What changed in this filing

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Item 1. Financial Statements

2025-05-06 compared with 2024-11-04 · 162 added, 202 removed, 330 unchanged (52% of the section changed)

3 unchanged sentences

(in thousands, except par value)

September 30,

2025 December 31,

4 unchanged sentences

103,260 104,746

29,942 26,508

Prepaid expenses and other current assets 16,750 13,274

10 unchanged sentences

Accrued rebates

47,405 36,804

Accrued expenses and other current liabilities 28,050 58,989

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$ 0.00001 par value;

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

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

80,000 shares authorized as of March 31, 2025 and December 31, 2024;

28,899 and 28,794 shares issued and outstanding as of March 31, 2025 and December 31, 2024, respectively.

Additional paid-in capital 1,129,219 1,127,238

Accumulated other comprehensive gain

Accumulated other comprehensive gain (loss)

Accumulated deficit ( 144,935 ) ( 180,668 )

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Krystal Biotech, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Income

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

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

Three Months Ended March 31,

(in thousands, except per share data)

2024 2023 2024 2023

Product revenue, net

$ 88,183 $ 45,250

Operating expenses

Cost of goods sold 5,028 2,419

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36,177 ( 6,684 )

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

Interest and other income, net 7,420 7,616

Income before income taxes

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

Income tax expense

( 2,589 ) — ( 3,066 ) —

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

Net income 35,733 932

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

2,146 ( 146 ) 874 346

Comprehensive income

Comprehensive income (loss)

$ 36,313 $ ( 5 )

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Stock-based compensation — — 14,447 — 14,447

Unrealized (loss) on investments and other (1)

— — — ( 937 ) — ( 937 )

Net income — — — — 932 932

Balances as of March 31, 2024

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

Issuance of common stock upon exercise of stock options

181 — 10,637 — — 10,637

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

Unrealized (loss) on investments and other (1)

— — — ( 335 ) — ( 335 )

— — — — 15,568 15,568

Balances as of June 30, 2024

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

Issuance of common stock upon exercise of stock options

48 — 3,365 — — 3,365

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

Unrealized gain on investments and other (1)

1 unchanged sentence

Net income — — — — 35,733 35,733

Balances as of September 30, 2024

Balances as of March 31, 2025

28,899 $ — $ 1,129,219 $ 390 $ ( 144,935 ) $ 984,674

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

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

5 unchanged sentences

260 — 15,969 — — 15,969

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

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

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

Unrealized gain on investments and other (1)

— — — 574 — 574

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

Balances as of March 31, 2023

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

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

1,730 — 159,951 — — 159,951

Issuance of common stock upon exercise of stock options

449 — 25,446 — — 25,446

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

Unrealized (loss) on investments and other (1)

— — — ( 937 ) — ( 937 )

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

Balances as of June 30, 2023

— — — — 932 932

Issuance of common stock upon exercise of stock options

220 — 13,511 — — 13,511

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

Unrealized (loss) on investments and other (1)

— — — ( 146 ) — ( 146 )

Net income — — — — 80,747 80,747

Balances as of September 30, 2023

Balances as of March 31, 2024

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

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

(1) Includes foreign currency translation gain of $ 236 thousand and loss of $ 62 thousand for the three months ended March 31, 2025 and 2024, respectively.

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

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Condensed Consolidated Statements of Cash Flows

Nine Months Ended September 30,

Three Months Ended March 31,

(in thousands) 2025 2024

2 unchanged sentences

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

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

Depreciation 1,410 1,427

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Prepaid expenses and other current assets ( 2,976 ) ( 212 )

Other non-current assets 11 ( 48 )

Lease liability ( 136 ) ( 199 )

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Accrued litigation settlement ( 31,250 ) 12,500

Net cash provided by (used in) operating activities

Net cash provided by operating activities

30,969 15,888

Investing Activities

Proceeds from sale of priority review voucher

Proceeds from disposal of assets

Purchases of property and equipment ( 6,204 ) ( 1,260 )

2 unchanged sentences

88,806 63,615

Net cash (used in) provided by investing activities

Net cash (used in) investing activities

( 54,769 ) ( 25,980 )

Financing Activities

Proceeds from issuance of common stock, net of offering costs

Proceeds from exercise of stock options

29,972 41,164

Taxes paid for employee tax withholding related to restricted stock units

( 12,116 ) ( 4,181 )

Taxes paid related to settlement of restricted stock awards

( 1,812 ) ( 1,205 )

Net cash provided by financing activities 24,586 200,131

Net cash (used in) provided by financing activities

( 12,466 ) 10,583

Effect of exchange rate changes on cash and cash equivalents 171 187

Net increase in cash and cash equivalents

Net (decrease) increase in cash and cash equivalents

( 36,095 ) 678

1 unchanged sentence

Cash and cash equivalents at end of period $ 308,770 $ 359,006

Supplemental Disclosures of Non-Cash Investing Activities

Supplemental Disclosures of Non-Cash Activities

Unpaid purchases of property and equipment included in accounts payable and accrued expenses $ 1,397 $ 8,456

Initial recognition of right-of-use assets

Supplemental Cash Flow Information

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Notes to Condensed Consolidated Financial Statements

Founded in 2016, Krystal Biotech, Inc.

(the “Company,” or “we” or other similar pronouns) is a fully integrated, commercial-stage biotechnology company focused on the discovery, development, manufacturing and commercialization of genetic medicines to treat diseases with high unmet medical needs.

Krystal Biotech, Inc.

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

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

In 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, global biotechnology company focused on the discovery, development, manufacturing, and commercialization of genetic medicines to treat diseases with high unmet medical needs.

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

The cell’s own machinery then transcribes and translates the transgene to treat the disease.

Our vectors are amenable to formulation for non-invasive or minimally invasive routes of administration at a healthcare professional’s office or in the patient’s home by a healthcare professional.

Our vectors are amenable to formulation for non-invasive or minimally invasive routes of administration at a healthcare professional’s office or in the patient’s home.

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

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

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

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

As of March 31, 2025, the Company had an accumulated deficit of $ 144.9 million.

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

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

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

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

The Company believes that its cash, cash equivalents and short-term investments of approximately $ 588.3 million as of September 30, 2024 will be sufficient to allow the Company to fund its planned operations for at least the next 12 months from the date of this Quarterly Report on Form 10-Q.

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

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

The Company believes that its cash, cash equivalents and short-term investments of approximately $ 616.8 million as of March 31, 2025 will be sufficient to allow the Company to fund its planned operations for at least the next 12 months from the date of this Quarterly Report on Form 10-Q.

Summary of Significant Accounting Policies

Basis of Presentation

The accompanying interim condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”).

In the opinion of management, all adjustments, which consist of all normal recurring adjustments necessary for a fair presentation of the Company’s financial position and results of operations for the interim periods presented, are reflected in the interim condensed consolidated financial statements.

The accompanying condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”).

All intercompany balances and transactions have been eliminated in consolidation.

Certain prior period amounts have been reclassified to conform to the current period presentation.

The reclassified amounts have no impact on the Company’s previously reported financial position or results of operations.

The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year.

These unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (“2023 10-K”), as filed with the U.S.

These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024 (“2024 10-K”), as filed with the U.S.

Securities and Exchange Commission (“SEC”) on February 19, 2025.

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In addition, other factors may affect estimates, including expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates, and whether historical trends are expected to be representative of future trends.

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.

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.

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.

Concentration of Credit Risk and Off-Balance Sheet Risk

Financial instruments that subject the Company to credit risk primarily consist of cash and cash equivalents, short-term investments, long-term investments, and accounts receivable, net.

The Company maintains its cash and cash equivalent balances with high-quality financial institutions and, consequently, the Company believes that such funds are subject to minimal credit risk.

The Company is exposed to credit risk in the event of default by the financial institutions to the extent amounts recorded on the condensed consolidated balance sheets are in excess of insured limits.

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.

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

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

As of September 30, 2024, the credit profiles for these counterparties were deemed to be in good standing and, as such, an allowance for credit losses was not recorded.

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

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

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

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

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

Summary of Significant Accounting Policies

See Note 2 to our consolidated financial statements included in our 2024 10-K.

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

Recent Accounting Pronouncements

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

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

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.

There were no material changes to the Company’s significant accounting policies during the three months ended March 31, 2025.

Recently Issued Accounting Pronouncements, Not Yet Adopted

There were no accounting pronouncements issued or adopted during the three months ended March 31, 2025 that are expected to have a material impact on the Company’s condensed consolidated financial statements.

In December 2023, the Financial Accounting Standards Board (“FASB”) issued 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.

and foreign jurisdictions.

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

Revenue Recognition

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

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

In 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.

Product Revenue, Accounts Receivable and Reserves for Product Sales

The Company’s product revenue, net of sales discounts and allowances totaled $ 88.2 million and $ 45.3 million for the quarters ended March 31, 2025 and March 31, 2024 respectively.

The Company’s accounts receivable, net balance relating to VYJUVEK sales was $ 103.3 million as of March 31, 2025 and $ 104.7 million as of December 31, 2024.

Accounts receivable, net from the Company’s customers who individually accounted for 10% or more of accounts receivable, net consisted of the following:

Percent of Accounts Receivable, Net

Three Months Ended March 31,

All other customers represent less than 10% of outstanding in the applicable period.

The following table summarizes changes in allowances and discounts for the three months ended March 31, 2025:

(in thousands) Rebates Prompt Pay Other Accruals Total

3 unchanged sentences

Payments/Credits ( 4,240 ) ( 2,592 ) ( 105 ) ( 6,937 )

Balance as of September 30, 2024

Balance as of March 31, 2025

$ 49,358 $ 2,604 $ 319 $ 52,281

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

Other long-term liabilities includes $ 761 thousand of long-term accrued rebates.

Other long-term liabilities are comprised of $ 2.0 million of long-term accrued rebates.

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

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

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

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

Net Income Per Share Attributable to Common Stockholders

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

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

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

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

For the three months ended March 31, 2025 and 2024, respectively, there were 413 thousand and 154 thousand common stock equivalents outstanding in the form of stock options and 48 thousand and 78 thousand in unvested restricted stock, that have been excluded from the calculation of diluted net income per common share as their effect would be anti-dilutive.

Three Months Ended March 31,

(in thousands, except per share data)

$ 35,733 $ 932

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

Weighted-average basic common shares

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Fair Value Instruments

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

September 30, 2024

The following tables show the Company’s cash, cash equivalents and available-for-sale securities by significant investment category as of March 31, 2025 and December 31, 2024:

March 31, 2025

(in thousands)

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(in thousands)

September 30,

2025 December 31,

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(in thousands)

September 30,

2025 December 31,

Building and building improvements $ 109,143 $ 111,444

Leasehold improvements 25,643 25,068

Manufacturing equipment 28,537 27,161

Leasehold improvements 25,694 25,673

Construction in progress

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Property and equipment, net $ 151,070 $ 155,168

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

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

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

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

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

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

Estimated remaining payments related to ASTRA were $ 7.9 million and $ 8.2 million as of September 30, 2024 and December 31, 2023, respectively, and are recorded in accounts payable and accrued expenses and other current liabilities on the condensed consolidated balance sheets.

Depreciation expense was $ 1.4 million and $ 1.4 million for the three months ended March 31, 2025 and 2024, respectively.

Depreciation expense capitalized into inventory was $ 965 thousand and $ 867 thousand for the three months ended March 31, 2025 and 2024, respectively.

Accrued Expenses and Other Current Liabilities

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

Accrued expenses and other current liabilities consisted of the following as of March 31, 2025 and December 31, 2024:

(in thousands)

September 30,

2025 December 31,

Accrued litigation settlement $ 31,250 $ —

Accrued taxes 11,429 4,288

Accrued professional fees 4,118 2,659

Accrued payroll and benefits 3,487 9,558

Accrued construction-in-progress

Accrued preclinical and clinical expenses 3,091 1,248

Other current liabilities 3,388 2,403

Accrued professional fees 2,200 1,810

Accrued preclinical and clinical expenses 2,960 2,537

Accrued construction in progress

Accrued inventory

Accrued taxes

Accrued litigation settlement — 31,250

Accrued expenses and other current liabilities

$ 28,050 $ 58,989

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.

In accordance with the settlement agreement, the Company paid PeriphaGen total consideration of $ 75.0 million to settle the dispute, acquire certain assets and receive an exclusive license from PeriphaGen to certain intellectual property assets and biological materials which was paid over time upon completion of certain milestones, with the final payment occurring during the three months ended March 31, 2025.

Refer to Note 7 of our consolidated financial statements in our 2024 10-K for additional information.

The Company recorded litigation settlement expense of zero and $ 12.5 million for the three months ended March 31, 2025 and 2024, respectively, on the condensed consolidated statements of operations and comprehensive income (loss).

At December 31, 2024, the Company had recorded $ 31.25 million within accrued expenses and other current liabilities on the consolidated balance sheet.

During the three months ended March 31, 2025 and 2024, respectively, the Company paid $ 31.25 million and zero , and as such, the Company has fully paid the $ 75.0 million of total consideration discussed above.

Commitments and Contingencies

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

The estimated remaining commitments as of September 30, 2024 under these agreements was approximately $ 736 thousand.

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

Legal Proceedings

In May 2020, PeriphaGen, Inc.

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

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

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

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

The final settlement agreement also includes a $12.5 million payment upon FDA approval of VYJUVEK and three additional $ 12.5 million contingent milestone payments upon the Company reaching $ 100.0 million in cumulative sales, $ 200.0 million in cumulative sales and $ 300.0 million in cumulative sales.

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

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

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

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

There were no other revisions to the final settlement agreement, and the contingent payments triggered upon reaching $ 200.0 million in cumulative sales and $ 300.0 million in cumulative sales remain payable within 30 days following the filing(s) by the Company of an Annual Report(s) on Form 10-K reporting $ 200.0 million in cumulative sales and $ 300.0 million in cumulative sales.

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

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

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

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

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

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

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

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

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

The estimated remaining commitments as of March 31, 2025 under these agreements was approximately $ 414 thousand.

The Company has incurred research and development expenses related to commitments under these agreements of $ 2.2 million for the three months ended March 31, 2025 and $ 1.5 million for the three months ended March 31, 2024.

Contingencies

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, Contingencie s (“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 the first quarter of 2025, the Company and certain of its employees received subpoenas from the U.S.

Department of Justice requesting that the Company produce certain documents regarding its sponsored genetic testing program relating to VYJUVEK and commercial practices relating thereto.

The Company is cooperating and providing information in response to the subpoenas.

It is not possible to estimate the amount of any loss or range of possible loss that might result from this inquiry, and because the final outcome cannot be predicted with certainty, unfavorable or unexpected developments or outcomes could result in a material impact to the Company’s results of operations.

As of March 31, 2025, future minimum commitments under the Company’s operating leases with lease terms in excess of 12 months were as follows:

(in thousands)

Operating Leases

2024 (remaining three months) $ 386

2025 (remaining nine months) $ 1,127

Thereafter 9,226

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Present value of lease liability $ 9,662

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

As of March 31, 2025 and December 31, 2024, the Company’s weighted-average remaining lease term for operating leases was 10.6 years and 12.2 years, respectively, and the Company’s weighted-average discount rate for operating leases was 9.6 % and 9.5 % as of March 31, 2025 and December 31, 2024, respectively.

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

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

Three Months Ended March 31,

(in thousands) 2025 2024

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Total lease expense $ 490 $ 339

Capitalization

On May 8, 2023, the Company entered into a sales agreement with Cowen and Company, LLC (“Cowen”) with respect to an at-the-market equity offering program (“ATM Program”), under which the Company may issue and sell from time

to time through Cowen, acting as agent and/or principal, shares of its common stock having an aggregate offering price up to $ 150.0 million (“Placement Shares”).

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

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

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

The ATM Program is not and has never been active.

2023 Private Placement Offering

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

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

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

Stock-Based Compensation

In 2017, the Company adopted the 2017 IPO Stock Plan (“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.

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

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

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

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

The Company has historically granted stock options, restricted stock awards (“RSAs”), restricted stock units (“RSUs”) and performance-based restricted stock units (“PSUs” and with RSUs commonly referred to collectively as “restricted stock units”) to certain employees.

Shares remaining available for grant under the Plan were 2.0 million as of March 31, 2025.

Stock Options

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

The following table summarizes the Company’s stock option activity for the three months ended March 31, 2025:

Stock Options Outstanding Weighted-Average Exercise Price

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Cancelled or forfeited ( 25,240 ) $ 107.01

Outstanding as of September 30, 2024

Outstanding as of March 31, 2025

2,262,473 $ 92.94 7.4 $ 198,813

Exercisable as of September 30, 2024

Exercisable as of March 31, 2025

1,168,812 $ 69.13 6.4 $ 130,018

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

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

(1) Aggregate intrinsic value represents the difference between the closing stock price of our Common Stock on December 31, 2024 and March 31, 2025 and the exercise price of outstanding in-the-money options.

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

Stock Options Outstanding Weighted-Average Exercise Price

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Cancelled or forfeited ( 245,659 ) $ 67.89

Outstanding as of September 30, 2023

Outstanding as of March 31, 2024

2,228,094 $ 71.88 7.7 $ 236,279

Exercisable as of September 30, 2023

Exercisable as of March 31, 2024

854,224 $ 61.08 6.8 $ 99,815

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

The total intrinsic value (the amount by which the fair market value exceeds the exercise price) of stock options exercised was $ 5.9 million and $ 13.5 million during the three months ended September 30, 2024 and 2023, respectively, and $ 50.2 million and $ 41.4 million during the nine months ended September 30, 2024 and 2023, respectively.

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

There was $ 63.4 million of unrecognized stock-based compensation expense related to employees’, non-employees’, and directors’ options that is expected to be recognized over a weighted-average period of 2.5 years as of September 30, 2024.

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

The total intrinsic value (the amount by which the fair market value exceeds the exercise price) of stock options exercised was $ 1.4 million and $ 24.5 million during the three months ended March 31, 2025 and 2024, respectively.

The weighted-average grant-date fair value per share of options granted to employees, non-employees, and directors was $ 116.88 and $ 106.92 during the three months ended March 31, 2025 and 2024, respectively.

There was $ 76.1 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 2.9 years as of March 31, 2025.

Restricted Stock Awards

The following table summarizes the Company’s RSA activity:

Nine Months Ended September 30,

Three Months Ended March 31,

Number of Shares Weighted-Average Grant Date Fair Value

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— $ — 22,200 $ 78.89

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

Restricted Stock Units

The following table summarizes the Company’s RSU activity:

Nine Months Ended September 30,

Three Months Ended March 31,

Number of Shares Weighted-Average Grant Date Fair Value

7 unchanged sentences

348,757 $ 152.75 330,332 $ 134.37

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

There was $ 51.8 million of unrecognized stock-based compensation expense related to employees’ RSU awards that is expected to be recognized over a weighted-average period of 3.3 years as of March 31, 2025.

Performance-Based Restricted Stock Units

The following table summarizes the Company’s PSU activity:

Nine Months Ended September 30,

Three Months Ended March 31,

Number of Shares Weighted-Average Grant Date Fair Value

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Vested ( 81,250 ) $ 135.61 ( 25,000 ) $ 81.91

— ( 10,000 ) $ 81.91

Non-vested PSUs, end of period

56,250 $ 159.47 137,500 $ 145.37

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

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

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

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

There was $ 8.2 million of unrecognized stock-based compensation expense related to employees’ PSU awards that is expected to be recognized over a weighted-average period of 0.9 years as of March 31, 2025.

Stock-Based Compensation Expense, Net

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

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

The Company recorded stock-based compensation expense, net related to its stock options, RSAs, RSUs and PSUs in the condensed consolidated statements of operations and comprehensive income (loss) for the three months ended March 31, 2025 and 2024 as follows:

Three Months Ended March 31,

(in thousands) 2025 2024

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Total stock-based compensation $ 13,478 $ 9,299

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

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

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

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

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

The Company capitalized stock-based compensation associated with the allocation of labor costs related to work performed to manufacture VYJUVEK of $ 969 thousand and $ 724 thousand for the three months ended March 31, 2025 and 2024.

The Company recorded an income tax provision of $ 7.9 million for the three months ended March 31, 2025.

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

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

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

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

Gain from Sale of Priority Review Voucher

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

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

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

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

At March 31, 2025, the Company maintains a full valuation allowance against its net deferred tax assets.

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”), our 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 to allocate resources.

The following table presents selected financial information with respect to the Company’s single operating segment for the quarters ended March 31, 2025, and 2024:

Three Months Ended

(in thousands) 2025 2024

Product revenue, net

$ 88,183 $ 45,250

Cost of goods sold 5,028 2,419

B-VEC 1,973 2,129

KB304 242 131

KB407 349 783

KB408 298 245

KB707 2,738 1,419

Other dermatology programs 27 —

Other aesthetics programs — 3

Other ophthalmology programs 27 49

Other research programs 393 251

Other development programs 226 232

Other research and development costs (1)

Total research and development

14,255 10,957

Selling, general and administrative

32,723 26,058

Litigation settlement

Income (loss) from operations

$ 36,177 $ ( 6,684 )

Interest and other income, net

Income before income taxes

$ 43,597 $ 932

Income tax expense

$ 35,733 $ 932

(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

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

What changed 10-Q

Item 1. Financial Statements