What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-02-19 compared with 2024-02-26 · 460 added, 396 removed, 478 unchanged (64% of the section changed)

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INDEX TO FINANCIAL STATEMENTS

Reports of Independent Registered Public Accounting F irms ( KPMG, LLP , Pittsburgh, PA (US Firm), PCAOB ID No.

185 ) ( Mayer Hoffman McCann P.C.

, San Diego, CA , PCAOB ID No.

Consolidated Balance Sheets as of December 31, 2023 and December 31, 2022

Consolidated Statements of Operations and Comprehensive Income ( Loss ) for the Years Ended December 31, 2023, December 31, 2022, and December 31, 2021

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2023, December 31, 2022, and December 31, 2021

Consolidated Statements of Cash Flows for the Years Ended December 31, 2023, December 31, 2022, and December 31, 2021

Reports of Independent Registered Public Accounting Firms (KPMG, LLP, Pittsburgh, PA (US Firm), PCAOB ID No.

Consolidated Balance Sheets as of December 31, 2024 and 2023

Consolidated Statements of Operations and Comprehensive Income (Loss) for the Years Ended December 31, 2024, 2023 and 2022

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2024, 2023 and 2022

Consolidated Statements of Cash Flows for the Years Ended December 31, 2024, 2023 and 2022

Notes to Consolidated Financial Statements

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We have audited the accompanying consolidated balance sheets of Krystal Biotech, Inc.

and subsidiaries (the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2023, and the related notes (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2023, in conformity with U.S.

and subsidiaries (the Company) as of December 31, 2024 and 2023, the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2024, and the related notes (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2024, in conformity with U.S.

generally accepted accounting principles.

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

Critical audit matters are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

We determined that there are no critical audit matters.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Evaluation of the sufficiency of audit evidence over the Medicaid rebate accrual

As discussed in Notes 2 and 3 to the consolidated financial statements, the Company recognizes product revenue on sales of VYJUVEK when the customer obtains control of the product, which occurs at a point in time, upon delivery to the customer.

Product revenue, net is recorded at the net sales price, or transaction price, and includes an estimate of variable consideration, which results from discounts, rebates and returns that are offered within the Company’s contracts.

Government rebates, which include Medicaid, are accrued based on estimated percentages of VYJUVEK that will be prescribed to qualified patients, estimated rebate percentages and estimated levels of inventory in the distribution channel that will be prescribed to qualified patients and are recorded as a reduction of

Rebates were $38.2 million as of December 31, 2024, of which a portion relates to the Medicaid rebate accrual.

We identified the evaluation of the sufficiency of audit evidence over the Medicaid rebate accrual as a critical audit matter.

Subjective auditor judgment was required to evaluate the Medicaid rebate accrual because of the audit effort involved in determining the nature and extent of procedures to be performed.

The following are the primary procedures we performed to address the critical audit matter.

We applied auditor judgment to determine the nature and extent of procedures to be performed over the Medicaid rebate accrual.

We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s Medicaid rebate accrual process.

We evaluated the relevance and reliability of the historical customer data used by the Company in developing the estimate of the Medicaid rebate accrual by obtaining the data directly from the third party and comparing it to what the Company reported.

We evaluated the Company’s ability to accurately estimate the Medicaid rebate accrual by comparing the estimated Medicaid rebate accrual to the actual units delivered to the customer that were dispensed to qualified Medicaid patients subsequent to period end.

We developed an independent estimate of the Medicaid rebate accrual using historical data and compared the result to the Company’s estimated Medicaid rebate accrual.

We assessed the sufficiency of evidence obtained over the Medicaid rebate accrual by assessing the results of procedures performed, including the appropriateness of the nature and extent of audit effort.

We have served as the Company’s auditor since 2022.

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February 19, 2025

Report of Independent Registered Public Accounting Firm

To the Board of Directors and

Stockholders of Krystal Biotech, Inc.:

Opinion on the Financial Statements

We have audited the accompanying consolidated statements of operations and comprehensive loss, stockholders’ equity and cash flows of Krystal Biotech, Inc.

(the “Company”) for the year ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the results of the Company’s operations and their cash flows for the year ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

We have served as the Company's auditor since 2017, which ended in 2022.

/s/ Mayer Hoffman McCann P.C.

San Diego, California

February 28, 2022

Krystal Biotech, Inc.

Consolidated Balance Sheets

(In thousands, except shares and par value data) December 31,

2023 December 31,

(in thousands, except par value) 2024 2023

Current assets

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Accounts receivable, net 104,746 42,040

Inventory 26,508 6,985

Prepaid expenses and other current assets 13,274 6,706

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Current portion of lease liability 1,217 1,474

Accrued rebates 36,804 5,977

Accrued expenses and other current liabilities 58,989 21,511

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Lease liability 6,044 6,620

Other long-term liabilities 1,419 —

Total liabilities 109,458 39,714

Commitments and contingencies (Note 7)

Commitments and contingencies (see note 7)

Stockholders' equity

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$ 0.00001 par value;

80,000,000 shares authorized at December 31,

2023 and 2022;

28,236,673 and 25,763,743 shares issued and outstanding at December 31, 2023 and 2022, respectively

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

28,794 and 28,237 shares issued and outstanding as of December 31, 2024 and 2023, respectively.

Additional paid-in capital 1,127,238 1,047,830

Accumulated other comprehensive gain (loss)

Accumulated other comprehensive (loss) gain

Accumulated deficit ( 180,668 ) ( 269,827 )

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Consolidated Statements of Operations and Comprehensive Income (Loss)

(In thousands, except share and per share data) 2023 2022 2021

Years Ended December 31,

(in thousands, except per share data) 2024 2023 2022

Product revenue, net $ 290,515 $ 50,699 $ —

$ 50,699 $ — $ —

Operating expenses

Cost of goods sold 20,061 3,094 —

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Selling, general and administrative 113,686 98,401 77,735

98,401 77,735 40,391

Litigation settlement 37,500 12,500 25,000

Total operating expenses 224,820 160,426 145,196

Loss from operations ( 109,727 ) ( 145,196 ) ( 68,275 )

Income (loss) from operations 65,695 ( 109,727 ) ( 145,196 )

Other income (expense)

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Interest and other income, net 29,661 22,624 5,221

Interest expense — — ( 1,492 )

Income (loss) before income taxes 95,356 12,897 ( 139,975 )

12,897 ( 139,975 ) ( 69,570 )

Income tax expense ( 6,197 ) ( 1,965 ) —

( 1,965 ) — —

Net income (loss) 89,159 10,932 ( 139,975 )

10,932 ( 139,975 ) ( 69,570 )

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

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

( 828 ) 1,366 ( 565 )

Comprehensive income (loss) $ 88,331 $ 12,298 $ ( 140,540 )

$ 12,298 $ ( 140,540 ) $ ( 69,739 )

Net income (loss) per common share:

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Consolidated Statements of Stockholders' Equity

(In thousands, except shares) Common Stock Additional

Capital Accumulated

Comprehensive

Income (Loss)

Deficit Total

Stockholders'

Shares Amount

Balances at January 1, 2021

Common Stock Additional Paid-in Capital

Accumulated Other Comprehensive Income (Loss)

Accumulated Deficit

Total Stockholders' Equity

(in thousands) Shares Amount

Balances as of January 1, 2022

25,208 $ — $ 734,523 $ ( 163 ) $ ( 140,784 ) $ 593,576

Issuance of common stock, net 5,493,765 — 355,628 — — 355,628

Stock-based compensation expense — — 15,603 — — 15,603

Unrealized loss on investments and other (1) — — — ( 169 ) — ( 169 )

Net loss — — — — ( 69,570 ) ( 69,570 )

Balances at December 31, 2021 25,207,985 $ — $ 734,523 $ ( 163 ) $ ( 140,784 ) $ 593,576

Issuance of common stock, net 573,637 — 36,063 — — 36,063

Shares surrendered for taxes and forfeitures ( 17,879 ) — ( 649 ) — — ( 649 )

Stock-based compensation expense — — 33,781 — — 33,781

Issuance of common stock pursuant to ATM Program, net of offering costs

435 — 29,055 — — 29,055

Issuance of common stock upon exercise of stock options

139 — 7,008 — — 7,008

Shares of restricted stock awards surrendered for taxes ( 18 ) — ( 649 ) — — ( 649 )

Stock-based compensation — — 33,781 — — 33,781

Unrealized loss on investments and other (1)

— — — ( 565 ) — ( 565 )

Net loss — — — — ( 139,975 ) ( 139,975 )

Balances at December 31, 2022 25,763,743 $ — $ 803,718 $ ( 728 ) $ ( 280,759 ) $ 522,231

Issuance of common stock, net 2,482,481 — 203,682 — — 203,682

Shares surrendered for taxes

Balances as of December 31, 2022

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

Stock-based compensation expense — — 41,179 — — 41,179

Issuance of common stock in private placement offering, net of offering costs 1,730 — 159,909 — — 159,909

Issuance of common stock upon exercise of stock options

753 — 43,773 — — 43,773

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

Stock-based compensation — — 41,179 — — 41,179

Unrealized gain on investments and other (1)

— — — 1,366 — 1,366

Net income — — — — 10,932 10,932

Balances as of December 31, 2023

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

Balances at December 31, 2023 28,236,673 $ — $ 1,047,830 $ 638 $ ( 269,827 ) $ 778,641

(1) Includes foreign currency translation losses of $ 66 thousand and $ 78 thousand, and a gain of $ 7 thousand for the years ended December 31, 2023, 2022, and 2021, respectively.

Issuance of common stock upon exercise of stock options

526 — 32,400 — — 32,400

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 )

Stock-based compensation — — 52,394 — — 52,394

Unrealized loss on investments and other (1)

— — — ( 828 ) — ( 828 )

Net income — — — — 89,159 89,159

Balances as of December 31, 2024

28,794 $ — $ 1,127,238 $ ( 190 ) $ ( 180,668 ) $ 946,380

(1) Includes foreign currency translation losses of $ 388 thousand, $ 66 thousand and $ 78 thousand for the years ended December 31, 2024 , 2023 , and 2022 , respectively.

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

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Net income (loss) $ 89,159 $ 10,932 $ ( 139,975 )

$ 10,932 $ ( 139,975 ) $ ( 69,570 )

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

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

( 100,000 ) — —

5,007 2,643 1,849

(Accretion) amortization

Depreciation 5,967 5,007 2,643

(Accretion) amortization of marketable securities

( 1,706 ) ( 2,183 ) 670

Stock-based compensation expense 39,933 33,230 15,319

Loss on disposal of fixed assets 27 72 —

Non-cash interest expense — — 1,492

Amortization of operating lease right-of-use assets 747 904 742

Stock-based compensation expense, net 49,127 39,933 33,230

Realized gain on investments ( 6,069 ) ( 5,092 ) ( 570 )

( 5,092 ) ( 570 ) —

Other, net 652 217 34

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Accounts receivable ( 62,706 ) ( 42,040 ) —

( 42,040 ) — —

Inventory ( 11,907 ) ( 4,475 ) —

Prepaid expenses and other assets

( 8,909 ) ( 1,612 ) ( 615 )

Prepaid expenses and other current assets ( 908 ) ( 311 ) ( 691 )

Other non-current assets ( 64 ) ( 150 ) 65

Lease liability ( 833 ) ( 829 ) ( 647 )

Other long-term liabilities

Accounts payable 1,011 ( 101 ) ( 1,254 )

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Accrued expenses and other current liabilities 5,391 4,558 5,173

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

Accrued legal settlement 31,250 — —

Net cash provided by (used in) operating activities

123,420 ( 88,804 ) ( 100,569 )

Investing Activities

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Maturities of investments 298,539 503,213 257,677

503,213 257,677 32,028

Net cash provided by (used in) investing activities

Net cash (used in) provided by investing activities

( 163,439 ) 82,638 ( 114,083 )

Financing Activities

Issuance of common stock, net of issuance costs

Proceeds from issuance of common stock, net — 159,726 28,988

Proceeds from exercise of stock options

32,400 43,773 7,008

Taxes paid for employee tax withholding related to restricted stock units ( 4,181 ) — —

Taxes paid related to settlement of restricted stock awards ( 1,205 ) ( 749 ) ( 649 )

Repayment of ASTRA build-to-suit liability

— — ( 7,960 )

Net cash provided by financing activities 27,014 202,750 35,347

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Initial recognition of right-of-use assets $ — $ — $ 1,556

Supplemental Disclosure of Cash Flow Information

Income taxes paid

$ 5,665 $ — $ —

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

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

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

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

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 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, March 2024, November 2024, and December 2024 we incorporated wholly-owned subsidiaries in Switzerland, Netherlands, France, Germany, Japan, Italy, and Spain respectively, for the purpose of establishing initial operations in Europe and Japan for the commercialization of VYJUVEK and our product pipeline.

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

Our first commercial product, VYJUVEK ® , was approved by the FDA on May 19, 2023 for the treatment of DEB, and we subsequently initiated our U.S.

commercial launch.

VYJUVEK is the first medicine approved by the FDA for the treatment of DEB.

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

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

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

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

As of December 31, 2024, the Company had an accumulated deficit of $ 180.7 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 and the achievement of a level of revenue adequate to support the Company’s cost structure.

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, debt financings, and may also seek additional capital through arrangements with strategic partners or other sources.

Our transition to continued 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 and the sale of equity, and may also seek additional capital through 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.

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Actual results could materially differ from those estimates.

Management considers many factors in developing the estimates and

Krystal Biotech, Inc.

Notes to Consolidated Financial Statements — Continued

assumptions that are used in the preparation of these financial statements.

Management considers many factors in developing the estimates and assumptions that are used in the preparation of these financial statements.

Management must apply significant judgment in this process.

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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

Krystal Biotech, Inc.

Notes to Consolidated Financial Statements—Continued

become known.

Estimates are used in the following areas, among others:

variable consideration associated with revenue recognition, stock-based compensation expense, accrued expenses, the fair value of financial instruments, and the valuation allowance included in the deferred income tax calculation.

variable consideration associated with revenue recognition, stock-based compensation expense, accrued expenses, and income taxes.

Segment and Geographical Information

Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance.

The Company and the Company’s chief operating decision maker view the Company’s operations and manage its business in one operating segment, which is the business of developing and commercializing pharmaceutical products.

The Company operates as one operating segment, which is focused on the discovery, development, manufacturing and commercialization of pharmaceutical products.

See Note 13 to these consolidated financial statements for additional discussion.

Cash, Cash Equivalents and Investments

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

government agency securities.

government agency securities and treasuries.

Investments with maturities of greater than one year are classified as long-term investments on the consolidated balance sheets and consist of corporate bonds and U.S.

government agency securities.

Accrued interest on investments is also classified as short-term investments.

As our entire investment portfolio is considered available for use in current operations, we classify all investments as available-for-sale securities.

Available-for-sale securities are carried at fair value, with unrealized gains and losses reported in accumulated other comprehensive gain (loss), which is a separate component of stockholders’ equity in the consolidated balance sheets.

government agency securities and treasuries.

Accrued interest on investments is also classified as short-term investments on the consolidated balance sheets.

As the Company’s entire investment portfolio is considered available for use in current operations, it classifies all investments as available-for-sale securities.

Any premium arising at purchase is amortized to the earliest call date and any discount arising at purchase is accreted to maturity.

Amortization and accretion of premiums and discounts are recorded in interest and other income, net in the consolidated statements of operations and comprehensive income (loss).

Amortization and accretion of premiums and discounts are recorded in interest and other income, net on the consolidated statements of operations and comprehensive (loss) income.

Fair Value of Financial Instruments

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A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

There have been no significant changes to the valuation methods utilized by the Company during the periods presented.

There have been no transfers between Level 1, Level 2, and Level 3 in any periods presented.

The carrying amounts of financial instruments consisting of cash and cash equivalents, investments, accounts receivable, net, prepaid expenses and other current assets, accounts payable, accrued expenses and other current liabilities included in the Company’s consolidated financial statements, are reasonable estimates of fair value, primarily due to their short maturities.

There have been no (1) significant changes to the valuation methods utilized by the Company or (2) transfers between Level 1, Level 2 and Level 3 during the years ended December 31, 2024, 2023 and 2022.

The carrying amounts of financial instruments consisting of cash and cash equivalents, investments, accounts receivable, net, prepaid expenses and other current assets, accounts payable, accrued expenses and other current liabilities included in the Company’s consolidated balance sheets, are reasonable estimates of fair value, primarily due to their short maturities.

Our available-for-sale, short-term and long-term investments, which consist of commercial paper, corporate bonds, and U.S.

government agency securities are considered to be Level 2 financial instruments.

The fair value of Level 2 financial assets

government agency securities and treasuries are considered to be Level 2 financial instruments.

The fair value of Level 2 financial assets is determined using inputs that are observable in the market or can be derived principally from or corroborated by observable market data such as pricing for similar securities, recently executed transactions, cash flow models with yield curves, and benchmark securities.

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

Krystal Biotech, Inc.

Notes to Consolidated Financial Statements—Continued

is determined using inputs that are observable in the market or can be derived principally from or corroborated by observable market data such as pricing for similar securities, recently executed transactions, cash flow models with yield curves, and benchmark securities.

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

Revenue Recognition

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

The Company entered into a third-party logistics distribution agreement to engage a logistics agent (the “3PL Agent”) to distribute the Company’s products to its customers.

The 3PL Agent provides services to the Company that include storage, shipping and distribution, processing product returns, as well as customer service, order to cash, and logistics support.

The Company and an affiliate of the 3PL Agent (the Title Company) entered into a Title Model Amendment (the Title Amendment) to the 3PL Agreement so that the Title Company may purchase and take title to the product and sell the product to the SPs who have contracted to purchase the product from the Company or SD who has contracted to deliver the product to our customers.

Although, under the Title Amendment the Title Company takes title to the product, the economic substance of the transaction provides that the Title Company does not possess the risk of loss or participate in the significant risks and rewards of ownership of the product.

The Title Company also lacks the ability to control, direct the use of, and obtain substantially all of the remaining benefits from the product.

Accordingly, the Company does not recognize revenue on the transfer of the goods until the goods are sold from the Title Company to the SPs or delivered by the SD.

Revenue is recognized upon transfer of control of the product to the customer.

The Company recognizes product revenue under ASC Topic 606, Revenue from Contracts with Customers (“Topic 606”).

Under Topic 606, the Company is required to complete the following five steps:

The Company recognizes product revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”), Topic 606, Revenue from Contracts with Customers (“ASC 606”).

Under ASC 606, the Company is required to complete the following five steps:

(i) identify the contract(s) with a customer;

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and (v) recognize revenue when (or as) the entity satisfies a performance obligation.

The Company recognizes revenue when the customer obtains control of the product, which occurs at a point in time, upon delivery to the customer.

Sales and other taxes collected concurrent with revenue-producing activities are excluded from revenue.

Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring VYJUVEK and is generally based upon a list or fixed price less allowances for returns, copay assistance, rebates and discounts.

The Company’s payment terms are generally 80 days from the invoice date.

Revenue is recognized when, or as, the Company satisfies a performance obligation by transferring control of the promised good to the customer.

The only performance obligation in the Company’s contracts with customers is the timely delivery of the product to the customer’s designated location.

The Company sells VYJUVEK to a limited number of specialty pharmacy (“SPs”) providers that mix the medication to be administered by a healthcare professional in either a healthcare professional or home setting and to a limited number of hospitals or specialty distributors (“SDs”) who deliver to hospitals where patients are administered the medication in a healthcare setting.

Revenue is recognized when the customer obtains control of the product, which occurs at a point in time, upon delivery to the customer.

Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring VYJUVEK and is generally based upon a list price and is recorded at the net sales price upon delivery and transfer of control to the customer, and includes an estimate of variable consideration, which results from discounts, rebates, copay assistance, and returns that are offered within contracts between the Company and its customers.

These reserves, representing the Company’s best estimates of the amount of consideration to which the Company is entitled, are based on the terms of the contract.

Variable Consideration

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

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

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

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

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

The following are the Company’s significant categories of variable consideration:

• Prompt Pay Discounts :

As an incentive for prompt payment, the Company offers cash discounts to its counterparties.

As an incentive for prompt payment, the Company may offer cash discounts to its counterparties.

The Company estimates accrued prompt pay discounts using the most likely amount method.

The Company expects that all eligible counterparties will comply with the contractual terms to earn the discount.

The Company records the discount as an allowance against accounts receivable, net and a reduction of revenue.

The Company records the discount as a reduction of revenue on the consolidated statements of operations and as an allowance against accounts receivable, net on the consolidated balance sheets.

• Government Rebates :

The Company participates in certain government rebate programs including Medicaid, Medicare and Tricare.

The Company estimates accrued government rebates using the expected value method.

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

Accrued government rebates are recorded as a reduction of revenue and are included in other accrued liabilities on the consolidated balance sheets.

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

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

The Company also estimates accrued government rebates using the expected value method based on estimated percentages of VYJUVEK that will be prescribed to qualified patients, estimated rebate percentages and estimated levels of inventory in the distribution channel that will be prescribed to qualified patients and records the rebates as a reduction of revenue on the consolidated statements of operations and accrued rebates and other long-term liabilities on the consolidated balance sheets.

• Commercial Rebates:

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

Accrued commercial rebates are estimated using the expected value method.

The Company accrues estimated rebates based on contract prices, estimated percentages of VYJUVEK that will be prescribed to qualified patients and estimated levels of inventory in the distribution channel.

Accrued commercial rebates are recorded as a reduction of revenue and are included in other accrued liabilities on the consolidated balance sheets.

Krystal Biotech, Inc.

Notes to Consolidated Financial Statements — Continued

Accrued commercial rebates are estimated using the expected value method based on estimated percentages of VYJUVEK that will be prescribed to qualified patients and estimated levels of inventory in the distribution channel.

Accrued commercial rebates are recorded as a reduction of revenue on the consolidated statements of operations and are included in accrued rebates on the consolidated balance sheets.

• Copay Assistance:

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

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

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

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

The Company estimates copay assistance costs using the expected value method based on estimated percentages of VYJUVEK that will be prescribed to

Krystal Biotech, Inc.

Notes to Consolidated Financial Statements—Continued

qualified patients, average assistance paid based on reporting from third-party vendors and estimated levels of inventory in the distribution channel.

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

• Product Returns:

The Company offers SPs and SDs limited return rights relating only to product damage or defects identified upon receipt, and therefore the Company expects minimal returns.

The Company offers limited return rights relating only to product damage or defects identified upon receipt, and therefore the Company expects minimal returns.

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

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

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

Actual amounts of consideration ultimately received may differ from the Company’s 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.

The Company has not experienced significant product returns to date, and accordingly no allowance for returns was recorded for the year ended December 31, 2024.

Cost of Goods Sold

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

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

Accounts Receivable

Accounts receivable is recorded net of allowances for prompt payment discounts, returns, and credit losses.

Accounts receivable represents amounts arising from product sales and is recorded net of allowances for prompt payment discounts, returns, and credit losses.

The Company estimates an allowance for credit losses by considering factors such as credit quality, the age of the accounts receivable balances, and current economic conditions that may affect a customer’s ability to pay.

As of December 31, 2023, 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 has no historical write-offs of its accounts receivable and its payment terms are generally less than 90 days from the invoice date.

The Company evaluates the creditworthiness of each counterparty on a regular basis.

As of December 31, 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.

Concentration of Credit Risk and Off-Balance Sheet Risk

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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, net and marketable securities, which primarily consist of U.S.

The Company’s 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.

The Company had one customer for the year ended December 31, 2023 and no product revenue for the years ended December 31, 2022 and 2021.

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

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

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

The Company values its inventories at the lower-of-cost and net realizable value, on a first-in, first-out basis.

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

For the years ended December 31, 2024, 2023 and 2022, there were no inventory write-downs.

Krystal Biotech, Inc.

Notes to Consolidated Financial Statements — Continued

See Note 6 to these consolidated financial statements for additional discussion.

Property and Equipment, Net

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Maintenance and repairs that do not improve or extend the lives of the respective assets are expensed to operations as incurred, while costs of major additions and betterments are capitalized.

Upon disposal, the related cost and accumulated depreciation is removed from the accounts and any resulting gain or loss is included in the results of operations.

Upon disposal, the related cost and accumulated depreciation is removed from the accounts and any

Krystal Biotech, Inc.

Notes to Consolidated Financial Statements—Continued

resulting gain or loss is included in the results of operations.

Depreciation is recorded using the straight-line method over the estimated useful lives of the respective assets, which are as follows:

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Changes in estimates are accounted for on a prospective basis by depreciating the current carrying values of the assets over their revised remaining useful lives.

Construction-in-progress (“CIP”) is not depreciated until the asset is placed in service.

Construction in progress is not depreciated until the asset is placed in service.

Impairment of Long-Lived Assets

The Company evaluates long-lived assets for potential impairment when events or changes in circumstances indicate the carrying value of the assets may not be recoverable.

We review the recoverability of the net book value of long-lived assets whenever events and circumstances indicate ("triggering events") that the net book value of an asset may not be recoverable from the estimated undiscounted future cash flows expected to result from its use and eventual disposition.

In cases where a triggering event occurs and undiscounted expected future cash flows are less than the net book value, we recognize an impairment loss equal to an amount by which the net book value exceeds the fair value of the asset.

The Company reviews the recoverability of the net book value of long-lived assets whenever events and circumstances indicate (“triggering events”) that the net book value of an asset may not be recoverable from the estimated undiscounted future cash flows expected to result from its use and eventual disposition.

In cases where a triggering event occurs and undiscounted expected future cash flows are less than the net book value, the Company recognizes an impairment loss equal to an amount by which the net book value exceeds the fair value of the asset.

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

The Company has no t experienced any triggering events or recognized any impairment losses for the years ended December 31, 2023, 2022, and 2021.

The Company has not experienced any triggering events or recognized any impairment losses for the years ended December 31, 2024, 2023 and 2022.

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

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

Krystal Biotech, Inc.

Notes to Consolidated Financial Statements — Continued

In accruing service fees, the Company estimates the time period over which services will be performed and the level of effort to be expended in each period.

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If the actual timing of the performance of services or the level of effort varies from the estimate, the Company will adjust the accrual accordingly.

Krystal Biotech, Inc.

Notes to Consolidated Financial Statements—Continued

Stock-Based Compensation Expense

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

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

The Company has applied the fair value recognition provisions of Financial Accounting Standards Board Accounting Standards Codification, or ASC, Topic 718, Compensation—Stock Compensation (“ASC 718”), to account for stock-based compensation.

The Company recognizes compensation costs related to stock-based awards based on the estimated fair value of the awards on the date of grant.

ASC 718 requires all stock-based payments, including grants of stock options and restricted stock, to be recognized in the consolidated statements of operations and comprehensive income (loss) based on their grant-date fair values.

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and (iv) expected dividends.

Once the Company's own sufficient historical volatility data was available in 2021, the Company eliminated the use of a representative peer group and began using only its own historical volatility data in its estimate of expected volatility.

The Company estimates the expected term of its stock options using the “simplified” method, whereby the expected term equals the arithmetic mean of the vesting term and the original contractual term of the option.

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For the years ended December 31, 2024, 2023 and 2022, income taxes were recorded in accordance with FASB ASC Topic 740, Income Taxes (“ASC 740”), which provides for deferred taxes using an asset and liability approach.

Under this method, we record deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities using enacted tax rates expected to be in effect when the differences are expected to reverse.

Under this method, the Company records deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities using enacted tax rates expected to be in effect when the differences are expected to reverse.

Valuation allowances are provided when necessary to reduce net deferred tax assets to the amount that is more likely than not to be realized.

Based on the available evidence, we are unable, at this time, to support the determination that it is more likely than not that our deferred tax assets will be utilized in the future.

Accordingly, we recorded a full valuation allowance as of December 31, 2023 and 2022.

We intend to maintain a valuation allowance until sufficient evidence exists to support its reversal.

The Company accounts for uncertain tax positions in accordance with the provisions of ASC 740.

When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit will more likely than not be realized.

Based on the available evidence, the Company is unable, at this time, to support the determination that it is more likely than not that our deferred tax assets will be utilized in the future.

Accordingly, the Company recorded a full valuation allowance as of December 31, 2024 and 2023.

The Company intends to maintain a valuation allowance until sufficient evidence exists to support its reversal.

The Company accounts for unrecognized tax benefits in accordance with the provisions of ASC 740.

When unrecognized tax benefits exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit will more likely than not be realized.

The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances.

As of December 31, 2023 and 2022, the Company did not have any significant uncertain tax positions.

The Company may recognize interest and penalties related to uncertain tax positions in income tax expense.

As of December 31, 2023 and 2022, the Company had no accrued interest or penalties related to uncertain tax positions and no amounts have been recognized in the Company’s consolidated statements of operations and comprehensive income (loss).

As of December 31, 2024 and 2023, the Company had $ 4.2 million and zero , respectively in unrecognized tax benefits.

The Company may recognize interest and penalties related to unrecognized tax benefits in income tax expense.

As of December 31, 2024 and 2023, the Company had recognized $ 218 thousand and zero , respectively in interest or penalties related to unrecognized tax benefits.

See Note 11 to these consolidated financial statements for additional discussion.

Comprehensive Income (Loss)

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Unrealized gains or losses on available-for-sale securities is a component of other comprehensive gains or losses and is presented net of taxes.

We record reclassifications from other comprehensive gains or losses to interest and other income, net on the consolidated statements of operations and comprehensive income (loss) related to realized gains on sales of available-for-sale securities.

Krystal Biotech, Inc.

Notes to Consolidated Financial Statements — Continued

The Company records reclassifications from other comprehensive gains or losses to interest and other income, net on the consolidated statements of operations and comprehensive income (loss) related to realized gains on sales of available-for-sale securities.

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

The Company determined that there were no other-than-temporary impairments during the years ended December 31, 2024, 2023 and 2022.

Recent Accounting Pronouncements

Recently Issued Accounting Pronouncements, Not Yet Adopted

In December 2023, the FASB issued ASU 2023-09 Income Taxes (Topic 740):

Improvements to Income Tax Disclosures .

The purpose of this guidance is to enhance the transparency and usefulness of income tax disclosures and provide comprehensive income tax information, particularly in relation to rate reconciliation and income taxes paid in the U.S.

The purpose of this guidance is to enhance the transparency and usefulness of income tax disclosures and provide

Krystal Biotech, Inc.

Notes to Consolidated Financial Statements—Continued

comprehensive income tax information, particularly in relation to rate reconciliation and income taxes paid in the U.S.

and foreign jurisdictions.

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Currently, the company is assessing the potential impact of this guidance on its consolidated financial statement disclosures.

In November 2023, the FASB issued Accounting Standard Update (“ASU”) No.

Improvements to Reportable Segment Disclosures .

This new standard requires public entities to disclose significant segment expenses and additional segment items annually and in interim periods, and to provide all reported segment profit or loss information and assets currently required each year.

The standard also requires disclosure of the Chief Operating Decision Maker's title and position.

The standard does not change the manner in which public entities identify their operating segments, aggregate them, or apply the quantitative thresholds for determining their reportable segments.

The new standard applies for fiscal years starting after December 15, 2023 and interim periods starting after December 15, 2024, with early adoption permitted.

The Company has determined it operates as a single segment, therefore, we anticipate that this ASU will minimally impact our disclosed information and will not impact our consolidated balance sheets, consolidated statements of operations and comprehensive income (loss), consolidated statements of stockholders’ equity, or consolidated statements of cash flows.

There were no recently adopted accounting pronouncements that had a material impact on the Company's consolidated financial statements, and no additional recently issued accounting pronouncements that are expected to have a material impact on the Company's consolidated financial statements.

Revenue Recognition

The Company began commercial marketing and sales of VYJUVEK throughout the United States and began recognizing revenue in 2023.

For the years ended December 31, 2023, 2022, 2021, the Company recognized net product revenue of 50.7 million, zero , and zero , respectively.

Accounts receivable, net balances were 42.0 million and zero as of December 31, 2023 and 2022, respectively.

The following table summarizes changes in allowances and discounts for the year ended December 31, 2023 (in thousands):

Other Accruals

In November 2024, the FASB issued ASU 2024-03 Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses.

This standard calls for enhanced disclosures about components of expense captions on the face of the income statement.

This standard will be effective for fiscal years beginning after December 15, 2026, with the option to apply it retrospectively.

Early adoption is allowed.

Currently, the Company is assessing the potential impact of this guidance on its consolidated financial statement disclosures.

Recently Adopted Accounting Pronouncements

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures, requiring public companies to disclose information about their reportable segments’ significant expenses and other segment items on an interim and annual basis.

Public entities with a single reportable segment are required to apply the disclosure requirements in ASU 2023-07, as well as all existing segment disclosures and reconciliation requirements in ASC 280 on an interim and annual basis.

The Company adopted ASU 2023-07 during the year ended December 31, 2024.

See Note 13 to these consolidated financial statements for additional discussion.

Product Revenue, Accounts Receivable and Reserves for Product Sales

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

The Company’s product revenue, net of sales discounts and allowances totaled $ 290.5 million, $ 50.7 million and zero for the years ended December 31, 2024, 2023 and 2022, respectively.

For the years ended December 31, 2024 and 2023, approximately 87 % 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’s accounts receivable, net balance relating to VYJUVEK sales was $ 104.7 million as of December 31, 2024 and $ 42.0 million as of December 31, 2023.

Net product revenue receivable from the Company’s customers who individually accounted for 10% or more of net product revenue receivable consisted of the following:

Percent of Net Product Revenue Receivable

Year Ended December 31,

* Indicates the customer represents less than 10% and/or not a customer in the applicable year

The following table summarizes changes in allowances and discounts for the year ended December 31, 2024:

(in thousands) Rebates Prompt Pay Other Accruals Total

Balance as of December 31, 2022

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

Provision 45,853 9,212 420 55,485

Payments/Credits ( 13,607 ) ( 7,500 ) ( 373 ) ( 21,480 )

Balance as of December 31, 2024

$ 38,223 $ 2,570 $ 326 $ 41,119

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

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

Other long-term liabilities includes $ 1.4 million of long-term accrued rebates.

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

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

Krystal Biotech, Inc.

Notes to Consolidated Financial Statements—Continued

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.

Common stock equivalents consist of common stock issuable upon exercise of stock options and vesting of restricted stock awards, restricted stock units, and performance-based restricted stock units.

There were 896,745 , 3,582,181 , and 2,043,179 common stock equivalents outstanding in the form of stock options and zero , 66,600 , and 98,800 unvested restricted stock awards as of December 31, 2023, 2022 and 2021, respectively, that have been excluded from the calculation of diluted net income (loss) per common share as their effect would be anti-dilutive.

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 years ended December 31, 2024, 2023 and 2022, there were (1) 236 thousand, 897 thousand and 3.6 million, respectively, common stock equivalents outstanding in the form of stock options, and (2) 1 thousand, zero and 67 thousand, respectively, in unvested restricted stock that have been excluded from the calculation of diluted net income (loss) per common share as their effect would be anti-dilutive.

Years Ended December 31,

(In thousands, except share and per share data) 2023 2022 2021

(in thousands, except per share data) 2024 2023 2022

Net income (loss) $ 89,159 $ 10,932 $ ( 139,975 )

Weighted-average basic common shares 28,592 27,154 25,492

27,154,190 25,491,721 22,196,846

Dilutive effect of stock options and unvested restricted stock 1,148 598 —

Weighted-average diluted common shares 29,740 27,752 25,492

27,751,809 25,491,721 22,196,846

Net income (loss) per common share—basic $ 3.12 $ 0.40 $ ( 5.49 )

$ 0.40 $ ( 5.49 ) $ ( 3.13 )

Net income (loss) per common share—diluted $ 3.00 $ 0.39 $ ( 5.49 )

$ 0.39 $ ( 5.49 ) $ ( 3.13 )

Krystal Biotech, Inc.

Notes to Consolidated Financial Statements—Continued

Fair Value Instruments

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

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

December 31, 2024

Amortized Cost Gross

(in thousands) Amortized Cost Gross

Losses Aggregate Fair

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U.S government agency securities and treasuries 211,283 318 ( 173 ) 211,428 — 150,590 60,838

106,079 423 ( 30 ) 106,472 — 85,726 20,746

Subtotal 404,427 745 ( 406 ) 404,766 — 252,652 152,114

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December 31, 2023

Amortized Cost Gross

(in thousands) Amortized Cost Gross

Losses Aggregate Fair

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U.S government agency securities and treasuries 106,079 423 ( 30 ) 106,472 — 85,726 20,746

76,683 161 ( 393 ) 76,451 — 76,451 —

Subtotal 235,027 835 ( 58 ) 235,804 — 173,850 61,954

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Balance Sheet Components

Inventory consisted of the following as of December 31, 2023 and 2022, respectively (in thousands):

2023 December 31,

Inventory consisted of the following:

(in thousands) 2024 2023

Raw materials $ 13,639 $ 3,154

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Finished goods 2,126 627

Inventory $ 26,508 $ 6,985

Property and Equipment, Net

Property and equipment, net consisted of the following as of December 31, 2023 and 2022, respectively (in thousands):

2023 December 31,

Property and equipment, net consisted of the following:

(in thousands) 2024 2023

Building and building improvements $ 111,444 $ 111,180

$ 111,180 $ —

Leasehold improvements 25,068 24,217

Manufacturing equipment 27,161 24,905

Leasehold improvements 25,673 25,068

Construction in progress

Laboratory equipment 3,183 2,339

Furniture and fixtures 1,632 957

Computer equipment and software 2,032 1,614

Furniture and fixtures

Total property and equipment 177,087 174,029

Accumulated depreciation ( 21,919 ) ( 12,827 )

( 12,827 ) ( 6,793 )

Property and equipment, net $ 155,168 $ 161,202

Depreciation expense was $ 6.0 million, $ 5.0 million and $ 2.6 million for the years ended December 31, 2024, 2023 and 2022, respectively.

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

As a result and as qualification of assets occurred throughout 2023, 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.

Depreciation expense capitalized into inventory was $ 3.5 million, $ 1.1 million and zero for the years ended December 31, 2024, 2023 and 2022, 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.

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.

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following as of December 31, 2023 and 2022, respectively (in thousands):

2023 December 31,

Accrued expenses and other current liabilities consisted of the following:

(in thousands) 2024 2023

Accrued litigation settlement $ 31,250 —

Accrued payroll and benefits 9,558 8,778

Accrued rebates

Accrued construction in progress

Accrued taxes 2,283 43

Other current liabilities 2,210 267

Accrued professional fees 2,659 1,810

Accrued preclinical and clinical expenses 2,537 1,248

Other current liabilities 2,403 2,199

Accrued inventory

Accrued income taxes

Total $ 58,989 $ 21,511

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

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.

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 commitment as of December 31, 2023 under these agreements is approximately $ 1.7 million.

The Company has incurred research and development expenses under these agreements of $ 5.2 million, $ 6.0 million and $ 5.0 million for the years ended December 31, 2023, 2022, and 2021, respectively.

ASTRA Contractual Obligations

The Company has contracted with various third parties to complete and qualify our second CGMP facility, ASTRA.

The estimated remaining commitment as of December 31, 2023 is $ 8.2 million and primarily relates to building improvements and certain qualification activities of the facility that have been completed and placed into service as of December 31, 2023.

The estimated remaining commitment as of December 31, 2024 under these agreements is approximately $ 627 thousand.

The Company has incurred research and development expenses related to commitments under these agreements of $ 7.1 million, $ 5.2 million and $ 6.0 million for the years ended December 31, 2024, 2023 and 2022, respectively.

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:

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

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

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

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

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

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

The Company recorded the settlement payments of $ 12.5 million, $ 25.0 million, and zero for the year ended December 31, 2023, 2022, and 2021, respectively, under litigation settlement expense on the consolidated statements of operations and comprehensive income (loss).

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

The Company has received zero , $ 1.1 million, $ 1.6 million, of insurance proceeds during fiscal years ending December 31, 2023, 2022, and 2021 respectively.

In the ordinary course of business, the Company may be subject from time to time to various proceedings, lawsuits, disputes, or claims.

In accordance with FASB ASC Topic 450, Contingencies (“ASC 450”), the Company accrues a liability for legal contingencies when it is probable that a liability has been incurred, and the amount of the loss can be reasonably estimated.

If there is at least a reasonable possibility that a loss may be incurred, ASC 450 requires disclosure of a loss contingency.

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.

In exchange for an upfront payment of $ 25.0 million and four contingent milestone payments of $ 12.5 million each triggered upon FDA approval of VYJUVEK and the Company reaching $ 100.0 million, $ 200.0 million and $ 300.0 million in cumulative sales, respectively, PeriphaGen (i) released all claims in the litigation;

(ii) transferred certain assets to the Company and (iii) granted the Company a license for dermatological applications.

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.

In May 2023, the Company obtained FDA approval of VYJUVEK and paid PeriphaGen $ 12.5 million in June 2023.

During the year ended December 31, 2024, the Company reached cumulative sales of $ 100.0 million, $ 200.0 million and $ 300.0 million.

In accordance with the Amendment, the Company paid PeriphaGen $ 6.25 million in September 2024 following the filing of the Company’s Q2 2024 Form 10-Q that reported $ 100.0 million in cumulative sales and is required to make the remaining $ 6.25 million milestone payment within 120 days following December 31, 2024.

Pursuant to the final settlement agreement, the two additional $ 12.5 million milestone payments triggered by the Company reaching $ 200.0 million and $ 300.0 million of cumulative sales are required to be paid within 30 days following the filing of this Annual Report on Form 10-K.

The Company recorded litigation settlement expense of $ 37.5 million, $ 12.5 million and $ 25.0 million for the years ended December 31, 2024, 2023, and 2022, respectively, on the consolidated statements of operations and comprehensive income (loss).

As of December 31, 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 consolidated balance sheet for the remaining $ 31.25 million.

The Company has received zero , zero and $ 1.1 million of insurance proceeds during the years ended December 31, 2024, 2023, and 2022, respectively.

The reimbursements have been recorded as an offset to our legal fees included in selling, general and administrative expenses on the consolidated statements of operations and comprehensive income (loss) and within operating activities on the consolidated statements of cash flows.

Lease Agreements

In May 2016, the Company signed an operating lease for laboratory and office space in Pittsburgh, Pennsylvania that commenced in June 2016 and was scheduled to expire in October 2017 (the “2016 Lease”).

The 2016 Lease has been amended several times to increase the area leased, which currently consists of approximately 54,000 square feet and includes the commercial scale CGMP-compliant manufacturing facility (“ANCORIS”).

As a result of the lease amendments, the 2016 Lease expiration date was extended to October 2031.

In September 2022, the Company amended the 2016 Lease (“Short-Term Amendment”) to add a 12 month lease for additional office space that commenced in October 2022 and subsequently amended the lease again in September 2023, which commenced in October 2023 and extended the lease until September 2024.

The Short-Term Amendment increased the area leased by approximately 7,000 square feet through September 2024.

Due to the short-term nature of these amendments and the Company's lease accounting policy, the Company did not record a right-of-use asset or corresponding lease liability.

In May 2016, the Company signed an operating lease for laboratory and office space in Pittsburgh, Pennsylvania that commenced in June 2016 (the “Wharton Lease”).

The Wharton Lease has been amended several times to increase the area

Krystal Biotech, Inc.

Notes to Consolidated Financial Statements—Continued

In December 2019, the Company entered into a lease agreement for a second commercial gene therapy facility, (“ASTRA”), in the Pittsburgh, Pennsylvania area (“ASTRA lease”) with Northfield I, LLC (the “Landlord”, “Northfield”, or “Lessor”) with an initial lease term that expired on October 2035.

The ASTRA lease contained an option (“Purchase Option”) to purchase the building, related improvements and take corresponding assignment of the Landlord's rights under its existing Ground Lease (the “Ground Lease”).

In October 2020, the Company was provided with notice that the initial delivery conditions of the building had been met, including completion of the building shell, interior slab, and exterior doors, and the Company gave the Landlord notice of its intent to purchase ASTRA for approximately $ 9.4 million, subject to the parties entering into a commercially reasonable purchase and sale agreement.

As a result of the Company's ability to exercise its option to purchase ASTRA, the Company obtained control over the construction in progress of ASTRA.

The Company recorded a $ 10.0 million CIP asset and a corresponding build-to-suit lease liability related to the costs incurred by the Landlord, offset by the previous cash contributions of $ 2.4 million.

In January 2021, the Company entered into a Purchase and Sale Agreement (“PSA”) for ASTRA with Northfield related to the purchase option exercised by the Company in October 2020, for a purchase price of $ 9.4 million.

The Company held approximately $ 1.5 million on deposit with Northfield under the existing lease agreement and applied this deposit as a credit against the purchase price at closing.

In February 2021, Northfield delivered the space as substantially complete and made the space available for access by the Company, thus triggering lease commencement.

As a result, the Company concluded that this transaction did not qualify for sale-leaseback accounting because it did not meet the definition of a sale.

As control did not transfer to the Lessor at lease commencement, the transaction continued to be accounted for as construction in progress and a financing obligation.

In March 2021, the purchase closed and the Company determined that reclassification of the construction in progress to buildings and leasehold improvements was not appropriate as the interior of the building was not yet ready for its intended use.

From construction completion to the closing of the purchase, the Company recognized interest expense to accrete the financial obligation to a balance that equaled the cash consideration that was paid upon the close of purchase.

The building was placed into service as of December 31, 2023.

For more information about the expected construction costs associated with ASTRA, see “ASTRA Contractual Obligations” above.

As part of the transaction, the Company also became the accounting owner of the Ground Lease, due to obtaining control over ASTRA.

When the PSA was finalized, the Company took assignment of the Lessor's Ground Lease, in accordance with the Purchase Option, of which lease payments are based on annual payments of $ 82 thousand, and are subject to a cumulative 10 % escalation clause every 5 years through 2071.

leased and currently consists of approximately 54,000 square feet, including our commercial scale CGMP-compliant manufacturing facility (“ANCORIS”).

In September 2022, the Company amended the Wharton Lease to add approximately 7,000 square feet of additional office space commencing in October 2022 for a 12-month term (the “Short Term Space”) and subsequently amended the Wharton Lease again in September 2023 to extend the term of the Short Term Space for an additional 12-month term through September 30, 2024.

Due to the short-term nature of these amendments for the Short Term Space and the Company's lease accounting policy, the Company did not record a right-of-use asset or corresponding lease liability.

In September 2024, the Company amended the Wharton Lease to (i) add approximately 20,000 square feet of office and manufacturing support space commencing after completion of certain improvements and (ii) extend the term of the Short Term Space on a day-by-day basis until the Company occupies the new office space, after which the lease of the Short Term Space will end.

When the Company takes possession of the approximately 20,000 square feet of additional office and manufacturing support space and the lease of the Short Term Space ends, the Lease will be for approximately 67,000 square feet of office, lab, manufacturing, manufacturing support, and warehouse space for a term ending on October 31, 2031.

The landlord provided access to approximately 20,000 square feet of additional office and manufacturing support space to the Company in January 2025.

See Note 13 to these consolidated financial statements for additional discussion.

In January 2021, in connection with the Company’s second commercial gene therapy manufacturing facility (“ASTRA”) in the Pittsburgh, Pennsylvania area, the Company entered into a ground lease of which lease payments are based on annual payments of $ 82 thousand, and are subject to a cumulative 10 % escalation clause every 5 years through 2071.

In December 2021, the Company entered into a 3 -year lease agreement for the Boston, Massachusetts office that commenced in January 2022 and expires in January 2025.

In May 2022, the Company entered into a 16 month lease agreement for the Zug, Switzerland office that commenced in September 2022 and ended in December 2023.

In September 2023, the Company entered into a 12 month lease that commenced January 2024 and expires in December 2024.

Due to the short-term nature of the agreement and the Company’s lease accounting policy, the Company did not record a right-of-use asset or corresponding lease liability.

As of December 31, 2023, future minimum commitments under the Company’s operating leases were as follows (in thousands):

Operating Leases

In May 2022, the Company entered into a 16 -month lease agreement for the Zug, Switzerland office that commenced in September 2022 and was scheduled to end in December 2023.

The Zug lease was renewed on 2 occasions for additional 1 -year terms and expires on December 31, 2025.

Due to the short-term nature of the agreements and the Company’s lease accounting policy, the Company did not record a right-of-use asset or corresponding lease liability.

The Company has entered into 12-month lease agreements in the Netherlands, Germany, Japan, Italy and Spain.

Due to the short term nature of the agreements and the Company’s lease accounting policy, the Company did not record a right-of-use asset or corresponding lease liabilities.

As of December 31, 2024, future minimum commitments under the Company’s operating leases were as follows:

(in thousands) December 31, 2024

Thereafter 8,089

2 unchanged sentences

Present value of lease liability $ 7,261

Krystal Biotech, Inc.

Notes to Consolidated Financial Statements — Continued

Supplemental balance sheet information related to leases is as follows:

2023 December 31,

Operating leases:

Right-of-use assets $ 7,027 $ 8,042

Current portion of lease liability 1,474 1,561

Lease liability 6,620 7,372

Total lease liability $ 8,094 $ 8,933

Weighted average remaining lease term, in years 12.3 12.5

Weighted average discount rate 9.5 % 9.4 %

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

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

Years Ended December 31,

2023 2022 2021

(in thousands) 2024 2023 2022

Operating lease expense $ 1,215 $ 1,596 $ 1,532

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Capitalization

Public Sale of Common Stock

In December 2021, the Company completed an underwritten public offering of 2,866,667 shares of its common stock, including 200,000 shares purchased by the underwriters pursuant to their option to purchase additional shares, at $ 75.00 per share.

Net proceeds to the Company from the offering were $ 201.9 million after deducting underwriting discounts and commissions of approximately $ 12.9 million, and other offering expenses payable by the Company of $ 227 thousand.

In February 2021, the Company completed an underwritten public offering of 2,211,538 shares of its common stock, including 288,461 shares purchased by the underwriters pursuant to their option to purchase additional shares, at $ 65.00 per share.

Net proceeds to the Company from the offering were $ 134.9 million after deducting underwriting discounts and commissions of approximately $ 8.6 million, and other offering expenses payable by the Company of $ 198 thousand.

Krystal Biotech, Inc.

Notes to Consolidated Financial Statements—Continued

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

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During the year ended December 31, 2022, the Company issued and sold 434,782 2020 Placement Shares at a weighted average price of $ 69.00 per share for net proceeds of $ 29.1 million after deducting selling commissions of approximately $ 900 thousand.

During the year ended December 31, 2021, 262,500 shares of common stock were issued pursuant to the ATM Program at a weighted average price of $ 66.50 per share for net proceeds of $ 16.9 million after deducting underwriting discounts and commissions of approximately $ 524 thousand,

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

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

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

Krystal Biotech, Inc.

Notes to Consolidated Financial Statements — Continued

prospectus supplement relating to the New Placement Shares that was filed with the SEC on May 8, 2023.

During the year ended December 31, 2023, no shares of common stock were issued pursuant to the New ATM Program, resulting in $ 150.0 million available for issuance under the New ATM Program.

Accordingly, on May 8, 2023, the Company entered into a sales agreement with Cowen 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 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.

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

If not earlier terminated, the New 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 New ATM Program is not and has never been active.

2023 Private Placement Offering

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Stock-Based Compensation

In 2017, the Company adopted the 2017 IPO Stock Plan (the “Plan”), which governs the issuance of equity awards to employees, certain non-employee consultants, and directors.

In 2017, the Company adopted the 2017 IPO Stock Incentive Plan (“Plan”), which governs the issuance of equity awards to employees, certain non-employee consultants, and directors.

Initially, the Company reserved 900 thousand shares for issuance under the Plan with an initial sublimit for incentive stock options of 900 thousand shares.

On an annual basis, the amount of shares available for issuance under the Plan increases by an amount equal to four percent of the total outstanding shares as of the last day of the preceding calendar year.

On an annual basis, the amount of shares available for issuance under the Plan increases by an amount equal to four percent of the total outstanding shares of common stock as of the last day of the preceding calendar year.

The sublimit of incentive stock options is not subject to the increase.

The Company has historically granted stock options and restricted stock awards to its employees.

In February 2023, the Company began issuing restricted stock units and performance-based restricted stock units to certain employees.

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”) to certain employees.

Shares remaining available for grant under the Plan were 2,369,021 , with a sublimit for incentive stock options of 29,684 , at December 31, 2024.

Stock Options

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Stock options have a life of ten years .

The Company granted 435,280 and 2,130,500 stock options to employees, non-employees, and directors during the years ended December 31, 2023 and 2022, respectively.

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

Krystal Biotech, Inc.

Notes to Consolidated Financial Statements—Continued

The following table summarizes the Company’s stock option activity for the years ended December 31, 2024 and 2023:

Outstanding Weighted-

Price Weighted-

Life (Years) Aggregate

(in thousands)

Balance at January 1, 2022 2,043,179 $ 57.00 9.0 $ 31,331

Balance as of January 1, 2023

3,582,181 $ 61.50 8.7 $ 64,880

Granted 435,280 92.14

1 unchanged sentence

Cancelled or forfeited ( 658,117 ) 64.29

Expired ( 13,751 ) 78.80

Balance at December 31, 2022 3,582,181 $ 61.50 8.7 $ 64,880

Balance as of December 31, 2023

2,606,592 $ 66.39 7.9 $ 150,405

Granted 348,642 $ 168.67

1 unchanged sentence

Cancelled or forfeited ( 380,314 ) $ 78.98

Balance at December 31, 2023 2,606,592 $ 66.39 7.9 $ 150,405

Exercisable at December 31, 2023 778,411 $ 57.20 6.9 $ 52,048

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

The total intrinsic value (the amount by which the fair market value exceeded the exercise price) of stock options exercised during the years ended December 31, 2023 and 2022 was $ 43.8 million and $ 2.9 million, respectively.

The weighted-average grant-date fair value per share of options granted to employees, non-employees, and directors during the years ended December 31, 2023 and 2022 was $ 63.38 and $ 44.50 , respectively.

There was $ 68.5 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 2.4 years as of December 31, 2023.

Krystal Biotech, Inc.

Notes to Consolidated Financial Statements — Continued

The Company has recorded aggregate stock-based compensation expense related to the issuance of stock option awards in the consolidated statements of operations and comprehensive income (loss) for the years ended December 31, 2023, 2022, and 2021 as follows (in thousands):

Years Ended December 31,

Balance as of December 31, 2024

2,049,063 $ 82.69 7.3 $ 156,404

Research and development $ 8,942 $ 7,897 $ 3,434

Selling, general and administrative

Exercisable as of December 31, 2024

903,343 $ 65.03 6.4 $ 83,178

Total stock-based compensation $ 33,930 $ 31,448 $ 13,669

(1) Aggregate intrinsic value represents the difference between the closing stock price of our common stock on December 31, 2024, 2023 and 2022, respectively, and the exercise price of outstanding in-the-money options on the respective date.

The total intrinsic value (the amount by which the fair market value exceeded the exercise price) of stock options exercised during the years ended December 31, 2024, 2023 and 2022 was $ 54.8 million, $ 43.8 million and $ 2.9 million, respectively.

The weighted-average grant-date fair value per share of options granted to employees, non-employees and directors during the years ended December 31, 2024, 2023 and 2022 was $ 114.31 , $ 63.38 and $ 44.50 , respectively.

There was $ 56.5 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 December 31, 2024.

The fair value of options granted was estimated at the date of grant using the Black-Scholes valuation model with the following weighted-average assumptions for the years ended December 31, 2024, 2023 and 2022:

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Weighted-average exercise price

$ 168.67 $ 92.14 $ 64.14

Forfeiture Rate — % — % — %

1 unchanged sentence

Restricted Stock Awards

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

The Company granted no RSAs to employees of the Company for each of the years ended December 31, 2023 and 2022 respectively.

The following table summarizes the Company’s RSA activity:

RSAs granted to employees vest ratably over a four-year period.

The following table summarizes the Company’s RSA activity for the years ended December 31, 2024 and 2023:

Krystal Biotech, Inc.

Notes to Consolidated Financial Statements—Continued

Number of Shares Weighted- Average

Non-vested RSAs as of December 31, 2021 98,800 $ 78.89

Granted — $ —

Non-vested RSAs as of January 1, 2023

66,600 $ 78.89

Vested ( 12,649 ) $ 78.89

Surrendered or forfeited ( 17,879 ) $ 78.89

Surrendered for taxes

( 9,551 ) $ 78.89

Non-vested RSAs as of December 31, 2023

44,400 $ 78.89

Granted — $ —

Vested ( 14,523 ) $ 78.89

Surrendered or forfeited ( 9,551 ) $ 78.89

Surrendered for taxes ( 7,677 ) $ 78.89

Non-vested RSAs as of December 31, 2024

22,200 $ 78.89

There was $ 2.0 million of unrecognized stock-based compensation expense related to employees’ awards that is expected to be recognized over a weighted-average period of 1.2 years as of December 31, 2023.

The Company recorded the following stock-based compensation expense related to RSAs in the consolidated statements of operations and comprehensive income (loss) for the years ended December 31, 2023, 2022, and 2021 as follows (in thousands):

Krystal Biotech, Inc.

Notes to Consolidated Financial Statements — Continued

Years Ended December 31,

2023 2022 2021

Selling, general and administrative $ 1,747 $ 1,782 $ 1,650

Total stock-based compensation $ 1,747 $ 1,782 $ 1,650

There was $ 273 thousand of unrecognized stock-based compensation expense related to employees’ awards that is expected to be recognized over a weighted-average period of two months as of December 31, 2024.

Restricted Stock Units

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

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

RSUs granted to employees vest ratably over a four-year period.

The following table summarizes the Company’s RSU activity for the years ended December 31, 2024 and 2023:

Number of Shares Weighted- Average

Non-vested RSUs as of December 31, 2022

Non-vested RSUs as of January 1, 2023

Granted 186,900 $ 81.91

Surrendered or forfeited ( 26,000 ) $ 81.91

( 26,000 ) $ 81.91

Non-vested RSUs as of December 31, 2023

160,900 $ 81.91

There was $ 10.4 million of unrecognized stock-based compensation expense related to employees’ RSU awards that is expected to be recognized over a weighted-average period of 3.2 years as of December 31, 2023.

The Company recorded stock-based compensation expense related to RSUs in the consolidated statements of operations and comprehensive income (loss) for the years ended December 31, 2023, 2022, and 2021 as follows (in thousands):

Years Ended December 31,

Granted 230,403 $ 160.15

Vested ( 40,084 ) $ 81.93

( 43,123 ) $ 119.02

Research and development

Non-vested RSUs as of December 31, 2024

308,096 $ 135.22

Selling, general and administrative 1,427 — —

Total stock-based compensation $ 2,539 $ — $ —

There was $ 32.5 million of unrecognized stock-based compensation expense related to employees’ RSU awards that is expected to be recognized over a weighted-average period of 3.0 years as of December 31, 2024.

Performance-Based Restricted Stock Units

Performance-based restricted stock units (“PSUs”) granted to employees 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 granted to employees 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.

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The Company recognizes stock-based compensation expense for the fair value of the PSU awards relating to the portion of the awards that are probable of vesting over the service period.

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

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

As of December 31, 2024, the Company determined that 100 % of the PSUs granted will be eligible to vest.

The Company granted 60,000 and zero PSUs to employees of the Company during the years ended December 31, 2023 and 2022.

The following table summarizes the Company’s PSU activity for the years ended December 31, 2024 and 2023:

Krystal Biotech, Inc.

Notes to Consolidated Financial Statements—Continued

Number of Shares Weighted- Average

Non-vested PSUs as of January 1, 2023

Granted 60,000 $ 81.91

( 10,000 ) $ 81.91

Non-vested PSUs as of December 31, 2023

50,000 $ 81.91

Granted 112,500 $ 159.47

Surrendered or forfeited ( 10,000 ) $ 81.91

Vested ( 25,000 ) $ 81.91

Non-vested PSUs as of December 31, 2024

137,500 $ 145.37

Krystal Biotech, Inc.

Notes to Consolidated Financial Statements — Continued

There was $ 10.8 million of unrecognized stock-based compensation expense related to employees’ PSU awards that is expected to be recognized over a weighted-average period of 1.1 years as of December 31, 2024.

The Company recorded stock-based compensation expense related to PSUs in the consolidated statements of operations and comprehensive income (loss) for the years ended December 31, 2023, 2022, and 2021 as follows (in thousands):

Stock-Based Compensation Expense, Net

The Company recorded stock-based compensation expense, net related to stock options, RSAs, RSUs and PSUs in the consolidated statements of operations and comprehensive income (loss) for the years ended December 31, 2024, 2023 and 2022 as follows:

Years Ended December 31,

(in thousands)

2024 2023 2022

Research and development $ 9,237 $ 10,054 $ 7,897

Selling, general and administrative 39,890 29,879 25,333

Total stock-based compensation $ 49,127 $ 39,933 $ 33,230

Shares remaining available for grant under the Plan were 1,509,438 , with a sublimit for incentive stock options of 22,786 , at December 31, 2023.

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 years ended December 31, 2023, 2022 and 2021, the Company capitalized $ 1.1 million, zero , and zero , respectively, in inventory.

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

For the years ended December 31, 2024 and 2023, the Company capitalized $ 3.3 million and $ 1.1 million, 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 years ended December 31, 2023, 2022 and 2021, the Company capitalized $ 162 thousand, $ 551 thousand, and $ 284 thousand, respectively, of stock-based compensation in property and equipment .

Our income (loss) before income taxes by jurisdiction consisted of the following:

For the years ended December 31, 2024, 2023 and 2022, the Company capitalized zero , $ 162 thousand and $ 551 thousand, respectively, into property, plant and equipment .

Income (loss) before income taxes by jurisdiction consisted of the following:

Years Ended December 31,

2023 2022 2021

(in thousands) 2024 2023 2022

$ 93,808 $ 7,795 $ ( 135,691 )

1 unchanged sentence

Income (loss) before income taxes $ 95,356 $ 12,897 $ ( 139,975 )

The provision (benefit) for income taxes consists of the following:

Krystal Biotech, Inc.

Notes to Consolidated Financial Statements—Continued

The provision for income taxes consists of the following:

Years Ended December 31,

2023 2022 2021

(in thousands) 2024 2023 2022

Federal $ 1,445 $ 125 $ —

2 unchanged sentences

Total tax provision $ 6,197 $ 1,965 $ —

$ 1,965 $ — $ —

Krystal Biotech, Inc.

Notes to Consolidated Financial Statements — Continued

A reconciliation of income tax expense (benefit) computed at the statutory federal and state income tax rate for the year to income tax expense as reflected in our financial statements for years ended December 31, 2023, 2022 and 2021 are as follows (in thousands):

Years Ended December 31,

2023 2022 2021

(in thousands) 2024 2023 2022

Federal income tax expense (benefit) at statutory rate 20,025 $ 2,708 $ ( 29,395 )

$ 2,708 $ ( 29,395 ) $ ( 14,578 )

Change in valuation allowance ( 8,885 ) ( 5,457 ) 39,781

State income tax expense (benefit) net of federal benefit 2,097 7,546 ( 10,438 )

7,546 ( 10,438 ) ( 5,436 )

Credits ( 3,876 ) ( 4,458 ) ( 3,167 )

2 unchanged sentences

Section 162(m) limitation ( 455 ) 2,674 620

GILTI ( 219 ) 623 —

Foreign income deduction

Other non-deductible expenses ( 53 ) 136 30

Income taxed at foreign rates

Other ( 114 ) 376 417

Total tax expense $ 6,197 $ 1,965 $ —

$ 1,965 $ — $ —

The significant components of the Company’s deferred tax assets and liabilities as of December 31, 2023 and 2022 are as follows (in thousands):

December 31, December 31,

The significant components of the Company’s deferred tax assets and liabilities as of December 31, 2024 and 2023 are as follows:

(in thousands) 2024 2023

Deferred tax assets:

6 unchanged sentences

Credits 10,376 10,299

Unrealized loss on marketable securities — 192

Total deferred tax assets 91,597 85,816

Deferred tax assets 83,138 91,597

Valuation allowance ( 68,094 ) ( 76,995 )

7 unchanged sentences

Net deferred tax assets $ — $ —

The Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets.

Based on the Company’s history of operating losses, the Company has concluded that it is not more likely than not that the benefit of its deferred tax assets will be realized.

Krystal Biotech, Inc.

Notes to Consolidated Financial Statements—Continued

The Company has evaluated the positive and negative evidence bearing upon the realizability of its net U.S.

deferred tax assets.

Under the applicable accounting standards, management has considered the Company’s history of operating losses and the uncertainty around any sustained future profitability.

The Company has concluded that it is more likely than not that the Company will not realize the benefits of its net deferred tax assets.

Accordingly, the Company has provided a full valuation allowance for deferred tax assets as of December 31, 2024 and 2023.

As of December 31, 2023 and 2022, the Company had federal research and development credit carryforwards of approximately $ 4.8 million and $ 2.0 million, respectively.

As of December 31, 2024 and 2023, the Company had federal research and development credit carryforwards of $ 6.6 million and $ 4.8 million, respectively.

The federal tax credit carryforwards will begin to expire in 2042 if not utilized.

As of December 31, 2023 and 2022, the Company also had orphan drug tax credit carryforwards of approximately $ 5.5 million and $ 4.4 million, respectively.

As of December 31, 2024 and 2023, the Company also had orphan drug tax credit carryforwards of $ 3.8 million and $ 5.5 million, respectively.

The orphan drug tax credit carryforwards will begin to expire in 2042 if not utilized.

Krystal Biotech, Inc.

Notes to Consolidated Financial Statements — Continued

As of December 31, 2023, the Company fully utilized its state research and development credit carryforwards and as of December 31, 2022, the Company had $ 457 thousand of state research and development credit carryforwards.

As of December 31, 2024 and 2023, the Company had state research and development credit carryforwards of $ 731 thousand and zero respectively.

The state research and development credit carryforwards will begin to expire in 2038 if not utilized.

As of December 31, 2024, the Company had cumulative U.S.

federal NOL carryforwards of approximately $ 138.2 million.

federal net operating loss carryforwards of $ 18.3 million.

The federal NOL carryforwards are available indefinitely to offset future income tax liabilities with no expiration period.

As of December 31, 2024, the Company had cumulative U.S.

state NOL carryforwards of approximately $ 186.0 million.

The state NOLs are available to offset future state income tax liabilities and will begin to expire in 2037.

Under the provisions of the Internal Revenue Code, the NOL carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities.

NOL carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50 %, as defined under Internal Revenue Code Sections 382 and 383 of the Internal Revenue Code, respectively, as well as similar state provisions.

state net operating loss carryforwards of $ 215.2 million.

The state net operating losses are available to offset future state income tax liabilities and will begin to expire in 2037.

Under the provisions of the Internal Revenue Code, the Net operating loss carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities.

net operating loss carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50 %, as defined under Internal Revenue Code Sections 382 and 383 of the Internal Revenue Code, respectively, as well as similar state provisions.

This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities.

No deferred tax assets have been recognized on our consolidated balance sheets related to these NOLs, as they are fully offset by a valuation allowance.

If we have previously had, or have in the future, one or more Section 382 “ownership changes,” including in connection with our initial public offering or another offering, or if we do not generate sufficient taxable income, we may not be able to utilize a material portion of our NOLs, even if we achieve profitability.

No deferred tax assets have been recognized on our consolidated balance sheets related to these net operating losses, as they are fully offset by a valuation allowance.

The Company files income tax returns in the United States at the federal and state level and in foreign jurisdictions in which the Company conducts business activities.

The federal and state income tax returns are subject to tax examinations for the tax year ended December 31, 2022, 2021, 2020.

The federal and state income tax returns are subject to tax examinations for the tax years ended December 31, 2023, 2022 and 2021.

To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service or state tax authorities to the extent utilized in a future period.

1 unchanged sentence

At this time, the Company is not undergoing examination by the Internal Revenue Service or any state or foreign taxing authorities.

The Company is subject to income taxes in U.S.

federal, various state, and foreign jurisdictions.

Significant judgement is required in evaluating the Company’s tax positions and determining the provision for income taxes.

During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain.

The Company establishes reserves for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will be due.

These reserves are established when the Company believes that certain positions might be challenged despite the belief that the tax return positions are fully supportable.

The Company adjusts these reserves in light of changing facts and circumstances.

The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate.

We do not anticipate significant increases or decreases to the amount of unrecognized tax benefits within the next twelve months.

As of December 31, 2024, 2023, and 2022 the Company had unrecognized tax benefits of $ 4.2 million, zero , and zero , respectively, of which $ 3.3 million , zero , and zero , respectively, if fully recognized would decrease the Company’s effective tax rate.

A reconciliation of unrecognized tax benefits for the years ended December 31, 2024, 2023, and 2022 are as follows:

Krystal Biotech, Inc.

Notes to Consolidated Financial Statements—Continued

Years Ended December 31,

(in thousands) 2024 2023 2022

Unrecognized tax benefits - January 1

Gross increases to current period tax positions 4,152 — —

Settlements with tax authorities

Lapse in statute of limitations

Unrecognized tax benefits - December 31

$ 4,152 $ — $ —

As of December 31, 2024 and 2023, the Company had accrued interest and penalties related to unrecognized tax benefits of $ 218 thousand and zero , respectively.

The Company recognizes interest expense and any related penalties from unrecognized tax benefits in income tax expense.

The Company is also subject to taxation in various states and other foreign jurisdictions including Switzerland, Netherlands, France, Germany, Japan, Italy and Spain.

Gain on Sale of Priority Review Voucher

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

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 consolidated statement of operations as it did not have a carrying value at the time of the sale, and as proceeds from sale of priority review voucher on the Company’s consolidated statement of cash flows.

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 consolidated statement of operations and comprehensive income as it did not have a carrying value at the time of the sale.

Segment Information

The Company operates as one operating segment, which is focused on the discovery, development, manufacturing and commercialization of genetic medicines to treat diseases with high unmet medical needs.

The Company’s chief operating decision maker (“CODM”), its chief executive officer, utilizes financial information presented on a consolidated basis to manage and allocate resources.

The CODM uses consolidated gross margin, operating margin, net income and total research and development expenses by product candidate or program to assess performance, forecast future financial results and allocate resources.

The following table presents selected financial information with respect to the Company’s single operating segment for the years ended December 31, 2024, 2023, and 2022:

Krystal Biotech, Inc.

Notes to Consolidated Financial Statements—Continued

Years Ended December 31,

(in thousands) 2024 2023 2022

Product revenues, net

$ 290,515 $ 50,699 $ —

Cost of goods sold

20,061 3,094 —

270,454 47,605 —

Gross margin percentage

93 % 94 % — %

B-VEC 8,760 9,039 8,096

KB105 935 282 276

KB301 635 460 1,312

KB407 1,877 1,668 1,895

KB408 1,630 1,043 972

KB707 8,677 3,828 400

KB803 604 — —

Other dermatology programs — 2 500

Other aesthetics programs 6 25 111

Other ophthalmology programs 1,868 71 —

Other research programs 1,274 567 876

Other development programs 823 939 645

Other research and development costs (1)

25,142 28,441 27,375

Research and development

53,573 46,431 42,461

Selling, general and administrative

113,686 98,401 77,735

Litigation settlement

37,500 12,500 25,000

Operating income (expense)

$ 65,695 $ ( 109,727 ) $ ( 145,196 )

Other income (expense)

Gain from sale of priority review voucher

Interest and other income, net

29,661 22,624 5,221

Income (loss) before income taxes

95,356 12,897 ( 139,975 )

Income tax expense

( 6,197 ) ( 1,965 ) —

Net income (loss)

89,159 10,932 ( 139,975 )

(1) Includes stock-based compensation, other manufacturing expenses related to our product candidates and other unallocated expenses which largely relates to depreciation and other facilities and equipment related costs

Subsequent Events

In connection with the Wharton lease amendment in September 2024, on January 7, 2025, the office and manufacturing support space included in the amendment was made available for use to the Company by the lessor and as such, the Company recorded a right-of-use asset and lease liability of $ 1.6 million upon commencement of the lease on January 7, 2025.

The additional space resulted in an increase of the remaining commitments associated with the Company’s lease agreements as shown below:

Krystal Biotech, Inc.

Notes to Consolidated Financial Statements—Continued

(in thousands) Remaining Commitment

Thereafter 1,082

Future minimum operating lease payments 3,486

Interest ( 1,936 )

Present value of lease liability $ 1,550

On February 17, 2025, the Company reached an agreement with The Whiting-Turner Contracting Company (“Whiting-Turner”) regarding unpaid invoices that the Company was contesting.

Under the terms of the agreement, the Company will pay certain unpaid invoices in an aggregate amount of $ 5.5 million, which was fully accrued and for which the Company does not believe to have a material impact on the Company's financial condition, results of operations or cash flows.

In addition, Whiting-Turner fully released the Company from all other claims it could have for further payments related to ASTRA.

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

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

The Company concluded that no additional subsequent events have occurred that would require recognition or disclosure in the consolidated financial statements except as discussed above.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data