What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-07 compared with 2023-05-08 · 165 added, 107 removed, 154 unchanged (64% 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 ) and our other product candidates;

• the initiation, timing, cost, progress and results, of our research and development activities, preclinical studies and clinical trials for our product candidates;

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

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• 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 and our other product candidates;

• changes in our estimates regarding the potential market opportunity for our FDA-approved product, VYJUVEK TM (beremagene geperpavec-svdt) (also known as “B-VEC” where not approved), and our product candidates;

• our ability to raise capital to fund our operations;

• increases in costs associated with our research and development programs for our product candidates;

• our general and administrative expenses;

• increases in our general and administrative expenses;

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

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• 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, 2022 and in other filings we

make with the SEC from time to time.

Forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in (i) Item 1A of Part II of this Quarterly Report on Form 10-Q, (ii) “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, (iii) Exhibit 99.2 to our Form 8-K filed with the Securities and Exchange Commission (“SEC”) on May 19, 2023, and (iv) other filings we make with the SEC from time to time.

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

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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.

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

The cell’s own machinery then transcribes and translates the encoded effector to treat or prevent disease.

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

Our goal is to develop easy-to-use medicines to dramatically improve the lives of patients living with rare diseases and chronic conditions.

Our innovative technology platform is supported by in-house, commercial scale CGMP manufacturing capabilities.

Our Product Candidates

The following table summarizes information regarding our product candidates in various stages of clinical and preclinical development:

There can be no assurance that the upcoming milestones will be met on the expected timeline or at all.

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 CGMP manufacturing facilities.

Our US FDA Approved Product

On May 19, 2023, the United States Food and Drug Administration (the “FDA”) approved VYJUVEK, the first ever re-dosable gene therapy for treating patients, greater than six months of age or older, suffering from Dystrophic Epidermolysis Bullosa (“DEB”), a rare and severe monogenic disease that affects the skin and mucosal tissues and is caused by one or more mutations in a gene called COL7A1 .

VYJUVEK is a redosable topical gel containing our novel vector designed to deliver two copies of the COL7A1 transgene to a patient’s skin cells to produce the COL7 protein.

VYJUVEK is the first and only medicine approved by the FDA for the treatment of DEB, both recessive and dominant, that can be administered by a healthcare professional in either a healthcare professional setting or in the home.

We possess exclusive, worldwide rights to develop, manufacture, and commercialize VYJUVEK and all our pipeline candidates.

Commercialization in the US began immediately following FDA approval, including:

(i) accepting Patient Start Forms;

(ii) efforts to support physician education and utilization;

and (iii) facilitating patients’ access to therapy through Krystal Connect TM , our personalized support program.

Through Krystal Connect, we have been accepting Patient Start Forms submitted by healthcare professionals, and we are working with payers for coverage authorization by way of prior authorizations and medical exceptions.

As of June 30, 2023, the Company received 121 Patient Start Forms of which 30 Patient Start Forms were generated for patients with dominant DEB.

Going forward, we intend to report on the number of Patient Start Forms submitted to Krystal Connect in our quarterly reports for the first three quarters following VYJUVEK approval and then transition to reporting the number of Patients on Therapy starting in Q1 2024.

In July 2023, we received a positive opinion from the European Medicines Agency (the “EMA”) Pediatric Committee on the Pediatric Investigation Plan for B-VEC for the treatment of DEB with no additional studies required.

We plan to submit a market authorization application to the EMA in the second half of 2023 and anticipate a potential launch in the European Union in the second half of 2024.

In July 2023, the Pharmaceuticals and Medical Agency in Japan officially accepted the open label extension study of B-VEC, and we intend to start an open label extension study of B-VEC in Japan in the second half of 2023 and file for approval in Japan in 2024.

Pipeline Highlights and Recent Developments

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 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.

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.

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 protein.

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.

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 (“CF”), a serious rare lung disease caused by missing or mutated CFTR protein.

On July 3, 2023, we announced that we dosed the first patient in a Phase 1 clinical trial (“CORAL-1/US”) of KB407 for the treatment of CF, regardless of a patient’s underlying genotype, We anticipate announcing data from the Phase 1 study in 2024.

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

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.

We faced pandemic, logistical and recruiting challenges with respect to our intended Phase 1 clinical study in Australia (CORAL-AU) and, as we were successful in initiating our CORAL-1/US study prior to the initiation of our CORAL-AU study, we have terminated our study in Australia to focus on completing the Phase 1 study entirely in the US.

The Company is using the Aerogen Solo® Nebulizer System and Aerogen® Ultra in its Phase 1 CORAL-1/US study evaluating KB407.

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 planning to file an Investigational New Drug (“IND”) application for KB408 to treat AATD patients in the second half of 2023.

On July 26, 2023, we announced that we expanded our R&D pipeline to oncology, leveraging our prior experience in skin and lung tissue for local delivery of immune boosting cytokines to the tumor microenvironment.

Our lead oncology product candidate, KB707, is a modified HSV-1 vector designed to deliver genes encoding both human IL-12 and IL-2 to the tumor microenvironment and promote systemic immune-mediated tumor clearance.

KB707 targets solid tumors that are accessible via intratumoral injection or inhalation, and we intend to advance both routes of administration into clinical studies.

The FDA has accepted our IND application to evaluate intratumoral injection of KB707 in a clinical trial to treat patients with locally advanced or metastatic solid tumor malignancies.

The FDA also granted KB707 fast track designation to

delay disease progression in the treatment of patients with anti-PD-1 relapsed/refractory locally advanced or metastatic melanoma.

Details of the Phase 1 study can be found www.clinicaltrials.gov under NCT identifier NCT05970497.

We expect to dose our first patient in the second half of 2023.

We plan to file an amendment to our existing KB707 IND in the second half of 2023 to allow us to evaluate inhaled (nebulized) KB707 in a clinical trial to treat tumors in a patient’s lungs.

We expect to dose our first patient with inhaled KB707 in the first half of 2024.

KB105 is a topical gel containing our novel vector designed to deliver two copies of the TGM1 transgene for the treatment of TGM1-ARCI, a serious rare skin disorder caused by missing or mutated TGM1 protein.

In July 2021, we announced complete data from the Phase 1/2 trial, a randomized placebo-controlled study, 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 are working with the FDA to ensure that we are aligned on the clinical endpoints in the pivotal trial prior to initiating a Phase 2 study in pediatric patients.

As such, we now intend to commence the KB105 Phase 2 study in 2024.

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

As we continually evaluate the priority of our expanding pipeline portfolio, we now anticipate filing an IND application and initiating a clinical trial of KB104 to treat patients with Netherton Syndrome in late 2024.

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.

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).

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 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.

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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.

Subjects will be followed for three months after KB301 treatment, and Jeune plans to announce results from this study in the second half of 2023.

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

Details of the Phase 1 study can be found at www.clinicaltrials.gov under NCT identifier (NCT04540900).

Jeune has several other aesthetic genetic medicine product candidates in various stages of preclinical development.

Business Highlights and Recent Developments

In May 2023, the Company entered into a securities purchase agreement for the sale of 1,729,729 shares of its common stock at $92.50 per share in a private placement (the “PIPE”) to certain qualified institutional buyers.

The PIPE financing was led by Avoro Capital Advisors and Redmile Group, LLC with participation from Braidwell LP and Frazier Life Sciences.

Net proceeds from the PIPE were $160.0 million.

COVID-19 Update

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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.

Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as filed with the SEC on February 27, 2023.

Financial Overview

We currently have no approved products for commercial marketing or sale and have not generated any revenue from the sale of products or other sources to date.

In the future, we may generate revenue from product sales, royalties on product sales, or license fees, milestones, or other upfront payments if we enter into any collaborations or license agreements.

We expect that our future revenue will fluctuate from quarter to quarter for many reasons, including the uncertain timing and amount of any such sales.

On May 19, 2023, we received FDA approval for VYJUVEK for the treatment of DEB in patients six months or older.

We have not generated any revenue from the sale of products or other sources as of June 30, 2023.

VYJUVEK became commercially available upon approval and we expect to begin generating revenue from VYJUVEK product sales in 3Q 2023.

Our future revenue will fluctuate from quarter to quarter for many reasons, including the uncertain timing and amount of any such sales.

Cost of Goods Sold

As noted above, we expect to generate revenue and cost of goods sold for VYJUVEK product sales in 3Q 2023.

Due to the timing of FDA approval and the Company’s manufacturing schedule, a majority of the costs associated with VYJUVEK inventory manufactured for the commercial launch was previously expensed as research and development.

The Company anticipates that the previously expensed inventory will favorably impact the Company’s gross margin.

The Company is still evaluating the impact of previously expensed inventories on future costs of goods sold.

Research and Development Expenses

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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, 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.

In the near term, we expect that our research and development expenses will increase as we resume dosing with KB105 Phase 1/2 clinical trial, continue the Phase 1, Cohort 3 study and initiate a Phase 2 trial for KB301, continue the Phase 1 trial for KB407, initiate a Phase 1 trial for KB707, 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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ASTRA Capital Expenditures

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.

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.

In March 2021, we closed on the purchase of the building that was constructed to house our second CGMP facility, ASTRA and we are currently in the process of completing the interior build-out of this facility..

The Company placed a portion

of ASTRA into service during the three and six months ended June 30, 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.

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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.

There have been no significant changes during the three and six months ended June 30, 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 March 31, 2023 and 2022

Three Months Ended March 31,

Three Months Ended June 30, 2023 and 2022

Three Months Ended June 30,

2023 2022 Change

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General and administrative 25,904 17,863 8,041

Litigation settlement 12,500 25,000 (12,500)

Total operating expenses 38,048 28,753 9,295

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Research and Development Expenses

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 increased $1.3 million in the three months ended June 30, 2023 compared to the three months ended June 30, 2022.

The increase was primarily due to increased payroll related expenses of $2.3 million, which were primarily driven by an increase in headcount to support overall growth, and includes a $868 thousand increase in stock-based compensation, an increase in depreciation of $644 thousand, and increased other research and development expenses of $188 thousand, which consisted of increased facilities and license and regulatory fees, offset by decreased outsourced research and development costs.

The increase was partially offset by decreases in preclinical, clinical and pre-commercial manufacturing expenses of $1.8 million, due to the costs related to the manufacturing of VYJUVEK following FDA approval being recorded as inventory, and 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.

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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,

The following table summarizes our research and development expense by product candidate or program, and for unallocated expenses, by type, for the three months ended June 30, 2023 and 2022:

Three Months Ended June 30,

(in thousands) 2023 2022 Change

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

VYJUVEK $ 2,130 $ 1,730 $ 400

KB105 10 90 (80)

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KB301 77 160 (83)

KB707 943 — 943

Other dermatology programs 6 68 (62)

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(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.

As noted above, research and development expense increased $1.3 million in the three months ended June 30, 2023 compared to the three months ended June 30, 2022.

Expenses for VYJUVEK increased $400 thousand, due to increased OLE clinical trial costs, license and regulatory costs and increased allocated research and development expenses.

Spending on KB707 programs increased by $943 thousand due primarily to increased internal resources and other payroll related costs to support continued research and increases in contract research expenses.

Stock-based compensation increased $868 thousand due to an increase in internal resources to support overall research and development growth.

Additionally, other unallocated expenses increased $525 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.

These increases were offset by a decrease in other unallocated manufacturing expenses of $833 thousand due to the costs related to the manufacturing of VYJUVEK following FDA approval being recorded as inventory and 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 $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.

General and administrative expenses increased $8.0 million in the three months ended June 30, 2023 as compared to the three months ended June 30, 2022.

Higher general and administrative spending was due largely to increases in payroll related expenses of approximately $5.9 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 $2.3 million increase in stock-based compensation, increased legal and professional costs of $525 thousand, an increase in costs in costs due to preparation for commercialization and launch of VYJUVEK including increased information technology infrastructure costs of $643 thousand, increased software-related costs of $411 thousand, increased marketing costs of $404 thousand, and increased travel related costs of $274 thousand, and an increase in other general and administrative expenses of $165 thousand.

These increases were partially offset by a decreased business development costs of $307 thousand.

Interest and Other Income

Interest and other income for the three months ended June 30, 2023 and 2022 was $4.8 million and $645 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.

Six Months Ended June 30, 2023 and 2022

Six Months Ended June 30,

2023 2022 Change

(In thousands) (unaudited)

Research and development $ 24,432 $ 20,204 $ 4,228

General and administrative 49,939 33,771 16,168

Litigation settlement 12,500 25,000 (12,500)

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

Total operating expenses 86,871 78,975 7,896

Loss from operations (86,871) (78,975) (7,896)

Interest and other income, net 8,364 902 7,462

Net loss $ (78,507) $ (78,073) $ (434)

Research and Development Expenses

Research and development expenses increased $4.2 million in the six months ended June 30, 2023 compared to the six months ended June 30, 2022.

The increase was primarily due to increased payroll related expenses of $4.7 million, which were primarily driven by an increase in headcount to support overall growth, and includes a $2.0 million increase in stock-based compensation, an increase in depreciation of $1.3 million, and increased other research and development expenses of $1.1 million, primarily due to facilities expenses and licenses and regulatory fees.

These increases were partially offset by decreases in preclinical, clinical and pre-commercial manufacturing expenses of $2.9 million, due to the costs related to the manufacturing of VYJUVEK following FDA approval being recorded as inventory and and due fewer receipts of raw materials and lab supplies period over period that were purchased for planned manufacturing runs of the Company’s products.

The following table summarizes our research and development expense by product candidate or program, and for unallocated expenses, by type, for the six months ended June 30, 2023 and 2022:

Six Months Ended June 30,

(in thousands) 2023 2022 Change

VYJUVEK 4,520 3,332 $ 1,188

KB105 243 106 137

KB407 819 931 (112)

KB301 329 382 (53)

KB707 1,408 — 1,408

Other dermatology programs 14 67 (53)

Other respiratory programs 419 397 22

Other aesthetics programs 14 67 (53)

Other research programs 258 440 (182)

Other development programs 529 286 243

Stock-based compensation 5,359 3,363 1,996

Other unallocated manufacturing expenses (1)

7,456 8,972 (1,516)

Other unallocated expenses (2)

3,064 1,861 1,203

Research and development expense $ 24,432 $ 20,204 $ 4,228

(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 $4.2 million in the six months ended June 30, 2023 compared to the six months ended June 30, 2022.

Expenses for VYJUVEK increased $1.2 million, 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.

Due to the expansion of our research and development pipeline to oncology, KB707 spending increased $1.4 million primarily due to increased payroll related costs and increased contract research costs.

Stock-based compensation increased $2.0 million due to an increase in internal resources to support overall research and development growth.

Additionally, other unallocated expenses increased $1.2 million primarily related to increases in depreciation expense.

These increases were offset by a decrease in other unallocated manufacturing expenses of $1.5 million due to the costs related to the manufacturing of VYJUVEK following FDA approval being recorded as inventory and 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 $16.2 million in the six months ended June 30, 2023 as compared to the six months ended June 30, 2022.

Higher general and administrative spending was due largely to increases in payroll related expenses of approximately $12.9 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 $5.2 million increase in stock-based compensation, an increase in costs due to preparation for commercialization and launch of VYJUVEK including increased marketing costs of $1.3 million, increased information technology infrastructure costs of $1.1 million, increased software-related costs of $664 thousand, increased travel related costs of $505 thousand, and an increase in other general and administrative expenses of $557 thousand, which consisted primarily of increased conference costs and utilities costs.

These increases were partially offset by decreases in business development costs of $517 thousand and medical affairs costs of $397 thousand.

Litigation Settlement

Litigation settlement for the six months ended June 30, 2023 and 2022 was $12.5 million and $25.0 million, respectively, and consisted of amounts related to the settlement of litigation with PeriphaGen.

See "Legal Proceedings" in Note 6 of the notes to condensed consolidated financial statements included in this Form 10-Q for more information.

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.

Interest and other income for the six months ended June 30, 2023 and 2022 was $8.4 million and $902 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 March 31, 2023, our cash, cash equivalents and short-term investments balance was approximately $350.4 million.

At June 30, 2023, our cash, cash equivalents and short-term investments balance was approximately $477.5 million.

Since operations began, we have incurred operating losses.

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.

Our net losses were $33.2 million and $78.5 million for the three and six months ended June 30, 2023, respectively, and $28.1 million and $78.1 million for the three and six months ended June 30, 2022, respectively.

At June 30, 2023, we had an accumulated deficit of $359.3 million.

We believe that our cash, cash equivalents and short-term investments as of June 30, 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, 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.

Costs related to clinical trials can be unpredictable and therefore there can be no guarantee that we will have sufficient capital to fund our commercialization of VYJUVEK, our continued clinical studies of 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 the third quarter of 2023, at the earliest.

While we are in the process of building out our internal vector manufacturing capacity, some of our manufacturing activities will be contracted out to third parties.

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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, KB407, KB301 or any other product candidate.

Furthermore, pursuant to our settlement agreement with PeriphaGen, we paid $12.5 million upon the approval of VYJUVEK by the FDA, and will be required 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.

Our funds may not be sufficient to enable us to conduct pivotal clinical trials for, seek marketing approval for or commercial launch of VYJUVEK, KB105, KB407, KB301, KB707 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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Our future funding requirements will depend on many factors, including, but not limited to:

• the timeline and cost of our OLE study for B-VEC;

• the progress, timing and costs of our ongoing Phase 1/2 clinical trials for KB105;

• the progress, 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 costs needed to commercialize and market our lead product, VYJUVEK;

• the cost of our OLE study for VYJUVEK;

• the progress, timing and costs of clinical trials of our current product candidates;

• the progress, timing and costs of manufacturing of VYJUVEK and revenue received from commercial sale of VYJUVEK;

• 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;

• the initiation, scope, progress, timing, costs and results of drug discovery, laboratory testing, manufacturing, preclinical studies and clinical trials for any product candidates that we may pursue in the future, if any;

• the costs of maintaining our own commercial-scale CGMP manufacturing facilities;

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Sources and Uses of Cash

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,

The following table summarizes our sources and uses of cash for the six months ended June 30, 2023 and 2022 (in thousands):

Six Months Ended June 30,

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

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

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

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

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 $ (21,155) $ (71,943)

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

Operating Activities

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.

Net cash used in operating activities for the six months ended June 30, 2023 was $60.3 million and consisted primarily of a net loss of $78.5 million adjusted for non-cash items primarily comprised of stock-based compensation expense of $21.8 million, depreciation and amortization of $1.7 million and other adjustments of $2.4 million, and cash used by increases in net working capital of approximately $3.0 million.

Net cash used in operating activities for the six months ended June 30, 2022 was $58.6 million and consisted primarily of a net loss of $78.1 million adjusted for non-cash items primarily comprised of depreciation and amortization and stock-based compensation expense of $16.4 million, and including increases from net changes in operating assets and liabilities of approximately $3.1 million.

Investing Activities

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.

Net cash provided by investing activities for the six months ended June 30, 2023 was $12.4 million and consisted primarily of proceeds of $315.7 million received from the maturities of short-term investments, partially offset by expenditures of $8.2 million on the build-out of our ASTRA facility, leasehold improvement of new office space, and purchases of computer and laboratory equipment, and $320.0 million on the purchase of short-term and long-term investments.

Net cash used in investing activities for the six months ended June 30, 2022 was $94.1 million and consisted primarily of expenditures of $33.7 million on the build-out of our ASTRA facility, leasehold improvement of new office space, and purchases of computer and laboratory equipment, $147.3 million on the purchase of short-term and long-term investments, partially offset by proceeds of $86.8 million received from the maturities of short-term investments.

Financing Activities

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.

Net cash provided by financing activities for the six months ended June 30, 2023 was $186.7 million and consisted primarily of proceeds of $160.0 million received from a private placement equity offering and proceeds of $27.7 million from exercises of stock options, partially offset by $749 thousand used for the employee tax withholding payment for settlement of vested restricted stock awards.

Net cash provided by financing activities for the six months ended June 30, 2022 was $30.2 million and consisted primarily of proceeds of $30.8 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 six months

ended June 30, 2022, the Company issued and sold 434,782 shares of common stock at a weighted average price of $69.00 per share for net proceeds of $29.1 million after deducting underwriting discounts and commissions of approximately $900 thousand.

For the six months ended June 30, 2022, the Company received proceeds of $1.7 million from the exercise of stock options.

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