Krystal(KRYS) - 2025 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the Company's unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for Krystal Biotech, Inc., including the balance sheets, statements of operations and comprehensive income (loss), statements of stockholders' equity, and statements of cash flows, along with their accompanying notes, for the periods ended March 31, 2025, and December 31, 2024 (for balance sheet) or March 31, 2024 (for income statement, equity, and cash flows) Condensed Consolidated Balance Sheets This section provides a snapshot of the Company's financial position at specific dates, detailing assets, liabilities, and stockholders' equity Condensed Consolidated Balance Sheets (in thousands) | (in thousands) | March 31, 2025 | December 31, 2024 | Change | | :--- | :--- | :--- | :--- | | Assets | | | | | Cash and cash equivalents | $308,770 | $344,865 | $(36,095) | | Short-term investments | $308,076 | $252,652 | $55,424 | | Accounts receivable, net | $103,260 | $104,746 | $(1,486) | | Inventory | $29,942 | $26,508 | $3,434 | | Total current assets | $766,798 | $742,045 | $24,753 | | Total assets | $1,074,416 | $1,055,838 | $18,578 | | Liabilities and Stockholders' Equity | | | | | Accounts payable | $2,672 | $4,985 | $(2,313) | | Accrued rebates | $47,405 | $36,804 | $10,601 | | Accrued expenses and other current liabilities | $28,050 | $58,989 | $(30,939) | | Total current liabilities | $79,489 | $101,995 | $(22,506) | | Total liabilities | $89,742 | $109,458 | $(19,716) | | Total stockholders' equity | $984,674 | $946,380 | $38,294 | | Total liabilities and stockholders' equity | $1,074,416 | $1,055,838 | $18,578 | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) This section outlines the Company's financial performance over specific periods, including revenues, expenses, and net income or loss Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (in thousands, except per share data) | (in thousands, except per share data) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change | | :--- | :--- | :--- | :--- | | Product revenue, net | $88,183 | $45,250 | $42,933 | | Cost of goods sold | $5,028 | $2,419 | $2,609 | | Research and development | $14,255 | $10,957 | $3,298 | | Selling, general and administrative | $32,723 | $26,058 | $6,665 | | Litigation settlement | $0 | $12,500 | $(12,500) | | Total operating expenses | $52,006 | $51,934 | $72 | | Income (loss) from operations | $36,177 | $(6,684) | $42,861 | | Interest and other income, net | $7,420 | $7,616 | $(196) | | Income before income taxes | $43,597 | $932 | $42,665 | | Income tax expense | $(7,864) | $0 | $(7,864) | | Net income | $35,733 | $932 | $34,801 | | Comprehensive income (loss) | $36,313 | $(5) | $36,318 | | Net income per common share: Basic | $1.24 | $0.03 | $1.21 | | Net income per common share: Diluted | $1.20 | $0.03 | $1.17 | Condensed Consolidated Statements of Stockholders' Equity This section details changes in the Company's equity accounts over specific periods, reflecting net income, stock-based compensation, and other equity transactions - Total stockholders' equity increased from $946.4 million as of January 1, 2025, to $984.7 million as of March 31, 2025, primarily driven by net income of $35.7 million and stock-based compensation of $14.4 million, partially offset by tax withholdings related to restricted stock units and awards[13] - For the three months ended March 31, 2025, 17 thousand shares were issued upon exercise of stock options, and 98 thousand shares vested from restricted stock units, net of shares withheld for taxes[13] Condensed Consolidated Statements of Cash Flows This section presents the Company's cash inflows and outflows from operating, investing, and financing activities over specific periods Condensed Consolidated Statements of Cash Flows (in thousands) | (in thousands) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $30,969 | $15,888 | $15,081 | | Net cash (used in) investing activities | $(54,769) | $(25,980) | $(28,789) | | Net cash (used in) provided by financing activities | $(12,466) | $10,583 | $(23,049) | | Net (decrease) increase in cash and cash equivalents | $(36,095) | $678 | $(36,773) | | Cash and cash equivalents at end of period | $308,770 | $359,006 | $(50,236) | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and additional information supporting the condensed consolidated financial statements 1. Organization This note describes Krystal Biotech, Inc.'s business, focus on genetic medicines, and global commercialization strategy - Krystal Biotech, Inc. is a fully integrated, commercial-stage, global biotechnology company focused on genetic medicines, utilizing an engineered herpes simplex virus-1 (HSV-1) platform for non-invasive or minimally invasive administration[19] - The company has established wholly-owned subsidiaries in Switzerland, Netherlands, France, Germany, Japan, Italy, and Spain for the commercialization of VYJUVEK and its product pipeline in Europe and Japan[19] - As of March 31, 2025, the Company had an accumulated deficit of $144.9 million but believes its cash, cash equivalents, and short-term investments of approximately $616.8 million are sufficient to fund operations for at least the next 12 months[20][21] 2. Summary of Significant Accounting Policies This note outlines the accounting principles and policies used in preparing the financial statements, including recent accounting pronouncements - The financial statements are prepared in conformity with GAAP, and there were no material changes to the Company's significant accounting policies during the three months ended March 31, 2025[22][26] - The Company is assessing the potential impact of recently issued FASB ASUs 2023-09 (Income Tax Disclosures, effective after Dec 15, 2024) and 2024-03 (Expense Disaggregation Disclosures, effective after Dec 15, 2026) on its financial statement disclosures[28][29] 3. Product Revenue, Accounts Receivable and Reserves for Product Sales This note details the recognition of product revenue, accounts receivable balances, and changes in allowances and discounts related to product sales Product Revenue, Net (in thousands) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Product revenue, net | $88,183 | $45,250 | Accounts Receivable, Net (in thousands) | Metric | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Accounts receivable, net | $103,260 | $104,746 | - Customer A accounted for 82% of accounts receivable, net as of March 31, 2025, down from 100% as of March 31, 2024[31] Changes in Allowances and Discounts (in thousands) | (in thousands) | Rebates | Prompt Pay | Other Accruals | Total | | :--- | :--- | :--- | :--- | :--- | | Balance as of December 31, 2024 | $38,223 | $2,570 | $326 | $41,119 | | Provisions | $15,375 | $2,626 | $98 | $18,099 | | Payments/Credits | $(4,240) | $(2,592) | $(105) | $(6,937) | | Balance as of March 31, 2025 | $49,358 | $2,604 | $319 | $52,281 | 4. Net Income Per Share Attributable to Common Stockholders This note provides the calculation of basic and diluted net income per common share, including factors affecting share counts Net Income Per Common Share | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net income (in thousands) | $35,733 | $932 | | Weighted-average basic common shares (in thousands) | 28,815 | 28,295 | | Weighted-average diluted common shares (in thousands) | 29,871 | 29,291 | | Net income per common share—basic | $1.24 | $0.03 | | Net income per common share—diluted | $1.20 | $0.03 | - Common stock equivalents totaling 413 thousand (stock options) and 48 thousand (unvested restricted stock) were excluded from diluted EPS calculation for Q1 2025 as their effect would be anti-dilutive[34] 5. Fair Value Instruments This note presents information on the fair value of the Company's financial instruments, particularly cash, cash equivalents, and marketable securities Cash, Cash Equivalents and Available-for-Sale Securities (March 31, 2025, in thousands) | (in thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized (Losses) | Aggregate Fair Value | Cash and Cash Equivalents | Short-term Marketable Securities | Long-term Marketable Securities | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $308,770 | $0 | $0 | $308,770 | $308,770 | $0 | $0 | | Commercial paper | $10,213 | $7 | $0 | $10,220 | $0 | $10,219 | $0 | | Corporate bonds | $228,713 | $516 | $(94) | $229,135 | $0 | $124,423 | $104,713 | | U.S. government agency securities | $216,939 | $343 | $(89) | $217,193 | $0 | $173,434 | $43,759 | | Total | $764,635 | $866 | $(183) | $765,318 | $308,770 | $308,076 | $148,472 | - Total cash, cash equivalents, and marketable securities increased from $749.6 million at December 31, 2024, to $765.3 million at March 31, 2025[36][39] 6. Balance Sheet Components This note provides a detailed breakdown of specific balance sheet accounts, including inventory and accrued expenses Inventory (in thousands) | (in thousands) | March 31, 2025 | December 31, 2024 | Change | | :--- | :--- | :--- | :--- | | Raw materials | $15,139 | $13,639 | +11.0% | | Work-in-process | $8,905 | $10,743 | -17.2% | | Finished goods | $5,898 | $2,126 | +177.4% | | Total Inventory | $29,942 | $26,508 | +13.3% | Accrued Expenses and Other Current Liabilities (in thousands) | (in thousands) | March 31, 2025 | December 31, 2024 | Change | | :--- | :--- | :--- | :--- | | Accrued taxes | $11,429 | $4,288 | +166.5% | | Accrued payroll and benefits | $3,487 | $9,558 | -63.5% | | Accrued litigation settlement | $0 | $31,250 | -100% | | Total Accrued expenses and other current liabilities | $28,050 | $58,989 | -52.5% | - The Company fully paid the $75.0 million litigation settlement with PeriphaGen, Inc. during the three months ended March 31, 2025, with a $31.25 million payment, resulting in zero accrued litigation settlement at period end[43][44] 7. Commitments and Contingencies This note discloses the Company's contractual commitments and potential liabilities from legal proceedings or other contingent events - Estimated remaining commitments under CMO/CRO agreements as of March 31, 2025, were approximately $414 thousand, with R&D expenses related to these commitments at $2.2 million for Q1 2025 (up from $1.5 million in Q1 2024)[45] - The Company received subpoenas from the U.S. Department of Justice in Q1 2025 regarding its sponsored genetic testing program for VYJUVEK and related commercial practices, and is cooperating with the inquiry, though the potential loss cannot be estimated[47] 8. Leases This note details the Company's operating lease arrangements, including future minimum payments and lease expenses Future Minimum Operating Lease Commitments (in thousands) | (in thousands) | Operating Leases | | :--- | :--- | | 2025 (remaining nine months) | $1,127 | | 2026 | $1,884 | | 2027 | $1,919 | | 2028 | $1,954 | | 2029 | $1,990 | | Thereafter | $9,226 | | Total Future minimum operating lease payments | $18,100 | | Less: Interest | $(8,438) | | Present value of lease liability | $9,662 | Total Lease Expense (in thousands) | (in thousands) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Total lease expense | $490 | $339 | 9. Stock-Based Compensation This note describes the Company's stock-based compensation plans and the related expense recognized in the financial statements - Shares available for grant under the 2017 IPO Stock Incentive Plan were 2.0 million as of March 31, 2025[51] Stock-Based Compensation Expense, Net (in thousands) | (in thousands) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Change | | :--- | :--- | :--- | :--- | | Research and development | $2,469 | $1,868 | +32.2% | | Selling, general and administrative | $11,009 | $7,431 | +48.1% | | Total stock-based compensation | $13,478 | $9,299 | +44.9% | - Unrecognized stock-based compensation expense totaled $76.1 million for options (over 2.9 years), $51.8 million for RSUs (over 3.3 years), and $8.2 million for PSUs (over 0.9 years) as of March 31, 2025[55][57][59] 10. Income Taxes This note provides information on the Company's income tax expense, deferred taxes, and effective tax rates Income Tax Expense (in thousands) | (in thousands) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Income tax expense | $7,864 | $0 | - The Company recorded an income tax provision of $7.9 million for Q1 2025, primarily due to state, federal, and foreign income taxes, compared to no provision in Q1 2024 due to sufficient tax losses[61] 11. Segment Information This note clarifies the Company's operating segments and provides selected financial information by segment - The Company operates as a single operating segment focused on genetic medicines, with the CEO using consolidated financial information to manage resources and assess performance[62] Selected Financial Information by Operating Segment (in thousands) | (in thousands) | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Product revenue, net | $88,183 | $45,250 | | Cost of goods sold | $5,028 | $2,419 | | Gross margin | 94% | 95% | | Total research and development | $14,255 | $10,957 | | Selling, general and administrative | $32,723 | $26,058 | | Litigation settlement | $0 | $12,500 | | Income (loss) from operations | $36,177 | $(6,684) | | Net income | $35,733 | $932 | 12. Subsequent Events This note discloses any significant events that occurred after the balance sheet date but before the financial statements were issued - No subsequent events requiring recognition or disclosure in the condensed consolidated financial statements have occurred between March 31, 2025, and the issuance date of the report[64] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition and results of operations for the three months ended March 31, 2025, compared to the same period in 2024. It covers key financial metrics, operational highlights, pipeline developments, and an assessment of liquidity and capital resources, emphasizing the commercialization of VYJUVEK and the progress of its gene therapy product candidates Overview This section provides a high-level summary of Krystal Biotech's business, key product VYJUVEK's commercialization, and pipeline developments - Krystal Biotech is a commercial-stage global biotechnology company focused on genetic medicines using an HSV-1 gene therapy platform, supported by two in-house CGMP manufacturing facilities[72] - VYJUVEK, approved by the FDA (May 2023) and EMA (April 2025) for dystrophic epidermolysis bullosa (DEB), generated $88.2 million in net product revenue for Q1 2025, with cumulative net product revenue of $429.4 million since launch[73][74][75][78] - The Company is preparing for direct commercial launch of VYJUVEK in key European markets and Japan in 2025, starting with Germany in mid-2025, and has secured over 97% commercial and Medicaid coverage in the U.S.[77][79][80] - Key pipeline developments include positive interim safety data for KB407 (Cystic Fibrosis) and KB408 (AATD Lung Disease), preparation to initiate a registrational Phase 3 study for KB803 (Ocular DEB) in May 2025, FDA clearance for KB801 (Neurotrophic Keratitis) Phase 1/2 study in April 2025, and early evidence of monotherapy activity for inhaled KB707 (Solid Tumors) in Phase 1/2 KYANITE-1 study[83][84][88][91][94] Financial Overview This section provides an overview of the Company's key financial statement line items and their accounting treatment - Product revenue, net, is recognized from VYJUVEK sales post-FDA approval (May 2023), including estimates for variable consideration like discounts and rebates[104] - Cost of goods sold includes direct and indirect manufacturing costs for VYJUVEK, personnel, facility, and overhead costs, and may include period costs and inventory adjustments[105] - Research and development expenses are expensed as incurred, covering preclinical and clinical candidates, manufacturing materials, facility costs, and payroll, and are expected to increase with pipeline expansion[106][107] - Selling, general and administrative expenses include personnel costs, professional fees, and commercialization efforts, anticipated to increase with global VYJUVEK commercialization and product candidate development[108][109] Critical Accounting Policies, Significant Judgments and Estimates This section confirms the consistency of critical accounting policies and estimates during the reporting period - There have been no significant changes to the Company's critical accounting policies, significant judgments, and estimates during the three months ended March 31, 2025, as disclosed in its 2024 Form 10-K[112] Results of Operations This section analyzes the Company's financial performance by comparing key revenue and expense items between periods Key Financial Results (Three Months Ended March 31, 2025 vs 2024, in thousands) | (in thousands) | 2025 | 2024 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Product revenue, net | $88,183 | $45,250 | $42,933 | 95% | | Cost of goods sold | $5,028 | $2,419 | $2,609 | 108% | | Research and development | $14,255 | $10,957 | $3,298 | 30% | | Selling, general and administrative | $32,723 | $26,058 | $6,665 | 26% | | Litigation settlement | $0 | $12,500 | $(12,500) | (100)% | | Income (loss) from operations | $36,177 | $(6,684) | $42,861 | (641)% | | Net income | $35,733 | $932 | $34,801 | 3734% | - The 95% increase in product revenue was driven by higher VYJUVEK sales, leading to a 108% increase in cost of goods sold[115][116] - R&D expenses increased by $3.3 million (30%), primarily due to a $1.8 million increase in payroll and stock-based compensation, $813 thousand in clinical development, and $331 thousand in manufacturing expenses for product candidates, partially offset by capitalization of overhead costs for VYJUVEK[117][118] - SG&A expenses rose by $6.7 million (26%), mainly from a $4.4 million increase in payroll and stock-based compensation, $2.0 million in other G&A costs (including charitable contributions), and $1.2 million in professional services, partially offset by a $1.0 million decrease in patient access program costs[123][130] Liquidity and Capital Resources This section assesses the Company's ability to meet its financial obligations and fund future operations through available cash and capital sources - As of March 31, 2025, the Company had $616.8 million in cash, cash equivalents, and short-term investments, deemed sufficient to fund operations for at least the next 12 months[127] - Future operations will be funded through existing cash, VYJUVEK sales revenue, equity sales, and potentially strategic partnerships or debt financings, with significant costs expected for regulatory compliance, clinical trials, and commercialization[128][129] Sources and Uses of Cash (Three Months Ended March 31, 2025 vs 2024, in thousands) | (in thousands) | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $30,969 | $15,888 | | Net cash (used in) investing activities | $(54,769) | $(25,980) | | Net cash (used in) provided by financing activities | $(12,466) | $10,583 | | Net (decrease) increase in cash | $(36,095) | $678 | - Operating activities provided $31.0 million in cash for Q1 2025, primarily from net income adjusted for non-cash items, while investing activities used $54.8 million due to investment purchases and property/equipment, and financing activities used $12.5 million mainly for employee tax withholdings[137][139][141] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the Company's exposure to market risks, primarily interest rate risk on its investment portfolio and foreign currency exchange rate risk from international operations, and outlines strategies to mitigate these risks - The Company's $616.8 million in cash, cash equivalents, and short-term investments are subject to interest rate risk, but a 10% immediate change in interest rates is not expected to materially affect results[143][144] - Foreign exchange rate risk exists due to operations in Europe and Japan holding Swiss Francs, Euros, and Japanese Yen, but foreign operations are not currently material, and a 10% immediate change in exchange rates is not expected to materially affect results[145] Item 4. Controls and Procedures This section confirms the effectiveness of the Company's disclosure controls and procedures and reports no material changes in internal control over financial reporting during the first quarter of 2025 - The CEO and Chief Accounting Officer concluded that the Company's disclosure controls and procedures were effective as of March 31, 2025[147] - There were no material changes in internal control over financial reporting during the three months ended March 31, 2025[148] PART II. OTHER INFORMATION This section provides additional information not covered in the financial statements, including legal proceedings, risk factors, and other disclosures Item 1. Legal Proceedings This section details the final settlement of litigation with PeriphaGen, Inc. and notes that the Company is not currently a party to any other material legal proceedings, while acknowledging potential future claims - The Company fully paid the $75.0 million litigation settlement with PeriphaGen, Inc. during Q1 2025, with a $31.25 million payment, resolving allegations of breach of contract and misappropriation of trade secrets[149][150] - The Company is not currently a party to any material legal proceedings but may face various claims in the ordinary course of business, which could be costly and impact financial results or reputation[151] Item 1A. Risk Factors This section outlines significant risks that could adversely affect the Company's business, prospects, operating results, and financial condition, categorized into risks related to business and industry, product development and regulatory approval, manufacturing, commercialization, intellectual property, financial position, and common stock ownership - The Company's near-term prospects are substantially dependent on the commercial success of VYJUVEK, with risks including failure to obtain regulatory approval in other jurisdictions and challenges in commercialization[153][154] - Significant competition exists from other companies developing gene therapies, with many competitors having greater financial and technical resources, potentially leading to market share loss or obsolescence of the Company's products[162][164] - Product liability lawsuits, negative public opinion on gene therapy, and increased regulatory scrutiny could lead to substantial liabilities, decreased demand, and delays in regulatory approvals[167][170][172] - The development and commercialization of product candidates are subject to uncertainties, including delays in clinical trials, failure to demonstrate safety and efficacy, and the complex, lengthy, and expensive regulatory approval process for novel gene therapies[229][232][240] - Manufacturing risks include delays in regulatory approvals for processes and facilities, reliance on limited third-party suppliers, potential contamination, and challenges in scaling up production, which could disrupt supply[278][281][285][287] - Commercialization risks include limited experience as a commercial company, challenges in expanding sales and marketing capabilities, and the uncertainty of market acceptance and adequate reimbursement for VYJUVEK and other product candidates[294][299][304][308][312] - Intellectual property risks involve the inability to obtain and maintain adequate patent protection, potential infringement claims from third parties, and the high costs and distractions associated with intellectual property litigation[325][332][336] - Financial risks include past net losses, the need for additional funding to sustain operations and commercialization, potential dilution from future equity offerings, and the volatility of the common stock price[346][351][361][365] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section states that there were no unregistered sales of equity securities or use of proceeds during the reporting period - No unregistered sales of equity securities or use of proceeds occurred during the three months ended March 31, 2025[375] Item 3. Defaults Upon Senior Securities This section confirms that there were no defaults upon senior securities during the reporting period - No defaults upon senior securities occurred during the three months ended March 31, 2025[376] Item 4. Mine Safety Disclosures This section indicates that mine safety disclosures are not applicable to the Company - Mine safety disclosures are not applicable to Krystal Biotech, Inc.[377] Item 5. Other Information This section reports that no directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the first quarter of 2025 - No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended March 31, 2025[378] Item 6. Exhibits This section lists the exhibits filed as part of the Form 10-Q, including certifications, XBRL data, and the cover page interactive data file - Exhibits include certifications by the CEO and Chief Accounting Officer (31.1, 31.2, 32.1) and Inline XBRL data (101, 104) for the financial statements[379] SIGNATURES This section contains the required signatures for the financial report, certifying its accuracy and completeness