Krystal Biotech, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS Krystal Biotech, Inc. Condensed Consolidated Balance Sheets (unaudited) (in thousands, except par value) September 30, 2025 December 31, 2024 Assets Current assets Cash and cash equivalents $ 392,604 $ 344,865 Short-term investments 338,465 252,652 Accounts receivable, net 129,633 104,746 Inventory 37,632 26,508 Prepaid taxes 10,103 1,617 Prepaid expenses and other current assets 17,213 11,657 Total current assets 925,650 742,045 Property and equipment, net 148,871 155,168 Long-term investments 133,113 152,114 Right-of-use assets 7,447 6,280 Deferred tax asset, net of valuation allowance 24,680 — Other non-current assets 333 231 Total assets $ 1,240,094 $ 1,055,838 Liabilities and Stockholders’ Equity Current liabilities Accounts payable $ 2,097 $ 4,985 Current portion of lease liability 1,698 1,217 Accrued rebates 55,769 36,804 Accrued expenses and other current liabilities 31,704 58,989 Total current liabilities 91,268 101,995 Lease liability 7,813 6,044 Other long-term liabilities 3,137 1,419 Total liabilities 102,218 109,458 Commitments and contingencies (see note 7) Stockholders’ equity Common stock; $ 0.00001 par value; 80,000 shares authorized as of September 30, 2025 and December 31, 2024; 28,984 and 28,794 shares issued and outstanding as of September 30, 2025 and December 31, 2024, respectively. — — Additional paid-in capital 1,164,013 1,127,238 Accumulated other comprehensive gain (loss) 1,100 ( 190 ) Accumulated deficit ( 27,237 ) ( 180,668 ) Total stockholders’ equity 1,137,876 946,380 Total liabilities and stockholders’ equity $ 1,240,094 $ 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 (unaudited) Three Months Ended September 30, Nine Months Ended September 30, (in thousands, except per share data) 2025 2024 2025 2024 Product revenue, net $ 97,800 $ 83,841 $ 282,025 $ 199,376 Operating expenses Cost of goods sold 4,263 6,684 16,457 15,112 Research and development 14,585 13,512 43,251 40,052 Selling, general and administrative 37,578 28,673 105,292 82,339 Litigation settlement — 12,500 — 37,500 Total operating expenses 56,426 61,369 165,000 175,003 Income from operations 41,374 22,472 117,025 24,373 Other income Interest and other income, net 6,593 7,297 21,315 22,373 Income before income taxes 47,967 29,769 138,340 46,746 Income tax benefit (expense) 31,398 ( 2,589 ) 15,091 ( 3,066 ) Net income 79,365 27,180 153,431 43,680 Unrealized gain on available-for-sale securities 657 1,840 843 713 Foreign currency translation ( 714 ) 306 447 161 Comprehensive income $ 79,308 $ 29,326 $ 154,721 $ 44,554 Net income per common share: Basic $ 2.74 $ 0.95 $ 5.31 $ 1.53 Diluted $ 2.66 $ 0.91 $ 5.14 $ 1.47 Weighted-average common shares outstanding: Basic 28,953 28,716 28,893 28,537 Diluted 29,833 29,902 29,829 29,669 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 — — — 344 — 344 Foreign currency translation — — — 236 — 236 Net income — — — — 35,733 35,733 Balances as of March 31, 2025 28,899 $ — $ 1,129,219 $ 390 $ ( 144,935 ) $ 984,674 Issuance of common stock upon exercise of stock options 28 — 1,796 — — 1,796 Stock-based compensation — — 15,077 — — 15,077 Unrealized (loss) on investments — — — ( 158 ) — ( 158 ) Foreign currency translation — — — 925 — 925 Net income — — — — 38,333 38,333 Balances as of June 30, 2025 28,927 $ — $ 1,146,092 $ 1,157 $ ( 106,602 ) $ 1,040,647 Issuance of common stock upon exercise of stock options 57 — 3,713 — — 3,713 Stock-based compensation — — 14,208 — — 14,208 Unrealized gain on investments — — — 657 — 657 Foreign currency translation — — — ( 714 ) — ( 714 ) Net income — — — — 79,365 79,365 Balances as of September 30, 2025 28,984 $ — $ 1,164,013 $ 1,100 $ ( 27,237 ) $ 1,137,876 5 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 — — — ( 875 ) — ( 875 ) Foreign currency translation — — — ( 62 ) ( 62 ) 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 — — — ( 252 ) — ( 252 ) Foreign currency translation — — — ( 83 ) — ( 83 ) Net income — — — — 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 — — — 1,840 — 1,840 Foreign currency translation 306 — 306 Net income — — — — 27,180 27,180 Balances as of September 30, 2024 28,757 $ — $ 1,110,481 $ 1,512 $ ( 226,147 ) $ 885,846 The accompanying notes are an integral part of these condensed consolidated financial statements. 6 Krystal Biotech, Inc. Condensed Consolidated Statements of Cash Flows (unaudited) Nine Months Ended September 30, (in thousands) 2025 2024 Operating Activities Net income $ 153,431 $ 43,680 Adjustments to reconcile net income to net cash provided by operating activities Deferred income taxes ( 24,680 ) — Depreciation 4,162 4,603 Amortization (accretion) on marketable securities 139 ( 1,535 ) Amortization of operating lease right-of-use assets 627 556 Stock-based compensation expense, net 40,750 35,771 Realized gain on investments ( 5,549 ) ( 4,427 ) Other, net 395 725 Changes in operating assets and liabilities Accounts receivable, net ( 24,616 ) ( 55,257 ) Inventory ( 5,228 ) ( 5,386 ) Prepaid taxes ( 10,103 ) ( 646 ) Prepaid expenses and other current assets ( 4,311 ) ( 1,979 ) Lease liability ( 413 ) ( 617 ) Other long-term liabilities 1,718 761 Accounts payable 1,009 1,602 Accrued expenses and other current liabilities 8,318 ( 2,092 ) Accrued rebates 18,958 23,568 Accrued litigation settlement ( 31,250 ) 31,250 Net cash provided by operating activities 123,357 70,577 Investing Activities Proceeds from disposal of assets 435 — Purchases of property and equipment ( 9,812 ) ( 3,437 ) Purchases of available-for-sale securities ( 350,078 ) ( 314,268 ) Maturities of available-for-sale securities 289,875 238,044 Net cash (used in) investing activities ( 69,580 ) ( 79,661 ) Financing Activities Proceeds from exercise of stock options 6,972 29,972 Taxes paid for employee tax withholding related to restricted stock units ( 12,121 ) ( 4,181 ) Taxes paid related to settlement of restricted stock awards ( 1,812 ) ( 1,205 ) Net cash (used in) provided by financing activities ( 6,961 ) 24,586 Effect of exchange rate changes on cash and cash equivalents 923 136 Net increase in cash and cash equivalents 47,739 15,638 Cash and cash equivalents at beginning of period 344,865 358,328 Cash and cash equivalents at end of period $ 392,604 $ 373,966 Supplemental Disclosures of Non-Cash Activities Unpaid purchases of property and equipment included in accounts payable and accrued expenses $ 623 $ 8,292 Initial recognition of right-of-use assets $ 1,794 $ — Supplemental Cash Flow Information Income taxes paid $ 13,876 $ 5,150 The accompanying notes are an integral part of these condensed consolidated financial statements. 7 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”), a wholly-owned subsidiary, in Delaware, 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, December 2024 and July 2025 we incorporated wholly-owned subsidiaries in Switzerland, Netherlands, France, Germany, Japan, Italy, Spain, and the UK, respectively, for the purpose of establishing 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 September 30, 2025, the Company had an accumulated deficit of $ 27.2 million. Our operating profitability is dependent upon the continued successful commercialization of VYJUVEK, our U.S. Food and Drug Administration (“FDA”), European Commission (“EC”), and Japan’s Ministry of Health, Labour, and Welfare (“MHLW”) 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 and revenue generated from the sale of VYJUVEK, and may also seek additional capital through arrangements with strategic partners, the sale of equity, debt financings or other sources. 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 further potential global regulatory and reimbursement approvals of VYJUVEK. The Company believes that its cash, cash equivalents and short-term investments of approximately $ 731.1 million as of September 30, 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”). 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. 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 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 (the “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 8 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 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 the 2024 10-K. There were no material changes to the Company’s significant accounting policies during the nine months ended September 30, 2025. . Recently Issued Accounting Pronouncements, Not Yet Adopted There were no accounting pronouncements issued or adopted during the nine months ended September 30, 2025 that had or 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 is effective for fiscal years beginning after December 15, 2024, with the option to apply it retrospectively. 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 $ 97.8 million and $ 83.8 million for the three months ended September 30, 2025 and September 30, 2024, respectively, and $ 282.0 million and $ 199.4 million for the nine months ended September 30, 2025 and September 30, 2024, respectively. The Company’s accounts receivable, net balance relating to VYJUVEK sales was $ 129.6 million as of September 30, 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 September 30, 2025 December 31, 2024 Customer A 71 % 81 % Customer B 16 % 13 % All other single customers represent less than 10% of outstanding accounts receivable, net in the applicable period. The following table summarizes changes in allowances and discounts for the nine months ended September 30, 2025: (in thousands) Rebates Prompt Pay Other Accruals Total Balance as of December 31, 2024 $ 38,223 $ 2,570 $ 326 $ 41,119 Provisions 48,360 9,883 386 58,629 Payments/Credits ( 27,677 ) ( 8,610 ) ( 371 ) ( 36,658 ) Balance as of September 30, 2025 $ 58,906 $ 3,843 $ 341 $ 63,090 Rebates are included in accrued rebates and other long-term liabilities on the condensed consolidated balance sheets. Other long-term liabilities are comprised of $ 3.1 million and $ 1.4 million of long-term accrued rebates as of September 30, 2025 and December 31, 2024, respectively. Prompt pay is recorded as an allowance against accounts receivable, net on the 9 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. 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 September 30, 2025 and 2024, respectively, there were 664 thousand and 229 thousand common stock equivalents outstanding in the form of stock options and 125 thousand and zero 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. For the nine months ended September 30, 2025 and 2024, respectively, there were 568 thousand and 207 thousand common stock equivalents outstanding in the form of stock options and 98 thousand and 134 in unvested restricted stock, that have each been excluded from the calculation of diluted net income per common share as their effect would be anti-dilutive. Three Months Ended September 30, Nine Months Ended September 30, (in thousands, except per share data) 2025 2024 2025 2024 Numerator: Net income $ 79,365 $ 27,180 $ 153,431 $ 43,680 Denominator: Weighted-average basic common shares 28,953 28,716 28,893 28,537 Dilutive effect of stock options and unvested restricted stock 880 1,186 936 1,132 Weighted-average diluted common shares 29,833 29,902 29,829 29,669 Net income per common share—basic $ 2.74 $ 0.95 $ 5.31 $ 1.53 Net income per common share—diluted $ 2.66 $ 0.91 $ 5.14 $ 1.47 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 September 30, 2025 and December 31, 2024: September 30, 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 $ 392,604 $ — $ — $ 392,604 $ 392,604 $ — $ — Subtotal 392,604 — — 392,604 392,604 — — Level 2: Commercial paper 15,317 15 — 15,332 — 15,332 — Corporate bonds 216,087 563 ( 12 ) 216,638 — 139,999 76,639 U.S. government agency securities 238,995 781 ( 168 ) 239,608 — 183,134 56,474 Subtotal 470,399 1,359 ( 180 ) 471,578 — 338,465 133,113 Total $ 863,003 $ 1,359 $ ( 180 ) $ 864,182 $ 392,604 $ 338,465 $ 133,113 (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 . 10 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) September 30, 2025 December 31, 2024 Raw materials $ 14,558 $ 13,639 Work-in-process 15,801 10,743 Finished goods 7,273 2,126 Inventory $ 37,632 $ 26,508 Property and Equipment, Net Property and equipment, net consisted of the following: (in thousands) September 30, 2025 December 31, 2024 Building and building improvements $ 109,242 $ 111,444 Manufacturing equipment 29,470 27,161 Leasehold improvements 27,507 25,673 Laboratory equipment 3,640 3,183 Construction in progress 3,507 5,778 Computer equipment and software 2,522 2,032 Furniture and fixtures 2,155 1,816 Total property and equipment 178,043 177,087 Accumulated depreciation ( 29,172 ) ( 21,919 ) Property and equipment, net $ 148,871 $ 155,168 Depreciation expense was $ 1.4 million and $ 1.3 million for the three months ended September 30, 2025 and 2024, respectively, and $ 4.2 million and $ 4.6 million for the nine months ended September 30, 2025 and September 30, 2024, respectively. Depreciation expense capitalized into inventory was $ 1.1 million and $ 1.0 million for the three months ended September 30, 2025 and 2024, respectively, and $ 3.1 million and $ 2.4 million for the nine months ended September 30, 2025 and September 30, 2024, respectively. 11 Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consisted of the following as of September 30, 2025 and December 31, 2024: (in thousands) September 30, 2025 December 31, 2024 Accrued taxes 9,539 4,288 Accrued payroll and benefits 7,542 9,558 Accrued professional fees 6,354 2,659 Accrued preclinical and clinical expenses 3,423 2,537 Other current liabilities 3,284 2,403 Accrued inventory 994 1,217 Accrued construction in progress 568 5,077 Accrued litigation settlement — 31,250 Accrued expenses and other current liabilities $ 31,704 $ 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 the 2024 10-K for additional information. The Company recorded litigation settlement expense of zero and $ 12.5 million for the three months ended September 30, 2025 and 2024, respectively, and zero and $ 37.5 million for the nine months ended September 30, 2025 and 2024, respectively, on the condensed consolidated statements of operations and comprehensive income. As of March 31, 2025, 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 has incurred research and development expenses related to commitments under these agreements of $ 2.3 million and $ 6.6 million for the three and nine months ended September 30, 2025, respectively, and $ 2.7 million and $ 5.8 million for the three and nine months ended September 30, 2024, respectively. 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. On September 18, 2025, a purported stockholder filed a derivative complaint in the Court of Chancery of the state of Delaware naming the Company’s directors as defendants and the Company as a nominal defendant. The complaint alleges claims for breach of fiduciary duty, unjust enrichment, and waste of corporate assets based on allegedly excessive non- 12 employee director compensation in each of 2021 through 2024. The complaint seeks unspecified damages in favor of the Company, restitution of compensation and other benefits from the individual defendants, reforms and improvements to the Company’s corporate governance and internal procedures, and the award of costs and disbursements of the complaint, including reasonable attorneys’ fees. At this time, the Company cannot reasonably estimate the likelihood of an unfavorable outcome or estimate the potential loss, if any. 8. Leases As of September 30, 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 three months) $ 396 2026 1,865 2027 1,919 2028 1,954 2029 1,990 Thereafter 9,295 Future minimum operating lease payments 17,419 Less: Interest ( 7,908 ) Present value of lease liability $ 9,511 As of September 30, 2025 and December 31, 2024, the Company’s weighted-average remaining lease term for operating leases was 10.2 years and 12.2 years, respectively, and the Company’s weighted-average discount rate for operating leases was 9.7 % and 9.5 % as of September 30, 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, (in thousands) 2025 2024 2025 2024 Operating lease expense $ 368 $ 260 $ 1,182 $ 905 Variable lease expense 58 66 177 156 Total lease expense $ 426 $ 326 $ 1,359 $ 1,061 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 September 30, 2025. 13 Stock Options The following table summarizes the Company’s stock option activity for the nine months ended September 30, 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 385,403 $ 166.80 Exercised ( 102,468 ) $ 68.04 Cancelled or forfeited ( 95,851 ) $ 107.43 Outstanding as of September 30, 2025 2,236,147 $ 96.80 7.0 $ 180,418 Exercisable as of September 30, 2025 1,307,004 $ 72.71 6.1 $ 136,219 (1) Aggregate intrinsic value represents the difference between the closing stock price of our Common Stock on December 31, 2024 and September 30, 2025 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, 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 297,202 $ 168.54 Exercised ( 489,152 ) $ 61.27 Cancelled or forfeited ( 335,449 ) $ 70.52 Outstanding as of September 30, 2024 2,079,193 $ 81.53 7.5 $ 209,854 Exercisable as of September 30, 2024 867,025 $ 63.68 6.7 $ 102,627 (1) Aggregate intrinsic value represents the difference between the closing stock price of our Common Stock on December 31, 2023 and September 30, 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 $ 4.8 million and $ 5.9 million during the three months ended September 30, 2025 and 2024, respectively, and $ 8.1 million and $ 50.2 million for the nine months ended September 30, 2025 and 2024, respectively. The weighted-average grant-date fair value per share of options granted to employees and directors was $ 108.46 and $ 130.85 during the three months ended September 30, 2025 and 2024, respectively, and $ 109.74 and $ 114.29 for the nine months ended September 30, 2025 and 2024, respectively. There was $ 66.3 million of unrecognized stock-based compensation expense related to employees’ and directors’ options that is expected to be recognized over a weighted-average period of 2.8 years as of September 30, 2025. Restricted Stock Awards The following table summarizes the Company’s RSA activity: Nine Months Ended September 30, 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 14 Restricted Stock Units The following table summarizes the Company’s RSU activity: Nine Months Ended September 30, 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 136,756 $ 177.91 225,290 $ 159.63 Vested ( 84,254 ) $ 129.66 ( 40,075 ) $ 81.91 Forfeited ( 30,506 ) $ 153.81 ( 36,562 ) $ 110.11 Non-vested RSUs, end of period 330,092 $ 152.61 309,553 $ 135.14 There was $ 41.2 million of unrecognized stock-based compensation expense related to employees’ RSU awards that is expected to be recognized over a weighted-average period of 2.8 years as of September 30, 2025. Performance-Based Restricted Stock Units The following table summarizes the Company’s PSU activity: Nine Months Ended September 30, 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 which were met by the end of the year in which the PSU awards were granted. There was $ 3.7 million of unrecognized stock-based compensation expense related to employees’ PSU awards that is expected to be recognized over a weighted-average period of five months as of September 30, 2025. Stock-Based Compensation Expense, Net The Company recorded stock-based compensation expense, net related to its stock options and restricted stock in the condensed consolidated statements of operations and comprehensive income for the three and nine months ended September 30, 2025 and 2024 as follows: Three Months Ended September 30, Nine Months Ended September 30, (in thousands) 2025 2024 2025 2024 Research and development $ 2,583 $ 2,267 7,679 6,907 Selling, general and administrative 10,570 11,049 33,071 28,864 Total stock-based compensation $ 13,153 $ 13,316 $ 40,750 $ 35,771 The Company capitalized stock-based compensation associated with the allocation of labor costs related to work performed to manufacture VYJUVEK of $ 1.1 million and $ 946 thousand for the three months ended September 30, 2025 and 2024, respectively, and $ 3.0 million and $ 2.3 million for the nine months ended September 30, 2025 and 2024, respectively. 15 10. Income Taxes The Company recorded an income tax benefit of $ 31.4 million and $ 15.1 million for the three and nine months ended September 30, 2025, respectively. The tax benefit 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 effective tax rate, the Company will make a cumulative adjustment to the income tax provision in the period the change becomes known. 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. We monitor the realizability of our deferred tax assets taking into consideration all relevant factors at each reporting period. As of September 30, 2025, based on the relevant weight of positive and negative evidence, including the amount of our income in recent years and the impacts of legislation enacted during the quarter which had material impacts to our deferred tax profile, which are objective and verifiable, as well as consideration of our expected future taxable earnings, we concluded that it is more likely than not that our U.S. federal and certain state deferred tax assets are realizable. As such, we released $ 48.4 million of our valuation allowance associated with the U.S. federal and state deferred tax assets, except for those related to certain state net operating loss carryforwards and tax credit carryforwards. We continue to maintain a full valuation allowance against certain state attributes as of September 30, 2025, because we concluded they are not more likely than not to be realized as we expect certain state attribute generation in future years to exceed our ability to use these deferred tax assets. We are subject to income taxes in the U.S. and in many foreign jurisdictions. Significant judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets that are not more likely than not to be realized. The determination of the realizability of deferred tax assets requires significant judgment in assessing the likelihood of future tax consequences. We also rely on our assessment of the Company’s projected future results of business operations, including uncertainty in future operating results relative to historical results being less prevalent, variable conditions impacting our ability to forecast future taxable income such as projected spend for research and development, and changes in business that may affect the existence and magnitude of future taxable income. Our valuation allowance assessment is based on our best estimate of future results considering all available information. The Company previously maintained a full valuation allowance against its U.S. federal and state deferred tax assets due to historical cumulative losses and uncertainty regarding the realization of such assets. The Company will continue to evaluate all available evidence each reporting period and may adjust the valuation allowance in future periods if estimates of future taxable income or other relevant factors change. 16 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 three and nine months ended September 30, 2025, and 2024: Three Months Ended Nine Months Ended (in thousands) September 30, 2025 September 30, 2024 September 30, 2025 September 30, 2024 Product revenue, net $ 97,800 $ 83,841 $ 282,025 $ 199,376 Cost of goods sold 4,263 6,684 16,457 15,112 Gross margin 96 % 92 % 94 % 92 % B-VEC 1,810 1,255 6,144 7,068 KB111 568 — 1,309 — KB301 120 138 185 521 KB304 244 189 906 1,146 KB407 608 180 1,272 1,631 KB408 248 611 763 1,107 KB707 3,181 3,311 8,342 6,469 KB801 359 167 1,233 372 KB803 401 180 1,291 394 Other dermatology programs 1 449 10 484 Other ophthalmology programs 3 137 44 430 Other research programs 379 247 1,123 890 Other development programs 219 171 679 596 Other research and development costs (1) 6,444 6,477 19,950 18,944 Total research and development 14,585 13,512 43,251 40,052 Selling, general and administrative 37,578 28,673 105,292 82,339 Litigation settlement — 12,500 — 37,500 Income from operations $ 41,374 $ 22,472 $ 117,025 $ 24,373 Other income Interest and other income, net 6,593 7,297 21,315 22,373 Income before income taxes $ 47,967 $ 29,769 $ 138,340 $ 46,746 Income tax benefit (expense) $ 31,398 $ ( 2,589 ) $ 15,091 $ ( 3,066 ) Net income $ 79,365 $ 27,180 $ 153,431 $ 43,680 (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. 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 except as discussed above. 17