What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-08-08 compared with 2022-05-09 · 136 added, 120 removed, 368 unchanged (41% of the section changed)

2 unchanged sentences

Condensed Consolidated Balance Sheets

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

(In thousands, except share and per share data) June 30,

2022 December 31,

22 unchanged sentences

20,000,000 shares authorized at

March 31, 2022 (unaudited) and December 31, 2021;

shares issued, and no shares outstanding at March 31, 2022

June 30, 2022 (unaudited) and December 31, 2021;

shares issued, and no shares outstanding at June 30, 2022

(unaudited) and December 31, 2021

2 unchanged sentences

80,000,000 shares authorized at

March 31, 2022 (unaudited) and December 31, 2021;

shares issued and outstanding at March 31, 2022

June 30, 2022 (unaudited) and December 31, 2021;

shares issued and outstanding at June 30, 2022

and 25,207,985 shares issued and outstanding at December 31, 2021

Additional paid-in capital 779,583 734,523

Accumulated other comprehensive expense ( 1,197 ) ( 163 )

Accumulated other comprehensive loss ( 1,545 ) ( 163 )

Accumulated deficit ( 218,857 ) ( 140,784 )

1 unchanged sentence

Total liabilities and stockholders' equity $ 601,324 $ 626,295

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

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

Krystal Biotech, Inc.

1 unchanged sentence

Three Months Ended

June 30, Six Months Ended

(In thousands, except share and per share data) 2022 2021 2022 2021

8 unchanged sentences

Net loss $ ( 28,108 ) ( 16,363 ) ( 78,073 ) ( 32,174 )

Unrealized loss on available-for-sale securities and other ( 1,034 ) ( 3 )

Unrealized loss on available-for-sale securities and currency translation adjustment ( 348 ) ( 24 ) ( 1,382 ) ( 27 )

Comprehensive loss $ ( 28,456 ) $ ( 16,387 ) $ ( 79,455 ) $ ( 32,201 )

3 unchanged sentences

Basic and diluted 25,545,167 22,204,659 25,331,000 21,731,711

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

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

Krystal Biotech, Inc.

2 unchanged sentences

Stockholders'

(In thousands, except shares) Shares Amount Capital Expense Deficit Equity

(In thousands, except shares) Shares Amount Capital Loss Deficit Equity

Balances at January 1, 2022 25,207,985 $ — $ 734,523 $ ( 163 ) $ ( 140,784 ) $ 593,576

Issuance of common stock, net 1,475 — 55 — — 55

Restricted stock surrendered for taxes ( 10,379 ) — ( 649 ) — — ( 649 )

Shares surrendered for taxes and forfeitures ( 10,379 ) — ( 649 ) — — ( 649 )

Stock-based compensation expense — — 6,571 — — 6,571

2 unchanged sentences

Balances at March 31, 2022 25,199,081 $ — $ 740,500 $ ( 1,197 ) $ ( 190,749 ) $ 548,554

Issuance of common stock, net 472,706 — 30,748 — — 30,748

Shares surrendered for taxes and forfeitures ( 7,500 ) — — — — —

Stock-based compensation expense — — 8,335 — — 8,335

Unrealized loss on investments and other — — — ( 348 ) — ( 348 )

Net loss — — — — ( 28,108 ) ( 28,108 )

Balances at June 30, 2022 25,664,287 $ — $ 779,583 $ ( 1,545 ) $ ( 218,857 ) $ 559,181

Common Stock Additional Paid-in Accumulated Other Comprehensive Accumulated Total

Stockholders'

(In thousands, except shares) Shares Amount Capital Expense Deficit Equity

(In thousands, except shares) Shares Amount Capital Loss Deficit Equity

Balances at January 1, 2021 19,714,220 $ — $ 363,292 $ 6 $ ( 71,214 ) $ 292,084

4 unchanged sentences

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

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

Issuance of common stock, net 975 — 14 — — 14

Stock-based compensation expense — — 4,261 — — 4,261

Unrealized loss on investments and other — — — ( 24 ) — ( 24 )

Net loss — — — — ( 16,363 ) ( 16,363 )

Balances at June 30, 2021 22,205,032 $ — $ 521,950 $ ( 21 ) $ ( 103,389 ) $ 418,540

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

Krystal Biotech, Inc.

Condensed Consolidated Statements of Cash Flows

Three Months Ended

Six Months Ended

(In thousands) 2022 2021

12 unchanged sentences

Accrued expenses and other current liabilities 2,476 2,795

Accrued legal settlement 25,000 —

Net cash used in operating activities ( 58,552 ) ( 19,783 )

8 unchanged sentences

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

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

Net cash provided by financing activities 30,158 144,105

Net increase (decrease) in cash and cash equivalents ( 122,526 ) 61,258

2 unchanged sentences

Supplemental Disclosures of Non-Cash Investing and Financing Activities

Unpaid purchases of property and equipment $ 14,507 $ 2,615

Unpaid purchases of property and equipment included in accounts payable and accrued expenses $ 22,234 $ 10,143

Initial recognition of right-of-use assets 1,394 4,060

Unpaid offering costs $ 24 $ 214

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

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

Krystal Biotech, Inc.

11 unchanged sentences

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 debilitating diseases.

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 March 31, 2022, the Company had an accumulated deficit of $ 190.7 million.

With the net proceeds raised from its public and private securities offerings the Company believes that its cash, cash equivalents and short-term investments of approximately $ 434.6 million as of March 31, 2022 will be sufficient to allow the Company to fund its planned operations for at least the next 12 months from the date of this Quarterly Report on Form 10-Q.

As of June 30, 2022, the Company had an accumulated deficit of $ 218.9 million.

With the net proceeds raised from its public and private securities offerings, the Company believes that its cash, cash equivalents and short-term investments of approximately $ 425.6 million as of June 30, 2022 will be sufficient to allow the Company to fund its planned operations for at least the next 12 months from the date of this Quarterly Report on Form 10-Q.

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

5 unchanged sentences

Basis of Presentation

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

In the opinion of management, all adjustments, which consist of all normal recurring adjustments necessary for a fair presentation of the Company's financial position and results of operations for the interim periods ended March 31, 2022 and 2021, are reflected in the interim condensed consolidated financial statements.

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

In the opinion of management, all adjustments, which consist of all normal recurring adjustments necessary for a fair presentation of the Company's financial position and results of operations for the interim periods presented, are reflected in the interim condensed consolidated financial statements.

All intercompany balances and transactions have been eliminated in consolidation.

2 unchanged sentences

The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year.

These unaudited interim condensed financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the SEC on February 28, 2022.

These unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the SEC on February 28, 2022.

Risks and Uncertainties

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 coronavirus ("COVID-19") pandemic has resulted, and is likely to continue to result, in significant national and global economic uncertainty and may adversely affect the Company's 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.

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 2022.

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 the pandemic could have on the operations, financial position, and the results of operations and cash flows during fiscal year 2022.

Use of Estimates

9 unchanged sentences

Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance.

The Company and the Company’s chief operating decision maker view the Company’s operations and manage its business in one operating segment, which is the business of developing and commercializing pharmaceuticals.

Concentrations of Credit Risk and Off-Balance Sheet Risk

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, corporate bonds, commercial paper, government agency securities and various other bank deposit accounts.

The Company’s policy is to invest its cash, cash equivalents and investments in money market funds, 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.

The Company is exposed to credit risk in the event of default by the financial institutions to the extent amounts recorded on the balance sheets are in excess of insured limits.

The Company is exposed to credit risk in the event of default by the financial institutions to the extent amounts recorded on the condensed consolidated balance sheets are in excess of insured limits.

The Company has not experienced any credit losses in such accounts and does not believe it is exposed to any significant credit risk on these funds.

7 unchanged sentences

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.

Fair Value of Financial Instruments

9 unchanged sentences

There have been no transfers between Level 1, Level 2, and Level 3 in any periods presented.

The carrying amounts of financial instruments consisting of cash and cash equivalents, investments, prepaid expenses and other current assets, accounts payable, accrued expenses and other current liabilities included in the Company’s financial statements, are reasonable estimates of fair value, primarily due to their short maturities.

Marketable securities are classified as long-term investments if the Company has the ability and intent to hold them and such holding period is longer than one year.

The carrying amounts of financial instruments consisting of cash and cash equivalents, investments, prepaid expenses and other current assets, accounts payable, accrued expenses and other current liabilities included in the Company’s consolidated financial statements, are reasonable estimates of fair value, primarily due to their short maturities.

Marketable securities are classified as long-term investments if the holding period is longer than one year.

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

15 unchanged sentences

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

The Company has no t recognized any impairment losses for the three months ended March 31, 2022 and 2021.

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

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

The Company has no t recognized any impairment losses for the three and six months ended June 30, 2022 and 2021.

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

Right-of-use lease assets represent the right to use an underlying asset during the lease term and the lease obligations represent the 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.

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

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

3 unchanged sentences

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.

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

11 unchanged sentences

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.

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

Compensation expense is recognized on a straight-line basis based on the grant-date fair value over the associated service period of the award, which is generally the vesting term.

4 unchanged sentences

and (iv) expected dividends.

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.

Once the Company's own sufficient historical volatility data was obtained, the Company eliminated the use of a representative peer group and began using only its own historical volatility data in its estimate of expected volatility.

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.

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

The risk-free interest rates

are based on US Treasury securities with a maturity date commensurate with the expected term of the associated award.

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

The Company accounts for forfeitures as they occur.

2 unchanged sentences

Comprehensive loss is defined as the change in equity during a period from transactions from non-owner sources.

Unrealized gains or losses on available-for-sale securities is a component of other comprehensive gains or losses and is presented net of taxes.

Unrealized gains or losses on available-for-sale securities is a component of other comprehensive gains or losses.

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

Recent Accounting Pronouncements

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.

From time to time, new accounting pronouncements are issued by the FASB or other accounting standard setting bodies that the Company adopts as of the specified effective date.

Unless otherwise discussed below, the Company does not believe that the adoption of recently issued standards have or may have a material impact on the condensed consolidated statements or disclosures.

Net Loss Per Share Attributable to Common Stockholders

2 unchanged sentences

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

There were 3,226,962 and 1,423,540 common share equivalents outstanding as of March 31, 2022 and 2021, respectively, in the form of stock options and unvested restricted stock awards, that have been excluded from the calculation of diluted net loss per common share as their effect would be anti-dilutive for all periods presented.

There were 3,686,862 and 1,688,965 common share equivalents outstanding as of June 30, 2022 and 2021, respectively, in the form of stock options and unvested restricted stock awards, that have been excluded from the calculation of diluted net loss per common share as their effect would be anti-dilutive for all periods presented.

Three Months Ended

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

June 30, Six Months Ended

2022 2021 2022 2021

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

Net loss per common share $ ( 28,108 ) $ ( 16,363 ) $ ( 78,073 ) $ ( 32,174 )

5 unchanged sentences

Fair Value Instruments

The following tables show the Company’s cash, cash equivalents and available-for-sale securities by significant investment category as of March 31, 2022 and December 31, 2021, respectively (in thousands):

March 31, 2022

The following tables show the Company’s cash, cash equivalents and available-for-sale securities by significant investment category as of June 30, 2022 and December 31, 2021, respectively (in thousands):

June 30, 2022

Amortized Cost Gross

40 unchanged sentences

Property and equipment, net $ 151,214 $ 112,355

Depreciation expense was $ 462 thousand and $ 438 thousand for the three months ended March 31, 2022 and 2021, respectively.

Depreciation expense was $ 494 thousand and $ 956 thousand for the three and six months ended June 30, 2022 and $ 475 thousand and $ 914 thousand for the three and six months ended June 30, 2021, respectively.

Accrued Expenses and Other Current Liabilities

1 unchanged sentence

2022 December 31,

Accrued preclinical and clinical expenses $ 2,647 $ 1,602

Accrued construction in progress $ 14,631 $ 9,606

Accrued professional fees 3,812 2,011

Accrued payroll and benefits 2,896 2,882

Accrued taxes 149 83

Accrued construction in progress 17,097 9,606

Accrued preclinical and clinical expenses 2,094 1,602

Accrued financing costs 29 26

Accrued litigation settlement 25,000 —

Accrued taxes 22 83

Other current liabilities 297 87

3 unchanged sentences

Lease Agreements

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”).

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

The 2016 Lease has been amended several times to increase the area leased, which currently consists of approximately 47,000 square feet and includes the commercial scale cGMP-compliant manufacturing facility, ANCORIS.

As a result of the lease amendments, the 2016 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", "Northfield", or "Lessor") 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").

On December 26, 2019, the Company entered into a lease agreement for a second commercial gene therapy facility ("ASTRA") in the Pittsburgh, Pennsylvania area ("ASTRA lease") with Northfield I, LLC (the "Landlord", "Northfield", or "Lessor") 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.

9 unchanged sentences

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 March 31, 2022.

The building continues to be held under construction in progress as of June 30, 2022.

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

3 unchanged sentences

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.

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

As of March 31, 2022, future minimum commitments under the Company’s operating leases were as follows (in thousands):

2022 (remaining nine months) $ 1,115

On December 15, 2021, the Company entered into a 3 year lease agreement for the Boston, Massachusetts office that commenced in January 2022 and expires in January 2025.

As of June 30, 2022, future minimum commitments under the Company’s operating leases were as follows (in thousands):

2022 (remaining six months) $ 743

Thereafter 12,063

2 unchanged sentences

Present value of lease liability $ 9,133

On May 16, 2022, the Company entered into a 16 month lease agreement for the Zug, Switzerland office ("Switzerland Lease") that commences on September 1, 2022 and expires December 31, 2023.

As of June 30, 2022, the Company has not recorded a right-of-use asset or corresponding lease liability, as the Company has not yet gained control over the Switzerland Lease.

Future minimum operating lease payments under the Switzerland Lease are $ 22 thousand and $ 89 thousand for the years ending 2022 and 2023, respectively.

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

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Operating leases:

5 unchanged sentences

Weighted average discount rate 9.4 % 9.5 %

The Company recorded operating lease costs of $ 409 thousand and $ 218 thousand for the three months ended March 31, 2022 and 2021, respectively, and variable lease costs of $ 49 thousand and $ 37 thousand for the three months ended March 31, 2022 and 2021, respectively.

The Company recorded operating lease costs of $ 391 thousand and $ 800 thousand for the three and six months ended June 30, 2022 and $ 278 thousand and $ 497 thousand for the three and six months ended June 30, 2021, respectively.

The Company recorded variable lease costs of $ 71 thousand and $ 120 thousand for the three and six months ended June 30, 2022 and $ 81 thousand and $ 118 thousand for the three and six months ended June 30, 2021, respectively.

Agreements with Contract Manufacturing Organizations and Contract Research Organizations

3 unchanged sentences

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

The estimated remaining commitment as of March 31, 2022 under these agreements is approximately $ 3.1 million.

The estimated remaining commitment as of June 30, 2022 under these agreements is approximately $ 2.1 million.

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

The Company has incurred expenses under these agreements of $ 1.8 million for each of the three months ended March 31, 2022 and 2021.

The Company has incurred expenses under these agreements of $ 1.2 million and $ 3.0 million for each of the three and six months ended June 30, 2022 and $ 718 thousand and $ 2.5 million for the three and six months ended June 30, 2021.

Commercial Preparedness Activities

1 unchanged sentence

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

The estimated remaining commitment as of March 31, 2022 is $ 4.3 million.

The Company has incurred expenses under these activities of $ 3.1 million and $ 1.3 million for the three months ended March 31, 2022 and 2021, respectively.

The estimated remaining commitment as of June 30, 2022 is $ 5.1 million.

The Company has incurred expenses under these activities of $ 3.1 million and $ 6.2 million for the three and six months ended June 30, 2022 and $ 974 thousand and $ 2.3 million for the three and six months ended June 30, 2021.

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.

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

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

The estimated remaining commitment as of March 31, 2022 is $ 20.2 million.

The Company has included costs incurred to-date associated with ASTRA within construction in progress as of March 31, 2022.

The estimated remaining commitment as of June 30, 2022 is $ 17.9 million.

The Company has included costs incurred to-date associated with ASTRA within construction in progress as of June 30, 2022.

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 The Whiting-Turner Contracting Company (“Whiting-Turner”), pursuant to which Whiting-Turner is constructing and managing the construction of ASTRA.

1 unchanged sentence

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 $ 82.3 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.

Under the Amendment, the guaranteed maximum price to be

paid by the Company is $ 83.0 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.

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

("PeriphaGen"), which also named our Chief Executive Officer and President, R&D, Krish Krishnan and Suma Krishnan, respectively.

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

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

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

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

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

On March 9, 2022, the court officially ordered the parties to attend mediation on March 11, 2022.

During the course of the mediation process, the parties were able to exchange information, allowing the parties to value their positions.

On March 12, 2022, we entered into a binding term sheet.

In consideration of settling the dispute, the acquisition of certain PeriphaGen assets, and the grant of a license by PeriphaGen for dermatological applications, Krystal made a payment of $ 25.0 million on April 28, 2022.

On March 12, 2022, the Company entered into a binding term sheet to settle the dispute.

On April 27, 2022, the Company entered into a final settlement agreement and paid PeriphaGen an upfront payment of $ 25.0 million on April 28, 2022 for:

(i) the release of all claims in the trade secret litigation with PeriphaGen;

(ii) the acquisition of certain PeriphaGen assets, and (iii) the grant of a license by PeriphaGen for dermatological applications.

Upon approval of Krystal’s first product by the U.S.

Food and Drug Administration ("FDA"), Krystal will pay an additional $ 12.5 million, followed by three additional $ 12.5 million contingent milestone payments upon reaching $ 100.0 million in total cumulative sales, $ 200.0 million in total cumulative sales and $ 300.0 million in total cumulative sales.

Food and Drug Administration, Krystal will pay PeriphaGen an additional $ 12.5 million, followed by three additional $ 12.5 million contingent milestone payments upon reaching $ 100.0 million in total cumulative sales, $ 200.0 million in total cumulative sales and $ 300.0 million in total cumulative sales.

As defined in the settlement agreement, cumulative sales shall include all revenue from sales of Krystal products by Krystal and its affiliates and licensees, as reported by Krystal in its annual Form 10-K filings.

If all milestones are achieved, the total consideration for settling the dispute, acquiring certain assets, and granting of a license from PeriphaGen will be $ 75.0 million.

The final settlement agreement was signed on April 28, 2022, and, because we deemed settlement to be probable as of the balance sheet date, we have recorded an accrued liability equal to the settlement of $ 25.0 million under accrued expenses and other current liabilities on the condensed consolidated balance sheet and under litigation settlement expense on the condensed consolidated statements of operations.

The additional contingent milestone payments were not deemed probable due to uncertainty in the achievement of these milestones as of March 31, 2022, and therefore no additional accrual has been recorded.

The Company has received $ 768 thousand of insurance proceeds during the three months ended March 31, 2022 and we have recorded an additional $ 301 thousand as a receivable within prepaid expenses and other current assets on the condensed consolidated balance sheet as management determined that the amount was probable of collection relating to legal defense costs and expenses associated with the PeriphaGen litigation.

The Company recorded the $ 25.0 million under litigation settlement expense on the condensed consolidated statements of operations for the six months ended June 30, 2022.

The additional contingent milestone payments were not deemed probable due to uncertainty in the achievement of these milestones as of June 30, 2022, and therefore no additional accrual has been recorded.

The Company has received $ 768 thousand of insurance proceeds during the three and six months ended June 30, 2022 and Company recorded an additional $ 369 thousand as a receivable within prepaid expenses and other current assets on the condensed consolidated balance sheet as management determined that the amount was probable of collection relating to legal defense costs and expenses associated with the PeriphaGen litigation.

The reimbursements have been recorded as an offset to our legal fees included in general and administrative expenses on the condensed consolidated statements of operations and within operating activities on the condensed consolidated statements of cash flows.

1 unchanged sentence

Sale of Common Stock

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.

The Company sells shares of common stock from time to time pursuant to its previously executed sales agreement (the "Sales Agreement") with Cowen and Company, LLC ("Cowen") with respect to an at-the-market equity offering program ("ATM Program") finalized on December 31, 2020, under which Cowen acts 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 common stock 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 are made pursuant to the Company's effective "shelf" registration statement on Form S-3.

During 2021, the Company issued and sold 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 selling commissions of approximately $ 524 thousand.

During the six months ended June 30, 2022, the Company issued and sold 434,782 shares of common stock at a weighted average price of $ 69.00 per share for net proceeds of $ 29.1 million after deducting selling commissions of approximately $ 900 thousand, resulting in a remaining $ 102.5 million available for issuance under the ATM Program.

On December 3, 2021, the Company completed an underwritten public offering of 2,866,667 shares of its common stock, including 200,000 shares purchased by the underwriters pursuant to their option to purchase additional shares, 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.

On February 1, 2021, the Company completed an underwritten public offering of 2,211,538 shares of its common stock, including 288,461 shares purchased by the underwriters pursuant to their option to purchase additional shares, 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

During the three months ended March 31, 2021, 262,500 shares of common stock were issued pursuant to the ATM Program at a weighted average price of $ 66.50 per share for net proceeds of $ 16.9 million after deducting underwriting discounts and commissions of approximately $ 524 thousand, resulting in a remaining $ 132.5 million available for issuance under the ATM Program.

Stock-Based Compensation

Stock Options

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

Options granted to employees and non-employees vest ratably over four-year periods and stock 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 1,179,500 and 502,450 stock options to employees and directors of the Company during the three months ended March 31, 2022 and 2021, respectively.

The Company granted 544,500 and 1,724,000 stock options to employees and directors of the Company during the three and six months ended June 30, 2022, respectively, and 297,500 and 799,950 stock options to employees and directors of the Company during the three and six months ended June 30, 2021, respectively.

The Company granted 45,000 stock options to non-employees during the three and six months ended June 30, 2022, respectively, and zero stock options to non-employees during the three and six months ended June 30, 2021, respectively.

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

8 unchanged sentences

Expired ( 876 ) $ 74.92

Outstanding at March 31, 2022 3,152,862 $ 58.99 9.1 $ 30,364

Exercisable at March 31, 2022 439,954 $ 44.52 7.6 $ 10,929

(1) Aggregate intrinsic value represents the difference between the closing stock price of our common stock on March 31, 2022 and the exercise price of outstanding in-the-money options.

The total intrinsic value (the amount by which the fair market value exceeds the exercise price) of stock options exercised during the three months ended March 31, 2022 and 2021 was $ 36 thousand and $ 808 thousand, respectively.

The weighted-average grant-date fair value per share of options granted to employees and directors during the three months ended March 31, 2022 and 2021 was $ 43.09 and $ 50.04 , respectively.

There was $ 101.1 million of unrecognized stock-based compensation expense related to employees' and directors’ option awards that is expected to be recognized over a weighted-average period of 3.4 years as of March 31, 2022.

The Company has recorded aggregate stock-based compensation expense related to the issuance of stock option awards in the condensed consolidated statements of operations for the three months ended March 31, 2022 and 2021 as follows (in thousands):

Three Months Ended March 31,

Outstanding at June 30, 2022 3,620,262 $ 59.75 9.1 $ 28,341

Exercisable at June 30, 2022 536,979 $ 47.48 7.5 $ 11,184

(1) Aggregate intrinsic value represents the difference between the closing stock price of our common stock on June 30, 2022 and the exercise price of outstanding in-the-money options.

The total intrinsic value (the amount by which the fair market value exceeds the exercise price) of stock options exercised during the three and six months ended June 30, 2022 was $ 704 thousand and $ 739 thousand, respectively, and during the three and six months ended June 30, 2021 was $ 64 thousand and $ 872 thousand, respectively.

The weighted-average grant-date fair value per share of options granted to employees, non-employees, and directors during the three and six months ended June 30, 2022 was $ 42.90 and $ 43.03 , respectively, and during the three and six months ended June 30, 2021 was $ 42.53 and $ 47.25 , respectively.

There was $ 115.7 million of unrecognized stock-based compensation expense related to employees', non-employees', and directors’ option awards that is expected to be recognized over a weighted-average period of 3.3 years as of June 30, 2022.

The Company has recorded aggregate stock-based compensation expense related to the issuance of stock option awards in the condensed consolidated statements of operations for the three and six months ended June 30, 2022 and 2021 as follows (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

(unaudited) (unaudited)

Research and development $ 1,995 $ 1,084 $ 3,363 $ 1,600

2 unchanged sentences

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

There was $ 141 thousand and $ 37 thousand of stock-based compensation that was capitalized in the three months ended March 31, 2022 and 2021, respectively.

The Company recorded stock-based compensation expense of $ 6.0 million and $ 2.1 million for the three months ended March 31, 2022 and 2021, respectively.

The fair value of options was estimated at the date of grant using the Black-Scholes valuation model with the following weighted-average assumptions for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

There was $ 146 thousand and $ 287 thousand of stock-based compensation that was capitalized in the three and six months ended June 30, 2022, respectively, and $ 66 thousand and $ 103 thousand of stock-based compensation that was capitalized in the three and six months ended June 30, 2021, respectively.

The fair value of options was estimated at the date of grant using the Black-Scholes valuation model with the following weighted-average assumptions for the three and six months ended June 30, 2022 and 2021:

Three Months Ended June 30, Six Months Ended March 31,

2022 2021 2022 2021

Expected stock price volatility 78 % 72 % 78 % 72 %

5 unchanged sentences

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

The Company granted zero and 98,800 RSAs to employees of the Company during the three months ended March 31, 2022 and 2021, respectively.

The Company granted zero RSAs to employees of the Company during the three and six months ended June 30, 2022, respectively, and zero and 98,800 RSAs to employees of the Company during the three and six months ended June 30, 2021, respectively.

Number of Shares Weighted Average

2 unchanged sentences

Vested ( 14,321 ) $ 78.89

Forfeited ( 10,379 ) $ 78.89

Non-vested RSAs as of March 31, 2022 74,100 $ 78.89

There was $ 5.7 million of unrecognized stock-based compensation expense related to employees’ awards that is expected to be recognized over a weighted-average period of 2.9 years as of March 31, 2022.

The Company recorded stock-based compensation expense related to RSAs of $ 480 thousand and $ 182 thousand for the three months ended March 31, 2022 and 2021, respectively, within general and administrative expenses in the accompanying condensed consolidated statements of operations (in thousands):

Three Months Ended March 31,

Surrendered or forfeited ( 17,879 ) $ 78.89

Non-vested RSAs as of June 30, 2022 66,600 $ 78.89

There was $ 4.7 million of unrecognized stock-based compensation expense related to employees’ awards that is expected to be recognized over a weighted-average period of 2.7 years as of June 30, 2022.

The Company recorded stock-based compensation expense related to RSAs in the condensed consolidated statement of operations for the three and six months ended June 30, 2022 and 2021 as follows (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

(unaudited) (unaudited)

General and administrative $ 418 $ 486 $ 899 $ 668

Total stock-based compensation $ 418 $ 486 $ 899 $ 668

Shares remaining available for grant under the Company’s stock incentive plan were 1,028,815 , with a sublimit for incentive stock options of 26,546 , at March 31, 2022.

Shares remaining available for grant under the Company’s stock incentive plan were 530,991 , with a sublimit for incentive stock options of 1,296 , at June 30, 2022.

Subsequent Events

On April 28, 2022, the Company entered into a final settlement agreement and paid PeriphaGen an upfront payment of $ 25.0 million for:

(i) the resolution of all claims in the trade secret litigation with PeriphaGen, Inc.;

(ii) the acquisition of certain PeriphaGen assets, and (iii) the grant of a license by PeriphaGen for dermatological applications.

On April 5, 2022, pursuant to an inbound request, the Company issued and sold 434,782 shares of common stock at a weighted average price of $ 69.00 per share, under it's ATM Program, for net proceeds of $ 29.1 million after deducting underwriting discounts and commissions.

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

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

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

What changed 10-Q

Item 1. Financial Statements