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 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. Some of such factors include, but are not limited to:
•the initiation, timing, cost, progress and results, of our research and development activities, preclinical studies and clinical trials for B-VEC (previously "KB103" and now known as VyjuvekTM), KB105, KB104, KB407, KB408, KB301, KB303, and any other product candidates;
•the continuing impact that the COVID-19 pandemic and measures implemented to prevent its spread may have on our business operations, access to capital, research and development activities, and preclinical and clinical trials for our product candidates;
•the timing, scope or results of regulatory filings and approvals, including
timing of final
•our ability to achieve certain accelerated or orphan drug designations from the FDA;
•changes in our estimates regarding the potential market opportunity for B-VEC, KB105, KB104, KB407, KB408, KB301, KB303 and any other product candidates;
•our ability to raise capital to fund our operations;
•increased costs associated with our research and development programs for our product candidates;
•our general and administrative expenses;
•risks related to our ability to successfully develop and commercialize our product candidates, including B-VEC, KB105, KB104, KB407, KB408, KB301, KB303 and our other product candidates;
•our ability to identify and develop new product candidates;
•our ability to identify, recruit and retain key personnel;
•risks related to our marketing and manufacturing capabilities and strategy;
•our business model, strategic plans for our business, product candidates and technology;
•the cost of building a medical affairs and commercial organization including a sales force in anticipation of commercialization of B-VEC and any additional product candidates;
•the rate and degree of market acceptance and clinical utility of our product candidates and gene therapy, in general;
•our competitive position and the success of competing therapies;
•our intellectual property position and our ability to protect and enforce our intellectual property;
•our financial performance;
•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;
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•our ability to successfully avoid or resolve any litigation, intellectual property or other claims, that may be brought against us;
•global economic conditions; and
•the impact of changes in laws and regulations.
Forward-looking statements are subject to a number of risks, uncertainties and
assumptions, including those described in "Risk Factors" in our Annual Report on
Form 10-K for the fiscal 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
Overview
We are a clinical stage biotechnology company leading the field of redosable gene delivery. Using our patented platform that is based on engineered HSV-1, we create vectors that efficiently deliver therapeutic transgenes to cells of interest in multiple organ systems. The cell's own machinery then transcribes and translates the encoded effector to treat or prevent disease. We formulate our vectors for non-invasive or minimally invasive routes of administration at a healthcare professional's office or potentially in the patient's home by a healthcare professional. Our goal is to develop easy-to-use medicines to dramatically improve the lives of patients living with rare diseases and chronic conditions. Our innovative technology platform is supported by in-house, commercial scale cGMP manufacturing capabilities.
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Our Product Candidates
The following table summarizes information regarding our product candidates in various stages of clinical and preclinical development:
[[Image Removed: krys-20220331_g1.jpg]]
There can be no assurance that the upcoming milestones will be met on the expected timeline or at all.
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Pipeline Highlights and Recent Developments
B-VEC is a topical gel containing our novel vector designed to deliver two
copies of the COL7A1 transgene for the treatment of dystrophic epidermolysis
bullosa ("dystrophic EB"), a serious rare skin disease caused by missing or
mutated type VII collagen protein ("COL7"). Our randomized, double-blind,
placebo-controlled GEM-3 pivotal study was designed to evaluate topical B-VEC as
compared to placebo in dystrophic EB patients. Following public announcement of
topline data from the GEM-3 study trial on
KB105 is a topical gel containing our novel vector designed to deliver two
copies of the TGM1 transgene for the treatment of TGM1-deficient autosomal
recessive congenital ichthyosis ("TGM1-ARCI"), a serious rare skin disorder
caused by missing or mutated TGM1 protein. A randomized, placebo-controlled
Phase 1/2 study is ongoing. On
KB407 is an inhaled (nebulized) formulation of our novel vector designed to
deliver two copies of the full-length CFTR transgene for the treatment of cystic
fibrosis, a serious rare lung disease caused by missing or mutated cystic
fibrosis transmembrane conductance regulator ("CFTR") protein. On
KB104 is a topical gel formulation of our novel vector designed to deliver two copies of the SPINK5 transgene for the treatment of Netherton Syndrome, a debilitating autosomal recessive skin disorder caused by missing or mutated SPINK5 protein. We expect to initiate a Phase 1 clinical study in 2022.
We have several other product candidates in various stages of preclinical development as reflected in the chart above.
We are also leveraging the ability of our platform to deliver proteins of
interest to cells in the skin in the context of aesthetic medicine via our
wholly-owned subsidiary
KB301 is a solution formulation of our novel vector for intradermal injection
designed to deliver two copies of the COL3A1 transgene to address signs of aging
or damaged skin caused by declining levels of, or damaged proteins within the
extracellular matrix, including type III collagen. A Phase 1 study is currently
ongoing. On
Jeune has several other aesthetic medicine product candidates in various stages of preclinical development as reflected in the chart above.
Business Highlights and Recent Developments
•On
•On
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COVID-19 Update
The COVID-19 pandemic has prompted governments and businesses across the globe
to take unprecedented measures, such as restrictions on travel and business
operations, temporary closures of businesses, and quarantines. For example, in
an effort to slow the spread of the virus, The
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 manufacturing 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 continue our open label extension ("OLE") study for B-VEC, resume dosing with KB105 Phase 2 clinical trial, initiate Phase 2 trial for KB301, initiate Phase 1 trial for KB407, and incur preclinical 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 clinical trials, and, as a result, the actual costs to complete clinical trials may exceed the expected costs.
General and Administrative Expenses
General and administrative expenses consist principally of salaries and other related costs, including stock-based compensation for personnel in our executive, commercial, business development and other administrative functions. General
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and administrative expenses also include professional fees associated with corporate and intellectual property-related legal expenses, consulting and accounting services, facility-related costs and expenses associated with obtaining and maintaining patents. 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.
ASTRA Capital Expenditures
On
Interest Income
Interest income consists primarily of income earned from our cash, cash equivalents and investments.
Interest Expense
Interest expense consists primarily of non-cash interest expense recognized to accrete the build to suit financial obligation to a balance that equaled the cash consideration that was paid upon the close of the purchase of ASTRA.
Critical Accounting Policies, Significant Judgments and Estimates
There have been no significant changes during the three months ended
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Results of Operations
Three Months Ended
Three Months Ended March 31,
2022 2021 Change
(In thousands) (unaudited)
Expenses
Research and development $ 9,314 $ 6,201 $ 3,113
General and administrative 15,908 8,152 7,756
Litigation settlement 25,000 - 25,000
Total operating expenses 50,222 14,353 35,869
Loss from operations (50,222) (14,353) (35,869)
Other Income (Expense)
Interest and other income, net 257 33 224
Interest expense - (1,492) 1,492
Net loss $ (49,965) $ (15,812) $ (34,153) Research and Development Expenses
Research and development expenses increased
General and Administrative Expenses
General and administrative expenses increased
Litigation settlement
Litigation settlement expenses increased
Other Income (Expense)
Interest and other income for the three months ended
Interest expense for the three months ended
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Liquidity and Capital Resources
Overview
At
As the Company continues to incur losses, a transition to profitability is dependent upon the successful development, approval and commercialization of our product candidates and the achievement of a level of revenues adequate to support the Company's cost structure. Furthermore, we expect to incur increasing costs associated with operating as a public company, meeting financial controls, satisfying regulatory and quality standards, maintaining product and clinical trials, and furthering our efforts around our current and future product candidates. The Company may never achieve profitability, and unless and until it does, the Company will continue to need to raise additional capital or obtain financing from other sources.
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, KB301 or our planned preclinical studies for our other product candidates, or our operations. Further, we do not expect to generate any product revenues until 4Q 2022, at the earliest, assuming we receive marketing approval for B-VEC on the schedule we currently contemplate. While we are in the process of building out our internal vector manufacturing capacity, some of our manufacturing activities will be contracted out to third parties. Additionally, we currently utilize third-party contract research organizations to carry out our clinical development activities. As we seek to obtain regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses as we prepare for product sales, marketing, manufacturing, and distribution. Our funds may not be sufficient to enable us to conduct pivotal clinical trials for, seek marketing approval for or commercially launch B-VEC, KB105, KB301 or any other product candidate. Accordingly, to obtain marketing approval for and to commercialize these 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.
Operating Capital Requirements
Our primary uses of capital are, and we expect will continue to be for the near future, 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. In order to complete the process of obtaining regulatory approval for any of our product candidates and to build the sales, manufacturing, marketing and distribution infrastructure that we believe will be necessary to commercialize our product candidates, if approved, we will require substantial additional funding.
We have based our projections of operating capital requirements on assumptions that may prove to be incorrect, and we may use all of 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 timeline and cost of our OLE study for B-VEC;
•the progress, timing and costs of our ongoing Phase 1/2 clinical trials for KB105;
•the progress, results and costs of our Phase 2 clinical trials for KB301;
•the progress, timing and costs of manufacturing of B-VEC;
•the continued development and the filing on an 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 facilities;
•the outcome, timing and costs of seeking regulatory approvals;
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•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 our current and future product candidates;
•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 our current and future product candidates if we receive marketing approval for such 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 our current and future 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 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 may need to obtain substantial additional funding in order to receive regulatory approval and to commercialize our product candidates. 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 our 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 our 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,
2022 2021
(unaudited)
Net cash used in operating activities $ (15,493) $ (9,654)
Net cash used in investing activities (55,908) (747)
Net cash provided (used in) by financing activities (542) 144,304
Net increase (decrease) in cash $ (71,943) $ 133,903 Operating Activities
Net cash used in operating activities for the three months ended
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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
Financing Activities
Net cash used by financing activities for the three months ended
Net cash provided by financing activities for the three months ended
On
During the three months ended
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 fiscal year ended
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