Krystal(KRYS) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements 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 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 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 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 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 1. Organization * 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] * 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] * 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][24] 2. Summary of Significant Accounting Policies * 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] * 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] 3. Net Loss Per Share Attributable to Common Stockholders 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] 4. Fair Value Instruments 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 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] 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 * The Company has an estimated remaining commitment of approximately $3.0 million under agreements with CROs and CMOs as of June 30, 2023[64] * 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] * 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] * 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] 7. Leases 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 * 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] * 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][124] 9. Stock-Based Compensation 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] * 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][88] * Following FDA approval of VYJUVEK, the Company began capitalizing $112 thousand in stock-based compensation related to manufacturing labor costs in Q2 2023[94] 10. Subsequent Events * Andrew Orth, the Company's Chief Commercial Officer, resigned, with his last day being August 2, 2023[97] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 * 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] * 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] 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] * The company's technology platform is supported by two in-house, commercial-scale Current Good Manufacturing Practices (CGMP) manufacturing facilities[105] Our US FDA Approved Product (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] * 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] * 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] Pipeline Highlights and Recent Developments 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] * KB408 (Alpha-1 Antitrypsin Deficiency): Planning to file an Investigational New Drug (IND) application in the second half of 2023[113] 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][116] * 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] Dermatology * KB105 (TGM1-ARCI): Plans to commence Phase 2 study in pediatric patients in 2024, pending alignment with FDA on clinical endpoints[119] * KB104 (Netherton Syndrome): Anticipates filing an IND application and initiating a clinical trial in late 2024[120] 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] Business Highlights and Recent Developments * 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] COVID-19 Update * The COVID-19 pandemic has had minimal impact on US business and clinical trials, but caused delays in clinical trial initiation in Australia[125] Financial Overview Revenue * The Company expects to begin generating revenue from VYJUVEK product sales in Q3 2023, following FDA approval on May 19, 2023[127] Cost of Goods Sold * 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] Research and Development Expenses * 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] General and Administrative Expenses * 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] ASTRA Capital Expenditures * 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] Interest and Other Income * Interest and other income primarily consists of income earned from cash, cash equivalents, and investments[135] Critical Accounting Policies, and Significant Judgments and Estimates * 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] Results of Operations Three Months Ended June 30, 2023 and 2022 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) * 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] * 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][144] 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) * 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] * 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] Interest and Other Income (Three Months) * 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] Six Months Ended June 30, 2023 and 2022 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) * 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] * 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][151] 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) * 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] * 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] Litigation Settlement * 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] Interest and Other Income (Six Months) * 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] Liquidity and Capital Resources Overview * 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] * 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][156] Operating Capital Requirements * Primary uses of capital include compensation, manufacturing costs, R&D services, pre-commercialization costs, legal/regulatory expenses, and PeriphaGen settlement payments[159] * Future funding requirements are dependent on factors such as VYJUVEK commercialization costs, clinical trial progress, manufacturing capacity, regulatory approvals, and intellectual property maintenance[161] Sources and Uses of Cash 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 * 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] Investing Activities * 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] Financing Activities * 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] Item 3. Quantitative and Qualitative Disclosures About Market Risk 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] * 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] Item 4. Controls and Procedures 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] * 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] PART II. OTHER INFORMATION Item 1. Legal Proceedings 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] Item 1A. Risk Factors 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 * 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] * Profitability depends on successful development, regulatory approval, and commercialization of product candidates, particularly VYJUVEK, and achieving sufficient market acceptance[180][181] * 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][185] Risks Related to Our Business * The Company's near-term prospects and future growth are substantially dependent on the commercial success of VYJUVEK, despite its FDA approval[188] * 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] * 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][195][196] * Approved products remain subject to ongoing regulatory oversight, and non-compliance or changes in regulations could lead to sanctions, including withdrawal of approval[197][199] Risks Related to Manufacturing * 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][216] * 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][218] * 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][220] Risks Related to Commercialization of Our Product or Product Candidates * Inability to expand market development capabilities or secure third-party collaborations for marketing and sales could hinder product revenue generation[221] * 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][224] * Ethical, legal, and social issues related to genetic testing could reduce demand for products, potentially leading to governmental restrictions or additional regulation[225][226] * Failure to obtain and maintain regulatory approval outside the United States would limit market opportunities and adversely affect the business[227][228] Risks Related to Our Business Operations * Significant growth in employees and infrastructure may lead to difficulties in managing operations, requiring robust business processes and talent retention[229] * 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][231] Risks Related to Our Intellectual Property * 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][237] * 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][241] * Third parties may initiate legal proceedings alleging infringement of their intellectual property rights, leading to uncertain outcomes, substantial liabilities, or limitations on commercialization[242][244] Risks Related to Ownership of Our Common Stock * 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][246] 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 to report for the period * No unregistered sales of equity securities or use of proceeds to report[246] Item 3. Defaults Upon Senior Securities This section states that there were no defaults upon senior securities to report for the period * No defaults upon senior securities to report[247] Item 4. Mine Safety Disclosures This section states that mine safety disclosures are not applicable to the company * Mine safety disclosures are not applicable[248] Item 5. Other Information 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] * 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][251] Item 6. Exhibits 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] SIGNATURES Signatures 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]