What changed in this filing

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Item 1. Financial Statements

2023-08-07 compared with 2023-05-08 · 140 added, 103 removed, 391 unchanged (38% of the section changed)

2 unchanged sentences

Condensed Consolidated Balance Sheets

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

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

2023 December 31,

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$ 0.00001 par value;

80,000,000 shares authorized at March 31, 2023 and December 31, 2022;

25,796,213 shares issued and outstanding at March 31, 2023;

80,000,000 shares authorized at June 30, 2023 and December 31, 2022;

27,974,916 shares issued and outstanding at June 30, 2023;

and 25,763,743 shares issued and outstanding at December 31, 2022

8 unchanged sentences

Three Months Ended

June 30, Six Months Ended

(In thousands, except share and per share data) 2023 2022 2023 2022

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Balances at March 31, 2023 25,796,213 $ — $ 815,776 $ ( 154 ) $ ( 326,056 ) $ 489,566

Issuance of common stock, net 2,178,703 — 185,397 — — 185,397

Shares surrendered for taxes and forfeitures — — — — — —

Stock-based compensation expense — — 11,443 — — 11,443

Unrealized (loss) on investments and other — — — ( 82 ) — ( 82 )

Net loss — — — — ( 33,210 ) ( 33,210 )

Balances at June 30, 2023

27,974,916 $ — $ 1,012,616 $ ( 236 ) $ ( 359,266 ) $ 653,114

Common Stock Additional Paid-in Accumulated Other Comprehensive Accumulated Total

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

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

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

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

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

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

Balances at June 30, 2022

25,664,287 $ — $ 779,583 $ ( 1,545 ) $ ( 218,857 ) $ 559,181

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

1 unchanged sentence

Condensed Consolidated Statements of Cash Flows

Three Months Ended

Six Months Ended

(In thousands) 2023 2022

11 unchanged sentences

Accrued expenses and other current liabilities ( 1,666 ) 2,476

Accrued litigation settlement 12,500 25,000

Net cash (used in) operating activities ( 60,346 ) ( 58,552 )

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Proceeds from maturities of investments 315,746 86,829

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

Net cash used in investing activities ( 12,394 ) ( 94,132 )

Financing Activities

1 unchanged sentence

Taxes paid related to settlement of restricted stock awards ( 749 ) ( 649 )

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

Net cash provided by financing activities 186,743 30,158

Effect of exchange rate changes on cash and cash equivalents ( 28 ) —

Net (decrease) in cash and cash equivalents ( 21,155 ) ( 71,943 )

Net increase (decrease) in cash and cash equivalents 113,975 ( 122,526 )

Cash and cash equivalents at beginning of period 161,900 341,246

10 unchanged sentences

In June 2018, the Company incorporated a wholly-owned subsidiary in Australia for the purpose of undertaking preclinical and clinical studies in Australia.

In April 2019, the Company incorporated Jeune Aesthetics Inc ("Jeune Aesthetics"), in Delaware, a wholly-owned subsidiary, for the purpose of undertaking preclinical and clinical studies for aesthetic skin conditions.

In April 2019, the Company incorporated Jeune Aesthetics, Inc.

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

In January 2022, August 2022, and December 2022, the Company incorporated wholly-owned subsidiaries in Switzerland, Netherlands, and France, respectively, for the purpose of establishing initial operations in Europe for the development and commercialization of Krystal's product 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 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 March 31, 2023, the Company had an accumulated deficit of $ 326.1 million.

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.

We are a commercial-stage biotechnology company focused on the discovery, development and commercialization of genetic medicines to treat diseases with high unmet medical needs.

Our approach leverages our patented platform that is based on engineered Herpes Simplex Virus-1 (“HSV-1”) vector to deliver therapeutic transgenes to cells of interest in multiple organ systems.

The cell’s own machinery then transcribes and translates the transgene to treat the disease.

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

Our innovative technology platform is supported by two in-house, commercial scale Current Good Manufacturing Practices ("CGMP") manufacturing facilities.

On May 19, 2023, the Company received U.S.

Food and Drug Administration (“FDA”) approval for its first candidate, VYJUVEK™ (“VYJUVEK”) for the treatment of Dystrophic Epidermolysis Bullosa (“DEB”) in patients six months or older.

Additionally, the Company received a Rare Pediatric Disease Priority Review Voucher.

VYJUVEK became commercially available upon approval, and the Company expects to begin generating revenue from VYJUVEK product sales in 3Q 2023.

As of June 30, 2023, the Company had an accumulated deficit of $ 359.3 million.

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

The Company may never achieve profitability and unless and until it does, the Company will continue to need to raise additional capital or obtain financing from other sources.

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The Company is subject to risks common to companies in the biotechnology industry, including but not limited to the failure of product candidates in clinical and preclinical studies, the development of competing product candidates or other technological innovations by competitors, dependence on key personnel, protection of proprietary technology, compliance with government regulations and the ability to commercialize product candidates.

The Company expects to incur significant costs to expand its commercialization capabilities in advance of the potential global regulatory approvals of its lead product, beremagene geperpavec (“B-VEC”).

The Company believes that its cash, cash equivalents and short-term investments of approximately $ 350.4 million as of March 31, 2023 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.

The Company expects to incur significant costs to expand its commercialization capabilities in advance of the potential global regulatory approvals of its lead product, VYJUVEK.

The Company believes that its cash, cash equivalents and short-term investments of approximately $ 477.5 million as of June 30, 2023 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.

Summary of Significant Accounting Policies

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

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

These unaudited interim condensed consolidated financial statements should be read in conjunction

with the Company’s audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as filed with the U.S.

Securities and Exchange Commission (“SEC”) on February 27, 2023.

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Estimates are used in the following areas:

stock-based compensation expense, accrued expenses, the fair value of financial instruments, the incremental borrowing rate for lease liabilities, and the valuation allowance included in the deferred income tax calculation.

stock-based compensation expense, accrued expenses, and the valuation allowance included in the deferred income tax calculation.

Segment and Geographical Information

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Financial instruments that potentially subject the Company to credit risk consist of cash, cash equivalents and investments.

The Company’s policy is to invest its cash, cash equivalents and investments in money market funds, corporate bonds, commercial paper, government agency securities and various other bank deposit accounts.

The Company’s policy is to invest its cash, cash equivalents and investments in money market funds, corporate bonds, commercial paper, U.S.

government agency securities and various other bank deposit accounts.

The counterparties to the agreements relating to the Company’s investments consist of financial institutions of high credit standing.

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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 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 less than one year are classified as short-term investments on the condensed consolidated balance sheets and consist of commercial paper, corporate bonds, and U.S.

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.

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In addition, Level 2 financial instruments are valued using comparisons to like-kind financial instruments and models that use readily observable market data as their basis.

The Company capitalizes inventory costs associated with products when future commercialization is considered probable, and a future economic benefit is expected to be realized.

These costs consist of raw materials, manufacturing-related costs, personnel costs including stock-based compensation, facility costs, transportation and freight, and other indirect overhead costs.

Prior to receiving FDA approval for VYJUVEK in May 2023, the Company expensed costs related to inventory for clinical and pre-commercial purposes directly to research and development expense.

Following the FDA’s approval of VYJUVEK, the Company began capitalizing inventory related to commercialized products held for sale, in-process of production for sale, and raw materials to be used in the manufacturing of inventory.

The Company values its inventories at the lower-of-cost and net realizable value, using the first-in, first-out (“FIFO”) basis.

The Company adjusts the net realizable value of any excess, obsolete or unsalable inventories in the period in which an impairment is identified.

For the three and six months ended June 30, 2023 and 2022, there were no inventory impairment adjustments.

As of June 30, 2023, the Company recorded $ 1.1 million of inventory consisting of raw materials and work-in-process within prepaid expense and other current assets on the Company’s condensed consolidated balance sheets.

Property and Equipment, net

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Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell.

The Company has no t identified any triggering events or recognized any impairment losses for the three months ended March 31, 2023 and 2022, respectively.

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

The Company has no t identified any triggering events or recognized any impairment losses for the three and six months ended June 30, 2023 and 2022.

The Company accounts for its lease agreements in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification, or ASC, Topic 842, Leases .

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

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The Company estimates contract research and 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.

Non-refundable advanced payments for goods or services to be received in the future for use in research and development activities are deferred and capitalized.

Non-refundable advanced payments for goods or services to be received in the future for use in research and development activities are capitalized.

The capitalized amounts are expensed as the related goods are delivered or the services are performed.

3 unchanged sentences

Stock-Based Compensation Expense

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.

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

Compensation costs related to equity awards granted are based on the estimated fair value of the awards on the date of grant.

12 unchanged sentences

Treasury securities with a maturity date commensurate with the expected term of the associated award.

The Company has never paid and does not expect

to pay dividends in the foreseeable future.

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

The Company accounts for forfeitures as they occur.

5 unchanged sentences

The Company reviews its securities quarterly to determine whether an other-than-temporary impairment has occurred.

The Company determined that there were no other-than-temporary impairments during the three months ended March 31, 2023 and 2022.

The Company determined that there were no other-than-temporary impairments during the three and six months ended June 30, 2023 and 2022.

Recent Accounting Pronouncements

5 unchanged sentences

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

There were 3,829,535 and 3,226,962 common share equivalents outstanding as of March 31, 2023 and 2022, 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 3,274,066 and 3,686,862 common share equivalents outstanding as of June 30, 2023 and 2022, 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

(In thousands, except share and per share data) 2023 2022 2023 2022

6 unchanged sentences

Fair Value Instruments

The following tables show the Company’s cash, cash equivalents and available-for-sale securities by significant investment category as of March 31, 2023 and December 31, 2022, respectively (in thousands):

March 31, 2023

The following tables show the Company’s cash, cash equivalents and available-for-sale securities by significant investment category as of June 30, 2023 and December 31, 2022, respectively (in thousands):

June 30, 2023

Amortized Cost Gross

33 unchanged sentences

Construction in progress $ 97,759 $ 131,331

Building and building improvements 33,984 —

Leasehold improvements 24,597 24,217

Manufacturing equipment 12,323 9,783

Building and building improvements 9,736 —

Laboratory equipment 2,285 2,089

4 unchanged sentences

Property and equipment, net $ 163,737 $ 161,684

Depreciation expense was $ 1.1 million and $ 462 thousand for the three months ended March 31, 2023 and 2022, respectively.

The Company placed a portion of its second commercial scale CGMP facility, 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 a result, assets relating to ASTRA were reclassified from construction in progress to leasehold improvements, manufacturing equipment, buildings and building improvements, furniture and fixtures, or computer equipment and software as of March 31, 2023.

Depreciation expense was $ 1.2 million and $ 2.3 million for the three and six months ended June 30, 2023 and $ 494 thousand and $ 956 thousand for the three and six months ended June 30, 2022, respectively.

On March 27, 2023, the Company received the permanent occupancy permit for its second commercial scale CGMP facility, ASTRA, which allowed the Company to begin utilizing certain portions of the building.

As a result, certain assets relating to ASTRA were reclassified from construction in progress to leasehold improvements, manufacturing equipment, buildings and building improvements, furniture and fixtures, or computer equipment and software during the first half of 2023.

The Company placed additional portions of ASTRA into service during the three months ended June 30, 2023 as it was determined that additional assets were ready for their intended use.

As certain building improvements are not yet complete 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.

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2023 December 31,

Accrued litigation settlement $ 12,500 $ —

Accrued construction in progress 7,518 11,452

Accrued professional fees 3,839 3,397

Accrued payroll and benefits 4,428 6,781

Accrued professional fees 3,721 3,397

Accrued preclinical and clinical expenses 1,582 1,365

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The Company enters into various agreements in the normal course of business with Contract Research Organizations ("CROs"), Contract Manufacturing Organizations ("CMOs") and other third parties for preclinical research studies, clinical trials and testing and manufacturing services.

The agreements with CMOs primarily relate to the manufacturing of our cell and virus banks and for the manufacturing of our sterile gel that is mixed with in-house produced vectors as part of the final drug product for B-VEC.

Agreements with third parties may also include research and development consulting activities, clinical-

trial agreements, storage, packaging, labeling, and/or testing of our preclinical and clinical-stage or pre-commercial products.

Agreements with third parties may also include research and development consulting activities, clinical-trial agreements, storage, packaging, labeling, and/or testing of our preclinical and clinical-stage or pre-commercial

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

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 estimated remaining commitment as of March 31, 2023 under these agreements is approximately $ 2.0 million.

The Company has incurred research and development expenses under these agreements of $ 2.0 million and $ 1.8 million for the three months ended March 31, 2023 and 2022, respectively.

The estimated remaining commitment as of June 30, 2023 under these agreements is approximately $ 3.0 million.

The Company has incurred research and development expenses under these agreements of $ 1.1 million and $ 3.1 million for the three and six months ended June 30, 2023 and $ 1.2 million and $ 3.0 million for the three and six ended June 30, 2022, respectively.

ASTRA Contractual Obligations

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

The estimated remaining commitment as of March 31, 2023 is $ 11.9 million and primarily relates to the remaining building improvements and certain qualification activities of the facility.

The Company has included costs incurred to-date associated with the ongoing build-out of ASTRA within construction in progress.

As of March 31, 2023, Substantial Completion, as defined in the Standard Form of Contract for Construction and the corresponding General Conditions of the Contract for Construction (the “Agreement”) with Whiting-Turner Contracting Company (“Whiting-Turner”), the construction manager for ASTRA, had not been achieved.

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 may not equate to the date of completion of ASTRA.

The estimated remaining commitment as of June 30, 2023 is $ 10.6 million and primarily relates to the remaining building improvements and certain qualification activities of the facility.

The Company has included costs incurred to-date associated with the ongoing build-out of ASTRA within construction in progress, except for the assets of the facility that have been placed in service.

As of June 30, 2023, Substantial Completion, as defined in the Standard Form of Contract for Construction and the corresponding General Conditions of the Contract for Construction (the “Agreement”) with Whiting-Turner Contracting Company (“Whiting-Turner”), the construction manager for ASTRA, had not been achieved.

Legal Proceedings

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

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

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

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

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

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

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

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

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

("PeriphaGen") alleging breach of contract and misappropriation of trade secrets.

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

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

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

Upon approval of 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.

In accordance with the settlement agreement, on June 15, 2023, the Company paid PeriphaGen an additional $ 12.5 million following the FDA’s approval of VYJUVEK.

The settlement agreement requires the Company to pay 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 upfront settlement payment of $ 25.0 million under litigation settlement expense on the condensed consolidated statements of operations for the three months ended March 31, 2022.

In accordance with ASC Topic 450, Contingencies , the Company has determined that FDA approval of B-VEC is now probable, and accordingly has accrued for an additional $ 12.5 million litigation settlement liability as of March 31, 2023.

The remaining contingent milestone payments were not deemed probable due to uncertainty in the achievement of these milestones as of March 31, 2023, and therefore no additional accrual has been recorded.

The Company has received $ 0 and $ 768 thousand of insurance proceeds during the three months ended March 31, 2023 and 2022, respectively.

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, of which $ 37.5 million has been paid.

The Company recorded the settlement payments of zero and $ 12.5 million for the three and six months ended June 30, 2023, respectively, and zero and $ 25.0 million for the three and six months ended June 30, 2022, respectively, under litigation settlement expense on the condensed consolidated statements of operations for the six months ended June 30, 2023 and June 30, 2022.

In accordance with ASC 450, as of the June 30, 2023, Company has not recorded an accrual for the remaining contingent milestone payments.

The Company did no t receive insurance proceeds during the three and six months ended June 30, 2023 and received zero and $ 768 thousand during the three and six months ended June 30, 2022, respectively.

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.

As of March 31, 2023, future minimum commitments under the Company’s operating leases with lease terms in excess of 12 months were as follows (in thousands):

2023 (remaining nine months) $ 1,240

As of June 30, 2023, future minimum commitments under the Company’s operating leases with lease terms in excess of 12 months were as follows (in thousands):

2023 (remaining six months) $ 828

Thereafter 10,763

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

March 31, 2023 December 31, 2022

2023 December 31, 2022

Operating leases:

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Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

Operating lease expense $ 440 $ 391 $ 902 $ 800

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Capitalization

The Company sold shares of common stock from time to time pursuant to its previously executed sales agreement (the "Sales Agreement") with Cowen and Company, LLC ("Cowen") with respect to an at-the-market equity offering program ("ATM Program") finalized on December 31, 2020, under which Cowen acted as the Company's agent and/or principal and could issue and sell from time to time, during the term of the Sales Agreement, shares of common stock having an aggregate offering price up to $ 150.0 million ("Placement Shares").

The issuance and sale of the Placement Shares by the Company under the Sales Agreement were made pursuant to the Company's effective "shelf" registration statement on Form S-3.

There were no shares issued under the ATM Program during the three months ended March 31, 2023 and 2022.

As of March 31, 2023, there was a remaining $ 102.5 million available for issuance under the ATM Program.

The ATM Program expired on May 4, 2023.

On December 31, 2020, the Company entered into a sales agreement with Cowen and Company, LLC ("Cowen") with respect to an at-the-market equity offering program ("2020 ATM Program"), under which the Company issued and sold from time to time through Cowen, acting as agent and/or principal, shares of its common stock, par value $ 0.0001 per share, having an aggregate offering price up to $ 150.0 million ("Placement Shares").

The issuance and sale of the Placement Shares were made pursuant to the Company's effective "shelf" registration statement on Form S-3 that was filed with the Securities and Exchange Commission (the “SEC”) on May 4, 2020 (the “2020 Shelf Registration Statement”).

During the six months ended June 30, 2022, the Company issued and sold 434,782 Placement Shares 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.

The Company’s 2020 Shelf Registration Statement expired on May 4, 2023, and the Company put in place a new at-the-market equity offering program under substantially the same terms as the 2020 ATM Program (the “New ATM Program”).

Accordingly, on May 8, 2023, the Company entered into a new sales agreement with Cowen to issue and sell shares of the Company’s common stock having an aggregate offering price of up to $ 150.0 million (the “New Placement Shares”) from time to time, under which Cowen will act as the Company’s agent and/or principal.

The New Placement Shares will be offered and sold pursuant to the Company’s effective shelf registration statement on Form S-3 filed with the SEC on April 6, 2023, and a prospectus supplement relating to the New Placement Shares that was filed with the SEC on May 8, 2023.

During the quarter

ended June 30, 2023, no shares of common stock were issued pursuant to the New ATM Program, resulting in $ 150.0 million available for issuance under the New ATM Program.

2023 Private Placement Offering

On May 22, 2023 and May 23, 2023, the Company sold 1,720,100 and 9,629 shares of common stock, respectively, in a private placement to certain institutional investors at a price of $ 92.50 per share for aggregate net proceeds of $ 160.0 million.

In addition, the Company entered into a Registration Rights Agreement with the investors (“Registration Rights Agreement”) that required the Company to file a registration statement with the SEC within 60 days of the date of the Registration Rights Agreement registering the resale of the shares of common stock issued in the private placement.

On July 18, 2023, the Company filed the resale registration statement on Form S-3ASR with the SEC, which became effective upon filing.

Stock-Based Compensation

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Stock options have a life of ten years .

The Company granted 287,600 and 1,179,500 stock options to employees, non-employees, and directors of the Company during the three months ended March 31, 2023 and 2022, respectively.

The Company granted 101,680 and 389,280 stock options to employees, non-employees, and directors of the Company during the three and six months ended June 30, 2023 and 589,500 and 1,769,000 to employees, non-employees, and directors of the Company during the three and six months ended June 30, 2022, respectively.

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

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Expired — $ —

Outstanding at March 31, 2023 3,785,135 $ 62.75 8.5 $ 66,066

Exercisable at March 31, 2023 961,428 $ 55.08 7.6 $ 24,033

(1) Aggregate intrinsic value represents the difference between the closing stock price of our common stock on March 31, 2023 and the exercise price of outstanding in-the-money options.

The total intrinsic value (the amount by which the fair market value exceeds the exercise price) of stock options exercised during the three months ended March 31, 2023 and 2022 was $ 1.1 million and $ 36 thousand, respectively

The weighted-average grant-date fair value per share of options granted to employees, non-employees, and directors during the three months ended March 31, 2023 and 2022 was $ 56.86 and $ 43.09 , respectively.

There was $ 109.2 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 2.8 years as of March 31, 2023.

The Company has recorded stock-based compensation expense related to the issuance of stock option awards in the condensed consolidated statements of operations for the three months ended March 31, 2023 and 2022 as follows (in thousands):

Three Months Ended March 31,

Outstanding at June 30, 2023 3,229,666 $ 65.04 8.4 $ 169,121

Exercisable at June 30, 2023 778,737 $ 55.83 7.5 $ 47,952

(1) Aggregate intrinsic value represents the difference between the closing stock price of our common stock on June 30, 2023 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, 2023 was $ 26.7 million and $ 27.9 million, respectively, and during the three and six months ended June 30, 2022 was $ 704 thousand and $ 739 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, 2023 was $ 72.95 and $ 61.06 , respectively, and during the three and six months ended June 30, 2022 was $ 42.90 and $ 43.03 , respectively.

There was $ 98.2 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 2.6 years as of June 30, 2023.

The Company has recorded 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, 2023 and 2022 as follows (in thousands):

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

2023 2022 2023 2022

Research and development $ 2,472 $ 1,995 $ 4,825 $ 3,363

1 unchanged sentence

Total stock-based compensation $ 9,450 $ 7,771 $ 18,911 $ 13,720

The fair value of options was estimated at the date of grant using the Black-Scholes valuation model with the following weighted-average assumptions for the three months ended March 31, 2023 and 2022:

Three Months Ended March 31,

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, 2023 and 2022:

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

2023 2022 2023 2022

Expected stock price volatility 75 % 78 % 75 % 78 %

6 unchanged sentences

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 each of the three months ended March 31, 2023 and March 31, 2022.

The Company granted zero RSAs to employees of the Company during each of the three and six months ended June 30, 2023 and June 30, 2022.

Number of Shares Weighted Average

3 unchanged sentences

Surrendered for taxes ( 9,551 ) $ 78.89

Non-vested RSAs as of March 31, 2023

Non-vested RSAs as of June 30, 2023

$ 44,400 $ 78.89

There was $ 3.3 million of unrecognized stock-based compensation expense related to employees’ RSAs that is expected to be recognized over a weighted-average period of 1.9 years as of March 31, 2023.

The Company recorded stock-based compensation expense related to RSAs in the condensed consolidated statement of operations for the three months ended March 31, 2023 and 2022 as follows (in thousands):

Three Months Ended March 31,

There was $ 2.9 million of unrecognized stock-based compensation expense related to employees’ RSAs that is expected to be recognized over a weighted-average period of 1.7 years as of June 30, 2023.

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, 2023 and 2022 as follows (in thousands):

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

2023 2022 2023 2022

General and administrative $ 436 $ 418 $ 868 $ 899

2 unchanged sentences

Restricted stock units (“RSUs”) granted to employees vest ratably over a four-year period.

The Company granted 186,900 and zero RSUs to employees of the Company during the three months ended March 31, 2023, and 2022, respectively.

The Company granted zero and 186,900 RSUs to employees of the Company during the three and six months ended June 30, 2023, and zero RSUs during the three and six months ended June 30, 2022, respectively.

Number of Shares Weighted Average

2 unchanged sentences

Surrendered or forfeited ( 14,200 ) $ 81.91

Non-vested RSUs as of March 31, 2023

Non-vested RSUs as of June 30, 2023

172,700 $ 81.91

There was $ 15.0 million of unrecognized stock-based compensation expense related to employees’ RSU awards that is expected to be recognized over a weighted-average period of 3.9 years as of March 31, 2023.

The Company recorded stock-based compensation expense related to RSUs in the condensed consolidated statement of operations for the three months ended March 31, 2023 and 2022 as follows (in thousands):

Three Months Ended March 31,

There was $ 13.0 million of unrecognized stock-based compensation expense related to employees’ RSU awards that is expected to be recognized over a weighted-average period of 3.7 years as of June 30, 2023.

The Company recorded stock-based compensation expense related to RSUs in the condensed consolidated statement of operations for the three and six months ended June 30, 2023 and 2022 as follows (in thousands):

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

2023 2022 2023 2022

Research and Development $ 391 $ — $ 534 $ —

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On a quarterly basis, management estimates the probable number of PSU’s that would vest until such time that the ultimate achievement of the performance criteria are known.

As of March 31, 2023, the Company estimates that 100 % of the PSUs granted will be eligible to vest.

The Company granted 60,000 and zero PSUs to employees of the Company during the three months ended March 31, 2023 and 2022, respectively.

As of June 30, 2023, the Company estimates that 100 % of the PSUs granted will be eligible to vest.

The Company granted zero and 60,000 PSUs to employees of the Company during the three and six months ended June 30, 2023 and zero PSUs during the three and six months ended June 30, 2022.

Number of Shares Weighted Average

2 unchanged sentences

Surrendered or forfeited —

Non-vested PSUs as of March 31, 2023

Non-vested PSUs as of June 30, 2023

60,000 $ 81.91

There was $ 4.7 million of unrecognized stock-based compensation expense related to employees’ PSU awards that is expected to be recognized over a weighted-average period of 1.9 years as of March 31, 2023.

The Company recorded stock-based compensation expense related to PSUs in the condensed consolidated statement of operations for the three months ended March 31, 2023 and 2022 as follows (in thousands):

Three Months Ended March 31,

There was $ 4.1 million of unrecognized stock-based compensation expense related to employees’ PSU awards that is expected to be recognized over a weighted-average period of 1.7 years as of June 30, 2023.

The Company recorded stock-based compensation expense related to PSUs in the condensed consolidated statement of operations for the three and six months ended June 30, 2023 and 2022 as follows (in thousands):

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

2023 2022 2023 2022

General and administrative $ 613 $ — $ 828 $ —

Total stock-based compensation $ 613 $ — $ 828 $ —

Shares remaining available for grant under the Company’s stock incentive plan were 1,005,626 , with a sublimit for incentive stock options of 2,629 , at March 31, 2023.

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

There was $ 162 thousand and $ 141 thousand of stock-based compensation that was capitalized in the three months ended March 31, 2023 and 2022, respectively.

Shares remaining available for grant under the Plan were 1,126,321 , with a sublimit for incentive stock options of 4,282 , at June 30, 2023.

Following the FDA approval of VYJUVEK on May 19, 2023, the Company began capitalizing stock-based compensation associated with the allocation of labor costs related to work performed to manufacture VYJUVEK.

For the three and six months ended June 30, 2023, the Company capitalized $ 112 thousand in prepaid expenses and other current assets.

Historically, the Company capitalized the portion of stock-based compensation related to work performed on the construction of manufacturing facilities.

There was zero and $ 162 thousand and of stock-based compensation that was capitalized in property and equipment during the three and six months ended June 30, 2023 and $ 146 thousand and $ 287 thousand capitalized during the three and six months ended June 30, 2022, respectively.

Subsequent Events

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

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

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

Andrew Orth, the Company’s Chief Commercial Officer, notified the Company that he was resigning from his position and his last day with the Company was August 2, 2023.

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