Chairman and CEO Krish Krishnan is an experienced biotech executive. But even he didn’t expect to go from self-funding Krystal Biotech to IPO in 18 months.
The Pittsburgh-based company, which Krishnan co-founded with his wife and COO Suma Krishnan, is working to develop to develop treatments for rare, orphan skin diseases caused by the absence of, or a mutation in, a single gene.
“We were humming along,” he says. “We weren’t really seriously thinking of going public in 2017. We thought maybe it would be a 2018, 2019 type thing. But we had some good interest from investors on Wall Street, ones that had been in biotech and tend to be patient and long term and let the story play out.”
Biotech takes a while to start generating revenue because there are multiple phases of trials and studies. This inbound interest, however, formed the basis for taking Krystal Biotech public so quickly.
“It was a bit of a whirlwind, but the one advantage I had is it’s not my first IPO,” Krishnan says.
Here’s what he had to say about IPOs, venture funding and biotechnology.
A unique path
Krishnan was bitten by the biotech bug early in his career, when his company got a drug approved and he heard stories from friends about their children being able to take the drug and feel better.
“The real goal is not as much to go IPO, it’s to get a good treatment for a disease approved,” he says.
Normally, a biotech founder goes to the venture capital markets in San Francisco or Boston, Krishnan says.
“They usually provide a few rounds of funding,” he says. “The typical number of rounds is three to five, Series A, B, C, D, E, something like that. There’s usually a crossover following the VC, and then the company goes public. A typical biotech company from start to IPO is more like a four- to five-year run.”
Krystal Biotech’s route was different.
The Krishnans self-funded the business in April 2016. They took on two rounds of corporate venture capital, raising more than $18 million, before going public in September 2017. As a public company, Krystal has done two additional rounds of financing, a private placement in 2018 and an additional public offering in June of this year, raising another $200 million in total.
This approach was a deliberate choice by the Krishnans, who were fortunate with prior successes in the industry to be able to invest in a biotech idea.
The VC market provides value in terms of guidance and experience, but in exchange they take a lot of equity, Krishnan says. That means many times, entrepreneurs, after a couple of rounds of financing, realize they’re not the bosses anymore.
“The ownership shifts from the entrepreneur to the venture capitalists pretty quickly, and then the direction and a lot of decisions do not solely exist in the hands of the entrepreneur,” he says.
Because it takes years before a biotech startup sees revenue, it’s even more of a challenge to remain a pure entrepreneur without diluted ownership, Krishnan adds.
“In our case, given my prior record, it was a conscious decision to stay away and try and keep as much of the ownership in the company as possible,” he says.
Just the beginning
Krystal Biotech is Krishnan’s third IPO. Over time, he has found that you get a feel for investors, so you can be a little more careful about who you place your stock into, like keeping your institutional base concentrated on investors who are more patient.
“You have some control, saying, ‘Look, I do not want to sell so many shares to this company because they tend to go long and short and if I’m delayed by a couple of weeks, then they sell the stock and that would cause unnecessary volatility in the stock market,’” he says.
The IPO happens fast. Assuming you have good fundraising, you’re approached by a bunch of investors and bankers, so that familiarity is helpful.
“If you’ve been in the markets before and you see names you recognize, you can say, ‘Hey, I’d rather give X more shares and Y less shares.’” Krishnan says. “But the first time you’re doing it, you don’t really have a feel for who is good, bad, so you tend to listen to the bankers who are taking you public — and that may not always be 100 percent aligned with what you want to do.”
Krishnan warns that going public is just a financing transaction at its root.
“A lot of people assume that going public is like the you-have-arrived-moment, but it’s actually just the beginning,” he says.
Krishan also is a proponent of the public markets. He feels the valuation doesn’t rely as much on individual investor opinions and typically is higher with a broad investor base and greater transparency.
Obviously, the downside is it’s a lot of work to keep up with the required procedures and processes. That’s why he recommends figuring out your business strategy first as a private company. Then, when you go public, it’s more about execution of a clear marching order.
“Wall Street does not appreciate you ironing out your issues in public,” Krishnan says.
Another component of biotech is to do financing on the heels of good data, such as a well-received Phase I trial.
“Biotech companies that tend to raise money without a good data release, they usually raise money at a 20 percent discount or a 30 percent discount, depending on the market and how choppy it is,” Krishnan says.
It’s not always easy to time these things, he says. But Krystal was fortunate that its two funding rounds as a public company were able to be done on the back of good data.
Today, the company has more than 40 employees with plans to build a second manufacturing facility and probably double its employee count over the next 15 months.
“We think we have raised enough money to realistically take us into 2021,” Krishnan says, adding that the hope is by then the company’s lead research drug may be able to start to bringing in revenues.