What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-02-28 compared with 2021-03-01 · 185 added, 180 removed, 439 unchanged (45% of the section changed)

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INDEX TO FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID No.

Consolidated Balance Sheets as of December 31, 202 1 and December 31, 20 20

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We have audited the accompanying consolidated balance sheets of Krystal Biotech, Inc.

(“Company”) as of December 31, 2020 and 2019, and the related consolidated statements of operations and comprehensive loss, stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

(the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations and comprehensive loss, stockholders’ equity and cash flows for each of the years in the two-year period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in the 2013 Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated February 28, 2022 expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

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Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

We determined that there were no critical audit matters.

/s/ Mayer Hoffman McCann P.C.

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San Diego, California

March 1, 2021

February 28, 2022

Krystal Biotech, Inc.

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Short-term investments 96,850 2,993

Prepaid and other current assets 3,796 2,195

Prepaid expenses and other current assets 4,171 3,796

Total current assets 442,267 275,058

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Loss from operations ( 68,275 ) ( 32,999 )

Other Income (Expense)

Interest and other income, net 197 832

Interest expense ( 1,492 ) —

Net loss ( 69,570 ) ( 32,167 )

Unrealized gain (loss) on available-for-sale securities ( 4 ) 8

Unrealized loss on available-for-sale securities and other ( 169 ) ( 4 )

Comprehensive loss $ ( 69,739 ) $ ( 32,171 )

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Stock-based compensation expense — — 3,306 — — 3,306

Unrealized gain on investments — — — 8 — 8

Unrealized loss on investments and other — — — ( 4 ) — ( 4 )

Net loss — — — — ( 32,167 ) ( 32,167 )

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Stock-based compensation expense — — 15,603 — — 15,603

Unrealized loss on investments — — — ( 4 ) — ( 4 )

Unrealized loss on investments and other — — — ( 169 ) — ( 169 )

Net loss — — — — ( 69,570 ) ( 69,570 )

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Loss on disposal of fixed assets — 33

Non-cash interest expense 1,492 —

Changes in operating assets and liabilities

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Purchases of property and equipment ( 68,336 ) ( 14,843 )

Purchases of short-term investments ( 3,205 ) ( 8,596 )

Proceeds from maturities of short-term investments 6,867 10,501

Purchases of long-term investments — ( 497 )

Purchases of investments ( 190,462 ) ( 3,205 )

Proceeds from maturities of investments 32,028 6,867

Net cash used in investing activities ( 226,770 ) ( 11,181 )

Financing Activities

Issuance of common stock, net 118,019 107,525

Proceeds from issuance of common stock, net 355,645 118,019

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

Net cash provided by financing activities 347,685 118,019

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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 and clinical studies for aesthetic skin conditions.

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

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.

On April 24, 2019, the Company incorporated Jeune Aesthetics, Inc, formerly known as Jeune, Inc., 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 delivery.

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 cGMP manufacturing capabilities.

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 current good manufacturing practices ("cGMP") manufacturing capabilities.

As of December 31, 2021, the Company had an accumulated deficit of $ 140.8 million.

With the net proceeds raised from its public and private securities offerings, including the public offering completed on May 21, 2020, the Company believes that its cash, cash equivalents and short-term investments of approximately $ 271.3 million as of December 31, 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 Annual Report on Form 10-K.

With the net proceeds raised from its public, including the public offerings of its common stock completed in February and December of 2021, the Company believes that its cash, cash equivalents and short-term investments of approximately $ 438.1 million as of December 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 Annual Report on Form 10-K.

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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All intercompany balances and transactions have been eliminated in consolidation.

Certain prior period amounts have been reclassed to conform to the current period presentation.

The reclassified amounts have no impact to the Company's previously reported financial position or results of operation.

Certain prior period amounts have been reclassified to conform to the current period presentation.

The reclassified amounts have no impact on the Company’s previously reported financial position or results of operation.

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.

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

The Company will continue to evaluate the impact that these events could have on the operations, financial position, and the results of operations and cash flows during fiscal year 2021.

Use of Estimates

Krystal Biotech, Inc.

Notes to Consolidated Financial Statements — Continued

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.

To date the impact of the pandemic on our business and clinical trials in the U.S.

has been minimal and the increased vaccination rates in the U.S.

are encouraging.

Outside of the U.S., the Company has experienced pandemic-related delays in clinical trial initiation in Australia.

The Company will continue to evaluate the impact that these events could have on the operations, including our supply chain and preclinical and clinical trial activities, financial position, and the results of operations and cash flows during fiscal year 2022.

Use of Estimates

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

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Financial instruments that potentially subject the Company to credit risk consist of cash, cash equivalents and investments.

The Company’s policy is to invest its cash, cash equivalents and investments in money market funds, certificates of deposit, U.S.

Treasury bills, and various other bank deposit accounts.

The Company’s policy is to invest its cash, cash equivalents and investments in money market funds, certificates of deposit, corporate bonds, commercial paper, government agency securities and various other bank deposit accounts.

The counterparties to the agreements relating to the Company’s investments consist of financial institutions of high credit standing.

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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 U.S.

Treasury bills and 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 U.S.

Treasury bills and certificates of deposit are also classified as short-term investments.

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, commercial paper, corporate bonds, and government agency securities.

Investments with maturities of greater than one year are classified as long-term investments on the consolidated balance sheets and consist of corporate bonds and government agency securities.

Accrued interest on investments is 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.

Available-for-sale securities are carried at fair value, with unrealized gains and losses reported in accumulated other comprehensive loss, which is a separate component of stockholders’ equity in the consolidated balance sheets.

Any premium arising at purchase is amortized to the earliest call date and any discount arising at purchase is accreted to maturity.

Amortization and accretion of premiums and discounts are recorded in interest and other income, net in the consolidated statement of operations.

Krystal Biotech, Inc.

Notes to Consolidated Financial Statements — Continued

Fair Value of Financial Instruments

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• Level 3 —Valuations based on inputs that are both significant to the fair value measurement and unobservable.

Krystal Biotech, Inc.

Notes to Consolidated Financial Statements — Continued

To the extent that a valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment.

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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 U.S.

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, commercial paper, corporate bonds, and government agency securities 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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Computer equipment and software 3 - 5 years

Lab equipment 3 - 7 years

Laboratory and manufacturing equipment 3 - 7 years

Furniture and fixtures 3 - 7 years

Leasehold improvement shorter of 8 years or remaining life of lease

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

Leasehold improvement lesser of remaining useful life or remaining life of lease

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

Impairment of Long-Lived Assets

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The Company has no t recognized any impairment losses for the years ended December 31, 2021 and 2020.

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

On January 1, 2019, we adopted FASB ASC Topic 842, Leases ("ASC 842").

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 consolidated balance sheet.

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.

Krystal Biotech, Inc.

Notes to Consolidated Financial Statements — Continued

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

Right-of-use lease assets represent our right to use an 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 are 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 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.

The incremental borrowing rate is the rate of interest that the Company would expect to borrow on a collateralized and fully amortizing basis over a similar term an amount equal to the lease payments in a similar economic environment.

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 leasing 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

Krystal Biotech, Inc.

Notes to Consolidated Financial Statements — Continued

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 the 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 ("CIP") and corresponding financial obligation on the consolidated balance sheet.

Once the construction is complete, an assessment will be 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 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.

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 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 lease as either an operating or finance lease based on our assessment of the guidance.

Research and Development Expenses

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Stock-Based Compensation Expense

The Company accounts for its stock-based compensation awards in accordance with FASB ASC Topic 718, Compensation-Stock Compensation (“ASC 718”).

The Company applies the fair value recognition provisions of Financial Accounting Standards Board Accounting Standards Codification, or ASC, Topic 718, Compensation—Stock Compensation ("ASC 718"), to account for stock-based compensation.

Compensation costs related to stock options granted is based on the estimated fair value of the awards on the date of grant.

ASC 718 requires all stock-based payments, including grants of stock options and restricted stock, to be recognized in the statements of operations based on their grant-date fair values.

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and (iv) expected dividends.

Due to the lack of sufficient history and trading volume of our common stock and a lack of Company-specific historical and implied volatility data, the Company has based its estimate of expected volatility on the historical volatility of a group of similar companies that are publicly traded.

When selecting these public companies on which it has based its expected stock price volatility, the Company selected companies with comparable characteristics to it, including enterprise value, risk profiles, position within the industry, and with historical share price information sufficient to meet the expected term of the stock-based awards.

The Company computes historical volatility data using the daily closing prices for the selected companies’ shares during the equivalent period of the calculated expected term of the stock-based awards.

The Company will continue to apply this process until a sufficient amount of historical information regarding the volatility of its own stock price becomes available.

Due to the lack of Company-specific historical option activity, the Company has estimated the expected term of its employee stock options using the “simplified” method, whereby the expected term equals the arithmetic mean of the vesting term and the original contractual term of the option.

The risk-free interest rates are based on U.S.

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

Once the Company's own sufficient historical volatility data was obtained, the Company eliminated the use of a representative peer group and uses only its own historical volatility data in its estimate of expected volatility given that there is now a sufficient amount of historical information regarding the volatility of its own stock price.

The Company estimates the expected term of its stock options using the “simplified” method, whereby the expected term equals the arithmetic mean of the vesting term and the original contractual term of the option.

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

Krystal Biotech, Inc.

Notes to Consolidated Financial Statements — Continued

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.

Income taxes are recorded in accordance with FASB ASC Topic 740, Income Taxes (“ASC 740”), which provides for deferred taxes using an asset and liability approach.

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.

For the year ended December 31, 2021 and 2020, income taxes were recorded in accordance with FASB ASC Topic 740, Income Taxes (“ASC 740”), which provides for deferred taxes using an asset and liability approach.

Under this method, we record deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities using enacted tax rates expected to be in effect when the differences are expected to reverse.

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Based on the available evidence, we are unable, at this time, to support the determination that it is more likely than not that our deferred tax assets will be utilized in the future.

Accordingly, we recorded a full valuation allowance as of December 31, 2020.

Accordingly, we recorded a full valuation allowance as of December 31, 2021 and 2020.

We intend to maintain a valuation allowance until sufficient evidence exists to support its reversal.

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The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances.

As of December 31, 2020, the Company did not have any significant uncertain tax positions.

As of December 31, 2021 and 2020, the Company did not have any significant uncertain tax positions.

The Company may recognize interest and penalties related to uncertain tax positions in income tax expense.

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Recent Accounting Pronouncements

2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement

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 the Company 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 December 31, 2020 and 2019.

2020-08, Codification Improvements to Subtopic 310-20, Receivables - Nonrefundable Fees and Other Costs

In October 2020, the FASB issued ASU 2020-08, Codification Improvements to Subtopic 310-20, Receivables - Nonrefundable Fees and Other Costs ("ASU 2020-08") to provide further clarification and update the previously issued guidance in ASU 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20:

Premium Amortization on Purchased Callable Debt Securities) ("ASU 2017-08").

ASU 2017-08 shortened the amortization period for certain callable debt securities purchased at a premium by requiring that the premium be amortized to the earliest call date.

ASU 2020-08 requires that at each reporting period, to the extent that the amortized cost of an individual callable debt security exceeds the amount repayable by the issuer at the next call date, the excess premium shall be amortized to the next call date.

The new standard was effective beginning January 1, 2021 and should be applied on a prospective basis as of the beginning of the period of adoption for existing or newly purchased callable debt securities.

The adoption of ASU 2020-08 did not have a material impact on the Company's financial position or results of operations upon adoption.

Net Loss Per Share Attributable to Common Stockholders

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Stock options are common share equivalents.

There were 853,614 and 420,766 common share equivalents outstanding as of December 31, 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.

There were 2,043,179 and 853,614 common share equivalents outstanding in the form of stock options and 98,800 and zero common share equivalents outstanding in the form of restricted stock awards as of December 31, 2021 and 2020, respectively, 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.

(In thousands, except share and per share data) Year Ended December 31,

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Basic and diluted net loss per common share $ ( 3.13 ) $ ( 1.71 )

In January and February 2021, 2,474,038 additional shares were issued of our common stock in offerings subsequent to the balance sheet date.

Including these shares will have a material effect on the diluted net loss per common share in future periods.

Refer to Note 11 for discussion over these transactions.

Krystal Biotech, Inc.

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Securities (2)

Cash $ 9,463 — — $ 9,463 $ 9,463 — —

Money market instruments 258,806 — — 258,806 258,806 — —

Cash and cash equivalents $ 341,246 $ — $ — $ 341,246 $ 341,246 $ — $ —

Subtotal 341,246 — — 341,246 341,246 — —

treasury bills — — — — — — —

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

Commercial paper 40,469 1 ( 4 ) 40,466 — 40,466 —

Corporate bonds 83,300 10 ( 114 ) 83,196 — 35,768 47,428

U.S government agency securities 37,621 — ( 62 ) 37,559 — 20,616 16,943

Subtotal 161,390 11 ( 180 ) 161,221 — 96,850 64,371

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Securities (2)

Cash $ 3 — — $ 3 $ 3 — —

Money market instruments 187,511 — — 187,511 187,511 — —

Cash and cash equivalents $ 268,269 $ — $ — $ 268,269 $ 268,269 $ — $ —

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

treasury bills 1,747 6 — 1,753 — 1,753 —

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

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Computer equipment and software 85 82

Laboratory equipment 4,630 3,571

Laboratory and manufacturing equipment 5,530 4,630

Total property and equipment 116,569 33,244

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Property and equipment, net $ 112,355 $ 30,876

Depreciation expense was $ 1.5 million and $ 748 thousand for the years ended December 31, 2020 and 2019, respectively.

Depreciation expense was $ 1.8 million and $ 1.5 million for the years ended December 31, 2021 and 2020, respectively.

Refer to Note 6 for further discussion over construction-in-progress.

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Accrued construction in progress 9,606 1,049

Other current liabilities 26 12

Accrued financing fees 26 131

Other current liabilities 87 26

Total $ 16,297 $ 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 29,000 square feet and to extend the expiration date to February 28, 2027 , including 3,800 square feet relating to a month-to-month lease that we utilized through February 2020.

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").

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 delivered by Landlord as substantially complete and available for access, which is anticipated to be in 1H 2021, 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 ten 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 44,000 square feet and includes the commercial scale cGMP-compliant manufacturing facility, ANCORIS.

As a result of the lease amendments, the lease expiration date was extended to October 31, 2031.

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.

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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.

The purchase is anticipated to close in 1H 2021 after substantial completion has been reached and the lease commences.

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 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.

Upon completion of the construction, the Company does not expect to qualify for sale-leaseback accounting due to the outstanding purchase option.

Under the existing lease agreement, the Company previously provided a $ 1.5 million deposit to the Landlord and intends to apply this deposit as a credit against the purchase price at closing.

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.

Once the purchase is finalized, the Company will 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 are subject to a cumulative 10 % escalation clause every 5 years through 2071.

Refer to Note 11 for additional information.

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.

The building continues to be held under construction in progress as of December 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.

For more information about the expected construction costs associated with ASTRA, see "ASTRA Contractual Obligations" below.

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

Krystal Biotech, Inc.

Notes to Consolidated Financial Statements — Continued

Operating Leases

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Future minimum operating lease payments $ 17,291

Operating lease payments for ASTRA 13,196

Interest 9,267

Present value of lease liability $ 8,024

On December 15, 2021, the Company entered into a 3 year lease agreement for our Boston, Massachusetts office (the "Boston Lease") location that commences in January 2022 and expires in January 2025.

As of December 31, 2021, the Company has not recorded a right-of-use asset or corresponding lease liability as the Company has not yet gained control over the Boston Lease.

Future minimum operating lease payments under this lease are $ 280 thousand, $ 311 thousand, $ 316 thousand, and $ 26 thousand for the years ending 2022, 2023, 2024, and 2025, respectively.

Supplemental balance sheet information related to leases is as follows:

Krystal Biotech, Inc.

Notes to Consolidated Financial Statements — Continued

December 31, 2021 December 31, 2020

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Weighted average discount rate 9.5 % 9.4 %

The Company recorded operating lease costs of $ 756 thousand and $ 630 thousand for the years ended December 31, 2020 and 2019, respectively, and variable lease costs of $ 68 thousand and $ 39 thousand for the years ended December 31, 2020 and 2019, respectively.

Clinical Supply and Product Manufacturing Agreements

The Company has entered into various product manufacturing and clinical supply agreements with Contract Manufacturing Organizations (“CMOs”) for the manufacture of clinical trial materials and Contract Research Organizations ("CROs") for clinical trial services.

The product manufacturing and clinical supply agreements provide the terms and conditions under which the CMOs and CROs will formulate, fill, inspect, package, label and test our drug product candidates, B-VEC and KB105 for clinical supply.

The Company is obligated to make milestone payments.

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 December 31, 2020 under these agreements for the manufacturing of our drug product is approximately $ 3.6 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 recorded operating lease costs of $ 1.3 million and $ 767 thousand for the years ended December 31, 2021 and 2020, respectively, and variable lease costs of $ 160 thousand and $ 57 thousand for the years ended December 31, 2021 and 2020, respectively.

Agreements with Contract Manufacturing Organizations and Contract Research Organizations

The Company enters into various agreements in the normal course of business with Contract Research Organizations ("CROs"), Contract Manufacturing Organizations ("CMOs") and other third parties for preclinical research studies, clinical trials and testing and manufacturing services.

The agreements with CMOs relate to the manufacturing of sterile gel that is mixed with in-house produced vectors as part of the final drug product applied in certain of our clinical trials.

These agreements may also include research and development activities, storage, packaging, labeling, and/or testing of our preclinical and clinical-stage products.

The Company is obligated to make milestone payments under certain of these agreements.

The estimated remaining commitment as of December 31, 2021 under these agreements is approximately $ 3.0 million.

The Company has incurred expenses under these agreements of $ 5.0 million and $ 4.6 million for the years ended December 31, 2021 and 2020, respectively.

Other Contractual Obligations

The Company has contracted with various third parties to facilitate, coordinate and perform agreed upon market research activities relating to our lead product candidate, B-VEC.

Commercial Preparedness Activities

The Company has contracted with various third parties to facilitate, coordinate and perform agreed upon commercial preparedness and market research activities relating to our lead product candidate, Vyjuvek.

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

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

The estimated remaining commitment as of

Krystal Biotech, Inc.

Notes to Consolidated Financial Statements — Continued

December 31, 2021 is $ 2.4 million.

The Company has incurred expenses under these activities of $ 6.1 million and $ 1.9 million for the years ended December 31, 2021 and 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 December 31, 2021 is $ 24.7 million.

The Company has incurred expenses under these activities of $ 1.9 million and zero for the years ended December 31, 2020 and 2019, respectively.

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

On June 30, 2021, the Company entered into a Standard Form of Contract for Construction and the corresponding General Conditions of the Contract for Construction (collectively, the “Agreement”) with Whiting-Turner, pursuant to which Whiting-Turner is constructing and managing the construction of ASTRA.

Subject to certain conditions in the Agreement, the Company will pay Whiting-Turner a contract price consisting of the cost of work plus a fee equal to 1.75 % of the cost of work, subject to a guaranteed maximum price to be agreed upon in an amendment to the Agreement at a later date.

Effective September 13, 2021, the Company entered into a guaranteed maximum price amendment (the "Amendment") to the Agreement to set forth the guaranteed maximum price, as well as the date by which Whiting-Turner is to achieve Substantial Completion (as defined in the Agreement).

Under the Amendment, the guaranteed maximum price to be paid by the Company is $ 80.8 million, subject to certain additions and deductions by change orders as provided by the Agreement.

Whiting-Turner’s work under the Agreement represents a portion of the work necessary to complete construction of the ASTRA facility and, therefore the date of Substantial Completion of Whiting-Turner’s work under the Agreement does not equate to the date of completion of ASTRA.

The guaranteed maximum price under the Agreement constitutes only a portion of the total estimated cost of building and equipping ASTRA.

Legal Proceedings

On May 1, 2020, a complaint was filed against us in the United States District Court for the Western District of Pennsylvania by PeriphaGen Inc., which also named our Chief Executive Officer and Chief Operating Officer, Krish Krishnan and Suma Krishnan, respectively.

On May 1, 2020, a complaint was filed against us in the United States District Court for the Western District of Pennsylvania by PeriphaGen, Inc.

("PeriphaGen"), which also named our Chief Executive Officer and Chief Operating Officer, Krish Krishnan and Suma Krishnan, respectively.

The complaint alleges breach of contract and misappropriation of trade secrets, which secrets the plaintiff asserts were used to develop our product candidates, including the vector backbones, and our STAR-D platform.

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

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 the same day, Messrs.

Wechuck and Krisky filed a motion to dismiss the third-party complaint on various grounds, and we 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 allowed that our claims on contribution and indemnification based on PeriphaGen's state law claims for unfair competition and misappropriation of trade secrets to go forward.

Wechuck and Krisky's motion to dismiss.

The court determined 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.

PeriphaGen is seeking monetary damages, injunctive relief, attorneys' fees and costs.

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.

We are currently unable to estimate the costs and timing of any litigation, including any potential damages if PeriphaGen were to prevail on its claims.

Krystal Biotech, Inc.

Notes to Consolidated Financial Statements — Continued

The Company has received insurance proceeds during fiscal year 2021 relating to legal defense costs and expenses associated with the PeriphaGen litigation.

During the year ended December 31, 2021, the Company has received $ 1.6 million of insurance proceeds and we have recorded an additional $ 560 thousand as a receivable within Prepaid Expenses and Other Current Assets on the Consolidated Balance Sheet as management determined that the amount was probable of collection.

Of the amount recorded as a receivable, $ 403 thousand was received in January 2022 and $ 157 thousand is estimated to be received in the second quarter.

The reimbursements have been recorded as an offset to our legal fees included in General and Administrative expenses on the Consolidated Statements of Operations and within Operating Activities on the Condensed Consolidated Statements of Cash Flows.

Capitalization

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 issued and sold to the Purchasers an aggregate of 70,000 shares of the Company’s common stock, par value $ 0.00001 per share, for a purchase price of $ 11.00 per share, resulting in aggregate gross proceeds to the Company of $ 770 thousand (the “Transaction”).

The proceeds are to be used exclusively to complete the research plan pursuant to the Agreement.

There are redemption features whereby the Company shall 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 not commence work on or before September 1, 2018 or cease commercially reasonable efforts.

The Company did commence work prior to September 1, 2018.

As the Company does not intend to cease commercially reasonable efforts, the remaining redemption feature is within the control of the Company and consequently the issued common stock is classified as permanent equity.

The offer, sale and issuance of the shares of the Company under the Agreement are exempt from registration pursuant to Rule 506 of Regulation D and Section 4(a)(2) of the Securities Act of 1933, as amended.

The Transaction closed on November 2, 2017 .

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 $ 220 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.

This program 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.

As of December 31, 2020 this program has been permanently suspended.

Krystal Biotech, Inc.

Notes to Consolidated Financial Statements — Continued

On December 3, 2021, the Company completed a public offering of 2,866,667 shares of its common stock, including 200,000 shares purchased by the underwriters, at $ 75.00 per share.

Net proceeds to the Company from the offering were $ 201.9 million after deducting underwriting discounts and commissions of approximately $ 12.9 million, and other offering expenses payable by the Company of $ 227 thousand.

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.

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 our common stock, 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 year ended December 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 after deducting underwriting discounts and commissions of approximately $ 524 thousand, resulting in a remaining $ 132.5 million available for issuance under the ATM 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").

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 year ended December 31, 2020, zero shares of common stock were issued pursuant to the Sales Agreement.

Refer to Note 11 for more information.

Krystal Biotech, Inc.

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Stock-Based Compensation

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

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

Stock options have a life of ten years .

The Company granted 1,422,450 and 891,250 stock options to employees, non-employees, and directors during the year ended December 31, 2021 and 2020, respectively.

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

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Cancelled or forfeited ( 175,750 ) 61.35

Expired ( 2,875 ) 75.82

Balance at December 31, 2021 2,043,179 $ 57.00 9.0 $ 31,331

Exercisable at December 31, 2021 307,250 $ 33.00 7.5 $ 11,354

(1) Aggregate intrinsic value represents the difference between the closing stock price of our common stock on December 31, 2020 and 2019 and the exercise price of outstanding in-the-money options.

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

The total intrinsic value (the amount by which the fair market value exceeded the exercise price) of stock options exercised during the year ended December 31, 2021 and 2020 was $ 1.3 million and $ 3.1 million, respectively.

The weighted-average grant-date fair value per share of options granted during the years ended December 31, 2020 and 2019 was $ 30.99 and $ 21.72 , respectively.

There was $ 18.7 million of unrecognized stock-based compensation expense related to employees’ awards that is expected to be recognized over a weighted-average period of 3.3 years as of December 31, 2020.

The Company has recorded aggregate stock-based compensation expense related to the issuance of stock option awards and restricted stock awards to employees and non-employees in the consolidated statements of operations for the years ended December 31, 2020 and 2019 as follows (in thousands):

The weighted-average grant-date fair value per share of options granted to employees, non-employees, and directors during the years ended December 31, 2021 and 2020 was $ 43.05 and $ 30.99 , respectively.

There was $ 59.1 million of unrecognized stock-based compensation expense related to employees’, non-employees’, and directors’ awards that is expected to be recognized over a weighted-average period of 3.2 years as of December 31, 2021.

The Company has recorded aggregate stock-based compensation expense related to the issuance of stock option awards in the Consolidated Statements of Operations for the years ended December 31, 2021 and 2020 as follows (in thousands):

Year Ended December 31,

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

There was $ 34 thousand and zero of stock-based compensation that was capitalized in the years ended December 31, 2020 and 2019, respectively.

Stock Options Granted.

There was $ 284 thousand and $ 34 thousand of stock-based compensation that was capitalized in the years ended December 31, 2021 and 2020, respectively.

The Company recorded stock-based compensation expense of $ 13.7 million and $ 3.3 million for the years ended December 31, 2021 and 2020, respectively.

The fair value of options granted to employees was estimated at the date of grant using the Black-Scholes valuation model with the following weighted-average assumptions for the years ended December 31, 2020 and 2019:

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

Krystal Biotech, Inc.

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Risk-free interest rate 1.10 % 0.64 %

Exercise price $ 47.29 $ 33.04

Weighted average exercise price $ 66.88 $ 47.29

Forfeiture Rate — % 14.74 %

Expected dividend yield — % — %

Restricted Stock Awards

The Company granted 26,213 and 16,213 restricted stock awards (“RSA”s) 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 December 31, 2020.

The fair value of each restricted stock award was $ 10.30 reflecting the closing price of our common stock on the grant date.

The Company recorded stock-based compensation expense related to RSAs of zero and $ 182 thousand for the year ended December 31, 2020 and 2019, respectively, within general and administrative expenses in the accompanying consolidated statements of operations.

Restricted stock awards ("RSAs") granted to employees vest ratably over a four-year period.

The Company granted 98,800 and zero RSAs to employees of the Company during the year ended December 31, 2021and 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 December 31, 2021 98,800 $ 78.89

There was $ 6.1 million of unrecognized stock-based compensation expense related to employees’ awards that is expected to be recognized over a weighted-average period of 3.2 years as of December 31, 2021.

The Company recorded stock-based compensation expense related to RSAs of $ 1.7 million and zero for the year ended December 31, 2021 and 2020, respectively, within General and Administrative expenses in the accompanying Consolidated Statements of Operations (in thousands):

Year Ended December 31,

General and administrative $ 1,650

Total stock-based compensation $ 1,650

Shares remaining available for grant under the Company's stock incentive plan were 1,135,606 , with a sublimit for incentive stock options of 315,383 , at December 31, 2021.

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Notes to Consolidated Financial Statements — Continued

For the years ended December 31, 2020 and 2019, we did no t record a current or deferred income tax expense or benefit due to our valuation allowance position.

We did no t record a current or deferred income tax expense or benefit for the years ended December 31, 2021 and 2020 due to the Valuation Allowance position.

A reconciliation of income tax expense (benefit) computed at the statutory federal and state income tax rate for the year to income tax expense (benefit) as reflected in our financial statements for years ended December 31, 2021 and 2020 are as follows (in thousands):

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Accrued expenses 817 46

Capitalized costs 884 —

Credits 3,607 2,311

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Deferred tax liabilities:

Depreciation — ( 3 )

ASTRA capitalized construction costs — ( 2,893 )

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Accordingly, the Company has provided a full valuation allowance for deferred tax assets as of December 31, 2021.

As of December 31, 2020 and 2019, the Company had federal research and development credit carryforwards of approximately $ 1.4 million and $ 751 thousand, respectively.

As of December 31, 2021 and 2020, the Company had federal research and development credit carryforwards of approximately $ 2.4 million and $ 1.4 million, respectively.

The federal tax credit carryforwards will begin to expire in 2039 if not utilized.

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Of this amount, $ 5.0 million is available to offset future income tax liabilities and will expire in 2037, the remaining $ 109.0 million is available indefinitely to offset future income tax liabilities with no expiration period.

As of December 31, 2021, the Company had cumulative U.S.

state NOL carryforwards of approximately $ 117.1 million.

The state NOLs are available to offset future state income tax liabilities and will begin to expire in 2037.

Under the provisions of the Internal Revenue Code, the NOL carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities.

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Subsequent Events

Subsequent to December 31, 2020, 262,500 shares of common stock were issued pursuant to the ATM Program for net proceeds of $ 16.9 million, resulting in a remaining $ 132.5 million available for issuance under the ATM Program.

Refer to Note 7.

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

The Agreement contains certain customary representations, warranties and covenants of the parties, and the acquisition of the Property is expected to close in March 2021, subject to the satisfaction of certain customary closing conditions.

There can be no assurances that the acquisition will be completed on the expected timeline, on the expected terms or at all.

As part of this transaction, the Company will take assignment of the Ground Lease as discussed in Note 6.

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 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, the transaction will continue to be accounted for as construction in progress and a financing obligation.

Upon close of the purchase, the Company shall reclassify the construction in progress to buildings and leasehold improvements based on the applicable fair value allocation.

From construction completion to the closing of the purchase, the Company will recognize interest expense to accrete the financial obligation to a balance that equals the cash consideration that will be paid upon the close of purchase.

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 $ 135.0 million after deducting underwriting discounts and commissions of approximately $ 8.6 million, and other estimated offering expenses payable by the Company of approximately $ 193 thousand.

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.

On January 7, 2022, the Company incorporated Krystal Biotech Switzerland GmbH, for the purpose of establishing initial operations in Europe for the development and commercialization of Krystal's pipeline.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

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-K

Item 8. Financial Statements and Supplementary Data