Krystal Biotech, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS Krystal Biotech, Inc. Condensed Consolidated Balance Sheets (unaudited) (in thousands, except par value) March 31, 2026 December 31, 2025 Assets Current assets Cash and cash equivalents $ 501,313 $ 496,304 Short-term investments 322,092 331,487 Accounts receivable, net 127,022 127,425 Inventory 42,646 40,475 Prepaid taxes 10,642 14,006 Prepaid expenses and other current assets 16,026 14,905 Total current assets 1,019,741 1,024,602 Property and equipment, net 153,582 150,776 Long-term investments 193,485 128,066 Right-of-use assets 7,035 7,239 Deferred tax asset, net of valuation allowance 22,824 22,824 Other non-current assets 300 287 Total assets $ 1,396,967 $ 1,333,794 Liabilities and Stockholders’ Equity Current liabilities Accounts payable $ 4,089 $ 3,238 Current portion of lease liability 1,800 1,771 Accrued rebates 70,717 58,181 Accrued expenses and other current liabilities 31,196 39,752 Total current liabilities 107,802 102,942 Lease liability 7,312 7,568 Other long-term liabilities 5,124 3,724 Total liabilities 120,238 114,234 Commitments and contingencies (see note 7) Stockholders’ equity Common stock; $ 0.00001 par value; 80,000 shares authorized as of March 31, 2026 and December 31, 2025; 29,437 and 29,192 shares issued and outstanding as of March 31, 2026 and December 31, 2025, respectively. — — Additional paid-in capital 1,198,257 1,194,261 Accumulated other comprehensive (loss) gain ( 1,623 ) 1,136 Retained earnings 80,095 24,163 Total stockholders’ equity 1,276,729 1,219,560 Total liabilities and stockholders’ equity $ 1,396,967 $ 1,333,794 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 March 31, (in thousands, except per share data) 2026 2025 Product revenue, net $ 116,357 $ 88,183 Operating expenses Cost of goods sold 6,323 5,028 Research and development 15,331 14,256 Selling, general and administrative 41,014 32,647 Total operating expenses 62,668 51,931 Income from operations 53,689 36,252 Other income Interest and other income, net 7,753 7,345 Income before income taxes 61,442 43,597 Income tax expense ( 5,510 ) ( 7,864 ) Net income 55,932 35,733 Unrealized (loss) gain on available-for-sale securities ( 1,577 ) 344 Foreign currency translation ( 1,182 ) 236 Comprehensive income $ 53,173 $ 36,313 Net income per common share: Basic $ 1.91 $ 1.24 Diluted $ 1.83 $ 1.20 Weighted-average common shares outstanding: Basic 29,288 28,815 Diluted 30,507 29,871 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) Retained Earnings Total Stockholders’ Equity (in thousands) Shares Amount Balances as of January 1, 2026 29,192 $ — $ 1,194,261 $ 1,136 $ 24,163 $ 1,219,560 Issuance of common stock upon exercise of stock options 145 — 6,501 — — 6,501 Vesting of restricted stock units, net of shares withheld for taxes 100 — ( 16,960 ) — — ( 16,960 ) Stock-based compensation — — 14,455 — — 14,455 Unrealized loss on investments — — — ( 1,577 ) — ( 1,577 ) Foreign currency translation — — — ( 1,182 ) — ( 1,182 ) Net income — — — — 55,932 55,932 Balances as of March 31, 2026 29,437 — $ 1,198,257 $ ( 1,623 ) $ 80,095 $ 1,276,729 Common Stock Additional Paid-in Capital Accumulated Other Comprehensive (Loss) Income 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 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) 2026 2025 Operating Activities Net income $ 55,932 $ 35,733 Adjustments to reconcile net income to net cash provided by operating activities Depreciation 1,522 1,410 Accretion on marketable securities ( 576 ) ( 453 ) Amortization of operating lease right-of-use assets 204 224 Stock-based compensation expense, net 13,609 13,478 Realized gain on investments ( 529 ) ( 1,502 ) Other, net 136 614 Changes in operating assets and liabilities Accounts receivable, net 58 1,486 Inventory ( 243 ) ( 1,395 ) Prepaid taxes 3,365 457 Prepaid expenses and other current assets ( 1,699 ) ( 3,433 ) Lease liability ( 227 ) ( 136 ) Other long-term liabilities 1,435 534 Accounts payable 1,022 906 Accrued rebates 12,685 10,601 Accrued expenses and other current liabilities ( 6,312 ) 3,695 Accrued legal settlement — ( 31,250 ) Net cash provided by operating activities 80,382 30,969 Investing Activities Proceeds from disposal of assets — 435 Purchases of property and equipment ( 7,148 ) ( 6,204 ) Purchases of investments ( 160,033 ) ( 137,806 ) Maturities of investments 103,598 88,806 Net cash (used in) investing activities ( 63,583 ) ( 54,769 ) Financing Activities Proceeds from exercise of stock options 6,501 1,462 Taxes paid for employee tax withholding related to restricted stock units ( 16,960 ) ( 12,116 ) Taxes paid related to settlement of restricted stock awards — ( 1,812 ) Net cash (used in) financing activities ( 10,459 ) ( 12,466 ) Effect of exchange rate changes on cash and cash equivalents ( 1,331 ) 171 Net increase (decrease) in cash and cash equivalents 5,009 ( 36,095 ) Cash and cash equivalents at beginning of period 496,304 344,865 Cash and cash equivalents at end of period $ 501,313 $ 308,770 Supplemental Disclosures of Non-Cash Activities Unpaid purchases of property and equipment $ 1,218 $ 1,397 Initial recognition of right-of-use assets $ — $ 1,802 Supplemental Cash Flow Information Income taxes paid $ 627 $ 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. (together with its wholly-owned subsidiaries, the “Company,” or “we” or other similar pronouns), a Delaware C-corporation, is a fully integrated, global, commercial-stage biotechnology company. We are 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, 2026, the Company had a retained earnings balance of $ 80.1 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 in connection with, among other things, advancing its product pipeline, expanding its commercialization capabilities, and complying with EU post-authorization regulatory requirements and EU member state-specific pricing, reimbursement, and market access activities. The Company believes that its cash and cash equivalents and short-term investments of approximately $ 823.4 million as of March 31, 2026 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, 2025 (the “2025 10-K”), as filed with the U.S. Securities and Exchange Commission (“SEC”) on February 17, 2026. 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 and applies significant judgment in developing the estimates and assumptions that are used in the preparation of these financial statements. 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. 7 Summary of Significant Accounting Policies See Note 2 to our consolidated financial statements included in the 2025 10-K. There were no material changes to the Company’s significant accounting policies during the three months ended March 31, 2026. Recently Issued Accounting Pronouncements, Not Yet Adopted There were no accounting pronouncements issued or adopted during the three months ended March 31, 2026 that had or are expected to have a material impact on the Company’s condensed consolidated financial statements. In November 2024, the Financial Accounting Standards Board (“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. In December 2025, the FASB issued ASU 2025-11 Interim Reporting (Topic 270): Narrow-Scope Improvements. This standard clarifies current interim reporting requirements on Topic 270 and introduces a disclosure principle requiring entities to disclose events since the end of the last annual reporting period that have a material impact on the entity. This standard will be effective for fiscal years beginning after December 15, 2027, with the option to apply it retrospectively. Early adoption is allowed. Currently, the Company is assessing the potential impact of this guidance on its condensed 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 $ 116.4 million and $ 88.2 million for the three months ended March 31, 2026 and March 31, 2025, respectively. Product revenue by significant geographic region is as follows: Three Months Ended March 31, 2026 2025 United States $ 87,489 $ 88,183 Europe 20,677 — Japan 8,191 — Total product revenue, net $ 116,357 $ 88,183 The Company’s accounts receivable, net balance relating to VYJUVEK sales was $ 127.0 million as of March 31, 2026 and $ 127.4 million as of December 31, 2025. 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 March 31, 2026 December 31, 2025 Customer A 62 % 66 % Customer B 13 % 14 % 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 three months ended March 31, 2026: (in thousands) Rebates Prompt Pay Other Accruals Total Balance as of December 31, 2025 $ 61,905 $ 5,834 $ 378 $ 68,117 Provisions 22,335 3,349 60 25,744 Payments/Credits ( 8,399 ) ( 3,845 ) ( 278 ) ( 12,522 ) Balance as of March 31, 2026 $ 75,841 $ 5,338 $ 160 $ 81,339 8 Rebates are included in accrued rebates and other long-term liabilities on the condensed consolidated balance sheets. Other long-term liabilities are comprised of $ 5.1 million and $ 3.7 million of long-term accrued rebates as of March 31, 2026 and December 31, 2025, respectively. Prompt pay discount 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 discounts and other accruals are recorded reductions 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 March 31, 2026 and 2025, respectively, there were 376 thousand and 413 thousand common stock equivalents outstanding in the form of stock options and 50 thousand and 48 thousand 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 March 31, (in thousands, except per share data) 2026 2025 Numerator: Net income $ 55,932 $ 35,733 Denominator: Weighted-average basic common shares 29,288 28,815 Dilutive effect of stock options and unvested restricted stock 1,219 1,056 Weighted-average diluted common shares 30,507 29,871 Net income per common share—basic $ 1.91 $ 1.24 Net income per common share—diluted $ 1.83 $ 1.20 9 5. Fair Value Instruments The following tables show the Company’s cash and cash equivalents and available-for-sale securities by significant investment category as of March 31, 2026 and December 31, 2025: March 31, 2026 (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 $ 501,313 $ — $ — $ 501,313 $ 501,313 $ — $ — Subtotal 501,313 — — 501,313 501,313 — — Level 2: Corporate bonds 229,575 125 ( 348 ) 229,352 — 147,369 81,983 U.S. government agency securities 286,398 165 ( 338 ) 286,225 — 174,723 111,502 Subtotal 515,973 290 ( 686 ) 515,577 — 322,092 193,485 Total $ 1,017,286 $ 290 $ ( 686 ) $ 1,016,890 $ 501,313 $ 322,092 $ 193,485 December 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 $ 496,304 $ — $ — $ 496,304 $ 496,304 $ — $ — Subtotal 496,304 — — 496,304 496,304 — — Level 2: Commercial paper 12,887 2 ( 1 ) 12,888 — 12,888 — Corporate bonds 211,268 535 ( 6 ) 211,797 — 142,801 68,996 U.S. government agency securities 234,216 653 ( 1 ) 234,868 — 175,798 59,070 Subtotal 458,371 1,190 ( 8 ) 459,553 — 331,487 128,066 Total $ 954,675 $ 1,190 $ ( 8 ) $ 955,857 $ 496,304 $ 331,487 $ 128,066 (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, 2026 December 31, 2025 Raw materials $ 15,173 $ 15,938 Work-in-process 15,115 15,224 Finished goods 12,358 9,313 Inventory $ 42,646 $ 40,475 10 Property and Equipment, Net Property and equipment, net consisted of the following: (in thousands) March 31, 2026 December 31, 2025 Building and building improvements $ 109,256 $ 109,242 Manufacturing equipment 30,202 29,279 Leasehold improvements 27,227 27,227 Construction in progress 12,341 8,108 Laboratory equipment 3,521 3,490 Computer equipment and software 2,616 2,559 Furniture and fixtures 2,191 2,152 Total property and equipment 187,354 182,057 Accumulated depreciation ( 33,772 ) ( 31,281 ) Property and equipment, net $ 153,582 $ 150,776 Depreciation expense was $ 1.5 million and $ 1.4 million for the three months ended March 31, 2026 and 2025, respectively. Depreciation expense capitalized into inventory was $ 1.0 million for the three months ended March 31, 2026 and 2025. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consisted of the following as of March 31, 2026 and December 31, 2025: (in thousands) March 31, 2026 December 31, 2025 Accrued taxes $ 13,110 $ 10,919 Accrued payroll and benefits 4,938 11,457 Accrued professional fees 4,347 5,936 Accrued preclinical and clinical expenses 3,801 4,667 Other current liabilities 3,176 3,579 Accrued inventory 1,040 1,005 Accrued construction in progress 784 2,189 Accrued expenses and other current liabilities $ 31,196 $ 39,752 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 incurred research and development expenses related to commitments under these agreements of $ 2.5 million for the three months ended March 31, 2026 and $ 2.2 million for the three months ended March 31, 2025. Legal Proceedings 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 11 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 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 alleged claims for breach of fiduciary duty, unjust enrichment, and waste of corporate assets based on allegedly excessive non-employee director compensation in each of 2021 through 2024. The parties have reached an agreement in principle on settlement terms but must still negotiate and execute a definitive settlement agreement, which will be filed with the Delaware Court of Chancery and is subject to court approval upon the conclusion of a settlement hearing concerning the fairness of the terms of the proposed settlement. If approved, the Company will adopt, implement, and maintain certain corporate governance reforms for a period of five (5) years. The Company has recorded a liability for an estimated amount of the settlement. The estimated amount of settlement is not material to the condensed consolidated financial statements. 8. Leases As of March 31, 2026, future minimum commitments under the Company’s operating leases with lease terms in excess of 12 months were as follows: (in thousands) Operating Leases 2026 (remaining nine months) $ 1,417 2027 1,919 2028 1,954 2029 1,990 2030 2,016 Thereafter 7,279 Future minimum operating lease payments 16,575 Less: Interest ( 7,463 ) Present value of lease liability $ 9,112 As of March 31, 2026 and December 31, 2025, the Company’s weighted-average remaining lease term for operating leases was 10.0 years and 10.1 years, respectively, and the Company’s weighted-average discount rate for operating leases was 9.7 % as of March 31, 2026 and December 31, 2025. The components of the Company’s lease expense are as follows: Three Months Ended March 31, (in thousands) 2026 2025 Operating lease expense $ 411 $ 426 Variable lease expense 63 64 Total lease expense $ 474 $ 490 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”) to certain employees. Shares of common stock remaining available for grant under the Plan were approximately 1.6 million as of March 31, 2026. 12 Stock Options The following table summarizes the Company’s stock option activity for the three months ended March 31, 2026: 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, 2025 2,030,417 $ 99.45 6.8 $ 298,662 Granted 275,500 $ 275.37 Exercised ( 145,130 ) $ 44.79 Cancelled or forfeited ( 53,605 ) $ 156.67 Outstanding as of March 31, 2026 2,107,182 $ 124.76 7.0 $ 286,111 Exercisable as of March 31, 2026 1,268,779 $ 82.98 5.8 $ 222,474 (1) Aggregate intrinsic value represents the difference between the closing stock price of our common stock on December 31, 2025 and March 31, 2026 and the exercise price of outstanding in-the-money options on the respective date. 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 (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 on the respective date. The total intrinsic value (the amount by which the fair market value exceeds the exercise price) of stock options exercised was $ 32.1 million and $ 1.4 million during the three months ended March 31, 2026 and 2025, respectively. The weighted-average grant-date fair value per share of options granted to employees and directors was $ 175.20 and $ 116.88 during the three months ended March 31, 2026 and 2025, respectively. There was $ 92.8 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 3.2 years as of March 31, 2026. Restricted Stock Units The following table summarizes the Company’s RSU activity: Three Months Ended March 31, 2026 2025 Number of Shares Weighted-Average Grant Date Fair Value Number of Shares Weighted-Average Grant Date Fair Value Non-vested RSUs, beginning of period 331,574 $ 152.97 308,096 $ 135.22 Granted 96,322 $ 275.64 130,556 $ 179.25 Vested ( 105,767 ) $ 143.50 ( 84,097 ) $ 129.56 Forfeited ( 11,945 ) $ 156.52 ( 5,798 ) $ 154.56 Non-vested RSUs, end of period 310,184 $ 194.16 348,757 $ 152.75 13 There was $ 58.1 million of unrecognized stock-based compensation expense related to employees’ RSU awards that is expected to be recognized over a weighted-average period of 3.1 years as of March 31, 2026. Performance-Based Restricted Stock Units The following table summarizes the Company’s PSU activity: Three Months Ended March 31, 2026 2025 Number of Shares Weighted-Average Grant Date Fair Value Number of Shares Weighted-Average Grant Date Fair Value Non-vested PSUs, beginning of period 56,250 $ 159.47 137,500 $ 145.37 Granted 43,536 $ 275.64 — $ — Vested ( 56,250 ) $ 159.47 ( 81,250 ) $ 135.61 Forfeited — $ — — $ — Non-vested PSUs, end of period 43,536 $ 275.64 56,250 $ 159.47 PSUs granted during the period are subject to regulatory performance-based vesting conditions, as determined by the Compensation Committee of the Company’s Board of Directors, and vest on a three year cliff basis upon satisfaction of such conditions. There was $ 11.6 million of unrecognized stock-based compensation expense related to employees’ PSU awards that is expected to be recognized over a weighted-average period of 2.9 years as of March 31, 2026. 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 months ended March 31, 2026 and 2025 as follows: Three Months Ended March 31, (in thousands) 2026 2025 Research and development 2,177 2,469 Selling, general and administrative 11,432 11,009 Total stock-based compensation $ 13,609 $ 13,478 The Company capitalized stock-based compensation associated with the allocation of labor costs related to work performed to manufacture VYJUVEK of $ 0.8 million and $ 1.0 million for the three months ended March 31, 2026 and 2025, respectively, into inventory. 10. Income Taxes The Company recorded an income tax expense of $ 5.5 million for the three months ended March 31, 2026. The tax expense 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 expense of $ 7.9 million for the three months ended March 31, 2025. We monitor the realizability of our deferred tax assets taking into consideration all relevant factors at each reporting period. As of March 31, 2026, except for certain state net operating loss carryforward and tax credit carryforward, we do not have valuation allowance against deferred tax assets. We continue to maintain a full valuation allowance against certain state attributes as of March 31, 2026, 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. 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 14 reporting period and may adjust the valuation allowance in future periods if estimates of future taxable income or other relevant factors change. 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 months ended March 31, 2026, and 2025: Three Months Ended (in thousands) March 31, 2026 March 31, 2025 Product revenue, net $ 116,357 $ 88,183 Cost of goods sold 6,323 5,028 Gross margin 95 % 94 % B-VEC 547 1,973 KB111 992 27 KB304 3 242 KB407 762 349 KB408 143 298 KB707 2,432 2,738 KB801 787 454 KB803 1,142 486 Other research programs 736 692 Other research and development costs (1) 7,787 6,997 Total research and development 15,331 14,256 Selling, general and administrative 41,014 32,647 Income from operations $ 53,689 $ 36,252 Other income Interest and other income, net 7,753 7,345 Income before income taxes $ 61,442 $ 43,597 Income tax expense ( 5,510 ) ( 7,864 ) Net income $ 55,932 $ 35,733 (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 . 15