Krystal Biotech, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS Krystal Biotech, Inc. Condensed Consolidated Balance Sheets (unaudited) (in thousands, except par value) March 31, 2025 December 31, 2024 Assets Current assets Cash and cash equivalents $ 308,770 $ 344,865 Short-term investments 308,076 252,652 Accounts receivable, net 103,260 104,746 Inventory 29,942 26,508 Prepaid expenses and other current assets 16,750 13,274 Total current assets 766,798 742,045 Property and equipment, net 151,070 155,168 Long-term investments 148,472 152,114 Right-of-use assets 7,858 6,280 Other non-current assets 218 231 Total assets $ 1,074,416 $ 1,055,838 Liabilities and Stockholders’ Equity Current liabilities Accounts payable $ 2,672 $ 4,985 Current portion of lease liability 1,362 1,217 Accrued rebates 47,405 36,804 Accrued expenses and other current liabilities 28,050 58,989 Total current liabilities 79,489 101,995 Lease liability 8,300 6,044 Other long-term liabilities 1,953 1,419 Total liabilities 89,742 109,458 Commitments and contingencies (see note 7) Stockholders’ equity Common stock; $ 0.00001 par value; 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 (loss) 390 ( 190 ) Accumulated deficit ( 144,935 ) ( 180,668 ) Total stockholders’ equity 984,674 946,380 Total liabilities and stockholders’ equity $ 1,074,416 $ 1,055,838 The accompanying notes are an integral part of these condensed consolidated financial statements. 3 Krystal Biotech, Inc. Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (unaudited) Three Months Ended March 31, (in thousands, except per share data) 2025 2024 Product revenue, net $ 88,183 $ 45,250 Operating expenses Cost of goods sold 5,028 2,419 Research and development 14,255 10,957 Selling, general and administrative 32,723 26,058 Litigation settlement — 12,500 Total operating expenses 52,006 51,934 Income (loss) from operations 36,177 ( 6,684 ) Other income Interest and other income, net 7,420 7,616 Income before income taxes 43,597 932 Income tax expense ( 7,864 ) — Net income 35,733 932 Unrealized gain (loss) on available-for-sale securities and other 580 ( 937 ) Comprehensive income (loss) $ 36,313 $ ( 5 ) Net income per common share: Basic $ 1.24 $ 0.03 Diluted $ 1.20 $ 0.03 Weighted-average common shares outstanding: Basic 28,815 28,295 Diluted 29,871 29,291 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 Krystal Biotech, Inc. Condensed Consolidated Statements of Stockholders’ Equity (unaudited) 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, 2025 28,794 $ — $ 1,127,238 $ ( 190 ) $ ( 180,668 ) $ 946,380 Issuance of common stock upon exercise of stock options 17 — 1,462 — — 1,462 Vesting of restricted stock units, net of shares withheld for taxes 98 — ( 12,116 ) — — ( 12,116 ) Shares of restricted stock awards surrendered for taxes ( 10 ) — ( 1,812 ) — — ( 1,812 ) Stock-based compensation — — 14,447 — 14,447 Unrealized gain on investments and other (1) — — — 580 — 580 Net income — — — — 35,733 35,733 Balances as of March 31, 2025 28,899 $ — $ 1,129,219 $ 390 $ ( 144,935 ) $ 984,674 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, 2024 28,237 $ — $ 1,047,830 $ 638 $ ( 269,827 ) $ 778,641 Issuance of common stock upon exercise of stock options 260 — 15,969 — — 15,969 Vesting of restricted stock units, net of shares withheld for taxes 39 — ( 4,181 ) — — ( 4,181 ) Shares of restricted stock awards surrendered for taxes ( 8 ) — ( 1,205 ) — — ( 1,205 ) Stock-based compensation — — 10,023 — — 10,023 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 (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. 5 Krystal Biotech, Inc. Condensed Consolidated Statements of Cash Flows (unaudited) Three Months Ended March 31, (in thousands) 2025 2024 Operating Activities Net income $ 35,733 $ 932 Adjustments to reconcile net income to net cash provided by (used in) operating activities Depreciation 1,410 1,427 Accretion on marketable securities ( 453 ) ( 802 ) Amortization of operating lease right-of-use assets 224 182 Stock-based compensation expense, net 13,478 9,299 Realized gain on investments ( 1,502 ) ( 1,213 ) Other, net 614 ( 238 ) Changes in operating assets and liabilities Accounts receivable, net 1,486 ( 4,427 ) Inventory ( 1,395 ) ( 2,238 ) Prepaid expenses and other current assets ( 2,976 ) ( 212 ) Lease liability ( 136 ) ( 199 ) Other long-term liabilities 534 — Accounts payable 906 727 Accrued expenses and other current liabilities 3,695 ( 5,162 ) Accrued rebates 10,601 5,312 Accrued litigation settlement ( 31,250 ) 12,500 Net cash provided by operating activities 30,969 15,888 Investing Activities Proceeds from disposal of assets 435 — Purchases of property and equipment ( 6,204 ) ( 1,260 ) Purchases of investments ( 137,806 ) ( 88,335 ) Maturities of investments 88,806 63,615 Net cash (used in) investing activities ( 54,769 ) ( 25,980 ) Financing Activities Proceeds from exercise of stock options 1,462 15,969 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 (used in) provided by financing activities ( 12,466 ) 10,583 Effect of exchange rate changes on cash and cash equivalents 171 187 Net (decrease) increase in cash and cash equivalents ( 36,095 ) 678 Cash and cash equivalents at beginning of period 344,865 358,328 Cash and cash equivalents at end of period $ 308,770 $ 359,006 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 $ 1,802 $ — Supplemental Cash Flow Information Income taxes paid $ 400 $ — The accompanying notes are an integral part of these condensed consolidated financial statements. 6 Krystal Biotech, Inc. Notes to Condensed Consolidated Financial Statements (unaudited) 1. Organization 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. Our innovative technology platform is supported by two in-house, commercial scale Current Good Manufacturing Practice (“CGMP”) manufacturing facilities. Liquidity 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 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. 2. Summary of Significant Accounting Policies Basis of Presentation 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. 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 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. Use of Estimates The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the condensed consolidated financial statements and accompanying notes. Actual results could materially differ from those estimates. 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. 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 7 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, 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 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. This new standard will be effective for fiscal years starting after December 15, 2024, with the option to apply it retrospectively. Early adoption is also allowed. Currently, the Company is assessing the potential impact of this guidance on its consolidated financial statement disclosures. 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. 3. 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, 2025 2024 Customer A 82 % 100 % 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 Balance as of December 31, 2024 $ 38,223 $ 2,570 $ 326 $ 41,119 Provisions 15,375 2,626 98 18,099 Payments/Credits ( 4,240 ) ( 2,592 ) ( 105 ) ( 6,937 ) 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 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 (loss). 8 4. Net Income Per Share Attributable to Common Stockholders Basic net income per share attributable to common stockholders is calculated by dividing net income attributable to common stockholders by the weighted-average shares outstanding during the period, without consideration for common stock equivalents. Diluted net income per share attributable to common stockholders is computed by dividing the net income by the weighted-average number of shares of common stock and common stock equivalents outstanding for the period. Common stock equivalents consist of common stock issuable upon (1) exercise of stock options and (2) vesting of restricted stock awards, restricted stock units and performance-based restricted stock units (collectively, “restricted stock”). For the three months ended 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) 2025 2024 Numerator: Net income $ 35,733 $ 932 Denominator: Weighted-average basic common shares 28,815 28,295 Dilutive effect of stock options and unvested restricted stock 1,056 996 Weighted-average diluted common shares 29,871 29,291 Net income per common share—basic $ 1.24 $ 0.03 Net income per common share—diluted $ 1.20 $ 0.03 5. Fair Value Instruments The following tables show the Company’s cash, cash equivalents and available-for-sale securities by significant investment category as of March 31, 2025 and December 31, 2024: March 31, 2025 (in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized (Losses) Aggregate Fair Value Cash and Cash Equivalents Short-term Marketable Securities (1) Long-term Marketable Securities (2) Level 1: Cash and cash equivalents $ 308,770 $ — $ — $ 308,770 $ 308,770 $ — $ — Subtotal 308,770 — — 308,770 308,770 — — Level 2: Commercial paper 10,213 7 — 10,220 — 10,219 — Corporate bonds 228,713 516 ( 94 ) 229,135 — 124,423 104,713 U.S. government agency securities 216,939 343 ( 89 ) 217,193 — 173,434 43,759 Subtotal 455,865 866 ( 183 ) 456,548 — 308,076 148,472 Total $ 764,635 $ 866 $ ( 183 ) $ 765,318 $ 308,770 $ 308,076 $ 148,472 (1) The Company’s short-term marketable securities mature in one year or less. (2) The Company’s long-term marketable securities mature between one and two years . 9 December 31, 2024 (in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized (Losses) Aggregate Fair Value Cash and Cash Equivalents Short-term Marketable Securities (1) Long-term Marketable Securities (2) Level 1: Cash and cash equivalents $ 344,865 $ — $ — $ 344,865 $ 344,865 $ — $ — Subtotal 344,865 — — 344,865 344,865 — — Level 2: Commercial paper 15,373 4 ( 8 ) 15,369 — 15,369 — Corporate bonds 177,771 423 ( 225 ) 177,969 — 86,693 91,276 U.S. government agency securities 211,283 318 ( 173 ) 211,428 — 150,590 60,838 Subtotal 404,427 745 ( 406 ) 404,766 — 252,652 152,114 Total $ 749,292 $ 745 $ ( 406 ) $ 749,631 $ 344,865 $ 252,652 $ 152,114 (1) The Company’s short-term marketable securities mature in one year or less. (2) The Company’s long-term marketable securities mature between one and two years . 6. Balance Sheet Components Inventory Inventory consisted of the following: (in thousands) March 31, 2025 December 31, 2024 Raw materials $ 15,139 $ 13,639 Work-in-process 8,905 10,743 Finished goods 5,898 2,126 Inventory $ 29,942 $ 26,508 Property and Equipment, Net Property and equipment, net consisted of the following: (in thousands) March 31, 2025 December 31, 2024 Building and building improvements $ 109,143 $ 111,444 Manufacturing equipment 28,537 27,161 Leasehold improvements 25,694 25,673 Construction in progress 4,866 5,778 Laboratory equipment 3,255 3,183 Computer equipment and software 2,032 2,032 Furniture and fixtures 1,816 1,816 Total property and equipment 175,343 177,087 Accumulated depreciation ( 24,273 ) ( 21,919 ) Property and equipment, net $ 151,070 $ 155,168 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. 10 Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consisted of the following as of March 31, 2025 and December 31, 2024: (in thousands) March 31, 2025 December 31, 2024 Accrued taxes 11,429 4,288 Accrued professional fees 4,118 2,659 Accrued payroll and benefits 3,487 9,558 Other current liabilities 3,388 2,403 Accrued preclinical and clinical expenses 2,960 2,537 Accrued construction in progress 1,346 5,077 Accrued inventory 1,322 1,217 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. 7. Commitments and Contingencies Agreements with Contract Manufacturing Organizations and Contract Research Organizations The Company enters into various agreements in the normal course of business with Contract 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 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. 11 8. Leases 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 2025 (remaining nine months) $ 1,127 2026 1,884 2027 1,919 2028 1,954 2029 1,990 Thereafter 9,226 Future minimum operating lease payments 18,100 Less: Interest ( 8,438 ) Present value of lease liability $ 9,662 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 March 31, (in thousands) 2025 2024 Lease cost: Operating lease expense $ 426 $ 299 Variable lease expense 64 40 Total lease expense $ 490 $ 339 9. Stock-Based Compensation 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. The sublimit of incentive stock options is not subject to the increase. 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 three months ended March 31, 2025: Stock Options Outstanding Weighted-Average Exercise Price Weighted-Average Remaining Contractual Life (in years) Aggregate Intrinsic Value (1) (in thousands) Outstanding as of December 31, 2024 2,049,063 $ 82.69 7.3 $ 156,404 Granted 255,773 $ 176.00 Exercised ( 17,123 ) $ 85.39 Cancelled or forfeited ( 25,240 ) $ 107.01 Outstanding as of March 31, 2025 2,262,473 $ 92.94 7.4 $ 198,813 Exercisable as of March 31, 2025 1,168,812 $ 69.13 6.4 $ 130,018 12 (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 Weighted-Average Remaining Contractual Life (in years) Aggregate Intrinsic Value (1) (in thousands) Outstanding as of December 31, 2023 2,606,592 $ 66.39 7.9 $ 150,405 Granted 126,742 $ 155.82 Exercised ( 259,581 ) $ 61.52 Cancelled or forfeited ( 245,659 ) $ 67.89 Outstanding as of March 31, 2024 2,228,094 $ 71.88 7.7 $ 236,279 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, 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: Three Months Ended March 31, 2025 2024 Number of Shares Weighted-Average Grant Date Fair Value Number of Shares Weighted-Average Grant Date Fair Value Non-vested RSAs, beginning of period 22,200 $ 78.89 44,400 $ 78.89 Granted — — Vested ( 11,925 ) $ 78.89 ( 14,523 ) $ 78.89 Surrendered for taxes ( 10,275 ) $ 78.89 ( 7,677 ) $ 78.89 Non-vested RSAs, end of period — $ — 22,200 $ 78.89 13 Restricted Stock Units The following table summarizes the Company’s RSU activity: Three Months Ended March 31, 2025 2024 Number of Shares Weighted-Average Grant Date Fair Value Number of Shares Weighted-Average Grant Date Fair Value Non-vested RSUs, beginning of period 308,096 $ 135.22 160,900 $ 81.91 Granted 130,556 $ 179.25 223,890 $ 159.59 Vested ( 84,097 ) $ 129.56 ( 40,075 ) $ 81.91 Forfeited ( 5,798 ) $ 154.56 ( 14,383 ) $ 86.27 Non-vested RSUs, end of period 348,757 $ 152.75 330,332 $ 134.37 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: Three Months Ended March 31, 2025 2024 Number of Shares Weighted-Average Grant Date Fair Value Number of Shares Weighted-Average Grant Date Fair Value Non-vested PSUs, beginning of period 137,500 $ 145.37 50,000 $ 81.91 Granted — $ — 112,500 $ 159.47 Vested ( 81,250 ) $ 135.61 ( 25,000 ) $ 81.91 Forfeited — $ — — $ — 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 and were met by the end of the year in which the PSU awards were granted. 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 (loss) for the three months ended March 31, 2025 and 2024 as follows: Three Months Ended March 31, (in thousands) 2025 2024 Research and development $ 2,469 $ 1,868 Selling, general and administrative 11,009 7,431 Total stock-based compensation $ 13,478 $ 9,299 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. 14 10. Income Taxes 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 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. 11. 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 Gross margin 94 % 95 % B-VEC 1,973 2,129 KB105 7 15 KB301 38 176 KB304 242 131 KB407 349 783 KB408 298 245 KB707 2,738 1,419 KB801 454 51 KB803 486 — 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) 6,997 5,473 Total research and development 14,255 10,957 Selling, general and administrative 32,723 26,058 Litigation settlement — 12,500 Income (loss) from operations $ 36,177 $ ( 6,684 ) Other income Interest and other income, net 7,420 7,616 Income before income taxes $ 43,597 $ 932 Income tax expense ( 7,864 ) — Net income $ 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 15 12. Subsequent Events 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 recognition or disclosure. The Company concluded that no subsequent events have occurred, that would require recognition or disclosure in the condensed consolidated financial statements. 16