Krystal Biotech, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read together with the unaudited condensed consolidated financial statements and related notes included in Item 1 of Part I of this Quarterly Report on Form 10-Q and with the audited financial statements and the related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the SEC on February 28, 2022. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Forward-looking statements include all statements that are not historical facts and can be identified by terms such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” or similar expressions and the negatives of those terms. These statements relate to future events or to our future operating or financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. Some of such factors include, but are not limited to: • the initiation, timing, cost, progress and results, of our research and development activities, preclinical studies and clinical trials for B-VEC (previously “KB103” and now known as Vyjuvek TM ), KB105, KB104, KB407, KB408, KB301, KB303, and any other product candidates; • the continuing impact that the COVID-19 pandemic and measures implemented to prevent its spread may have on our business operations, access to capital, research and development activities, and preclinical and clinical trials for our product candidates; • the timing, scope or results of regulatory filings and approvals, including timing of final US Food and Drug Administration (“FDA”), marketing and other regulatory approval of our product candidates; • our ability to achieve certain accelerated or orphan drug designations from the FDA; • changes in our estimates regarding the potential market opportunity for B-VEC, KB105, KB104, KB407, KB408, KB301, KB303 and any other product candidates; • our ability to raise capital to fund our operations; • increased costs associated with our research and development programs for our product candidates; • our general and administrative expenses; • risks related to our ability to successfully develop and commercialize our product candidates, including B-VEC, KB105, KB104, KB407, KB408, KB301, KB303 and our other product candidates; • our ability to identify and develop new product candidates; • our ability to identify, recruit and retain key personnel; • risks related to our marketing and manufacturing capabilities and strategy; • our business model and strategic plans for our business, product candidates and technology; • the cost of building a medical affairs and commercial organization, including a sales force in anticipation of commercialization of B-VEC and any additional product candidates; • the rate and degree of market acceptance and clinical utility of our product candidates and gene therapy, in general; • our competitive position and the success of competing therapies; • our intellectual property position and our ability to protect and enforce our intellectual property; • our financial performance; • our ability to establish and maintain collaborations or obtain additional funding; • our estimates regarding expenses, future revenue, capital requirements and needs for or ability to obtain additional financing; 20 • our ability to successfully avoid or resolve any litigation, intellectual property or other claims, that may be brought against us; • global economic conditions, including the recent rise in inflation and interest rates; and • the impact of changes in laws and regulations. Forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 and in other filings we make with the SEC from time to time. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this Quarterly Report. You should read this Quarterly Report completely and with the understanding that our actual future results may be materially different from what we expect. Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. Throughout this Form 10-Q, unless the context requires otherwise, all references to “Krystal,” “the Company,” we,” “our,” “us” or similar terms refer to Krystal Biotech, Inc., together with its consolidated subsidiaries. Overview 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 healthcare professional’s office or potentially in the patient’s home by a healthcare professional. Our goal is to develop easy-to-use medicines to dramatically improve the lives of patients living with rare diseases and chronic conditions. Our innovative technology platform is supported by in-house, commercial scale cGMP manufacturing capabilities. 21 Our Product Candidates The following table summarizes information regarding our product candidates in various stages of clinical and preclinical development: There can be no assurance that the upcoming milestones will be met on the expected timeline or at all. 22 Pipeline Highlights and Recent Developments Dermatology Beremagene geperpavec ("B-VEC"), our lead product candidate is a topical gel containing our novel vector designed to deliver two copies of the COL7A1 transgene for the treatment of dystrophic epidermolysis bullosa ("dystrophic EB" or "DEB"). DEB is a group of heritable skin diseases characterized by skin fragility, blister formation, milia, and scarring that affects approximately 10,000 patients worldwide. In June 2022, we filed a Biologics License Application ("BLA") with the U.S. Food and Drug Administration ("FDA") seeking approval of B-VEC for the treatment of patients with dystrophic EB with a request for six-month priority review. In August 2022, the FDA accepted the BLA and granted priority review with a Prescription Drug User Fee Act target date of February 17, 2023. In September 2022, we were informed that Vyjuvek (our priority name for B-VEC) was acceptable to the FDA. In September 2022, we received a positive opinion from the European Medical Agency (EMA) Pediatric Committee on the Pediatric Investigation Plan for B-VEC for the treatment of DEB with no additional studies required. We also plan to submit a market authorization application, or MAA, to the European Medicines Agency, or the EMA, in Q4 2022. We have exclusive, worldwide commercialization rights for B-VEC. KB105 is a topical gel containing our novel vector designed to deliver two copies of the TGM1 transgene for the treatment of TGM1-deficient autosomal recessive congenital ichthyosis ("TGM1-ARCI"), a serious rare skin disorder caused by missing or mutated TGM1 protein. A randomized, placebo-controlled Phase 1/2 study is ongoing. In July 2021, we announced data from the fourth patient dosed in the trial, showing repeat topical KB105 dosing continued to be well tolerated with no adverse events or evidence of immune response. Faced with competing priorities during the BLA review cycle and initiation of the cystic fibrosis clinical program, the Company anticipates patient dosing in the ongoing Phase 1/2 clinical trial of KB105 for the treatment of TGM1-deficient autosomal recessive congenital ichthyosis in 1H 2023. Details of the Phase 1/2 study can be found at www.clinicaltrials.gov under NCT identifier NCT04047732. KB104 is a topical gel formulation of our novel vector designed to deliver two copies of the SPINK5 transgene for the treatment of Netherton Syndrome, a debilitating autosomal recessive skin disorder caused by missing or mutated SPINK5 protein. We expect to initiate a Phase 1 clinical study in the first half of 2023. Respiratory KB407 is an inhaled (nebulized) formulation of our novel vector designed to deliver two copies of the full-length cystic fibrosis transmembrane conductance regulator ("CFTR") transgene for the treatment of cystic fibrosis, a serious rare lung disease caused by missing or mutated CFTR gene. In August 2022, we announced that the FDA had accepted our KB407 Investigational New Drug ("IND") application. We plan to initiate a Phase 1 clinical study ("CORAL-1/US study") of inhaled KB407 in patients with cystic fibrosis ("CF") in the U.S. in the fourth quarter of 2022. Details of the Phase 1 study can be found at www.clinicaltrials.gov under NCT identifier NCT05095246. Previously, in September 2021, we announced that the Bellberry Human Research Ethics Committee in Australia granted approval to conduct a Phase 1 clinical study ("CORAL-1/AU study") of inhaled KB407 in patients with CF. We have begun screening patients for enrollment in the CORAL-1/AU study and plan to initiate dosing in the fourth quarter of 2022. Aesthetics We are also leveraging the ability of our platform to deliver proteins of interest to cells in the skin in the context of aesthetic medicine via our wholly-owned subsidiary Jeune Aesthetics, Inc. ("Jeune"). Jeune's leading product candidate, KB301, is a novel vector for intradermal injection designed to deliver two copies of the COL3A1 transgene to address signs of aging or damaged skin caused by declining levels of, or damaged proteins within the extracellular matrix, including type III collagen. On March 22, 2022, we announced positive proof-of-concept efficacy data from Cohort 2 of the PEARL-1 study of KB301. Details of the Phase 1 study can be found at www.clinicaltrials.gov under NCT identifier NCT04540900. In Q2 2022, subjects from the PEARL-1 Cohort 2 trial were enrolled in a durability trial to evaluate duration of treatment effect, reduction of the unevenness in placebo treated sites, and long term safety monitoring. We anticipate announcing data from the durability trial in Q4 2022. The Company intends to start a Phase 2 clinical study (PEARL-2) for the treatment of wrinkles and improvements in skin quality attributes in 1H 2023 following agreement with the FDA on measurement of primary efficacy endpoints. 23 Jeune has several other aesthetic medicine product candidates in various stages of preclinical development as reflected in the chart above. Business Highlights and Recent Developments • In October 2022, following our mid-cycle BLA review of B-VEC, we were informed that the FDA does not plan to hold an Advisory Committee meeting and has not identified a need for Risk Evaluation and Mitigation Strategies (REMS) for this application. • In August 2022, we incorporated Krystal Biotech Netherlands, B.V., for the purpose of establishing operations in Europe. COVID-19 Update To date the impact of the COVID-19 pandemic on our business and clinical trials in the U.S. has been minimal. We will continue to assess the potential impact of the pandemic on our business and operations, including our supply chain and preclinical and clinical trial activities. Outside of the U.S., we have experienced pandemic-related delays in clinical trial initiation in Australia, and we will continue to closely monitor the impact that future pandemic developments have on this and our other clinical trials, going forward. For additional information regarding the impact of the coronavirus pandemic, please see "Risk Factor - Business interruptions resulting from the COVID-19 outbreak or similar public health crises could cause a disruption of the development efforts of our product candidates and adversely impact our business." in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. Financial Overview Revenue We currently have no approved products for commercial marketing or sale and have not generated any revenue from the sale of products or other sources to date. In the future, we may generate revenue from product sales, royalties on product sales, or license fees, milestones, or other upfront payments if we enter into any collaborations or license agreements. We expect that our future revenue will fluctuate from quarter to quarter for many reasons, including the uncertain timing and amount of any such sales. Research and Development Expenses Research and development expenses consist primarily of costs incurred to advance our preclinical and clinical candidates, which include: • expenses incurred under agreements with contract manufacturing organizations, consultants and other vendors that conduct our preclinical activities; • costs of acquiring, developing and manufacturing clinical trial materials and lab supplies; • facility costs, depreciation and other expenses, which include direct expenses for rent and maintenance of facilities and other supplies; and • payroll related expenses, including stock-based compensation expense. We expense internal research and development costs to operations as incurred. We expense third-party costs for research and development activities, such as the manufacturing of preclinical and clinical materials, based on an evaluation of the progress to completion of specific tasks such as manufacturing of drug substance, fill/finish and stability testing, which is provided to us by our vendors. We expect our research and development expenses will increase as we continue the manufacturing of preclinical and clinical materials and manage the clinical trials of, and seek regulatory approval for, our product candidates and expand our product portfolio. In the near term, we expect that our research and development expenses will increase as we continue our open label extension study for B-VEC, resume dosing with KB105 Phase 1/2 clinical trial, initiate a Phase 2 trial for KB301, initiate a Phase 1 trial for KB407, initiate a Phase 1 trial for KB104, and incur preclinical expenses for our other product candidates. Due to the numerous risks and uncertainties associated with product development, we cannot determine with certainty the duration, costs and timing of clinical trials, and, as a result, the actual costs to complete clinical trials may exceed the expected costs. General and Administrative Expenses 24 General and administrative expenses consist principally of salaries and other related costs, including stock-based compensation for personnel in our executive, commercial, business development and other administrative functions. General and administrative expenses also include professional fees associated with corporate and intellectual property-related legal expenses, consulting and accounting services, facility-related costs and expenses associated with obtaining and maintaining patents. Other general and administrative costs include travel expenses. We anticipate that our general and administrative expenses will increase in the future to support the continued research and development of our product candidates and to operate as a public company. These increases will likely include increased costs for insurance, costs related to the hiring of additional personnel and payments to outside consultants, lawyers and accountants, among other expenses. Additionally, we anticipate that we will increase our salary and personnel costs and other expenses as a result of our preparation for commercial operations. ASTRA Capital Expenditures On March 5, 2021, we closed on the purchase of the building that was constructed to house our second cGMP facility, ASTRA. We are currently in the process of constructing the interior build-out of this facility and we have entered into a contract with Whiting-Turner who manages the construction of ASTRA. Further, we have entered into various non-cancellable purchase agreements for long-lead materials to help avoid potential schedule disruptions or material shortages. These contracts typically call for the payment of fees for services or materials upon the achievement of certain milestones. We expect to continue to incur significant capital expenditures related to ASTRA as we construct the facility, which is expected to be completed in 1H 2023. Interest Income Interest income consists primarily of income earned from our cash, cash equivalents and investments. Interest Expense Interest expense consists primarily of non-cash interest expense recognized to accrete the build to suit financial obligation to a balance that equaled the cash consideration that was paid upon the close of the purchase of ASTRA. Critical Accounting Policies, Significant Judgments and Estimates There have been no significant changes during the three and nine months ended September 30, 2022 to our critical accounting policies, significant judgments and estimates as disclosed in our management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended December 31, 2021. 25 Results of Operations Three Months Ended September 30, 2022 and 2021 Three Months Ended September 30, 2022 2021 Change (In thousands) (unaudited) Expenses Research and development $ 11,516 $ 6,080 $ 5,436 General and administrative 19,935 9,572 10,363 Total operating expenses 31,451 15,652 15,799 Loss from operations (31,451) (15,652) (15,799) Other Income (Expense) Interest and other income, net 1,601 63 1,538 Net loss $ (29,850) $ (15,589) $ (14,261) Research and Development Expenses Research and development expenses increased $5.4 million in the three months ended September 30, 2022 compared to the three months ended September 30, 2021. Higher research and development expenses were due to increased preclinical, clinical and pre-commercial manufacturing activities of $635 thousand, increased payroll related expenses of $3.0 million, which were primarily driven by an increase in headcount to support overall growth, and includes a $1.5 million increase in stock-based compensation, an increase in outsourced research and development activities of $1.0 million and increased other research and development expenses of $842 thousand, primarily due to depreciation, license and regulatory fees, and software related costs. General and Administrative Expenses General and administrative expenses increased $10.4 million in the three months ended September 30, 2022 as compared to the three months ended September 30, 2021. Higher general and administrative spending was due largely to increases in payroll related expenses of approximately $7.7 million, which was primarily driven by an increase in headcount in our executive, commercial, and other administrative functions to support overall growth, and includes a $3.9 million increase in stock-based compensation, increased commercial preparedness expenses of approximately $922 thousand, a net increase of $804 thousand, which consists of a decreased legal and professional fees of $766 thousand offset by a decrease in litigation proceeds of approximately $1.6 million, due primarily to the settlement of the PeriphaGen litigation, increased travel related activities of $140 thousand, an increase in medical affairs costs of $159 thousand, and increased other administrative expenses of $1.2 million, primarily due to increased utilities, taxes, and IT costs. These increases were offset by a net decrease in business development costs of $351 thousand and a decrease in software related costs of $202 thousand. Other Income (Expense) Interest and other income for the three months ended September 30, 2022 and 2021 was $1.6 million and $63 thousand, respectively, and consisted of interest and dividend income earned from our cash, cash equivalents and investments. The increase in interest and dividend income is the result of increased investment activity and increased interest rates. 26 Nine Months Ended September 30, 2022 and 2021 Nine Months Ended September 30, 2022 2021 Change (In thousands) (unaudited) Expenses Research and development $ 31,720 $ 18,875 $ 12,845 General and administrative 53,705 27,524 26,181 Litigation settlement 25,000 — 25,000 Total operating expenses 110,425 46,399 64,026 Loss from operations (110,425) (46,399) (64,026) Other Income (Expense) Interest and other income, net 2,502 127 2,375 Interest expense — (1,492) 1,492 Net loss $ (107,923) $ (47,764) $ (60,159) Research and Development Expenses Research and development expenses increased $12.8 million in the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021. Higher research and development expenses were due to an increase in preclinical, clinical and pre-commercial manufacturing activities of $3.2 million, increased payroll related expenses of $6.4 million, which were primarily driven by an increase in headcount to support overall growth, and includes a $3.3 million increase in stock-based compensation, increased outsourced research and development activities of $1.9 million and an increase in other research and development expenses of approximately $1.4 million, primarily due to software related costs and rent and depreciation. General and Administrative Expenses General and administrative expenses increased $26.2 million in the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021. Higher general and administrative spending was due largely to increases in payroll related expenses of approximately $19.8 million, which was primarily driven by an increase in headcount in our executive, commercial, business development and other administrative functions to support overall growth, and includes a $10.2 million increase in stock-based compensation, commercial preparedness expenses of approximately $4.1 million, medical affairs costs of $495 thousand, increased travel related activities of $329 thousand, increased software related costs of $92 thousand, and other administrative expenses of $2.2 million, primarily due to rent, utilities, taxes, recruiting and conference expenses. These increases were offset by a net decrease of $845 thousand, which consists of a decrease in legal and professional fees of $1.8 million offset by an increase in litigation proceeds of approximately $993 thousand, due primarily to the settlement of the PeriphaGen litigation. Litigation settlement Litigation settlement for the nine months ended September 30, 2022 and 2021 was $25.0 million and zero, respectively, and consisted of the settlement of litigation with PeriphaGen. See "Legal Proceedings" in Note 6 of the notes to condensed consolidated financial statements included in this Form 10-Q for more information. Other Income (Expense) Interest and other income for the nine months ended September 30, 2022 and 2021 was $2.5 million and $127 thousand, respectively, and consisted of interest and dividend income earned from our cash, cash equivalents and investments. The increase in interest and dividend income is the result of increased investment activity and increased interest rates. Interest expense for the nine months ended September 30, 2022 and 2021 was zero and $1.5 million, respectively, and related to accretion of the financial obligation for the build to suit lease liability during the nine months ended September 30, 2021 to a balance that equaled the purchase consideration for ASTRA. 27 Liquidity and Capital Resources Overview At September 30, 2022, our cash, cash equivalents and short-term investments balance was approximately $394.4 million. Since operations began, we have incurred operating losses. Our net losses were $29.9 million and $107.9 million for the three and nine months ended September 30, 2022, respectively, and $15.6 million and $47.8 million for the three and nine months ended September 30, 2021, respectively. At September 30, 2022, we had an accumulated deficit of $248.7 million. With the net proceeds raised from our previous public and our ability to issue additional shares under our current ATM program, we believe that our cash, cash equivalents and short-term investments as of September 30, 2022 will be sufficient to allow us to fund operations for at least 12 months from the filing date of this Form 10-Q. As we continue to incur losses, a transition to profitability is dependent upon the successful development, approval and commercialization of our product candidates and the achievement of a level of revenues adequate to support our cost structure. Furthermore, we expect to incur increasing costs associated with satisfying regulatory and quality standards, maintaining product and clinical trials, and furthering our efforts around our current and future product candidates. We may never achieve profitability, and unless and until we do, we will continue to need to raise additional capital or obtain financing from other sources. Costs related to clinical trials can be unpredictable and therefore there can be no guarantee that we will have sufficient capital to fund our continued clinical studies of B-VEC, KB105, KB301 or our planned clinical and preclinical studies for our other product candidates, or our operations. Further, we do not expect to generate any product revenues until 1Q 2023, at the earliest, assuming we receive marketing approval for B-VEC on the schedule we currently contemplate. While we are in the process of building out our internal vector manufacturing capacity, some of our manufacturing activities will be contracted out to third parties. Additionally, we currently utilize third-party contract research organizations to carry out some of our clinical development activities. As we seek to obtain regulatory approval for any of our product candidates, we expect to continue to incur significant manufacturing and commercialization expenses as we prepare for product sales, marketing, commercial manufacturing, packaging, labeling and distribution. Furthermore, pursuant to our settlement agreement with PeriphaGen, we will be required to pay $12.5 million upon the approval of our first product by the FDA, 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. Our funds may not be sufficient to enable us to conduct pivotal clinical trials for, seek marketing approval for or commercially launch B-VEC, KB105, KB301 or any other product candidate. Accordingly, to obtain marketing approval for and to commercialize these or any other product candidates, we may be required to obtain further funding through public or private equity offerings, debt financings, collaboration and licensing arrangements or other sources. Adequate additional financing may not be available to us on acceptable terms, if at all. Our failure to raise capital when needed could have a negative effect on our financial condition and our ability to pursue our business strategy. Operating Capital Requirements Our primary uses of capital are, and we expect will continue to be for the near future, compensation and related expenses, manufacturing costs for preclinical and clinical materials, third-party clinical trial research and development services, laboratory and related supplies, clinical costs, legal and other regulatory expenses, payments of settlement amounts to PeriphaGen and general overhead costs. In order to complete the process of obtaining regulatory approval for any of our product candidates and to build the sales, manufacturing, marketing and distribution infrastructure that we believe will be necessary to commercialize our product candidates, if approved, we may require substantial additional funding. We have based our projections of operating capital requirements on assumptions that may prove to be incorrect, and we may use all of our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, we are unable to estimate the exact amount of our operating capital requirements. Our future funding requirements will depend on many factors, including, but not limited to: • the timeline and cost of our OLE study for B-VEC; • the progress, timing and costs of our ongoing Phase 1/2 clinical trials for KB105; • the progress, results and costs of our Phase 2 clinical trials for KB301; • the progress, timing and costs of manufacturing of B-VEC; • the continued development and the filing of an IND application for future product candidates; • the initiation, scope, progress, timing, costs and results of drug discovery, laboratory testing, manufacturing, preclinical studies and clinical trials for any other product candidates that we may pursue in the future, if any; 28 • the costs of maintaining our own commercial-scale cGMP manufacturing facilities; • the outcome, timing and costs of seeking regulatory approvals; • the costs associated with the manufacturing process development and evaluation of third-party manufacturers; • the extent to which the costs of our product candidates, if approved, will be paid by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or will be reimbursed by government authorities, private health coverage insurers and other third-party payors; • the costs of commercialization activities for our current and future product candidates if we receive marketing approval for such product candidates we may develop, including the costs and timing of establishing product sales, medical affairs, marketing, distribution and manufacturing capabilities; • subject to receipt of marketing approval, if any, revenue received from commercial sale of our current and future product candidates; • the terms and timing of any future collaborations, licensing, consulting or other arrangements that we may establish; • the amount and timing of any payments we may be required to make, or that we may receive, in connection with the licensing, filing, prosecution, maintenance, defense and enforcement of any patents or other intellectual property rights, including milestone and royalty payments and patent prosecution fees that we are obligated to pay pursuant to our license agreements; • our current license agreements remaining in effect and our achievement of milestones under those agreements; • our ability to establish and maintain collaborations and licenses on favorable terms, if at all; and • the extent to which we acquire or in-license other product candidates and technologies. We may need to obtain substantial additional funding in order to receive regulatory approval and to commercialize our product candidates. To the extent that we raise additional capital through the sale of common stock, convertible securities or other equity securities, the ownership interests of our existing stockholders may be materially diluted and the terms of these securities could include liquidation or other preferences that could adversely affect the rights of our existing stockholders. In addition, debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, that could adversely affect our ability to conduct our business. If we are unable to raise capital when needed or on attractive terms, we could be forced to significantly delay, scale back or discontinue the development or commercialization of our product candidates, seek collaborators at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available, and relinquish or license, potentially on unfavorable terms, our rights to our product candidates that we otherwise would seek to develop or commercialize ourselves. Sources and Uses of Cash The following table summarizes our sources and uses of cash for the nine months ended September 30, 2022 (in thousands): Nine Months Ended September 30, 2022 2021 (unaudited) Net cash used in operating activities (78,240) (27,038) Net cash used in investing activities (108,875) (100,230) Net cash provided by financing activities 32,278 145,613 Net increase (decrease) in cash $ (154,837) $ 18,345 Operating Activities Net cash used in operating activities for the nine months ended September 30, 2022 was $78.2 million and consisted primarily of a net loss of $107.9 million adjusted for non-cash items primarily comprised of depreciation and amortization and stock-based compensation expense of $26.4 million, and including net changes in operating assets and liabilities of approximately $3.2 million. 29 Net cash used in operating activities for the nine months ended September 30, 2021 was $27.0 million and consisted primarily of a net loss of $47.8 million adjusted for non-cash items primarily comprised of depreciation and amortization and stock-based compensation expense of approximately $11.9 million and build to suit interest expense of $1.5 million, including net changes in operating assets and liabilities of approximately $7.1 million. Investing Activities Net cash used in investing activities for the nine months ended September 30, 2022 was $108.9 million and consisted primarily of expenditures of $47.8 million on the build-out of our ASTRA facility, leasehold improvement of new office space, and purchases of computer and laboratory equipment, $214.7 million on the purchase of short-term and long-term investments, partially offset by proceeds of $153.6 million received from the maturities of short-term investments. Net cash used in investing activities for the nine months ended September 30, 2021 was $100.2 million and consisted primarily of expenditures of $27.5 million on the build-out of our ASTRA facility, leasehold improvement of new office space, and purchases of computer and laboratory equipment, $83.8 million on the purchase of short-term and long-term investments, partially offset by proceeds of $11.0 million received from the maturities of short-term investments. Financing Activities Net cash provided by financing activities for the nine months ended September 30, 2022 was $32.3 million and consisted primarily of proceeds of $32.9 million received from our ATM Program and exercises of stock options and offset by $649 thousand used for the employee tax withholding payment for settlement of vested restricted stock awards. During the nine months ended September 30, 2022, we 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 underwriting discounts and commissions of approximately $900 thousand. For the nine months ended September 30, 2022, we received proceeds of $3.6 million from the exercise of stock options. Net cash provided by financing activities for the nine months ended September 30, 2021 was $145.6 million and consisted primarily of proceeds of $153.6 million received from our ATM Program, a public offering, and exercises of stock options, partially offset by $8.0 million used for the purchase of the ASTRA building. On February 1, 2021, we completed a public offering of 2,211,538 shares of our common stock at $65.00 per share. Net proceeds from the offering were $134.9 million after deducting underwriting discounts and commissions of approximately $8.6 million and other offering expenses of approximately $198 thousand. During the nine months ended September 30, 2021, pursuant to the ATM Program we issued 262,500 shares of common stock at a weighted average price of $66.50 per share for net proceeds of $16.9 million after deducting underwriting discounts and commissions of approximately $524 thousand. We also incurred $172 thousand of other offering expenses related to the ATM Program. For the nine months ended September 30, 2021, we received proceeds of $1.9 million from the exercise of stock options. 30