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Item 1. Financial Statements

2022-11-07 compared with 2022-08-08 · 133 added, 105 removed, 399 unchanged (37% of the section changed)

FINANCIAL STATEMENTS (UNAUDITED)

FINANCIAL STATEMENTS

Krystal Biotech, Inc.

Condensed Consolidated Balance Sheets

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

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

2022 December 31,

22 unchanged sentences

20,000,000 shares authorized at

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

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

(unaudited) and December 31, 2021

September 30, 2022 and December 31, 2021;

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

and December 31, 2021

Common stock;

$ 0.00001 par value;

80,000,000 shares authorized at

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

shares issued and outstanding at June 30, 2022

80,000,000 shares authorized a September 30, 2022 and December 31, 2021;

25,709,664 shares issued and outstanding at September 30, 2022;

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

8 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

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

8 unchanged sentences

Net loss $ ( 29,850 ) ( 15,589 ) ( 107,923 ) ( 47,764 )

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

Unrealized gain (loss) on available-for-sale securities and currency translation adjustment 70 7 ( 1,312 ) ( 20 )

Comprehensive loss $ ( 29,780 ) $ ( 15,582 ) $ ( 109,235 ) $ ( 47,784 )

8 unchanged sentences

Stockholders'

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

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

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

2 unchanged sentences

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

Unrealized loss on investments and other — — — ( 1,034 ) — ( 1,034 )

Unrealized gain (loss) on investments and other — — — ( 1,034 ) — ( 1,034 )

Net loss — — — — ( 49,965 ) ( 49,965 )

3 unchanged sentences

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

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

Unrealized gain (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

Issuance of common stock, net 45,377 — 2,176 — — 2,176

Stock-based compensation expense — — 9,195 — — 9,195

Unrealized gain (loss) on investments and other — — — 70 — 70

Net loss — — — — ( 29,850 ) ( 29,850 )

Balances at September 30, 2022

25,709,664 $ — $ 790,954 $ ( 1,475 ) $ ( 248,707 ) $ 540,772

Common Stock Additional Paid-in Accumulated Other Comprehensive Accumulated Total

Stockholders'

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

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

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

1 unchanged sentence

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

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

Unrealized gain (loss) on investments and other — — — ( 3 ) — ( 3 )

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

2 unchanged sentences

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

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

Unrealized gain (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

Issuance of common stock, net 32,952 — 1,534 — — 1,534

Stock-based compensation expense — — 3,745 — — 3,745

Unrealized gain (loss) on investments and other — — — 7 — 7

Net loss — — — — ( 15,589 ) ( 15,589 )

Balances at September 30, 2021

22,237,984 $ — $ 527,229 $ ( 14 ) $ ( 118,978 ) $ 408,237

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

1 unchanged sentence

Condensed Consolidated Statements of Cash Flows

Six Months Ended

Nine Months Ended

September 30,

(In thousands) 2022 2021

4 unchanged sentences

Stock-based compensation expense 23,678 10,174

Loss on disposals of fixed assets 22 —

Non-cash interest expense — 1,492

17 unchanged sentences

Net cash provided by financing activities 32,278 145,613

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

Net (decrease) increase in cash and cash equivalents ( 154,837 ) 18,345

Cash and cash equivalents at beginning of period 341,246 268,269

12 unchanged sentences

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

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

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

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

On January 7, 2022 and August 25, 2022, the Company incorporated Krystal Biotech Switzerland GmbH and Krystal Biotech Netherlands, B.V., respectively, for the purpose of establishing initial operations in Europe for the development and commercialization of Krystal's pipeline.

We are a biotechnology company focused on developing and commercializing genetic medicines for patients with rare diseases.

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

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.

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

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 of September 30, 2022, the Company had an accumulated deficit of $ 248.7 million.

With the net proceeds raised from its public offerings, the Company believes that its cash, cash equivalents and short-term investments of approximately $ 394.4 million as of September 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 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”).

The accompanying interim condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”).

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.

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

Investments with maturities of greater than 90 days but less than one year are classified as short-term investments on the consolidated balance sheets and consist of commercial paper, corporate bonds, and government agency securities.

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

Investments with maturities of less than one year are classified as short-term investments on the condensed consolidated balance sheets and consist of commercial paper, corporate bonds, and government agency securities.

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

Accrued interest on corporate bonds and government agency securities are also classified as short-term investments.

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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 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.

Our available-for-sale, short-term and long-term investments, which consist of, commercial paper, corporate bonds, and government agency securities are considered to be Level 2 valuations.

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 condensed consolidated financial statements, are reasonable estimates of fair value, primarily due to their short maturities.

Our available-for-sale, short-term and long-term investments, which consist of commercial paper, corporate bonds, and U.S.

government agency securities are considered to be Level 2 valuations.

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

6 unchanged sentences

Computer equipment and software 3 - 7 years

Lab equipment 3 - 7 years

Laboratory and manufacturing equipment 3 - 20 years

Furniture and fixtures 3 - 7 years

Leasehold improvement lesser of remaining useful life or remaining lease term

The Company reviews the estimated useful lives of its property and equipment on a continuing basis.

In evaluating the useful lives, the Company considers how long assets will remain functionally effective, whether the technology continues to be relevant and considers other competitive and economic factors.

If the assessment indicates that the assets will be used for a shorter or longer period than previously anticipated, the useful life of the assets is adjusted, resulting in a change in estimate.

Changes in estimates are accounted for on a prospective basis by depreciating the current carrying values of the assets over their revised remaining useful lives.

The review performed by the Company in the current year indicated that certain pieces of lab equipment would be functional for a longer term than previously estimated and as a result, the Company increased the useful lives of these assets from 7 to 15 years.

This change was effective and accounted for prospectively beginning in Q3 2022.

The effect of this change in useful life estimate did not result in a material change to depreciation expense.

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

2 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 and six months ended June 30, 2022 and 2021.

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

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

1 unchanged sentence

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, 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.

As the Company’s existing 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.

7 unchanged sentences

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

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

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

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

5 unchanged sentences

Stock-Based Compensation Expense

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

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

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

Compensation costs related to stock options granted are 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 consolidated statements of operations based on their grant-date fair values.

5 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 began using 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.

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.

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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.

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 3,686,862 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.

There were 3,565,110 and 1,900,638 common share equivalents outstanding as of September 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

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 )

September 30, Nine Months Ended

September 30,

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

Net loss $ ( 29,850 ) $ ( 15,589 ) $ ( 107,923 ) $ ( 47,764 )

Weighted-average basic and

4 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 June 30, 2022 and December 31, 2021, respectively (in thousands):

June 30, 2022

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

September 30, 2022

Amortized Cost Gross

31 unchanged sentences

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

September 30,

2022 December 31,

5 unchanged sentences

Total property and equipment 163,587 116,569

Accumulated depreciation and amortization ( 5,151 ) ( 4,214 )

Accumulated depreciation ( 5,801 ) ( 4,214 )

Property and equipment, net $ 157,786 $ 112,355

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.

Depreciation expense was $ 669 thousand and $ 1.6 million for the three and nine months ended September 30, 2022 and $ 474 thousand and $ 1.4 million for the three and nine months ended September 30, 2021, respectively.

Accrued Expenses and Other Current Liabilities

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

September 30,

2022 December 31,

13 unchanged sentences

As a result of the lease amendments, the 2016 Lease expiration date was extended to October 31, 2031.

On September 30, 2022, the Company amended the 2016 Lease ("Short-Term Amendment") to add a short-term lease for additional office space that commenced on October 1, 2022 and expires on September 30, 2023.

The amendment increased the area leased by approximately 7,000 square feet through September 30, 2023, resulting in a total area leased of approximately 54,000 square feet.

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.

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

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

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

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

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

4 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 June 30, 2022.

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

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

The interior of the building is currently under construction and is expected to be completed in 1H 2023.

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

3 unchanged sentences

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

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

As of September 30, 2022, future minimum commitments under the Company’s operating leases with lease terms in excess of 12 months were as follows (in thousands):

2022 (remaining three months) $ 404

Thereafter 12,062

2 unchanged sentences

Present value of lease liability $ 9,122

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.

Due to the Short-Term Amendment not exceeding twelve months, the Company has not recorded a right-of-use asset or corresponding lease liability for the amendment as of September 30, 2022.

Future minimum remaining operating lease payments under this amendment are $ 40 thousand and $ 121 thousand for the years ending December 31, 2022 and 2023, respectively.

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

June 30, 2022 December 31, 2021

September 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 $ 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.

The components of the Company's lease expense are as follows:

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Operating lease expense $ 399 $ 339 $ 1,200 $ 836

Variable lease expense 48 65 168 183

Total lease expense $ 447 $ 404 $ 1,368 $ 1,019

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 June 30, 2022 under these agreements is approximately $ 2.1 million.

The estimated remaining commitment as of September 30, 2022 under these agreements is approximately $ 2.4 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 $ 1.2 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.

The Company has incurred expenses under these agreements of $ 2.1 million and $ 5.1 million for each of the three and nine months ended September 30, 2022 and $ 744 thousand and $ 3.3 million for the three and nine months ended September 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 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.

The estimated remaining commitment as of September 30, 2022 is $ 6.2 million.

The Company has incurred expenses under these activities of $ 3.2 million and $ 9.5 million for the three and nine months ended September 30, 2022 and $ 1.8 million and $ 4.1 million for the three and nine months ended September 30, 2021.

ASTRA Contractual Obligations

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

The Company has contracted with various third parties to complete the interior build-out of our second cGMP facility, ASTRA.

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 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.

The estimated remaining commitment as of September 30, 2022 is $ 10.3 million.

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

Subject to certain conditions in the Agreement, the Company will pay Whiting-Turner a contract price consisting of the cost of work plus a fee equal to 1.75 % of the cost of work.

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 $ 83.0 million, subject to certain additions and deductions by change orders as provided by the Agreement.

Under the Amendment, the guaranteed maximum price to be paid by the Company is $ 84.1 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.

The guaranteed maximum price under the Agreement with Whiting-Turner constitutes only a portion of the total estimated cost of building and equipping ASTRA as there are various other third parties engaged in the project for which contracts are not individually material.

Legal Proceedings

10 unchanged sentences

(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, 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.

Upon approval of the Company's first product by the U.S.

Food and Drug Administration, the Company 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 the Company products by the Company and its affiliates and licensees, as reported by the Company 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 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 Company recorded the $ 25.0 million under litigation settlement expense on the condensed consolidated statements of operations for the nine months ended September 30, 2022.

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

The Company has received $ 0 and $ 768 thousand of insurance proceeds during the three and nine months ended September 30, 2022 and Company recorded an additional $ 372 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.

3 unchanged sentences

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.

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 nine months ended September 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.

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Stock options have a life of ten years .

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 Company granted 189,000 and 1,913,000 stock options to employees and directors of the Company during the three and nine months ended September 30, 2022, respectively, and 297,500 and 799,950 stock options to employees and directors of the Company during the three and nine months ended September 30, 2021, respectively.

The Company granted zero and 45,000 stock options to non-employees during the three and nine months ended September 30, 2022, respectively, and 50,000 stock options to non-employees during the three and nine months ended September 30, 2021, respectively.

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

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Expired ( 5,001 ) $ 78.19

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,

Outstanding at September 30, 2022 3,498,510 $ 60.38 8.8 $ 37,213

Exercisable at September 30, 2022 637,315 $ 48.74 7.1 $ 14,225

(1) Aggregate intrinsic value represents the difference between the closing stock price of our common stock on September 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 nine months ended September 30, 2022 was $ 1.3 million and $ 2.1 million, respectively, and during the three and nine months ended September 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 nine months ended September 30, 2022 was $ 49.59 and $ 43.66 , respectively, and during the three and nine months ended September 30, 2021 was $ 34.85 and $ 43.31 , respectively.

There was $ 105.5 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 3.1 years as of September 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 nine months ended September 30, 2022 and 2021 as follows (in thousands):

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

2022 2021 2022 2021

(unaudited) (unaudited)

Research and development $ 2,184 $ 673 $ 5,547 $ 2,273

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

There was $ 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,

There was $ 137 thousand and $ 423 thousand of stock-based compensation that was capitalized in the three and nine months ended September 30, 2022, respectively, and $ 79 thousand and $ 182 thousand of stock-based compensation that was capitalized in the three and nine months ended September 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 nine months ended September 30, 2022 and 2021:

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

2022 2021 2022 2021

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

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.

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

Number of Shares Weighted Average

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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,

Non-vested RSAs as of September 30, 2022

66,600 $ 78.89

(unaudited) (unaudited)

There was $ 4.2 million of unrecognized stock-based compensation expense related to employees’ awards that is expected to be recognized over a weighted-average period of 2.4 years as of September 30, 2022.

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

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

2022 2021 2022 2021

General and administrative $ 441 $ 491 $ 1,340 $ 1,159

Total stock-based compensation $ 441 $ 491 $ 1,340 $ 1,159

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.

Shares remaining available for grant under the Company’s stock incentive plan were 607,366 , with a sublimit for incentive stock options of 7,223 , at September 30, 2022.

Subsequent Events

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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