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Item 7. Management’s Discussion and Analysis

2024-02-26 compared with 2023-02-27 · 285 added, 157 removed, 151 unchanged (75% of the section changed)

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We caution readers not to place undue reliance on any forward-looking statements made by us, which speak only as of the date they are made.

We disclaim any obligation, except as specifically required by law and the rules of the SEC, to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.

We disclaim any obligation, except as specifically required by law and the rules of the U.S.

Securities and Exchange Commission, or SEC, to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.

This section of this Form 10-K generally discusses 2023, 2022 and 2021 items and year-to-year comparisons between 2023 and 2022, and 2022 and 2021 of the Company ’ s results of operations and cash flows.

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.

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

Using our patented gene therapy technology 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.

Refer to Part I, Item 1 - Business for more information about our clinical development pipeline and research programs and the status of our product candidates.

Pipeline Highlights and Recent Developments:

• B-VEC is a topical gel containing our novel vector designed to deliver two copies of the COL7A1 transgene for the treatment of DEB, a serious rare skin disease caused by missing or mutated COL7 protein.

We submitted a 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 with a PDUFA action date of February 17, 2023.

In January 2023, the FDA notified us, that based on manufacturing information submitted to the Agency on December 20, 2022 in response to an information request from the FDA, the PDUFA date has been revised to May 19, 2023.

In this notification, we were also informed that there will be no Advisory Committee meeting for B-VEC and a REMS program is not needed for the B-VEC application.

Commercial readiness efforts have been underway for the past two years as we prepare for the potential approval of B-VEC by the FDA and the EMA.

In the United States our Medical Science Liaisons have been interacting with and educating HCPs on DEB and the importance of genetic testing in ensuring an accurate diagnosis.

We have completed the build of Krystal Connect, our US in-house patient services call center staffed with Krystal employees, and are ready, pending FDA approval of B-VEC, to assist patients, care givers and HCPs interested in accessing B-VEC.

Additionally, we have hired, trained and deployed commercial field teams who are interacting with physicians, patients, commercial payers across the U.S.

to educate on DEB and to prepare for a U.S.

launch of B-VEC.

We are interacting frequently with the leading physicians in the major markets across Europe and in Japan.

• We submitted a request for MAA with the 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 PIP waiver request to include patients between birth and 6 months.

The Company is modifying the application 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-ARCI, a serious rare skin disorder caused by missing or mutated TGM1 protein.

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

Our innovative technology platform is supported by an in-house, FDA-inspected, commercial scale Current Good Manufacturing Practice (“CGMP”) manufacturing facility and a second, completed and qualified, commercial scale CGMP facility to support future expansion.

Refer to Part I, Item 1 - Business for more information about our United States Food and Drug Administration (“FDA”) approved product, VYJUVEK ® , clinical development pipeline and research programs, and the status of our product candidates.

Highlights and Recent Developments

VYJUVEK (beremagene geperpavec-svdt or B-VEC;

referred to as B-VEC outside the U.S.)

In May 2023, the FDA approved B-VEC for the treatment of patients, six months of age or older, suffering from dystrophic epidermolysis bullosa (“DEB”).

FDA approval was based, in part, on our pivotal Phase 3 clinical trial, a randomized, double-blind, intra-patient placebo-controlled multi-center study, that demonstrated that B-VEC was both well-tolerated and significantly improved wound closure in DEB patients.

Clinical data from our registrational Phase 3 B-VEC trial were published in the New England Journal of Medicine in December 2022.

B-VEC is marketed as VYJUVEK in the United States and is the first and only corrective medicine approved by the FDA for the treatment of DEB, both recessive and dominant.

VYJUVEK can be administered by a healthcare professional in either a healthcare professional or home setting.

We launched VYJUVEK in the United States in the second quarter of 2023.

Net product revenue for VYJUVEK for the year ended December 31, 2023 was $50.7 million.

We have made steady progress securing access and reimbursement for VYJUVEK since launch and have secured positive policies or coverage decisions from plans covering over 93% of commercial and Medicaid lives in the United States.

In January 2024, we announced that the United States Centers for Medicare & Medicaid Services, or CMS, had assigned a permanent and product-specific J-code (J3401) for VYJUVEK, effective on January 1, 2024.

We seek to make the patient experience of starting and continuing on VYJUVEK treatment as seamless as possible.

Since launch, the infrastructure has been in place for patients to be treated in their home by a healthcare provider, or HCP, reducing the need for regular visits to a clinic or hospital.

Krystal Connect TM , our U.S.

in-house patient services call center, has been active since FDA approval and assists patients, care givers and HCPs interested in accessing VYJUVEK.

We also continue to offer no-cost genetic testing through our DecodeDEB program.

Through the end of 2023, patient compliance with once weekly VYJUVEK treatment has been 96%.

We continue to pursue development and commercialization activities to maximize access to B-VEC in the United States and globally.

Recent highlights subsequent to FDA approval are summarized below:

• In December 2023, B-VEC was granted orphan drug designation, or ODD, status for the treatment of DEB by the Japan Ministry of Health, Labour and Welfare, a designation which confers specific benefits for orphan drug development including priority review of applications, extended registration validity, and reduced development costs.

We anticipate filing our Japan New Drug Application with Japan’s Pharmaceuticals and Medical Devices Agency (“PMDA”) in the second half of 2024 enabling a potential authorization in 2025

• In October 2023, we submitted a Marketing Authorization Application (“MAA”) to the European Medicines Agency (“EMA”) for B-VEC for the treatment of DEB in patients from birth.

In November 2023, we were notified that the MAA had been validated and was now under Committee for Medicinal Products for Human Use review.

We expect an EMA decision on our MAA in the second half of 2024.

• In July 2023, the PMDA in Japan officially accepted the open label extension (“OLE”) study of B-VEC.

Following that acceptance, we initiated the Japan OLE study and completed study enrollment.

A total of 5 Japanese DEB patients have been enrolled.

Details of the study can be found at jrct.niph.go.jp under JRCT ID jRCT2053230075.

Nothing included on this website shall be deemed incorporated by reference into this Annual Report on Form 10-K.

• In April 2023, we announced clinical data on the compassionate use of B-VEC, administered as an eye drop, to treat a patient suffering from ocular complications of DEB.

Data were first presented at the Association for Research in Vision and Ophthalmology 2023 Annual Meeting in April 2023, and subsequently published in the New England Journal of Medicine in February 2024.

Regular application of B-VEC to the eye was well tolerated and associated with full corneal healing at 3 months and visual acuity improvement from hand motion to 20/25 by 8 months.

Based on this early clinical evidence of safety and potential benefit under compassionate use, we started discussions with the FDA in the first quarter of 2024 to align on a potential clinical development path for ophthalmic B-VEC.

• In January 2024, the United States Patent and Trademark Office, or USPTO, issued U.S.

11,865,148, covering methods of delivering human transgenes to the eye using replication-incompetent HSV-1.

This patent covers the administration of B-VEC to the eye, as well as novel applications of our HSV-1 based platform to deliver genetic material to the eye via multiple routes of administration for the potential treatment of genetic eye diseases.

The patent expires in 2037.

Refer to Part I, Item 1 - Business for more information about our intellectual property and issued patents.

• In February 2024, the FDA agreed with our proposed single arm, open label study in approximately 10 patients to enable approval of B-VEC eyedrops to treat ocular complications which are thought to affect over 25% of DEB patients.

We plan to initiate this study in the second half of 2024.

• KB407 is an inhaled (nebulized) formulation of our novel vector designed to deliver two copies of the full-length cystic fibrosis transmembrane conductance regulator, or CFTR, transgene for the treatment of cystic fibrosis (“CF”), a serious rare lung disease caused by missing or mutated CFTR protein.

In August 2022, we announced that the FDA had accepted our investigational new drug (“IND”) application to evaluate KB407 in a clinical trial to treat patients with cystic fibrosis.

In July 2023, we dosed the first patient in our Phase 1 CORAL-1 study evaluating KB407, delivered via a nebulizer, for the treatment of patients with CF.

The CORAL-1 study is a multi-center, dose-escalation trial of KB407 in patients with CF, regardless of their underlying genotype.

In the fourth quarter of 2023, we completed the first cohort of the CORAL-1 study with no severe or serious adverse events and, in January 2024, we initiated dosing in the second of three cohorts.

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

Nothing included on this website shall be deemed incorporated by reference into this Annual Report on Form 10-K.

In January 2023, the European Commission granted Orphan Designation for KB407 for the treatment of CF.

• 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, or AATD.

In September 2023, the FDA accepted our IND application to evaluate KB408, delivered via a nebulizer, in a clinical trial to treat patients with AATD.

In February 2024, the Company dosed the first patient in the KB408 Phase 1 SERPENTINE-1 study for the treatment of Alpha-1 Antitrypsin Deficiency.

SERPENTINE-1 is a Phase 1 open-label, single dose escalation study in adult patients with AATD with a PI*ZZ genotype.

Three planned dose levels of KB408 will be evaluated in up to 12 patients to evaluate the safety, tolerability, and proof-of-mechanism of KB408.

Cohorts 1 and 2 will focus predominantly on safety with dose escalation and pharmacodynamic activity in the lung will be assessed at the highest dose by bronchoscopy in Cohort 3.

We are working closely with the Alpha-1 Foundation and their Therapeutic Development Network on SERPENTINE-1 study and intend to announce interim data from the study in the second half of 2024.

The FDA granted ODD to KB408 for the treatment of AATD in September 2023.

We presented preclinical pharmacology data for KB408 at the European Society of Gene & Cell Therapy Congress that was held in October 2023.

• KB707 is a redosable, immunotherapy designed to deliver genes encoding both human IL-2 and IL-12 to the tumor microenvironment and promote systemic immune-mediated tumor clearance.

Two formulations of KB707 are in development, a solution formulation for transcutaneous injection and an inhaled (nebulized) formulation for lung delivery.

In July 2023, the FDA granted intratumoral KB707 Fast Track Designation for the treatment of anti-PD-1 relapsed/refractory locally advanced or metastatic melanoma and accepted our IND application to evaluate intratumoral KB707 in a clinical trial to treat patients with locally advanced or metastatic solid tumors.

The study, OPAL-1, is an open-label, multi-center, monotherapy, dose escalation and expansion Phase 1 study, enrolling patients with locally advanced or metastatic solid tumors, who relapsed or are refractory to standard of care, with at least one measurable and injectable tumor accessible by transcutaneous route.

We dosed the first patient in the OPAL-1 study in October 2023 and enrollment is ongoing.

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

Nothing included on this website shall be deemed incorporated by reference into this Annual Report on Form 10-K.

We presented preclinical efficacy data generated in syngeneic mouse models using murine equivalents to KB707 at the Society for Immunotherapy in Cancer Annual Meeting that was held in November 2023.

• In January 2024, the FDA accepted an amendment to our IND application to evaluate inhaled KB707 in a clinical trial to treat patients with locally advanced or metastatic solid tumors of the lung.

We plan on initiating this open-label, multi-center, monotherapy, dose escalation and expansion Phase 1 study, KYANITE-1, in the first half of 2024.

Details of the Phase 1 study can be found at www.clinicaltrials.gov under NCT identifier NCT06228326.

Nothing included on this website shall be deemed incorporated by reference into this Annual Report on Form 10-K.

Inhaled KB707 also received Fast Track Designation from the FDA in February 2024, for the treatment of patients with solid tumors with pulmonary metastases that are relapsed or refractory to standard of care therapy.

• In October 2023, the USPTO issued U.S.

11,779,660, covering compositions of matter containing engineered HSV constructs encoding IL-2 and IL-12, including KB707.

The patent expires in 2042.

Refer to Part I, Item 1 - Business for more information about our intellectual property and issued patents.

• KB105 is a topical gel containing our novel vector designed to deliver two copies of the TGM1 transgene encoding the human enzyme transglutaminase-1 (“TGM1” ) for the treatment of TGM1-deficient autosomal recessive congenital ichthyosis, a serious rare skin disorder caused by missing or mutated TGM1 protein.

A randomized, placebo-controlled Phase 1/2 study is ongoing.

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Nothing included on this website shall be deemed incorporated by reference into this Annual Report on Form 10-K.

We plan to initiate a Phase 2 study in 1H 2023.

• KB104 is a topical gel formulation of our novel vector designed to deliver two copies of the SPINK5 transgene for the treatment of Netherton Syndrome, a debilitating autosomal recessive skin disorder caused by missing or mutated SPINK5 protein.

We plan to resume enrollment in the Phase 2 portion of this trial later in 2024.

In August 2023, the USPTO issued U.S.

11,717,547, the second composition of matter and method of use patent related to KB105.

The patent expires in 2039.

Refer to Part I, Item 1 - Business for more information about our intellectual property and issued patents.

• KB104 is a topical gel formulation of our novel vector designed to deliver two copies of the SPINK5 transgene encoding serine protease inhibitor Kazal-type 5 (“SPINK5”) 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 IND 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 CFTR transgene for the treatment of cystic fibrosis, a serious rare lung disease caused by missing or mutated CFTR protein.

On September 29, 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 first half of 2023.

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.

We are closely working with Therapeutics Development Network (“TDN”) of the Cystic Fibrosis Foundation (“CFF”) to validate our Phase 1 clinical protocol and plan on initiating a Phase 1 clinical trial in the US in first half of 2023.

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 2023.

We plan to file an IND application and initiate a clinical trial of KB104 to treat patients with Netherton Syndrome following initiation of the KB105 Phase 2 study.

In May 2023, the USPTO issued U.S.

11,642,384, covering compositions of matter containing replication-defective HSV constructs encoding SPINK5 , including KB104.

The patent expires in 2039.

Refer to Part I, Item 1 – Business for more information about our intellectual property and issued patents.

• 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.

We initiated a Phase 1 clinical trial, the PEARL-1 trial, for the treatment of aesthetic skin conditions on August 25, 2020.

The Phase 1 dose-ranging trial evaluated the safety, tolerability, and initial efficacy of intradermal injections of KB301 in adult subjects aged 18-75.

In April 2023, Jeune Aesthetics, Inc.

(“Jeune Aesthetics”), our wholly-owned subsidiary, initiated and treated the first subject in the PEARL-1 Cohort 3 clinical study.

The PEARL-1 Cohort 3 study is an open label study to evaluate different doses of KB301 for the improvement of lateral canthal lines, or LCL, at rest in up to 20 subjects.

In January 2024, Jeune Aesthetics initiated the PEARL-1 Cohort 4 clinical study, an open label study to evaluate KB301 for the improvement of dynamic wrinkles of the décolleté in up to 20 subjects.

These studies are running simultaneously, and Jeune Aesthetics expects to announce results for both cohorts in the first half of 2024.

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

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

Nothing included on this website shall be deemed incorporated by reference into this Annual Report on Form 10-K.

Complete results from Cohort 1 focused on safety were presented at the 2021 SID Annual Meeting.

In March 2022, we announced positive proof-of-concept efficacy and safety data from Cohort 2 of the PEARL-1 study of KB301 for the treatment of aesthetic skin indications.

Cohort 2 is a randomized, double-blind, placebo-controlled clinical trial that evaluated the safety and efficacy of KB301 for the improvement of fine lines and skin texture in the lower and upper cheek and for improvement in skin thickness in the knee.

Cohort 2 enrolled 27 subjects across two trial sites.

Bilateral treatment areas included the neck behind the ear to assess initial safety and on the cheek below and above the zygomatic arch (lower and upper cheek), and around the knee.

Subjects were randomized 2:1 to receive low dose KB301 or placebo in the upper cheek and knee as multiple micro depot injections over the selected treatment area with a 33 G needle.

Subjects receiving KB301 in the lower check were randomized 2:1 to receive either low dose KB301, high dose KB301 or placebo.

Four patients dropped out of the Cohort 2 study – one subject following the initial safety assessment behind the ear, two subjects for unspecified reasons, and one subject due to unevenness in face between active and placebo during the study.

A subset of subjects from the PEARL-1 Cohort 2 trial (Cohort 3) were enrolled into a durability trial to look for duration of effect, reduction of the unevenness in placebo treated sites, and for long term safety monitoring.

Ten subjects from the PEARL-1 Cohort 2 study were enrolled in durability trial, an open-label study to assess duration of effect below the zygomatic arch (the lower cheek area).

The extension cohort enrolled subjects who had received the high dose regimen of KB301 during the efficacy cohort in one or both of their lower cheeks.

Subject Satisfaction Scores and Investigator Assessments were measured monthly for three consecutive visits that correspond to timepoints up to nine-months following administration of the last dose of KB301.

In addition, subjects with placebo-treated lower cheeks were dosed with KB301 during the open-label extension cohort to normalize their appearance.

In November 2022, we announced nine-month durability of effect in Cohort 3 of the PEARL-1 study of KB301.

We are planning to initiate a Phase 2 study in fine lines in 2023.

Jeune Aesthetics has several other aesthetic medicine product candidates in various stages of preclinical development reflected in the chart above in Item 1- Business .

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

2023 Business Highlights

• In March 2022, we presented additional results from our Phase 3 study of the clinical efficacy and safety of B-VEC for the treatment of DEB at the 2022 American Academy of Dermatology Annual Meeting.

• In March 2022, results from the complete Phase 1/2 study of topical B-VEC for the treatment of DEB were published in Nature Medicine.

• On April 5, 2022, the Company issued and sold 434,782 shares of common stock at a weighted average price of $69.00 per share for net proceeds of $29.1 million after deducting selling commissions of approximately $900 thousand.

• On April 28, 2022, the Company entered into a final settlement agreement with PeriphaGen, Inc.

(“PeriphaGen”) to resolve all claims in the trade secret litigation filed by PeriphaGen in May 2020.

We paid PeriphaGen an upfront payment of $25.0 million 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 FDA, 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 April 2022, following feedback from the FDA, we announced that we planned to offer patients with DEB, who were enrolled in the GEM-3 OLE, the opportunity to be dosed in their homes by a health care professional.

• In April 2022, Jeune Aesthetics announced the formation and members of its Scientific Advisory Board, comprised of industry leaders to serve as strategic advisors assisting with program strategy and clinical development.

• In May 2022, we presented new data entitled “GEM-3:

phase 3 safety and immunogenicity results of Beremagene Geperpavec (“B-VEC”), an investigational, topical gene therapy for dystrophic epidermolysis bullosa (DEB)” at the SID 2022 Annual Meeting.

• In December 2022 full results from the GEM-3 trial of B-VEC for DEB were published in the New England Journal of Medicine .

COVID-19 Update

To date the impact of the COVID-19 pandemic on our business and clinical trials in the U.S.

has been minimal.

We will continue to assess the potential impact of the pandemic on our business and operations, including our supply chain and preclinical and clinical trial activities.

Outside of the U.S., we have experienced pandemic-related delays in clinical trial initiation in Australia, and we will continue to closely monitor the impact that future pandemic developments have on this and our other clinical trials, going forward.

For additional information regarding the impact of the coronavirus pandemic, please see “Risk Factors - Business interruptions resulting from the COVID-19 outbreak or similar public health crises could cause a disruption of the development efforts of our product candidates and adversely impact our business.”

• In August 2023, we sold our Rare Pediatric Disease Priority Review Voucher, or PRV, for $100.0 million.

The PRV was awarded in connection with the FDA’s accelerated approval of VYJUVEK for the treatment of DEB for patients 6 months of age and older.

• In August 2023, we began research and development operations in our second commercial scale CGMP biologics manufacturing facility, ASTRA, a 155,000 sq.

state-of-the-art CGMP facility with comprehensive end-to-end capabilities.

• In May 2023, shortly after we received FDA approval of VYJUVEK, we issued and sold 1,729,729 shares of common stock at a price of $92.50 per share in a private placement (the “PIPE”) to certain accredited investors.

Net proceeds from the PIPE were approximately $160.0 million.

We filed a registration statement with the SEC in July 2023 registering the resale of the shares of common stock issued in the PIPE.

• On March 6, 2023, we announced the appointment of Catherine Mazzacco to our Board of Directors.

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.

Product Revenue

After FDA approval of VYJUVEK in May 2023, we began commercial marketing and sales of the product throughout the United States and began recognizing revenue 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.

We have contracted to sell VYJUVEK to a limited number of specialty pharmacy providers (“SPs”) that mix the medication and administer it to patients in the patient’s home by a healthcare professional and through a specialty distributor (“SD”) to hospitals and outpatient clinics where patients are administered the medication at a healthcare professional’s office.

The transaction price that we recognize as revenue for VYJUVEK sales includes an estimate of variable consideration, which includes discounts, returns, copay assistance, and rebates that are offered within our contracts.

Refer to Note 2 of our consolidated financial statements for additional information.

Cost of Goods Sold

We recognize cost of goods sold for direct and indirect costs related to the manufacturing of VYJUVEK.

These costs consist of manufacturing costs, personnel costs, including stock-based compensation, facility costs, and other indirect overhead costs.

Cost of goods sold may also include period costs related to certain manufacturing services and inventory adjustment charges.

Prior to receiving FDA approval in May 2023, costs associated with the manufacturing of VYJUVEK were expensed as research and development expense.

As such, a portion of the cost of inventory sold during 2023 was expensed prior to FDA approval.

Research and Development Expenses

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We expense internal research and development costs to operations as incurred.

We expense third-party costs for research and development activities, such as the manufacturing of preclinical and clinical materials, based on an evaluation of the progress to completion of specific tasks such as manufacturing of drug substance, fill/finish and stability testing, which is

provided to us by our vendors.

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

In the near term, we expect that our research and development expenses will increase as we continue our open label extension study for B-VEC, resume dosing with KB105 Phase 1/2 clinical trial, initiate a Phase 2 trial for KB301, initiate Phase 1 trials for KB407, initiate a Phase 1 trial for KB104, and incur preclinical expenses for our other product candidates.

Due to the numerous risks and uncertainties associated with product development, we cannot determine with certainty the duration, costs and timing of clinical trials, and, as a result, the actual costs to complete clinical trials may exceed the expected costs.

General and Administrative Expenses

General and administrative expenses consist principally of salaries and other related costs, including stock-based compensation, for personnel in our executive, commercial, business development and other administrative functions.

General and administrative expenses also include professional fees associated with corporate and intellectual property related legal expenses, consulting and accounting services, facility-related costs and expenses associated with obtaining and maintaining patents.

Other general and administrative costs include travel expenses.

We anticipate that our general and administrative expenses will increase in the future to support the continued research and development of our product candidates.

In the near term, we expect that our research and development expenses will increase as we continue our Japan OLE study for B-VEC, continue our Phase 1 trials for KB407, KB408, and intratumoral KB707, initiate our Phase 1 trials for inhaled KB707, resume dosing with KB105 Phase 1/2 clinical trial, complete Phase 1 Cohorts 3 and 4 and initiate a Phase 2 trial for KB301, begin our open label study with ophthalmic B-VEC, 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.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist principally of salaries and other related costs, including stock-based compensation for personnel in our executive, commercial, business development and other administrative functions.

Selling, general and administrative expenses also include professional fees associated with corporate and intellectual property-related legal expenses, consulting and accounting services, facility-related costs and expenses associated with obtaining and maintaining patents.

Other selling, general, and administrative costs include travel expenses, patient access program fees, management service fees, and other selling expenses which include transportation, shipping and handling fees.

We anticipate that our selling, general and administrative expenses will increase in the future to support the continued research and development of our product candidates.

These increases will likely include increased costs for insurance, costs related to the hiring of additional personnel and payments to outside consultants, lawyers and accountants, among other expenses.

Additionally, we anticipate that we will continue to increase our salary and personnel costs and other expenses as a result of our preparation for commercial operations.

Additionally, we anticipate that we will continue to increase our salary and personnel costs and other expenses to support B-VEC commercialization globally.

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.

Further, we have entered into various non-cancellable purchase agreements for long-lead materials to help avoid potential schedule disruptions or material shortages.

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

We expect to continue to incur significant capital expenditures related to ASTRA as we construct and validate the facility, which is expected to be completed in 2023.

Interest Income

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

We received the permanent occupancy permit for ASTRA in March 2023, which permitted utilization of certain parts of the building, and subsequently placed a portion of ASTRA into service.

Qualification of the facility was completed later in 2023, and we began research and development operations.

We incurred significant capital expenditures related to the construction of ASTRA in 2023 and expect to continue to incur capital expenditures related to ASTRA throughout the operational life of the facility.

Gains from Sale of Priority Review Voucher

Gain from sale of priority review voucher relates to proceeds from sale of the rare pediatric PRV we received in connection with the FDA’s approval of VYJUVEK.

Interest and Other Income

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

Interest Expense

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The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.

On an ongoing basis, we evaluate estimates which include, but are not limited to, estimates related to clinical trial and contract manufacturing prepayments and accruals, 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 during the period.

On an ongoing basis, we evaluate estimates which include, but are not limited to, variable consideration associated with revenue recognition, stock-based compensation expense, accrued expenses, the fair value of financial instruments, and the valuation allowance included in the deferred income tax calculation during the period.

We base our estimates on historical experience and other market-specific or other relevant assumptions that we believe to be reasonable under the circumstances.

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While our significant accounting policies are described in more detail in the notes to our financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe the following accounting policies to be most critical to the judgments and estimates used in the preparation of our financial statements.

Revenue Recognition

After FDA approval of VYJUVEK in May 2023, we began commercial marketing and made our first product sales in 3Q 2023.

ASC 606 Revenue from Contracts with Customers requires us to make estimates of variable consideration, included in our contracts, to be included in the transaction price.

Product revenue, net is recorded at the net sales price, or transaction price, upon delivery and transfer of control to the customer, and includes an estimate of variable consideration, which results from discounts, rebates, copay assistance, and returns that are offered within contracts between the Company and its customers.

– Prompt Pay Discounts:

As an incentive for prompt payment, we offer a cash discount to our counterparty.

We estimate accrued prompt pay discounts using the most likely amount method.

We expect that all eligible counterparties will comply with the contractual terms to earn the discount.

We record the discount as an allowance against accounts receivable, net and a reduction of revenue.

– Government Rebates:

We participate in certain government rebate programs including Medicaid, Medicare and Tricare.

We estimate accrued government rebates using the expected value method.

We accrue estimated rebates based on estimated percentages of VYJUVEK that will be prescribed to qualified patients, estimated rebate percentages and estimated levels of inventory in the distribution channel that will be prescribed to qualified patients and record the rebates as a reduction of revenue.

Accrued government rebates are included in other accrued liabilities on the consolidated balance sheets.

For Medicare, the Company also estimates the accrued liability based on the number of patients in the prescription drug coverage gap under the Medicare Part D program.

– Commercial Rebates:

We participate in certain commercial rebate programs.

Under these rebate programs, we pay a rebate to the commercial entity or third-party administrator of the program.

Accrued commercial rebates are estimated using the expected value method.

We accrue estimated rebates based on contract prices, estimated percentages of VYJUVEK that will be prescribed to qualified patients and estimated levels of inventory in the distribution channel and record the rebate as a reduction of revenue.

Accrued commercial rebates are included in other accrued liabilities on the consolidated balance sheets.

– Copay Assistance:

The Company provides copay assistance to qualified patients with commercial insurance in states that allow copay assistance, helping them meet copay obligations to their insurance provider.

The Company reimburses pharmacies for this discount through third-party vendors.

The Company estimates copay assistance costs using the expected value method.

The estimate is based on contract prices, estimated percentages of VYJUVEK that will be prescribed to qualified patients, average assistance paid based on reporting from third-party vendors and estimated levels of inventory in the distribution channel.

Copay assistance costs are recorded as reductions to revenue and are accrued in other accrued liabilities on the consolidated balance sheets.

– Product Returns:

We offer SPs and SDs limited return rights relating only to product damage or defects identified upon receipt, and therefore we expect minimal returns.

Returns are estimated taking into consideration several factors including these limited product return rights, historical return activity, and other relevant factors..

There were no returns for the year ended December 31, 2023.

Variable consideration is estimated and reduces the transaction price to reflect our best estimate of the amount of consideration to which we are entitled based on the terms of the contracts and are recorded in the same period the related product revenue is recognized.

The amount of variable consideration that is included in the transaction price may be constrained and is included in the net sales price only to the extent that it is considered probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period.

Actual amounts of consideration ultimately received may differ from our estimates.

If actual results in the future vary from our estimates, we will adjust these estimates in the period these variances become known.

Accrued Research and Development Expenses

As part of the process of preparing our financial statements, we are required to estimate our accrued research and development expenses, prepaid assets and other current liabilities.

This process involves reviewing open contracts and

commitments, communicating with our personnel to identify services that have been performed for us and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost.

This process involves reviewing open contracts and commitments, communicating with our personnel to identify services that have been performed for us and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost.

The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met.

We make estimates of our accrued research and development expenses, prepaid assets and other current liabilities as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time.

We make estimates of our accrued research and development expenses and other current liabilities as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time.

Examples of accrued research and development expenses, prepaid assets and other current liabilities include fees paid to contract manufacturers made in connection with the manufacturing of preclinical and clinical trials materials.

We base our expenses related to clinical manufacturing on our estimates of the services performed pursuant to contracts with the entities producing clinical materials on our behalf.

We record our expenses related to clinical manufacturing based on our estimates of the services performed pursuant to contracts with the entities producing clinical materials on our behalf.

The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows.

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In accruing service fees, we estimate the time period over which services will be performed, and the actual services performed in each period.

If our estimates of the status and timing of services performed differs from the actual status and timing of services performed we may report amounts that are too high or too low in any particular period.

To date, there have been no material differences from our estimates to the amount actually incurred.

If actual results in the future vary from our estimates, we will adjust these estimates in the period these variances become known.

Stock-Based Compensation

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We use the simplified method to calculate the expected term as prescribed by the SEC Staff Accounting Bulletin No.

107, Share-Based Payment as we do not have sufficient historical stock option activity data to provide a reasonable basis upon which to estimate the expected term of stock options granted to employees.

107, Share-Based Payments as we do not have sufficient historical stock option activity data to provide a reasonable basis upon which to estimate the expected term of stock options granted to employees.

We utilize a dividend yield of zero based on the fact that we have never paid cash dividends and have no current intention of paying cash dividends.

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Treasury yield curve in effect at the time of grant for instruments with a similar expected life.

We account for our lease agreements in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 842, Leases (“ASC 842”).

As our lease agreements do not provide an implicit rate and as we do not have external borrowings, we use an estimated incremental borrowing rate based on the information available at lease commencement in determining the present value of lease payments.

The incremental borrowing rate is the rate of interest that we would expect to borrow on a collateralized and fully amortizing basis over a similar term an amount equal to the lease payments in a similar economic environment.

For lease arrangements where it has been determined that we have control over an asset that is under construction and is thus considered the accounting owner of the asset during the construction period, we record a construction-in-progress asset (“CIP”) and corresponding financial obligation on the consolidated balance sheet.

Once the construction is complete, an assessment will be performed to determine whether the lease meets certain “sale-leaseback” criteria.

If the sale-leaseback criteria are determined to be met, we will remove the asset and related financial obligation from the balance sheet and treat the building lease as either an operating or finance lease based on our assessment of the guidance.

If, upon completion of construction, the project does not meet the “sale-leaseback” criteria, the lease will be treated as a financing obligation and we will depreciate the asset over its estimated useful life for financial reporting purposes.

Results of Operations

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(in thousands) 2023 2022 2021 2023 vs.

Product revenue, net

$ 50,699 $ — $ — $ 50,699 $ —

Cost of goods sold

3,094 — — 3,094 —

Research and development 46,431 42,461 27,884 3,970 14,577

General and administrative 77,735 40,391 15,063 37,344 25,328

Selling, general and administrative 98,401 77,735 40,391 20,666 37,344

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

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Loss from operations (109,727) (145,196) (68,275) 35,469 (76,921)

Other Expense

Other income (expense)

Gain from sale of priority review voucher

100,000 — — 100,000 —

Interest and other income, net 22,624 5,221 197 17,403 5,024

Interest expense — — (1,492) — 1,492

Total interest and other income, net 5,221 (1,295) 832 6,516 (2,127)

Net loss $ (139,975) $ (69,570) $ (32,167) $ (70,405) $ (37,403)

Income (loss) before income taxes

12,897 (139,975) (69,570) 152,872 (70,405)

Income tax expense

(1,965) — — (1,965) —

Net income (loss)

$ 10,932 $ (139,975) $ (69,570) $ 150,907 $ (70,405)

Product Revenue, net

Product revenue, net was $50.7 million for the year ended December 31, 2023 as compared to zero for the years ended December 31, 2022 and 2021 due to initial sales of VYJUVEK after FDA approval was obtained on May 19, 2023.

To date, all of our product revenue has been generated in the United States.

Cost of Goods Sold

Cost of goods sold was $3.1 million for the year ended December 31, 2023 as compared to zero for the years ended December 31, 2022 and 2021 due to initial sales of VYJUVEK after FDA approval was obtained on May 19, 2023.

receiving FDA approval for VYJUVEK in May 2023, costs associated with the manufacturing of VYJUVEK were expensed as research and development expense.

As such, a portion of the cost of inventory sold during 2023 was expensed prior to FDA approval.

Research and Development Expenses

Research and development expenses increased $14.6 million for the year ended December 31, 2022 compared to the year ended December 31, 2021.

Higher research and development expenses were due to increases in payroll related expenses of $8.9 million which is primarily driven by an increase in personnel to support overall growth and includes a $4.5 million increase in stock-based compensation, an increase in outsourced research and development activities of $2.3 million, an increase in preclinical, clinical and pre-commercial manufacturing activities of $1.0 million, and an increase in other research and development expenses of $2.4 million, primarily due to increases in depreciation and licensing fees.

Research and development expenses increased approximately $4.0 million for the year ended December 31, 2023 compared to the year ended December 31, 2022.

Higher research and development expenses were due to increases in payroll related expenses of $5.8 million which was primarily driven by an increase in personnel to support overall growth and includes a $2.2 million increase in stock-based compensation, an increase in depreciation of $2.2 million, and an increase in other research and development expenses of approximately $428 thousand, primarily due to increases in facilities expenses.

These increases were partially offset by decreases of $2.0 million in preclinical, clinical and pre-commercial manufacturing 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 and lab supplies period over period that were purchased for planned manufacturing runs of our products, a decrease from overhead allocations to inventory of $1.3 million, and a decrease from outsourced research and development costs of $1.2 million.

Research and development expenses increased $14.6 million for the year ended December 31, 2022 compared to the year ended December 31, 2021.

Higher research and development expenses were due to increases in preclinical, clinical and pre-commercial manufacturing activities of $3.3 million, payroll related expenses of approximately $3.1 million which is primarily driven by an increase in personnel to support overall growth and includes a $2.4 million increase in stock-based compensation, an increase in outsourced research and development activities of $2.0 million, travel related expenses associated with our clinical trial sites of $187 thousand, and other research and development expenses of $1.3 million, primarily due to depreciation and rent.

General and Administrative Expenses

Higher research and development expenses were due to increases in payroll related expenses of $8.9 million which was primarily driven by an increase in personnel to support overall growth and includes a $4.5 million increase in stock-based compensation, an increase in outsourced research and development activities of $2.3 million, an increase in preclinical, clinical and pre-commercial manufacturing activities of $1.0 million, and an increase in other research and development expenses of $2.4 million, primarily due to increases in depreciation and licensing fees.

The following table summarizes our research and development expenses by product candidate or program, and for unallocated expenses, by type, for the years ended December 31, 2023, 2022 and 2021:

Years Ended December 31, Change

(in thousands) 2023 2022 2021 2023 vs.

$ 9,039 $ 8,096 $ 6,204 $ 943 $ 1,892

KB105 282 276 74 6 202

KB407 1,668 1,895 987 (227) 908

KB301 460 1,312 1,217 (852) 95

KB707 3,828 400 — 3,428 400

Other dermatology programs 2 500 789 (498) (289)

Other respiratory programs 1,043 972 280 71 692

Other aesthetics programs 91 114 16 (23) 98

Other research programs 638 876 799 (238) 77

Other development programs 939 645 708 294 (63)

Stock-based compensation 10,051 7,897 3,435 2,154 4,462

Other unallocated manufacturing expenses (2)

12,550 15,036 9,207 (2,486) 5,829

Other unallocated expenses (3)

5,840 4,442 4,168 1,398 274

Research and development expense $ 46,431 $ 42,461 $ 27,884 $ 3,970 $ 14,577

(1) For the year ended December 31, 2023 , KB103 expenses consist of pre-approval activity costs, post marketing study costs and overseas preclinical and clinical trial costs, licensing and regulatory costs.

(2) 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.

(3) 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 expenses increased approximately $4.0 million in the year ended December 31, 2023 compared to the year ended December 31, 2022.

Expenses for KB103 increased $943 thousand due to increased payroll related expenses to support VYJUVEK’s pre-approval activities, clinical trial costs, license and regulatory costs, costs associated with overseas clinical trials and regulatory agency filings, and increased allocated research and

development expenses.

KB707 spending increased $3.4 million due to increased payroll related costs and increased contract research costs in preparation for the Phase 1 clinical trial.

Stock-based compensation increased $2.2 million due to an increase in internal resources to support overall research and development growth.

Additionally, other unallocated expenses increased by $1.4 million primarily due to increases in depreciation expense offset by a decrease from rent expense allocated to inventory.

These increases were partially offset by a decrease in other unallocated manufacturing expenses of $2.5 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 our products and product candidates, a decrease in KB301 expenses of $852 thousand due to the timing of clinical research costs, and a decrease in spending on other dermatology programs of $498 thousand due to a reduction in contract manufacturing expenses.

Research and development expenses increased $14.6 million in the year ended December 31, 2022 compared to the year ended December 31, 2021.

Expenses for KB103 increased $1.9 million primarily due to increased payroll expenses and clinical trial costs related to OLE studies.

Expenses for KB407 increased $908 thousand due to increased payroll expenses and pre-clinical costs.

Other respiratory expenses increased $692 thousand due to increased contract research costs.

Expenses for KB707 increased $400 thousand primarily related to payroll supporting initial research activities.

Stock-based compensation increased due to an increase of $4.5 million in internal resources to support overall research and development growth.

Unallocated manufacturing expenses increased by $5.8 million primarily due to receipts of raw materials purchased for planned manufacturing runs our products.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $20.7 million for the year ended December 31, 2023 compared to the year ended December 31, 2022.

Higher selling, general and administrative spending was due largely to increased payroll related expenses of approximately $15.1 million which is primarily driven by an increase in personnel to support overall growth and includes an approximate $4.5 million increase in stock-based compensation, increased selling expenses related to the launch of VYJUVEK of $1.7 million, increased information technology infrastructure costs of $2.1 million, increased software-related costs of $1.3 million, increased travel costs of $1.1 million, an increase in sponsorships of $425 thousand, an increase in net legal costs of $381 thousand, which consists of a decrease in litigation proceeds of $570 thousand, offset by a decrease in legal and professional fees of $189 thousand and an increase of other selling, general and administrative expense of $676 thousand, primarily due to increases in depreciation and rent expense.

These increases were partially offset by a decrease of $1.2 million of commercial preparedness expenses, a decrease in medical affairs costs of $466 thousand, and a decrease in business development costs of $428 thousand.

General and administrative expenses increased $37.3 million for the year ended December 31, 2022 compared to the year ended December 31, 2021.

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These increases were partially offset by a decrease in net legal costs of $1.2 million, which consists of a decrease in legal and professional fees of $2.8 million offset by a decrease in litigation proceeds of approximately $1.6 million, due primarily to the settlement of the PeriphaGen litigation.

General and administrative expenses increased $25.3 million for the year ended December 31, 2021 compared to the year ended December 31, 2020.

Higher general and administrative spending was due largely to increased payroll related expenses of approximately $14.7 million which is primarily driven by an increase in personnel to support overall growth and includes an approximate $9.6 million increase in stock-based compensation, commercial preparedness expenses of approximately $3.8 million, legal and professional fees of approximately $3.7 million which is net of $2.1 million of insurance proceeds, software related costs of $1.0 million, medical affairs costs of $508 thousand, insurance costs of $427 thousand and other administrative expenses of $1.2 million.

Litigation Settlement

We incurred litigation settlement expenses for the year ended December 31, 2022 of $25.0 million, which consisted of the settlement of litigation with PeriphaGen.

Litigation settlement for the years ended December 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.

See "Legal Proceedings" in Note 7 of the notes to consolidated financial statements included in this Form 10-K for more information.

Gain from sale of Priority Review Voucher

Gain from sale of priority review voucher for the year ended December 31, 2023 was $100.0 million related to the sale of our rare pediatric PRV, which was awarded to the Company in connection with the FDA’s approval of VYJUVEK.

Other Income (Expense)

Interest and other income for the year ended December 31, 2022, 2021, and 2020 was $5.2 million, $197 thousand and $832 thousand, respectively, and consisted of realized gains from maturities of our investments, interest, and dividend income earned from our cash, cash equivalents and investments.

Interest expense for the year ended December 31, 2022, 2021 and 2020 was zero, $1.5 million, and zero, respectively.

The 2021 interest expense related to accretion of the financial obligation for the build to suit lease liability during the year ended December 31, 2021 to a balance that equaled the purchase consideration for ASTRA.

Interest and other income for the years ended December 31, 2023, 2022, and 2021 was $22.6 million, $5.2 million and $197 thousand, respectively, and consisted of realized gains from maturities of our investments, interest income earned from our cash, cash equivalents and investments.

Interest expense for the years ended December 31, 2023, 2022 and 2021 was zero, zero, and $1.5 million, respectively.

The 2021 interest expense related to accretion of the financial obligation for the build to suit lease liability during the year ended December 31, 2021.

Income Tax Expense

Income tax expense for the years ended December 31, 2023, 2022, and 2021 was $2.0 million, zero, and zero, respectively.

In 2023, income tax expense related to U.S.

state and federal taxes related to the PRV sale and our initial commercial activities in those jurisdictions.

See Note 11 of the notes to consolidated financial statements included in this Form 10-K for more information.

Liquidity and Capital Resources

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Since operations began, we have incurred operating losses.

Our net losses were $140.0 million, $69.6 million, and $32.2 million for the years ended December 31, 2022, 2021, and 2020 respectively.

Net income was $10.9 million for the year ended December 31, 2023, and our net losses were $140.0 million and $69.6 million for the years ended December 31, 2022, and 2021, respectively.

At December 31, 2023, we had an accumulated deficit of $269.8 million.

With the net proceeds raised from our previous public offerings, we believe that our cash, cash equivalents and short-term investments will be sufficient to allow us to fund our operations for at least 12 months from the filing date of this Form 10-K.

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.

With the net proceeds raised from our previous public and private offerings and sale of the PRV, we believe that our cash, cash equivalents and short-term investments will be sufficient to allow us to fund our operations for at least 12 months from the filing date of this Form 10-K.

Our transition to operating profitability is dependent upon the continued successful commercialization of VYJUVEK and the successful development, approval and commercialization of our product candidates and the achievement of a level of revenue adequate to support our cost structure.

Furthermore, we expect to incur increasing costs associated with satisfying regulatory and quality standards, maintaining product and clinical trials, and furthering our efforts around our current and future product candidates.

We may never achieve profitability, and until we do, the Company will continue to need to raise additional capital or obtain financing from other sources.

Costs related to clinical trials can be unpredictable and therefore there can be no guarantee that we will have sufficient capital to fund our continued clinical studies of B-VEC, KB105, KB301 or our planned clinical and preclinical studies for our other product candidates, or our operations.

Further, we do not expect to generate any product revenues in the first quarter of 2023, assuming we receive marketing approval for B-VEC on the schedule we currently contemplate.

We intend to fund future operations through on hand cash and cash equivalents, revenue generated from the sale of VYJUVEK, the sale of equity, debt financings, and we may also seek additional capital through arrangements with strategic partners or 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 KB105, KB407, KB301, KB707 or our planned clinical and preclinical studies for our other product candidates, or our operations.

Further, we expect future revenue to fluctuate between periods for many reasons, including the uncertain timing and amount of any product sales.

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

Additionally, we currently utilize third-party Contract Research Organizations (“CROs”) to carry out some of our clinical development activities.

As we seek to obtain regulatory approval for any of our product candidates, we expect to continue to incur significant manufacturing and commercialization expenses as we prepare for product sales, marketing, commercial manufacturing, packaging, labeling and distribution.

Furthermore, pursuant to our settlement agreement with PeriphaGen, we will be required to pay $12.5 million upon the approval of our first product by the FDA, followed by three additional $12.5 million contingent milestone payments upon reaching $100.0 million in total cumulative sales, $200.0 million in total cumulative sales and $300.0 million in total cumulative sales.

Our funds may not be sufficient to enable us to conduct pivotal clinical trials for, seek marketing approval for or commercially launch B-VEC, KB105, KB301 or any other product candidate.

Additionally, we currently utilize third-party contract research organizations to carry out some of our clinical development activities.

As we seek to obtain regulatory approval for 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 three $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 KB104, KB105, KB407, KB408, 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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Operating Capital Requirements

Our primary uses of capital are, and we expect will continue to be for the near future, compensation and related expenses, manufacturing costs for preclinical and clinical materials, third-party clinical trial research and development services, laboratory and related supplies, clinical costs, legal and other regulatory expenses, payments of settlement amounts to PeriphaGen and general overhead costs.

Our primary uses of capital are, and we expect will continue to be for the near future, compensation and related expenses, manufacturing costs for preclinical and clinical materials, regulatory expenses, third-party clinical trial research and development services, laboratory and related supplies, selling expenses, costs to manufacture our commercial product, legal expenses, payments of settlement amounts to PeriphaGen and general overhead costs.

In order to complete the process of obtaining regulatory approval for any of our product candidates and to build the sales, manufacturing, marketing and distribution infrastructure that we believe will be necessary to commercialize our product candidates, if approved, we may require substantial additional funding.

We have based our projections of operating capital requirements on assumptions that may prove to be incorrect, and we may use all of our available capital resources sooner than we expect.

Because of the numerous risks and uncertainties associated

with research, development and commercialization of pharmaceutical products, we are unable to estimate the exact amount of our operating capital requirements.

Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, we are unable to estimate the exact amount of our operating capital requirements.

Our future funding requirements will depend on many factors, including, but not limited to:

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

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

• the progress, results and costs of our Phase 2 clinical trials for KB301;

• the progress, results and costs of our Phase 1 clinical trials for KB407;

• the progress, timing, and costs of manufacturing of B-VEC;

• the continued development and the filing of an IND application for future product candidates;

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

• the costs needed to commercialize and market our lead product, 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 product candidates that we may pursue in the future, if any;

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

• the outcome, timing and costs of seeking regulatory approvals;

• the costs associated with manufacturing process development and evaluation of third-party manufacturers;

• the extent to which the costs of our product candidates, if approved, will be paid by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or will be reimbursed by government authorities, private health coverage insurers and other third-party payors;

• the costs of commercialization activities for our current and future product candidates if we receive marketing approval for such product candidates we may develop, including the costs and timing of establishing product sales, medical affairs, marketing, distribution and manufacturing capabilities;

• the costs associated with the manufacturing process development and evaluation of third-party manufacturers;

• the extent to which the costs of VYJUVEK and our product candidates, if approved, will be paid by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or will be reimbursed by government authorities, private health coverage insurers and other third-party payors;

• the costs of commercialization activities for our current and future product candidates if we receive marketing approval for such product candidates, including the costs and timing of establishing product sales, medical affairs, marketing, distribution and manufacturing capabilities;

• subject to receipt of marketing approval, if any, revenue received from commercial sale of our current and future product candidates;

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Operating lease payments represent our commitments for future minimum rent made under non-cancelable leases for our corporate headquarters in Pittsburgh, Pennsylvania, office location in Boston, Massachusetts, office locations in Switzerland and Netherlands, and for the ground lease associated with our second CGMP manufacturing facility, ASTRA.

total future payments for our operating lease obligations at December 31, 2022 are $17.8 million, of which $1.6 million is due in the next twelve months and the remaining payments are due over the terms of the respective leases.

The total future payments for our operating lease obligations at December 31, 2023 are $16.2 million, of which $1.5 million is due in the next twelve months and the remaining payments are due over the terms of the respective leases.

For additional details regarding our leases, see Note 8 to our consolidated financial statements included in this Annual Report on Form 10-K.

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The estimated remaining commitment as of December 31, 2023 under these agreements is approximately $1.7 million, all of which is expected to be due in the next twelve months.

Commercial Preparedness Agreements

We have contracted with various third parties to facilitate, coordinate and perform agreed upon commercial preparedness and market research activities relating to our lead product candidate, B-VEC.

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

The estimated remaining commitment as of December 31, 2022 is $8.4 million, all of which is expected to be due in the next twelve months.

ASTRA Contractual Obligations

We have contracted with various third parties to construct our second CGMP facility, ASTRA.

Additionally, we have entered into various non-cancellable purchase agreements for long-lead materials to help avoid potential schedule disruptions or material shortages.

We have contracted with various third parties to complete and qualify our second CGMP facility, ASTRA.

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

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Net cash used in operating activities $ (88,804) $ (100,569) $ (47,938)

Net cash used in investing activities (114,083) (226,770) (11,181)

Net cash provided by (used in) investing activities

82,638 (114,083) (226,770)

Net cash provided by financing activities 202,750 35,347 347,685

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Operating Activities

Net cash used in operating activities for the year December 31, 2023 was $88.8 million and consisted primarily of net income of $10.9 million adjusted for non-cash items of $61.9 million primarily comprised of a gain on sale of the rare pediatric PRV of $100.0 million, stock-based compensation expense of $39.9 million, realized gain on investments of $5.1 million, depreciation and amortization of $3.7 million, other non-cash items of $451 thousand, and cash used by increases in net working capital of approximately $37.9 million.

Net cash used in operating activities for the year December 31, 2022 was $100.6 million and consisted primarily of a net loss of $140.0 million adjusted for non-cash items of $36.6 million primarily made up of stock-based compensation expense of $33.2 million and depreciation and amortization of $4.1 million, and cash provided by decreases in net working capital of approximately $2.8 million.

Net cash used in operating activities for the year December 31, 2021 was $47.9 million and consisted primarily of a net loss of $69.6 million adjusted for non-cash items of $19.1 million primarily made up of stock-based compensation expense of $15.3 million, depreciation and amortization of $2.8 million and build to suit interest expense of $1.5 million, and cash provided by decreases in net working capital of approximately $2.5 million.

Net cash used in operating activities for the year ended December 31, 2020 was $26.1 million and consisted primarily of a net loss of $32.2 million adjusted for non-cash items of $5.2 million primarily made up of depreciation and amortization of $1.9 million and stock-based compensation expense of $3.3 million, and cash provided by decreases in net working capital of approximately $918 thousand.

Investing Activities

Net cash provided by investing activities for the year ended December 31, 2023 was approximately $82.6 million and consisted primarily of proceeds of $100.0 million from the sale of the rare pediatric PRV, proceeds from maturities of investments of $503.2 million, offset by purchases of available-for-sale investment securities of $508.8 million, and expenditures of $11.8 million on the build-out of our ASTRA facility, leasehold improvement of new office space, and purchases of computer and laboratory equipment.

Net cash used in investing activities for the year ended December 31, 2022 was approximately $114.1 million and consisted primarily of purchases of $318.8 million of available-for-sale investment securities, and expenditures of $53.0 million on the build-out of our ASTRA facility, leasehold improvement of new office space, and purchases of computer and laboratory equipment, partially offset by proceeds of $257.7 million from maturities of investments.

Net cash used in investing activities for the year ended December 31, 2021 was approximately $226.8 million and consisted primarily of purchases of $190.5 million of available-for-sale investment securities, and expenditures of $68.3 million on the build-out of our ASTRA facility, leasehold improvement of new office space, and purchases of computer and laboratory equipment, partially offset by proceeds of $32.0 million from maturities of investments.

Net cash used in investing activities for the year ended December 31, 2020 was $11.2 million and consisted primarily of purchases of $3.2 million of short-term available-for-sale investment securities, and expenditures of $14.8 million on the build-out of our ASTRA facility, leasehold improvement of new office space, and purchases of computer and laboratory equipment, partially offset by proceeds of $6.9 million from maturities of short-term investments.

Financing Activities

Net cash provided by financing activities for the year ended December 31, 2023 was $202.8 million and consisted primarily of proceeds of $160.0 million received from a private placement equity offering and proceeds of $43.5 million primarily 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 year ended December 31, 2022 was $35.3 million and was primarily from proceeds from public offerings of 434,782 shares of our common stock at a weighted average price of $69.00 per share through our at-the-market equity offering program (“ATM”) Program.

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Additionally, we received $7.0 million of proceeds related to the exercise and settlement of employee stock options and restricted stock awards, offset by $649 thousand of taxes paid for the settlement of restricted stock awards.

Net cash provided by financing activities for the year ended December 31, 2021 was $347.7 million and was primarily from proceeds from follow-on public offerings of 2,211,538 shares of its common stock, including 288,461 shares purchased by the underwriters, at $65.00 per share and 2,866,667 shares of its common stock, including 200,000 shares purchased by the underwriters, at $75.00 per share.

Net cash provided by financing activities for the year ended December 31, 2021 was $347.7 million and was primarily from proceeds from follow on public offerings of 2,211,538 shares of our common stock, including 288,461 shares purchased by the underwriters, at $65.00 per share and 2,866,667 shares of our common stock, including 200,000 shares purchased by the underwriters, at $75.00 per share.

Our net proceeds from the offerings were $336.8 million after deducting underwriting discounts and commissions of approximately $21.5 million, and other offering expenses payable of $425 thousand.

Net cash provided by financing activities for the year ended December 31, 2020 was $118.0 million and was primarily from proceeds from our public offering in May 2020 of 2,275,000 shares of our common stock to the public at $55 per share.

Our net proceeds from the offering were $117.2 million after deducting underwriting and commissions of approximately $7.5 million and other offering expenses of approximately $463 thousand.

Recent Accounting Pronouncements

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Based on our current investment portfolio, we do not believe that our results of operations or our financial position would be materially affected by an immediate change of 10% in interest rates.

As of December 31, 2022, we have established operations in Europe and Australia and hold cash in Australian Dollars (“AUD”), Swiss Francs (“CHF”), and Euros (“EUR”).

As of December 31, 2023, we have established operations in Europe and Australia and hold cash in Swiss Francs, Euros, and Australian Dollars.

We are subject to foreign exchange rate risk arising from transactions conducted in the aforementioned foreign currencies, however our foreign operations are not currently material to our business.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis