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Item 2. Management’s Discussion and Analysis

2022-05-09 compared with 2021-11-08 · 77 added, 103 removed, 145 unchanged (55% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read together with the unaudited condensed consolidated financial statements and related notes included in Item 1 of Part I of this Quarterly Report on Form 10-Q and with the audited financial statements and the related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, as filed with the SEC, on March 1, 2021.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

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Some of such factors include, but are not limited to:

• changes in expectations with respect to the initiation, timing, progress and results of preclinical and clinical trials for B-VEC, KB105, KB104, KB407, KB408, KB301, KB303 and any other product candidates, including the timing of initiation and completion of studies or trials and related preparatory work, the period during which the results of the trials will become available and our research and development programs and expenses;

• the initiation, timing, cost, progress and results, of our research and development activities, preclinical studies and clinical trials for B-VEC (previously “KB103” and now known as Vyjuvek TM ), KB105, KB104, KB407, KB408, KB301, KB303, and any other product candidates;

• the continuing impact that the COVID-19 pandemic and measures implemented to prevent its spread may have on our business operations, access to capital, research and development activities, and preclinical and clinical trials for our product candidates;

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• our ability to identify, recruit and retain key personnel;

• risks related to our commercialization, marketing and manufacturing capabilities and strategy;

• our ability of our business model, strategic plans for our business, product candidates and technology;

• the scalability and commercial viability of our proprietary manufacturing methods and processes;

• risks related to our marketing and manufacturing capabilities and strategy;

• our business model, strategic plans for our business, product candidates and technology;

• the cost of building a medical affairs and commercial organization including a sales force in anticipation of commercialization of B-VEC and any additional product candidates;

• the rate and degree of market acceptance and clinical utility of our product candidates and gene therapy, in general;

• our competitive position;

• our competitive position and the success of competing therapies;

• our intellectual property position and our ability to protect and enforce our intellectual property;

• our financial performance;

• developments and projections relating to our competitors and our industry;

• our ability to establish and maintain collaborations or obtain additional funding;

• our estimates regarding expenses, future revenue, capital requirements and needs for or ability to obtain additional financing;

• risks related to our ongoing litigation;

• our ability to successfully resolve any intellectual property or other claims that have been brought against us to date and may be brought against us in the future;

• our ability to successfully avoid or resolve any litigation, intellectual property or other claims, that may be brought against us;

• global economic conditions;

• the impact of changes in laws and regulations.

Forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in “Risk Factors” elsewhere in this Form 10-Q and in other filings we make with the SEC from time to time.

Forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and in other filings we make with the SEC from time to time.

Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time.

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Throughout this Form 10-Q, unless the context requires otherwise, all references to “Krystal,” “the Company,” we,” “our,” “us” or similar terms refer to Krystal Biotech, Inc., together with its consolidated subsidiaries.

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

We are a clinical stage biotechnology company leading the field of redosable gene delivery.

Using our patented platform that is based on engineered HSV-1, we create vectors that efficiently deliver therapeutic transgenes to cells of interest in multiple organ systems.

The cell’s own machinery then transcribes and translates the encoded effector to treat or prevent disease.

We formulate our vectors for non-invasive or minimally invasive routes of administration at a doctor’s office or potentially in the patient’s home by a healthcare professional.

Our goal is to develop easy-to-use medicines to dramatically improve the lives of patients living with rare diseases.

We formulate our vectors for non-invasive or minimally invasive routes of administration at a healthcare professional’s office or potentially in the patient’s home by a healthcare professional.

Our goal is to develop easy-to-use medicines to dramatically improve the lives of patients living with rare diseases and chronic conditions.

Our innovative technology platform is supported by in-house, commercial scale cGMP manufacturing capabilities.

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Pipeline Highlights and Recent Developments

• B-VEC is a topical gel containing our novel vector designed to deliver two copies of the COL7A1 transgene for the treatment of dystrophic epidermolysis bullosa ("DEB"), a serious rare skin disease caused by missing or mutated type VII collagen protein ("COL7").

The randomized, double-blind, placebo-controlled GEM-3 pivotal study was designed to evaluate topical B-VEC as compared to placebo in DEB patients.

On October 25, 2021,

we announced completion of the GEM-3 study, and we expect to announce top line data in 4Q21.

Details of the pivotal study can be found at www.clinicaltrails.gov under NCT identifier NCT04491604.

B-VEC is a topical gel containing our novel vector designed to deliver two copies of the COL7A1 transgene for the treatment of dystrophic epidermolysis bullosa ("dystrophic EB"), a serious rare skin disease caused by missing or mutated type VII collagen protein ("COL7").

Our randomized, double-blind, placebo-controlled GEM-3 pivotal study was designed to evaluate topical B-VEC as compared to placebo in dystrophic EB patients.

Following public announcement of topline data from the GEM-3 study trial on November 29, 2021, we presented more detailed results at the 2022 American Academy of Dermatology Annual Meeting on March 26, 2022.

We expect to file a BLA with the FDA in 2Q 2022, and an MAA with the EMA in 2H 2022.

On March 28, 2022, we announced that detailed results from the Phase 1 and 2 study of B-VEC were published in Nature Medicine .

During 2Q 2021, we began enrolling patients into an open label extension ("OLE") study, including patients who participated in the Phase 3 study, as well as new participants who meet all enrollment criteria.

Details of the OLE study can be found at www.clinicaltrails.gov under NCT identifier NCT04917874.

Nothing included on this website shall be deemed incorporated by reference into this Quarterly Report on Form 10-Q.

On September 9, 2021, we announced that the U.S.

FDA approved a compassionate use request from a physician for the use of topical (eye drop) B-VEC in the system of a single DEB patient after undergoing surgical removal of the scarred layer of the cornea.

Based on the feedback from the FDA following their review of our human factors validation study report, we announced on April 11, 2022 our plan to offer dystrophic EB patients enrolled in the GEM-3 OLE, the opportunity to be dosed in their homes by a healthcare professional.

KB105 is a topical gel containing our novel vector designed to deliver two copies of the TGM1 transgene for the treatment of TGM1-deficient autosomal recessive congenital ichthyosis ("TGM1-ARCI"), a serious rare skin disorder caused by missing or mutated TGM1 protein.

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On July 1, 2021, we announced data from the fourth patient dosed in the trial, showing repeat topical KB105 dosing continued to be well tolerated with no adverse events or evidence of immune response.

Details of the Phase 1/2 study can be found at www.clinicaltrials.gov under NCT identifier NCT04047732.

Nothing included on this website shall be deemed incorporated by reference into this Quarterly Report on Form 10-Q.

We plan to resume dosing in the KB105 Phase 2 study later this year.

KB407 is an inhaled (nebulized) formulation of our novel vector designed to deliver two copies of the full-length CFTR transgene for the treatment of cystic fibrosis, a serious rare lung disease caused by missing or mutated cystic fibrosis transmembrane conductance regulator ("CFTR") protein.

On September 29, 2021, we announced that the Bellberry Human Research Ethics Committee in Australia granted approval to conduct a Phase 1 clinical study of inhaled KB407 in patients with cystic fibrosis, and trial initiation is anticipated in 2Q 2022.

More detailed data from the Good Laboratory Practice "GLP" toxicology and biodistribution study was presented at the virtual 2021 North American Cystic Fibrosis Conference that took place November 2-5, 2021.

• KB408 is an inhaled (nebulized) formulation of our novel vector designed to deliver two copies of the SERPINA1 transgene, that encodes for normal human alpha-1 antitrypsin protein, for the treatment of alpha-1 antitrypsin deficiency.

We presented preclinical pharmacology data for KB408 at the European Society of Gene & Cell Therapy Virtual Congress that was held October 19-22, 2021.

We plan to submit an IND and initiate a Phase 1 trial in the U.S.

KB104 is a topical gel formulation of our novel vector designed to deliver two copies of the SPINK5 transgene for the treatment of Netherton Syndrome, a debilitating autosomal recessive skin disorder caused by missing or mutated SPINK5 protein.

We expect to initiate a Phase 1 clinical study in 2022.

We are also leveraging the ability of our platform to deliver proteins of interest to cells in the skin in the context of aesthetic medicine via our wholly owned subsidiary Jeune Aesthetics, Inc.

We have several other product candidates in various stages of preclinical development as reflected in the chart above.

We are also leveraging the ability of our platform to deliver proteins of interest to cells in the skin in the context of aesthetic medicine via our wholly-owned subsidiary Jeune Aesthetics, Inc ("Jeune").

A Summary description of Jeune’s key product candidate and its status is as follows:

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A Phase 1 study is currently ongoing.

On August 2, 2021, Jeune announced the dosing of the first patient in the second Cohort of the PEARL-1 study.

This cohort is a randomized, double-blind, saline controlled evaluation of safety and efficacy of KB301 for the improvement of skin quality.

Enrollment of this cohort completed in October 2021, and Jeune expects to announce initial data from Cohort 2 in early 2022.

Details of the Phase 1 study can be found at www.clinicaltrials.gov under NCT identifier NCT04540900.

Nothing included on this website shall be deemed incorporated by reference into this Quarterly Report on Form 10-Q

Jeune has several other aesthetic medicine product candidates in various stages of preclinical development.

On March 22, 2022, we announced positive proof-of-concept efficacy data from Cohort 2 of the PEARL-1 study of KB301.

We plan to initiate a Phase 2 trial in 4Q 2022 or early 2023.

Jeune has several other aesthetic medicine product candidates in various stages of preclinical development as reflected in the chart above.

Business Highlights and Recent Developments

• On September 15, 2021, we announced the appointment of Laurent Goux as the General Manager of Europe.

• On October 12, 2021, we announced a collaboration with GeneDx, Inc., a wholly-owned subsidiary of BioReference Laboratories, Inc., an OPKO Health company, to offer no-charge genetic testing for all types of Epidermolysis Bullosa (EB).

The goal of the program, called Krystal Decode DEB TM , is to help patients with the dystrophic form of this genetic condition, also known as DEB, get a definitive diagnosis sooner, with highly accurate results obtained with a blood or cheek swab sample.

• On January 18, 2022, we announced that Jing Marantz, MD, PhD, MBA had resigned from the Board of Directors to accept the position as Chief Business Officer with the Company and E.

Rand Sutherland was appointed as a member of the Board of Directors to fill the vacancy.

• On March 15, 2022, we announced that we had reached a binding term sheet with PeriphaGen, Inc.

("PeriphaGen") to resolve all claims in the trade secret litigation filed by PeriphaGen on May 20, 2020.

COVID-19 Update

The COVID-19 pandemic has prompted governments and businesses to take unprecedented measures, such as restrictions on travel and business operations, temporary closures of businesses, and quarantines.

In an effort to slow the spread of the virus, The Commonwealth of Pennsylvania where the Company’s primary offices, laboratory and manufacturing spaces are located, enacted stay-at-home orders, and sweeping restrictions to travel were initiated by corporations and governments.

The COVID-19 pandemic has prompted governments and businesses across the globe to take unprecedented measures, such as restrictions on travel and business operations, temporary closures of businesses, and quarantines.

For example, in an effort to slow the spread of the virus, The Commonwealth of Pennsylvania where the Company’s primary offices, laboratory and manufacturing spaces are located, enacted stay-at-home orders, and sweeping restrictions to travel were initiated by corporations and governments.

Although these restrictions have been lifted, it is not known at this time whether they will be reestablished or the extent to which the Company will be impacted.

The degree of the pandemic’s effect on the Company’s clinical, operational and financial performance will depend on future developments, including additional protective measures that may be implemented by governmental authorities or the Company to protect its employees, or by investigators, caregivers or patients to minimize exposure, all of which are uncertain and difficult to predict.

While to date the impact of the pandemic on our business and clinical trials has been minimal and the increased vaccination rates in the U.S.

are encouraging, we will continue to assess the potential impact of the coronavirus disease ("COVID-19") pandemic on our business and operations, including our supply chain and preclinical and clinical trial activities.

For additional information regarding the impact of the coronavirus pandemic, please see "Risk Factor - Business interruptions resulting from the COVID-19 outbreak or similar public health crises could cause a disruption of the development efforts of our product candidates and adversely impact our business."

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.

We will continue to assess the potential impact of the pandemic on our business and operations, including our supply chain and preclinical and clinical trial activities.

Outside of the U.S., we have experienced pandemic-related delays in clinical trial initiation in Australia, and we will continue to closely monitor this rapidly evolving situation.

Financial Overview

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We expect our research and development expenses will increase as we continue the manufacturing of preclinical and clinical materials and manage the clinical trials of, and seek regulatory approval for, our product candidates and expand our product portfolio.

In the near term, we expect that our research and development expenses will increase as we continue with our pivotal Phase 3 clinical trial for B-VEC, conduct our ongoing Phase 1/2 clinical trial for KB105, conduct our phase 1 safety study for KB301 and incur preclinical expenses for our other product candidates.

Due to the numerous risks and uncertainties associated with product development, we cannot determine with certainty the duration, costs and timing of our clinical trials, and, as a result, the actual costs to complete our clinical trials may exceed the expected costs.

In the near term, we expect that our research and development expenses will increase as we continue our open label extension ("OLE") study for B-VEC, resume dosing with KB105 Phase 2 clinical trial, initiate Phase 2 trial for KB301, initiate Phase 1 trial for KB407, and incur preclinical expenses for our other product candidates.

Due to the numerous risks and uncertainties associated with product development, we cannot determine with certainty the duration, costs and timing of clinical trials, and, as a result, the actual costs to complete clinical trials may exceed the expected costs.

General and Administrative Expenses

General and administrative expenses consist principally of professional fees associated with corporate and intellectual property-related legal expenses, consulting and accounting services, facility-related costs and expenses associated with obtaining and maintaining patents.

General and administrative expenses consist principally of salaries and other related costs, including stock-based compensation for personnel in our executive, commercial, business development and other administrative functions.

and administrative expenses also include professional fees associated with corporate and intellectual property-related legal expenses, consulting and accounting services, facility-related costs and expenses associated with obtaining and maintaining patents.

Other general and administrative costs include stock-based compensation and travel expenses.

We anticipate that our general and administrative expenses will increase in the future to support the continued research and development of our product candidates and to operate as a public company.

These increases will likely include increased

costs for insurance, costs related to the hiring of additional personnel and payments to outside consultants, lawyers and accountants, among other expenses.

These increases will likely include increased costs for insurance, costs related to the hiring of additional personnel and payments to outside consultants, lawyers and accountants, among other expenses.

Additionally, if and when we believe a regulatory approval of our first product candidate appears likely, we anticipate that we will increase our salary and personnel costs and other expenses as a result of our preparation for commercial operations.

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Critical Accounting Policies, Significant Judgments and Estimates

There have been no significant changes during the three and nine months ended September 30, 2021 to our critical accounting policies, significant judgments and estimates as disclosed in our management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended December 31, 2020.

There have been no significant changes during the three months ended March 31, 2022 to our critical accounting policies, significant judgments and estimates as disclosed in our management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended December 31, 2021.

Results of Operations

Three Months Ended September 30, 2021 and 2020

Three Months Ended September 30,

2021 2020 Change

(In thousands) (unaudited)

Research and development $ 6,080 $ 5,100 $ 980

General and administrative 9,572 4,580 4,992

Total operating expenses 15,652 9,680 5,972

Loss from operations (15,652) (9,680) (5,972)

Interest and other income, net 63 70 (7)

Net loss $ (15,589) $ (9,610) $ (5,979)

Research and Development Expenses

Research and development expenses increased $980 thousand in the three months ended September 30, 2021 compared to the three months ended September 30, 2020.

Higher research and development expenses were due to an increase in preclinical, clinical and pre-commercial manufacturing activities of $538 thousand, payroll related expenses of $363 thousand, which were primarily driven by an increase in headcount to support overall growth, and includes a $327 thousand increase in stock-based compensation, software related costs of $167 thousand, and other research and development expenses of $191 thousand, primarily due to depreciation and rent.

These increases were offset by decrease in outsourced research and development activities of approximately $279 thousand.

General and Administrative Expenses

General and administrative expenses increased $5.0 million in the three months ended September 30, 2021 as compared to the three months ended September 30, 2020.

Higher general and administrative spending was due largely to increases in payroll related expenses of approximately $3.1 million, which was primarily driven by an increase in headcount to support overall growth, and includes a $2.0 million increase in stock-based compensation, commercial preparedness expenses of approximately $1.2 million, medical affairs costs of $101 thousand, software related costs of $453 thousand, and other administrative expenses of $422 thousand, primarily due to rent and insurance costs.

These increases were offset by a decrease in legal and professional fees of approximately $316 thousand, which includes $1.6 million of insurance proceeds.

Interest and other income for the three months ended September 30, 2021 and 2020 was $63 thousand and $70 thousand, respectively, and consisted of interest and dividend income earned from our cash, cash equivalents and investments.

Nine Months Ended September 30, 2021 and 2020

Nine Months Ended September 30,

Three Months Ended March 31, 2022 and 2021

Three Months Ended March 31,

2022 2021 Change

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General and administrative 15,908 8,152 7,756

Litigation settlement 25,000 — 25,000

Total operating expenses 50,222 14,353 35,869

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Research and Development Expenses

Research and development expenses increased $6.6 million in the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

Higher research and development expenses were due to an increase in outsourced research and development activities of approximately $2.0 million, preclinical, clinical and pre-commercial manufacturing activities of $1.8 million, payroll related expenses of $1.9 million, which was primarily driven by an increase in headcount to support overall growth, and includes a $1.6 million increase in stock-based compensation, travel related expenses associated with our clinical trial sites of $199 thousand, software related costs of $212 thousand, and other research and development expenses of $611 thousand, primarily due to depreciation and rent.

Research and development expenses increased $3.1 million in the three months ended March 31, 2022 compared to the three months ended March 31, 2021.

Higher research and development expenses were due to an increase in preclinical, clinical and pre-commercial manufacturing activities of $1.3 million, payroll related expenses of $1.6 million, which were primarily driven by an increase in headcount to support overall growth, and includes an $848 thousand increase in stock-based compensation, and other research and development expenses of $320 thousand, primarily due to software related costs and rent.

These increases were partially offset by a decrease in travel related activities of approximately $86 thousand.

General and Administrative Expenses

General and administrative expenses increased $17.2 million in the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020.

Higher general and administrative spending was due largely to increases in payroll related expenses of approximately $9.0 million, which was primarily driven by an increase in headcount to support overall growth, and includes a $5.9 million increase in stock-based compensation, commercial preparedness expenses of approximately $2.2 million, medical affairs costs $437 thousand, software related costs of $715 thousand, legal and professional fees of approximately $3.6 million which includes $1.6 million of insurance proceeds, insurance costs of $408 thousand, and other administrative expenses of $768 thousand, primarily due to rent.

General and administrative expenses increased $7.8 million in the three months ended March 31, 2022 as compared to the three months ended March 31, 2021.

Higher general and administrative spending was due largely to increases in payroll related expenses of approximately $5.9 million, which was primarily driven by an increase in headcount to personnel in our executive, commercial, business development and other administrative functions to support overall growth, and includes a $3.3 million increase in stock-based compensation, commercial preparedness expenses of approximately $1.0 million, medical affairs costs of $162 thousand, software related costs of $130 thousand, business development costs of $166 thousand, and other administrative expenses of $526 thousand, primarily due to rent and taxes.

These increases were offset by a decrease in legal and professional fees of approximately $92 thousand, which includes $509 thousand of insurance proceeds.

Litigation settlement

Litigation settlement expenses increased $25.0 million in the three months ended March 31, 2022 as compared to the three months ended March 31, 2021 and consisted of the settlement of litigation with PeriphaGen.

See "Legal Proceedings" in Note 6 of the notes to condensed consolidated financial statements included in this Form 10-Q for more information.

Other Income (Expense)

Interest and other income for the nine months ended September 30, 2021 and 2020 was $127 thousand and $795 thousand, respectively, and consisted of interest and dividend income earned from our cash, cash equivalents and investments.

Interest expense for the nine months ended September 30, 2021 and 2020 was $1.5 million and zero, respectively, and related to accretion of the financial obligation for the build to suit lease liability during the nine months ended September 30, 2021 to a balance that equaled the purchase consideration for ASTRA.

Interest and other income for the three months ended March 31, 2022 and 2021 was $257 thousand and $33 thousand, respectively, and consisted of interest and dividend income earned from our cash, cash equivalents and investments.

Interest expense for the three months ended March 31, 2022 and 2021 was zero and $1.5 million, respectively, and related to accretion of the financial obligation for the build to suit lease liability during the three months ended March 31, 2021 to a balance that equaled the purchase consideration for ASTRA.

Liquidity and Capital Resources

At September 30, 2021, our cash, cash equivalents and short-term investments balance was approximately $343.1 million.

At March 31, 2022, our cash, cash equivalents and short-term investments balance was approximately $434.6 million.

Since operations began, we have incurred operating losses.

Our net losses were $15.6 million and $9.6 million for the three months ended September 30, 2021 and 2020 and $47.8 million and $21.8 million for the nine months ended September 30, 2021 and 2020, respectively.

At September 30, 2021, we had an accumulated deficit of $119.0 million.

With the net proceeds raised from its public and private securities offerings, including the public offering completed on February 1, 2021 and the ATM Program, the Company believes that its cash, cash equivalents and short-term investments as of September 30, 2021 will be sufficient to allow the Company to fund its operations for at least 12 months from the filing date of this Form 10-Q.

Our net losses were $50.0 million and $15.8 million for the three months ended March 31, 2022 and 2021, respectively.

At March 31, 2022, we had an accumulated deficit of $190.7 million.

With the net proceeds raised from our previous public and private securities offerings and our ability to issue additional shares under our current ATM program, the Company believes that our cash, cash equivalents and short-term investments as of March 31, 2022 will be sufficient to allow the Company to fund operations for at least 12 months from the filing date of this Form 10-Q.

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

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Costs related to clinical trials can be unpredictable and therefore there can be no guarantee that we will have sufficient capital to fund our continued clinical studies of B-VEC, KB105, KB301 or our planned preclinical studies for our other product candidates, or our operations.

Further, we do not expect to generate any product revenues until 2022, at the earliest, assuming we receive marketing approval for B-VEC on the schedule we currently contemplate.

Further, we do not expect to generate any product revenues until 4Q 2022, at the earliest, assuming we receive marketing approval for B-VEC on the schedule we currently contemplate.

While we are in the process of building out our internal vector manufacturing capacity, some of our manufacturing activities will be contracted out to third parties.

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Our future funding requirements will depend on many factors, including, but not limited to:

• the timeline and cost of our pivotal Phase 3 clinical trials for B-VEC;

• the progress, timing, results and costs of our ongoing Phase 1/2 clinical trials for KB105;

• the timeline and cost of our OLE study for B-VEC;

• the progress, timing and costs of our ongoing Phase 1/2 clinical trials for KB105;

• the progress, results and costs of our Phase 2 clinical trials for KB301;

• the progress, timing and costs of manufacturing of B-VEC for our pivotal Phase 3 clinical trials;

• the progress, timing and costs of manufacturing of B-VEC;

• the continued development and the filing on an IND application for future product candidates;

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• the extent to which we acquire or in-license other product candidates and technologies.

We expect that we will need to obtain substantial additional funding in order to receive regulatory approval and to commercialize our product candidates.

We may need to obtain substantial additional funding in order to receive regulatory approval and to commercialize our product candidates.

To the extent that we raise additional capital through the sale of common stock, convertible securities or other equity securities, the ownership interests of our existing stockholders may be materially diluted and the terms of these securities could include liquidation or other preferences that could adversely affect the rights of our existing stockholders.

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The following table summarizes our sources and uses of cash (in thousands):

Nine Months Ended September 30,

Three Months Ended March 31,

Net cash used in operating activities $ (15,493) $ (9,654)

Net cash used in investing activities (55,908) (747)

Net cash provided by financing activities 145,613 117,878

Net increase in cash $ 18,345 $ 94,855

Net cash provided (used in) by financing activities (542) 144,304

Net increase (decrease) in cash $ (71,943) $ 133,903

Operating Activities

Net cash used in operating activities for the nine months ended September 30, 2021 was $27.0 million and consisted primarily of a net loss of $47.8 million adjusted for non-cash items primarily of depreciation and amortization and stock-based

compensation expense of $12.2 million and build to suit interest expense of $1.5 million, as well as increases in net operating liabilities of approximately $7.1 million.

Net cash used in operating activities for the nine months ended September 30, 2020 was $18.1 million and consisted primarily of a net loss of $21.8 million adjusted for non-cash items of depreciation and amortization and stock-based compensation expense of approximately $4.1 million, and decreases in net operating liabilities of approximately $371 thousand.

Net cash used in operating activities for the three months ended March 31, 2022 was $15.5 million and consisted primarily of a net loss of $50.0 million adjusted for non-cash items primarily of depreciation and amortization and stock-based compensation expense of $7.3 million, and increases in net operating liabilities of approximately $27.2 million which includes an increase in accrued legal settlement of $25.0 million.

Net cash used in operating activities for the three months ended March 31, 2021 was $9.7 million and consisted primarily of a net loss of $15.8 million adjusted for non-cash items primarily of depreciation and amortization and stock-based compensation expense of approximately $2.8 million and build to suit interest expense of $1.5 million, as well as decreases in net operating assets of approximately $1.8 million.

Investing Activities

Net cash used in investing activities for the nine months ended September 30, 2021 was $100.2 million and consisted primarily of expenditures of $27.5 million on the build-out of our ASTRA facility, leasehold improvement of new office space, and purchases of computer and laboratory equipment, $83.8 million on the purchase of short-term and long-term investments, partially offset by proceeds of $11.0 million received from the maturities of short-term investments.

Net cash used in investing activities for the nine months ended September 30, 2020 was $5.0 million and consisted primarily of purchases of $3.2 million of short-term available-for-sale investment securities, and expenditures of $7.6 million on the build-out of our ASTRA facility, leasehold improvement of new office space, and purchases of computer and laboratory equipment, partially offset by proceeds of $5.9 million received from the maturities of short-term investments.

Net cash used in investing activities for the three months ended March 31, 2022 was $55.9 million and consisted primarily of expenditures of $17.2 million on the build-out of our ASTRA facility, leasehold improvement of new office space, and purchases of computer and laboratory equipment, $62.8 million on the purchase of short-term and long-term investments, partially offset by proceeds of $24.0 million received from the maturities of short-term investments.

Net cash used in investing activities for the three months ended March 31, 2021 was $747 thousand and consisted primarily of expenditures of $2.5 million on the build-out of our ASTRA facility, leasehold improvement of new office space, and purchase of computer and laboratory equipment, partially offset by proceeds of $1.7 million received from the maturities of short-term investments.

Financing Activities

Net cash provided by financing activities for the nine months ended September 30, 2021 was $145.6 million and consisted primarily of proceeds of $153.6 million received from our public offering, ATM Program and exercises of stock options, partially offset by expenditures of $8.0 million used for the purchase of the ASTRA building.

Net cash used by financing activities for the three months ended March 31, 2022 was $542 thousand and consisted primarily of proceeds of $107 thousand received from exercises of stock options and offset by $649 thousand used for the employee tax withholding payment for settlement of vested restricted stock awards.

Net cash provided by financing activities for the three months ended March 31, 2021 was $144.3 million and consisted primarily of proceeds of $152.3 million received from our ATM Program, a public offering, and exercises of stock options, partially offset by $8.0 million used for the purchase of the ASTRA building.

On February 1, 2021 the Company completed a public offering of 2,211,538 shares of its common stock 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 of approximately $198 thousand.

During the nine months ended September 30, 2021, pursuant to the ATM Program the Company issued 262,500 shares of common stock 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.

During the three months ended March 31, 2021, pursuant to the ATM Program the Company issued 262,500 shares of common stock 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.

The Company also incurred $172 thousand of other offering expenses related to the ATM Program.

For the nine months ended September 30, 2021, the Company received proceeds of $1.9 million from the exercise of stock options.

Net cash provided by financing activities for the nine months ended September 30, 2020 was $117.9 million and was primarily from proceeds from our public offering in May 2020 of 2,275,000 shares of our 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 of approximately $463 thousand.

For the three months ended March 31, 2021, the Company received proceeds of $346 thousand from the exercise of stock options.

Off-Balance Sheet Arrangements

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Contractual Obligations

There have been no material changes to our contractual obligations as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020 other than as described in Note 6 “Commitments and Contingencies” of our condensed consolidated financial statements on this Form 10-Q.

JOBS Act Accounting Election

We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (“the JOBS Act”).

Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies.

We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, are subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

Beginning with our fiscal year ending December 31, 2022, we will cease to be an emerging growth company.

There have been no material changes to our contractual obligations as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 other than as described in Note 6 “Commitments and Contingencies” of our condensed consolidated financial statements on this Form 10-Q.

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 2. Management’s Discussion and Analysis