What changed in this filing

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Item 1. Financial Statements

2024-08-05 compared with 2024-05-06 · 157 added, 103 removed, 357 unchanged (42% of the section changed)

24 unchanged sentences

Lease liability 6,326 6,620

Other long-term liabilities

Total liabilities 78,765 39,714

3 unchanged sentences

$ 0.00001 par value;

80,000 shares authorized as of March 31, 2024 and December 31, 2023;

28,528 and 28,237 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively.

80,000 shares authorized as of June 30, 2024 and December 31, 2023;

28,709 and 28,237 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively.

Additional paid-in capital 1,092,854 1,047,830

7 unchanged sentences

Krystal Biotech, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

Three Months Ended March 31,

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

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

(in thousands, except per share data)

2024 2023 2024 2023

Product revenue, net

$ 70,284 $ — $ 115,535 $ —

Cost of goods sold 6,009 — 8,428 —

1 unchanged sentence

Selling, general and administrative

27,626 25,904 53,685 49,939

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

Total operating expenses 61,718 38,048 113,652 86,871

Loss from operations ( 6,684 ) ( 48,823 )

Income (loss) from operations

8,566 ( 38,048 ) 1,883 ( 86,871 )

Interest and other income, net 7,479 4,838 15,095 8,364

Income (loss) before income taxes

16,045 ( 33,210 ) 16,978 ( 78,507 )

Income tax expense

( 477 ) — ( 477 ) —

Net income (loss)

1 unchanged sentence

Unrealized (loss) gain on available-for-sale securities and other

Comprehensive loss

( 335 ) ( 82 ) ( 1,272 ) 492

Comprehensive income (loss)

$ 15,233 $ ( 33,292 ) $ 15,229 $ ( 78,015 )

Net income (loss) per common share:

12 unchanged sentences

Balances as of January 1, 2024

Issuance of common stock upon exercise of stock options, net

28,237 $ — $ 1,047,830 $ 638 $ ( 269,827 ) $ 778,641

Vesting of restricted stock units, net of shares withheld for taxes

Issuance of common stock upon exercise of stock options

260 — 15,969 — — 15,969

Vesting of restricted stock units, net of shares withheld for taxes 39 — ( 4,181 ) — — ( 4,181 )

Shares of restricted stock awards surrendered for taxes ( 8 ) — ( 1,205 ) — — ( 1,205 )

( 8 ) — ( 1,205 ) — — ( 1,205 )

Stock-based compensation — — 10,023 — — 10,023

Unrealized (loss) on investments and other (1)

— — — ( 937 ) — ( 937 )

Net income — — — — 932 932

Balances at March 31, 2024

28,528 $ — $ 1,068,436 $ ( 299 ) $ ( 268,895 ) $ 799,242

Issuance of common stock upon exercise of stock options

181 — 10,637 — — 10,637

Stock-based compensation — — 13,781 — — 13,781

Unrealized (loss) on investments and other (2)

1 unchanged sentence

— — — — 15,568 15,568

Balances as of March 31, 2024 28,528 $ — $ 1,068,436 $ ( 299 ) $ ( 268,895 ) $ 799,242

Balances at June 30, 2024

28,709 $ — $ 1,092,854 $ ( 634 ) $ ( 253,327 ) $ 838,893

Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Total

3 unchanged sentences

Balances as of January 1, 2023

Issuance of common stock upon exercise of stock options, net

25,764 $ — $ 803,718 $ ( 728 ) $ ( 280,759 ) $ 522,231

Shares of restricted stock awards surrendered for taxes

Issuance of common stock upon exercise of stock options

42 — 2,208 — — 2,208

Shares of restricted stock awards surrendered for taxes ( 10 ) — ( 749 ) — — ( 749 )

Stock-based compensation — — 10,599 — — 10,599

— — 10,599 — — 10,599

Unrealized gain on investments and other (1)

1 unchanged sentence

Net loss — — — — ( 45,297 ) ( 45,297 )

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

(1) Includes foreign currency translation losses of $ 62 thousand and $ 35 thousand for the three months ended March 31, 2024 and 2023, respectively.

Balances at March 31, 2023

25,796 $ — $ 815,776 $ ( 154 ) $ ( 326,056 ) $ 489,566

Issuance of common stock in private placement offering, net of offering costs

1,730 — 159,951 — — 159,951

Issuance of common stock upon exercise of stock options

449 — 25,446 — — 25,446

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

Unrealized (loss) on investments and other (2)

— — — ( 82 ) — ( 82 )

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

Balances at June 30, 2023

27,975 $ — $ 1,012,616 $ ( 236 ) $ ( 359,266 ) $ 653,114

(1) Includes foreign currency translation loss of $ 62 thousand and $ 35 thousand for the three months ended March 31, 2024 and 2023, respectively.

(2) Includes foreign currency translation loss of $ 83 thousand and gain of $ 57 thousand for the three months ended June 30, 2024 and 2023, respectively.

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

1 unchanged sentence

Condensed Consolidated Statements of Cash Flows

Three Months Ended March 31,

Six Months Ended June 30,

(in thousands)

3 unchanged sentences

Accretion on marketable securities ( 1,104 ) ( 1,046 )

( 802 ) ( 606 )

Amortization of operating lease right-of-use assets 368 441

1 unchanged sentence

Realized gain on investments ( 2,859 ) ( 2,390 )

( 1,213 ) ( 809 )

Other, net 89 50

Changes in operating assets and liabilities

Accounts receivable

Accounts receivable, net

( 1,708 ) ( 906 )

Prepaid expenses and other current assets ( 2,532 ) ( 649 )

1 unchanged sentence

Lease liability ( 406 ) ( 380 )

Other long-term liabilities

Accounts payable 1,511 481

9 unchanged sentences

158,794 315,746

Net cash (used in) provided by investing activities

Net cash (used in) investing activities

( 45,333 ) ( 12,394 )

Financing Activities

Proceeds from exercise of stock options, net

Proceeds from issuance of common stock, net of offering costs

Proceeds from exercise of stock options

26,607 27,654

Taxes paid for employee tax withholding related to restricted stock units

3 unchanged sentences

Effect of exchange rate changes on cash and cash equivalents ( 150 ) ( 28 )

Net increase (decrease) in cash and cash equivalents 678 ( 21,155 )

Net (decrease) increase in cash and cash equivalents

( 12,542 ) 113,975

Cash and cash equivalents at beginning of period 358,328 161,900

2 unchanged sentences

Unpaid purchases of property and equipment included in accounts payable and accrued expenses $ 8,568 $ 10,998

Supplemental Cash Flow Information

Income taxes paid

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

3 unchanged sentences

(the “Company,” or “we” or other similar pronouns) commenced operations in April 2016.

In March 2017, the Company converted from a California limited liability company to a Delaware C-corporation, and changed its name from Krystal Biotech LLC to Krystal Biotech, Inc.

In March 2017, we converted from a California limited liability company to a Delaware C-corporation, and changed our name from Krystal Biotech LLC to Krystal Biotech, Inc.

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

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

In April 2019, we incorporated Jeune Aesthetics, Inc.

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

In January 2022, August 2022, December 2022, August 2023, and March 2024 the Company incorporated wholly-owned subsidiaries in Switzerland, Netherlands, France, Germany, and Japan, respectively, for the purpose of establishing initial operations in Europe and Japan for the commercialization of the Company’s product pipeline.

In January 2022, August 2022, December 2022, August 2023 and March 2024, we incorporated wholly-owned subsidiaries in Switzerland, Netherlands, France, Germany and Japan, respectively, for the purpose of establishing initial operations in Europe and Japan for the commercialization of our product pipeline.

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

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

As of March 31, 2024, the Company had an accumulated deficit of $ 268.9 million.

Our transition to operating profitability is dependent upon the continued successful commercialization of VYJUVEK as well as successful development, approval, and commercialization of our other product candidates.

Management intends to fund future operations through its on hand cash and cash equivalents, revenue generated from the sale of VYJUVEK, the sale of equity, and may also seek additional capital through arrangements with strategic partners, debt financings, or other sources.

As of June 30, 2024, the Company had an accumulated deficit of $ 253.3 million.

Our operating profitability is dependent upon the continued successful commercialization of VYJUVEK, as well as successful development, approval, and commercialization of our other product candidates.

Management intends to fund future operations through its on hand cash, cash equivalents and investments and revenue generated from the sale of VYJUVEK, and may also seek additional capital through the sale of equity, arrangements with strategic partners, debt financings or other sources.

There can be no assurance that additional funding will be available on terms acceptable to the Company, if at all.

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

The Company expects to incur significant costs to further its pipeline and to expand its commercialization capabilities in advance of the potential global regulatory approvals of VYJUVEK.

The Company believes that its cash, cash equivalents and short-term investments of approximately $ 538.3 million as of March 31, 2024 will be sufficient to allow the Company to fund its planned operations for at least the next 12 months from the date of this Quarterly Report on Form 10-Q.

The Company expects to incur significant costs to further its pipeline and to expand its commercialization capabilities in advance of the potential global regulatory approvals of VYJUVEK®, the Company’s U.S.

Food and Drug Administration (the “FDA”) approved redosable gene therapy, for treating patients, six months of age or older, suffering from dystrophic epidermolysis bullosa, a rare and severe monogenic disease that affects the skin and mucosal tissues.

The Company believes that its cash, cash equivalents and short-term investments of approximately $ 559.6 million as of June 30, 2024 will be sufficient to allow the Company to fund its planned operations for at least the next 12 months from the date of this Quarterly Report on Form 10-Q.

Summary of Significant Accounting Policies

23 unchanged sentences

The Company has not experienced any credit losses in such accounts and does not believe it is exposed to any significant credit risk on these funds.

The Company’s accounts receivable, net and marketable securities, which primarily consist of U.S.

government agency securities and treasuries, corporate bonds and commercial paper, potentially subject the Company to concentrations of credit risk.

As of March 31, 2024, the credit profile for the Company’s counterparty was deemed to be in good standing and, as such, an allowance for credit losses was not recorded.

The Company had one customer for the three months ended March 31, 2024 and no product revenue for the three months ended March 31, 2023.

The Company’s accounts receivable as of June 30, 2024 are primarily from one counterparty that distributes VYJUVEK in the U.S.

on behalf of the Company.

As of June 30, 2024, the credit profile for this counterparty was deemed to be in good standing and, as such, an allowance for credit losses was not recorded.

For accounts receivable arising from named patient sales, the Company evaluates the creditworthiness of each counterparty on a regular basis.

As of June 30, 2024, no allowance for credit losses was deemed necessary as a result of these counterparties.

For the six months ended June 30, 2024, the Company’s counterparty distributed VYJUVEK within the U.S.

to primarily one customer on behalf of the Company.

No product revenue was recorded for the six months ended June 30, 2023.

The Company has no financial instruments with off-balance sheet risk of loss.

1 unchanged sentence

See Note 2 to our consolidated financial statements included in our 2023 10-K.

There were no material changes to the Company's significant accounting policies during the three months ended March 31, 2024.

There were no material changes to the Company's significant accounting policies during the six months ended June 30, 2024.

Recent Accounting Pronouncements

There were no accounting pronouncements issued or adopted during the three months ended March 31, 2024 that are expected to have a material impact on the Company’s condensed consolidated financial statements.

There were no accounting pronouncements issued or adopted during the six months ended June 30, 2024 that are expected to have a material impact on the Company’s condensed consolidated financial statements.

In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09 “Income Taxes (Topic 740):

6 unchanged sentences

Following FDA approval on May 19, 2023, the Company began commercial marketing and sales of VYJUVEK throughout the United States and began recognizing revenue in the third quarter of 2023.

The following table summarizes changes in allowances and discounts for the three months ended March 31, 2024:

The following table summarizes changes in allowances and discounts for the six months ended June 30, 2024:

(in thousands)

5 unchanged sentences

( 1,788 ) ( 1,656 ) ( 165 ) ( 3,609 )

Balance, as of March 31, 2024

Balance as of June 30, 2024

$ 22,321 $ 3,210 $ 635 $ 26,166

Rebates and other accruals are included in accrued rebates and accrued expenses and other current liabilities, respectively, on the condensed consolidated balance sheets.

Rebates are included in accrued rebates and other long-term liabilities on the condensed consolidated balance sheets.

Other long-term liabilities includes $ 588 thousand of long-term accrued rebates.

Other accruals are included in accrued expenses and other current liabilities on the condensed consolidated balance sheets.

Prompt pay is recorded as an allowance against accounts receivable, net on the condensed consolidated balance sheets.

Provisions for rebates, prompt pay and other accruals are recorded as a reduction to product revenue on the condensed consolidated statements of operations and comprehensive loss.

Provisions for rebates, prompt pay and other accruals are recorded as a reduction to product revenue, net on the condensed consolidated statements of operations and comprehensive income (loss).

Net Income (Loss) Per Share Attributable to Common Stockholders

2 unchanged sentences

Common stock equivalents consist of common stock issuable upon (1) exercise of stock options and (2) vesting of restricted stock awards, restricted stock units and performance-based restricted stock units (collectively, “restricted stock”).

For the three months ended March 31, 2024 and 2023, respectively, there were (1) 154 thousand and 3.8 million common stock equivalents outstanding in the form of stock options and (2) 78 thousand and 291 thousand unvested restricted stock, that have each been excluded from the calculation of diluted net income (loss) per common share as their effect would be anti-dilutive.

Three Months Ended March 31,

For the three months ended June 30, 2024 and 2023, respectively, there were (1) 215 thousand and 3.2 million common stock equivalents outstanding in the form of stock options and (2) 2 thousand and 44 thousand in unvested restricted stock, that have each been excluded from the calculation of diluted net income (loss) per common share as their effect would be anti-dilutive.

For the six months ended June 30, 2024 and 2023, respectively, there were (1) 169 thousand and 3.2 million common stock equivalents outstanding in the form of stock options and (2) 1 thousand and 44 thousand in unvested restricted stock, that have each been excluded from the calculation of diluted net income (loss) per common share as their effect would be anti-dilutive.

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

(in thousands, except per share data)

2024 2023 2024 2023

Net income (loss) $ 15,568 $ ( 33,210 ) $ 16,501 $ ( 78,507 )

8 unchanged sentences

Fair Value Instruments

The following tables show the Company’s cash, cash equivalents and available-for-sale securities by significant investment category as of March 31, 2024 and December 31, 2023:

March 31, 2024

The following tables show the Company’s cash, cash equivalents and available-for-sale securities by significant investment category as of June 30, 2024 and December 31, 2023:

June 30, 2024

(in thousands)

12 unchanged sentences

Total $ 629,254 $ 69 $ ( 419 ) $ 628,904 $ 345,786 $ 213,826 $ 69,292

(1) The Company’s short-term marketable securities mature in one year or less.

(2) The Company’s long-term marketable securities mature between one and two years .

December 31, 2023

14 unchanged sentences

(1) The Company’s short-term marketable securities mature in one year or less.

(2) The Company’s long-term marketable securities mature between one year and two years .

(2) The Company’s long-term marketable securities mature between one and two years .

Balance Sheet Components

20 unchanged sentences

Property and equipment, net $ 158,808 $ 161,202

Depreciation expense was $ 1.4 million and $ 1.1 million for the three months ended March 31, 2024 and 2023, respectively.

Depreciation expense capitalized into inventory was $ 867 thousand and zero for the three months ended March 31, 2024 and 2023, respectively.

Depreciation expense was $ 1.8 million and $ 1.2 million for the three months ended June 30, 2024 and 2023, respectively, and $ 3.3 million and $ 2.3 million for the six months ended June 30, 2024 and 2023, respectively.

Depreciation expense capitalized into inventory was $ 559 thousand and $ 72 thousand for the three months ended June 30, 2024 and 2023, respectively, and $ 1.4 million and $ 72 thousand for the six months ended June 30, 2024 and 2023, respectively.

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

As a result, and as qualification of assets occurred through 2023 and the first quarter of 2024, the majority of assets relating to ASTRA were reclassified from construction in progress to leasehold improvements, manufacturing equipment, buildings and building

improvements, furniture and fixtures, or computer equipment and software as it was determined that assets were ready for their intended use.

As a result, and as qualification of assets occurred through 2023 and the first half of 2024, the majority of assets relating to ASTRA were reclassified from construction in progress to leasehold improvements, manufacturing equipment, buildings and building improvements, furniture and fixtures, or computer equipment and software as it was determined that assets were ready for their intended use.

As certain pieces of equipment are not yet qualified, the Company will continue to hold the remaining assets within construction in progress until qualification has been completed and the assets are ready for their intended use.

Estimated remaining payments related to ASTRA were $ 8.0 million as of March 31, 2024 and are recorded in accounts payable and accrued expenses and other current liabilities on the condensed consolidated balance sheets.

Estimated remaining payments related to ASTRA were $ 8.0 million as of June 30, 2024 and are recorded in accounts payable and accrued expenses and other current liabilities on the condensed consolidated balance sheets.

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following as of March 31, 2024 and December 31, 2023:

Accrued expenses and other current liabilities consisted of the following as of June 30, 2024 and December 31, 2023:

(in thousands)

1 unchanged sentence

Accrued litigation settlement $ 25,000 $ —

Accrued construction-in-progress

Accrued payroll and benefits 5,321 8,778

Accrued professional fees 2,654 1,810

Accrued construction-in-progress

Other current liabilities 2,500 1,876

Accrued taxes

Accrued professional fees 2,096 1,810

Accrued preclinical and clinical expenses 1,512 1,248

Accrued inventory

Accrued taxes

Total $ 43,332 $ 21,511

3 unchanged sentences

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

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

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

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

The Company may also be responsible for the payment of a monthly service fee for project management services for the duration of any agreements.

The estimated remaining commitments as of March 31, 2024 under these agreements is approximately $ 1.1 million.

The Company has incurred research and development expenses under these agreements of $ 1.5 million for the three months ended March 31, 2024 and $ 2.0 million for the three months ended March 31, 2023.

The Company may also be responsible for the payment of a monthly

service fee for project management services for the duration of any agreements.

The estimated remaining commitments as of June 30, 2024 under these agreements was approximately $ 1.0 million.

The Company has incurred research and development expenses under these agreements of $ 1.0 million and $ 2.5 million for the three and six months ended June 30, 2024 and $ 1.1 million and $ 3.1 million for the three and six months ended June 30, 2023.

Legal Proceedings

2 unchanged sentences

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

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

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

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

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

The settlement agreement requires the Company to pay three additional $ 12.5 million contingent milestone payments upon reaching $ 100.0 million in total cumulative sales, $ 200.0 million in total cumulative sales and $ 300.0 million in total cumulative sales.

As defined in the settlement agreement, cumulative sales shall include all revenue from sales of the Company’s products by the Company and its affiliates and licensees, as reported by the Company in its annual Form 10-K filings.

The settlement agreement requires the Company to pay three additional $ 12.5 million contingent milestone payments upon reaching $ 100.0 million in cumulative sales, $ 200.0 million in cumulative sales and $ 300.0 million in cumulative sales.

On May 29, 2024, the parties entered into an amendment to the final settlement agreement (“Amendment”) to clarify the definition of cumulative sales and modify the timing of the $ 12.5 million contingent milestone payment triggered by reaching $ 100.0 million in cumulative sales.

As defined in the settlement agreement and clarified in the Amendment, cumulative sales means the total cumulative revenue from sales of the Company’s products by the Company and its affiliates and licensees.

The amendment modified the timing of the $ 12.5 million contingent milestone payment triggered by reaching $ 100.0 million in cumulative sales, such that $ 6.25 million is payable following the Company’s filing of a Quarterly Report on Form 10-Q that reports $ 100.0 million in cumulative sales, and the remaining $ 6.25 million is payable within 120 days following the end of the fiscal year in which the initial $ 6.25 million is paid.

There were no other revisions to the settlement agreement, and the contingent payments triggered upon reaching $ 200.0 million in cumulative sales and $ 300.0 million in cumulative sales continue to remain payable following the filing(s) by the Company of an Annual Report(s) on Form 10-K reporting $ 200.0 million in cumulative sales and $ 300.0 million in cumulative sales.

If all milestones are achieved, the total consideration for settling the dispute, acquiring certain assets, and granting of a license from PeriphaGen will be $ 75.0 million, of which $ 37.5 million has been paid.

The Company recorded litigation settlement expense of $ 12.5 million for each of the three months ended March 31, 2024 and 2023 on the condensed consolidated statements of operations and comprehensive loss in accordance with the settlement agreement.

During the three months ended March 31, 2024, in accordance with ASC 450, Contingencies (“ASC 450”), the Company determined that reaching $ 100.0 million in total cumulative sales was probable, and recorded litigation settlement expense of $ 12.5 million relating to the milestone payment, which becomes payable following the filing of the Annual Report on Form 10-K that reports the $ 100.0 million in total cumulative sales.

The Company recorded litigation

settlement expense of $ 12.5 million for the three months ended March 31, 2023, as it determined that FDA approval of B-VEC was probable.

As of March 31, 2024, the Company has not recorded an accrual for the remaining two contingent milestone payments totaling $ 25.0 million.

As of March 31, 2024, future minimum commitments under the Company’s operating leases with lease terms in excess of 12 months were as follows:

The Company recorded litigation settlement expense of $ 12.5 million and $ 25.0 million for the three and six months ended June 30, 2024, respectively, and zero and $ 12.5 million for the three and six months ended June 30, 2023, respectively, on the condensed consolidated statements of operations and comprehensive income (loss) in accordance with the settlement agreement and the Amendment.

During the three months ended June 30, 2024, the Company reached cumulative sales of $ 100.0 million.

Accordingly, following the filing of this Quarterly Report on Form 10-Q, the Company will make a $ 6.25 million milestone payment, which was fully accrued for in the first quarter of 2024.

Also during the three months ended June 30, 2024, in accordance with ASC 450, “Contingencies”, the Company determined that reaching $ 200.0 million in cumulative sales was probable, and recorded litigation settlement expense of $ 12.5 million relating to the milestone payment, which becomes payable following the filing of the Annual Report on Form 10-K that reports $ 200.0 million in cumulative sales.

The Company previously recorded litigation settlement expense of $ 12.5 million for the six months ended June 30, 2023 following FDA approval of B-VEC.

As of June 30, 2024, the Company has not recorded an accrual for the remaining contingent milestone payment of $ 12.5 million related to $ 300.0 million in cumulative sales.

As of June 30, 2024, future minimum commitments under the Company’s operating leases with lease terms in excess of 12 months were as follows:

(in thousands)

2024 (remaining nine months) $ 1,157

2024 (remaining six months) $ 772

Thereafter 9,437

2 unchanged sentences

Present value of lease liability $ 7,687

As of March 31, 2024 and December 31, 2023, the Company's weighted-average remaining lease term for operating leases was 12.2 years and 12.3 years, respectively, and the Company’s weighted-average discount rate for operating leases was 9.5 % as of March 31, 2024 and December 31, 2023.

As of June 30, 2024 and December 31, 2023, the Company's weighted-average remaining lease term for operating leases was 12.2 years and 12.3 years, respectively, and the Company’s weighted-average discount rate for operating leases was 9.5 % as of June 30, 2024 and December 31, 2023.

The components of the Company’s lease expense are as follows:

Three Months Ended March 31,

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

(in thousands)

2024 2023 2024 2023

Operating lease expense $ 346 $ 440 $ 645 $ 902

2 unchanged sentences

Capitalization

On December 31, 2020, the Company entered into a sales agreement with Cowen and Company, LLC (“Cowen”) with respect to an at-the-market equity offering program (“2020 ATM Program”), under which the Company issued and sold from time to time through Cowen, acting as agent and/or principal, shares of its common stock, par value $ 0.00001 per share (“Common Stock”), having an aggregate offering price up to $ 150.0 million (“Placement Shares”).

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

During the three months ended March 31, 2023, no shares of Common Stock were issued pursuant to the 2020 ATM Program.

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

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

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

During the three months ended March 31, 2024, no shares of Common Stock were issued pursuant to the New ATM Program, resulting in $ 150.0 million available for issuance under the New ATM Program.

On May 8, 2023, the Company entered into a sales agreement with Cowen and Company, LLC (“Cowen”) with respect to an at-the-market equity offering program (“ATM Program”), under which the Company may issue and sell from time to time through Cowen, acting as agent and/or principal, shares of its common stock, par value $ 0.00001 per share (“Common Stock”), having an aggregate offering price up to $ 150.0 million (“Placement Shares”).

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

During the six months ended June 30, 2024 and 2023, no shares of Common Stock were issued pursuant to the ATM Program, resulting in $ 150.0 million being available for issuance under the ATM Program.

2023 Private Placement Offering

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

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

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

Stock-Based Compensation

4 unchanged sentences

The Company has historically granted stock options and restricted stock awards (“RSAs”) to its employees.

In February 2023, the Company began issuing restricted stock units (“RSUs”) and performance-based restricted stock units (“PSUs” and with RSUs commonly referred to collectively as “restricted stock units”) to certain employees.

Shares remaining available for grant under the Plan were 2.4 million as of March 31, 2024.

In February 2023, the Company

began issuing restricted stock units (“RSUs”) and performance-based restricted stock units (“PSUs” and with RSUs commonly referred to collectively as “restricted stock units”) to certain employees.

Shares remaining available for grant under the Plan were 2.4 million as of June 30, 2024.

Stock Options

The following table summarizes the Company’s stock option activity for the three months ended March 31, 2024:

The following table summarizes the Company’s stock option activity for the six months ended June 30, 2024:

Stock Options Outstanding Weighted-Average Exercise Price

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Cancelled or forfeited ( 321,134 ) $ 68.85

Outstanding as of March 31, 2024

Outstanding as of June 30, 2024

2,071,613 $ 77.65 7.7 $ 219,580

Exercisable as of March 31, 2024

Exercisable as of June 30, 2024

818,577 $ 62.85 6.9 $ 98,872

(1) Aggregate intrinsic value represents the difference between the closing stock price of our common stock on December 31, 2023 and March 31, 2024, respectively, and the exercise price of outstanding in-the-money options.

The following table summarizes the Company’s stock option activity for the three months ended March 31, 2023:

(1) Aggregate intrinsic value represents the difference between the closing stock price of our Common Stock on December 31, 2023 and June 30, 2024, respectively, and the exercise price of outstanding in-the-money options.

The following table summarizes the Company’s stock option activity for the six months ended June 30, 2023:

Stock Options Outstanding Weighted-Average Exercise Price

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Cancelled or forfeited ( 250,800 ) $ 63.14

Outstanding as of March 31, 2023

Outstanding as of June 30, 2023

3,229,666 $ 65.04 8.4 $ 169,121

Exercisable as of March 31, 2023

Exercisable as of June 30, 2023

778,737 $ 55.83 7.5 $ 47,952

(1) Aggregate intrinsic value represents the difference between the closing stock price of our common stock on December 31, 2022 and March 31, 2023, respectively, and the exercise price of outstanding in-the-money options.

The total intrinsic value (the amount by which the fair market value exceeds the exercise price) of stock options exercised was $ 24.5 million and $ 1.1 million during the three months ended March 31, 2024 and 2023, respectively.

The weighted-average grant-date fair value per share of options granted to employees, non-employees, and directors was $ 106.92 and $ 56.86 during the three months ended March 31, 2024 and 2023, respectively.

There was $ 63.9 million of unrecognized stock-based compensation expense related to employees’, non-employees’, and directors’ options that is expected to be recognized over a weighted-average period of 2.6 years as of March 31, 2024.

(1) Aggregate intrinsic value represents the difference between the closing stock price of our Common Stock on December 31, 2022 and June 30, 2023, respectively, and the exercise price of outstanding in-the-money options.

The total intrinsic value (the amount by which the fair market value exceeds the exercise price) of stock options exercised was $ 19.8 million and $ 26.7 million during the three months ended June 30, 2024 and 2023, respectively, and $ 44.3 million and $ 27.9 million during the six months ended June 30, 2024 and 2023, respectively.

The weighted-average grant-date fair value per share of options granted to employees, non-employees, and directors was $ 112.05 and $ 72.95 during the three months ended June 30, 2024 and 2023, respectively, and $ 109.18 and $ 61.06 during the six months ended June 30, 2024 and 2023, respectively.

There was $ 63.6 million of unrecognized stock-based compensation expense related to employees’, non-employees’, and directors’ options that is expected to be recognized over a weighted-average period of 2.5 years as of June 30, 2024.

Restricted Stock Awards

The following table summarizes the Company’s RSA activity:

Three Months Ended March 31,

Six Months Ended June 30,

Number of Shares Weighted-Average Grant Date Fair Value

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22,200 $ 78.89 44,400 $ 78.89

There was $ 1.6 million of unrecognized stock-based compensation expense related to employees’ RSAs that is expected to be recognized over a weighted-average period of 11 months as of March 31, 2024.

There was $ 1.2 million of unrecognized stock-based compensation expense related to employees’ RSAs that is expected to be recognized over a weighted-average period of 8 months as of June 30, 2024.

Restricted Stock Units

The following table summarizes the Company’s RSU activity:

Three Months Ended March 31,

Six Months Ended June 30,

Number of Shares Weighted-Average Grant Date Fair Value

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316,401 $ 135.14 172,700 $ 81.91

There was $ 43.4 million of unrecognized stock-based compensation expense related to employees’ RSU awards that is expected to be recognized over a weighted-average period of 3.7 years as of March 31, 2024.

There was $ 39.0 million of unrecognized stock-based compensation expense related to employees’ RSU awards that is expected to be recognized over a weighted-average period of 3.5 years as of June 30, 2024.

Performance-Based Restricted Stock Units

The following table summarizes the Company’s PSU activity:

Three Months Ended March 31,

Six Months Ended June 30,

Number of Shares Weighted-Average Grant Date Fair Value

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137,500 $ 145.37 60,000 $ 81.91

For the three months ended March 31, 2024, the Company granted 112,500 of PSUs, which vest ratably over two years based upon continued service through the vesting date and the achievement of specific regulatory and commercial performance criteria as determined by the Compensation Committee of the Company’s Board of Directors.

PSUs vest ratably over two years based upon continued service through the vesting date and the achievement of specific regulatory and commercial performance criteria as determined by the Compensation Committee of the Company’s Board of Directors.

The performance criteria are to be completed by the end of the year in which the PSU awards were granted.

As of the March 31, 2024, the Company estimated that 100 % of the newly granted PSUs will be eligible to vest.

There was $ 19.0 million of unrecognized stock-based compensation expense related to employees’ PSU awards that is expected to be recognized over a weighted-average period of 1.8 years as of March 31, 2024.

As of the June 30, 2024, the Company estimated that 100 % of the newly granted PSUs will be eligible to vest.

There was $ 16.3 million of unrecognized stock-based compensation expense related to employees’ PSU awards that is expected to be recognized over a weighted-average period of 1.6 years as of June 30, 2024.

Stock-Based Compensation Expense, Net

The Company recorded stock-based compensation expense related to its stock options, RSAs, RSUs, and PSUs in the condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2024 and 2023 as follows:

Three Months Ended March 31,

The Company recorded stock-based compensation expense, net related to its stock options, RSAs, RSUs and PSUs in the condensed consolidated statements of operations and comprehensive income (loss) for the three and six months ended June 30, 2024 and 2023 as follows:

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

(in thousands)

2024 2023 2024 2023

Research and development

1 unchanged sentence

Selling, general and administrative

10,384 8,469 17,815 16,409

Total stock-based compensation $ 13,156 $ 11,332 $ 22,455 $ 21,768

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

For the three months ended March 31, 2024 and 2023, the Company capitalized stock-based compensation of $ 724 thousand and zero , respectively, into inventory.

The Company capitalized stock-based compensation of $ 625 thousand and $ 113 thousand for the three months ended June 30, 2024 and 2023, respectively and $ 1.3 million and $ 112 thousand for the six months ended June 30, 2024 and 2023, respectively, into inventory.

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

For the three months ended March 31, 2024 and 2023, the Company capitalized stock-based compensation of zero and $ 162 thousand, respectively, into property and equipment, net.

The Company capitalized stock-based compensation of zero for each the three months ended June 30, 2024 and 2023, respectively, and zero and $ 162 thousand for the six months ended June 30, 2024 and 2023, respectively, into property and equipment, net.

The Company recorded an income tax provision of $ 477 thousand for the three and six months ended June 30, 2024.

The tax provision for interim periods is calculated using an estimate of the annual effective tax rate, adjusted for discrete items.

If there are any changes to the estimated annual tax rate, the Company will make a cumulative adjustment to the income tax provision in the period the change becomes known.

The Company did not record an income tax provision for the three months ended March 31, 2024 or 2023 as it generated sufficient tax losses, after consideration of discrete items, during each of the periods.

The Company did not record an income tax provision for the three and six months ended June 30, 2023 as it generated sufficient tax losses, after consideration of discrete items, during each of the periods.

The Company expects to maintain a full valuation allowance against its net deferred tax assets for the year.

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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-Q

Item 1. Financial Statements