Krystal Biotech, Inc. (KRYS) came out with quarterly earnings of $0.03 per share, missing the Zacks Consensus Estimate of $0.20 per share. This compares to loss of $1.76 per share a year ago. These figures are adjusted for non-recurring items.This quarterly report represents an earnings surprise of -85%. A quarter ago, it was expected that this company would post a loss of $0.52 per share when it actually produced earnings of $0.30, delivering a surprise of 157.69%.Over the last four quarters, the company h ...

[General Information](index=1&type=section&id=General%20Information) Provides fundamental details about Krystal Biotech's filing, stock listing, and outstanding shares - Krystal Biotech, Inc. filed a Quarterly Report on Form 10-Q for the period ended March 31, 2024[1](index=1&type=chunk)[2](index=2&type=chunk) - The company's common stock (KRYS) is registered on the NASDAQ Global Select Market[3](index=3&type=chunk) - Krystal Biotech, Inc. is classified as a Large accelerated filer[4](index=4&type=chunk) - As of April 29, 2024, there were **28,558,440** shares of common stock issued and outstanding[4](index=4&type=chunk) [PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) Presents the company's unaudited condensed consolidated financial statements and management's discussion [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) Presents Krystal Biotech's unaudited condensed consolidated financial statements, prepared under GAAP [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Summarizes Krystal Biotech's financial position, detailing total assets, liabilities, and equity | (in thousands) | March 31, 2024 | December 31, 2023 | | :--------------- | :------------- | :---------------- | | Total assets | $853,296 | $818,355 | | Total liabilities | $54,054 | $39,714 | | Total stockholders' equity | $799,242 | $778,641 | [Condensed Consolidated Statements of Operations and Comprehensive Loss](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) Details Krystal Biotech's product revenue, operating expenses, and net income or loss | (in thousands, except per share data) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Product revenue, net | $45,250 | $— | | Total operating expenses | $51,934 | $48,823 | | Loss from operations | $(6,684) | $(48,823) | | Interest and other income, net | $7,616 | $3,526 | | Net income (loss) | $932 | $(45,297) | | Basic net income (loss) per common share | $0.03 | $(1.76) | | Diluted net income (loss) per common share | $0.03 | $(1.76) | [Condensed Consolidated Statements of Stockholders' Equity](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) Outlines changes in Krystal Biotech's total stockholders' equity, including compensation and net income | (in thousands) | Balances as of January 1, 2024 | Balances as of March 31, 2024 | | :------------- | :----------------------------- | :---------------------------- | | Total Stockholders' Equity | $778,641 | $799,242 | | Stock-based compensation | $10,023 | $10,023 | | Net income | $932 | $932 | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Reports Krystal Biotech's cash flows from operating, investing, and financing activities | (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by (used in) operating activities | $15,888 | $(26,156) | | Net cash (used in) provided by investing activities | $(25,980) | $3,563 | | Net cash provided by financing activities | $10,583 | $1,474 | | Net increase (decrease) in cash and cash equivalents | $678 | $(21,155) | | Cash and cash equivalents at end of period | $359,006 | $140,745 | [Notes to Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Provides detailed explanations and disclosures supporting the condensed consolidated financial statements [Note 1. Organization](index=7&type=section&id=Note%201.%20Organization) Krystal Biotech is a commercial-stage genetic medicine company, expanding internationally, with sufficient cash for 12 months of operations - Krystal Biotech, Inc. is a fully integrated, commercial-stage biotechnology company focused on the discovery, development, manufacturing and commercialization of genetic medicines using an engineered HSV-1 gene therapy platform[21](index=21&type=chunk) - The company incorporated wholly-owned subsidiaries in Switzerland, Netherlands, France, Germany, and Japan between January 2022 and March 2024 to establish initial operations for commercialization in Europe and Japan[20](index=20&type=chunk) - As of March 31, 2024, the company's cash, cash equivalents, and short-term investments of approximately **$538.3 million** are believed to be sufficient to fund planned operations for at least the next 12 months[23](index=23&type=chunk) [Note 2. Summary of Significant Accounting Policies](index=7&type=section&id=Note%202.%20Summary%20of%20Significant%20Accounting%20Policies) Interim financial statements conform to U.S. GAAP, with no material accounting policy changes - The accompanying interim condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America ("GAAP")[24](index=24&type=chunk) - There were no material changes to the Company's significant accounting policies during the three months ended March 31, 2024[29](index=29&type=chunk) - The Company is assessing the potential impact of ASU 2023-09 "Income Taxes (Topic 740): Improvements to Income Tax Disclosures," effective for fiscal years starting after December 15, 2024[31](index=31&type=chunk) [Note 3. Revenue Recognition](index=8&type=section&id=Note%203.%20Revenue%20Recognition) VYJUVEK revenue recognition began in Q3 2023 post-FDA approval, incorporating variable consideration - The Company began commercial marketing and sales of VYJUVEK and recognizing revenue in the third quarter of 2023, following FDA approval on May 19, 2023[32](index=32&type=chunk) - The transaction price recognized as revenue for VYJUVEK sales includes an estimate of variable consideration, such as discounts, returns, copay assistance, and rebates[98](index=98&type=chunk) Rebates and Accruals (in thousands) | (in thousands) | Rebates | Prompt Pay | Other Accruals | Total | | :------------- | :------ | :--------- | :------------- | :---- | | Balance as of December 31, 2023 | $5,977 | $858 | $279 | $7,114 | | Provisions | $5,746 | $1,565 | $211 | $7,522 | | Payments/Credits | $(434) | $(953) | $(75) | $(1,462) | | Balance, as of March 31, 2024 | $11,289 | $1,470 | $415 | $13,174 | [Note 4. Net Income (Loss) Per Share Attributable to Common Stockholders](index=9&type=section&id=Note%204.%20Net%20Income%20(Loss)%20Per%20Share%20Attributable%20to%20Common%20Stockholders) Details basic and diluted net income (loss) per common share, showing significant improvement Net Income (Loss) Per Common Share (in thousands, except per share data) | (in thousands, except per share data) | 2024 | 2023 | | :------------------------------------ | :--- | :--- | | Net income (loss) | $932 | $(45,297) | | Weighted-average basic common shares | 28,295 | 25,712 | | Dilutive effect of stock options and unvested restricted stock | 996 | — | | Weighted-average diluted common shares | 29,291 | 25,712 | | Net income (loss) per common share—Basic | $0.03 | $(1.76) | | Net income (loss) per common share—Diluted | $0.03 | $(1.76) | - Common stock equivalents, including stock options and unvested restricted stock, were excluded from diluted EPS calculation in Q1 2023 due to their anti-dilutive effect[36](index=36&type=chunk) [Note 5. Fair Value Instruments](index=9&type=section&id=Note%205.%20Fair%20Value%20Instruments) Breaks down cash, cash equivalents, and available-for-sale securities by investment category Fair Value of Financial Instruments (in thousands) | (in thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized (Losses) | Aggregate Fair Value | Cash and Cash Equivalents | Short-term Marketable Securities | Long-term Marketable Securities | | :------------- | :------------- | :--------------------- | :------------------------ | :------------------- | :------------------------ | :------------------------------- | :------------------------------ | | **March 31, 2024** | | | | | | | | | Cash and cash equivalents | $359,006 | $— | $— | $359,006 | $359,006 | $— | $— | | Commercial paper | $18,747 | $— | $(7) | $18,740 | $— | $18,740 | $— | | Corporate bonds | $115,918 | $132 | $(69) | $115,981 | $— | $70,182 | $45,799 | | U.S. government agency securities | $128,682 | $29 | $(183) | $128,528 | $— | $90,331 | $38,197 | | **Total** | **$622,353** | **$161** | **$(259)** | **$622,255** | **$359,006** | **$179,253** | **$83,996** | | **December 31, 2023** | | | | | | | | | Cash and cash equivalents | $358,328 | $— | $— | $358,328 | $358,328 | $— | $— | | Commercial paper | $17,124 | $5 | $(1) | $17,128 | $— | $17,128 | $— | | Corporate bonds | $111,824 | $407 | $(27) | $112,204 | $— | $70,996 | $41,208 | | U.S. government agency securities | $106,079 | $423 | $(30) | $106,472 | $— | $85,726 | $20,746 | | **Total** | **$593,355** | **$835** | **$(58)** | **$594,132** | **$358,328** | **$173,850** | **$61,954** | - The Company's short-term marketable securities mature in one year or less, while long-term marketable securities mature between one and two years[40](index=40&type=chunk) [Note 6. Balance Sheet Components](index=10&type=section&id=Note%206.%20Balance%20Sheet%20Components) Details inventory and property and equipment, net, including significant inventory increases Inventory (in thousands) | (in thousands) | March 31, 2024 | December 31, 2023 | | :--------------- | :------------- | :---------------- | | Raw materials | $4,489 | $3,154 | | Work-in-process | $6,387 | $3,204 | | Finished goods | $161 | $627 | | **Inventory** | **$11,037** | **$6,985** | Property and Equipment, Net (in thousands) | (in thousands) | March 31, 2024 | December 31, 2023 | | :--------------- | :------------- | :---------------- | | Total property and equipment | $175,132 | $174,029 | | Accumulated depreciation | $(15,121) | $(12,827) | | **Property and equipment, net** | **$160,011** | **$161,202** | - Depreciation expense was **$1.4 million** for the three months ended March 31, 2024, compared to **$1.1 million** for the same period in 2023[42](index=42&type=chunk) - Depreciation capitalized into inventory was **$867 thousand** in Q1 2024[42](index=42&type=chunk) - The majority of assets related to the ASTRA facility were reclassified from construction in progress to in-use assets (leasehold improvements, manufacturing equipment, buildings) as qualification occurred through Q1 2024[43](index=43&type=chunk) [Note 7. Commitments and Contingencies](index=11&type=section&id=Note%207.%20Commitments%20and%20Contingencies) Outlines commitments to CROs/CMOs and details the PeriphaGen legal settlement - Estimated remaining commitments under agreements with CROs and CMOs are approximately **$1.1 million** as of March 31, 2024[46](index=46&type=chunk) - The Company recorded litigation settlement expense of **$12.5 million** for both the three months ended March 31, 2024, and 2023, related to the settlement agreement with PeriphaGen, Inc[48](index=48&type=chunk) - As of March 31, 2024, the Company accrued **$12.5 million** for a contingent milestone payment to PeriphaGen, Inc., as reaching **$100.0 million** in total cumulative sales was deemed probable[48](index=48&type=chunk) - The total consideration for settling the dispute, acquiring assets, and granting a license from PeriphaGen will be **$75.0 million** if all milestones are achieved, of which **$37.5 million** has been paid[47](index=47&type=chunk) [Note 8. Leases](index=12&type=section&id=Note%208.%20Leases) Outlines operating lease commitments, with future minimum payments totaling **$15.8 million** Future Minimum Operating Lease Payments (in thousands) | (in thousands) | Operating Leases | | :--------------- | :--------------- | | 2024 (remaining nine months) | $1,157 | | 2025 | $1,277 | | 2026 | $1,277 | | 2027 | $1,300 | | 2028 | $1,325 | | Thereafter | $9,438 | | Future minimum operating lease payments | $15,774 | | Less: Interest | $(7,879) | | Present value of lease liability | $7,895 | - The weighted-average remaining lease term for operating leases was **12.2 years** as of March 31, 2024, with a weighted-average discount rate of **9.5%**[50](index=50&type=chunk) Total Lease Expense (in thousands) | (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--------------- | :-------------------------------- | :-------------------------------- | | Operating lease expense | $299 | $463 | | Variable lease expense | $40 | $59 | | **Total lease expense** | **$339** | **$522** | [Note 9. Capitalization](index=12&type=section&id=Note%209.%20Capitalization) Describes ATM equity offering programs, with **$150.0 million** available under the New ATM Program - The Company established a New ATM Program on May 8, 2023, to issue and sell shares of common stock with an aggregate offering price of up to **$150.0 million**[53](index=53&type=chunk) - No shares of Common Stock were issued pursuant to the New ATM Program during the three months ended March 31, 2024, resulting in **$150.0 million** available for issuance[53](index=53&type=chunk) [Note 10. Stock-Based Compensation](index=13&type=section&id=Note%2010.%20Stock-Based%20Compensation) Details equity award plans, with **2.4 million** shares available and **$9.3 million** expense - Shares remaining available for grant under the 2017 IPO Stock Plan were **2.4 million** as of March 31, 2024[55](index=55&type=chunk) - The total intrinsic value of stock options exercised was **$24.5 million** during the three months ended March 31, 2024, compared to **$1.1 million** in the prior year period[57](index=57&type=chunk) Total Stock-Based Compensation (in thousands) | (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--------------- | :-------------------------------- | :-------------------------------- | | Research and development | $1,868 | $2,496 | | Selling, general, and administrative | $7,431 | $7,941 | | **Total stock-based compensation** | **$9,299** | **$10,437** | - The Company capitalized **$724 thousand** of stock-based compensation into inventory for the three months ended March 31, 2024, compared to zero in the prior year period, following FDA approval of VYJUVEK[63](index=63&type=chunk) [Note 11. Income Taxes](index=15&type=section&id=Note%2011.%20Income%20Taxes) No income tax provision recorded in Q1 2024 or 2023 due to tax losses - The Company did not record an income tax provision for the three months ended March 31, 2024, or 2023, as it generated sufficient tax losses[65](index=65&type=chunk) - The Company expects to maintain a full valuation allowance against its net deferred tax assets for the year[65](index=65&type=chunk) [Note 12. Subsequent Events](index=15&type=section&id=Note%2012.%20Subsequent%20Events) No subsequent events requiring recognition or disclosure were identified after the balance sheet date - The Company concluded that no subsequent events have occurred that would require recognition or disclosure in the condensed consolidated financial statements[66](index=66&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=16&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Krystal Biotech's financial condition, VYJUVEK's launch, pipeline, and liquidity [Special Note Regarding Forward-Looking Statements](index=16&type=section&id=Special%20Note%20Regarding%20Forward-Looking%20Statements) Warns readers that the report contains forward-looking statements subject to risks and uncertainties - This Quarterly Report contains forward-looking statements that involve known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially from those expressed or implied[68](index=68&type=chunk) - Key factors influencing future results include the commercial success of VYJUVEK, R&D activities, regulatory approvals, market opportunity, costs, competition, intellectual property, and global economic conditions[69](index=69&type=chunk) - Readers are cautioned not to place undue reliance on forward-looking statements due to inherent uncertainties and the rapidly changing environment[70](index=70&type=chunk) [Overview](index=17&type=section&id=Overview) Provides a high-level summary of Krystal Biotech's FDA-approved product, pipeline highlights, and developments [Our FDA Approved Commercial Product](index=17&type=section&id=Our%20FDA%20Approved%20Commercial%20Product) VYJUVEK, the first redosable gene therapy for DEB, generated **$45.3 million** in Q1 2024 revenue - VYJUVEK (B-VEC) was FDA approved on May 19, 2023, as the first redosable gene therapy for treating dystrophic epidermolysis bullosa (DEB) in patients six months of age or older[74](index=74&type=chunk) - Net VYJUVEK product revenue was **$45.3 million** for the three months ended March 31, 2024, with cumulative net product revenue of **$95.9 million** since August 2023[75](index=75&type=chunk) - A permanent J-code (J3401) for VYJUVEK became effective on January 1, 2024, and as of April 2024, positive access has been achieved for **96%** of lives covered under commercial and Medicaid plans[76](index=76&type=chunk) - Q1 2024 product revenue was negatively impacted by the J-code switchover and a cybersecurity incident, leading to approximately **400 free vials** dispensed to ensure treatment continuity[78](index=78&type=chunk) - Preparations for direct commercial launch in Europe and Japan are underway, with an EMA decision on the Marketing Authorization Application (MAA) expected in 2H 2024 and a Japan New Drug Application filing anticipated in 2H 2024[81](index=81&type=chunk)[82](index=82&type=chunk)[83](index=83&type=chunk) [Pipeline Highlights and Recent Developments](index=18&type=section&id=Pipeline%20Highlights%20and%20Recent%20Developments) Highlights progress in Krystal Biotech's diverse genetic medicine pipeline across multiple areas [Respiratory](index=18&type=section&id=Respiratory) Details clinical trial progress for respiratory gene therapy candidates KB407 and KB408 - KB407 (cystic fibrosis): Completed dosing of the second cohort in the Phase 1 CORAL-1 study in March 2024, with the third and final cohort expected to initiate in Q2 2024[84](index=84&type=chunk) - KB408 (alpha-1 antitrypsin deficiency): Dosed the first patient in the Phase 1 SERPENTINE-1 study in February 2024, with interim data expected in 2H 2024[85](index=85&type=chunk) [Ophthalmology](index=18&type=section&id=Ophthalmology) Outlines developments for ophthalmic B-VEC for ocular DEB, including a planned clinical study - Compassionate use of B-VEC as an eyedrop for ocular DEB showed full corneal healing at 3 months and visual acuity improvement[86](index=86&type=chunk) - The Company aligned with the FDA on a proposed single-arm, open-label study in approximately **10 patients** for ophthalmic B-VEC, planned to initiate in 2H 2024[87](index=87&type=chunk) - U.S. Patent No. 11,865,148 was issued, covering methods of delivering human transgenes to the eye using replication-incompetent HSV-1[88](index=88&type=chunk) [Oncology](index=19&type=section&id=Oncology) Reports progress for oncology candidate KB707, including Fast Track Designations and Phase 1 studies - KB707 (immunotherapy for solid tumors): Intratumoral KB707 received Fast Track Designation for melanoma, and the Phase 1 OPAL-1 study has cleared the first two dose escalation cohorts with interim data expected by year-end[91](index=91&type=chunk) - Inhaled KB707 received Fast Track Designation for solid tumors with pulmonary metastases, and the Phase 1 KYANITE-1 study initiated in April 2024[92](index=92&type=chunk) - Preclinical data for KB707 demonstrated enhanced local and systemic T-cell effector responses in syngeneic mouse models[93](index=93&type=chunk) [Dermatology](index=19&type=section&id=Dermatology) Provides updates on dermatology candidates KB105 and KB104 clinical development plans - KB105 (TGM1-ARCI): Expects to resume enrollment in the Phase 2 portion of the JADE-1 study later in 2024[94](index=94&type=chunk) - KB104 (Netherton Syndrome): Plans to file an IND application and initiate a clinical trial following the KB105 Phase 2 study[94](index=94&type=chunk) [Aesthetics](index=19&type=section&id=Aesthetics) Details progress for aesthetic candidate KB301, with Phase 1 clinical study results expected mid-2024 - KB301 (aging/damaged skin): Initiated Phase 1 PEARL-1 Cohort 3 and Cohort 4 clinical studies, with results for both expected in mid-2024[95](index=95&type=chunk)[96](index=96&type=chunk) [Financial Overview](index=20&type=section&id=Financial%20Overview) Outlines key financial statement components, including revenue, COGS, expenses, and capital expenditures - Revenue recognition began in Q3 2023 following FDA approval of VYJUVEK, with future revenue expected to fluctuate[97](index=97&type=chunk) - Cost of goods sold includes direct and indirect manufacturing costs for VYJUVEK; prior to FDA approval in May 2023, these costs were expensed as research and development[99](index=99&type=chunk)[100](index=100&type=chunk) - Research and development expenses are expected to increase due to ongoing clinical trials for KB407, KB408, intratumoral KB707, inhaled KB707, resumption of KB105 dosing, initiation of ophthalmic B-VEC study, and KB301 Phase 2[102](index=102&type=chunk) - Selling, general, and administrative expenses are anticipated to increase due to commercialization efforts for VYJUVEK globally and support for product candidates[105](index=105&type=chunk) - Significant capital expenditures were incurred for the second commercial scale CGMP facility, ASTRA, with continued expenditures expected throughout its operational life[106](index=106&type=chunk) - Interest and other income, net, primarily consists of income earned from cash, cash equivalents, and investments[107](index=107&type=chunk) - There have been no significant changes to critical accounting policies, significant judgments, and estimates during the three months ended March 31, 2024[108](index=108&type=chunk) [Results of Operations](index=21&type=section&id=Results%20of%20Operations) Compares Q1 2024 and Q1 2023 financial performance, highlighting **$45.3 million** net product revenue Comparative Results of Operations (in thousands) | (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | Change | | :--------------- | :-------------------------------- | :-------------------------------- | :----- | | Product revenue, net | $45,250 | $— | $45,250 | | Cost of goods sold | $2,419 | $— | $2,419 | | Research and development | $10,957 | $12,288 | $(1,331) | | Selling, general, and administrative | $26,058 | $24,035 | $2,023 | | Litigation settlement | $12,500 | $12,500 | $— | | Total operating expenses | $51,934 | $48,823 | $3,111 | | Loss from operations | $(6,684) | $(48,823) | $42,139 | | Interest and other income, net | $7,616 | $3,526 | $4,090 | | Net income (loss) | $932 | $(45,297) | $46,229 | - Product revenue, net, was **$45.3 million** for Q1 2024, compared to zero for Q1 2023, due to sales of VYJUVEK after FDA approval in May 2023[111](index=111&type=chunk) - Research and development expenses decreased by **$1.3 million** in Q1 2024, primarily due to manufacturing expenses related to VYJUVEK being recorded as inventory post-FDA approval and capitalization of commercial batches[113](index=113&type=chunk)[114](index=114&type=chunk) - Selling, general, and administrative expenses increased by **$2.0 million** in Q1 2024, driven by **$2.1 million** in selling expenses related to VYJUVEK's launch, **$706 thousand** in professional services, and **$367 thousand** in net payroll, partially offset by a **$1.3 million** decrease in marketing costs[117](index=117&type=chunk)[118](index=118&type=chunk) - Interest and other income, net, increased to **$7.6 million** in Q1 2024 from **$3.5 million** in Q1 2023, reflecting increased investment activity and more favorable interest rates[120](index=120&type=chunk) [Liquidity and Capital Resources](index=24&type=section&id=Liquidity%20and%20Capital%20Resources) Details Krystal Biotech's liquidity, with **$538.3 million** in cash and investments - As of March 31, 2024, cash, cash equivalents, and short-term investments totaled approximately **$538.3 million**, with an accumulated deficit of **$268.9 million**[121](index=121&type=chunk) - Management believes current funds are sufficient to fund operations for at least 12 months from the filing date of this Quarterly Report[121](index=121&type=chunk) - Future operations are intended to be funded through on-hand cash, revenue from VYJUVEK sales, equity sales, debt financings, and arrangements with strategic partners[122](index=122&type=chunk) - The company faces unpredictable clinical trial costs and potential future contingent milestone payments of **$12.5 million** each upon reaching **$100.0 million**, **$200.0 million**, and **$300.0 million** in total cumulative sales[123](index=123&type=chunk) Cash Flow Summary (in thousands) | (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by (used in) operating activities | $15,888 | $(26,156) | | Net cash (used in) provided by investing activities | $(25,980) | $3,563 | | Net cash provided by financing activities | $10,583 | $1,474 | | Net increase (decrease) in cash | $678 | $(21,155) | - Net cash provided by operating activities was **$15.9 million** in Q1 2024, primarily driven by net income and non-cash adjustments[130](index=130&type=chunk) - Net cash used in investing activities was **$26.0 million** in Q1 2024, mainly due to purchases of short-term and long-term investments and property and equipment, partially offset by maturities of investments[131](index=131&type=chunk) - Net cash provided by financing activities was **$10.6 million** in Q1 2024, primarily from stock option exercises, partially offset by tax withholding payments related to restricted stock units and awards[132](index=132&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=26&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Discusses market risk exposures, primarily interest rate fluctuations and foreign currency risk - As of March 31, 2024, the company held **$538.3 million** in cash, cash equivalents, and short-term investments, primarily in money market funds, commercial paper, corporate bonds, and U.S. government agency securities[133](index=133&type=chunk) - The company's primary investment objective is to preserve principal while maximizing income without significantly increasing risk[133](index=133&type=chunk) - The company does not believe that a **10%** immediate change in interest rates or foreign currency exchange rates would materially affect its results of operations or financial position[133](index=133&type=chunk)[134](index=134&type=chunk) - The company is subject to foreign exchange rate risk from operations in Europe, Australia, and Japan, but these foreign operations are not currently material[134](index=134&type=chunk) [Item 4. Controls and Procedures](index=27&type=section&id=Item%204.%20Controls%20and%20Procedures) CEO and CAO concluded disclosure controls were effective, with no material changes in internal control - The Chief Executive Officer and Chief Accounting Officer concluded that the company's disclosure controls and procedures were effective as of March 31, 2024[136](index=136&type=chunk) - There was no change in internal control over financial reporting during the three months ended March 31, 2024, that materially affected, or is reasonably likely to materially affect, internal control over financial reporting[137](index=137&type=chunk) [PART II. OTHER INFORMATION](index=28&type=section&id=PART%20II.%20OTHER%20INFORMATION) Presents additional information, including legal proceedings, risk factors, and equity sales [Item 1. Legal Proceedings](index=28&type=section&id=Item%201.%20Legal%20Proceedings) Incorporates legal proceedings information from Note 7, detailing the PeriphaGen settlement - Information on legal proceedings is incorporated by reference from Note 7 of the notes to condensed consolidated financial statements[139](index=139&type=chunk) - The company has an ongoing settlement agreement with PeriphaGen, Inc., which includes three additional **$12.5 million** contingent milestone payments upon reaching **$100.0 million**, **$200.0 million**, and **$300.0 million** in total cumulative sales[47](index=47&type=chunk) [Item 1A. Risk Factors](index=28&type=section&id=Item%201A.%20Risk%20Factors) Details significant risks impacting Krystal Biotech's business, including commercial, regulatory, and financial factors [Risks Related to Our Business and Industry](index=28&type=section&id=Risks%20Related%20to%20Our%20Business%20and%20Industry) Outlines risks related to VYJUVEK's commercial success, competition, and healthcare reforms - The company's near-term prospects are substantially dependent on the commercial success of VYJUVEK, including obtaining regulatory approval in other jurisdictions[141](index=141&type=chunk)[142](index=142&type=chunk) - Krystal Biotech faces significant competition from other companies developing alternative gene therapy approaches, many with greater financial and technical resources[150](index=150&type=chunk) - The company is exposed to the risk of product liability lawsuits, which could result in substantial liabilities, reputational damage, and potential limitations on commercialization[153](index=153&type=chunk)[154](index=154&type=chunk) - Negative public opinion and increased regulatory scrutiny of gene therapy, as a novel technology, could damage public perception and adversely affect the ability to conduct business or obtain approvals[156](index=156&type=chunk) - Healthcare legislative reforms, such as the Inflation Reduction Act of 2022, and increasing governmental scrutiny over drug pricing, may adversely affect the company's business and results of operations[166](index=166&type=chunk)[167](index=167&type=chunk) - The company is subject to federal and state healthcare fraud and abuse laws, false claims laws, and health information privacy and security laws (e.g., HIPAA, CCPA, GDPR), with potential for substantial penalties for non-compliance[170](index=170&type=chunk)[171](index=171&type=chunk)[178](index=178&type=chunk) - Cybersecurity incidents, such as the one affecting a specialty pharmacy provider in Q1 2024, could harm the business by damaging reputation, exposing to liability, adversely impacting revenue, or materially disrupting operations[187](index=187&type=chunk) [Risks Related to the Development, Regulatory Review and Approval of Our Product Candidates](index=40&type=section&id=Risks%20Related%20to%20the%20Development%2C%20Regulatory%20Review%20and%20Approval%20of%20Our%20Product%20Candidates) Details risks in product development, regulatory approval, clinical trials, and post-market oversight - Failure to advance product candidates through clinical trials, obtain regulatory approval, or significant delays would materially harm the business, as the development and commercialization process is subject to many uncertainties[203](index=203&type=chunk)[204](index=204&type=chunk) - The gene therapy platform is a novel technology, making the time and cost of obtaining regulatory approvals difficult to predict, and regulatory requirements may change frequently[205](index=205&type=chunk)[206](index=206&type=chunk) - Product or product candidates may cause undesirable side effects or have other properties that could delay or prevent regulatory approval, limit commercial potential, or result in significant negative consequences post-approval[209](index=209&type=chunk)[211](index=211&type=chunk) - The company relies on third parties to conduct certain aspects of preclinical studies and clinical trials, and their failure to meet contractual duties or comply with regulations could delay or terminate development[221](index=221&type=chunk)[222](index=222&type=chunk) - Interim, 'top-line,' and preliminary data from clinical trials may change as more patient data becomes available or additional analyses are conducted, potentially differing materially from final data[224](index=224&type=chunk) - Even with FDA approval, obtaining approval outside the United States is not guaranteed and would limit market opportunities, as foreign regulatory requirements can be lengthy and expensive[225](index=225&type=chunk) - VYJUVEK and other approved product candidates remain subject to ongoing regulatory oversight, including manufacturing, labeling, and post-market surveillance, with risks of non-compliance or changes to regulations[227](index=227&type=chunk)[229](index=229&type=chunk)[230](index=230&type=chunk) - Orphan drug exclusivity for VYJUVEK and designations for KB105, KB407, and KB408 may not effectively protect against competition, and future designations are uncertain[231](index=231&type=chunk)[236](index=236&type=chunk) - Accelerated approval pathways (Breakthrough Therapy, Fast Track, RMAT, Priority Review, PRIME) do not guarantee faster development, review, or approval, nor do they increase the likelihood of marketing approval[237](index=237&type=chunk)[239](index=239&type=chunk)[240](index=240&type=chunk)[241](index=241&type=chunk)[243](index=243&type=chunk)[244](index=244&type=chunk) [Risks Related to Manufacturing](index=49&type=section&id=Risks%20Related%20to%20Manufacturing) Covers risks in manufacturing, including regulatory approvals, third-party reliance, and capacity challenges - Delays in obtaining regulatory approvals for manufacturing processes or facilities, or disruptions in the manufacturing process, could disrupt production of VYJUVEK or delay development and commercialization efforts[248](index=248&type=chunk)[249](index=249&type=chunk) - Reliance on third-party manufacturing capabilities or components subjects the company to risks of unsatisfactory performance, supply issues, or non-compliance with CGMP regulations[250](index=250&type=chunk)[251](index=251&type=chunk)[252](index=252&type=chunk) - Contamination, shortages of raw materials (especially biologic sources), or failure of key suppliers could result in delays in producing VYJUVEK or product candidates[253](index=253&type=chunk)[254](index=254&type=chunk) - Failure to increase manufacturing capacity and yields in a timely or cost-effective manner, or to continuously improve the quality management program, could delay commercial availability and lead to regulatory actions[255](index=255&type=chunk)[256](index=256&type=chunk)[258](index=258&type=chunk) - Scaling up the VYJUVEK commercial manufacturing process to meet increased demand or improve efficiencies requires regulatory approval (Prior Approval Supplement to the FDA) and is subject to significant risks and uncertainties[259](index=259&type=chunk) - Technical transfer of VYJUVEK manufacturing between facilities (e.g., ANCORIS to ASTRA) is a time-consuming process requiring FDA inspection and approval, with no guarantee of success[260](index=260&type=chunk) [Risks Related to Commercialization of VYJUVEK and Our Product Candidates](index=51&type=section&id=Risks%20Related%20to%20Commercialization%20of%20VYJUVEK%20and%20Our%20Product%20Candidates) Addresses risks in commercialization, including sales, market acceptance, pricing, and reimbursement - As a company with limited commercial experience, the sales, marketing, and distribution of VYJUVEK or any future approved products may be unsuccessful or less successful than anticipated, requiring significant resources and potentially impacting profitability[261](index=261&type=chunk)[262](index=262&type=chunk) - The company relies on a small number of third parties for VYJUVEK distribution in the U.S., and their failure to fulfill contractual obligations or adequately distribute could adversely affect sales and revenue[263](index=263&type=chunk)[264](index=264&type=chunk) - Plans to use local distributors outside the U.S., U.K., and certain EU countries involve risks of non-compliance, ineffective sales, or failure to devote necessary resources[265](index=265&type=chunk) - If the commercial launch of VYJUVEK is unsuccessful, the substantial investment in sales, marketing, and distribution capabilities could be lost[266](index=266&type=chunk)[267](index=267&type=chunk) - The commercial success of VYJUVEK and product candidates depends on market acceptance by physicians, patients, third-party payors, and the medical community, which is uncertain[275](index=275&type=chunk) - Government price controls, changes in pricing regulation, and uncertainty regarding insurance coverage and reimbursement status for newly approved products could restrict revenue and limit marketability[277](index=277&type=chunk)[279](index=279&type=chunk) - Ethical, legal, and social issues related to genetic testing may reduce demand for product candidates, if approved[283](index=283&type=chunk) - Increasing demand for compassionate use or expanded access of unapproved therapies could negatively affect the company's reputation and business, potentially diverting resources or impacting safety profiles[284](index=284&type=chunk)[286](index=286&type=chunk) [Risks Related to Our Intellectual Property](index=57&type=section&id=Risks%20Related%20to%20Our%20Intellectual%20Property) Discusses risks concerning intellectual property, including patent protection, infringement claims, and trade secret disputes - Inability to obtain and maintain adequate U.S. and foreign patent protection for VYJUVEK, product candidates, and the vector platform, or insufficient scope of protection, could allow competitors to commercialize similar products[288](index=288&type=chunk)[289](index=289&type=chunk)[290](index=290&type=chunk) - Protecting intellectual property rights globally is expensive and challenging, as foreign laws may not offer the same extent of protection as in the U.S., making enforcement difficult[292](index=292&type=chunk)[293](index=293&type=chunk) - Third parties may initiate legal proceedings alleging infringement of their intellectual property rights, leading to uncertain outcomes, potential licensing requirements, monetary damages, or cessation of development/commercialization[295](index=295&type=chunk)[296](index=296&type=chunk)[297](index=297&type=chunk) - Intellectual property litigation is expensive, time-consuming, and can distract personnel, potentially compromising confidential information and adversely impacting financial results[298](index=298&type=chunk)[299](index=299&type=chunk) - The company has been, and may be in the future, subject to claims of wrongful use or disclosure of alleged trade secrets of other parties, or claims asserting ownership of its own intellectual property, leading to potential litigation and loss of valuable rights[300](index=300&type=chunk)[301](index=301&type=chunk) - Changes in U.S. patent law, such as the Leahy-Smith America Invents Act and evolving court decisions, could diminish the value of patents and negatively impact the ability to protect and enforce intellectual property rights[302](index=302&type=chunk)[303](index=303&type=chunk) - Inadequate protection of trademarks and trade names could hinder name recognition and competitive effectiveness, adversely affecting the business[305](index=305&type=chunk) [Risks Related to Our Financial Position and Need for Additional Capital](index=60&type=section&id=Risks%20Related%20to%20Our%20Financial%20Position%20and%20Need%20for%20Additional%20Capital) Covers financial risks, including recurring losses, unpredictable costs, and need for additional funding - Despite generating net income in 2023, the company has incurred recurring losses and negative cash flows since inception and may not sustain profitability, which depends on the successful commercialization of VYJUVEK and pipeline development[307](index=307&type=chunk)[308](index=308&type=chunk)[309](index=309&type=chunk) - Product development costs are unpredictable and will increase with delays in testing or obtaining marketing approvals, potentially delaying revenue from product candidates[310](index=310&type=chunk) - The company will need to raise additional funding to maintain and expand commercialization capabilities for VYJUVEK and to complete product development, but such funding may not be available on acceptable terms, leading to potential delays or termination of efforts[311](index=311&type=chunk)[312](index=312&type=chunk) - Changes in U.S. and foreign tax laws, including new income, sales, or other tax laws, could adversely affect the company's business operations and financial performance[313](index=313&type=chunk)[314](index=314&type=chunk) - The ability to use net operating loss carryforwards and certain tax credit carryforwards may be subject to limitation under Sections 382 and 383 of the Internal Revenue Code due to changes in ownership[315](index=315&type=chunk)[316](index=316&type=chunk) - The company's limited operating history since 2016 makes it difficult to evaluate its future success, performance, or viability, and operating results are expected to fluctuate[317](index=317&type=chunk)[318](index=318&type=chunk) [Risks Related to Ownership of Our Common Stock](index=63&type=section&id=Risks%20Related%20to%20Ownership%20of%20Our%20Common%20Stock) Addresses risks for common stock owners, including management influence, stock price volatility, and dilution - The CEO and Chairman, and Founder, President, Research & Development and Director, collectively owning approximately **14%** of outstanding common stock, have substantial influence over matters submitted to stockholders for approval[319](index=319&type=chunk) - Negative evaluations of the company's stock by securities analysts could cause the stock price to decline[320](index=320&type=chunk) - Raising additional capital through equity or debt financings could cause the price of common stock to decline, dilute existing stockholders, or impose restrictive covenants on operations[321](index=321&type=chunk)[322](index=322&type=chunk) - The price of the company's common stock has been and is likely to continue to be volatile, influenced by various factors including clinical trial results, regulatory approvals, competition, and general market conditions[324](index=324&type=chunk)[325](index=325&type=chunk) - Failure to maintain effective internal control over financial reporting could adversely affect investor confidence and the value of common stock[326](index=326&type=chunk) - Provisions in corporate charter documents and Delaware law could make an acquisition of the company more difficult and potentially prevent attempts by stockholders to replace current management[327](index=327&type=chunk)[328](index=328&type=chunk) - Management has broad discretion in the use of cash, cash equivalents, and marketable securities, and ineffective use could result in financial losses[329](index=329&type=chunk) - The company does not anticipate paying cash dividends in the foreseeable future, making capital appreciation the sole source of gain for stockholders[330](index=330&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=67&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Summarizes equity securities purchases, noting shares bought for employee tax withholding Equity Securities Purchases | Period | Total number of shares (or units) purchased | Average price paid per share (or unit) | Total number of shares (or units) purchased as part of publicly announced plans or programs | Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs | | :----------------------------- | :---------------------------------------- | :------------------------------------- | :--------------------------------------------------------------------------------------- | :-------------------------------------------------------------------------------------------------------------------- | | January 1, 2024 - January 31, 2024 | — | — | — | — | | February 1, 2024 - February 28, 2024 | 7,677 | $78.89 | — | — | | March 1, 2024 - March 31, 2024 | — | — | — | — | | **Total** | **7,677** | **$78.89** | **—** | **—** | - The reported purchases represent shares withheld from employees for taxes resulting from the vesting of restricted stock awards[333](index=333&type=chunk) [Item 3. Defaults Upon Senior Securities](index=67&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) Confirms no defaults occurred upon senior securities during the reporting period - There were no defaults upon senior securities[334](index=334&type=chunk) [Item 4. Mine Safety Disclosures](index=67&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) States that mine safety disclosure requirements are not applicable to Krystal Biotech, Inc - Mine Safety Disclosures are not applicable to the registrant[335](index=335&type=chunk) [Item 5. Other Information](index=67&type=section&id=Item%205.%20Other%20Information) Reports no directors or officers adopted or terminated Rule 10b5-1 trading arrangements - None of the company's directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the three months ended March 31, 2024[336](index=336&type=chunk) [Item 6. Exhibits](index=67&type=section&id=Item%206.%20Exhibits) Lists exhibits filed with Form 10-Q, including CEO/CAO certifications and Inline XBRL data - Exhibits include certifications of periodic reports under Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002, and Inline XBRL (Extensible Business Reporting Language) formatted materials[337](index=337&type=chunk) [SIGNATURES](index=68&type=section&id=SIGNATURES) Confirms the report's official signing by the President and CEO, and Chief Accounting Officer on May 6, 2024 - The report was signed on May 6, 2024, by Krish S. Krishnan, President and Chief Executive Officer, and Kathryn A. Romano, Chief Accounting Officer[340](index=340&type=chunk)

[First Quarter 2024 Highlights](index=1&type=section&id=First%20Quarter%202024%20Highlights) Krystal Biotech reported strong Q1 2024 net product revenue, initiated a key clinical study, received Fast Track Designations, and maintained a robust financial position - Krystal Biotech announced net product revenue of **$45.3 million** in Q1 2024, contributing to **$95.9 million** since August 2023[1](index=1&type=chunk) - The company initiated dosing for the first patient in the inhaled KB707 study for locally advanced or metastatic lung tumors[1](index=1&type=chunk) - Both inhaled and intratumoral KB707 programs received Fast Track Designations[1](index=1&type=chunk) - Krystal Biotech maintains a strong balance sheet with **$622.3 million** in cash and investments[1](index=1&type=chunk) [Business and Pipeline Updates](index=1&type=section&id=Business%20and%20Pipeline%20Updates) Krystal Biotech reported strong VYJUVEK revenue growth and accelerating clinical pipeline enrollment, focusing on global access and upcoming data readouts [VYJUVEK for Dystrophic Epidermolysis Bullosa (DEB)](index=1&type=section&id=VYJUVEK%20for%20Dystrophic%20Epidermolysis%20Bullosa%20%28DEB%29) VYJUVEK showed strong Q1 2024 commercial performance with high patient compliance and significant progress in international regulatory reviews [Commercial Performance and Reimbursement](index=1&type=section&id=Commercial%20Performance%20and%20Reimbursement) Commercial Performance and Reimbursement Metrics | Metric | Value | | :---------------- | :------------ | | Net Product Revenue | $45.3 million | | Gross Margin | 95% | - As of April, over **330 reimbursement approvals** for VYJUVEK have been secured in the U.S., achieving positive access for **96% of lives** covered under commercial and Medicaid plans[3](index=3&type=chunk) - A permanent J-code for VYJUVEK was received in January, streamlining billing and reimbursement, including for U.S. Medicaid plans[3](index=3&type=chunk) - Patient compliance with once-weekly treatment remained high at **91%** by the end of the quarter[3](index=3&type=chunk) [International Regulatory Progress](index=1&type=section&id=International%20Regulatory%20Progress) - The European Medicines Agency (EMA) completed manufacturing facility inspections in February for B-VEC's MAA review, with GMP certification and a decision anticipated in **2H 2024**[3](index=3&type=chunk) - The company is on track to file a Japan New Drug Application (NDA) in **2H 2024**, following efficacy study completion in April, with potential authorization in **2025**[3](index=3&type=chunk) - B-VEC received Orphan Drug Designation (ODD) status for DEB from Japan's MHLW in December 2023, providing benefits like priority review and reduced development costs[3](index=3&type=chunk)[4](index=4&type=chunk) [Clinical Pipeline Progress](index=2&type=section&id=Clinical%20Pipeline%20Progress) Krystal Biotech is advancing multiple clinical programs across various therapeutic areas, with several interim data readouts expected in 2H 2024 [Respiratory Programs (KB407, KB408)](index=2&type=section&id=Respiratory%20Programs%20%28KB407%2C%20KB408%29) - For KB407 (cystic fibrosis), Cohort 2 dosing in the Phase 1 CORAL-1 study was completed in March, with Cohort 3 initiation planned for **2Q 2024**[6](index=6&type=chunk) - For KB408 (alpha-1 antitrypsin deficiency), the first patient was dosed in the Phase 1 SERPENTINE-1 study in February, with interim data expected in **2H 2024**[6](index=6&type=chunk) [Ophthalmology Programs (B-VEC eyedrops)](index=2&type=section&id=Ophthalmology%20Programs%20%28B-VEC%20eyedrops%29) - Clinical data on the compassionate use of B-VEC eyedrops for ocular complications of DEB was published in the New England Journal of Medicine in February[8](index=8&type=chunk) - The company aligned with the FDA on a proposed single-arm, open-label study for B-VEC eyedrops to treat ocular complications of DEB, with study initiation planned for **2H 2024**[8](index=8&type=chunk) - U.S. Patent No. 11,865,148 was issued in January, covering methods of delivering human transgenes to the eye using replication-incompetent HSV-1[8](index=8&type=chunk) [Oncology Programs (KB707)](index=3&type=section&id=Oncology%20Programs%20%28KB707%29) - The first patient was dosed in April in the Phase 1 KYANITE-1 clinical study for inhaled KB707 in patients with locally advanced or metastatic solid tumors of the lung[12](index=12&type=chunk) - The FDA granted Fast Track Designation for inhaled KB707 in February, marking the second Fast Track Designation for the KB707 program[12](index=12&type=chunk) - Enrollment in Cohort 3 of the Phase 1 OPAL-1 clinical study for intratumoral KB707 was completed in April, with interim data expected in **2H 2024**[12](index=12&type=chunk) [Aesthetics Programs (KB301)](index=3&type=section&id=Aesthetics%20Programs%20%28KB301%29) - Jeune Aesthetics initiated Cohort 4 of the Phase 1 PEARL-1 study in January to evaluate KB301 for the improvement of dynamic wrinkles of the décolleté[10](index=10&type=chunk) - Results from both Cohort 3 (lateral canthal lines) and Cohort 4 are expected in **mid-2024**[10](index=10&type=chunk) [Financial Performance and Outlook](index=3&type=section&id=Financial%20Performance%20and%20Outlook) Krystal Biotech achieved Q1 2024 net income driven by VYJUVEK revenue, maintains a strong balance sheet, and provided non-GAAP expense guidance for FY2024 [First Quarter 2024 Financial Results](index=4&type=section&id=First%20Quarter%202024%20Financial%20Results) First Quarter 2024 Financial Results (in thousands of USD) | Metric | 2024 | 2023 | Change | | :----------------------------------------- | :-------- | :-------- | :-------- | | Product revenue, net | $45,250 | $0 | $45,250 | | Cost of goods sold | $2,419 | $0 | $2,419 | | Research and development | $10,957 | $12,288 | $(1,331) | | Selling, general, and administrative | $26,058 | $24,035 | $2,023 | | Litigation settlement | $12,500 | $12,500 | $0 | | Total operating expenses | $51,934 | $48,823 | $3,111 | | Loss from operations | $(6,684) | $(48,823) | $42,139 | | Interest and other income, net | $7,616 | $3,526 | $4,090 | | Net income (loss) | $932 | $(45,297) | $46,229 | | Net income (loss) per common share (Basic) | $0.03 | $(1.76) | | | Net income (loss) per common share (Diluted) | $0.03 | $(1.76) | | | Weighted-average common shares outstanding (Basic) | 28,295 | 25,712 | | | Weighted-average common shares outstanding (Diluted) | 29,291 | 25,712 | | - Net income for Q1 2024 was **$0.9 million** (**$0.03 per common share**), a significant improvement from a net loss of **$45.3 million** (**$1.76 per common share**) in Q1 2023[15](index=15&type=chunk)[33](index=33&type=chunk) [Balance Sheet Overview](index=3&type=section&id=Balance%20Sheet%20Overview) Balance Sheet Overview (in thousands of USD) | Metric | March 31, 2024 | December 31, 2023 | | :------------------------ | :------------- | :---------------- | | Cash and cash equivalents | $359,006 | $358,328 | | Short-term investments | $179,253 | $173,850 | | Long-term investments | $83,996 | $61,954 | | Total assets | $853,296 | $818,355 | | Total liabilities | $54,054 | $39,714 | | Total stockholders' equity| $799,242 | $778,641 | - Cash, cash equivalents, and investments totaled **$622.3 million** on March 31, 2024[11](index=11&type=chunk) [Financial Guidance](index=4&type=section&id=Financial%20Guidance) - For the year ending December 31, 2024, the company anticipates approximately **$150 million to $175 million** in Non-GAAP Research and Development ("R&D") and Selling, General and Administrative ("SG&A") expense[13](index=13&type=chunk) - The Non-GAAP guidance excludes stock-based compensation due to the inability to confidently estimate the full-year expense, and no reconciliation to GAAP is provided[13](index=13&type=chunk) [Product and Company Information](index=4&type=section&id=Product%20and%20Company%20Information) This section details VYJUVEK's mechanism, indication, and safety, explains regulatory designations, and provides an overview of Krystal Biotech and Jeune Aesthetics [About VYJUVEK](index=4&type=section&id=About%20VYJUVEK) VYJUVEK is a non-invasive, topical, redosable gene therapy for Dystrophic Epidermolysis Bullosa (DEB) in patients six months and older [Product Description and Indication](index=4&type=section&id=Product%20Description%20and%20Indication) - VYJUVEK is a non-invasive, topical, redosable gene therapy designed to deliver two copies of the COL7A1 gene directly to DEB wounds, addressing the fundamental disease-causing mechanism[15](index=15&type=chunk)[16](index=16&type=chunk) - It is a herpes-simplex virus type 1 (HSV-1) vector-based gene therapy indicated for the treatment of wounds in patients six months of age and older with dystrophic epidermolysis bullosa with mutation(s) in the collagen type VII alpha 1 chain (COL7A1) gene[17](index=17&type=chunk) [Important Safety Information](index=5&type=section&id=Important%20Safety%20Information) - The most common adverse drug reactions (incidence >5%) include itching, chills, redness, rash, cough, and runny nose[18](index=18&type=chunk) - There are no known contraindications for VYJUVEK[19](index=19&type=chunk) - VYJUVEK gel must be applied by a healthcare provider; patients and caregivers should avoid touching treated wounds and dressings for 24 hours after treatment[20](index=20&type=chunk) - Caregivers should wash hands, wear protective gloves when changing dressings, disinfect bandages from the first change with a virucidal agent, and dispose of disinfected bandages in a separate sealed plastic bag in household waste[21](index=21&type=chunk) [Regulatory Designations Explained](index=5&type=section&id=Regulatory%20Designations%20Explained) This section defines Orphan Drug Designation (ODD) in the U.S. and Japan, and FDA Fast Track Designation, highlighting their benefits for rare disease therapies [Orphan Drug Designation](index=5&type=section&id=Orphan%20Drug%20Designation) - U.S. FDA Orphan Drug Designation is granted for therapies addressing rare conditions affecting fewer than **200,000 people**, offering development assistance, tax credits, fee exemptions, and seven years of post-approval marketing exclusivity[23](index=23&type=chunk) - Japan's orphan drug designation system supports drugs for diseases affecting fewer than **50,000 patients** with unmet medical needs, providing subsidies, prioritized consultation, tax incentives, priority review, and extended registration validity[24](index=24&type=chunk) [Fast Track Designation](index=6&type=section&id=Fast%20Track%20Designation) - Fast Track Designation facilitates development and expedites review of drugs for serious conditions and unmet medical needs, enabling earlier patient access[25](index=25&type=chunk) - Clinical programs with Fast Track Designation may benefit from early and frequent communication with the FDA and eligibility for Accelerated Approval and Priority Review[25](index=25&type=chunk) [About Krystal Biotech and Jeune Aesthetics](index=6&type=section&id=About%20Krystal%20Biotech%20and%20Jeune%20Aesthetics) - Krystal Biotech, Inc. (NASDAQ: KRYS) is a commercial-stage biotechnology company focused on genetic medicines for high unmet medical needs, headquartered in Pittsburgh, Pennsylvania[26](index=26&type=chunk) - VYJUVEK is the company's first commercial product, the first redosable gene therapy, and the first FDA-approved medicine for dystrophic epidermolysis bullosa[26](index=26&type=chunk) - Jeune Aesthetics, Inc., a wholly-owned subsidiary, leverages a clinically validated gene delivery platform to develop products addressing the biology of aging and/or damaged skin[27](index=27&type=chunk) [Additional Information](index=4&type=section&id=Additional%20Information) This section covers conference call logistics, forward-looking statement disclaimers, and definitions of non-GAAP financial measures [Conference Call Details](index=4&type=section&id=Conference%20Call%20Details) - The company hosted an investor webcast on May 6, 2024, at 8:30 am ET[14](index=14&type=chunk) - A replay of the conference call will be available for 30 days on the Investors section of the company's website[14](index=14&type=chunk) [Forward-Looking Statements](index=6&type=section&id=Forward-Looking%20Statements) - Statements regarding future expectations, plans, and prospects are considered forward-looking statements under The Private Securities Litigation Reform Act of 1995[28](index=28&type=chunk) - Actual results may differ materially due to various important factors, including uncertainties associated with regulatory review, product availability, and sufficiency of cash resources[29](index=29&type=chunk) - The company disclaims any obligation to update these forward-looking statements, which represent its views as of the press release date[29](index=29&type=chunk) [Non-GAAP Financial Measures](index=7&type=section&id=Non-GAAP%20Financial%20Measures) - The press release includes forward-looking combined R&D and SG&A expense guidance not required by, or presented in accordance with, U.S. GAAP[30](index=30&type=chunk) - Non-GAAP combined R&D and SG&A expense is defined as GAAP combined R&D and SG&A expense excluding stock-based compensation[30](index=30&type=chunk) - A quantitative reconciliation of forecasted non-GAAP to GAAP combined R&D and SG&A expense is not provided due to inherent uncertainty in estimating stock-based compensation expenses[30](index=30&type=chunk)[31](index=31&type=chunk)

• Received Fast Track Designations for both inhaled and intratumoral KB707 PITTSBURGH, April 22, 2024 (GLOBE NEWSWIRE) -- Krystal Biotech, Inc. (the "Company") (NASDAQ:KRYS), a commercial-stage biotechnology company, announced today that the first patient was dosed in its Phase 1 clinical trial (KYANITE-1) evaluating inhaled KB707, a modified HSV-1 vector designed to deliver genes encoding both human interleukin-12 (IL-12) and interleukin-2 (IL-2) to the lung, for the treatment of patients with locally adva ...

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Exhibit 99.1 Krystal Biotech Announces Fourth Quarter and Full Year 2023 Financial Results and Provides Business Updates • Net product revenue of $42.1M in 4Q and $50.7M for the year PITTSBURGH, February 26, 2024 (GLOBE NEWSWIRE) – Krystal Biotech, Inc. (the "Company") (NASDAQ: KRYS), a commercial-stage biotechnology company, today reported financial results and key business updates for the fourth quarter and year ending December 31, 2023. "2023 was an inflection point for Krystal with the approval and laun ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _______________________________________________________________________________ FORM 10-K ______________________________________________________________________________ (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO C ...

Financial Data and Key Metrics - Net product revenue for Q3 2023 was $8 6 million, representing approximately two full revenue months following the FDA approval of VYJUVEK in May 2023 [39] - The company reported a one-time gain of $100 million from the sale of its rare pediatric disease Priority Review Voucher, which was the primary driver of net income and positive EPS for the quarter [67] - Cash, cash equivalents, and investments totaled $598 6 million as of September 30, 2023, providing sufficient funding for planned activities for the next several quarters [47] Business Line Data and Key Metrics - VYJUVEK launch progress: 284 start forms received in Q3 2023, with an estimated 85% conversion rate to patients on drug, resulting in a 20% penetration of the identified patient base [35][36] - 45% of patient start forms were from commercial insurance plans, with over 80% already eligible for reimbursement, while 55% were from government insurance, with 74% eligible for reimbursement [37] - 33% of start forms were from patients aged 10 years or younger, indicating potential for longer induction phases and higher annual consumption of VYJUVEK [36] Market Data and Key Metrics - The company expects Medicaid coverage to increase starting October 2023, with the permanent J code becoming available in January 2024, which will further improve reimbursement eligibility [4][37] - The company has filed a marketing authorization application with the European Medicines Agency and anticipates EU approval in the second half of 2024, with a launch expected in 2025 [41] - In Japan, the company initiated an open-label extension study and dosed five patients, with plans to file a Japanese New Drug Application in the first half of 2024 [41] Company Strategy and Industry Competition - The company aims to reduce the conversion cycle from patient start forms to paid revenue to two to three weeks by early 2024, down from the initial six to seven weeks [12] - The company is focusing on home dosing, with 88% of patient start forms received by the end of September 2023 for home dosing, leading to a high adherence rate of 96% [59] - The company is advancing its pipeline, including KB407 for cystic fibrosis, KB408 for Alpha-1 Antitrypsin deficiency, and KB707 for oncology, with data expected in 2024 [42][43][64] Management Commentary on Operating Environment and Future Outlook - Management expressed confidence in the strong demand for VYJUVEK, with continued momentum expected into Q4 2023 and beyond [35][60] - The company is working to expand the number of patients treated with VYJUVEK globally, with a focus on the EU and Japan [41][60] - Management highlighted the importance of patient experience and adherence, with efforts to ensure smooth and timely access to VYJUVEK [38][58] Other Important Information - Research and Development expenses for Q3 2023 were $10 6 million, a decrease of $887,000 compared to Q3 2022, primarily due to costs related to VYJUVEK manufacturing being recorded to inventory post-FDA approval [46] - Selling, General, and Administrative expenses increased by $3 8 million in Q3 2023, largely due to costs incurred related to the VYJUVEK launch [67] Q&A Session Summary Question: Update on the progress of identifying patients outside the initial 1200 identified patients [30] - The company is in the process of identifying more patients and expects to have a new Chief Commercial Officer in place by early 2024 [31] Question: Reimbursement process and any surprises with insurance policies [18] - The reimbursement process has been smooth, with no unexpected issues, and the company expects the J code to be finalized in January 2024 [19] Question: Cadence of start forms and impact of the holiday season [23] - The pace of start forms has been good, but the impact of the holiday season is uncertain, with no guidance provided on potential slowdowns [24] Question: Conversion rate from start forms to patients on drug [85] - The company estimates an 85% conversion rate, with expectations for this to increase as insurance coverage improves [85] Question: Reasons for rejected start forms [96] - The most frequent reason for rejected start forms is genotyping issues [97] Question: Trends in buy-and-bill and clinic availability at Centers of Excellence [101] - Buy-and-bill has been minimal, with most patients being dosed at home, and Centers of Excellence are not adding clinic days or availability for appointments [102]

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) The company's financial statements for the period ended September 30, 2023, reflect a significant transition to a commercial-stage entity, marked by initial product revenues, increased assets from financing and PRV sale, and a shift to net income in Q3 [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheet Highlights (unaudited) | (In thousands) | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $373,241 | $161,900 | | Total current assets | $582,128 | $383,779 | | Total assets | $790,350 | $558,450 | | **Liabilities and Stockholders' Equity** | | | | Total current liabilities | $27,583 | $28,847 | | Total liabilities | $34,402 | $36,219 | | Total stockholders' equity | $755,948 | $522,231 | - Total assets increased significantly to **$790.4 million** as of September 30, 2023, from **$558.5 million** at the end of 2022, primarily due to a rise in cash and cash equivalents. Total liabilities remained relatively stable[8](index=8&type=chunk) [Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income%20%28Loss%29) - The company reported its first product revenues of **$8.6 million** for the three and nine months ended September 30, 2023, following the FDA approval of VYJUVEK in May 2023[10](index=10&type=chunk) - A gain of **$100 million** from the sale of a priority review voucher in Q3 2023 was a major contributor to profitability, turning a significant operating loss into a net income of **$80.7 million** for the quarter[10](index=10&type=chunk) Statement of Operations Summary (unaudited) | (In thousands, except per share data) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Product revenues, net | $8,556 | $— | $8,556 | $— | | Total operating expenses | $34,549 | $31,451 | $121,421 | $110,425 | | (Loss) from operations | ($25,993) | ($31,451) | ($112,865) | ($110,425) | | Gain from sale of PRV | $100,000 | $— | $100,000 | $— | | Net income (loss) | $80,747 | ($29,850) | $2,240 | ($107,923) | | Diluted net income (loss) per share | $2.79 | ($1.17) | $0.08 | ($4.24) | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash Flow Summary for the Nine Months Ended September 30 (unaudited) | (In thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Net cash (used in) operating activities | ($81,572) | ($78,240) | | Net cash provided by (used in) investing activities | $92,798 | ($108,875) | | Net cash provided by financing activities | $200,131 | $32,278 | | Net increase (decrease) in cash | $211,341 | ($154,837) | | Cash and cash equivalents at end of period | $373,241 | $186,409 | - Investing activities provided **$92.8 million** in cash, primarily due to the **$100 million** from the sale of the priority review voucher. Financing activities provided **$200.1 million**, largely from the net proceeds of common stock issuance[16](index=16&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) - On May 19, 2023, the company received FDA approval for its first product, VYJUVEK, for the treatment of Dystrophic Epidermolysis Bullosa (DEB). Commercial sales and revenue generation began in Q3 2023[20](index=20&type=chunk) - The company sold its Rare Pediatric Disease Priority Review Voucher (PRV) in August 2023 for **$100.0 million**, which was recorded as a gain as it had no carrying value[103](index=103&type=chunk) - As part of a 2022 legal settlement with PeriphaGen, the company paid an additional **$12.5 million** in June 2023 following VYJUVEK's FDA approval. Three additional contingent milestone payments of **$12.5 million** each remain, tied to cumulative sales thresholds[75](index=75&type=chunk)[76](index=76&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's transition to a commercial-stage entity following VYJUVEK's FDA approval and launch, detailing initial commercial traction, pipeline advancements, financial results, and sufficient liquidity for the next 12 months [Overview and Pipeline Highlights](index=23&type=section&id=Overview%20and%20Pipeline%20Highlights) - VYJUVEK was approved by the FDA on May 19, 2023, as the first re-dosable gene therapy for Dystrophic Epidermolysis Bullosa (DEB)[114](index=114&type=chunk) - As of September 30, 2023, the company received **284 Patient Start Forms** for VYJUVEK and has secured positive coverage determinations from all major commercial national health plans[115](index=115&type=chunk) - The company is expanding its pipeline into oncology with KB707, which received FDA clearance for its IND and Fast Track designation for melanoma. The first patient was dosed in a Phase 1 trial in October 2023[122](index=122&type=chunk)[123](index=123&type=chunk)[124](index=124&type=chunk) [Results of Operations](index=28&type=section&id=Results%20of%20Operations) Comparison of Three Months Ended September 30, 2023 and 2022 | (In thousands) | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Product revenues, net | $8,556 | $— | $8,556 | | Research and development | $10,629 | $11,516 | ($887) | | Selling, general, and administrative | $23,697 | $19,935 | $3,762 | | Gain from sale of PRV | $100,000 | $— | $100,000 | | Net income (loss) | $80,747 | ($29,850) | $110,597 | - For Q3 2023, SG&A expenses increased by **$3.8 million** compared to Q3 2022, primarily due to a **$2.2 million** increase in payroll-related expenses from higher headcount for commercialization and a **$733 thousand** increase in selling expenses for the VYJUVEK launch[161](index=161&type=chunk) Comparison of Nine Months Ended September 30, 2023 and 2022 | (In thousands) | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Product revenues, net | $8,556 | $— | $8,556 | | Research and development | $35,061 | $31,720 | $3,341 | | Selling, general, and administrative | $73,637 | $53,705 | $19,932 | | Litigation settlement | $12,500 | $25,000 | ($12,500) | | Net income (loss) | $2,240 | ($109,523) | $111,763 | [Liquidity and Capital Resources](index=33&type=section&id=Liquidity%20and%20Capital%20Resources) - As of September 30, 2023, the company had approximately **$562.1 million** in cash, cash equivalents, and short-term investments[177](index=177&type=chunk) - Management believes that current cash, cash equivalents, and short-term investments will be sufficient to fund operations for at least 12 months from the filing date of the report[177](index=177&type=chunk) Sources and Uses of Cash for the Nine Months Ended September 30 | (In thousands) | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | ($81,572) | ($78,240) | | Net cash provided by (used in) investing activities | $92,798 | ($108,875) | | Net cash provided by financing activities | $200,131 | $32,278 | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=36&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate fluctuations on its **$562.1 million** cash and investment portfolio, with a strategy focused on principal preservation and minimal material impact from a 10% rate change - The company's market risk is primarily related to interest rate fluctuations on its **$562.1 million** portfolio of cash, cash equivalents, and short-term investments[193](index=193&type=chunk) - The company's investment policy aims to preserve principal and minimize risk by investing in a variety of securities like money market funds, government debt, and commercial paper. A hypothetical 10% change in interest rates is not expected to have a material impact[193](index=193&type=chunk) [Item 4. Controls and Procedures](index=36&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and Chief Accounting Officer, concluded that disclosure controls were effective as of September 30, 2023, with new procedures implemented for VYJUVEK's commercial launch - The Chief Executive Officer and Chief Accounting Officer concluded that the company's disclosure controls and procedures were effective as of the end of the period[195](index=195&type=chunk) - During Q3 2023, new procedures and controls were implemented for revenue recognition, accounts receivable, and cost of goods sold to coincide with the commercial launch of VYJUVEK[196](index=196&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=37&type=section&id=Item%201.%20Legal%20Proceedings) The company's legal proceedings primarily involve a settlement with PeriphaGen, including a **$12.5 million** payment in June 2023 and future contingent milestone payments tied to VYJUVEK sales - The company refers to Note 7 for details on legal proceedings, which outlines the settlement with PeriphaGen, Inc[199](index=199&type=chunk)[75](index=75&type=chunk) - Under the settlement, a **$12.5 million** payment was made in June 2023. Three additional **$12.5 million** payments are contingent upon reaching cumulative sales milestones of **$100 million**, **$200 million**, and **$300 million**[75](index=75&type=chunk) [Item 1A. Risk Factors](index=37&type=section&id=Item%201A.%20Risk%20Factors) This section outlines material changes to risk factors following VYJUVEK's FDA approval, emphasizing dependence on its commercial success, limited commercial experience, manufacturing complexities, and intellectual property challenges - The company's near-term prospects and future growth are substantially dependent on the commercial success of its only FDA-approved product, VYJUVEK[210](index=210&type=chunk) - The company has limited experience as a commercial entity, and the sales, marketing, and distribution of VYJUVEK may be unsuccessful or less successful than anticipated[212](index=212&type=chunk) - Manufacturing of biologics is complex and novel. Delays in regulatory approval of facilities, process disruptions, or contamination could delay product development and commercialization[237](index=237&type=chunk)[238](index=238&type=chunk)[242](index=242&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=50&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) There were no unregistered sales of equity securities during the reporting period - None[268](index=268&type=chunk) [Item 5. Other Information](index=50&type=section&id=Item%205.%20Other%20Information) The company disclosed that on August 29, 2023, its Chief Accounting Officer, Kathryn Romano, adopted a Rule 10b5-1 trading arrangement for the potential sale of up to 25,000 shares of common stock - On August 29, 2023, the Chief Accounting Officer adopted a Rule 10b5-1 trading plan for the sale of up to **25,000 shares** of common stock, effective until June 28, 2024[271](index=271&type=chunk) [Item 6. Exhibits](index=51&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including certifications by the Chief Executive Officer and Chief Accounting Officer as required by the Sarbanes-Oxley Act of 2002, and the Inline XBRL financial data - The report includes required certifications under Sections 302 and 906 of the Sarbanes-Oxley Act and financial data formatted in Inline XBRL[272](index=272&type=chunk)

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents Krystal Biotech, Inc.'s unaudited condensed consolidated financial statements, including balance sheets, statements of operations and comprehensive loss, statements of stockholders' equity, and statements of cash flows, along with detailed notes explaining the company's organization, significant accounting policies, financial instrument fair values, balance sheet components, commitments, leases, capitalization activities, stock-based compensation, and subsequent events for the periods ended June 30, 2023 and December 31, 2022 [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) **Condensed Consolidated Balance Sheets (In thousands)** | Item | June 30, 2023 (thousands) | December 31, 2022 (thousands) | | :-------------------------------- | :------------ | :---------------- | | Cash and cash equivalents | $275,875 | $161,900 | | Short-term investments | $201,642 | $217,271 | | Total current assets | $484,004 | $383,779 | | Total assets | $684,026 | $558,450 | | Total current liabilities | $23,898 | $28,847 | | Total liabilities | $30,912 | $36,219 | | Additional paid-in capital | $1,012,616 | $803,718 | | Accumulated deficit | $(359,266) | $(280,759) | | Total stockholders' equity | $653,114 | $522,231 | [Condensed Consolidated Statements of Operations and Comprehensive Loss](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) **Condensed Consolidated Statements of Operations and Comprehensive Loss (In thousands, except per share data)** | Item | Three Months Ended June 30, 2023 (thousands) | Three Months Ended June 30, 2022 (thousands) | Six Months Ended June 30, 2023 (thousands) | Six Months Ended June 30, 2022 (thousands) | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Research and development | $12,144 | $10,890 | $24,432 | $20,204 | | General and administrative | $25,904 | $17,863 | $49,939 | $33,771 | | Litigation settlement | $0 | $0 | $12,500 | $25,000 | | Total operating expenses | $38,048 | $28,753 | $86,871 | $78,975 | | Loss from operations | $(38,048) | $(28,753) | $(86,871) | $(78,975) | | Interest and other income, net | $4,838 | $645 | $8,364 | $902 | | Net loss | $(33,210) | $(28,108) | $(78,507) | $(78,073) | | Basic and diluted net loss per common share | $(1.25) | $(1.10) | $(3.00) | $(3.08) | | Weighted-average common shares outstanding | 26,656,883 | 25,545,167 | 26,187,161 | 25,331,000 | [Condensed Consolidated Statements of Stockholders' Equity](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) **Changes in Stockholders' Equity (In thousands, except shares)** | Item | Balances at Jan 1, 2023 (thousands) | Balances at Mar 31, 2023 (thousands) | Balances at June 30, 2023 (thousands) | | :-------------------------------- | :---------------------- | :----------------------- | :------------------------ | | Common Stock (Shares) | 25,763,743 | 25,796,213 | 27,974,916 | | Additional Paid-in Capital | $803,718 | $815,776 | $1,012,616 | | Accumulated Deficit | $(280,759) | $(326,056) | $(359,266) | | Total Stockholders' Equity | $522,231 | $489,566 | $653,114 | **Key Changes (Jan 1, 2023 - June 30, 2023)** * Issuance of common stock, net: **$187,605 thousand** (42,021 + 2,178,703 shares) * Stock-based compensation expense: **$22,042 thousand** ($10,599 + $11,443) * Net loss: **$(78,507 thousand)** ($(45,297) + $(33,210)) [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) **Condensed Consolidated Statements of Cash Flows (Six Months Ended June 30, In thousands)** | Activity | 2023 (thousands) | 2022 (thousands) | | :-------------------------------- | :------- | :------- | | Net cash used in operating activities | $(60,346) | $(58,552) | | Net cash used in investing activities | $(12,394) | $(94,132) | | Net cash provided by financing activities | $186,743 | $30,158 | | Net increase (decrease) in cash and cash equivalents | $113,975 | $(122,526) | | Cash and cash equivalents at end of period | $275,875 | $218,720 | [Notes to Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) [1. Organization](index=7&type=section&id=1.%20Organization) * Krystal Biotech, Inc. is a commercial-stage biotechnology company focused on genetic medicines, leveraging an engineered Herpes Simplex Virus-1 (HSV-1) vector platform[21](index=21&type=chunk) * On May 19, 2023, the Company received FDA approval for VYJUVEK™ for the treatment of Dystrophic Epidermolysis Bullosa (DEB) in patients six months or older, and expects to begin generating revenue from product sales in Q3 2023[22](index=22&type=chunk) * As of June 30, 2023, the Company had an accumulated deficit of **$359.3 million** but believes its cash, cash equivalents, and short-term investments of approximately **$477.5 million** are sufficient to fund planned operations for at least the next 12 months[23](index=23&type=chunk)[24](index=24&type=chunk) [2. Summary of Significant Accounting Policies](index=7&type=section&id=2.%20Summary%20of%20Significant%20Accounting%20Policies) * The Company began capitalizing inventory costs for commercialized products (raw materials, work-in-process) after FDA approval of VYJUVEK in May 2023, whereas prior costs were expensed to R&D[39](index=39&type=chunk) * Fair value measurements for available-for-sale securities (commercial paper, corporate bonds, U.S. government agency securities) are classified as Level 2, using observable market data[38](index=38&type=chunk) [3. Net Loss Per Share Attributable to Common Stockholders](index=11&type=section&id=3.%20Net%20Loss%20Per%20Share%20Attributable%20to%20Common%20Stockholders) **Net Loss Per Common Share (In thousands, except share and per share data)** | Item | Three Months Ended June 30, 2023 (thousands) | Three Months Ended June 30, 2022 (thousands) | Six Months Ended June 30, 2023 (thousands) | Six Months Ended June 30, 2022 (thousands) | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss | $(33,210) | $(28,108) | $(78,507) | $(78,073) | | Weighted-average basic and diluted common shares | 26,656,883 | 25,545,167 | 26,187,161 | 25,331,000 | | Basic and diluted net loss per common share | $(1.25) | $(1.10) | $(3.00) | $(3.08) | * Common share equivalents (stock options and unvested restricted stock awards) were excluded from diluted EPS calculation as their effect would be anti-dilutive for all periods presented[56](index=56&type=chunk) [4. Fair Value Instruments](index=12&type=section&id=4.%20Fair%20Value%20Instruments) **Fair Value of Financial Instruments (In thousands)** | Category | June 30, 2023 Fair Value (thousands) | December 31, 2022 Fair Value (thousands) | | :-------------------------------- | :----------------------- | :------------------------- | | **Level 1:** | | | | Cash and cash equivalents | $275,875 | $161,900 | | **Level 2:** | | | | Commercial paper | $62,086 | $63,606 | | Corporate bonds | $58,805 | $81,835 | | U.S. government agency securities | $109,161 | $76,451 | | **Total** | **$505,927** | **$383,792** | **Maturity Breakdown (June 30, 2023)** * Short-term marketable securities (≤ 1 year): **$201,642 thousand** * Long-term marketable securities (1-2 years): **$28,410 thousand** [5. Balance Sheet Components](index=13&type=section&id=5.%20Balance%20Sheet%20Components) **Property and Equipment, Net (In thousands)** | Item | June 30, 2023 (thousands) | December 31, 2022 (thousands) | | :-------------------------------- | :------------ | :---------------- | | Construction in progress | $97,759 | $131,331 | | Building and building improvements | $33,984 | $0 | | Leasehold improvements | $24,597 | $24,217 | | Manufacturing equipment | $12,323 | $9,783 | | Total property and equipment | $172,881 | $168,477 | | Accumulated depreciation | $(9,144) | $(6,793) | | Property and equipment, net | $163,737 | $161,684 | **Depreciation Expense (In thousands)** * Three months ended June 30, 2023: **$1,200 thousand** * Six months ended June 30, 2023: **$2,300 thousand** * Three months ended June 30, 2022: **$494 thousand** * Six months ended June 30, 2022: **$956 thousand** * The Company received a permanent occupancy permit for its second CGMP facility, ASTRA, on March 27, 2023, leading to reclassification of certain assets from construction in progress to in-service categories[61](index=61&type=chunk) **Accrued Expenses and Other Current Liabilities (In thousands)** | Item | June 30, 2023 (thousands) | December 31, 2022 (thousands) | | :-------------------------------- | :------------ | :---------------- | | Accrued construction in progress | $7,518 | $11,452 | | Accrued payroll and benefits | $4,428 | $6,781 | | Accrued professional fees | $3,721 | $3,397 | | Total | $17,923 | $23,305 | [6. Commitments and Contingencies](index=13&type=section&id=6.%20Commitments%20and%20Contingencies) * The Company has an estimated remaining commitment of approximately **$3.0 million** under agreements with CROs and CMOs as of June 30, 2023[64](index=64&type=chunk) * The estimated remaining commitment for the ASTRA facility build-out is **$10.6 million** as of June 30, 2023, with validation expected to be completed in 2023[65](index=65&type=chunk) * The Company paid an additional **$12.5 million** to PeriphaGen on June 15, 2023, following FDA approval of VYJUVEK, as part of a settlement agreement[67](index=67&type=chunk) * Three additional **$12.5 million** contingent milestone payments are due upon reaching cumulative sales thresholds of **$100 million**, **$200 million**, and **$300 million**, totaling **$75.0 million** if all milestones are achieved[68](index=68&type=chunk) [7. Leases](index=14&type=section&id=7.%20Leases) **Future Minimum Operating Lease Commitments (In thousands)** | Year | Operating Leases (thousands) | | :-------------------------------- | :--------------- | | 2023 (remaining six months) | $828 | | 2024 | $1,539 | | 2025 | $1,277 | | 2026 | $1,277 | | 2027 | $1,300 | | Thereafter | $10,763 | | **Total Future Minimum Operating Lease Payments** | **$16,984** | | Less: Interest | $(8,441) | | **Present Value of Lease Liability** | **$8,543** | **Lease Expense (In thousands)** | Item | Three Months Ended June 30, 2023 (thousands) | Three Months Ended June 30, 2022 (thousands) | Six Months Ended June 30, 2023 (thousands) | Six Months Ended June 30, 2022 (thousands) | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Operating lease expense | $440 | $391 | $902 | $800 | | Variable lease expense | $29 | $71 | $88 | $120 | | **Total lease expense** | **$469** | **$462** | **$990** | **$920** | [8. Capitalization](index=15&type=section&id=8.%20Capitalization) * The Company's 2020 ATM Program expired on May 4, 2023, and a new ATM Program was established on May 8, 2023, allowing for the issuance and sale of up to **$150.0 million** in common stock[73](index=73&type=chunk) * In May 2023, the Company completed a private placement offering, selling **1,729,729 shares** of common stock at **$92.50 per share** for aggregate net proceeds of **$160.0 million**[75](index=75&type=chunk)[124](index=124&type=chunk) [9. Stock-Based Compensation](index=16&type=section&id=9.%20Stock-Based%20Compensation) **Stock-Based Compensation Expense (In thousands)** | Item | Three Months Ended June 30, 2023 (thousands) | Three Months Ended June 30, 2022 (thousands) | Six Months Ended June 30, 2023 (thousands) | Six Months Ended June 30, 2022 (thousands) | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Research and development | $2,472 | $1,995 | $4,825 | $3,363 | | General and administrative | $6,978 | $5,776 | $14,086 | $10,357 | | **Total stock-based compensation** | **$9,450** | **$7,771** | **$18,911** | **$13,720** | * The weighted-average grant-date fair value per share of options granted increased significantly from **$43.03** (6M 2022) to **$61.06** (6M 2023)[80](index=80&type=chunk) * Unrecognized stock-based compensation expense for option awards was **$98.2 million** (weighted-average period of 2.6 years) and for RSU awards was **$13.0 million** (weighted-average period of 3.7 years) as of June 30, 2023[81](index=81&type=chunk)[88](index=88&type=chunk) * Following FDA approval of VYJUVEK, the Company began capitalizing **$112 thousand** in stock-based compensation related to manufacturing labor costs in Q2 2023[94](index=94&type=chunk) [10. Subsequent Events](index=19&type=section&id=10.%20Subsequent%20Events) * Andrew Orth, the Company's Chief Commercial Officer, resigned, with his last day being August 2, 2023[97](index=97&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=20&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on Krystal Biotech, Inc.'s financial condition and results of operations for the three and six months ended June 30, 2023 and 2022, covering business overview, product and pipeline developments, financial performance drivers, and liquidity and capital resources, emphasizing VYJUVEK's FDA approval and R&D investments [SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS](index=20&type=section&id=SPECIAL%20NOTE%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) * The report contains forward-looking statements subject to known and unknown risks and uncertainties that may cause actual results to differ materially from expectations[100](index=100&type=chunk) * Key risk factors include the timing and results of R&D activities, regulatory approvals, market opportunity for VYJUVEK, ability to raise capital, and costs associated with commercialization and intellectual property[101](index=101&type=chunk) [Overview](index=21&type=section&id=Overview) * Krystal Biotech is a commercial-stage biotechnology company focused on genetic medicines, utilizing an engineered Herpes Simplex Virus-1 (HSV-1) vector platform for non-invasive or minimally invasive administration[105](index=105&type=chunk) * The company's technology platform is supported by two in-house, commercial-scale Current Good Manufacturing Practices (CGMP) manufacturing facilities[105](index=105&type=chunk) [Our US FDA Approved Product (VYJUVEK)](index=22&type=section&id=Our%20US%20FDA%20Approved%20Product%20(VYJUVEK)) * On May 19, 2023, the FDA approved VYJUVEK, the first re-dosable gene therapy for treating Dystrophic Epidermolysis Bullosa (DEB) in patients six months or older[108](index=108&type=chunk) * Commercialization in the US began immediately post-approval, with **121 Patient Start Forms** received by June 30, 2023, including **30** for dominant DEB patients[109](index=109&type=chunk) * The Company received a positive opinion from the EMA Pediatric Committee for B-VEC in July 2023 and plans to submit a market authorization application to the EMA in H2 2023, anticipating a potential EU launch in H2 2024[109](index=109&type=chunk) [Pipeline Highlights and Recent Developments](index=22&type=section&id=Pipeline%20Highlights%20and%20Recent%20Developments) [Respiratory](index=22&type=section&id=Respiratory) * KB407 (Cystic Fibrosis): Dosed the first patient in a Phase 1 clinical trial (CORAL-1/US) in July 2023, with data anticipated in 2024; the Australian study (CORAL-AU) was terminated to focus on the US trial[112](index=112&type=chunk) * KB408 (Alpha-1 Antitrypsin Deficiency): Planning to file an Investigational New Drug (IND) application in the second half of 2023[113](index=113&type=chunk) [Oncology](index=22&type=section&id=Oncology) * KB707: Expanded R&D pipeline to oncology; FDA accepted IND application for intratumoral injection in solid tumor malignancies and granted fast track designation for anti-PD-1 relapsed/refractory melanoma; first patient expected to be dosed in H2 2023[115](index=115&type=chunk)[116](index=116&type=chunk) * KB707 (Inhaled): Plans to file an IND amendment in H2 2023 to evaluate inhaled KB707 for lung tumors, with the first patient expected to be dosed in H1 2024[117](index=117&type=chunk) [Dermatology](index=23&type=section&id=Dermatology) * KB105 (TGM1-ARCI): Plans to commence Phase 2 study in pediatric patients in 2024, pending alignment with FDA on clinical endpoints[119](index=119&type=chunk) * KB104 (Netherton Syndrome): Anticipates filing an IND application and initiating a clinical trial in late 2024[120](index=120&type=chunk) [Aesthetics](index=23&type=section&id=Aesthetics) * KB301: Treated the first subject in the Phase 1, Cohort 3 study for improvement of lateral canthal lines in April 2023, with results expected in H2 2023; a Phase 2 study is planned following this[122](index=122&type=chunk) [Business Highlights and Recent Developments](index=23&type=section&id=Business%20Highlights%20and%20Recent%20Developments) * In May 2023, the Company completed a private placement (PIPE) of **1,729,729 shares** of common stock at **$92.50 per share**, generating **$160.0 million** in net proceeds[124](index=124&type=chunk) [COVID-19 Update](index=23&type=section&id=COVID-19%20Update) * The COVID-19 pandemic has had minimal impact on US business and clinical trials, but caused delays in clinical trial initiation in Australia[125](index=125&type=chunk) [Financial Overview](index=24&type=section&id=Financial%20Overview) [Revenue](index=24&type=section&id=Revenue) * The Company expects to begin generating revenue from VYJUVEK product sales in Q3 2023, following FDA approval on May 19, 2023[127](index=127&type=chunk) [Cost of Goods Sold](index=24&type=section&id=Cost%20of%20Goods%20Sold) * A majority of VYJUVEK inventory costs manufactured for commercial launch were previously expensed as R&D, which is anticipated to favorably impact the Company's gross margin in Q3 2023[128](index=128&type=chunk) [Research and Development Expenses](index=24&type=section&id=Research%20and%20Development%20Expenses) * R&D expenses are expected to increase due to continued manufacturing of preclinical/clinical materials, management of clinical trials, regulatory approvals, and expansion of the product portfolio[130](index=130&type=chunk) [General and Administrative Expenses](index=24&type=section&id=General%20and%20Administrative%20Expenses) * G&A expenses are anticipated to increase to support continued R&D, commercial, and operational goals, including higher costs for insurance, personnel, and professional services[132](index=132&type=chunk) [ASTRA Capital Expenditures](index=24&type=section&id=ASTRA%20Capital%20Expenditures) * The Company is completing the interior build-out of its second CGMP facility, ASTRA, with portions placed into service in Q2 2023 after receiving a permanent occupancy permit; validation is expected to be completed in 2023[134](index=134&type=chunk) [Interest and Other Income](index=25&type=section&id=Interest%20and%20Other%20Income) * Interest and other income primarily consists of income earned from cash, cash equivalents, and investments[135](index=135&type=chunk) [Critical Accounting Policies, and Significant Judgments and Estimates](index=25&type=section&id=Critical%20Accounting%20Policies,%20and%20Significant%20Judgments%20and%20Estimates) * There have been no significant changes to critical accounting policies, significant judgments, and estimates during the three and six months ended June 30, 2023[136](index=136&type=chunk) [Results of Operations](index=26&type=section&id=Results%20of%20Operations) [Three Months Ended June 30, 2023 and 2022](index=26&type=section&id=Three%20Months%20Ended%20June%2030,%202023%20and%202022) **Results of Operations (Three Months Ended June 30, In thousands)** | Item | 2023 (thousands) | 2022 (thousands) | Change (thousands) | | :-------------------------------- | :------- | :------- | :------- | | Research and development | $12,144 | $10,890 | $1,254 | | General and administrative | $25,904 | $17,863 | $8,041 | | Total operating expenses | $38,048 | $28,753 | $9,295 | | Loss from operations | $(38,048) | $(28,753) | $(9,295) | | Interest and other income, net | $4,838 | $645 | $4,193 | | Net loss | $(33,210) | $(28,108) | $(5,102) | [Research and Development Expenses (Three Months)](index=26&type=section&id=Research%20and%20Development%20Expenses_3M) * R&D expenses increased by **$1.3 million** (11.5%) for the three months ended June 30, 2023, compared to the same period in 2022[139](index=139&type=chunk) * The increase was primarily driven by higher payroll-related expenses (**$2.3 million**, including **$868 thousand** in stock-based compensation), increased depreciation (**$644 thousand**), and other R&D expenses (**$188 thousand**), partially offset by decreased preclinical, clinical, and pre-commercial manufacturing expenses (**$1.8 million**) due to VYJUVEK inventory capitalization[139](index=139&type=chunk)[144](index=144&type=chunk) **R&D Expense by Program (Three Months Ended June 30, In thousands)** | Program | 2023 (thousands) | 2022 (thousands) | Change (thousands) | | :-------------------------------- | :------- | :------- | :------- | | VYJUVEK | $2,130 | $1,730 | $400 | | KB707 | $943 | $0 | $943 | | Stock-based compensation | $2,863 | $1,995 | $868 | | Other unallocated manufacturing expenses | $3,536 | $4,369 | $(833) | | Other unallocated expenses | $1,502 | $977 | $525 | [General and Administrative Expenses (Three Months)](index=27&type=section&id=General%20and%20Administrative%20Expenses_3M) * G&A expenses increased by **$8.0 million** (45.0%) for the three months ended June 30, 2023, compared to the same period in 2022[145](index=145&type=chunk) * This increase was mainly due to higher payroll-related expenses (**$5.9 million**, including **$2.3 million** in stock-based compensation) driven by headcount growth for commercialization, increased legal/professional costs (**$525 thousand**), IT infrastructure (**$643 thousand**), software (**$411 thousand**), marketing (**$404 thousand**), and travel (**$274 thousand**)[145](index=145&type=chunk) [Interest and Other Income (Three Months)](index=27&type=section&id=Interest%20and%20Other%20Income_3M) * Interest and other income increased significantly to **$4.8 million** for the three months ended June 30, 2023, from **$645 thousand** in the prior year, driven by increased investment activity and more favorable interest rates[146](index=146&type=chunk) [Six Months Ended June 30, 2023 and 2022](index=28&type=section&id=Six%20Months%20Ended%20June%2030,%202023%20and%202022) **Results of Operations (Six Months Ended June 30, In thousands)** | Item | 2023 (thousands) | 2022 (thousands) | Change (thousands) | | :-------------------------------- | :------- | :------- | :------- | | Research and development | $24,432 | $20,204 | $4,228 | | General and administrative | $49,939 | $33,771 | $16,168 | | Litigation settlement | $12,500 | $25,000 | $(12,500) | | Total operating expenses | $86,871 | $78,975 | $7,896 | | Loss from operations | $(86,871) | $(78,975) | $(7,896) | | Interest and other income, net | $8,364 | $902 | $7,462 | | Net loss | $(78,507) | $(78,073) | $(434) | [Research and Development Expenses (Six Months)](index=28&type=section&id=Research%20and%20Development%20Expenses_6M) * R&D expenses increased by **$4.2 million** (20.9%) for the six months ended June 30, 2023, compared to the same period in 2022[148](index=148&type=chunk) * The increase was primarily due to higher payroll-related expenses (**$4.7 million**, including **$2.0 million** in stock-based compensation), increased depreciation (**$1.3 million**), and other R&D expenses (**$1.1 million**), partially offset by decreased preclinical, clinical, and pre-commercial manufacturing expenses (**$2.9 million**) due to VYJUVEK inventory capitalization[148](index=148&type=chunk)[151](index=151&type=chunk) **R&D Expense by Program (Six Months Ended June 30, In thousands)** | Program | 2023 (thousands) | 2022 (thousands) | Change (thousands) | | :-------------------------------- | :------- | :------- | :------- | | VYJUVEK | $4,520 | $3,332 | $1,188 | | KB707 | $1,408 | $0 | $1,408 | | Stock-based compensation | $5,359 | $3,363 | $1,996 | | Other unallocated manufacturing expenses | $7,456 | $8,972 | $(1,516) | | Other unallocated expenses | $3,064 | $1,861 | $1,203 | [General and Administrative Expenses (Six Months)](index=29&type=section&id=General%20and%20Administrative%20Expenses_6M) * G&A expenses increased by **$16.2 million** (47.9%) for the six months ended June 30, 2023, compared to the same period in 2022[152](index=152&type=chunk) * This increase was primarily due to higher payroll-related expenses (**$12.9 million**, including **$5.2 million** in stock-based compensation) for commercialization, increased marketing costs (**$1.3 million**), IT infrastructure (**$1.1 million**), software (**$664 thousand**), and travel (**$505 thousand**)[152](index=152&type=chunk) [Litigation Settlement](index=29&type=section&id=Litigation%20Settlement) * Litigation settlement expense decreased to **$12.5 million** for the six months ended June 30, 2023, from **$25.0 million** in the prior year, reflecting the second payment related to the PeriphaGen settlement[153](index=153&type=chunk) [Interest and Other Income (Six Months)](index=29&type=section&id=Interest%20and%20Other%20Income_6M) * Interest and other income increased significantly to **$8.4 million** for the six months ended June 30, 2023, from **$902 thousand** in the prior year, due to increased investment activity and more favorable interest rates[154](index=154&type=chunk) [Liquidity and Capital Resources](index=29&type=section&id=Liquidity%20and%20Capital%20Resources) [Overview](index=29&type=section&id=Overview_Liquidity) * As of June 30, 2023, the Company had **$477.5 million** in cash, cash equivalents, and short-term investments, and an accumulated deficit of **$359.3 million**[155](index=155&type=chunk) * The Company believes its current capital is sufficient to fund operations for at least the next 12 months but will need additional capital to achieve profitability and fund future product development and commercialization[155](index=155&type=chunk)[156](index=156&type=chunk) [Operating Capital Requirements](index=30&type=section&id=Operating%20Capital%20Requirements) * Primary uses of capital include compensation, manufacturing costs, R&D services, pre-commercialization costs, legal/regulatory expenses, and PeriphaGen settlement payments[159](index=159&type=chunk) * Future funding requirements are dependent on factors such as VYJUVEK commercialization costs, clinical trial progress, manufacturing capacity, regulatory approvals, and intellectual property maintenance[161](index=161&type=chunk) [Sources and Uses of Cash](index=31&type=section&id=Sources%20and%20Uses%20of%20Cash) **Sources and Uses of Cash (Six Months Ended June 30, In thousands)** | Activity | 2023 (thousands) | 2022 (thousands) | | :-------------------------------- | :------- | :------- | | Net cash used in operating activities | $(60,346) | $(58,552) | | Net cash used in investing activities | $(12,394) | $(94,132) | | Net cash provided by financing activities | $186,743 | $30,158 | | Net increase (decrease) in cash | $113,975 | $(122,526) | [Operating Activities](index=31&type=section&id=Operating%20Activities) * Net cash used in operating activities was **$60.3 million** for the six months ended June 30, 2023, primarily due to a net loss of **$78.5 million**, partially offset by non-cash adjustments (stock-based compensation, depreciation) and cash used by increases in net working capital[164](index=164&type=chunk) [Investing Activities](index=31&type=section&id=Investing%20Activities) * Net cash provided by investing activities was **$12.4 million** for the six months ended June 30, 2023, mainly from **$315.7 million** in proceeds from investment maturities, offset by **$8.2 million** in property and equipment purchases and **$320.0 million** in new investment purchases[166](index=166&type=chunk) [Financing Activities](index=31&type=section&id=Financing%20Activities) * Net cash provided by financing activities was **$186.7 million** for the six months ended June 30, 2023, primarily from **$160.0 million** in private placement proceeds and **$27.7 million** from stock option exercises[168](index=168&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=33&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section details Krystal Biotech, Inc.'s exposure to market risks, primarily interest rate risk, on its cash, cash equivalents, and short-term investments, noting the company's investment policy aims to preserve principal while maximizing income without significantly increasing risk, and it does not believe a 10% change in interest rates would materially affect its financial position * As of June 30, 2023, the Company held **$477.5 million** in cash, cash equivalents, and short-term investments, primarily in money market funds, bank deposits, commercial paper, corporate bonds, and U.S. government agency securities[171](index=171&type=chunk) * The Company's investment strategy focuses on preserving principal and maximizing income without significant risk, and it does not believe a **10%** immediate change in interest rates would materially affect its financial results[171](index=171&type=chunk) [Item 4. Controls and Procedures](index=33&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of Krystal Biotech, Inc.'s disclosure controls and procedures as of June 30, 2023, following an evaluation by the CEO and Chief Accounting Officer, and notes the implementation of an inventory module within the company's ERP software to enhance internal controls for manufacturing, inventory, and commercial processes * The Chief Executive Officer and Chief Accounting Officer concluded that the Company's disclosure controls and procedures were effective as of June 30, 2023[173](index=173&type=chunk) * During Q2 2023, the Company implemented an inventory module in its ERP software (Microsoft Dynamics D365) to strengthen internal controls by automating accounting and reporting for manufacturing, inventory, and commercial processes[174](index=174&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=34&type=section&id=Item%201.%20Legal%20Proceedings) This section incorporates by reference the details of legal proceedings, specifically the PeriphaGen settlement, as described in Note 6 of the condensed consolidated financial statements * Information on legal proceedings is incorporated by reference from Note 6 of the condensed consolidated financial statements[177](index=177&type=chunk) [Item 1A. Risk Factors](index=34&type=section&id=Item%201A.%20Risk%20Factors) This section outlines significant risks that could materially affect Krystal Biotech, Inc.'s operating results and financial condition, covering risks related to financial position, business operations, manufacturing, commercialization, intellectual property, and stock volatility [Risks Related to Our Financial Position and Need for Additional Capital](index=34&type=section&id=Risks%20Related%20to%20Our%20Financial%20Position%20and%20Need%20for%20Additional%20Capital) * The Company has incurred recurring net losses since inception, with an accumulated deficit of **$359.3 million** as of June 30, 2023, and expects to incur losses for the foreseeable future[179](index=179&type=chunk) * Profitability depends on successful development, regulatory approval, and commercialization of product candidates, particularly VYJUVEK, and achieving sufficient market acceptance[180](index=180&type=chunk)[181](index=181&type=chunk) * Additional funding will be required to expand marketing and distribution for VYJUVEK and obtain approval for other product candidates, which may not be available on acceptable terms or at all, potentially forcing delays or termination of development efforts[183](index=183&type=chunk)[185](index=185&type=chunk) [Risks Related to Our Business](index=36&type=section&id=Risks%20Related%20to%20Our%20Business) * The Company's near-term prospects and future growth are substantially dependent on the commercial success of VYJUVEK, despite its FDA approval[188](index=188&type=chunk) * The Company has limited prior experience commercializing a drug, and the success of VYJUVEK's commercial launch is difficult to predict and subject to effective execution of its business plan[190](index=190&type=chunk) * Undesirable side effects or other properties of products could delay or prevent regulatory approval, limit commercial potential, or result in significant negative consequences post-approval, including product recalls or reputational damage[193](index=193&type=chunk)[195](index=195&type=chunk)[196](index=196&type=chunk) * Approved products remain subject to ongoing regulatory oversight, and non-compliance or changes in regulations could lead to sanctions, including withdrawal of approval[197](index=197&type=chunk)[199](index=199&type=chunk) [Risks Related to Manufacturing](index=41&type=section&id=Risks%20Related%20to%20Manufacturing) * Delays in obtaining regulatory approvals for manufacturing processes and facilities, or disruptions in the complex and novel manufacturing process, could delay product development and commercialization[215](index=215&type=chunk)[216](index=216&type=chunk) * Reliance on third-party manufacturers for components (e.g., sterile gel for VYJUVEK) introduces risks of unsatisfactory performance, contractual disagreements, or non-compliance with regulatory requirements[217](index=217&type=chunk)[218](index=218&type=chunk) * Contamination in the manufacturing process, shortages of raw materials (especially biologic sources), or failure of key suppliers could lead to delays in clinical development or marketing schedules[219](index=219&type=chunk)[220](index=220&type=chunk) [Risks Related to Commercialization of Our Product or Product Candidates](index=42&type=section&id=Risks%20Related%20to%20Commercialization%20of%20Our%20Product%20or%20Product%20Candidates) * Inability to expand market development capabilities or secure third-party collaborations for marketing and sales could hinder product revenue generation[221](index=221&type=chunk) * Market opportunities for VYJUVEK and other product candidates may be smaller than expected due to inaccurate patient population estimates, limited reimbursement, or patient amenability to treatment[223](index=223&type=chunk)[224](index=224&type=chunk) * Ethical, legal, and social issues related to genetic testing could reduce demand for products, potentially leading to governmental restrictions or additional regulation[225](index=225&type=chunk)[226](index=226&type=chunk) * Failure to obtain and maintain regulatory approval outside the United States would limit market opportunities and adversely affect the business[227](index=227&type=chunk)[228](index=228&type=chunk) [Risks Related to Our Business Operations](index=43&type=section&id=Risks%20Related%20to%20Our%20Business%20Operations) * Significant growth in employees and infrastructure may lead to difficulties in managing operations, requiring robust business processes and talent retention[229](index=229&type=chunk) * The Company is subject to federal and state healthcare fraud and abuse laws, false claims laws, and health information privacy and security laws, with potential for substantial penalties for non-compliance[230](index=230&type=chunk)[231](index=231&type=chunk) [Risks Related to Our Intellectual Property](index=45&type=section&id=Risks%20Related%20to%20Our%20Intellectual%20Property) * Inability to obtain and maintain adequate U.S. and foreign patent protection for products and the vector platform, or insufficient patent scope, could allow competitors to develop similar products[235](index=235&type=chunk)[237](index=237&type=chunk) * Protecting intellectual property rights globally is expensive and challenging, as foreign laws may offer less protection, and enforcement in some countries can be difficult[239](index=239&type=chunk)[241](index=241&type=chunk) * Third parties may initiate legal proceedings alleging infringement of their intellectual property rights, leading to uncertain outcomes, substantial liabilities, or limitations on commercialization[242](index=242&type=chunk)[244](index=244&type=chunk) [Risks Related to Ownership of Our Common Stock](index=46&type=section&id=Risks%20Related%20to%20Ownership%20of%20Our%20Common%20Stock) * The price of the Company's common stock may be volatile due to factors such as clinical trial results, regulatory approvals, competitive products, intellectual property disputes, and general market conditions[245](index=245&type=chunk)[246](index=246&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=47&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section states that there were no unregistered sales of equity securities or use of proceeds to report for the period * No unregistered sales of equity securities or use of proceeds to report[246](index=246&type=chunk) [Item 3. Defaults Upon Senior Securities](index=47&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section states that there were no defaults upon senior securities to report for the period * No defaults upon senior securities to report[247](index=247&type=chunk) [Item 4. Mine Safety Disclosures](index=47&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section states that mine safety disclosures are not applicable to the company * Mine safety disclosures are not applicable[248](index=248&type=chunk) [Item 5. Other Information](index=47&type=section&id=Item%205.%20Other%20Information) This section reports the resignation of Andrew Orth, the Chief Commercial Officer, effective August 2, 2023, and discloses that the CEO and President, R&D, adopted Rule 10b5-1 trading arrangements on June 12, 2023, for the sale of up to 100,000 shares each until September 11, 2024 * Andrew Orth, Chief Commercial Officer, resigned, with his last day being August 2, 2023[249](index=249&type=chunk) * CEO Krish Krishnan and President, R&D Suma Krishnan adopted Rule 10b5-1 trading arrangements on June 12, 2023, to sell up to **100,000 shares** each until September 11, 2024[250](index=250&type=chunk)[251](index=251&type=chunk) [Item 6. Exhibits](index=48&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including the Securities Purchase Agreement, Registration Rights Agreement, various certifications (Sarbanes-Oxley Act), and Inline XBRL data * Exhibits include the Securities Purchase Agreement (10.1), Registration Rights Agreement (10.2), CEO and Chief Accounting Officer certifications (31.1, 31.2, 32.1), and Inline XBRL data (101, 104)[252](index=252&type=chunk) SIGNATURES [Signatures](index=49&type=section&id=SIGNATURES_Details) This section contains the official signatures of Krystal Biotech, Inc.'s authorized officers, Krish S. Krishnan (President and Chief Executive Officer) and Kathryn A. Romano (Chief Accounting Officer), certifying the filing of this Quarterly Report on Form 10-Q * The report is signed by Krish S. Krishnan, President and Chief Executive Officer, and Kathryn A. Romano, Chief Accounting Officer, on August 7, 2023[255](index=255&type=chunk)