What changed in this filing

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Item 1. Financial Statements

2024-11-04 compared with 2024-08-05 · 166 added, 148 removed, 366 unchanged (46% of the section changed)

3 unchanged sentences

(in thousands, except par value)

September 30,

2024 December 31,

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$ 0.00001 par value;

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.

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

28,757 and 28,237 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively.

Additional paid-in capital 1,110,481 1,047,830

Accumulated other comprehensive (loss) gain ( 634 ) 638

Accumulated other comprehensive gain

Accumulated deficit ( 226,147 ) ( 269,827 )

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Krystal Biotech, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

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

Condensed Consolidated Statements of Operations and Comprehensive Income

Three Months Ended September 30, Nine Months Ended September 30,

(in thousands, except per share data)

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22,433 ( 25,993 ) 24,316 ( 112,865 )

Gain from sale of priority review voucher — 100,000 — 100,000

Interest and other income, net 7,336 6,740 22,430 15,105

Income (loss) before income taxes

Income before income taxes

29,769 80,747 46,746 2,240

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( 2,589 ) — ( 3,066 ) —

Net income (loss)

27,180 80,747 43,680 2,240

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

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

2,146 ( 146 ) 874 346

Comprehensive income (loss)

Comprehensive income

$ 29,326 $ 80,601 $ 44,554 $ 2,586

Net income (loss) per common share:

Net income per common share:

Basic $ 0.95 $ 2.88 $ 1.53 $ 0.08

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Condensed Consolidated Statements of Stockholders’ Equity

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

Stockholders’ Equity

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

(in thousands)

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Net income — — — — 932 932

Balances at March 31, 2024

Balances as of March 31, 2024

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

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— — — — 15,568 15,568

Balances at June 30, 2024

Balances as of 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

Stockholders’ Equity

Issuance of common stock upon exercise of stock options

48 — 3,365 — — 3,365

Stock-based compensation — — 14,262 — — 14,262

Unrealized gain on investments and other (1)

— — — 2,146 — 2,146

Net income — — — — 27,180 27,180

Balances as of September 30, 2024

28,757 $ — $ 1,110,481 $ 1,512 $ ( 226,147 ) $ 885,846

(1) Includes foreign currency translation losses of $ 62 thousand, $ 83 thousand and gain of $ 306 thousand for the three months ended March 31, 2024, June 30, 2024 and September 30, 2024, respectively.

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

(in thousands)

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

Balances at March 31, 2023

Balances as of March 31, 2023

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

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

Balances at June 30, 2023

Balances as of 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.

Issuance of common stock upon exercise of stock options

220 — 13,511 — — 13,511

Stock-based compensation — — 8,722 — — 8,722

Unrealized (loss) on investments and other (1)

— — — ( 146 ) — ( 146 )

Net income — — — — 80,747 80,747

Balances as of September 30, 2023

28,195 $ — $ 1,034,849 $ ( 382 ) $ ( 278,519 ) $ 755,948

(1) Includes foreign currency translation loss of $ 35 thousand, gain of $ 57 thousand and loss of $ 112 thousand for the three months ended March 31, 2023, June 30, 2023 and September 30, 2023, respectively.

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

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Condensed Consolidated Statements of Cash Flows

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands) 2024 2023

Operating Activities

Net income (loss) $ 16,501 $ ( 78,507 )

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities

$ 43,680 $ 2,240

Adjustments to reconcile net income to net cash provided by (used in) operating activities

Gain from sale of priority review voucher — ( 100,000 )

Depreciation 4,603 3,483

Accretion on marketable securities ( 1,535 ) ( 1,585 )

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Accounts receivable, net ( 55,257 ) ( 9,316 )

( 1,708 ) ( 906 )

Inventory ( 5,386 ) ( 3,983 )

Prepaid expenses and other current assets ( 2,636 ) ( 464 )

9 unchanged sentences

Investing Activities

Proceeds from sale of priority review voucher

Purchases of property and equipment ( 3,437 ) ( 9,952 )

2 unchanged sentences

238,044 428,620

Net cash (used in) investing activities

Net cash (used in) provided by investing activities

( 79,661 ) 92,798

8 unchanged sentences

Effect of exchange rate changes on cash and cash equivalents 136 ( 16 )

Net (decrease) increase in cash and cash equivalents

Net increase in cash and cash equivalents

15,638 211,341

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Notes to Condensed Consolidated Financial Statements

Krystal Biotech, Inc.

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

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, 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, 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.

Founded in 2016, Krystal Biotech, Inc.

(the “Company,” or “we” or other similar pronouns) is 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.

Using our patented gene therapy technology platform that is based on engineered herpes simplex virus-1 (“HSV-1”), we create vectors that efficiently deliver therapeutic transgenes to cells of interest in multiple organ systems.

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

As of September 30, 2024, the Company had an accumulated deficit of $ 226.1 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.

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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 is subject to risks common to companies in the biotechnology industry, including but not limited to the failure of product candidates in preclinical and clinical 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’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.

Food and Drug Administration (“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 $ 588.3 million as of September 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

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The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes and management must select an amount that falls within that range of reasonable estimates.

If actual results in the future vary from the Company’s estimates, the Company will adjust these estimates in the period these variances become known.

If actual results in the future vary from the Company’s estimates, the Company will adjust these estimates

in the period these variances become known.

Estimates are used in the following areas, among others:

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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 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.

One counterparty accounted for 87 % and 100 % of accounts receivable, net as of September 30, 2024 and December 31, 2023, respectively.

No other counterparty exceeded 10% of the Company’s accounts receivable, net as of September 30, 2024.

As of September 30, 2024, the credit profiles for these counterparties were 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.

For the nine months ended September 30, 2024 and 2023, approximately 92 % and 100 %, respectively, of the Company’s product revenue, net was generated from a single customer in the U.S.

No other customer exceeded 10% of the Company’s product revenue, net.

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 six months ended June 30, 2024.

There were no material changes to the Company’s significant accounting policies during the nine months ended September 30, 2024.

Recent Accounting Pronouncements

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.

There were no accounting pronouncements issued or adopted during the nine months ended September 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):

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Revenue Recognition

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 six months ended June 30, 2024:

(in thousands)

Other Accruals

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

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

(in thousands) Rebates Prompt Pay Other Accruals Total

Balance as of December 31, 2023

$ 5,977 $ 858 $ 279 $ 7,114

18,132 4,008 521 22,661

Provisions 30,762 6,612 586 37,960

Payments/Credits ( 6,433 ) ( 4,881 ) ( 307 ) ( 11,621 )

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

Balance as of June 30, 2024

Balance as of September 30, 2024

$ 30,306 $ 2,589 $ 558 $ 33,453

1 unchanged sentence

Other long-term liabilities includes $ 761 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, net on the condensed consolidated statements of operations and comprehensive income (loss).

Net Income (Loss) Per Share Attributable to Common Stockholders

Basic net income (loss) per share attributable to common stockholders is calculated by dividing net income (loss) attributable to common stockholders by the weighted-average shares outstanding during the period, without consideration for common stock equivalents.

Diluted net income (loss) per share attributable to common stockholders is computed by dividing the net income (loss) by the weighted-average number of shares of common stock and common stock equivalents outstanding for the period.

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

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.

Net Income Per Share Attributable to Common Stockholders

Basic net income per share attributable to common stockholders is calculated by dividing net income attributable to common stockholders by the weighted-average shares outstanding during the period, without consideration for common stock equivalents.

Diluted net income per share attributable to common stockholders is computed by dividing the net income by the weighted-average number of shares of common stock and common stock equivalents outstanding for the period.

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 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,

For the three months ended September 30, 2024 and 2023, respectively, there were 229 thousand and 378 thousand common stock equivalents outstanding in the form of stock options that have been excluded from the calculation of diluted net income per common share as their effect would be anti-dilutive.

For the nine months ended September 30, 2024 and 2023, respectively, there were 207 thousand and 1.3 million common stock equivalents outstanding in the form of stock options that have been excluded from the calculation of diluted net income per common share as their effect would be anti-dilutive.

Three Months Ended September 30, Nine Months Ended September 30,

(in thousands, except per share data)

2024 2023 2024 2023

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

$ 27,180 $ 80,747 $ 43,680 $ 2,240

Weighted-average basic common shares

2 unchanged sentences

Weighted-average diluted common shares 29,902 28,892 29,669 27,385

Net income (loss) per common share—basic

Net income per common share—basic

$ 0.95 $ 2.88 $ 1.53 $ 0.08

Net income (loss) per common share—diluted

Net income per common share—diluted

$ 0.91 $ 2.79 $ 1.47 $ 0.08

Fair Value Instruments

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

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

September 30, 2024

(in thousands)

Amortized Cost Gross

Aggregate Fair

Value Cash and Cash

Equivalents Short-term

Securities (1)

Securities (2)

Amortized Cost Gross Unrealized Gains

Gross Unrealized (Losses)

Aggregate Fair Value

Cash and Cash Equivalents

Short-term Marketable Securities (1)

Long-term Marketable Securities (2)

Cash and cash equivalents $ 373,966 $ — $ — $ 373,966 $ 373,966 $ — $ —

Subtotal 373,966 — — 373,966 373,966 — —

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(in thousands)

Amortized Cost Gross

Aggregate Fair

Value Cash and Cash

Equivalents Short-term

Securities (1)

Securities (2)

Amortized Cost Gross Unrealized Gains

Gross Unrealized (Losses)

Aggregate Fair Value

Cash and Cash Equivalents

Short-term Marketable Securities (1)

Long-term Marketable Securities (2)

Cash and cash equivalents $ 358,328 $ — $ — $ 358,328 $ 358,328 $ — $ —

Subtotal 358,328 — — 358,328 358,328 — —

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(in thousands)

September 30,

2024 December 31,

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(in thousands)

September 30,

2024 December 31,

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Property and equipment, net $ 156,592 $ 161,202

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.

Depreciation expense was $ 1.3 million and $ 1.2 million for the three months ended September 30, 2024 and 2023, respectively, and $ 4.6 million and $ 3.5 million for the nine months ended September 30, 2024 and 2023, respectively.

Depreciation expense capitalized into inventory was $ 1.0 million and $ 391 thousand for the three months ended September 30, 2024 and 2023, respectively, and $ 2.4 million and $ 464 thousand for the nine months ended September 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 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.

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 June 30, 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 $ 7.9 million and $ 8.2 million as of September 30, 2024 and December 31, 2023, respectively, 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 June 30, 2024 and December 31, 2023:

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

(in thousands)

September 30,

2024 December 31,

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Accrued construction-in-progress

Accrued preclinical and clinical expenses 3,091 1,248

Other current liabilities 2,604 1,876

Accrued professional fees 2,200 1,810

Accrued preclinical and clinical expenses 1,512 1,248

Accrued inventory

Accrued taxes

Total $ 43,332 $ 21,511

Accrued expenses and other current liabilities

$ 53,110 $ 21,511

Commitments and Contingencies

Agreements with Contract Manufacturing Organizations and Contract Research Organizations

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

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

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

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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 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.

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 September 30, 2024 under these agreements was approximately $ 736 thousand.

The Company has incurred research and development expenses under CMO and CRO agreements of $ 2.7 million and $ 5.8 million for the three and nine months ended September 30, 2024 and $ 1.9 million and $ 5.0 million for the three and nine months ended September 30, 2023.

Legal Proceedings

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

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

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

In May 2020, PeriphaGen, Inc.

(“PeriphaGen”) commenced litigation against the Company alleging breach of contract and misappropriation of trade secrets.

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

(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 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 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:

The final settlement agreement also includes a $12.5 million payment upon FDA approval of VYJUVEK and three additional $ 12.5 million contingent milestone payments upon the Company reaching $ 100.0 million in cumulative sales, $ 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.

In May 2024, the parties entered into an amendment to the final settlement agreement (“Amendment”).

As defined in the final 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 the Company reaching $ 100.0 million in cumulative sales, such that $ 6.25 million would be 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 would be 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 final settlement agreement, and the contingent payments triggered upon reaching $ 200.0 million in cumulative sales and $ 300.0 million in cumulative sales remain payable within 30 days 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.

During the three months ended June 30, 2023, the Company obtained FDA approval of VYJUVEK and, in accordance with the final settlement agreement, paid PeriphaGen $ 12.5 million in June 2023.

During the three months ended June 30, 2024, the Company reached cumulative sales of $ 100.0 million and, in accordance with the Amendment, the Company paid PeriphaGen the $ 6.25 million milestone payment in September 2024.

The Company is required to make the remaining $ 6.25 million milestone payment within 120 days following December 31, 2024.

During the three months ended September 30, 2024, the Company reached cumulative sales of $ 200.0 million and, in accordance with the final settlement agreement and Amendment, is required to make the associated $ 12.5 million milestone payment within 30 days following the filing by the Company of its Annual Report on Form 10-K for the year ended December 31, 2024.

During the three months ended September 30, 2024, in accordance with ASC 450, “Contingencies,” the Company determined that reaching $ 300.0 million in cumulative sales was probable and recorded litigation settlement expense of $ 12.5 million on the condensed consolidated statements of operations and comprehensive income.

If the Company reaches $ 300.0 million in cumulative sales, it is required to pay PeriphaGen the associated $ 12.5 million milestone payment within 30 days following the filing of its Annual Report on Form 10-K that reports $ 300.0 million in cumulative sales.

The Company recorded litigation settlement expense of $ 12.5 million and $ 37.5 million for the three and nine months ended September 30, 2024, respectively, and zero and $ 12.5 million for the three and nine months ended September 30, 2023, respectively, on the condensed consolidated statements of operations and comprehensive income.

As of September 30, 2024, the Company has paid $ 43.75 million of the total $ 75.0 million of total consideration discussed above and has recorded accrued litigation expense within accrued expenses and other current liabilities on its condensed consolidated balance sheet for the remaining $ 31.25 million.

As of September 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 six months) $ 772

Operating Leases

2024 (remaining three months) $ 386

Thereafter 9,437

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Present value of lease liability $ 7,476

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.

As of September 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 September 30, 2024 and December 31, 2023.

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

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

Three Months Ended September 30, Nine Months Ended September 30,

(in thousands) 2024 2023 2024 2023

2024 2023 2024 2023

Operating lease expense $ 260 $ 379 $ 905 $ 1,282

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Capitalization

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.

to time through Cowen, acting as agent and/or principal, shares of its 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 (the “Form S-3”), and a prospectus supplement relating to the Placement Shares that was filed with the SEC on May 8, 2023.

We may terminate the ATM Program at any time upon 10 days’ notice to Cowen.

If not earlier terminated, the ATM Program will automatically terminate upon issuance of all of the Placement Shares or the expiration of the Form S-3 on April 6, 2026.

The ATM Program is not and has never been active.

2023 Private Placement Offering

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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 June 30, 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 September 30, 2024.

Stock Options

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

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

Stock Options Outstanding Weighted-Average Exercise Price

Weighted-Average Remaining Contractual Life (in years)

Weighted-Average Remaining Contractual Life

Aggregate Intrinsic Value (1)

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Cancelled or forfeited ( 335,449 ) $ 70.52

Outstanding as of June 30, 2024

Outstanding as of September 30, 2024

2,079,193 $ 81.53 7.5 $ 209,854

Exercisable as of June 30, 2024

Exercisable as of September 30, 2024

867,025 $ 63.68 6.7 $ 102,627

(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:

(1) Aggregate intrinsic value represents the difference between the closing stock price of our Common Stock on December 31, 2023 and September 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 nine months ended September 30, 2023:

Stock Options Outstanding Weighted-Average Exercise Price

Weighted-Average Remaining Contractual Life (in years)

Weighted-Average Remaining Contractual Life

Aggregate Intrinsic Value (1)

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Cancelled or forfeited ( 623,967 ) $ 64.19

Outstanding as of June 30, 2023

Outstanding as of September 30, 2023

2,667,260 $ 66.04 8.2 $ 133,648

Exercisable as of June 30, 2023

Exercisable as of September 30, 2023

707,277 $ 55.51 7.1 $ 42,793

(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.

(1) Aggregate intrinsic value represents the difference between the closing stock price of our Common Stock on December 31, 2022 and September 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 $ 5.9 million and $ 13.5 million during the three months ended September 30, 2024 and 2023, respectively, and $ 50.2 million and $ 41.4 million during the nine months ended September 30, 2024 and 2023, respectively.

The weighted-average grant-date fair value per share of options granted to employees, non-employees, and directors was $ 130.85 and $ 85.93 during the three months ended September 30, 2024 and 2023, respectively, and $ 114.29 and $ 62.87 during the nine months ended September 30, 2024 and 2023, respectively.

There was $ 63.4 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 September 30, 2024.

Restricted Stock Awards

The following table summarizes the Company’s RSA activity:

Six Months Ended June 30,

Nine Months Ended September 30,

Number of Shares Weighted-Average Grant Date Fair Value

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22,200 $ 78.89 44,400 $ 78.89

There was $ 1.2 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.

There was $ 713 thousand of unrecognized stock-based compensation expense related to employees’ RSAs that is expected to be recognized over a weighted-average period of 5 months as of September 30, 2024.

Restricted Stock Units

The following table summarizes the Company’s RSU activity:

Six Months Ended June 30,

Nine Months Ended September 30,

Number of Shares Weighted-Average Grant Date Fair Value

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309,553 $ 135.14 162,200 $ 81.91

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.

There was $ 35.3 million of unrecognized stock-based compensation expense related to employees’ RSU awards that is expected to be recognized over a weighted-average period of 3.2 years as of September 30, 2024.

Performance-Based Restricted Stock Units

The following table summarizes the Company’s PSU activity:

Six Months Ended June 30,

Nine Months Ended September 30,

Number of Shares Weighted-Average Grant Date Fair Value

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Vested ( 25,000 ) $ 81.91 —

— ( 10,000 ) $ 81.91

Non-vested PSUs, end of period

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

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.

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

There was $ 13.5 million of unrecognized stock-based compensation expense related to employees’ PSU awards that is expected to be recognized over a weighted-average period of 1.4 years as of September 30, 2024.

Stock-Based Compensation Expense, Net

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,

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 for the three and nine months ended September 30, 2024 and 2023 as follows:

Three Months Ended September 30, Nine Months Ended September 30,

(in thousands) 2024 2023 2024 2023

2024 2023 2024 2023

Research and development $ 2,267 $ 2,336 $ 6,907 $ 7,695

$ 2,772 $ 2,863 $ 4,640 $ 5,359

Selling, general and administrative 11,049 5,975 28,864 22,385

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

Total stock-based compensation $ 13,316 $ 8,311 $ 35,771 $ 30,080

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.

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.

The Company capitalized stock-based compensation of $ 946 thousand and $ 410 thousand for the three months ended September 30, 2024 and 2023, respectively, and $ 2.3 million and $ 522 thousand for the nine months ended September 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.

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

The Company recorded an income tax provision of $ 2.6 million and $ 3.1 million for the three and nine months ended September 30, 2024, respectively.

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 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 did not record an income tax provision for the three and nine months ended September 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.

Gain from Sale of Priority Review Voucher

In August 2023, the Company entered into an agreement to sell the rare pediatric disease priority review voucher (“PRV”), which was awarded to the Company in connection with the FDA’s approval of VYJUVEK.

The transaction closed in August 2023 and was not subject to any commissions or closing costs.

The proceeds of $ 100.0 million from the sale of the PRV were recorded as a gain from sale of priority review voucher on the Company’s condensed consolidated statement of operations and comprehensive income as it did not have a carrying value at the time of the sale.

Subsequent Events

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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