEB patients may suffer from open wounds, skin infections, fusion of fingers and toes and gastrointestinal tract problems throughout their lifetime, and may eventually develop squamous cell carcinoma, a potentially fatal condition.
In
The
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KB105
Our second pipeline candidate, KB105, delivers functional human transglutaminase-1, or TGM1, genes using our gene therapy platform to patients with TGM1-deficient autosomal recessive congenital ichthyosis, or ARCI. ARCI is a life-long, severe monogenic skin disease. While a number of genetic mutations have been associated with the development of ARCI, the most common cause of ARCI is an inactivating mutation in the TGM1 gene encoding the enzyme transglutaminase-1, a protein that is essential for the proper formation of the skin barrier. Mutations in the TGM1 gene, and the subsequent disruption to the epidermal barrier, leads to pronounced dehydration and trans-epidermal exposure to unwanted toxins and surface microorganisms, greatly increasing the risk of infection and sepsis. Transglutaminase-1 deficiency is associated with increased mortality in the neonatal period and has a dramatic impact on quality of life. There are currently no treatments targeting molecular correction of this disease.
In
The FDA and EMA have each granted B-VEC orphan drug designation for the
treatment of DEB, and the FDA has granted KB105 fast track designation and rare
pediatric designation for the treatment of DEB. We received the designation of
"rare pediatric disease" for KB105 in
KB301
The skin is largely composed of collagen-rich connective tissue, with dermal collagen, composed primarily of types 1 and 3 collagen fibrils, representing >90% (dry weight) of human skin. The characteristics of skin aging are largely due to aberrant collagen homeostasis, including reduced collagen biosynthesis, increased collagen fibril fragmentation, and progressive loss of dermal collagen culminating in a net collagen deficiency, resulting from both intrinsic (e.g., passage of time, genetics) and extrinsic (e.g., chronic light exposure, pollution) pressures. The goal of skin biorejuvenation is, in part, to enhance the synthesis of human dermal collagens (i.e., neocollagenesis), thereby correcting the molecular defect underlying the aged phenotype. We believe that our approach of directed expression of full-length human type 3 collagen via intradermal application of KB301 provides a unique and straightforward approach to restoring collagen homeostasis, and by extension, reconstructing an optimal physiologic environment in the skin to treat wrinkles and other superficial skin defects.
We anticipate filing an Investigational New Drug, or IND, application in the second half of 2020.
KB104
KB104 is designed to deliver functional Serine Protease Inhibitor Kazal-type 5, or SPINK5, genes using our gene therapy platform to patients suffering from Netherton Syndrome, which is a debilitating monogenic autosomal recessive skin disorder that causes defective keratinization, severe skin barrier defects, and recurrent infections. Infants with severe Netherton Syndrome symptoms are associated with failure to thrive, hypernatremic dehydration secondary to excess fluid loss, delayed growth, short stature, and recurrent infections. Clinically, Netherton Syndrome is characterized by congenital ichthyosiform erythroderma, hair shaft defects, recurrent infections, and a defective skin barrier. A predisposition to allergies, asthma, and eczema is also characteristic of Netherton Syndrome. Ultimately, those afflicted by Netherton Syndrome often experience chronic skin inflammation, severe dehydration, and stunted growth.
KB407
We are developing KB407 as a non-invasive inhaled gene therapy product for the treatment of cystic fibrosis, or CF, and are currently in the pre-clinical phase with plans to file an IND for KB407 in 2021.
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CF, the most common inherited genetic disorder in
Other
In
On
On
On
At
Costs related to clinical trials can be unpredictable and therefore there can be no guarantee that we will have sufficient capital to fund our continued clinical studies of B-VEC, KB105 and planned preclinical studies for our other product candidates, or our operations. Our funds may not be sufficient to enable us to conduct pivotal clinical trials for, seek marketing
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approval for or commercially launch B-VEC, KB105 or any other product candidate. Accordingly, to obtain marketing approval for and to commercialize this or any other product candidates, we may be required to obtain further funding through public or private equity offerings, debt financings, collaboration and licensing arrangements or other sources. Adequate additional financing may not be available to us on acceptable terms, if at all. Our failure to raise capital when needed could have a negative effect on our financial condition and our ability to pursue our business strategy.
Financial Overview Revenue
We currently have no approved products for commercial marketing or sale and have not generated any revenue from the sale of products or other sources to date. In the future, we may generate revenue from product sales, royalties on product sales, or license fees, milestones, or other upfront payments if we enter into any collaborations or license agreements. We expect that our future revenue will fluctuate from quarter to quarter for many reasons, including the uncertain timing and amount of any such payments and sales.
Research and Development Expenses
Research and development expenses consist primarily of costs incurred to advance our preclinical and clinical candidates, which include:
• expenses incurred under agreements with contract manufacturing
organizations, consultants and other vendors that conduct our
preclinical activities;
• costs of acquiring, developing and manufacturing clinical trial
materials and lab supplies;
• facility costs, depreciation and other expenses, which include direct
expenses for rent and maintenance of facilities and other supplies; and
• payroll related expenses, including stock-based compensation expense.
We expense internal research and development costs to operations as incurred. We expense third party costs for research and development activities, such as the manufacturing of preclinical and clinical materials, based on an evaluation of the progress to completion of specific tasks such as manufacturing of drug substance, fill/finish and stability testing, which is provided to us by our vendors.
We expect our research and development expenses will increase as we continue the manufacture of preclinical and clinical materials and manage the clinical trials of, and seek regulatory approval for, our product candidates and expand our product portfolio. In the near term, we expect that our research and development expenses will increase as we begin our planned pivotal Phase 3 clinical trial for B-VEC, conduct our ongoing Phase 1/2 clinical trial for KB105, and incur pre-clinical expenses for our other product candidates. Due to the numerous risks and uncertainties associated with product development, we cannot determine with certainty the duration, costs and timing of this clinical trial, and, as a result, the actual costs to complete this planned clinical trial may exceed the expected costs.
General and Administrative Expenses
General and administrative expenses consist principally of professional fees associated with corporate and intellectual property legal expenses, consulting and accounting services and facility-related costs. Other general and administrative costs include stock-based compensation and travel expenses.
We anticipate that our general and administrative expenses will increase in the future to support the continued research and development of our product candidates and to operate as a public company. These increases will likely include increased costs for insurance, costs related to the hiring of additional personnel and payments to outside consultants, lawyers and accountants, among other expenses. Additionally, if and when we believe a regulatory approval of our first product candidate appears likely, we anticipate that we will increase our salary and personnel costs and other expenses as a result of our preparation for commercial operations.
Interest Income
Interest income consists primarily of income earned from our cash, cash equivalents and investments.
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Critical Accounting Policies, Significant Judgments and Estimates
There have been no significant changes during the three months ended
Results of Operations
Three Months Ended
Three Months Ended March 31,
2020 2019 Change
(In thousands) (unaudited)
Expenses
Research and development $ 3,525 $ 3,167 $ 358
General and administrative 2,421 1,527 894
Total operating expenses 5,946 4,694 1,252
Loss from operations (5,946 ) (4,694 ) (1,252 )
Other Income
Interest and other income, net 605 583 22
Net loss $ (5,341 ) $ (4,111 ) $ (1,230 ) Research and Development Expenses
Research and development expenses increased
General and Administrative Expenses
General and administrative expenses increased
Interest and Other Income
Interest and other income for the three months ended
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Liquidity and Capital Resources
Overview
As of
Operating Capital Requirements
We expect our primary use of capital to continue to be for compensation and related expenses, manufacturing costs for preclinical and clinical materials, third party clinical trial research and development services, laboratory and related supplies, clinical costs, legal and other regulatory expenses and general overhead costs. We believe that our available funds will be sufficient to enable us to initiate our pivotal Phase 3 clinical trials for B-VEC and continue Phase 1/2 clinical trials for KB105.
We have based our projections of operating capital requirements on assumptions that may prove to be incorrect and we may use all our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, we are unable to estimate the exact amount of our operating capital requirements. Our future funding requirements will depend on many factors, including, but not limited to:
• the timing and costs of our anticipated pivotal Phase 3 clinical trial for
B-VEC;
• the progress, timing, results and costs of our ongoing Phase 1/2 clinical
trial for KB105;
• the progress, timing and costs of manufacturing of B-VEC for our planned
pivotal Phase 3 clinical trials;
• the continued development and the filing on an Investigational New Drug, or
IND, application for future product candidates;
• the initiation, scope, progress, timing, costs and results of drug
discovery, laboratory testing, manufacturing, preclinical studies and
clinical trials for any other product candidates that we may pursue in the
future, if any;
• the costs of maintaining our own commercial-scale cGMP manufacturing
facility;
• the outcome, timing and costs of seeking regulatory approvals;
• the costs associated with the manufacturing process development and
evaluation of third-party manufacturers;
• the costs of future activities, including product sales, medical affairs,
marketing, manufacturing and distribution, in the event we receive
marketing approval for B-VEC, KB105 or any other product candidates we may
develop;
• the extent to which the costs of our product candidates, if approved, will
be paid by health maintenance, managed care, pharmacy benefit and similar
healthcare management organizations, or will be reimbursed by government
authorities, private health coverage insurers and other third-party payors;
• the costs of commercialization activities for B-VEC, KB105 and other
product candidates if we receive marketing approval for B-VEC, KB105 or any
other product candidates we may develop, including the costs and timing of
establishing product sales, medical affairs, marketing, distribution and
manufacturing capabilities;
• subject to receipt of marketing approval, if any, revenue received from
commercial sale of B-VEC, KB105 or our other product candidates;
• the terms and timing of any future collaborations, licensing, consulting or
other arrangements that we may establish;
• the amount and timing of any payments we may be required to make, or that
we may receive, in connection with the licensing, filing, prosecution,
maintenance, defense and enforcement of any patents or other intellectual
property
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rights, including milestone and royalty payments and patent prosecution
fees that we are obligated to pay pursuant to our license agreements;
• our current license agreements remaining in effect and our achievement of
milestones under those agreements;
• our ability to establish and maintain collaborations and licenses on
favorable terms, if at all; and
• the extent to which we acquire or in-license other product candidates and
technologies.
We expect that we will need to obtain substantial additional funding in order to receive regulatory approval and to commercialize B-VEC or any other product candidates, including KB105. To the extent that we raise additional capital through the sale of common stock, convertible securities or other equity securities, the ownership interests of our existing stockholders may be materially diluted and the terms of these securities could include liquidation or other preferences that could adversely affect the rights of our existing stockholders. In addition, debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, that could adversely affect our ability to conduct our business. If we are unable to raise capital when needed or on attractive terms, we could be forced to significantly delay, scale back or discontinue the development or commercialization of B-VEC, KB105 or our other product candidates, seek collaborators at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available, and relinquish or license, potentially on unfavorable terms, our rights to B-VEC or KB105 or our other product candidates that we otherwise would seek to develop or commercialize ourselves.
Sources and Uses of Cash
The following table summarizes our sources and uses of cash (in thousands):
Three Months Ended
March 31,
2020 2019
(unaudited)
Net cash used in operating activities $ (6,227 ) $ (3,215 )
Net cash used in investing activities (1,305 ) (2,482 )
Net cash provided by financing activities 243 40
Net decrease in cash $ (7,289 ) $ (5,657 )
Operating Activities
Net cash used in operating activities for the three months ended
Net cash used in operating activities for the three months ended
Investing Activities
Net cash used in investing activities for the three months ended
Net cash used in investing activities for the three months ended
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Financing Activities
Net cash provided by financing activities for the three months ended
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements as defined in the rules and
regulations of the
Contractual Obligations
There have been no material changes to our contractual obligations as previously
disclosed in our Annual Report on Form 10-K for the year ended
JOBS Act Accounting Election
We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
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