Krystal(KRYS) - 2024 Q1 - Quarterly Report

General Information Provides fundamental details about Krystal Biotech's filing, stock listing, and outstanding shares - Krystal Biotech, Inc. filed a Quarterly Report on Form 10-Q for the period ended March 31, 20241 2 - The company's common stock (KRYS) is registered on the NASDAQ Global Select Market3 - Krystal Biotech, Inc. is classified as a Large accelerated filer4 - As of April 29, 2024, there were 28,558,440 shares of common stock issued and outstanding4 PART I. FINANCIAL INFORMATION Presents the company's unaudited condensed consolidated financial statements and management's discussion Item 1. Financial Statements Presents Krystal Biotech's unaudited condensed consolidated financial statements, prepared under GAAP Condensed Consolidated Balance Sheets Summarizes Krystal Biotech's financial position, detailing total assets, liabilities, and equity | (in thousands) | March 31, 2024 | December 31, 2023 | | :--------------- | :------------- | :---------------- | | Total assets | $853,296 | $818,355 | | Total liabilities | $54,054 | $39,714 | | Total stockholders' equity | $799,242 | $778,641 | Condensed Consolidated Statements of Operations and Comprehensive Loss Details Krystal Biotech's product revenue, operating expenses, and net income or loss | (in thousands, except per share data) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Product revenue, net | $45,250 | $— | | Total operating expenses | $51,934 | $48,823 | | Loss from operations | $(6,684) | $(48,823) | | Interest and other income, net | $7,616 | $3,526 | | Net income (loss) | $932 | $(45,297) | | Basic net income (loss) per common share | $0.03 | $(1.76) | | Diluted net income (loss) per common share | $0.03 | $(1.76) | Condensed Consolidated Statements of Stockholders' Equity Outlines changes in Krystal Biotech's total stockholders' equity, including compensation and net income | (in thousands) | Balances as of January 1, 2024 | Balances as of March 31, 2024 | | :------------- | :----------------------------- | :---------------------------- | | Total Stockholders' Equity | $778,641 | $799,242 | | Stock-based compensation | $10,023 | $10,023 | | Net income | $932 | $932 | Condensed Consolidated Statements of Cash Flows Reports Krystal Biotech's cash flows from operating, investing, and financing activities | (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by (used in) operating activities | $15,888 | $(26,156) | | Net cash (used in) provided by investing activities | $(25,980) | $3,563 | | Net cash provided by financing activities | $10,583 | $1,474 | | Net increase (decrease) in cash and cash equivalents | $678 | $(21,155) | | Cash and cash equivalents at end of period | $359,006 | $140,745 | Notes to Condensed Consolidated Financial Statements Provides detailed explanations and disclosures supporting the condensed consolidated financial statements Note 1. Organization Krystal Biotech is a commercial-stage genetic medicine company, expanding internationally, with sufficient cash for 12 months of operations - Krystal Biotech, Inc. is a fully integrated, commercial-stage biotechnology company focused on the discovery, development, manufacturing and commercialization of genetic medicines using an engineered HSV-1 gene therapy platform21 - The company incorporated wholly-owned subsidiaries in Switzerland, Netherlands, France, Germany, and Japan between January 2022 and March 2024 to establish initial operations for commercialization in Europe and Japan20 - As of March 31, 2024, the company's cash, cash equivalents, and short-term investments of approximately $538.3 million are believed to be sufficient to fund planned operations for at least the next 12 months23 Note 2. Summary of Significant Accounting Policies Interim financial statements conform to U.S. GAAP, with no material accounting policy changes - The accompanying interim condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America ("GAAP")24 - There were no material changes to the Company's significant accounting policies during the three months ended March 31, 202429 - The Company is assessing the potential impact of ASU 2023-09 "Income Taxes (Topic 740): Improvements to Income Tax Disclosures," effective for fiscal years starting after December 15, 202431 Note 3. Revenue Recognition VYJUVEK revenue recognition began in Q3 2023 post-FDA approval, incorporating variable consideration - The Company began commercial marketing and sales of VYJUVEK and recognizing revenue in the third quarter of 2023, following FDA approval on May 19, 202332 - The transaction price recognized as revenue for VYJUVEK sales includes an estimate of variable consideration, such as discounts, returns, copay assistance, and rebates98 Rebates and Accruals (in thousands) | (in thousands) | Rebates | Prompt Pay | Other Accruals | Total | | :------------- | :------ | :--------- | :------------- | :---- | | Balance as of December 31, 2023 | $5,977 | $858 | $279 | $7,114 | | Provisions | $5,746 | $1,565 | $211 | $7,522 | | Payments/Credits | $(434) | $(953) | $(75) | $(1,462) | | Balance, as of March 31, 2024 | $11,289 | $1,470 | $415 | $13,174 | Note 4. Net Income (Loss) Per Share Attributable to Common Stockholders Details basic and diluted net income (loss) per common share, showing significant improvement Net Income (Loss) Per Common Share (in thousands, except per share data) | (in thousands, except per share data) | 2024 | 2023 | | :------------------------------------ | :--- | :--- | | Net income (loss) | $932 | $(45,297) | | Weighted-average basic common shares | 28,295 | 25,712 | | Dilutive effect of stock options and unvested restricted stock | 996 | — | | Weighted-average diluted common shares | 29,291 | 25,712 | | Net income (loss) per common share—Basic | $0.03 | $(1.76) | | Net income (loss) per common share—Diluted | $0.03 | $(1.76) | - Common stock equivalents, including stock options and unvested restricted stock, were excluded from diluted EPS calculation in Q1 2023 due to their anti-dilutive effect36 Note 5. Fair Value Instruments Breaks down cash, cash equivalents, and available-for-sale securities by investment category Fair Value of Financial Instruments (in thousands) | (in thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized (Losses) | Aggregate Fair Value | Cash and Cash Equivalents | Short-term Marketable Securities | Long-term Marketable Securities | | :------------- | :------------- | :--------------------- | :------------------------ | :------------------- | :------------------------ | :------------------------------- | :------------------------------ | | March 31, 2024 | | | | | | | | | Cash and cash equivalents | $359,006 | $— | $— | $359,006 | $359,006 | $— | $— | | Commercial paper | $18,747 | $— | $(7) | $18,740 | $— | $18,740 | $— | | Corporate bonds | $115,918 | $132 | $(69) | $115,981 | $— | $70,182 | $45,799 | | U.S. government agency securities | $128,682 | $29 | $(183) | $128,528 | $— | $90,331 | $38,197 | | Total | $622,353 | $161 | $(259) | $622,255 | $359,006 | $179,253 | $83,996 | | December 31, 2023 | | | | | | | | | Cash and cash equivalents | $358,328 | $— | $— | $358,328 | $358,328 | $— | $— | | Commercial paper | $17,124 | $5 | $(1) | $17,128 | $— | $17,128 | $— | | Corporate bonds | $111,824 | $407 | $(27) | $112,204 | $— | $70,996 | $41,208 | | U.S. government agency securities | $106,079 | $423 | $(30) | $106,472 | $— | $85,726 | $20,746 | | Total | $593,355 | $835 | $(58) | $594,132 | $358,328 | $173,850 | $61,954 | - The Company's short-term marketable securities mature in one year or less, while long-term marketable securities mature between one and two years40 Note 6. Balance Sheet Components Details inventory and property and equipment, net, including significant inventory increases Inventory (in thousands) | (in thousands) | March 31, 2024 | December 31, 2023 | | :--------------- | :------------- | :---------------- | | Raw materials | $4,489 | $3,154 | | Work-in-process | $6,387 | $3,204 | | Finished goods | $161 | $627 | | Inventory | $11,037 | $6,985 | Property and Equipment, Net (in thousands) | (in thousands) | March 31, 2024 | December 31, 2023 | | :--------------- | :------------- | :---------------- | | Total property and equipment | $175,132 | $174,029 | | Accumulated depreciation | $(15,121) | $(12,827) | | Property and equipment, net | $160,011 | $161,202 | - Depreciation expense was $1.4 million for the three months ended March 31, 2024, compared to $1.1 million for the same period in 202342 - Depreciation capitalized into inventory was $867 thousand in Q1 202442 - The majority of assets related to the ASTRA facility were reclassified from construction in progress to in-use assets (leasehold improvements, manufacturing equipment, buildings) as qualification occurred through Q1 202443 Note 7. Commitments and Contingencies Outlines commitments to CROs/CMOs and details the PeriphaGen legal settlement - Estimated remaining commitments under agreements with CROs and CMOs are approximately $1.1 million as of March 31, 202446 - The Company recorded litigation settlement expense of $12.5 million for both the three months ended March 31, 2024, and 2023, related to the settlement agreement with PeriphaGen, Inc48 - As of March 31, 2024, the Company accrued $12.5 million for a contingent milestone payment to PeriphaGen, Inc., as reaching $100.0 million in total cumulative sales was deemed probable48 - The total consideration for settling the dispute, acquiring assets, and granting a license from PeriphaGen will be $75.0 million if all milestones are achieved, of which $37.5 million has been paid47 Note 8. Leases Outlines operating lease commitments, with future minimum payments totaling $15.8 million Future Minimum Operating Lease Payments (in thousands) | (in thousands) | Operating Leases | | :--------------- | :--------------- | | 2024 (remaining nine months) | $1,157 | | 2025 | $1,277 | | 2026 | $1,277 | | 2027 | $1,300 | | 2028 | $1,325 | | Thereafter | $9,438 | | Future minimum operating lease payments | $15,774 | | Less: Interest | $(7,879) | | Present value of lease liability | $7,895 | - The weighted-average remaining lease term for operating leases was 12.2 years as of March 31, 2024, with a weighted-average discount rate of 9.5%50 Total Lease Expense (in thousands) | (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--------------- | :-------------------------------- | :-------------------------------- | | Operating lease expense | $299 | $463 | | Variable lease expense | $40 | $59 | | Total lease expense | $339 | $522 | Note 9. Capitalization Describes ATM equity offering programs, with $150.0 million available under the New ATM Program - The Company established a New ATM Program on May 8, 2023, to issue and sell shares of common stock with an aggregate offering price of up to $150.0 million53 - No shares of Common Stock were issued pursuant to the New ATM Program during the three months ended March 31, 2024, resulting in $150.0 million available for issuance53 Note 10. Stock-Based Compensation Details equity award plans, with 2.4 million shares available and $9.3 million expense - Shares remaining available for grant under the 2017 IPO Stock Plan were 2.4 million as of March 31, 202455 - The total intrinsic value of stock options exercised was $24.5 million during the three months ended March 31, 2024, compared to $1.1 million in the prior year period57 Total Stock-Based Compensation (in thousands) | (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--------------- | :-------------------------------- | :-------------------------------- | | Research and development | $1,868 | $2,496 | | Selling, general, and administrative | $7,431 | $7,941 | | Total stock-based compensation | $9,299 | $10,437 | - The Company capitalized $724 thousand of stock-based compensation into inventory for the three months ended March 31, 2024, compared to zero in the prior year period, following FDA approval of VYJUVEK63 Note 11. Income Taxes No income tax provision recorded in Q1 2024 or 2023 due to tax losses - The Company did not record an income tax provision for the three months ended March 31, 2024, or 2023, as it generated sufficient tax losses65 - The Company expects to maintain a full valuation allowance against its net deferred tax assets for the year65 Note 12. Subsequent Events No subsequent events requiring recognition or disclosure were identified after the balance sheet date - The Company concluded that no subsequent events have occurred that would require recognition or disclosure in the condensed consolidated financial statements66 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Krystal Biotech's financial condition, VYJUVEK's launch, pipeline, and liquidity Special Note Regarding Forward-Looking Statements Warns readers that the report contains forward-looking statements subject to risks and uncertainties - This Quarterly Report contains forward-looking statements that involve known and unknown risks, uncertainties, and other factors that may cause actual results to differ materially from those expressed or implied68 - Key factors influencing future results include the commercial success of VYJUVEK, R&D activities, regulatory approvals, market opportunity, costs, competition, intellectual property, and global economic conditions69 - Readers are cautioned not to place undue reliance on forward-looking statements due to inherent uncertainties and the rapidly changing environment70 Overview Provides a high-level summary of Krystal Biotech's FDA-approved product, pipeline highlights, and developments Our FDA Approved Commercial Product VYJUVEK, the first redosable gene therapy for DEB, generated $45.3 million in Q1 2024 revenue - VYJUVEK (B-VEC) was FDA approved on May 19, 2023, as the first redosable gene therapy for treating dystrophic epidermolysis bullosa (DEB) in patients six months of age or older74 - Net VYJUVEK product revenue was $45.3 million for the three months ended March 31, 2024, with cumulative net product revenue of $95.9 million since August 202375 - A permanent J-code (J3401) for VYJUVEK became effective on January 1, 2024, and as of April 2024, positive access has been achieved for 96% of lives covered under commercial and Medicaid plans76 - Q1 2024 product revenue was negatively impacted by the J-code switchover and a cybersecurity incident, leading to approximately 400 free vials dispensed to ensure treatment continuity78 - Preparations for direct commercial launch in Europe and Japan are underway, with an EMA decision on the Marketing Authorization Application (MAA) expected in 2H 2024 and a Japan New Drug Application filing anticipated in 2H 202481 82 83 Pipeline Highlights and Recent Developments Highlights progress in Krystal Biotech's diverse genetic medicine pipeline across multiple areas Respiratory Details clinical trial progress for respiratory gene therapy candidates KB407 and KB408 - KB407 (cystic fibrosis): Completed dosing of the second cohort in the Phase 1 CORAL-1 study in March 2024, with the third and final cohort expected to initiate in Q2 202484 - KB408 (alpha-1 antitrypsin deficiency): Dosed the first patient in the Phase 1 SERPENTINE-1 study in February 2024, with interim data expected in 2H 202485 Ophthalmology Outlines developments for ophthalmic B-VEC for ocular DEB, including a planned clinical study - Compassionate use of B-VEC as an eyedrop for ocular DEB showed full corneal healing at 3 months and visual acuity improvement86 - The Company aligned with the FDA on a proposed single-arm, open-label study in approximately 10 patients for ophthalmic B-VEC, planned to initiate in 2H 202487 - U.S. Patent No. 11,865,148 was issued, covering methods of delivering human transgenes to the eye using replication-incompetent HSV-188 Oncology Reports progress for oncology candidate KB707, including Fast Track Designations and Phase 1 studies - KB707 (immunotherapy for solid tumors): Intratumoral KB707 received Fast Track Designation for melanoma, and the Phase 1 OPAL-1 study has cleared the first two dose escalation cohorts with interim data expected by year-end91 - Inhaled KB707 received Fast Track Designation for solid tumors with pulmonary metastases, and the Phase 1 KYANITE-1 study initiated in April 202492 - Preclinical data for KB707 demonstrated enhanced local and systemic T-cell effector responses in syngeneic mouse models93 Dermatology Provides updates on dermatology candidates KB105 and KB104 clinical development plans - KB105 (TGM1-ARCI): Expects to resume enrollment in the Phase 2 portion of the JADE-1 study later in 202494 - KB104 (Netherton Syndrome): Plans to file an IND application and initiate a clinical trial following the KB105 Phase 2 study94 Aesthetics Details progress for aesthetic candidate KB301, with Phase 1 clinical study results expected mid-2024 - KB301 (aging/damaged skin): Initiated Phase 1 PEARL-1 Cohort 3 and Cohort 4 clinical studies, with results for both expected in mid-202495 96 Financial Overview Outlines key financial statement components, including revenue, COGS, expenses, and capital expenditures - Revenue recognition began in Q3 2023 following FDA approval of VYJUVEK, with future revenue expected to fluctuate97 - Cost of goods sold includes direct and indirect manufacturing costs for VYJUVEK; prior to FDA approval in May 2023, these costs were expensed as research and development99 100 - Research and development expenses are expected to increase due to ongoing clinical trials for KB407, KB408, intratumoral KB707, inhaled KB707, resumption of KB105 dosing, initiation of ophthalmic B-VEC study, and KB301 Phase 2102 - Selling, general, and administrative expenses are anticipated to increase due to commercialization efforts for VYJUVEK globally and support for product candidates105 - Significant capital expenditures were incurred for the second commercial scale CGMP facility, ASTRA, with continued expenditures expected throughout its operational life106 - Interest and other income, net, primarily consists of income earned from cash, cash equivalents, and investments107 - There have been no significant changes to critical accounting policies, significant judgments, and estimates during the three months ended March 31, 2024108 Results of Operations Compares Q1 2024 and Q1 2023 financial performance, highlighting $45.3 million net product revenue Comparative Results of Operations (in thousands) | (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | Change | | :--------------- | :-------------------------------- | :-------------------------------- | :----- | | Product revenue, net | $45,250 | $— | $45,250 | | Cost of goods sold | $2,419 | $— | $2,419 | | Research and development | $10,957 | $12,288 | $(1,331) | | Selling, general, and administrative | $26,058 | $24,035 | $2,023 | | Litigation settlement | $12,500 | $12,500 | $— | | Total operating expenses | $51,934 | $48,823 | $3,111 | | Loss from operations | $(6,684) | $(48,823) | $42,139 | | Interest and other income, net | $7,616 | $3,526 | $4,090 | | Net income (loss) | $932 | $(45,297) | $46,229 | - Product revenue, net, was $45.3 million for Q1 2024, compared to zero for Q1 2023, due to sales of VYJUVEK after FDA approval in May 2023111 - Research and development expenses decreased by $1.3 million in Q1 2024, primarily due to manufacturing expenses related to VYJUVEK being recorded as inventory post-FDA approval and capitalization of commercial batches113 114 - Selling, general, and administrative expenses increased by $2.0 million in Q1 2024, driven by $2.1 million in selling expenses related to VYJUVEK's launch, $706 thousand in professional services, and $367 thousand in net payroll, partially offset by a $1.3 million decrease in marketing costs117 118 - Interest and other income, net, increased to $7.6 million in Q1 2024 from $3.5 million in Q1 2023, reflecting increased investment activity and more favorable interest rates120 Liquidity and Capital Resources Details Krystal Biotech's liquidity, with $538.3 million in cash and investments - As of March 31, 2024, cash, cash equivalents, and short-term investments totaled approximately $538.3 million, with an accumulated deficit of $268.9 million121 - Management believes current funds are sufficient to fund operations for at least 12 months from the filing date of this Quarterly Report121 - Future operations are intended to be funded through on-hand cash, revenue from VYJUVEK sales, equity sales, debt financings, and arrangements with strategic partners122 - The company faces unpredictable clinical trial costs and potential future contingent milestone payments of $12.5 million each upon reaching $100.0 million, $200.0 million, and $300.0 million in total cumulative sales123 Cash Flow Summary (in thousands) | (in thousands) | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :--------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by (used in) operating activities | $15,888 | $(26,156) | | Net cash (used in) provided by investing activities | $(25,980) | $3,563 | | Net cash provided by financing activities | $10,583 | $1,474 | | Net increase (decrease) in cash | $678 | $(21,155) | - Net cash provided by operating activities was $15.9 million in Q1 2024, primarily driven by net income and non-cash adjustments130 - Net cash used in investing activities was $26.0 million in Q1 2024, mainly due to purchases of short-term and long-term investments and property and equipment, partially offset by maturities of investments131 - Net cash provided by financing activities was $10.6 million in Q1 2024, primarily from stock option exercises, partially offset by tax withholding payments related to restricted stock units and awards132 Item 3. Quantitative and Qualitative Disclosures About Market Risk Discusses market risk exposures, primarily interest rate fluctuations and foreign currency risk - As of March 31, 2024, the company held $538.3 million in cash, cash equivalents, and short-term investments, primarily in money market funds, commercial paper, corporate bonds, and U.S. government agency securities133 - The company's primary investment objective is to preserve principal while maximizing income without significantly increasing risk133 - The company does not believe that a 10% immediate change in interest rates or foreign currency exchange rates would materially affect its results of operations or financial position133 134 - The company is subject to foreign exchange rate risk from operations in Europe, Australia, and Japan, but these foreign operations are not currently material134 Item 4. Controls and Procedures CEO and CAO concluded disclosure controls were effective, with no material changes in internal control - The Chief Executive Officer and Chief Accounting Officer concluded that the company's disclosure controls and procedures were effective as of March 31, 2024136 - There was no change in internal control over financial reporting during the three months ended March 31, 2024, that materially affected, or is reasonably likely to materially affect, internal control over financial reporting137 PART II. OTHER INFORMATION Presents additional information, including legal proceedings, risk factors, and equity sales Item 1. Legal Proceedings Incorporates legal proceedings information from Note 7, detailing the PeriphaGen settlement - Information on legal proceedings is incorporated by reference from Note 7 of the notes to condensed consolidated financial statements139 - The company has an ongoing settlement agreement with PeriphaGen, Inc., which includes three additional $12.5 million contingent milestone payments upon reaching $100.0 million, $200.0 million, and $300.0 million in total cumulative sales47 Item 1A. Risk Factors Details significant risks impacting Krystal Biotech's business, including commercial, regulatory, and financial factors Risks Related to Our Business and Industry Outlines risks related to VYJUVEK's commercial success, competition, and healthcare reforms - The company's near-term prospects are substantially dependent on the commercial success of VYJUVEK, including obtaining regulatory approval in other jurisdictions141 142 - Krystal Biotech faces significant competition from other companies developing alternative gene therapy approaches, many with greater financial and technical resources150 - The company is exposed to the risk of product liability lawsuits, which could result in substantial liabilities, reputational damage, and potential limitations on commercialization153 154 - Negative public opinion and increased regulatory scrutiny of gene therapy, as a novel technology, could damage public perception and adversely affect the ability to conduct business or obtain approvals156 - Healthcare legislative reforms, such as the Inflation Reduction Act of 2022, and increasing governmental scrutiny over drug pricing, may adversely affect the company's business and results of operations166 167 - The company is subject to federal and state healthcare fraud and abuse laws, false claims laws, and health information privacy and security laws (e.g., HIPAA, CCPA, GDPR), with potential for substantial penalties for non-compliance170 171 178 - Cybersecurity incidents, such as the one affecting a specialty pharmacy provider in Q1 2024, could harm the business by damaging reputation, exposing to liability, adversely impacting revenue, or materially disrupting operations187 Risks Related to the Development, Regulatory Review and Approval of Our Product Candidates Details risks in product development, regulatory approval, clinical trials, and post-market oversight - Failure to advance product candidates through clinical trials, obtain regulatory approval, or significant delays would materially harm the business, as the development and commercialization process is subject to many uncertainties203 204 - The gene therapy platform is a novel technology, making the time and cost of obtaining regulatory approvals difficult to predict, and regulatory requirements may change frequently205 206 - Product or product candidates may cause undesirable side effects or have other properties that could delay or prevent regulatory approval, limit commercial potential, or result in significant negative consequences post-approval209 211 - The company relies on third parties to conduct certain aspects of preclinical studies and clinical trials, and their failure to meet contractual duties or comply with regulations could delay or terminate development221 222 - Interim, 'top-line,' and preliminary data from clinical trials may change as more patient data becomes available or additional analyses are conducted, potentially differing materially from final data224 - Even with FDA approval, obtaining approval outside the United States is not guaranteed and would limit market opportunities, as foreign regulatory requirements can be lengthy and expensive225 - VYJUVEK and other approved product candidates remain subject to ongoing regulatory oversight, including manufacturing, labeling, and post-market surveillance, with risks of non-compliance or changes to regulations227 229 230 - Orphan drug exclusivity for VYJUVEK and designations for KB105, KB407, and KB408 may not effectively protect against competition, and future designations are uncertain231 236 - Accelerated approval pathways (Breakthrough Therapy, Fast Track, RMAT, Priority Review, PRIME) do not guarantee faster development, review, or approval, nor do they increase the likelihood of marketing approval237 239 240 241 243 244 Risks Related to Manufacturing Covers risks in manufacturing, including regulatory approvals, third-party reliance, and capacity challenges - Delays in obtaining regulatory approvals for manufacturing processes or facilities, or disruptions in the manufacturing process, could disrupt production of VYJUVEK or delay development and commercialization efforts248 249 - Reliance on third-party manufacturing capabilities or components subjects the company to risks of unsatisfactory performance, supply issues, or non-compliance with CGMP regulations250 251 252 - Contamination, shortages of raw materials (especially biologic sources), or failure of key suppliers could result in delays in producing VYJUVEK or product candidates253 254 - Failure to increase manufacturing capacity and yields in a timely or cost-effective manner, or to continuously improve the quality management program, could delay commercial availability and lead to regulatory actions255 256 258 - Scaling up the VYJUVEK commercial manufacturing process to meet increased demand or improve efficiencies requires regulatory approval (Prior Approval Supplement to the FDA) and is subject to significant risks and uncertainties259 - Technical transfer of VYJUVEK manufacturing between facilities (e.g., ANCORIS to ASTRA) is a time-consuming process requiring FDA inspection and approval, with no guarantee of success260 Risks Related to Commercialization of VYJUVEK and Our Product Candidates Addresses risks in commercialization, including sales, market acceptance, pricing, and reimbursement - As a company with limited commercial experience, the sales, marketing, and distribution of VYJUVEK or any future approved products may be unsuccessful or less successful than anticipated, requiring significant resources and potentially impacting profitability261 262 - The company relies on a small number of third parties for VYJUVEK distribution in the U.S., and their failure to fulfill contractual obligations or adequately distribute could adversely affect sales and revenue263 264 - Plans to use local distributors outside the U.S., U.K., and certain EU countries involve risks of non-compliance, ineffective sales, or failure to devote necessary resources265 - If the commercial launch of VYJUVEK is unsuccessful, the substantial investment in sales, marketing, and distribution capabilities could be lost266 267 - The commercial success of VYJUVEK and product candidates depends on market acceptance by physicians, patients, third-party payors, and the medical community, which is uncertain275 - Government price controls, changes in pricing regulation, and uncertainty regarding insurance coverage and reimbursement status for newly approved products could restrict revenue and limit marketability277 279 - Ethical, legal, and social issues related to genetic testing may reduce demand for product candidates, if approved283 - Increasing demand for compassionate use or expanded access of unapproved therapies could negatively affect the company's reputation and business, potentially diverting resources or impacting safety profiles284 286 Risks Related to Our Intellectual Property Discusses risks concerning intellectual property, including patent protection, infringement claims, and trade secret disputes - Inability to obtain and maintain adequate U.S. and foreign patent protection for VYJUVEK, product candidates, and the vector platform, or insufficient scope of protection, could allow competitors to commercialize similar products288 289 290 - Protecting intellectual property rights globally is expensive and challenging, as foreign laws may not offer the same extent of protection as in the U.S., making enforcement difficult292 293 - Third parties may initiate legal proceedings alleging infringement of their intellectual property rights, leading to uncertain outcomes, potential licensing requirements, monetary damages, or cessation of development/commercialization295 296 297 - Intellectual property litigation is expensive, time-consuming, and can distract personnel, potentially compromising confidential information and adversely impacting financial results298 299 - The company has been, and may be in the future, subject to claims of wrongful use or disclosure of alleged trade secrets of other parties, or claims asserting ownership of its own intellectual property, leading to potential litigation and loss of valuable rights300 301 - Changes in U.S. patent law, such as the Leahy-Smith America Invents Act and evolving court decisions, could diminish the value of patents and negatively impact the ability to protect and enforce intellectual property rights302 303 - Inadequate protection of trademarks and trade names could hinder name recognition and competitive effectiveness, adversely affecting the business305 Risks Related to Our Financial Position and Need for Additional Capital Covers financial risks, including recurring losses, unpredictable costs, and need for additional funding - Despite generating net income in 2023, the company has incurred recurring losses and negative cash flows since inception and may not sustain profitability, which depends on the successful commercialization of VYJUVEK and pipeline development307 308 309 - Product development costs are unpredictable and will increase with delays in testing or obtaining marketing approvals, potentially delaying revenue from product candidates310 - The company will need to raise additional funding to maintain and expand commercialization capabilities for VYJUVEK and to complete product development, but such funding may not be available on acceptable terms, leading to potential delays or termination of efforts311 312 - Changes in U.S. and foreign tax laws, including new income, sales, or other tax laws, could adversely affect the company's business operations and financial performance313 314 - The ability to use net operating loss carryforwards and certain tax credit carryforwards may be subject to limitation under Sections 382 and 383 of the Internal Revenue Code due to changes in ownership315 316 - The company's limited operating history since 2016 makes it difficult to evaluate its future success, performance, or viability, and operating results are expected to fluctuate317 318 Risks Related to Ownership of Our Common Stock Addresses risks for common stock owners, including management influence, stock price volatility, and dilution - The CEO and Chairman, and Founder, President, Research & Development and Director, collectively owning approximately 14% of outstanding common stock, have substantial influence over matters submitted to stockholders for approval319 - Negative evaluations of the company's stock by securities analysts could cause the stock price to decline320 - Raising additional capital through equity or debt financings could cause the price of common stock to decline, dilute existing stockholders, or impose restrictive covenants on operations321 322 - The price of the company's common stock has been and is likely to continue to be volatile, influenced by various factors including clinical trial results, regulatory approvals, competition, and general market conditions324 325 - Failure to maintain effective internal control over financial reporting could adversely affect investor confidence and the value of common stock326 - Provisions in corporate charter documents and Delaware law could make an acquisition of the company more difficult and potentially prevent attempts by stockholders to replace current management327 328 - Management has broad discretion in the use of cash, cash equivalents, and marketable securities, and ineffective use could result in financial losses329 - The company does not anticipate paying cash dividends in the foreseeable future, making capital appreciation the sole source of gain for stockholders330 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Summarizes equity securities purchases, noting shares bought for employee tax withholding Equity Securities Purchases | Period | Total number of shares (or units) purchased | Average price paid per share (or unit) | Total number of shares (or units) purchased as part of publicly announced plans or programs | Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs | | :----------------------------- | :---------------------------------------- | :------------------------------------- | :--------------------------------------------------------------------------------------- | :-------------------------------------------------------------------------------------------------------------------- | | January 1, 2024 - January 31, 2024 | — | — | — | — | | February 1, 2024 - February 28, 2024 | 7,677 | $78.89 | — | — | | March 1, 2024 - March 31, 2024 | — | — | — | — | | Total | 7,677 | $78.89 | — | — | - The reported purchases represent shares withheld from employees for taxes resulting from the vesting of restricted stock awards333 Item 3. Defaults Upon Senior Securities Confirms no defaults occurred upon senior securities during the reporting period - There were no defaults upon senior securities334 Item 4. Mine Safety Disclosures States that mine safety disclosure requirements are not applicable to Krystal Biotech, Inc - Mine Safety Disclosures are not applicable to the registrant335 Item 5. Other Information Reports no directors or officers adopted or terminated Rule 10b5-1 trading arrangements - None of the company's directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the three months ended March 31, 2024336 Item 6. Exhibits Lists exhibits filed with Form 10-Q, including CEO/CAO certifications and Inline XBRL data - Exhibits include certifications of periodic reports under Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002, and Inline XBRL (Extensible Business Reporting Language) formatted materials337 SIGNATURES Confirms the report's official signing by the President and CEO, and Chief Accounting Officer on May 6, 2024 - The report was signed on May 6, 2024, by Krish S. Krishnan, President and Chief Executive Officer, and Kathryn A. Romano, Chief Accounting Officer340