Krystal Biotech, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read together with the unaudited condensed consolidated financial statements and related notes included in Item 1 of Part I of this Quarterly Report on Form 10-Q and with the audited financial statements and the related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024 (“2024 10-K”), as filed with the SEC on February 19, 2025. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Forward-looking statements include all statements that are not historical facts and can be identified by terms such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” or similar expressions and the negatives of those terms. These statements relate to future events or to our future operating or financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. Forward-looking statements appearing in a number of places throughout this Quarterly Report on Form 10-Q include, but are not limited to, statements about the following, among other things: • our commercialization plans in the United States and the European Union (“EU”) for our first commercial product, VYJUVEK ® (beremagene geperpavec-svdt) , which was approved by the U.S. Food and Drug Administration (“FDA”) in May 2023 and the European Medicines Agency (“EMA”) in April 2025 for the treatment of dystrophic epidermolysis bullosa (“DEB”); • the timing, scope; or results of our regulatory filings and potential approval for a marketing authorization for B-VEC in Japan; • our plans and expected timing of commercial launch of B-VEC in Europe and Japan; • our plans for commercialization of B-VEC outside of the United States, major European markets, and Japan; • the commercial success of B-VEC outside the U.S.; • the initiation, timing, progress, and results of clinical trials for KB407, KB408, KB707 (intratumoral and inhaled), KB105, KB803, KB801, KB301, KB304, and any other product candidates, including statements regarding the timing of initiation and completion of studies or trials and related preparatory work, the period during which the results of the trials will become available, and the timing of our disclosure of study data; • the timing, scope or results of regulatory filings and approvals, marketing and other regulatory approval of our product candidates; • our ability to achieve certain accelerated or orphan drug designations from the FDA or other regulators; • our estimates regarding the potential market opportunity for our product candidates; • our research and development programs for our product candidates; • our plans and arbility to successfully identify, develop and commercialize our product candidates; • our beliefs about our proprietary HSV-1 based vector platform, including its ability to deliver multiple genes and other effectors, which could enable development of therapies for more common conditions that are not necessarily the result of an inherited genetic defects; • our commercialization, marketing, and manufacturing capabilities and strategy; • the scalability and commercial viability of our proprietary manufacturing methods and processes; • our business model and strategic plans for our business, product candidates and technology; • the rate and degree of market acceptance and clinical utility of VYJUVEK and our product candidates and gene therapy, in general; • our competitive position; • our intellectual property position and our ability to protect and enforce our intellectual property; 17 • our ability to successfully avoid or resolve any litigation, intellectual property or other claims, that may be brought against us; • the impact of laws and regulations and potential changes thereto; and • any statements regarding U.S. or global economic conditions and the impact on our business, or performance and any statement of assumptions underlying any of the foregoing. Forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in Item 1A of Part II of this Quarterly Report on Form 10-Q and other filings we make with the SEC from time to time. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements. You should read this Quarterly Report completely and with the understanding that our actual future results may be materially different from what we expect. Forward-looking statements represent our management’s beliefs and assumptions only as of the date of filing this Quarterly Report on Form 10-Q with the SEC. Except as required by law, we assume no obligation to update these forward-looking statements publicly as a result of subsequent events, developments or otherwise, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. Throughout this Quarterly Report on Form 10-Q, unless the context requires otherwise, all references to “Krystal,” “the Company,” “we,” “our,” “us” or similar terms refer to Krystal Biotech, Inc., together with its consolidated subsidiaries. Web links throughout this document are provided for convenience only and are not intended to be active hyperlinks to the referenced websites. No content on the referenced websites shall be deemed incorporated by reference into this Quarterly Report on Form 10-Q. Overview 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. Our FDA and EMA Approved Commercial Product VYJUVEK (beremagene geperpavec-svdt, or B-VEC; referred to as B-VEC outside the U.S. and Europe) VYJUVEK is a non-invasive, topical, redosable gene therapy approved in the United States and Europe for the treatment of dystrophic epidermolysis bullosa (“DEB”), a rare and severe monogenic disease that affects the skin and mucosal tissues and is caused by one or more mutations in a gene called COL7A1 . VYJUVEK is designed to deliver two copies of the COL7A1 gene when applied directly to DEB wounds, providing the patient’s skin cells the template to make normal type VII collagen protein and thereby addressing the fundamental disease-causing mechanism. On April 23, 2025, the European Commission (“EC”) granted marketing authorization to VYJUVEK for the treatment of wounds in patients with DEB who have mutations in the COL7A1 gene, starting from birth. VYJUVEK is the only corrective medicine approved in Europe for the treatment of DEB wounds. The approval granted by the EC allows for flexible VYJUVEK dosing either at home or in a healthcare setting, with the option for patient or caregiver administration if deemed appropriate by a healthcare professional (“HCP”). Previously, in May 2023, the United States Food and Drug Administration (“FDA”) approved VYJUVEK, the first ever redosable gene therapy, for the treatment of wounds in patients, six months of age or older, suffering from DEB. VYJUVEK is the first and only corrective medicine approved by the FDA for the treatment of both recessive and dominant subtypes of DEB, and is approved in the United States for administration by a HCP in either a clinical setting or in the home. We possess exclusive rights to develop, manufacture, and commercialize VYJUVEK and all our pipeline candidates throughout the world and intend to commercialize VYJUVEK directly in the United States, major European markets, and 18 Japan. We currently sell VYJUVEK to a limited number of specialty pharmacy (“SP”) providers that mix the medication to be administered by a HCP in either a healthcare 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. We intend to and have started entering into distribution arrangements with specialty distributors to commercialize VYJUVEK outside of the United States, in major European markets, and in Japan. Net VYJUVEK product revenue was $88.2 million for the three months ended March 31, 2025, and $429.4 million in cumulative net product revenue since launch. Gross margin for the three months ended March 31, 2025 was 94%. We define gross margin as product revenue, net less cost of goods sold expressed as a percentage of product revenue, net. Our market access team has successfully secured strong nationwide coverage across the United States including, as of April 2025, positive policies or coverage decisions from plans covering over 97% of commercial and Medicaid lives. As of April 2025, we have secured over 540 reimbursement approvals for VYJUVEK in the United States. We seek to make the experience of starting and continuing on VYJUVEK treatment seamless for the patient. Since launch, infrastructure has been in place for patients to be treated in their homes by a HCP, reducing the need for regular visits to a clinic or hospital. Krystal Connect TM , our United States in-house patient services call center, has been active since FDA approval and assists patients, care givers, and HCPs interested in accessing VYJUVEK. Since launch and through the first quarter of 2025, patient compliance with once weekly treatment while on VYJUVEK remains high at 83%. Compliance in the United States is expected to trend down in coming quarters as patients achieving wound closure begin to transition to maintenance utilization patterns. Preparations and infrastructure buildout are underway to support our planned direct commercial launch in key European markets and Japan in 2025, starting with our first European launch in Germany expected in mid-2025. In October 2024, we filed a Japan New Drug Application (“JNDA”) with Japan’s Pharmaceuticals and Medical Devices Agency (“PMDA”). The JNDA includes the results from the Japan OLE study, the design of which had been approved by the PMDA in July 2023. The efficacy portion of the Japan OLE study was completed in April 2024 and results closely mirrored those of our Phase 3 study in the United States, with B-VEC exhibiting a safety profile consistent with previous studies and all four patients that completed the study achieved the primary endpoint of complete wound closure at six months. As part of the ongoing JNDA review, the PMDA recently completed an inspection of our commercial manufacturing facility, ANCORIS. The JNDA is under priority review, and we expect a decision by the PMDA in the second half of 2025. Pipeline Highlights and Recent Developments Respiratory KB407 for Cystic Fibrosis (“CF”) KB407 is an inhaled (nebulized) formulation of our novel vector designed to deliver two copies of the full-length cystic fibrosis transmembrane conductance regulator (“ CFTR ”) transgene for the treatment of CF, a serious rare lung disease caused by missing or mutated CFTR protein. In July 2023, we announced that we had dosed the first patient in CORAL-1, a Phase 1 multi-center, dose-escalation study evaluating KB407, delivered via a nebulizer, in patients with CF, regardless of their underlying genotype. In December 2024, we announced an interim safety data update for patients treated with KB407 in the first two dose escalation cohorts, in which we found single and repeat inhaled administration of KB407 to be safe and well tolerated. In January 2025, the Cystic Fibrosis Foundation Therapeutic Development Network Clinical Research Executive Committee granted full sanctioning of our KB407 Phase 1 CORAL-1 study protocol. Enrollment in CORAL-1 is ongoing, and we expect to report safety and CFTR delivery data from patients in the third and final cohort in mid-2025. Details of the Phase 1 study can be found at www.clinicaltrials.gov under NCT identifier NCT05504837. KB408 for Alpha-1 Antitrypsin Deficiency (“AATD”) Lung Disease KB408 is an inhaled (nebulized) formulation of our novel vector designed to deliver two copies of the SERPINA1 transgene, that encodes for normal human alpha-1 antitrypsin (“AAT”) protein, for the treatment of AATD, a serious rare lung disease. In February 2024, we announced that we dosed the first patient in SERPENTINE-1, a Phase 1, open-label, single dose escalation study evaluating KB408, delivered via a nebulizer, in adult patients with AATD with a Pi*ZZ or a Pi*ZNull genotype. In December 2024, we announced an interim clinical update from the first two dose escalation cohorts of SERPENTINE-1. Inhaled KB408 was safe and well-tolerated at both tested dose levels and clear evidence of successful SERPINA1 delivery and AAT expression was observed in both patients that underwent bronchoscopies. Following this data update, we simultaneously expanded the second cohort and opened enrollment in the third and final cohort of SERPENTINE-1 for more comprehensive molecular assessments at both dose levels. Enrollment in SERPENTINE-1 is ongoing, and we expect 19 to report results for both cohorts in the second half of 2025. Details of the Phase 1 study can be found at www.clinicaltrials.gov under NCT identifier: NCT06049082. Ophthalmology KB803 for Ocular Complications in Patients with DEB KB803 is a redosable eye drop formulation of B-VEC, designed for the treatment of ocular complications that are thought to affect over 25% of DEB patients. These complications, which include corneal erosions, abrasions, blistering and scarring, can lead to progressive vision loss. There is currently no corrective therapy available. B-VEC has been applied topically to the eye of one DEB patient under a compassionate use protocol. The clinical observations of this compassionate use case were published in the New England Journal of Medicine in February 2024. The patient presented with severe cicatrizing conjunctivitis secondary to DEB. Surgical symblepharon lysis of the patient’s right eye with pannus removal was conducted and regular administration of B-VEC as an eye drop directly to the eye (5×10 9 PFU/mL) were added to routine post-surgical care, three times weekly for the first two weeks and then once weekly. B-VEC application frequency was further decreased to once monthly once the corneal epithelium was healed. B-VEC was well tolerated with no drug-related adverse events noted. Full corneal healing was observed at three months, as well as significant visual acuity improvement from hand motion to 20/25 by eight months. Building on this early clinical evidence of safety and potential benefit under compassionate use, we are preparing to initiate a registrational Phase 3 study to enable approval of KB803, our eye drop formulation of B-VEC, to treat ocular complications of DEB. We expect to dose the first patient in the study in May 2025 and plan to enroll up to 30 DEB patients. In August 2024, we initiated a natural history study to prospectively collect data on the frequency of corneal abrasions in patients with DEB and serve as a run-in period for patients who may be eligible to participate in the Phase 3 study. Enrollment in the study is ongoing and, as of April 2025, we had enrolled approximately 50 patients in the study. Details of the natural history study can be found at www.clinicaltrials.gov under NCT identifier NCT06563414. KB801 for Neurotrophic Keratitis (“NK”) KB801 is an eye drop formulation of our novel HSV-1 vector designed to deliver two transgene copies to the corneal epithelium for the sustained, localized expression and secretion of nerve growth factor (“NGF”) and treatment of NK, a rare, degenerative corneal disease caused by nerve damage in the eye that leads to corneal epithelial defects, ulcers, and perforation. Recombinant NGF eye drops have been shown to significantly improve corneal healing and are approved for the treatment of NK in multiple jurisdictions worldwide, including the United States, but rapid clearance from the eye requires intensive administration six times a day, with eye pain frequently reported, and may result in suboptimal treatment outcomes. In preclinical studies presented the Association for Research in Vision and Ophthalmology (“ARVO”) 2025 Annual Meeting in May 2025, KB801 was shown to efficiently transduce corneal epithelial cells in vitro and in vivo leading to sustained NGF production in the front of the eye. By transducing the cells of the corneal epithelium to produce and secrete NGF, KB801 has the potential to significantly reduce the treatment burden for patients while also maintaining more consistent NGF levels in the front of the eye. In April 2025, the FDA cleared our investigational new drug application to evaluate KB801 in a randomized, double-blind, placebo-controlled, multi-center Phase 1/2 study in moderate-to-severe NK patients. We expect to dose the first patient in the EMERALD-1 Phase 1/2 study in May 2025. Additional details on EMERALD-1 study design and endpoints will be disclosed at the time the first patient is dosed. Oncology KB707 for Solid Tumors KB707 is a redosable, immunotherapy designed to deliver transgenes encoding both human interleukin-2 (“IL-2”) and interleukin-12 (“IL-12”) to the tumor microenvironment and promote systemic immune-mediated tumor clearance. Two formulations of KB707 are in development, a solution formulation for transcutaneous injection and an inhaled (nebulized) formulation for lung delivery. Both intratumoral and inhaled KB707 have been granted Rare Pediatric Disease Designation (“RPDD”) by the FDA, with intratumoral receiving RPDD for the treatment of rhabdomyosarcoma in August 2024 and inhaled KB707 receiving RPDD for the treatment of osteosarcoma in May 2024. Both formulations of KB707 have also been granted Fast Track Designation by the FDA. 20 Inhaled KB707 is currently under evaluation in KYANITE-1, an open-label, multi-center, dose escalation and expansion Phase 1/2 study, evaluating inhaled KB707, as monotherapy or in combination, in patients with locally advanced or metastatic solid tumors of the lung. In December 2024, we announced an initial clinical update for the monotherapy dose escalation and expansion cohorts of KYANITE-1. Early evidence of monotherapy activity was observed in the evaluable cohort of 11 patients with heavily pre-treated advanced non-small cell lung cancer, achieving an objective response rate of 27% and a disease control rate of 73% as of data cut-off. Inhaled KB707 was also reported to be safe and generally well tolerated as monotherapy in the 37 patients included in the safety analysis. The majority of treatment-related adverse events have been mild to moderate in severity and transient with no Grade 4 or 5 adverse events observed. We expect to present a clinical update on the monotherapy cohort from KYANITE-1 at the 2025 American Society of Clinical Oncology (“ASCO”) Annual Meeting in June 2025. Enrollment in KYANITE-1 is ongoing. Details of the Phase 1/2 study can be found at www.clinicaltrials.gov under NCT identifier NCT06228326. Intratumoral KB707 is currently under evaluation in OPAL-1, an open-label, multi-center, dose escalation and expansion Phase 1/2 study, evaluating intratumoral KB707, as monotherapy or in combination, in patients with locally advanced or metastatic solid tumors, who relapsed or are refractory to standard of care, with at least one measurable and injectable tumor accessible by transcutaneous route of administration. The final monotherapy dose escalation cohort was cleared in May 2024 and enrollment in OPAL-1 is ongoing. Details of the Phase 1/2 study can be found at www.clinicaltrials.gov under NCT identifier NCT05970497. Dermatology KB105 for Lamellar Ichthyosis (“LI”) KB105 is a topical gel containing our novel vector designed to deliver two copies of the TGM1 transgene encoding the human enzyme transglutaminase-1 (“TGM1”) for the treatment of LI, a serious rare skin disorder most often caused by missing or mutated TGM1 protein. We expect to resume enrollment in the Phase 2 portion of JADE-1, a randomized, placebo-controlled Phase 1/2 study evaluating KB105 for the treatment of LI in 2026. Details of the JADE-1 Phase 1/2 study can be found at www.clinicaltrials.gov under NCT identifier NCT04047732. Pipeline Expansion We expect to present preclinical data at the Society for Investigative Dermatology (“SID”) 2025 Annual Meeting in May 2025 on early-stage dermatology genetic medicine candidates for the treatment of Hailey-Hailey and Darier diseases. Aesthetics In addition to focusing on genetic medicines to treat patients with diseases with high unmet medical needs, we are leveraging the ability of our platform to deliver proteins of interest to cells in the skin in the context of aesthetic medicine via our wholly-owned subsidiary, Jeune Aesthetics, Inc. (“Jeune”). We recently expanded the senior leadership team at Jeune, with Marc Forth joining as Jeune CEO in April 2025 and Nishant Saxena joining as Jeune CFO in January 2025. Jeune’s lead program, KB301, is a solution formulation of our novel vector for intradermal injection designed to deliver two copies of the COL3A1 transgene to address signs of aging or damaged skin caused by declining levels of, or damaged proteins within the extracellular matrix, including type III collagen. In August 2024, Jeune announced positive interim safety and efficacy results from Cohorts 3 and 4 of the Phase 1 study PEARL-1, open label studies evaluating KB301 in the treatment of lateral canthal lines at rest and dynamic wrinkles of the décolleté, respectively. Meaningful and sustained improvements in multiple skin aesthetic attributes, including wrinkles, crepiness, hydration, and radiance, were reported by the study investigators and subjects alike in both the décolleté and lateral canthal regions. Increased subject satisfaction with wrinkle appearance was also reported. Details of the Phase 1 study can be found at www.clinicaltrials.gov under NCT identifier NCT04540900. Based on these Phase 1 results, Jeune selected treatment of the dynamic wrinkles of the décolleté for advanced clinical development and expects to initiate a randomized, placebo-controlled Phase 2 study evaluating KB301 in this indication in the fourth quarter of 2025. In February 2025, Jeune completed enrollment in the PEARL-2 study, an ongoing, 2:1 randomized and placebo-controlled Phase 1 study evaluating its second clinical-stage investigational aesthetic therapy, KB304, for the treatment of wrinkles. KB304 is a solution formulation of our novel vector for intradermal injection designed to deliver two copies of the COL3A1 transgene and one copy of the ELN transgene to address various signs of skin aging including elasticity loss. Jeune expects to report top-line results from the study in the second half of 2025. Jeune Aesthetics has several other aesthetic medicine product candidates in various stages of preclinical development. 21 Financial Overview Product Revenue, Net After FDA approval of VYJUVEK in May 2023, we began commercial marketing and sales and began recognizing revenue during the third quarter of 2023. Our future revenue will fluctuate from quarter to quarter for many reasons, including the uncertain timing and amount of any such sales. The transaction price that we recognize as revenue for VYJUVEK sales includes an estimate of variable consideration, which includes discounts, returns, copay assistance and rebates that are offered within contracts. Refer to Note 3 of the notes to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information. Cost of Goods Sold Cost of goods sold includes direct and indirect costs related to the manufacturing of VYJUVEK. These costs consist of manufacturing costs, personnel costs including stock-based compensation, facility costs, and other indirect overhead costs. Cost of goods sold may also include period costs related to certain manufacturing services and inventory adjustment charges. Research and Development Expenses Research and development expenses consist primarily of costs incurred to advance our preclinical and clinical candidates, which include: • expenses incurred under agreements with contract research organizations, consultants and other vendors that conduct our preclinical activities; • costs of acquiring, developing and manufacturing clinical trial materials and lab supplies; • facility costs, depreciation and other expenses, which include direct expenses for rent and maintenance of facilities and other supplies; and • payroll related expenses, including stock-based compensation expense. We expense internal research and development costs to operations as incurred. We expense third-party costs for research and development activities, such as the manufacturing of preclinical and clinical materials, based on an evaluation of the progress to completion of specific tasks such as manufacturing of drug substance, fill/finish and stability testing, which is provided to us by our vendors. We expect our research and development expenses will increase as we continue the manufacturing of preclinical and clinical materials, manage the clinical trials of, and seek regulatory approval for our product candidates and as we expand our product portfolio. Due to the numerous risks and uncertainties associated with product development, we cannot determine with certainty the duration, costs and timing of clinical trials, and as a result, the actual costs to complete clinical trials may exceed the expected costs. Selling, General and Administrative Expenses Selling, general and administrative expenses consist principally of salaries and other related costs, including stock-based compensation for personnel in our executive, finance, legal, commercial, business development, information technology and other general and administrative functions. Selling, general and administrative expenses also include professional fees associated with corporate and intellectual property-related legal expenses, consulting and accounting services, insurance, facility-related costs and expenses associated with obtaining and maintaining patents. Other selling, general and administrative costs include travel expenses, patient access program costs, management service fees, marketing expenses, and selling expenses which include transportation, shipping and handling fees. We anticipate that our selling, general and administrative expenses will increase in the future relating to our commercialization efforts and to support the development of our product candidates. These increases will likely include increased costs for insurance, costs related to the hiring of additional personnel and payments to outside consultants, lawyers and accountants, among other expenses. Additionally, we anticipate that we will continue to increase our salary and personnel costs and other expenses to support B-VEC commercialization globally. Interest and Other Income, Net Interest and other income, net consists primarily of income earned from our cash, cash equivalents and investments. 22 Critical Accounting Policies, Significant Judgments and Estimates There have been no significant changes during the three months ended March 31, 2025 to our critical accounting policies, significant judgments and estimates as disclosed in our management’s discussion and analysis of financial condition and results of operations included in our 2024 Form 10-K. Results of Operations Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Three Months Ended March 31, 2025 and 2024 Three Months Ended March 31, Change 2025 2024 $ % (in thousands) (unaudited) Product revenue, net $ 88,183 $ 45,250 $ 42,933 95 % Expenses Cost of goods sold 5,028 2,419 2,609 108 % Research and development 14,255 10,957 3,298 30 % Selling, general and administrative 32,723 26,058 6,665 26 % Litigation settlement — 12,500 (12,500) (100) % Total operating expenses 52,006 51,934 72 — % Income (loss) from operations 36,177 (6,684) 42,861 (641) % Other income Interest and other income, net 7,420 7,616 (196) (3) % Income before income taxes 43,597 932 42,665 4578 % Income tax expense (7,864) — (7,864) — % Net income $ 35,733 $ 932 $ 34,801 3734 % Product Revenue, Net Product revenue, net was $88.2 million for the three months ended March 31, 2025, as compared to $45.3 million for the three months ended March 31, 2024. The increase in product revenue, net was driven by an increase in VYJUVEK sales as compared to the prior year. Cost of Goods Sold Cost of goods sold was $5.0 million for the three months ended March 31, 2025, as compared to $2.4 million for the three months ended March 31, 2024, due to increased sales of VYJUVEK. Research and Development Expenses Research and development expenses increased $3.3 million in the three months ended March 31, 2025 compared to the three months ended March 31, 2024. The increase was primarily driven by the following: • an increase of $1.8 million in payroll related expenses, including stock-based compensation, primarily driven by an increase in headcount to support our research and development efforts; • an increase of $813 thousand and $331 thousand in clinical development costs and manufacturing expenses, respectively, related to our product candidates; • an increase of $481 thousand in facilities and equipment related costs; and • an increase of $316 thousand in licensing and regulatory costs. These increases were partially offset by: • a decrease of $837 thousand due to the capitalization of allocated overhead costs for increased commercial batches of VYJUVEK. 23 Research and development expenses consist primarily of costs relating to our preclinical development, the development of our product candidates and our clinical trial programs. Direct research and development expenses associated with our product candidates or development programs consist of compensation related expenses for our internal resources conducting research and development activities, fees paid to external consultants, contract research organizations, or for costs to support our clinical trials. Indirect research and development expenses that are allocated to our product candidates or programs consist of lab supplies and software fees. A significant portion of our research and development expenses are not allocated to individual product candidates and preclinical programs, as certain expenses benefit multiple product candidates and preclinical programs. For example, we do not allocate costs associated with stock-based compensation, manufacturing of preclinical or clinical development products or costs relating to facilities and equipment to individual product candidates and preclinical programs. The following table summarizes our research and development expenses by product candidate or program, and for unallocated expenses, by type, for the three months ended March 31, 2025 and 2024. Three Months Ended March 31, Change 2025 2024 $ % (in thousands) (unaudited) B-VEC $ 1,973 $ 2,129 $ (156) (7) % KB105 7 15 (8) (53) % KB301 38 176 (138) (78) % KB304 242 131 111 85 % KB407 349 783 (434) (55) % KB408 298 245 53 22 % KB707 2,738 1,419 1,319 93 % KB801 454 51 403 790 % KB803 486 — 486 — % Other ophthalmology programs 27 49 (22) (45) % Other dermatology programs 27 — 27 — % Other aesthetics programs — 3 (3) (100) % Other research programs 393 251 142 57 % Other development programs 226 232 (6) (3) % Stock-based compensation 2,469 1,868 601 32 % Other unallocated manufacturing expenses (1) 2,568 2,131 437 21 % Other unallocated expenses (2) 1,960 1,474 486 33 % Research and development expense $ 14,255 $ 10,957 $ 3,298 30 % (1) Unallocated manufacturing expenses consist of shared pre-commercial manufacturing costs, primarily relating to raw materials, contract manufacturing, contract testing, process development, quality control and quality assurance activities and other manufacturing costs which support the development of multiple product candidates in our preclinical and clinical development programs. (2) Other unallocated expenses include rental, storage, depreciation, and other facility related costs that we do not allocate to our individual product candidates. The primary changes in our research and development expenses by product candidate or program in the three months ended March 31, 2025 compared to the three months ended March 31, 2024 are as follows: • an increase of $1.3 million in KB707 costs following the expansion of our research and development pipeline to oncology consisting of an increase in payroll related costs to support our research and an increase in contract research expenses for our Phase 1 clinical trial of inhaled KB707; • an increase of $601 thousand in stock-based compensation primarily driven by an increase in headcount to support our research and development efforts; • an increase of $486 thousand in KB803 in preparation for the registrational Phase 3 study to enable approval of KB803; • an increase of $486 thousand in other unallocated costs primarily driven by facilities and equipment related expenses; 24 • an increase of $437 thousand in other manufacturing costs related to increased allocated overhead; and • an increase of $403 thousand in KB801 in preparation for the Phase 1/2 study. These increases were partially offset by a decrease of $434 thousand in KB407 due to the timing of the Phase 1 CORAL-1 study. Selling, General and Administrative Expenses Selling, general and administrative expenses increased $6.7 million in the three months ended March 31, 2025 as compared to the three months ended March 31, 2024. The increase was primarily driven by the following: • an increase of $4.4 million in payroll-related costs, including $3.6 million in stock-based compensation primarily driven by an increase in headcount; • an increase of $2.0 million in other G&A costs, including $1.0 million in charitable contributions, $258 thousand in G&A facilities expense, $238 thousand in G&A insurance, and $189 thousand in subscription expenses; • an increase of $1.2 million related to professional services, including legal and consulting services; and • an increase of $242 thousand in marketing costs to support commercial sales of VYJUVEK. The increases were partially offset by: • a decrease of $1.0 million, inclusive of a decrease in costs associated with our patient access program of $1.1 million partially offset by an increase in selling expenses. Litigation Settlement Litigation settlement for the three months ended March 31, 2025 and 2024 was zero and $12.5 million, respectively, and consisted of amounts related to the settlement of litigation with PeriphaGen. See discussion in Note 6 of the notes to condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for more information. Interest and Other Income, Net Interest and other income, net for the three months ended March 31, 2025 and 2024 was $7.4 million and $7.6 million, respectively, and consisted of interest and dividend income earned from our cash, cash equivalents and investments. The decrease in interest and dividend income is primarily the result of market conditions. Income Tax Expense Income tax expense for the three months ended March 31, 2025 and 2024 was $7.9 million and zero, respectively. Income tax expense for the three months ended March 31, 2025 relates to state, federal and foreign income taxes. Liquidity and Capital Resources Overview As of March 31, 2025, our cash, cash equivalents and short-term investments balance was approximately $616.8 million. As of March 31, 2025, we had an accumulated deficit of $144.9 million. We believe that our cash, cash equivalents and short-term investments as of March 31, 2025 will be sufficient to allow us to fund our operations for at least 12 months from the filing date of this Quarterly Report on Form 10-Q. Our ability to continue to achieve operating profitability is dependent upon the continued successful commercialization of VYJUVEK and the successful development, approval, manufacturing, and commercialization of product candidates. Furthermore, we expect to incur increasing costs associated with satisfying regulatory and quality standards, maintaining and initiating product clinical trials, and furthering our efforts to discover, develop, manufacture, and commercialize current and future product candidates. We intend to fund future operations through on hand cash and cash equivalents, revenue generated from the sale of VYJUVEK, the sale of equity, debt financings, and we may also seek additional capital through arrangements with strategic partners or other sources. Costs related to clinical trials can be unpredictable and, therefore, there can be no guarantee that we will have sufficient capital to fund the continued or planned pre-clinical and clinical studies for our product candidates, or our operations. Further, we expect future revenue to fluctuate from quarter to quarter for many reasons, including the uncertain timing and amount of any product sales. While we are in the process of building out our internal vector manufacturing capacity, some of our manufacturing activities will be contracted out to third parties. Additionally, we currently utilize third-party contract research organizations to carry out some of our clinical development activities. As we seek to obtain regulatory approval for our product candidates, we expect to continue to incur significant manufacturing and commercialization expenses as we prepare for product sales, marketing, commercial manufacturing, packaging, labeling and distribution. Our funds may not be sufficient to 25 enable us to conduct pivotal clinical trials for, seek marketing approval for or commercially launch our product candidates. Accordingly, to obtain marketing approval for and to commercialize these or any other product candidates, we may be required to obtain further funding through public or private equity offerings, debt financings, collaboration and licensing arrangements or other sources. Adequate additional financing may not be available to us on acceptable terms, if at all. Our failure to raise capital when needed could have a negative effect on our financial condition and our ability to pursue our business strategy. Operating Capital Requirements Our primary uses of capital are, and we expect will continue to be for the near future, compensation and related expenses, manufacturing costs for preclinical and clinical materials, regulatory expenses, third-party clinical trial research and development services, laboratory and related supplies, selling expenses, costs to manufacture our commercial product, legal expenses and general overhead costs. In order to complete the process of obtaining regulatory approval for any of our product candidates and to build the sales, manufacturing, marketing and distribution infrastructure that we believe will be necessary to commercialize our product candidates, if approved, we may require substantial additional funding. We have based our projections of operating capital requirements on assumptions that may prove to be incorrect, and we may use all of our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with research, development, manufacturing and commercialization of genetic medicines, we are unable to estimate the exact amount of our operating capital requirements. Our future funding requirements will depend on many factors, including, but not limited to: • the costs needed to globally commercialize and market our lead product, VYJUVEK; • the progress, timing and costs of clinical trials of our current product candidates; • the progress, timing and costs of manufacturing VYJUVEK and revenue received from commercial sale of VYJUVEK; • the continued development and the filing of IND applications for current and future product candidates; • the initiation, scope, progress, timing, costs and results of drug discovery, laboratory testing, manufacturing, preclinical studies and clinical trials for any product candidates that we may pursue in the future, if any; • the costs of maintaining our own commercial-scale CGMP manufacturing facilities; • the outcome, timing and costs of seeking regulatory approvals; • the costs associated with the manufacturing process development and evaluation of third-party manufacturers; • the extent to which the costs of VYJUVEK and our product candidates, if approved, will be paid by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or will be reimbursed by government authorities, private health coverage insurers and other third-party payors; • the costs of commercialization activities for our current and future product candidates if we receive marketing approval for such product candidates, including the costs and timing of establishing product sales, medical affairs, marketing, distribution and manufacturing capabilities; • the revenue received from commercial sale of our current and future product candidates, subject to receipt of marketing approval; • the terms and timing of any future collaborations, licensing, consulting or other arrangements that we may establish; • the amount and timing of any payments we may be required to make, or that we may receive, in connection with the licensing, filing, prosecution, maintenance, defense and enforcement of any patents or other intellectual property rights, including milestone and royalty payments and patent prosecution fees that we are obligated to pay pursuant to our license agreements; • our current license agreements remaining in effect and our achievement of milestones under those agreements; • our ability to establish and maintain collaborations and licenses on favorable terms, if at all; and • the extent to which we acquire or in-license other product candidates and technologies. We may need to obtain substantial additional funding in order to receive regulatory approval and to commercialize our product candidates. To the extent that we raise additional capital through the sale of common stock, convertible securities or other equity securities, the ownership interests of our existing stockholders may be materially diluted and the terms of these 26 securities could include liquidation or other preferences that could adversely affect the rights of our existing stockholders. In addition, debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, that could adversely affect our ability to conduct our business. If we are unable to raise capital when needed or on attractive terms, we could be forced to significantly delay, scale back or discontinue the development or commercialization of our product candidates, seek collaborators at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available, and relinquish or license, potentially on unfavorable terms, our rights to our product candidates that we otherwise would seek to develop or commercialize ourselves. Sources and Uses of Cash The following table summarizes our sources and uses of cash for the three months ended March 31, 2025 and 2024: Three Months Ended March 31, 2025 2024 (in thousands) (unaudited) Net cash provided by operating activities $ 30,969 $ 15,888 Net cash (used in) investing activities (54,769) (25,980) 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 $ (36,095) $ 678 Operating Activities Net cash provided by operating activities for the three months ended March 31, 2025 was $31.0 million and consisted primarily of net income of $35.7 million adjusted for $13.8 million of non-cash items and a $18.5 million decrease in cash from an increase in working capital. Non-cash adjustments included depreciation of $1.4 million, amortization of operating lease right-of-use assets of $224 thousand, stock-based compensation expense of $13.5 million and other adjustments of $614 thousand, offset by realized gain on investments of $1.5 million and accretion on marketable securities of $453 thousand. Net cash provided by operating activities for the three months ended March 31, 2024 was $15.9 million and consisted primarily of net income of $0.9 million adjusted for $8.7 million of non-cash items and a $6.3 million increase in cash from a decrease in working capital. Non-cash adjustments included depreciation of $1.4 million, amortization of operating lease right-of-use assets of $182 thousand and stock-based compensation expense of $9.3 million, offset by realized gain on investments of $1.2 million, accretion on marketable securities of $0.8 million and other adjustments of $238 thousand. Investing Activities Net cash used in investing activities for the three months ended March 31, 2025 was $54.8 million and consisted of $137.8 million in purchases of short-term and long-term investments and $6.2 million in purchases of property and equipment, partially offset by $88.8 million received from the maturities and early calls of short and long-term investments and $435 thousand received in proceeds from disposal of assets. Net cash used in investing activities for the three months ended March 31, 2024 was $26.0 million and consisted of $88.3 million in purchases of short-term and long-term investments and $1.3 million in purchases of property and equipment, partially offset by $63.6 million received from the maturities of short-term investments. Financing Activities Net cash used in financing activities for the three months ended March 31, 2025 was $12.5 million and consisted of $12.1 million used for employee tax withholding payments related to vested restricted stock units and $1.8 million used for employee tax withholding payments for settlement of vested restricted stock awards partially offset by $1.5 million from exercises of stock options. Net cash provided by financing activities for the three months ended March 31, 2024 was $10.6 million and consisted of proceeds of $16.0 million from exercises of stock options, partially offset by $4.2 million used for employee tax withholding payments related to vested restricted stock units and $1.2 million used for employee tax withholding payments for settlement of vested restricted stock awards.