What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-08 compared with 2022-11-07 · 136 added, 116 removed, 125 unchanged (67% of the section changed)

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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;

• the timing, scope or results of regulatory filings and approvals, including timing of final U.S.

Food and Drug Administration (“FDA”) 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;

• changes in our estimates regarding the potential market opportunity for B-VEC and our 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;

• increases in 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;

• risks related to our ability to successfully develop and commercialize our product candidates;

• our ability to identify and develop new product candidates;

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• 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 cost of building a medical affairs and commercial organization, including a sales force in anticipation of commercialization of any of our product candidates;

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

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• 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;

• our ability to establish and maintain collaborations;

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

• 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;

• global economic conditions, including the recent rise in inflation and interest rates and recent bank failures;

• 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.

make with the SEC from time to time.

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

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

Web links throughout this document are provided for convenience only and are not intended to be active hyperlinks to the referenced websites.

No content on the referenced websites shall be deemed incorporated by reference into this Quarterly Report on Form 10-Q.

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

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Pipeline Highlights and Recent Developments

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.

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

We submitted a Biologics License Application (“BLA”) to the FDA for B-VEC for the treatment of DEB in June 2022.

The FDA accepted the BLA in August 2022 granting B-VEC a Priority Review Designation.

The action date for B-VEC is May 19, 2023.

We submitted a request for a Marketing Authorization Application (“MAA”) with the European Medicines Agency (“EMA”) in November 2022 for B-VEC for the treatment of DEB in patients 6 months and older.

The Company was informed by the EMA in January 2023 to modify the Pediatric Investigation Plan (“PIP”) waiver request to include patients between birth and 6 months.

The Company has modified and submitted the PIP waiver so that the MAA procedure can officially start in the second half of 2023 with an approval expected in early 2024.

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.

In July 2021, we announced complete data from the Phase 1 trial, showing repeat topical KB105 dosing continued to be well tolerated with no adverse events or evidence of immune response.

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

We plan to initiate a Phase 2 study in the first half of 2023.

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.

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.

The FDA has granted KB104 rare pediatric designation for the treatment of Netherton Syndrome.

We plan to file an Investigational New Drug (“IND”) application and initiate a clinical trial of KB104 to treat patients with Netherton Syndrome in 2023.

In September 2021, we announced that the Bellberry Human Research Ethics Committee in Australia granted approval to conduct a Phase 1 clinical study of inhaled KB407 in patients with cystic fibrosis, and trial initiation is anticipated in the first half of 2023.

Details of the Phase 1 study can be found at www.clinicaltrials.gove under NCT identifier NCT05095246.

In August 2022, we announced that the FDA had accepted our IND application to evaluate KB407 in a clinical trial to treat patients with cystic fibrosis.

Details of the Phase 1 study can be found at www.clinicaltrials.gov under NCT identifier NCT05504837.

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.

We are closely working with the Therapeutics Development Network of the Cystic Fibrosis Foundation to validate our Phase 1 clinical protocol.

We plan to initiate a Phase 1 clinical trial in the U.S.

in the first half of 2023.

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

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

We are planning to file an IND for KB408 to treat AATD patients in the second half of 2023.

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'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.

KB301 is a solution formulation of our 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.

In March 2021, Jeune announced that data from the safety cohort of a Phase 1 clinical trial, the PEARL-1 trial, for the treatment of aesthetic skin conditions, showed the safety and tolerability of repeat KB301 injections.

Complete results from the safety cohort of the PEARL-1 trial were presented at the 2021 Society for Investigative Dermatology Annual Meeting.

In 2022, we completed efficacy and durability cohorts of the PEARL-1 trial.

In March 2022, Jeune announced positive proof-of-concept, safety and efficacy data with respect to improvement of fine lines and wrinkles from the efficacy cohort of the PEARL-1 trial.

In November 2022, Jeune announced data from the PEARL-1 extension cohort showing up to nine-month durability of effect following administration of high dose 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.

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.

• In April 2023, the Company presented new data on the compassionate use of topical B-VEC to treat a patient with DEB with recurrent cicatrizing conjunctivitis at the Association for Research in Vision and Ophthalmology (ARVO) 2023 Annual Meeting.

The patient underwent surgical symblepharon lysis with pannus removal in the right eye.

B-VEC was administered to the patient’s right eye at regular intervals following surgery in addition to routine post-surgical management.

B-VEC was well tolerated and associated with full corneal healing by 3 months as well as significant visual acuity improvement from hand motion to 20/40 at 7 months, the latest time point of the on-going treatment effect evaluation.

• In April 2023, the Company was informed by the Ministry of Health, Labour and Welfare (MHLW) of Japan that B-VEC was confirmed as safe for importation under the Cartagena Act.

With the approval for importation of B-VEC under the Cartagena Act, we intend to start a small open label extension (“OLE”) study of B-VEC in Japan with an approval in Japan expected in early 2025.

• In April 2023, Jeune treated the first subject in the Phase 1, Cohort 3 study of KB301 for the improvement of lateral canthal lines at rest.

The Phase 1, Cohort 3 study is being conducted at a single center as an open label study to evaluate two different doses of KB301 in up to 20 subjects.

Improvement of lateral canthal lines at rest (“LCL”) was selected as a target indication for KB301 based upon the Phase 1 safety, efficacy and durability studies, which evaluated KB301 in the lower and upper cheek, including the lateral canthal region.

Subjects will be followed for three months after KB301 treatment, and the study is expected to be completed in the second half of 2023.

Following completion of this study, Jeune plans to initiate a Phase 2 study of KB301 in LCL.

COVID-19 Update

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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.

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

We will closely monitor any potential impact that future public health crises may have on our clinical trials.

For additional information, please see "The effect of the COVID-19 pandemic or similar public health crises on our operations and the operations of our third-party partners could cause a disruption of the development efforts for our product candidates and adversely impact our business" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Financial Overview

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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;

• expenses incurred under agreements with contract manufacturing organizations, contract research organizations, consultants and other vendors that conduct our preclinical activities;

• costs of acquiring, developing and manufacturing clinical trial materials and lab supplies;

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

In the near term, we expect that our research and development expenses will increase as we continue 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.

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, continue the Phase 1, Cohort 3 study and initiate a Phase 2 trial for KB301, initiate Phase 1 trials 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.

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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.

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 our commercial and operational goals.

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.

Additionally, we anticipate that we will continue to 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.

In March 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.

The Company placed a portion of ASTRA into service during the three months ended March 31, 2023 as it was determined that certain assets were ready for their intended use.

On March 27, 2023, the Company received the permanent occupancy permit for ASTRA which allowed the Company to begin utilizing certain portions of the building.

As certain building improvements and certain qualification activities are still underway, the Company will continue to hold the remaining assets within construction in progress until validation has been completed and the assets are ready for their intended use.

Validation of the facility is expected to be completed in 2023.

Interest and Other Income

Interest and other income consists primarily of income earned from our cash, cash equivalents and investments.

Critical Accounting Policies, and Significant Judgments and Estimates

There have been no significant changes during the three months ended March 31, 2023 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, 2022.

Results of Operations

Three Months Ended September 30, 2022 and 2021

Three Months Ended September 30,

2022 2021 Change

(In thousands) (unaudited)

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.

Nine Months Ended September 30, 2022 and 2021

Nine Months Ended September 30,

Three Months Ended March 31, 2023 and 2022

Three Months Ended March 31,

2023 2022 Change

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Loss from operations (48,823) (50,222) 1,399

Other Income (Expense)

Interest and other income, net 3,526 257 3,269

Interest expense — (1,492) 1,492

Net loss $ (45,297) $ (49,965) $ 4,668

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.

Research and development expenses increased $3.0 million in the three months ended March 31, 2023 compared to the three months ended March 31, 2022.

The increase was primarily due to increased payroll related expenses of $2.4 million, which were primarily driven by an increase in headcount to support overall growth, and includes a $1.1 million increase in stock-based compensation, an increase in outsourced research and development activities of $432 thousand, and increased other research and development expenses of $1.2 million, primarily due to depreciation, facilities expenses, license and regulatory fees, and software related costs.

The increase was partially offset by decreases in preclinical, clinical and pre-commercial manufacturing expenses of $1.0 million, due to fewer receipts of raw materials and lab supplies period over period that were purchased for planned manufacturing runs of the Company’s products.

Research and development expenses consist primarily of costs relating to the preclinical and clinical development of our product candidates and preclinical programs.

Direct research and development expenses associated with our product candidates or development programs consist of compensation related expenses for our internal resources conducting research and development activities, fees paid to external consultants, contract research organizations, or for costs to support our clinical trials.

Indirect research and development expenses that are allocated to our product candidates or programs consist of lab supplies and software fees.

A significant portion of our research and development expenses are not allocated to individual product candidates and preclinical programs, as certain expenses benefit multiple product candidates and pre-clinical programs.

For example, we do not allocate costs associated with stock-based compensation, manufacturing of preclinical or clinical development products or costs relating to facilities and equipment to individual product candidates and preclinical programs.

The following table summarizes our research and development expense by product candidate or program, and for unallocated expenses, by type, for the quarters ended March 31, 2023 and 2022:

Three Months Ended March 31,

(in thousands) 2023 2022 Change

B-VEC $ 2,387 $ 1,543 $ 844

KB105 231 22 $ 209

KB407 377 391 $ (14)

KB301 250 207 $ 43

Other dermatology programs 8 6 $ 2

Other respiratory programs 112 22 $ 90

Other aesthetics programs 13 14 $ (1)

Other research programs 596 211 $ 385

Other development programs 335 146 $ 189

Stock-based compensation 2,496 1,368 $ 1,128

Other unallocated manufacturing expenses (1)

3,919 4,502 $ (583)

Other unallocated expenses (2)

1,564 882 $ 682

Research and development expense $ 12,288 $ 9,314 $ 2,974

(1) Unallocated manufacturing expenses consist of shared pre-commercial manufacturing costs, primarily relating to raw materials, contract manufacturing, contract testing, process development, quality control and quality assurance activities and other manufacturing costs which support the development of multiple product candidates in our preclinical and clinical development programs.

(2) Other unallocated expenses include rental, storage, depreciation, and other facility related costs that we do not allocate to our individual product candidates.

As noted above, research and development expense increased $3.0 million in the three months ended March 31, 2023 compared to the three months ended March 31, 2022.

Expenses for B-VEC increased $844 thousand, due to increased payroll related expenses to support pre-approval activities, clinical trial costs, license and regulatory costs and increased allocated research and development expenses.

KB105 and other development programs spending increased primarily due to payroll related costs.

Spending on other research programs increased by $385 thousand due primarily to increased internal resources and other payroll related costs and an increase from allocated research and development expenses.

Stock-based compensation increased $1.1 million due to an increase in internal resources to support overall research and development growth.

Additionally, other unallocated expenses increased $682 thousand primarily related to increases in depreciation expense.

These increases were offset by a decrease in other unallocated manufacturing expenses of $583 thousand due to fewer receipts of raw materials period over period that were purchased for planned manufacturing runs of the Company’s products.

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.

General and administrative expenses increased $8.1 million in the three months ended March 31, 2023 as compared to the three months ended March 31, 2022.

Higher general and administrative spending was due largely to increases in payroll related expenses of approximately $7.0 million, which was primarily driven by an increase in headcount in our commercial and other administrative functions to support overall growth and preparation for commercialization, and includes a $2.9 million increase in stock-based compensation, increased marketing costs of $919 thousand, increased software-related costs of $253 thousand, increased travel related costs of $232 thousand, and an increase in other general and administrative expenses of $456 thousand, which consisted primarily of increased information technology costs and utilities costs.

These increases were partially offset by a net decrease of legal costs of $434 thousand, which consists of decreased legal and professional fees of $943 thousand offset by a decrease in litigation related insurance proceeds of approximately $509 thousand, due primarily to the settlement of the PeriphaGen litigation, and a decrease in medical affairs costs of $277 thousand.

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.

Litigation settlement for the three months ended March 31, 2023 and 2022 was $12.5 million and $25.0 million, respectively, and consisted of amounts related to the settlement of litigation with PeriphaGen.

For the three months ended March 31, 2023, in accordance with ASC Topic 450, Contingencies , we determined that FDA approval of B-VEC was probable, and recorded expense relating to the first milestone payment, which becomes payable upon the approval of our first product by

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.

Interest and Other Income

Interest and other income for the three months ended March 31, 2023 and 2022 was $3.5 million and $257 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 more favorable interest rates as compared to the prior period.

Liquidity and Capital Resources

At September 30, 2022, our cash, cash equivalents and short-term investments balance was approximately $394.4 million.

At March 31, 2023, our cash, cash equivalents and short-term investments balance was approximately $350.4 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.

Our net losses were $45.3 million and $50.0 million for the three months ended March 31, 2023 and 2022, respectively.

At March 31, 2023, we had an accumulated deficit of $326.1 million.

We believe that our cash, cash equivalents and short-term investments as of March 31, 2023 will be sufficient to allow us to fund operations for at least 12 months from the filing date of this Quarterly Report on 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.

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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.

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, KB407, 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 3Q 2023, at the earliest, assuming we receive marketing approval for B-VEC on the schedule we currently contemplate.

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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.

As we seek to obtain regulatory approval for 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.

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, KB407, 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.

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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.

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, pre-commercialization 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.

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• 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 our Phase 1, Cohort 3 study and Phase 2 clinical trials for KB301;

• the progress, timing and costs of our KB407 clinical trials;

• 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 continued development and the filing of an IND application for current and 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;

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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,

The following table summarizes our sources and uses of cash for the three months ended March 31, 2023 and 2022 (in thousands):

Three Months Ended March 31,

Net cash used in operating activities (26,156) (15,493)

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

Net cash provided by (used in) investing activities 3,563 (55,908)

Net cash provided by (used in) financing activities 1,474 (542)

Effect of exchange rate changes on cash and cash equivalents (36) —

Net decrease in cash $ (21,155) $ (71,943)

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.

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.

Net cash used in operating activities for the three months ended March 31, 2023 was $26.2 million and consisted primarily of a net loss of $45.3 million adjusted for non-cash items primarily comprised of stock-based compensation expense of $10.4 million and depreciation and amortization of $705 thousand, and cash provided by decreases in net working capital of approximately $8.6 million which includes an increase in accrued legal settlement of $12.5 million.

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

Net cash provided by investing activities for the three months ended March 31, 2023 was $3.6 million and consisted primarily of proceeds of $154.5 million received from the maturities of short-term investments, partially offset by expenditures of $5.4 million on the build-out of our ASTRA facility, leasehold improvement of new office space, and purchases of computer and laboratory equipment, and $145.6 million on the purchase of short-term and long-term investments.

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

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.

Net cash provided by financing activities for the three months ended March 31, 2023 was $1.5 million and consisted primarily of proceeds of $2.2 million received from exercises of stock options and partially offset by $749 thousand used for the employee tax withholding payment for settlement of vested restricted stock awards.

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

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis