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)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _____________________________________________________ FORM 10-Q _____________________________________________________ (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 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 Commission file number: 001-38210 _____________ ...

Krystal | 2 © Copyright 2023 Krystal Biotech, Inc. All rights reserved. Developing Genetic Medicines for Rare Diseases F e b r u a r y 2 0 2 3 © Copyright 2023 Krystal Biotech, Inc. All rights reserved. Forward Looking Statements This presentation contains forward-looking statements that involve substantial risks and uncertainties. Any statements in this presentation about future expectations, plans and prospects for Krystal Biotech, Inc. (the "Company"), including but not limited to statements about the Co ...

PART I [Business](index=7&type=section&id=Item%201.%20Business) Krystal Biotech is a biotechnology company developing genetic medicines for rare diseases using its proprietary redosable HSV-1 gene therapy platform [Overview and Redosable Gene Therapy Platform](index=7&type=section&id=Overview%20and%20Redosable%20Gene%20Therapy%20Platform) The company's platform uses an engineered Herpes Simplex Virus 1 (HSV-1) for repeatable, non-integrating gene delivery with a large payload capacity - The company's gene therapy platform is based on an engineered HSV-1 virus, designed for **repeat administration** and efficient delivery of large genetic payloads to target cells without integrating into the host genome[19](index=19&type=chunk)[20](index=20&type=chunk) - Key platform advantages include: Repeat Administration, Non-Integrating Nature, **High Payload Capacity (>35Kb)**, High Transduction Efficiency, Direct Delivery, Stability, and Scalable Manufacturing[20](index=20&type=chunk)[22](index=22&type=chunk) [Our Product Candidates](index=9&type=section&id=Our%20Product%20Candidates) The company's pipeline includes lead candidate B-VEC for DEB, alongside clinical and preclinical programs in dermatology, respiratory, and aesthetics Product Candidate Pipeline Overview | Product | Protein | Indication | Stage | | :--- | :--- | :--- | :--- | | **B-VEC** | Type VII collagen | Dystrophic Epidermolysis Bullosa (DEB) | BLA/MAA Submitted | | **KB105** | Transglutaminase-1 | TGM1-deficient ARCI | Phase 1/2 | | **KB104** | SPINK5/LEKTI | Netherton Syndrome | Preclinical (IND planned 2023) | | **KB407** | CFTR | Cystic Fibrosis | Phase 1 | | **KB408** | SERPINA1 | Alpha-1 Antitrypsin Deficiency (AATD) | Preclinical (IND planned 2023) | | **KB301** | Type III collagen | Aesthetic Skin Conditions | Phase 1 Complete (Phase 2 planned 2023) | - **B-VEC for DEB**: A Biologics License Application (BLA) was submitted to the FDA and accepted with Priority Review, with a revised **PDUFA date of May 19, 2023**[32](index=32&type=chunk)[33](index=33&type=chunk) - **KB407 for Cystic Fibrosis**: The company received approval to conduct a Phase 1 trial in Australia and the FDA accepted its IND application in the U.S, with trials planned for the **first half of 2023**[54](index=54&type=chunk)[55](index=55&type=chunk) - **KB301 for Aesthetics**: Positive proof-of-concept data from the Phase 1 PEARL-1 study showed a **nine-month durability of effect**, with a Phase 2 study planned for 2023[66](index=66&type=chunk)[68](index=68&type=chunk) [Manufacturing](index=15&type=section&id=Manufacturing) The company operates in-house CGMP manufacturing facilities, ANCORIS and ASTRA, to control its supply chain for clinical and commercial production - The first commercial-scale CGMP facility, **ANCORIS**, successfully completed an FDA audit as part of the B-VEC BLA review[71](index=71&type=chunk) - A second facility, **ASTRA**, is expected to be completed and validated in 2023, adding significant capacity and integrating the entire supply chain[72](index=72&type=chunk) - The proprietary manufacturing process is highly reproducible and scalable, utilizing a Master Virus Seed Stock (MVSS) and a complementing Master Cell Bank (MCB)[74](index=74&type=chunk)[75](index=75&type=chunk) [Competition](index=16&type=section&id=Competition) The company faces competition from other gene therapy developers and palliative treatments for its target indications like DEB and Cystic Fibrosis - Competitors in DEB are categorized into corrective approaches (Abeona, Castle Creek Pharmaceuticals) and palliative treatments (Amryt Pharmaceuticals, Castle Creek Pharmaceuticals)[82](index=82&type=chunk) - In Cystic Fibrosis, the company is aware of several preclinical or early clinical stage nucleic-acid-based programs from competitors like TranslateBio and 4D Molecular Therapeutics[81](index=81&type=chunk) [Intellectual Property](index=17&type=section&id=Intellectual%20Property) The company's success depends on its intellectual property portfolio, including patents covering its core platform and product candidates through 2040 Key U.S. Patents | Patent Number | Product/Platform | Patent Type | Expiration Date | | :--- | :--- | :--- | :--- | | U.S. 10,441,614 | STAR-D Platform | Composition & Methods | 12/28/2036 | | U.S. 9,877,990 | B-VEC | Composition & Methods | 12/28/2036 | | U.S. 10,525,090 | KB105 | Composition & Methods | 4/11/2039 | | U.S. 10,786,438 | KB301 | Composition & Methods | 4/26/2039 | | U.S. 10,829,529 | KB407 | Methods of Use | 2/07/2040 | [Government Regulation and Product Approval](index=18&type=section&id=Government%20Regulation%20and%20Product%20Approval) Products are subject to extensive regulation by the FDA and global bodies, with several candidates receiving designations to expedite development - Gene therapy products are regulated by the FDA's Center for Biologics Evaluation and Research (CBER) and require an Investigational New Drug (IND) application before human clinical trials can begin[91](index=91&type=chunk)[92](index=92&type=chunk) - The company has received **Orphan Drug Designation** for B-VEC, KB105, and KB407, providing benefits like market exclusivity for seven years in the U.S. upon approval[111](index=111&type=chunk)[112](index=112&type=chunk) - B-VEC has been granted **Fast Track**, **Regenerative Medicine Advanced Therapy (RMAT)**, and **PRIME** designations, all designed to expedite development and review[110](index=110&type=chunk)[114](index=114&type=chunk)[115](index=115&type=chunk) [Human Capital](index=26&type=section&id=Human%20Capital) As of February 2023, the company employed 210 full-time staff across R&D, manufacturing, and commercial preparation roles - As of February 20, 2023, the company had **210 full-time employees**[133](index=133&type=chunk) [Risk Factors](index=27&type=section&id=Item%201A.%20Risk%20Factors) The company faces risks related to its history of net losses, dependence on B-VEC's success, regulatory hurdles, and manufacturing challenges [Risks Related to Financial Position and Capital Needs](index=27&type=section&id=Risks%20Related%20to%20Our%20Financial%20Position%20and%20Need%20for%20Additional%20Capital) The company has a history of net losses, an accumulated deficit of **$280.8 million**, and may require additional funding for future operations - The company has incurred net losses since inception and had an accumulated deficit of **$280.8 million** as of December 31, 2022[137](index=137&type=chunk) - Future profitability depends on successfully commercializing product candidates, which involves completing clinical trials, obtaining regulatory approval, and achieving market acceptance[138](index=138&type=chunk) - The company may need to raise substantial additional funding, and failure to do so could force delays, limitations, or termination of product development efforts[141](index=141&type=chunk) [Risks Related to Business Operations](index=29&type=section&id=Risks%20Related%20to%20Our%20Business) Near-term prospects depend heavily on B-VEC's approval and commercialization, facing regulatory uncertainty, competition, and market acceptance hurdles - The company's future growth is substantially dependent on the commercial success of its lead product candidate, **B-VEC**, for which the PDUFA target date is May 19, 2023[147](index=147&type=chunk) - B-VEC is based on a novel technology, making it difficult to predict the time and cost of obtaining regulatory approval[158](index=158&type=chunk)[155](index=155&type=chunk) - The company faces significant competition from companies with greater financial and technical resources, who may achieve regulatory approval first or develop more effective therapies[186](index=186&type=chunk) - Commercial success depends on market acceptance by physicians, patients, and third-party payors, as well as obtaining adequate insurance coverage and reimbursement[206](index=206&type=chunk)[211](index=211&type=chunk) [Risks Related to Manufacturing](index=37&type=section&id=Risks%20Related%20to%20Manufacturing) Manufacturing faces risks from potential regulatory delays for facilities, process validation challenges, and supply chain disruptions - Before commercial manufacturing can begin, the company's facilities must pass a **pre-approval inspection by the FDA** and obtain authorization from EU authorities[193](index=193&type=chunk) - The manufacturing process for the product candidates is complex and novel; problems could result in product defects, recalls, or insufficient inventory[194](index=194&type=chunk) - The company is subject to risks of contamination in the manufacturing process and shortages of raw materials, which could delay clinical development[197](index=197&type=chunk)[198](index=198&type=chunk) [Risks Related to Intellectual Property](index=48&type=section&id=Risks%20Related%20to%20Our%20Intellectual%20Property) Success hinges on obtaining and defending robust patent protection, with risks of failed applications, infringement lawsuits, and legal changes - The company's ability to successfully commercialize its products is highly dependent on obtaining and maintaining broad patent protection[260](index=260&type=chunk) - The company may face legal proceedings from third parties alleging infringement of their intellectual property rights, which could be costly and have an adverse effect on the business[265](index=265&type=chunk) - Changes in U.S. patent law and court decisions could diminish the value of patents and impair the company's ability to protect its products[272](index=272&type=chunk)[273](index=273&type=chunk) [Risks Related to Common Stock Ownership](index=52&type=section&id=Risks%20Related%20to%20Ownership%20of%20Our%20Common%20Stock) Stock ownership risks include significant insider voting influence, price volatility, potential dilution, and no anticipated dividend payments - As of December 31, 2022, the CEO and the President of R&D beneficially owned approximately **15% of the company's capital stock**, giving them substantial influence[277](index=277&type=chunk) - The company's common stock price is volatile and subject to fluctuation based on clinical, regulatory, and market developments[282](index=282&type=chunk) - The company has never paid cash dividends and does not intend to in the foreseeable future, making capital appreciation the only potential source of gain[287](index=287&type=chunk) [Unresolved Staff Comments](index=55&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the SEC - None[290](index=290&type=chunk) [Properties](index=55&type=section&id=Item%202.%20Properties) The company leases office and lab space in Pittsburgh and is completing its second owned manufacturing facility, ASTRA - The company leases approximately **54,000 sq. ft.** of lab and office space in Pittsburgh, PA[291](index=291&type=chunk) - The second commercial facility, **ASTRA**, was acquired in March 2021 and is expected to be completed and validated in 2023[293](index=293&type=chunk) [Legal Proceedings](index=55&type=section&id=Item%203.%20Legal%20Proceedings) This section references Note 6 of the financial statements regarding the settlement of a trade secret litigation - Information regarding legal proceedings is incorporated by reference from Note 6 of the Notes to the Consolidated Financial Statements[294](index=294&type=chunk) [Mine Safety Disclosures](index=55&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company's operations - Not applicable[295](index=295&type=chunk) PART II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=56&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on Nasdaq under "KRYS," and the company has never paid dividends and has no plans to do so - Common stock is listed on the Nasdaq Capital Market under the symbol **"KRYS"**[298](index=298&type=chunk) - The company has never declared or paid cash dividends and does not intend to in the foreseeable future[300](index=300&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=58&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) The net loss increased to **$140.0 million** in 2022 due to higher operating expenses, with sufficient cash to fund operations for at least 12 months [Results of Operations](index=63&type=section&id=Results%20of%20Operations) The 2022 net loss grew to **$140.0 million** from **$69.6 million** in 2021, driven by a litigation settlement and increased G&A and R&D expenses Consolidated Statements of Operations (in thousands) | | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Research and development | $42,461 | $27,884 | $17,936 | | General and administrative | $77,735 | $40,391 | $15,063 | | Litigation settlement | $25,000 | $— | $— | | **Total operating expenses** | **$145,196** | **$68,275** | **$32,999** | | Loss from operations | $(145,196) | $(68,275) | $(32,999) | | Interest and other income, net | $5,221 | $(1,295) | $832 | | **Net loss** | **$(139,975)** | **$(69,570)** | **$(32,167)** | - Research and development expenses increased by **$14.6 million** in 2022, primarily due to an **$8.9 million** increase in payroll-related expenses[337](index=337&type=chunk) - General and administrative expenses increased by **$37.3 million** in 2022, driven by a **$28.8 million** increase in payroll and a **$5.7 million** increase in commercial preparedness expenses[339](index=339&type=chunk) - A one-time litigation settlement expense of **$25.0 million** was incurred in 2022 related to the PeriphaGen case[342](index=342&type=chunk) [Liquidity and Capital Resources](index=64&type=section&id=Liquidity%20and%20Capital%20Resources) The company held **$379.2 million** in cash and investments at year-end 2022, which is deemed sufficient for at least the next 12 months - The company's cash, cash equivalents, and short-term investments totaled approximately **$379.2 million** as of December 31, 2022[345](index=345&type=chunk) - Management believes current cash reserves are sufficient to fund operations for **at least 12 months** from the filing date of the Form 10-K[345](index=345&type=chunk) - Future funding requirements are dependent on numerous factors, including the costs of clinical trials, manufacturing, and commercialization activities[350](index=350&type=chunk) [Cash Flows](index=66&type=section&id=Cash%20Flows) Net cash used in operations was **$100.6 million** in 2022, with significant cash also used for investments and facility construction Summary of Cash Flows (in thousands) | | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Net cash used in operating activities | $(100,569) | $(47,938) | $(26,083) | | Net cash used in investing activities | $(114,083) | $(226,770) | $(11,181) | | Net cash provided by financing activities | $35,347 | $347,685 | $118,019 | [Quantitative and Qualitative Disclosures About Market Risk](index=68&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate changes on its **$379.2 million** investment portfolio, with minimal foreign exchange risk - The company's primary market risk is interest rate risk on its **$379.2 million** portfolio of cash, cash equivalents, and short-term investments[368](index=368&type=chunk) - The company does not believe its results would be materially affected by an immediate **10% change** in interest rates or foreign currency exchange rates[368](index=368&type=chunk)[369](index=369&type=chunk) [Financial Statements and Supplementary Data](index=69&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the company's audited consolidated financial statements and related notes for the fiscal year ended December 31, 2022 [Consolidated Balance Sheets](index=72&type=section&id=Consolidated%20Balance%20Sheets) Total assets were **$558.5 million** as of December 31, 2022, with total stockholders' equity at **$522.2 million** Key Balance Sheet Data (in thousands) | | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $161,900 | $341,246 | | Total current assets | $383,779 | $442,267 | | Total assets | $558,450 | $626,295 | | Total liabilities | $36,219 | $32,719 | | Total stockholders' equity | $522,231 | $593,576 | [Consolidated Statements of Operations and Comprehensive Loss](index=73&type=section&id=Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) The company reported a net loss of **$140.0 million**, or **($5.49) per share**, for the fiscal year 2022 Net Loss and EPS | | 2022 | 2021 | | :--- | :--- | :--- | | Net loss (in thousands) | $(139,975) | $(69,570) | | Net loss per share (basic and diluted) | $(5.49) | $(3.13) | [Consolidated Statements of Cash Flows](index=75&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash used in operations was **$100.6 million**, contributing to a **$179.3 million** net decrease in cash and cash equivalents during 2022 - Net cash used in operating activities was **$100.6 million** for the year ended December 31, 2022[398](index=398&type=chunk) - Cash and cash equivalents decreased by **$179.3 million** during 2022, ending the year at **$161.9 million**[398](index=398&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=91&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) In May 2022, the company dismissed Mayer Hoffman McCann P.C. and engaged KPMG LLP as its new independent accounting firm - Effective May 24, 2022, the company dismissed Mayer Hoffman McCann P.C. and engaged **KPMG LLP** as its new independent registered public accounting firm[498](index=498&type=chunk) [Controls and Procedures](index=91&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2022 - Management concluded that the company's disclosure controls and procedures were **effective** as of December 31, 2022[499](index=499&type=chunk) - Management concluded that the company's internal control over financial reporting was **effective** as of December 31, 2022, and this assessment was audited by KPMG LLP[501](index=501&type=chunk) [Other Information](index=93&type=section&id=Item%209B.%20Other%20Information) There is no other information to report under this item - None[515](index=515&type=chunk) PART III [Directors, Executive Officers and Corporate Governance](index=93&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Required information is incorporated by reference from the company's 2023 Definitive Proxy Statement - Information is incorporated by reference to the 2023 Definitive Proxy Statement[517](index=517&type=chunk) [Executive Compensation](index=93&type=section&id=Item%2011.%20Executive%20Compensation) Required information is incorporated by reference from the company's 2023 Definitive Proxy Statement - Information is incorporated by reference to the 2023 Definitive Proxy Statement[518](index=518&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=93&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Required information is incorporated by reference from the company's 2023 Definitive Proxy Statement - Information is incorporated by reference to the 2023 Definitive Proxy Statement[519](index=519&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=93&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Required information is incorporated by reference from the company's 2023 Definitive Proxy Statement - Information is incorporated by reference to the 2023 Definitive Proxy Statement[520](index=520&type=chunk) [Principal Accounting Fees and Services](index=93&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Required information is incorporated by reference from the company's 2023 Definitive Proxy Statement - Information is incorporated by reference to the 2023 Definitive Proxy Statement[521](index=521&type=chunk) PART IV [Exhibits, Financial Statement Schedules](index=94&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists all financial statements, schedules, and exhibits filed as part of the annual report - This section contains a list of all exhibits filed with the report, including corporate governance documents, material contracts, and certifications[524](index=524&type=chunk)[525](index=525&type=chunk) [Form 10-K Summary](index=96&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company has elected not to include a Form 10-K summary - The Company has elected to not include a summary[528](index=528&type=chunk)

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) Presents Krystal Biotech's unaudited condensed consolidated financial statements for Q3 and nine months ended September 30, 2022 [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets decreased to **$576.4 million** by September 30, 2022, primarily due to reduced cash and equivalents Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $186,409 | $341,246 | | Short-term investments | $208,011 | $96,850 | | Total current assets | $397,578 | $442,267 | | Property and equipment, net | $157,786 | $112,355 | | Total assets | $576,379 | $626,295 | | **Liabilities & Equity** | | | | Total current liabilities | $28,032 | $25,736 | | Total liabilities | $35,607 | $32,719 | | Total stockholders' equity | $540,772 | $593,576 | | Total liabilities and stockholders' equity | $576,379 | $626,295 | [Condensed Consolidated Statements of Operations and Comprehensive Loss](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) Net loss increased to **$29.9 million** in Q3 and **$107.9 million** for nine months, primarily due to higher operating expenses and a litigation settlement Operating Results Highlights (in thousands, except per share data) | Metric | Q3 2022 | Q3 2021 | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Research and development | $11,516 | $6,080 | $31,720 | $18,875 | | General and administrative | $19,935 | $9,572 | $53,705 | $27,524 | | Litigation settlement | $0 | $0 | $25,000 | $0 | | Total operating expenses | $31,451 | $15,652 | $110,425 | $46,399 | | Loss from operations | ($31,451) | ($15,652) | ($110,425) | ($46,399) | | Net loss | ($29,850) | ($15,589) | ($107,923) | ($47,764) | | Net loss per share (basic & diluted) | ($1.17) | ($0.70) | ($4.24) | ($2.18) | [Condensed Consolidated Statements of Stockholders' Equity](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) Stockholders' equity decreased to **$540.8 million** by Q3 2022, primarily due to the **$107.9 million** net loss - Total stockholders' equity decreased by **$52.8 million** during the first nine months of 2022, from **$593.6 million** to **$540.8 million**[13](index=13&type=chunk) - The accumulated deficit increased from **$140.8 million** at the start of the year to **$248.7 million** by the end of Q3 2022, reflecting the ongoing net losses[13](index=13&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash decreased by **$154.8 million** for nine months, with **$78.2 million** used in operations and **$108.9 million** in investing Cash Flow Summary (in thousands) | Activity | Nine Months 2022 | Nine Months 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | ($78,240) | ($27,038) | | Net cash used in investing activities | ($108,875) | ($100,230) | | Net cash provided by financing activities | $32,278 | $145,613 | | **Net (decrease) increase in cash** | **($154,837)** | **$18,345** | [Notes to Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Provides details on accounting policies, financial instruments, and commitments, highlighting liquidity and a **$25.0 million** litigation settlement - The company believes its cash, cash equivalents, and short-term investments of approximately **$394.4 million** as of September 30, 2022, are sufficient to fund planned operations for at least the next 12 months[20](index=20&type=chunk) - On April 27, 2022, the company entered into a final settlement agreement with PeriphaGen, making an upfront payment of **$25.0 million**, with potential contingent milestone payments up to **$50.0 million**[72](index=72&type=chunk) - The company has significant contractual obligations, including an estimated remaining commitment of **$10.3 million** for the interior build-out of its ASTRA manufacturing facility as of September 30, 2022[67](index=67&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=20&type=section&id=Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial condition, pipeline progress, increased operating expenses, liquidity, and capital expenditure plans for the ASTRA facility - The company's lead product candidate, B-VEC (Vyjuvek), had its Biologics License Application (BLA) accepted by the FDA with a priority review target date of **February 17, 2023**[103](index=103&type=chunk) - Operating expenses for the nine months ended Sep 30, 2022, increased to **$110.4 million** from **$46.4 million** in the prior year, largely due to a **$25.0 million** litigation settlement and increased R&D and G&A spending[128](index=128&type=chunk) - The company expects to continue incurring significant capital expenditures for the construction of its ASTRA cGMP facility, anticipated to be completed in the first half of 2023[119](index=119&type=chunk) [Pipeline Highlights and Recent Developments](index=23&type=section&id=Pipeline%20Highlights%20and%20Recent%20Developments) Highlights significant pipeline progress, including BLA acceptance for B-VEC, IND acceptance for KB407, and planned Phase 2 for KB301 - **Dermatology (B-VEC):** The FDA accepted the BLA for B-VEC, granted priority review, and set a PDUFA target date of **February 17, 2023**. The proposed brand name Vyjuvek was accepted[103](index=103&type=chunk) - **Respiratory (KB407):** The FDA accepted the IND for KB407 for cystic fibrosis. A Phase 1 clinical study (CORAL-1/US) is planned to start in the U.S. in **Q4 2022**[107](index=107&type=chunk) - **Aesthetics (KB301):** Following positive proof-of-concept data, the company plans to start a Phase 2 clinical study (PEARL-2) in the **first half of 2023**[109](index=109&type=chunk) [Results of Operations](index=26&type=section&id=Results%20of%20Operations) Net loss significantly increased in Q3 and nine-month periods due to a **$25.0 million** litigation settlement and higher R&D and G&A expenses Comparison of Operating Results (in thousands) | Period | Metric | 2022 | 2021 | Change | | :--- | :--- | :--- | :--- | :--- | | **Q3** | R&D Expenses | $11,516 | $6,080 | $5,436 | | | G&A Expenses | $19,935 | $9,572 | $10,363 | | | **Net Loss** | **($29,850)** | **($15,589)** | **($14,261)** | | **Nine Months** | R&D Expenses | $31,720 | $18,875 | $12,845 | | | G&A Expenses | $53,705 | $27,524 | $26,181 | | | Litigation Settlement | $25,000 | $0 | $25,000 | | | **Net Loss** | **($107,923)** | **($47,764)** | **($60,159)** | - The increase in R&D expenses was primarily due to higher payroll from increased headcount, and increased preclinical, clinical, and manufacturing activities[125](index=125&type=chunk)[129](index=129&type=chunk) - The rise in G&A expenses was largely due to increased payroll to support overall growth, higher commercial preparedness expenses, and increased legal and administrative costs[126](index=126&type=chunk)[130](index=130&type=chunk) [Liquidity and Capital Resources](index=28&type=section&id=Liquidity%20and%20Capital%20Resources) The company holds **$394.4 million** in liquidity, sufficient for 12 months, despite significant cash usage in operations and investing - The company holds **$394.4 million** in cash, cash equivalents, and short-term investments as of September 30, 2022, which is deemed sufficient to fund operations for at least the next 12 months[134](index=134&type=chunk) - Net cash used in operating activities increased to **$78.2 million** for the nine months ended Sep 30, 2022, from **$27.0 million** in the same period of 2021, primarily due to a higher net loss[141](index=141&type=chunk)[142](index=142&type=chunk)[143](index=143&type=chunk) - Net cash provided by financing activities was **$32.3 million** for the first nine months of 2022, mainly from the At-The-Market (ATM) program and stock option exercises[146](index=146&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=31&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Market risk primarily stems from interest rate fluctuations on its investment portfolio, with no material impact expected from a 10% rate change - The company's primary market risk exposure is interest rate risk on its **$394.4 million** portfolio of cash, cash equivalents, and short-term investments[152](index=152&type=chunk) - The company's investment policy prioritizes principal preservation, diversifying the portfolio across various security types and maturities[152](index=152&type=chunk) - Management asserts that a hypothetical **10%** change in interest rates would not have a material impact on the company's financial results[152](index=152&type=chunk) [Controls and Procedures](index=31&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls were effective as of September 30, 2022, with a new ERP system implementation expected to strengthen internal controls - The CEO and Chief Accounting Officer concluded that the company's disclosure controls and procedures were effective as of the end of the quarter[154](index=154&type=chunk) - The company is undergoing a phased implementation of a new ERP system (Microsoft Dynamics D365) to upgrade systems and processes, which is expected to result in changes to internal controls over time[155](index=155&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=32&type=section&id=Item%201.%20Legal%20Proceedings) Refers to Note 6 for details on legal proceedings, primarily the **$25.0 million** settlement of PeriphaGen litigation - The company refers to Note 6 for details on legal proceedings, which primarily discusses the settlement of the PeriphaGen litigation[157](index=157&type=chunk)[72](index=72&type=chunk) [Risk Factors](index=32&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors previously disclosed in the company's 2021 Annual Report on Form 10-K - No material changes have been made to the risk factors disclosed in the company's 2021 Annual Report on Form 10-K[158](index=158&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=32&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered sales of equity securities were reported during the period - None[159](index=159&type=chunk) [Exhibits](index=33&type=section&id=Item%206.%20Exhibits) Lists exhibits filed with Form 10-Q, including SOX certifications and Inline XBRL data files - Exhibits filed include Sarbanes-Oxley Act Section 302 and 906 certifications and Inline XBRL financial data[164](index=164&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _____________________________________________________ FORM 10-Q _____________________________________________________ (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2022 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 001-38210 ______________ ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _____________________________________________________ FORM 10-Q _____________________________________________________ (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2022 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 001-38210 _____________ ...

DAM Krystal AAD GEM-3 Phase 3 Data Conference Call © Copyright 2022 Krystal Biotech, Inc. All rights reserved. - 1 Forward looking statements This presentation contains forward-looking statements that involve substantial risks and uncertainties. Any statements in this presentation about future expectations, plans and prospects for Krystal Biotech, Inc. (the "Company"), including but not limited to statements about the development of the Company's product candidates, such as the future development or commerc ...