What changed in this filing

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Item 1. Financial Statements

2021-05-10 compared with 2020-11-09 · 138 added, 151 removed, 320 unchanged (47% of the section changed)

2 unchanged sentences

Condensed Consolidated Balance Sheets

(In thousands, except shares and per share data) September 30,

(In thousands, except shares and per share data) March 31,

2021 December 31,

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Property and equipment, net 33,883 30,876

Long-term investments — 497

Prepaid rent 2,400 —

Right-of-use asset 2,476 2,709

Right-of-use assets 3,200 3,298

Other non-current assets 109 1,612

5 unchanged sentences

Accrued expenses and other current liabilities 6,652 5,109

Build to suit lease liability — 7,600

Total current liabilities 9,144 15,452

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20,000,000 shares authorized at

September 30, 2020 (unaudited) and December 31, 2019;

shares issued, and no shares outstanding at September 30, 2020

March 31, 2021 (unaudited) and December 31, 2020;

shares issued, and no shares outstanding at March 31, 2021

(unaudited) and December 31, 2020

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80,000,000 shares authorized at

September 30, 2020 (unaudited) and December 31, 2019;

and 17,354,310 shares issued and outstanding at September 30, 2020

March 31, 2021 (unaudited) and December 31, 2020;

and 19,714,220 shares issued and outstanding at March 31, 2021

(unaudited) and December 31, 2020, respectively

8 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

(In thousands, except share and per share data) 2021 2020

3 unchanged sentences

Loss from operations ( 14,353 ) ( 5,946 )

Other Income (Expense)

Interest and other income, net 33 605

Interest expense ( 1,492 ) —

Net loss ( 15,812 ) ( 5,341 )

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Stock-based compensation expense — — 2,350 — — 2,350

Unrealized gain on investments — — — 14 — 14

Net loss — — — — ( 5,341 ) ( 5,341 )

Balances at March 31, 2020 17,370,564 $ — $ 242,733 $ 24 $ ( 44,388 ) $ 198,369

Issuance of common stock, net 2,293,495 — 117,337 — — 117,337

Stock-based compensation expense — — 807 — — 807

Unrealized gain on investments — — — 16 — 16

Net loss — — — — ( 6,833 ) ( 6,833 )

Balances at June 30, 2020 19,664,059 $ — $ 360,877 $ 40 $ ( 51,221 ) $ 309,696

Issuance of common stock, net 42,811 — 298 — — 298

Stock-based compensation expense — — 1,356 — — 1,356

Unrealized loss on investments — — — ( 3 ) — ( 3 )

Net loss — — — — ( 15,812 ) ( 15,812 )

Balances at September 30, 2020 19,706,870 $ — $ 362,531 $ 20 $ ( 60,831 ) $ 301,720

Balances at March 31, 2021 22,204,057 $ — $ 517,675 $ 3 $ ( 87,026 ) $ 430,652

Common Stock Additional Paid-in Accumulated Other Comprehensive Accumulated Total

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Balances at March 31, 2020 17,370,564 $ — $ 242,733 $ 24 $ ( 44,388 ) $ 198,369

Issuance of common stock, net 2,501,500 — 93,825 — — 93,825

Stock-based compensation expense — — 325 — — 325

Unrealized gain on investments — — — 2 — 2

Net loss — — — — ( 5,348 ) ( 5,348 )

Balances at June 30, 2019 16,945,069 $ — $ 227,690 $ 18 $ ( 29,418 ) $ 198,290

Issuance of common stock, net 362,571 — 13,357 — — 13,357

Stock-based compensation expense — — 278 — — 278

Unrealized loss on investments — — — ( 7 ) — ( 7 )

Net loss — — — — ( 4,272 ) ( 4,272 )

Balances at September 30, 2019 17,307,640 $ — $ 241,325 $ 11 $ ( 33,690 ) $ 207,646

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Condensed Consolidated Statements of Cash Flows

Nine Months Ended September 30,

Three Months Ended

(In thousands) 2021 2020

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Stock-based compensation expense 2,313 539

Loss on disposals of fixed assets 33 54

Non-cash interest expense 1,492 —

Changes in operating assets and liabilities

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Issuance of common stock, net 152,264 243

Repayment of ASTRA build to suit liability ( 7,960 ) —

Net cash provided by financing activities 144,304 243

Net increase in cash and cash equivalents 94,855 91,136

Net increase (decrease) in cash and cash equivalents 133,903 ( 7,289 )

Cash and cash equivalents at beginning of period 268,269 187,514

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Unpaid purchases of property and equipment $ 2,615 $ 1,302

Initial recognition of right-of-use assets $ — $ 3,066

Unpaid offering costs $ 214 $ 22

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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Krystal Biotech, Inc.

and its consolidated subsidiary (the “Company,” or “we” or other similar pronouns) commenced operations in April 2016.

(the “Company,” or “we” or other similar pronouns) commenced operations on April 15, 2016.

On March 31, 2017, the Company converted from a California limited liability company to a Delaware C-corporation, and changed its name from Krystal Biotech LLC to Krystal Biotech, Inc.

On June 19, 2018, the Company incorporated Krystal Australia Pty Ltd., an Australian proprietary limited company, for the purposes of undertaking preclinical and clinical studies in Australia.

On June 19, 2018, the Company incorporated Krystal Australia Pty Ltd., an Australian proprietary limited company, for the purpose of undertaking preclinical and clinical studies in Australia.

On April 24, 2019, the Company incorporated Jeune, Inc.

in Delaware, a wholly-owned subsidiary, for the purpose of undertaking preclinical studies for aesthetic skin conditions.

We are a clinical stage gene therapy company developing a new class of transformative medicines to treat diseases caused by gene or protein dysfunction or absence.

Using our patented platform that is based on engineered herpes simplex virus type 1 (“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.

We have expanded our pipeline products to develop medicines to treat chronic, non-monogenic skin diseases and aesthetic skin conditions.

Recognizing the breadth and potential transformative power of our HSV-1 vector platform, we have started expanding the scope of our product development beyond skin and have begun preclinical efforts in the field of pulmonary diseases.

As of September 30, 2020, the Company had an accumulated deficit of $ 60.8 million.

With the net proceeds raised from its public and private securities offerings, including the public offering completed in May 21, 2020, the Company believes that its cash, cash equivalents and short-term investments of approximately $ 286.4 million as of September 30, 2020 will be sufficient to allow the Company to fund its planned operations for at least the next 12 months from the date of this Quarterly Report on Form 10-Q.

in Delaware, a wholly-owned subsidiary, for the purpose of undertaking preclinical and clinical studies for aesthetic skin conditions.

We are a clinical stage biotechnology company leading the field of redosable gene therapy for the treatment of serious rare diseases.

Using our patented platform that is based on engineered herpes simplex virus type 1 ("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 doctor’s office or potentially in the patient’s home.

Our goal is to develop easy to use, redosable gene therapies to dramatically improve the lives of patients living with rare diseases.

Our innovative technology platform is supported by in-house, commercial scale current good manufacturing practices ("cGMP") manufacturing capabilities.

As of March 31, 2021, the Company had an accumulated deficit of $ 87.0 million.

With the net proceeds raised from its public and private securities offerings, including the public offering of its common stock completed on February 1, 2021, the Company believes that its cash, cash equivalents and short-term investments of approximately $ 403.4 million as of March 31, 2021 will be sufficient to allow the Company to fund its planned operations for at least the next 12 months from the date of this Quarterly Report on Form 10-Q.

As the Company continues to incur losses, a transition to profitability is dependent upon the successful development, approval and commercialization of its product candidates and the achievement of a level of revenues adequate to support the Company’s cost structure.

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Basis of Presentation

The accompanying unaudited interim condensed financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), as found in the Accounting Standards Codification (“ASC”), the Accounting Standards Update (“ASU”), of the Financial Accounting Standards Board (“FASB”), and the rules and regulations of the US Securities and Exchange Commission (“SEC”).

The accompanying unaudited interim condensed financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”), as found in the Accounting Standards Codification (“ASC”), the Accounting Standards Update (“ASU”), of the Financial Accounting Standards Board (“FASB”), and the rules and regulations of the US Securities and Exchange Commission (“SEC”).

All intercompany balances and transactions have been eliminated in consolidation.

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Risks and Uncertainties

The pandemic caused by an outbreak of a new strain of coronavirus (“COVID-19”) has resulted, and is likely to continue to result, in significant national and global economic disruption and may adversely affect our business.

The Company is actively monitoring the impact of COVID-19 and the possible effects on its financial condition, liquidity, operations, suppliers, industry, and workforce.

The novel coronavirus ("COVID-19") pandemic has resulted, and is likely to continue to result, in significant national and global economic uncertainty and may adversely affect our business.

The Company is continuing to actively monitor the impact of the COVID-19 pandemic and the related effects on its financial condition, liquidity, operations, suppliers, industry, and workforce.

However, the full extent, consequences, and duration of the COVID-19 pandemic and the resulting impact on the Company cannot currently be predicted.

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Use of Estimates

The preparation of financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the reported amounts in the condensed consolidated financial statements and accompanying notes.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the condensed consolidated financial statements and accompanying notes.

Actual results could materially differ from those estimates.

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This process may result in actual results differing materially from those estimated amounts used in the preparation of the financial statements.

Estimates are used in the following areas including stock-based compensation expense, accrued expenses, the fair value of financial instruments, incremental borrowing rate for lease liability, and the valuation allowance included in the deferred income tax calculation.

Estimates are used in the following areas including stock-based compensation expense, accrued expenses, the fair value of financial instruments, the incremental borrowing rate for lease liabilities, and the valuation allowance included in the deferred income tax calculation.

Segment and Geographical Information

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Cash equivalents are defined as short-term, highly liquid investments with original maturities of 90 days or less at the date of purchase.

Investments with maturities of greater than 90 days but less than one year are classified as short-term investments on the consolidated balance sheets and consist of US Treasury bills and certificates of deposit.

Investments with maturities of greater than 90 days but less than one year are classified as short-term investments on the consolidated balance sheets and consist of certificates of deposit.

Investments with maturities of greater than one year are classified as long-term investments on the consolidated balance sheets and consist of certificates of deposit.

Accrued interest on US Treasury bills and certificates of deposit are also classified as short-term investments.

Accrued interest on certificates of deposit are also classified as short-term investments.

As our entire investment portfolio is considered available for use in current operations, we classify all investments as available-for-sale securities.

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The Company classifies all of its investments as available-for-sale.

Our available-for-sale, short-term investments, which consist of US Treasury bills and certificates of deposit, are considered to be Level 2 valuations.

Our available-for-sale, short-term investments, which consist of certificates of deposit, are considered to be Level 2 valuations.

The fair value of Level 2 financial assets is determined using inputs that are observable in the market or can be derived principally from or corroborated by observable market data, such as pricing for similar securities, recently executed transactions, cash flow models with yield curves, and benchmark securities.

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Leasehold improvement shorter of 8 years or remaining life of lease

Construction-in-progress is not depreciated until the asset is placed in service.

Construction in progress ("CIP") is not depreciated until the asset is placed in service.

Impairment of Long-Lived Assets

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An impairment loss would be recognized when estimated future cash flows expected to result from the use of the asset and its eventual disposition are less than the carrying amount of the asset.

The Company has no t recognized any impairment losses for the three and nine months ended September 30, 2020 and 2019.

We have entered into lease agreements for our laboratory, manufacturing and office spaces.

On January 1, 2019, we adopted ASC 842 – Leases.

Pursuant to ASC 842, all of our leases outstanding on January 1, 2019 continued to be classified as operating leases.

With the adoption of ASC 842, we recorded an operating lease right-of-use asset of $ 1.1 million and an operating lease liability of $ 1.4 million on the condensed consolidated balance sheet.

The Company has no t recognized any impairment losses for the three months ended March 31, 2021 and 2020.

The Company accounts for its lease agreements in accordance with FASB ASC Topic 842, Leases ("ASC 842").

Right-of-use lease assets represent our right to use the underlying asset during the lease term and the lease obligations represent our commitment to make lease payments arising from the lease.

Right-of-use lease assets and obligations were recognized based on the present value of remaining lease payments over the lease term.

As the Company’s lease agreements do not provide an implicit rate and as the Company does no t have any external borrowings, we have used an estimated incremental borrowing rate based on the information available at lease commencement in determining the present value of lease payments.

As the Company’s lease agreements do not provide an implicit rate and as the Company does not have any external borrowings, we have used an estimated incremental borrowing rate based on the information available at lease commencement in determining the present value of lease payments.

Operating lease expense is recognized on a straight-line basis over the lease term.

Variable lease expense is recognized in the period in which the obligation for the payment is incurred.

The Company adopted the new lease standard as of the effective date of January 1, 2019, with no restatement of prior periods or cumulative adjustment to retained earnings.

Upon adoption, the Company took advantage of the transition package of practical expedients permitted within ASC 842, which allowed the Company not to reassess previous accounting conclusions around whether arrangements were, or contained, leases, as well as to carry forward both the historical classification of leases and the treatment of initial direct costs for existing leases.

In addition, the Company also has made an accounting policy election to exclude leases with an initial term of twelve months or less from its balance sheet and to account for lease and non-lease components of its operating leases as a single component.

For lease arrangements where it has been determined that the Company has control over an asset that is under construction and is thus considered the accounting owner of the asset during the construction period, the Company records a construction in progress asset and corresponding financial obligation on the condensed consolidated balance sheet.

Once the construction is complete, an assessment is performed to determine whether the lease meets certain "sale-leaseback" criteria.

If the sale-leaseback criteria are determined to be met, the Company will remove the asset and related financial obligation from the condensed consolidated balance sheet and treat the building lease as either an operating or finance lease based on our assessment of the guidance.

If, upon completion of construction, the project does not meet the "sale-leaseback" criteria, the lease will be treated as a financing obligation and the Company will depreciate the asset over its estimated useful life for financial reporting purposes once the asset has been placed into service.

Research and Development Expenses

Research and development costs are charged to expense as incurred in performing research and development activities.

The costs include employee compensation costs, facilities and overhead, preclinical and clinical activities, related clinical manufacturing costs, contract management services, regulatory and other related costs.

The Company estimates contract research and clinical trials materials manufacturing expenses based on the services performed pursuant to contracts with research and manufacturing organizations that manufacture materials used in the Company’s ongoing preclinical and clinical studies.

Nonrefundable advanced payments for goods or services to be received in the future for use in research and development activities are deferred and capitalized.

These costs include employee compensation costs, facilities and overhead, preclinical and clinical activities, related clinical manufacturing costs, contract management services, regulatory and other related costs.

The Company estimates contract research and clinical trials materials manufacturing expenses based on the services performed pursuant to contracts with research organizations and manufacturing organizations that manufacture materials used in the Company’s ongoing preclinical and clinical studies.

Non-refundable advanced payments for goods or services to be received in the future for use in research and development activities are deferred and capitalized.

The capitalized amounts are expensed as the related goods are delivered or the services are performed.

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The risk-free interest rates are based on the US Treasury securities with a maturity date commensurate with the expected term of the associated award.

The Company has never paid and does not expect

to pay dividends in the foreseeable future.

The Company is also required to estimate forfeitures at the time of grant and to revise those estimates in subsequent periods if actual forfeitures differ from its estimates.

To the extent that actual forfeitures differ from the Company’s estimates, the differences are recorded as a cumulative adjustment in the period the estimates were revised.

The Company has never paid and does not expect to pay dividends in the foreseeable future.

The Company accounts for forfeitures as they occur.

Stock-based compensation expense recognized in the financial statements is based on awards for which service conditions are expected to be satisfied.

Comprehensive Loss

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We have not recorded any reclassifications from other comprehensive gains or losses to net loss during any period presented.

Recent Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-13 - Fair Value Measurement (Topic 820) (“ASU 2018-13”) which removes, modifies and adds disclosure requirements on fair value measurements.

ASU 2018-13 removes disclosure requirements for transfers between Level 1 and Level 2 measurements and valuation processes for Level 3 measurements but adds new disclosure requirements including changes in unrealized gains/losses in other comprehensive income related to recurring Level 3 measurements.

The amended guidance was effective for us commencing in the first quarter of 2020.

Certain aspects may be applied prospectively while other aspects may be applied retrospectively upon the effective date.

The adoption of the guidance resulted in us disclosing the Company’s cash, cash equivalents and available-for-sale securities by significant investment category as of September 30, 2020 and 2019.

Net Loss Per Share Attributable to Common Stockholders

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Diluted net loss per share attributable to common stockholders is computed by dividing the net loss by the weighted-average number of shares of common stock and common share equivalents outstanding for the period.

Stock options are common share equivalents.

There were 853,336 and 452,311 common share equivalents outstanding as of September 30, 2020 and 2019, respectively, in the form of stock options, that have been excluded from the calculation of diluted net loss per common share as their effect would be anti-dilutive for all periods presented.

Common share equivalents consist of common stock issuable upon exercise of stock options and vesting of restricted stock awards.

There were 1,423,540 and 548,193 common share equivalents outstanding as of March 31, 2021 and 2020, respectively, in the form of stock options and unvested restricted stock awards, that have been excluded from the calculation of diluted net loss per common share as their effect would be anti-dilutive for all periods presented.

Three Months Ended

September 30, Nine Months Ended

September 30,

2020 2019 2020 2019

(In thousands, except shares and per share data) (Unaudited) (Unaudited)

(In thousands, except shares and per share data) (Unaudited)

Net loss per common share $ ( 15,812 ) $ ( 5,341 )

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Fair Value Instruments

The following tables show the Company’s cash, cash equivalents and available-for-sale securities by significant investment category as of September 30, 2020 and December 31, 2019, respectively (in thousands):

September 30, 2020

The following tables show the Company’s cash, cash equivalents and available-for-sale securities by significant investment category as of March 31, 2021 and December 31, 2020, respectively (in thousands):

March 31, 2021

Amortized Cost Gross

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Securities (1)

Securities (2)

Cash $ 2,752 $ — $ — $ 2,752 $ 2,752 $ —

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402,172 — — 402,172 402,172 —

government agency securities 501 2 — 503 — 503 —

Certificates of deposit 1,248 — — 1,248 — 1,248

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Securities (1)

Securities (2)

Cash $ 9,463 $ — $ — $ 9,463 $ 9,463 $ —

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Subtotal 268,269 — — 268,269 268,269 —

government agency securities 1,747 6 — 1,753 — 1,753 —

Certificates of deposit 2,986 7 — 2,993 — 2,993

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(1) The Company’s short-term marketable securities mature in one year or less.

(2) The Company’s long-term marketable securities mature between one year and two years .

See Note 2 to these unaudited condensed consolidated financial statements for additional discussion regarding the Company’s fair value measurements.

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Property and equipment, net consist of the following (in thousands):

September 30,

2021 December 31,

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Property and equipment, net $ 33,883 $ 30,876

Depreciation expense was $ 399 thousand and $ 1.1 million for the three and nine months ended September 30, 2020, respectively, and $ 190 thousand and $ 498 thousand for the three and nine months ended September 30, 2019, respectively.

Depreciation expense was $ 438 thousand and $ 335 thousand for the three months ended March 31, 2021 and 2020, respectively.

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following (in thousands):

September 30,

2021 December 31,

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Other current liabilities 151 26

Accrued financing costs 137 131

Total $ 6,652 $ 5,109

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On May 26, 2016, the Company signed an operating lease for laboratory and office space that commenced in June 2016 and expired on October 31, 2017 (the “2016 Lease”).

The 2016 Lease was amended to increase the area leased to approximately 31,000 square feet and to extend the expiration date to February 28, 2027 , including 6,000 square feet relating to a month-to-month lease that we utilized through February 2020.

On December 26, 2019, we entered into a lease agreement for our second commercial gene therapy facility (“ASTRA”) in the Pittsburgh, Pennsylvania area (“ASTRA lease”) with Northfield I, LLC (the “Landlord”).

The 150,000 square foot facility is under construction and is expected to be completed and validated in 2022.

The lease will commence when the space is available for access, which is anticipated to be in 2H 2020, and has an initial term that expires on October 31, 2035 .

The ASTRA lease contains an option (“Purchase Option”) to purchase the building, related improvements and take corresponding assignment of the Landlord's rights under its existing Ground Lease (the “Ground Lease”).

The Purchase Option may be

exercised by the Company at any time prior to the date that is thirty days after the initial delivery date, as defined in the lease as the date in which certain delivery conditions have been met by the Landlord.

The 2016 Lease has been amended several times to increase the area leased, which currently consists of approximately 28,000 square feet.

As a result of the lease amendments, the lease expiration date was extended to February 28, 2027.

This lease includes our 7,500 square foot commercial scale cGMP-compliant manufacturing facility, ANCORIS.

On December 26, 2019, we entered into a lease agreement for our second commercial gene therapy facility ("ASTRA") in the Pittsburgh, Pennsylvania area ("ASTRA lease") with Northfield I, LLC (the "Landlord" or "Northfield") with an initial lease term that expired on October 31, 2035.

The ASTRA lease contained an option ("Purchase Option") to purchase the

building, related improvements and take corresponding assignment of the Landlord's rights under its existing Ground Lease (the "Ground Lease").

A cash contribution in the amount of $ 2.4 million was paid to escrow on January 21, 2020.

The contribution was intended to reduce the amount of the building construction costs and had the effect of reducing the base rental rate of the lease and as such, is recorded as prepaid rent in the condensed consolidated balance sheet as of September 30, 2020.

Refer to Note 10 for additional information.

As of September 30, 2020, future minimum commitments under the Company’s operating leases were as follows (in thousands):

2020 (remaining three months) $ 274

The contribution was intended to reduce the amount of the building construction costs and had the effect of reducing the base rental rate of the lease and as such, was recorded as prepaid rent in the consolidated balance sheet at time of payment.

On October 5, 2020, the Company was provided with notice that the initial delivery conditions of the building had been met, including completion of the building shell, interior slab, and exterior doors, and on October 15, 2020, the Company gave the Landlord notice of its intent to purchase ASTRA for approximately $ 9.4 million, subject to the parties entering into a commercially reasonable purchase and sale agreement.

As a result of the Company's ability to exercise its option to purchase ASTRA, the Company obtained control over the construction in progress of ASTRA as of October 5, 2020.

The Company recorded a $ 10.0 million CIP asset and a corresponding build to suit lease liability related to the costs incurred by the Landlord, offset by the previous cash contribution of $ 2.4 million.

On January 29, 2021, the Company entered into a Purchase and Sale Agreement ("PSA") for ASTRA with Northfield related to the purchase option exercised by the Company on October 15, 2020 for a purchase price of $ 9.4 million.

The Company held approximately $ 1.5 million on deposit with Northfield under the existing lease agreement and applied this deposit as a credit against the purchase price at closing.

On February 1, 2021, Northfield delivered the space as substantially complete and made the space available for access by the Company, thus triggering lease commencement.

As a result, the Company concluded that this transaction did not qualify for sale-leaseback accounting because it did not meet the definition of a sale.

As control did not transfer to the Lessor at lease commencement, the transaction continued to be accounted for as construction in progress and a financing obligation.

On March 5, 2021, the purchase closed and the Company determined that reclassification of the construction in progress to buildings and leasehold improvements was not appropriate as the interior of the building was not yet ready for its intended use and as such the building continues to be held under construction in progress as of March 31, 2021.

The interior of the building is currently under construction and is expected to be completed and validated in 2022.

From construction completion to the closing of the purchase, the Company recognized interest expense to accrete the financial obligation to a balance that equaled the cash consideration that was paid upon the close of purchase.

As part of the transaction, the Company also became the accounting owner of the Ground Lease, due to obtaining control over ASTRA, and recorded the applicable operating right-of-use asset and corresponding lease liability as of October 5, 2020.

When the PSA was finalized, the Company took assignment of the Lessor's Ground Lease, in accordance with the Purchase Option, of which lease payments are based on annual payments of $ 82 thousand, and are subject to a cumulative 10 % escalation clause every 5 years through 2071.

As of March 31, 2021, future minimum commitments under the Company’s operating leases were as follows (in thousands):

2021 (remaining nine months) $ 507

Thereafter 6,839

Future minimum operating lease payments $ 10,170

Operating lease payments for ASTRA 13,195

Interest 6,300

Present value of lease liability $ 3,870

Supplemental condensed consolidated balance sheet information related to leases is as follows:

September 30, 2020 September 30, 2019

March 31, 2021 December 31, 2020

Operating leases:

Right-of-use asset $ 2,476 $ 2,796

Right-of-use assets $ 3,200 $ 3,298

Current portion of lease liability 648 638

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Weighted average discount rate 9.4 % 9.4 %

The Company recorded operating lease costs of $ 148 thousand and $ 458 thousand for the three and nine months ended September 30, 2020 and $ 167 thousand and $ 449 thousand for the three and nine months ended September 30, 2019, respectively, and variable lease costs of $ 60 thousand and $ 88 thousand for the three and nine months ended September 30, 2020 and $ 9 thousand and $ 26 thousand for the three and nine months ended September 30, 2019.

The Company recorded operating lease costs of $ 218 thousand and $ 164 thousand for the three months ended March 31, 2021 and March 31, 2020, respectively, and variable lease costs of $ 37 thousand and $ 14 thousand for the three months ended March 31, 2021 and March 31, 2020, respectively.

Clinical Supply and Product Manufacturing Agreements

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Additionally, certain raw materials, supplies, outsourced testing and other services for the purposes of batch production will be invoiced separately by the CMOs.

The estimated remaining commitment as of September 30, 2020 under these agreements for the manufacturing of our drug product is approximately $ 4.8 million.

The Company is also responsible for the payment of a monthly service fee for project management services for the duration of any agreements.

The Company has incurred expenses under these agreements of $ 1.3 million and $ 2.3 million for the three months and nine months ended September 30, 2020, respectively, and $ 1.0 million and $ 3.0 million for the three and nine months ended September 30, 2019, respectively.

The estimated remaining commitment as of March 31, 2021 under these agreements for the manufacturing of our drug product is approximately $ 3.0 million.

The Company may also be responsible for the payment of a monthly service fee for project management services for the duration of any agreements.

The Company has incurred expenses under these agreements of $ 1.8 million and $ 634 thousand for the three months ended March 31, 2021 and March 31, 2020, respectively.

Other Contractual Obligations

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Business activities being performed under these contracts primarily include market research and other related activities.

The estimated remaining commitment as of September 30, 2020 is $ 1.2 million.

The Company has incurred expenses under these activities of $ 582 thousand and $ 1.1 million for the three and nine months ended September 30, 2020, respectively, and zero for the three and nine months ended September 30, 2019, respectively.

The estimated remaining commitment as of March 31, 2021 is $ 3.5 million.

The Company has incurred expenses under these activities of $ 1.3 million and zero for the three months ended March 31, 2021 and March 31, 2020, respectively.

ASTRA Contractual Obligations

The Company has contracted with various third parties to construct our second cGMP facility, ASTRA.

Additionally, we have entered into various non-cancellable purchase agreements for long-lead materials to help avoid potential schedule disruptions or material shortages.

These contracts typically call for the payment of fees for services or materials upon the achievement of certain milestones.

The estimated remaining commitment as of March 31, 2021 is $ 13.3 million.

The Company has included costs incurred to-date associated with ASTRA within construction in progress as of March 31, 2021.

Legal Proceedings

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We answered the complaint on June 26, 2020 by denying the allegations and brought a counterclaim asking the court to declare that we did not misappropriate PeriphaGen’s trade secrets or confidential information, and to further declare that we are the rightful and sole owner of our product candidates and STAR-D platform.

In addition, we filed a third-party complaint against two principals of PeriphaGen, James Wechuck and David Krisky, alleging breach of contract and seeking contribution and indemnification from them in the event PeriphaGen is awarded damages.

In addition, we filed a third-party complaint against two principals of PeriphaGen, James Wechuck and David Krisky, alleging breach of contract and seeking contribution and

indemnification from them in the event PeriphaGen is awarded damages.

On July 29, 2020, PeriphaGen filed its response to our answer and counterclaim, denying the allegations in the counterclaim.

On the same day, the Messrs.

Wechuck and Krisky filed a motion to dismiss the third-party complaint on various grounds, and we have opposed the motion.

Discovery in the case has commenced and is expected to continue into the first half of 2021.

On the same day, Messrs Wechuck and Krisky filed a motion to dismiss the third-party complaint on various grounds, and we have opposed the motion.

On December 1, 2020, the court ruled on Messrs.

Wechuck and Krisky's motion to dismiss our third-party complaint.

The court determined that our claims for contribution and indemnification based on PeriphaGen's state law claims for unfair competition and misappropriation of trade secrets can proceed.

Our breach of contract claim will also go forward in full.

Fact discovery is ongoing.

While we are unable to provide any assurances as to the ultimate outcome of the case, we believe the allegations in the complaint are without merit, and we intend to vigorously defend against them.

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Sale of Common Stock

On November 1, 2017, the Company entered into a stock purchase agreement (“the Agreement”), with the Epidermolysis Bullosa Medical Research Foundation, a California not-for-profit corporation (“EBMRF"), and EB Research Partnership, Inc., a New York not-for-profit corporation (“EBRP”), and together with EBMRF, the Purchasers, pursuant to which the Company sold to the Purchasers an aggregate of 70,000 shares of the Company’s common stock for a purchase price of $ 11.00 per share, or the Transaction.

The Agreement contains redemption features whereby the Company is required to repurchase all or a portion of the shares at a purchase price of $ 11.00 per share or the closing trading price of the common stock on the redemption request date, whichever is higher, should the Company cease commercially reasonable efforts to work on the research plan pursuant to the Agreement.

As the remaining redemption feature is within the control of the Company, the issued common stock has been classified as permanent equity.

The Company has continued to perform work relating to the research plan and does not intend to cease commercially reasonable efforts to do so.

On June 27, 2019, the Company completed a public offering of 2,500,000 shares of its common stock to the public at $ 40.00 per share.

Net proceeds to the Company from the offering were $ 93.8 million after deducting underwriting discounts and commissions of approximately $ 6.0 million, and other offering expenses payable by the Company of approximately $ 216 thousand.

On July 3, 2019, the underwriters exercised their option to purchase an additional 353,946 shares of common stock at $ 40.00 per share for additional net proceeds of $ 13.3 million after deducting underwriting discounts and commissions of approximately $ 849 thousand.

In connection with the public offering, the Company suspended its “at-the-market” equity offering program (“ATM Facility”), that had previously been put in place in March 2019 which had allowed the Company to sell shares of its common stock for up to $ 50.0 million in gross proceeds.

Following the completion of the offering, $ 16.8 million remains suspended under this program.

On May 21, 2020, the Company completed a public offering of 2,275,000 shares of its common stock to the public at $ 55.00 per share.

Net proceeds to the Company from the offering were $ 117.2 million after deducting underwriting discounts and commissions of approximately $ 7.5 million, and other offering expenses payable by the Company of approximately $ 463 thousand.

On December 31, 2020, the Company entered into a sales agreement (the "Sales Agreement") with Cowen and Company, LLC ("Cowen") with respect to an at-the-market equity offering program ("ATM Program"), under which Cowen will act as the Company's agent and/or principal and may issue and sell from time to time, during the term of the Sales Agreement, shares of its common stock, par value $ 0.0001 per share, having an aggregate offering price up to $ 150.0 million ("Placement Shares").

Related offering expenses payable by the Company were $ 172 thousand.

The issuance and sale of the Placement Shares by the Company under the Sales Agreement will be made pursuant to the Company's effective "shelf" registration statement on Form S-3.

During the three months ended March 31, 2021, 262,500 shares of common stock were issued pursuant to the ATM Program at a weighted average price of $ 66.50 per share for net proceeds of $ 16.9 million, resulting in a remaining $ 132.5 million available for issuance under the ATM Program.

On February 1, 2021, the Company completed a public offering of 2,211,538 shares of its common stock, including 288,461 shares purchased by the underwriters, at $ 65.00 per share.

Net proceeds to the Company from the offering were $ 134.9 million after deducting underwriting discounts and commissions of approximately $ 8.6 million, and other offering expenses payable by the Company of $ 198 thousand.

Stock-Based Compensation

Stock Options

Stock options granted to employees vest ratably over a four-year period and options granted to directors of the company vest ratably over one year and four-year periods.

Stock options have a life of ten years .

The Company granted 195,850 and 740,250 stock options to employees and directors of the Company during the three and nine months ended September 30, 2020, respectively, and 29,500 and 139,000 stock options to employees and directors of the Company during the three and nine months ended September 30, 2019, respectively.

The Company granted 502,450 and 229,000 stock options to employees and directors of the Company during the three months ended March 31, 2021 and 2020, respectively.

The following table summarizes the Company’s stock option activity:

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Cancelled or forfeited ( 15,525 ) $ 42.43

Outstanding at September 30, 2020 853,336 $ 39.93 9.1 $ 6,056

Exercisable at September 30, 2020 104,266 $ 11.54 7.2 $ 3,285

(1) Aggregate intrinsic value represents the difference between the closing stock price of our common stock on September 30, 2020 and the exercise price of outstanding in-the-money options.

The weighted-average grant-date fair value per share of options granted to employees during the three months ended September 30, 2020 was $ 27.44 .

There was $ 19.0 million of unrecognized stock-based compensation expense related to employees’ awards that is expected to be recognized over a weighted-average period of 3.1 years as of September 30, 2020.

The Company has recorded aggregate stock-based compensation expense related to the issuance of stock option awards and restricted stock awards in the condensed consolidated statements of operations for the three and nine months ended September 30, 2020 and 2019 as follows (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

(unaudited) (unaudited)

Outstanding at March 31, 2021 1,324,740 $ 54.60 9.2 $ 30,445

Exercisable at March 31, 2021 157,611 $ 21.83 7.3 $ 8,702

(1) Aggregate intrinsic value represents the difference between the closing stock price of our common stock on March 31, 2021 and the exercise price of outstanding in-the-money options.

The total intrinsic value (the amount by which the fair market value exceed the exercise price) of stock options exercised during the three months ended March 31, 2021 and 2020 was $ 808 thousand and $ 656 thousand, respectively.

The weighted-average grant-date fair value per share of options granted to employees during the three months ended March 31, 2021 and 2020 was $ 50.04 and $ 34.37 , respectively.

There was $ 41.2 million of unrecognized stock-based compensation expense related to employees’ option awards that is expected to be recognized over a weighted-average period of 3.5 years as of March 31, 2021.

The Company has recorded aggregate stock-based compensation expense related to the issuance of stock option awards in the condensed consolidated statements of operations for the three months ended March 31, 2021 and 2020 as follows (in thousands):

Three Months Ended March 31,

Research and development $ 516 $ 189

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Total stock-based compensation $ 2,131 $ 539

Stock Options Granted:

The Company recorded stock-based compensation expense of $ 1.4 million and $ 2.7 million for the three and nine months ended September 30, 2020, respectively and $ 278 thousand and $ 734 thousand for the three and nine months ended September 30, 2019, respectively.

The fair value of options was estimated at the date of grant using the Black-Scholes valuation model with the following weighted-average assumptions for the three and nine months ended September 30, 2020 and 2019:

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

We capitalize the portion of stock-based compensation that relates to work performed on the construction of new buildings.

There was $ 37 thousand and zero of stock-based compensation that was capitalized in the three months ended March 31, 2021 and 2020, respectively.

The Company recorded stock-based compensation expense of $ 2.1 million and $ 539 thousand for the three months ended March 31, 2021 and 2020, respectively.

The fair value of options was estimated at the date of grant using the Black-Scholes valuation model with the following weighted-average assumptions for the three months ended March 31, 2021 and 2020:

Three Months Ended March 31,

Expected stock price volatility 73 % 74 %

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Restricted Stock Awards

The Company granted 26,213 and 16,213 restricted stock awards (“RSAs”), on June 1, 2018 to our Chief Executive Officer and Chief Operating Officer, respectively.

The RSAs vested ratably over a one-year period and had completely vested as of May 31, 2019.

No RSAs were outstanding as of September 30, 2020.

Restricted stock awards ("RSAs") granted to employees vest ratably over one year and four-year periods.

Restricted stock awards have a life of ten years .

The Company granted 98,800 and zero RSAs to employees of the Company during the three months ended March 31, 2021 and 2020, respectively.

The following table summarizes the Company’s RSA activity:

Number of Shares Weighted Average

Non-vested RSAs as of December 31, 2020 — $ —

Granted 98,800 $ 78.89

Forfeited — $ —

Non-vested RSAs as of March 31, 2021 98,800 $ 78.89

As of March 31, 2021, 98,800 RSAs were outstanding.

The fair value of each restricted stock was $ 78.89 reflecting the closing price of our common stock on the grant date.

The Company recorded stock-based compensation expense related to RSAs of zero for the three and nine months ended September 30, 2020 and zero and $ 182 thousand for the three and nine months ended September 30, 2019, respectively, within general and administrative expenses in the accompanying condensed consolidated statements of operations.

Shares remaining available for grant under the Company’s stock incentive plan were 1,698,412 , with a sublimit for incentive stock options of 537,068 , at September 30, 2020.

The Company recorded stock-based compensation expense related to RSAs of $ 182 thousand and zero for the three months ended March 31, 2021 and 2020, respectively, within general and administrative expenses in the accompanying condensed consolidated statements of operations (in thousands):

Three Months Ended March 31,

General and administrative $ 182 $ —

Total stock-based compensation $ 182 $ —

Shares remaining available for grant under the Company’s stock incentive plan were 1,893,631 , with a sublimit for incentive stock options of 402,692 , at March 31, 2021.

Related Party Transactions

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Subsequent Events

On October 15, 2020, the Company gave the Landlord notice of its intent to purchase ASTRA for approximately $ 9.5 million, subject to the parties entering into a commercially reasonable purchase and sale agreement.

The Company currently holds approximately $ 1.5 million on deposit with the Landlord under the existing lease agreement and intends to apply this deposit as a credit against the purchase price at closing.

We also expect that the $ 2.4 million currently recorded as prepaid rent on the balance sheet would be reclassified to property, plant and equipment as part of the book value of the building.

As a result of the purchase, the Company will also take assignment of the Lessor's Ground Lease, in accordance with the Purchase Option, of which lease payments are based on annual payments of $ 82 thousand, and subject to a cumulative 10 % escalation clause every 5 years through 2071.

The financial statement impact related to the transaction cannot be reasonably estimated as of the date of filing due to the uncertainty of market rates and the timing of the close of purchase.

The Company evaluates events or transactions that occur after the balance sheet date, but prior to the issuance of the financial statements, to identify matters that require disclosure.

The Company concluded that no subsequent events have occurred that would require recognition or disclosure in the condensed consolidated financial statements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements