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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________________
FORM 10-Q
_____________________________________________________
(Mark One)
| | | | | |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2024
or
| | | | | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 001-38210
_____________________________________________________
Krystal Biotech, Inc.
(Exact name of registrant as specified in its charter)
_____________________________________________________
| | | | | | | | |
Delaware | | 82-1080209 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification Number) |
2100 Wharton Street, Suite 701
Pittsburgh, Pennsylvania 15203
(Address of principal executive offices and zip code)
(412) 586-5830
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
_____________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock | KRYS | Nasdaq Global Select Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | | | | | | | |
Large accelerated filer | | ☒ | | Accelerated filer | | ☐ |
Non-accelerated filer | | ☐ | | Smaller reporting company | | ☐ |
Emerging growth company ☐
If emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of October 28, 2024, there were 28,760,548 shares of the registrant’s common stock issued and outstanding.
Krystal Biotech, Inc.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Krystal Biotech, Inc.
Condensed Consolidated Balance Sheets
(unaudited)
| | | | | | | | | | | |
| | | |
(in thousands, except par value) | September 30, 2024 | | December 31, 2023 |
Assets | | | |
Current assets | | | |
Cash and cash equivalents | $ | 373,966 | | | $ | 358,328 | |
Short-term investments | 214,358 | | | 173,850 | |
Accounts receivable, net | 97,298 | | | 42,040 | |
Inventory | 18,581 | | | 6,985 | |
Prepaid expenses and other current assets | 8,961 | | | 6,706 | |
Total current assets | 713,164 | | | 587,909 | |
Property and equipment, net | 156,592 | | | 161,202 | |
Long-term investments | 105,888 | | | 61,954 | |
Right-of-use assets | 6,471 | | | 7,027 | |
Other non-current assets | 203 | | | 263 | |
Total assets | $ | 982,318 | | | $ | 818,355 | |
Liabilities and Stockholders’ Equity | | | |
Current liabilities | | | |
Accounts payable | $ | 5,580 | | | $ | 4,132 | |
Current portion of lease liability | 1,292 | | | 1,474 | |
Accrued rebates | 29,545 | | | 5,977 | |
Accrued expenses and other current liabilities | 53,110 | | | 21,511 | |
Total current liabilities | 89,527 | | | 33,094 | |
Lease liability | 6,184 | | | 6,620 | |
Other long-term liabilities | 761 | | | — | |
Total liabilities | 96,472 | | | 39,714 | |
Commitments and contingencies (see note 7) | | | |
Stockholders’ equity | | | |
Common stock; $0.00001 par value; 80,000 shares authorized as of September 30, 2024 and December 31, 2023; 28,757 and 28,237 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively. | — | | | — | |
Additional paid-in capital | 1,110,481 | | | 1,047,830 | |
Accumulated other comprehensive gain | 1,512 | | | 638 | |
Accumulated deficit | (226,147) | | | (269,827) | |
Total stockholders’ equity | 885,846 | | | 778,641 | |
Total liabilities and stockholders’ equity | $ | 982,318 | | | $ | 818,355 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Krystal Biotech, Inc.
Condensed Consolidated Statements of Operations and Comprehensive Income
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands, except per share data) | 2024 | | 2023 | | 2024 | | 2023 |
Product revenue, net | $ | 83,841 | | | $ | 8,556 | | | $ | 199,376 | | | $ | 8,556 | |
Expenses | | | | | | | |
Cost of goods sold | 6,684 | | | 223 | | | 15,112 | | | 223 | |
Research and development | 13,511 | | | 10,629 | | | 40,050 | | | 35,061 | |
Selling, general and administrative | 28,713 | | | 23,697 | | | 82,398 | | | 73,637 | |
Litigation settlement | 12,500 | | | — | | | 37,500 | | | 12,500 | |
Total operating expenses | 61,408 | | | 34,549 | | | 175,060 | | | 121,421 | |
Income (loss) from operations | 22,433 | | | (25,993) | | | 24,316 | | | (112,865) | |
Other income | | | | | | | |
Gain from sale of priority review voucher | — | | | 100,000 | | | — | | | 100,000 | |
Interest and other income, net | 7,336 | | | 6,740 | | | 22,430 | | | 15,105 | |
Income before income taxes | 29,769 | | | 80,747 | | | 46,746 | | | 2,240 | |
Income tax expense | (2,589) | | | — | | | (3,066) | | | — | |
Net income | 27,180 | | | 80,747 | | | 43,680 | | | 2,240 | |
Unrealized gain (loss) on available-for-sale securities and other | 2,146 | | | (146) | | | 874 | | | 346 | |
Comprehensive income | $ | 29,326 | | | $ | 80,601 | | | $ | 44,554 | | | $ | 2,586 | |
| | | | | | | |
Net income per common share: | | | | | | | |
Basic | $ | 0.95 | | | $ | 2.88 | | | $ | 1.53 | | | $ | 0.08 | |
Diluted | $ | 0.91 | | | $ | 2.79 | | | $ | 1.47 | | | $ | 0.08 | |
| | | | | | | |
Weighted-average common shares outstanding: | | | | | | | |
Basic | 28,716 | | | 28,042 | | | 28,537 | | | 26,812 | |
Diluted | 29,902 | | | 28,892 | | | 29,669 | | | 27,385 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Krystal Biotech, Inc.
Condensed Consolidated Statements of Stockholders’ Equity
(unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-in Capital | | Accumulated Other Comprehensive Income (Loss) | | Accumulated Deficit | | Total Stockholders’ Equity |
(in thousands) | Shares | | Amount | | | | |
Balances as of January 1, 2024 | 28,237 | | | $ | — | | | $ | 1,047,830 | | | $ | 638 | | | $ | (269,827) | | | $ | 778,641 | |
Issuance of common stock upon exercise of stock options | 260 | | | — | | | 15,969 | | | — | | | — | | | 15,969 | |
Vesting of restricted stock units, net of shares withheld for taxes | 39 | | | — | | | (4,181) | | | — | | | — | | | (4,181) | |
Shares of restricted stock awards surrendered for taxes | (8) | | | — | | | (1,205) | | | — | | | — | | | (1,205) | |
Stock-based compensation | — | | | — | | | 10,023 | | | — | | | — | | | 10,023 | |
Unrealized (loss) on investments and other(1) | — | | | — | | | — | | | (937) | | | — | | | (937) | |
Net income | — | | | — | | | — | | | — | | | 932 | | | 932 | |
Balances as of March 31, 2024 | 28,528 | | | $ | — | | | $ | 1,068,436 | | | $ | (299) | | | $ | (268,895) | | | $ | 799,242 | |
Issuance of common stock upon exercise of stock options | 181 | | | — | | | 10,637 | | | — | | | — | | | 10,637 | |
Stock-based compensation | — | | | — | | | 13,781 | | | — | | | — | | | 13,781 | |
Unrealized (loss) on investments and other(1) | — | | | — | | | — | | | (335) | | | — | | | (335) | |
Net income | — | | | — | | | — | | | — | | | 15,568 | | | 15,568 | |
Balances as of June 30, 2024 | 28,709 | | | $ | — | | | $ | 1,092,854 | | | $ | (634) | | | $ | (253,327) | | | $ | 838,893 | |
Issuance of common stock upon exercise of stock options | 48 | | | — | | | 3,365 | | | — | | | — | | | 3,365 | |
Stock-based compensation | — | | | — | | | 14,262 | | | — | | | — | | | 14,262 | |
Unrealized gain on investments and other(1) | — | | | — | | | — | | | 2,146 | | | — | | | 2,146 | |
Net income | — | | | — | | | — | | | — | | | 27,180 | | | 27,180 | |
Balances as of September 30, 2024 | 28,757 | | | $ | — | | | $ | 1,110,481 | | | $ | 1,512 | | | $ | (226,147) | | | $ | 885,846 | |
(1)Includes foreign currency translation losses of $62 thousand, $83 thousand and gain of $306 thousand for the three months ended March 31, 2024, June 30, 2024 and September 30, 2024, respectively.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-in Capital | | Accumulated Other Comprehensive Income (Loss) | | Accumulated Deficit | | Total Stockholders’ Equity |
(in thousands) | Shares | | Amount | | | | |
Balances as of January 1, 2023 | 25,764 | | | $ | — | | | $ | 803,718 | | | $ | (728) | | | $ | (280,759) | | | $ | 522,231 | |
Issuance of common stock upon exercise of stock options | 42 | | | — | | | 2,208 | | | — | | | — | | | 2,208 | |
Shares of restricted stock awards surrendered for taxes | (10) | | | — | | | (749) | | | — | | | — | | | (749) | |
Stock-based compensation | — | | | — | | | 10,599 | | | — | | | — | | | 10,599 | |
Unrealized gain on investments and other(1) | — | | | — | | | — | | | 574 | | | — | | | 574 | |
Net loss | — | | | — | | | — | | | — | | | (45,297) | | | (45,297) | |
Balances as of March 31, 2023 | 25,796 | | | $ | — | | | $ | 815,776 | | | $ | (154) | | | $ | (326,056) | | | $ | 489,566 | |
Issuance of common stock in private placement offering, net of offering costs | 1,730 | | | — | | | 159,951 | | | — | | | — | | | 159,951 | |
Issuance of common stock upon exercise of stock options | 449 | | | — | | | 25,446 | | | — | | | — | | | 25,446 | |
Stock-based compensation | — | | | — | | | 11,443 | | | — | | | — | | | 11,443 | |
Unrealized (loss) on investments and other(1) | — | | | — | | | — | | | (82) | | | — | | | (82) | |
Net loss | — | | | — | | | — | | | — | | | (33,210) | | | (33,210) | |
Balances as of June 30, 2023 | 27,975 | | | $ | — | | | $ | 1,012,616 | | | $ | (236) | | | $ | (359,266) | | | $ | 653,114 | |
Issuance of common stock upon exercise of stock options | 220 | | | — | | | 13,511 | | | — | | | — | | | 13,511 | |
Stock-based compensation | — | | | — | | | 8,722 | | | — | | | — | | | 8,722 | |
Unrealized (loss) on investments and other(1) | — | | | — | | | — | | | (146) | | | — | | | (146) | |
Net income | — | | | — | | | — | | | — | | | 80,747 | | | 80,747 | |
Balances as of September 30, 2023 | 28,195 | | | $ | — | | | $ | 1,034,849 | | | $ | (382) | | | $ | (278,519) | | | $ | 755,948 | |
(1)Includes foreign currency translation loss of $35 thousand, gain of $57 thousand and loss of $112 thousand for the three months ended March 31, 2023, June 30, 2023 and September 30, 2023, respectively.
The accompanying notes are an integral part of these condensed consolidated financial statements.
Krystal Biotech, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
| | | | | | | | | | | |
| Nine Months Ended September 30, |
(in thousands) | 2024 | | 2023 |
Operating Activities | | | |
Net income | $ | 43,680 | | | $ | 2,240 | |
Adjustments to reconcile net income to net cash provided by (used in) operating activities | | | |
Gain from sale of priority review voucher | — | | | (100,000) | |
Depreciation | 4,603 | | | 3,483 | |
Accretion on marketable securities | (1,535) | | | (1,585) | |
Amortization of operating lease right-of-use assets | 556 | | | 671 | |
Stock-based compensation expense, net | 35,771 | | | 30,080 | |
| | | |
Realized gain on investments | (4,427) | | | (3,886) | |
Other, net | 725 | | | (77) | |
Changes in operating assets and liabilities | | | |
Accounts receivable, net | (55,257) | | | (9,316) | |
Inventory | (5,386) | | | (3,983) | |
Prepaid expenses and other current assets | (2,636) | | | (464) | |
Other non-current assets | 11 | | | (48) | |
Lease liability | (617) | | | (603) | |
Other long-term liabilities | 761 | | | — | |
Accounts payable | 1,602 | | | 121 | |
Accrued expenses and other current liabilities | (2,092) | | | 875 | |
Accrued rebates | 23,568 | | | 920 | |
Accrued litigation settlement | 31,250 | | | — | |
Net cash provided by (used in) operating activities | 70,577 | | | (81,572) | |
| | | |
Investing Activities | | | |
Proceeds from sale of priority review voucher | — | | | 100,000 | |
Purchases of property and equipment | (3,437) | | | (9,952) | |
Purchases of investments | (314,268) | | | (425,870) | |
Maturities of investments | 238,044 | | | 428,620 | |
| | | |
Net cash (used in) provided by investing activities | (79,661) | | | 92,798 | |
| | | |
Financing Activities | | | |
Proceeds from issuance of common stock, net of offering costs | — | | | 159,716 | |
Proceeds from exercise of stock options | 29,972 | | | 41,164 | |
Taxes paid for employee tax withholding related to restricted stock units | (4,181) | | | — | |
Taxes paid related to settlement of restricted stock awards | (1,205) | | | (749) | |
| | | |
Net cash provided by financing activities | 24,586 | | | 200,131 | |
| | | |
Effect of exchange rate changes on cash and cash equivalents | 136 | | | (16) | |
| | | |
Net increase in cash and cash equivalents | 15,638 | | | 211,341 | |
| | | |
Cash and cash equivalents at beginning of period | 358,328 | | | 161,900 | |
Cash and cash equivalents at end of period | $ | 373,966 | | | $ | 373,241 | |
| | | |
Supplemental Disclosures of Non-Cash Investing Activities | | | |
Unpaid purchases of property and equipment included in accounts payable and accrued expenses | $ | 8,292 | | | $ | 11,103 | |
| | | |
Supplemental Cash Flow Information | | | |
Income taxes paid | $ | 5,150 | | | $ | — | |
| | | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Krystal Biotech, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. Organization
Founded in 2016, Krystal Biotech, Inc. (the “Company,” or “we” or other similar pronouns) is a fully integrated, commercial-stage biotechnology company focused on the discovery, development, manufacturing and commercialization of genetic medicines to treat diseases with high unmet medical needs. Using our patented gene therapy technology platform that is based on engineered herpes simplex virus-1 (“HSV-1”), we create vectors that efficiently deliver therapeutic transgenes to cells of interest in multiple organ systems. The cell’s own machinery then transcribes and translates the transgene to treat the disease. Our vectors are amenable to formulation for non-invasive or minimally invasive routes of administration at a healthcare professional’s office or in the patient’s home by a healthcare professional. Our innovative technology platform is supported by two in-house, commercial scale Current Good Manufacturing Practice (“CGMP”) manufacturing facilities.
Liquidity
As of September 30, 2024, the Company had an accumulated deficit of $226.1 million. Our operating profitability is dependent upon the continued successful commercialization of VYJUVEK®, as well as successful development, approval, and commercialization of our other product candidates. Management intends to fund future operations through its on hand cash, cash equivalents and investments and revenue generated from the sale of VYJUVEK, and may also seek additional capital through the sale of equity, arrangements with strategic partners, debt financings or other sources. There can be no assurance that additional funding will be available on terms acceptable to the Company, if at all.
The Company is subject to risks common to companies in the biotechnology industry, including but not limited to the failure of product candidates in preclinical and clinical studies, the development of competing product candidates or other technological innovations by competitors, dependence on key personnel, protection of proprietary technology, compliance with government regulations and the ability to commercialize product candidates. The Company expects to incur significant costs to further its pipeline and to expand its commercialization capabilities in advance of the potential global regulatory approvals of VYJUVEK, the Company’s U.S. Food and Drug Administration (“FDA”) approved redosable gene therapy, for treating patients, six months of age or older, suffering from dystrophic epidermolysis bullosa, a rare and severe monogenic disease that affects the skin and mucosal tissues. The Company believes that its cash, cash equivalents and short-term investments of approximately $588.3 million as of September 30, 2024 will be sufficient to allow the Company to fund its planned operations for at least the next 12 months from the date of this Quarterly Report on Form 10-Q.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying interim condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”). In the opinion of management, all adjustments, which consist of all normal recurring adjustments necessary for a fair presentation of the Company’s financial position and results of operations for the interim periods presented, are reflected in the interim condensed consolidated financial statements. All intercompany balances and transactions have been eliminated in consolidation.
Certain prior period amounts have been reclassified to conform to the current period presentation. The reclassified amounts have no impact on the Company’s previously reported financial position or results of operations.
The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year. These unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (“2023 10-K”), as filed with the U.S. Securities and Exchange Commission (“SEC”) on February 26, 2024.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the condensed consolidated financial statements and accompanying notes. Actual results could materially differ from those estimates. Management considers many factors in developing the estimates and assumptions that are used in the preparation of these financial statements. Management must apply significant judgment in this process. In addition, other factors may affect estimates, including expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates, and whether historical trends are expected to be representative of future trends. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes and management must select an amount that falls within that range of reasonable estimates. If actual results in the future vary from the Company’s estimates, the Company will adjust these estimates
in the period these variances become known. Estimates are used in the following areas, among others: variable consideration associated with revenue recognition, stock-based compensation expense, accrued expenses, the fair value of financial instruments and the valuation allowance included in the deferred income tax calculation.
Concentration of Credit Risk and Off-Balance Sheet Risk
Financial instruments that subject the Company to credit risk primarily consist of cash and cash equivalents, short-term investments, long-term investments, and accounts receivable, net. The Company maintains its cash and cash equivalent balances with high-quality financial institutions and, consequently, the Company believes that such funds are subject to minimal credit risk. The Company is exposed to credit risk in the event of default by the financial institutions to the extent amounts recorded on the condensed consolidated balance sheets are in excess of insured limits. The Company has not experienced any credit losses in such accounts and does not believe it is exposed to any significant credit risk on these funds.
One counterparty accounted for 87% and 100% of accounts receivable, net as of September 30, 2024 and December 31, 2023, respectively. No other counterparty exceeded 10% of the Company’s accounts receivable, net as of September 30, 2024. As of September 30, 2024, the credit profiles for these counterparties were deemed to be in good standing and, as such, an allowance for credit losses was not recorded. For accounts receivable arising from named patient sales, the Company evaluates the creditworthiness of each counterparty on a regular basis.
For the nine months ended September 30, 2024 and 2023, approximately 92% and 100%, respectively, of the Company’s product revenue, net was generated from a single customer in the U.S. No other customer exceeded 10% of the Company’s product revenue, net.
The Company has no financial instruments with off-balance sheet risk of loss.
Summary of Significant Accounting Policies
See Note 2 to our consolidated financial statements included in our 2023 10-K. There were no material changes to the Company’s significant accounting policies during the nine months ended September 30, 2024.
Recent Accounting Pronouncements
There were no accounting pronouncements issued or adopted during the nine months ended September 30, 2024 that are expected to have a material impact on the Company’s condensed consolidated financial statements.
In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09 “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” The purpose of this guidance is to enhance the transparency and usefulness of income tax disclosures and provide comprehensive income tax information, particularly in relation to rate reconciliation and income taxes paid in the U.S. and foreign jurisdictions. This new standard will be effective for fiscal years starting after December 15, 2024, with the option to apply it retrospectively. Early adoption is also allowed. Currently, the Company is assessing the potential impact of this guidance on its consolidated financial statement disclosures.
3. Revenue Recognition
Following FDA approval on May 19, 2023, the Company began commercial marketing and sales of VYJUVEK and began recognizing revenue in the third quarter of 2023.
The following table summarizes changes in allowances and discounts for the nine months ended September 30, 2024:
| | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | Rebates | | Prompt Pay | | Other Accruals | | Total |
Balance as of December 31, 2023 | $ | 5,977 | | | $ | 858 | | | $ | 279 | | | $ | 7,114 | |
Provisions | 30,762 | | | 6,612 | | | 586 | | | 37,960 | |
Payments/Credits | (6,433) | | | (4,881) | | | (307) | | | (11,621) | |
Balance as of September 30, 2024 | $ | 30,306 | | | $ | 2,589 | | | $ | 558 | | | $ | 33,453 | |
Rebates are included in accrued rebates and other long-term liabilities on the condensed consolidated balance sheets. Other long-term liabilities includes $761 thousand of long-term accrued rebates. Prompt pay is recorded as an allowance against accounts receivable, net on the condensed consolidated balance sheets. Other accruals are included in accrued expenses and other current liabilities on the condensed consolidated balance sheets. Provisions for rebates, prompt pay and other accruals are recorded as a reduction to product revenue, net on the condensed consolidated statements of operations and comprehensive income.
4. Net Income Per Share Attributable to Common Stockholders
Basic net income per share attributable to common stockholders is calculated by dividing net income attributable to common stockholders by the weighted-average shares outstanding during the period, without consideration for common stock equivalents. Diluted net income per share attributable to common stockholders is computed by dividing the net income by the weighted-average number of shares of common stock and common stock equivalents outstanding for the period. Common stock equivalents consist of common stock issuable upon (1) exercise of stock options and (2) vesting of restricted stock awards, restricted stock units and performance-based restricted stock units (collectively, “restricted stock”).
For the three months ended September 30, 2024 and 2023, respectively, there were 229 thousand and 378 thousand common stock equivalents outstanding in the form of stock options that have been excluded from the calculation of diluted net income per common share as their effect would be anti-dilutive.
For the nine months ended September 30, 2024 and 2023, respectively, there were 207 thousand and 1.3 million common stock equivalents outstanding in the form of stock options that have been excluded from the calculation of diluted net income per common share as their effect would be anti-dilutive.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands, except per share data) | 2024 | | 2023 | | 2024 | | 2023 |
Numerator: | | | | | | | |
Net income | $ | 27,180 | | | $ | 80,747 | | | $ | 43,680 | | | $ | 2,240 | |
Denominator: | | | | | | | |
Weighted-average basic common shares | 28,716 | | | 28,042 | | | 28,537 | | | 26,812 | |
Dilutive effect of stock options and unvested restricted stock | 1,186 | | | 850 | | | 1,132 | | | 573 | |
Weighted-average diluted common shares | 29,902 | | | 28,892 | | | 29,669 | | | 27,385 | |
| | | | | | | |
Net income per common share—basic | $ | 0.95 | | | $ | 2.88 | | | $ | 1.53 | | | $ | 0.08 | |
Net income per common share—diluted | $ | 0.91 | | | $ | 2.79 | | | $ | 1.47 | | | $ | 0.08 | |
5. Fair Value Instruments
The following tables show the Company’s cash, cash equivalents and available-for-sale securities by significant investment category as of September 30, 2024 and December 31, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2024 | |
(in thousands) | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized (Losses) | | Aggregate Fair Value | | Cash and Cash Equivalents | | Short-term Marketable Securities(1) | | Long-term Marketable Securities(2) | |
Level 1: | | | | | | | | | | | | | | |
Cash and cash equivalents | $ | 373,966 | | | $ | — | | | $ | — | | | $ | 373,966 | | | $ | 373,966 | | | $ | — | | | $ | — | | |
Subtotal | 373,966 | | | — | | | — | | | 373,966 | | | 373,966 | | | — | | | — | | |
Level 2: | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Commercial paper | 23,211 | | | 15 | | | — | | | 23,226 | | | — | | | 23,226 | | | — | | |
Corporate bonds | 134,920 | | | 780 | | | (23) | | | 135,677 | | | — | | | 66,134 | | | 69,542 | | |
U.S. government agency securities | 160,625 | | | 731 | | | (13) | | | 161,343 | | | — | | | 124,998 | | | 36,346 | | |
Subtotal | 318,756 | | | 1,526 | | | (36) | | | 320,246 | | | — | | | 214,358 | | | 105,888 | | |
Total | $ | 692,722 | | | $ | 1,526 | | | $ | (36) | | | $ | 694,212 | | | $ | 373,966 | | | $ | 214,358 | | | $ | 105,888 | | |
(1)The Company’s short-term marketable securities mature in one year or less.
(2)The Company’s long-term marketable securities mature between one and two years.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 | |
(in thousands) | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized (Losses) | | Aggregate Fair Value | | Cash and Cash Equivalents | | Short-term Marketable Securities(1) | | Long-term Marketable Securities(2) | |
Level 1: | | | | | | | | | | | | | | |
Cash and cash equivalents | $ | 358,328 | | | $ | — | | | $ | — | | | $ | 358,328 | | | $ | 358,328 | | | $ | — | | | $ | — | | |
Subtotal | 358,328 | | | — | | | — | | | 358,328 | | | 358,328 | | | — | | | — | | |
Level 2: | | | | | | | | | | | | | | |
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 | | |
Subtotal | 235,027 | | | 835 | | | (58) | | | 235,804 | | | — | | | 173,850 | | | 61,954 | | |
Total | $ | 593,355 | | | $ | 835 | | | $ | (58) | | | $ | 594,132 | | | $ | 358,328 | | | $ | 173,850 | | | $ | 61,954 | | |
(1)The Company’s short-term marketable securities mature in one year or less.
(2)The Company’s long-term marketable securities mature between one and two years.
6. Balance Sheet Components
Inventory
Inventory consisted of the following:
| | | | | | | | | | | |
(in thousands) | September 30, 2024 | | December 31, 2023 |
Raw materials | $ | 8,981 | | | $ | 3,154 | |
Work-in-process | 6,390 | | | 3,204 | |
Finished goods | 3,210 | | | 627 | |
Inventory | $ | 18,581 | | | $ | 6,985 | |
Property and Equipment, Net
Property and equipment, net consisted of the following:
| | | | | | | | | | | |
(in thousands) | September 30, 2024 | | December 31, 2023 |
| | | |
Building and building improvements | $ | 111,438 | | | $ | 111,180 | |
Leasehold improvements | 25,643 | | | 25,068 | |
Manufacturing equipment | 26,793 | | | 24,905 | |
Construction in progress | 5,500 | | | 7,291 | |
Laboratory equipment | 3,141 | | | 2,339 | |
Computer equipment and software | 2,054 | | | 1,614 | |
Furniture and fixtures | 1,814 | | | 1,632 | |
Total property and equipment | 176,383 | | | 174,029 | |
Accumulated depreciation | (19,791) | | | (12,827) | |
Property and equipment, net | $ | 156,592 | | | $ | 161,202 | |
Depreciation expense was $1.3 million and $1.2 million for the three months ended September 30, 2024 and 2023, respectively, and $4.6 million and $3.5 million for the nine months ended September 30, 2024 and 2023, respectively. Depreciation expense capitalized into inventory was $1.0 million and $391 thousand for the three months ended September 30, 2024 and 2023, respectively, and $2.4 million and $464 thousand for the nine months ended September 30, 2024 and 2023, respectively.
In March 2023, the Company received the permanent occupancy permit for its second commercial scale CGMP facility, ASTRA, which allowed the Company to begin utilizing certain portions of the building. As a result, and as qualification of assets occurred through 2023 and the first half of 2024, the majority of assets relating to ASTRA were reclassified from construction in progress to leasehold improvements, manufacturing equipment, buildings and building
improvements, furniture and fixtures, or computer equipment and software as it was determined that assets were ready for their intended use. As certain pieces of equipment are not yet qualified, the Company will continue to hold the remaining assets within construction in progress until qualification has been completed and the assets are ready for their intended use. Estimated remaining payments related to ASTRA were $7.9 million and $8.2 million as of September 30, 2024 and December 31, 2023, respectively, and are recorded in accounts payable and accrued expenses and other current liabilities on the condensed consolidated balance sheets.
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following as of September 30, 2024 and December 31, 2023:
| | | | | | | | | | | | |
(in thousands) | September 30, 2024 | | December 31, 2023 | |
Accrued litigation settlement | $ | 31,250 | | | $ | — | | |
Accrued payroll and benefits | 6,714 | | | 8,778 | | |
Accrued construction-in-progress | 4,873 | | | 5,182 | | |
Accrued preclinical and clinical expenses | 3,091 | | | 1,248 | | |
Other current liabilities | 2,604 | | | 1,876 | | |
Accrued professional fees | 2,200 | | | 1,810 | | |
Accrued inventory | 1,805 | | | 334 | | |
Accrued taxes | 573 | | | 2,283 | | |
| | | | |
Accrued expenses and other current liabilities | $ | 53,110 | | | $ | 21,511 | | |
7. Commitments and Contingencies
Agreements with Contract Manufacturing Organizations and Contract Research Organizations
The Company enters into various agreements in the normal course of business with Contract Manufacturing Organizations (“CMOs”), Contract Research Organizations (“CROs”) and other third parties for preclinical research studies, clinical trials and testing and manufacturing services. The agreements with CMOs primarily relate to the manufacturing of our sterile gel that is mixed with in-house produced vectors as part of the final drug product for VYJUVEK. Agreements with third parties may also include research and development consulting activities, clinical-trial agreements, testing of our clinical-stage, pre-commercial and commercial stage products and/or storage, packaging and labeling. The Company is obligated to make milestone payments under certain of these contracts. The Company may also be responsible for the payment of a monthly service fee for project management services for the duration of any agreements. The estimated remaining commitments as of September 30, 2024 under these agreements was approximately $736 thousand. The Company has incurred research and development expenses under CMO and CRO agreements of $2.7 million and $5.8 million for the three and nine months ended September 30, 2024 and $1.9 million and $5.0 million for the three and nine months ended September 30, 2023.
Legal Proceedings
In May 2020, PeriphaGen, Inc. (“PeriphaGen”) commenced litigation against the Company alleging breach of contract and misappropriation of trade secrets. In April 2022, the Company and PeriphaGen entered into a final settlement agreement, and the Company paid PeriphaGen an upfront payment of $25.0 million for: (i) the release of all claims in the litigation with PeriphaGen; (ii) the acquisition of certain PeriphaGen assets and (iii) the grant of a license by PeriphaGen for dermatological applications. The final settlement agreement also includes a $12.5 million payment upon FDA approval of VYJUVEK and three additional $12.5 million contingent milestone payments upon the Company reaching $100.0 million in cumulative sales, $200.0 million in cumulative sales and $300.0 million in cumulative sales. If all milestones are achieved, the total consideration for settling the dispute, acquiring certain assets, and granting of a license from PeriphaGen will be $75.0 million.
In May 2024, the parties entered into an amendment to the final settlement agreement (“Amendment”). As defined in the final settlement agreement and clarified in the Amendment, cumulative sales means the total cumulative revenue from sales of the Company’s products by the Company and its affiliates and licensees. The Amendment modified the timing of the $12.5 million contingent milestone payment triggered by the Company reaching $100.0 million in cumulative sales, such that $6.25 million would be payable following the Company’s filing of a Quarterly Report on Form 10-Q that reports $100.0 million in cumulative sales, and the remaining $6.25 million would be payable within 120 days following the end of the fiscal year in which the initial $6.25 million is paid. There were no other revisions to the final settlement agreement, and the contingent payments triggered upon reaching $200.0 million in cumulative sales and $300.0 million in cumulative sales remain payable within 30 days following the filing(s) by the Company of an Annual Report(s) on Form 10-K reporting $200.0 million in cumulative sales and $300.0 million in cumulative sales.
During the three months ended June 30, 2023, the Company obtained FDA approval of VYJUVEK and, in accordance with the final settlement agreement, paid PeriphaGen $12.5 million in June 2023.
During the three months ended June 30, 2024, the Company reached cumulative sales of $100.0 million and, in accordance with the Amendment, the Company paid PeriphaGen the $6.25 million milestone payment in September 2024. The Company is required to make the remaining $6.25 million milestone payment within 120 days following December 31, 2024.
During the three months ended September 30, 2024, the Company reached cumulative sales of $200.0 million and, in accordance with the final settlement agreement and Amendment, is required to make the associated $12.5 million milestone payment within 30 days following the filing by the Company of its Annual Report on Form 10-K for the year ended December 31, 2024.
During the three months ended September 30, 2024, in accordance with ASC 450, “Contingencies,” the Company determined that reaching $300.0 million in cumulative sales was probable and recorded litigation settlement expense of $12.5 million on the condensed consolidated statements of operations and comprehensive income. If the Company reaches $300.0 million in cumulative sales, it is required to pay PeriphaGen the associated $12.5 million milestone payment within 30 days following the filing of its Annual Report on Form 10-K that reports $300.0 million in cumulative sales.
The Company recorded litigation settlement expense of $12.5 million and $37.5 million for the three and nine months ended September 30, 2024, respectively, and zero and $12.5 million for the three and nine months ended September 30, 2023, respectively, on the condensed consolidated statements of operations and comprehensive income. As of September 30, 2024, the Company has paid $43.75 million of the total $75.0 million of total consideration discussed above and has recorded accrued litigation expense within accrued expenses and other current liabilities on its condensed consolidated balance sheet for the remaining $31.25 million.
8. Leases
As of September 30, 2024, future minimum commitments under the Company’s operating leases with lease terms in excess of 12 months were as follows:
| | | | | |
(in thousands) | Operating Leases |
2024 (remaining three months) | $ | 386 | |
2025 | 1,277 | |
2026 | 1,277 | |
2027 | 1,300 | |
2028 | 1,325 | |
Thereafter | 9,437 | |
Future minimum operating lease payments | 15,002 | |
Less: Interest | (7,526) | |
Present value of lease liability | $ | 7,476 | |
As of September 30, 2024 and December 31, 2023, the Company’s weighted-average remaining lease term for operating leases was 12.2 years and 12.3 years, respectively, and the Company’s weighted-average discount rate for operating leases was 9.5% as of September 30, 2024 and December 31, 2023.
The components of the Company’s lease expense are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | 2024 | | 2023 | | 2024 | | 2023 |
Lease cost: | | | | | | | |
Operating lease expense | $ | 260 | | | $ | 379 | | | $ | 905 | | | $ | 1,282 | |
Variable lease expense | 66 | | | 62 | | | 156 | | | 150 | |
Total lease expense | $ | 326 | | | $ | 441 | | | $ | 1,061 | | | $ | 1,432 | |
9. Capitalization
ATM Program
On May 8, 2023, the Company entered into a sales agreement with Cowen and Company, LLC (“Cowen”) with respect to an at-the-market equity offering program (“ATM Program”), under which the Company may issue and sell from time
to time through Cowen, acting as agent and/or principal, shares of its common stock having an aggregate offering price up to $150.0 million (“Placement Shares”).
The Placement Shares will be offered and sold pursuant to the Company’s effective shelf registration statement on Form S-3 filed with the SEC on April 6, 2023 (the “Form S-3”), and a prospectus supplement relating to the Placement Shares that was filed with the SEC on May 8, 2023. We may terminate the ATM Program at any time upon 10 days’ notice to Cowen. If not earlier terminated, the ATM Program will automatically terminate upon issuance of all of the Placement Shares or the expiration of the Form S-3 on April 6, 2026.
The ATM Program is not and has never been active.
2023 Private Placement Offering
On May 22, 2023 and May 23, 2023, the Company sold 1,720,100 and 9,629 shares of Common Stock, respectively, in a private placement to certain institutional investors at a price of $92.50 per share for aggregate net proceeds of $160.0 million. In addition, the Company entered into a Registration Rights Agreement with the investors (“Registration Rights Agreement”) that required the Company to file a registration statement with the SEC within 60 days of the date of the Registration Rights Agreement registering the resale of the shares of Common Stock issued in the private placement. On July 18, 2023, the Company filed the resale registration statement on Form S-3ASR with the SEC, which became effective upon filing.
10. Stock-Based Compensation
In 2017, the Company adopted the 2017 IPO Stock Plan (“Plan”), which governs the issuance of equity awards to employees, certain non-employee consultants, and directors. Initially, the Company reserved 900 thousand shares for issuance under the Plan with an initial sublimit for incentive stock options of 900 thousand shares. On an annual basis, the amount of shares available for issuance under the Plan increases by an amount equal to four percent of the total outstanding shares as of the last day of the preceding calendar year. The sublimit of incentive stock options is not subject to the increase. The Company has historically granted stock options and restricted stock awards (“RSAs”) to its employees. In February 2023, the Company began issuing restricted stock units (“RSUs”) and performance-based restricted stock units (“PSUs” and with RSUs commonly referred to collectively as “restricted stock units”) to certain employees.
Shares remaining available for grant under the Plan were 2.4 million as of September 30, 2024.
Stock Options
The following table summarizes the Company’s stock option activity for the nine months ended September 30, 2024:
| | | | | | | | | | | | | | | | | | | | | | | | |
| Stock Options Outstanding | | Weighted-Average Exercise Price | | Weighted-Average Remaining Contractual Life (in years) | | Aggregate Intrinsic Value(1) (in thousands) | |
Outstanding as of December 31, 2023 | 2,606,592 | | | $ | 66.39 | | | 7.9 | | $ | 150,405 | | |
Granted | 297,202 | | | $ | 168.54 | | | | | | |
Exercised | (489,152) | | | $ | 61.27 | | | | | | |
Cancelled or forfeited | (335,449) | | | $ | 70.52 | | | | | | |
| | | | | | | | |
Outstanding as of September 30, 2024 | 2,079,193 | | | $ | 81.53 | | | 7.5 | | $ | 209,854 | | |
Exercisable as of September 30, 2024 | 867,025 | | | $ | 63.68 | | | 6.7 | | $ | 102,627 | | |
(1)Aggregate intrinsic value represents the difference between the closing stock price of our Common Stock on December 31, 2023 and September 30, 2024, respectively, and the exercise price of outstanding in-the-money options.
The following table summarizes the Company’s stock option activity for the nine months ended September 30, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | |
| Stock Options Outstanding | | Weighted-Average Exercise Price | | Weighted-Average Remaining Contractual Life (in years) | | Aggregate Intrinsic Value(1) (in thousands) | |
Outstanding as of December 31, 2022 | 3,582,181 | | | $ | 61.50 | | | 8.7 | | $ | 64,880 | | |
Granted | 419,780 | | | $ | 91.38 | | | | | | |
Exercised | (710,734) | | | $ | 57.98 | | | | | | |
Cancelled or forfeited | (623,967) | | | $ | 64.19 | | | | | | |
| | | | | | | | |
Outstanding as of September 30, 2023 | 2,667,260 | | | $ | 66.04 | | | 8.2 | | $ | 133,648 | | |
Exercisable as of September 30, 2023 | 707,277 | | | $ | 55.51 | | | 7.1 | | $ | 42,793 | | |
(1)Aggregate intrinsic value represents the difference between the closing stock price of our Common Stock on December 31, 2022 and September 30, 2023, respectively, and the exercise price of outstanding in-the-money options.
The total intrinsic value (the amount by which the fair market value exceeds the exercise price) of stock options exercised was $5.9 million and $13.5 million during the three months ended September 30, 2024 and 2023, respectively, and $50.2 million and $41.4 million during the nine months ended September 30, 2024 and 2023, respectively.
The weighted-average grant-date fair value per share of options granted to employees, non-employees, and directors was $130.85 and $85.93 during the three months ended September 30, 2024 and 2023, respectively, and $114.29 and $62.87 during the nine months ended September 30, 2024 and 2023, respectively.
There was $63.4 million of unrecognized stock-based compensation expense related to employees’, non-employees’, and directors’ options that is expected to be recognized over a weighted-average period of 2.5 years as of September 30, 2024.
Restricted Stock Awards
The following table summarizes the Company’s RSA activity:
| | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, | |
| 2024 | | 2023 | |
| Number of Shares | | Weighted-Average Grant Date Fair Value | | Number of Shares | | Weighted-Average Grant Date Fair Value | |
Non-vested RSAs, beginning of period | 44,400 | | | $ | 78.89 | | | 66,600 | | | $ | 78.89 | | |
Granted | — | | | | | — | | | | |
Vested | (14,523) | | | $ | 78.89 | | | (12,649) | | | $ | 78.89 | | |
Surrendered for taxes | (7,677) | | | $ | 78.89 | | | (9,551) | | | $ | 78.89 | | |
Non-vested RSAs, end of period | 22,200 | | | $ | 78.89 | | | 44,400 | | | $ | 78.89 | | |
There was $713 thousand of unrecognized stock-based compensation expense related to employees’ RSAs that is expected to be recognized over a weighted-average period of 5 months as of September 30, 2024.
Restricted Stock Units
The following table summarizes the Company’s RSU activity:
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2024 | | 2023 |
| Number of Shares | | Weighted-Average Grant Date Fair Value | | Number of Shares | | Weighted-Average Grant Date Fair Value |
Non-vested RSUs, beginning of period | 160,900 | | | $ | 81.91 | | | — | | | |
Granted | 225,290 | | | $ | 159.63 | | | 186,900 | | | $ | 81.91 | |
Vested | (40,075) | | | $ | 81.91 | | | — | | | |
Forfeited | (36,562) | | | $ | 110.11 | | | (24,700) | | | $ | 81.91 | |
Non-vested RSUs, end of period | 309,553 | | | $ | 135.14 | | | 162,200 | | | $ | 81.91 | |
There was $35.3 million of unrecognized stock-based compensation expense related to employees’ RSU awards that is expected to be recognized over a weighted-average period of 3.2 years as of September 30, 2024.
Performance-Based Restricted Stock Units
The following table summarizes the Company’s PSU activity:
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2024 | | 2023 |
| Number of Shares | | Weighted-Average Grant Date Fair Value | | Number of Shares | | Weighted-Average Grant Date Fair Value |
Non-vested PSUs, beginning of period | 50,000 | | | $ | 81.91 | | | — | | | |
Granted | 112,500 | | | $ | 159.47 | | | 60,000 | | | $ | 81.91 | |
Vested | (25,000) | | | $ | 81.91 | | | — | | | |
| | | | | | | |
Forfeited | — | | | | | (10,000) | | | $ | 81.91 | |
Non-vested PSUs, end of period | 137,500 | | | $ | 145.37 | | | 50,000 | | | $ | 81.91 | |
PSUs vest ratably over two years based upon continued service through the vesting date and the achievement of specific regulatory and commercial performance criteria as determined by the Compensation Committee of the Company’s Board of Directors. The performance criteria are to be completed by the end of the year in which the PSU awards were granted. As of the September 30, 2024, the Company estimated that 100% of the PSUs granted in 2024 will be eligible to vest.
There was $13.5 million of unrecognized stock-based compensation expense related to employees’ PSU awards that is expected to be recognized over a weighted-average period of 1.4 years as of September 30, 2024.
Stock-Based Compensation Expense, Net
The Company recorded stock-based compensation expense, net related to its stock options, RSAs, RSUs and PSUs in the condensed consolidated statements of operations and comprehensive income for the three and nine months ended September 30, 2024 and 2023 as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in thousands) | 2024 | | 2023 | | 2024 | | 2023 |
Research and development | $ | 2,267 | | | $ | 2,336 | | | $ | 6,907 | | | $ | 7,695 | |
Selling, general and administrative | 11,049 | | | 5,975 | | | 28,864 | | | 22,385 | |
Total stock-based compensation | $ | 13,316 | | | $ | 8,311 | | | $ | 35,771 | | | $ | 30,080 | |
After the FDA approval of VYJUVEK on May 19, 2023, the Company began capitalizing stock-based compensation associated with the allocation of labor costs related to work performed to manufacture VYJUVEK. The Company capitalized stock-based compensation of $946 thousand and $410 thousand for the three months ended September 30, 2024 and 2023, respectively, and $2.3 million and $522 thousand for the nine months ended September 30, 2024 and 2023, respectively, into inventory.
Historically, the Company also capitalized the portion of stock-based compensation related to work performed on the construction of our manufacturing facilities. The Company capitalized stock-based compensation of zero for each the three months ended September 30, 2024 and 2023, respectively, and zero and $162 thousand for the nine months ended September 30, 2024 and 2023, respectively, into property and equipment, net.
11. Income Taxes
The Company recorded an income tax provision of $2.6 million and $3.1 million for the three and nine months ended September 30, 2024, respectively. The tax provision for interim periods is calculated using an estimate of the annual effective tax rate, adjusted for discrete items. If there are any changes to the estimated annual tax rate, the Company will make a cumulative adjustment to the income tax provision in the period the change becomes known. The Company did not record an income tax provision for the three and nine months ended September 30, 2023 as it generated sufficient tax losses, after consideration of discrete items, during each of the periods. The Company expects to maintain a full valuation allowance against its net deferred tax assets for the year.
12. Gain from Sale of Priority Review Voucher
In August 2023, the Company entered into an agreement to sell the rare pediatric disease priority review voucher (“PRV”), which was awarded to the Company in connection with the FDA’s approval of VYJUVEK. The transaction closed in August 2023 and was not subject to any commissions or closing costs. The proceeds of $100.0 million from the sale of the PRV were recorded as a gain from sale of priority review voucher on the Company’s condensed consolidated statement of operations and comprehensive income as it did not have a carrying value at the time of the sale.
13. Subsequent Events
The Company evaluates events or transactions that occur after the balance sheet date, but prior to the issuance of the financial statements, to identify matters that require recognition or disclosure. The Company concluded that no subsequent events have occurred, that would require recognition or disclosure in the condensed consolidated financial statements.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read together with the unaudited condensed consolidated financial statements and related notes included in Item 1 of Part I of this Quarterly Report on Form 10-Q and with the audited financial statements and the related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (“2023 10-K”), as filed with the SEC on February 26, 2024.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Forward-looking statements include all statements that are not historical facts and can be identified by terms such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” or similar expressions and the negatives of those terms. These statements relate to future events or to our future operating or financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. Some of such factors include, but are not limited to:
•the commercial success of VYJUVEK® (beremagene geperpavec-svdt), our U.S. Food and Drug Administration (“FDA”) approved product for treating patients, six months of age or older, suffering from dystrophic epidermolysis bullosa (“DEB”);
•the timing, scope or results of regulatory filings and approvals for B-VEC outside of the U.S. and the commercial success of B-VEC outside the U.S.
•the initiation, timing, cost, progress and results of our research and development activities, preclinical studies and clinical trials for our product candidates;
•the timing, scope or results of regulatory filings and approvals, including timing of final FDA and other regulatory approval of our product candidates;
•our ability to achieve certain accelerated or orphan drug designations from the FDA or other regulators;
•changes in our estimates regarding the potential market opportunity for VYJUVEK and our product candidates;
•increases in costs associated with our research and development programs for our product candidates;
•increases in our selling, general and administrative expenses;
•risks related to our ability to successfully develop and commercialize our product candidates;
•our ability to identify new product candidates;
•our ability to identify, recruit and retain key personnel;
•risks related to our marketing and manufacturing capabilities and strategy;
•our business model and strategic plans for our business, product candidates and technology;
•the rate and degree of market acceptance and clinical utility of our product candidates and gene therapy, in general;
•our competitive position and the success of competing therapies;
•our intellectual property position and our ability to protect and enforce our intellectual property;
•our ability to establish and maintain collaborations;
•our financial performance and our estimates regarding expenses, future revenue, capital requirements and needs for additional financing, as well as our ability to raise capital;
•our ability to successfully avoid or resolve any litigation, intellectual property or other claims, that may be brought against us;
•global economic conditions; and
•the impact of changes in laws and regulations.
Forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in Item 1A of Part II of this Quarterly Report on Form 10-Q and other filings we make with the SEC from time to time. Moreover, we operate in a very competitive and rapidly changing environment, and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements. You should read this Quarterly Report completely and with the understanding that our actual future results may be materially different from what we expect.
Forward-looking statements represent our management’s beliefs and assumptions only as of the date of filing this Quarterly Report with the SEC. Except as required by law, we assume no obligation to update these forward-looking statements publicly as a result of subsequent events, developments or otherwise, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.
Throughout this Form 10-Q, unless the context requires otherwise, all references to “Krystal,” “the Company,” “we,” “our,” “us” or similar terms refer to Krystal Biotech, Inc., together with its consolidated subsidiaries. Web links throughout this document are provided for convenience only and are not intended to be active hyperlinks to the referenced websites. No content on the referenced websites shall be deemed incorporated by reference into this Quarterly Report on Form 10-Q.
Overview
We are a fully integrated, commercial-stage biotechnology company focused on the discovery, development, manufacturing and commercialization of genetic medicines to treat diseases with high unmet medical needs. Using our patented gene therapy technology platform that is based on engineered herpes simplex virus-1 (“HSV-1”), we create vectors that efficiently deliver therapeutic transgenes to cells of interest in multiple organ systems. The cell’s own machinery then transcribes and translates the transgene to treat the disease. Our vectors are amenable to formulation for non-invasive or minimally invasive routes of administration at a healthcare professional’s office or in the patient’s home by a healthcare professional. Our innovative technology platform is supported by two in-house, commercial scale Current Good Manufacturing Practice (“CGMP”) manufacturing facilities.
Our FDA Approved Commercial Product
VYJUVEK (beremagene geperpavec-svdt, or B-VEC; referred to as B-VEC outside the U.S.)
On May 19, 2023, the FDA approved VYJUVEK, the first ever redosable gene therapy, for treating patients, six months of age or older, suffering from DEB, a rare and severe monogenic disease that affects the skin and mucosal tissues and is caused by one or more mutations in a gene called COL7A1. VYJUVEK is a redosable topical gel containing our novel vector designed to deliver two copies of the COL7A1 transgene to a patient’s skin cells to produce the COL7 protein. VYJUVEK is the first and only corrective medicine approved by the FDA for the treatment of DEB, both recessive and dominant, that can be administered by a healthcare professional (“HCP”) in either a clinical setting or in the home. We possess exclusive rights to develop, manufacture, and commercialize VYJUVEK and all our pipeline candidates throughout the world.
Net VYJUVEK product revenue was $83.8 million for the three months ended September 30, 2024, and $250.1 million in cumulative net product revenue since launch.
Gross margin for the three months ended September 30, 2024 was 92%. We define gross margin as product revenue, net less cost of goods sold expressed as a percentage of product revenue, net.
We have made steady progress securing access and reimbursement for VYJUVEK since launch and as of October 2024, positive access determinations have been achieved for 97% of lives covered under commercial and Medicaid plans.
As of October 2024, we have secured over 460 reimbursement approvals for VYJUVEK in the U.S.
We seek to make the experience of starting and continuing on VYJUVEK treatment seamless for the patient. Since launch, infrastructure has been in place for patients to be treated in their homes by a HCP, reducing the need for regular visits to a clinic or hospital. Krystal ConnectTM, our U.S. in-house patient services call center, has been active since FDA approval and assists patients, care givers and HCPs interested in accessing VYJUVEK. Since launch and through the third quarter of 2024, patient compliance with once weekly treatment while on VYJUVEK remains high at 87%.
Preparations and infrastructure buildout are underway in Europe and Japan to support our planned direct commercial launch in these regions in 2025.
In October 2023, we submitted a Marketing Authorization Application (“MAA”) to the European Medicines Agency (“EMA”) for B-VEC for the treatment of DEB. In November 2023, we were notified that the MAA had been validated and was
now under Committee for Medicinal Products for Human Use (“CHMP”) review. In February 2024, the EMA completed inspection of our manufacturing facility as part of the MAA review process and, in May 2024, good manufacturing practices certification was granted by the EMA. Based on recent interactions with the EMA, we expect a CHMP opinion on the MAA in the fourth quarter of 2024 and a launch in Germany in the first half of 2025.
In September 2024, the Haute Autorité de Santé in France approved pre-marketing early reimbursed access to B-VEC under the Accès Précoce (AP1) program. DEB patient access to B-VEC under AP1 is expected to start in the fourth quarter of 2024. AP1 allows for early access to innovative therapies in France prior to European regulatory approval when a positive benefit/risk ratio is recognized and when no other therapeutic alternatives are available.
In October 2024, we filed a Japan New Drug Application (JNDA) with Japan’s Pharmaceuticals and Medical Devices Agency (PMDA). The JNDA includes the results from the Japan OLE study, the design of which had been approved by the PMDA in July 2023. The efficacy portion of the Japan OLE study was completed in April 2024 and results closely mirrored those of our Phase 3 study in the U.S. A total of five patients were enrolled, with one patient discontinuing after eight weeks due to scheduling challenges. B-VEC was well tolerated in the Japanese study population, with a safety profile consistent with previous studies, and all four patients that completed the study achieved the primary endpoint of complete wound closure at six months. A decision on the JNDA by the PMDA is expected in the second half of 2025. The application is expected to receive priority review given the Orphan Drug Designation status granted to B-VEC in December 2023.
Pipeline Highlights and Recent Developments
Respiratory
KB408 is an inhaled (nebulized) formulation of our novel vector designed to deliver two copies of the SERPINA1 transgene, that encodes for normal human alpha-1 antitrypsin protein, for the treatment of alpha-1 antitrypsin deficiency (“AATD”), a serious rare lung disease. In February 2024, we dosed the first patient in SERPENTINE-1, a Phase 1, open-label, single dose escalation study evaluating KB408, delivered via a nebulizer, in adult patients with AATD with a Pi*ZZ or a Pi*ZNull genotype. In September 2024, after initiating dosing in Cohort 2, we amended the SERPENTINE-1 protocol to include mandatory bronchoscopies in Cohort 2 for molecular evaluation of alpha-1 antitrypsin (“AAT”) expression . We are on track to report interim molecular data from the study before the end of the year. Details of the Phase 1 study can be found at www.clinicaltrials.gov under NCT identifier: NCT06049082.
KB407 is an inhaled (nebulized) formulation of our novel vector designed to deliver two copies of the full-length cystic fibrosis transmembrane conductance regulator (“CFTR”) transgene for the treatment of cystic fibrosis (“CF”), a serious rare lung disease caused by missing or mutated CFTR protein. In July 2023, we announced that we had dosed the first patient in CORAL-1, a Phase 1 multi-center, dose-escalation study evaluating KB407, delivered via a nebulizer, in patients with CF, regardless of their underlying genotype. In May 2024, we cleared the safety evaluation window for the second cohort of CORAL-1. We recently activated two additional clinical sites for CORAL-1 and expect to report interim molecular data for KB407 in the first half of 2025. Dosing of the first patient in the third and final cohort in CORAL-1 is expected before the end of the year. Details of the Phase 1 study can be found at www.clinicaltrials.gov under NCT identifier NCT05504837.
Ophthalmology
In April 2023, we announced clinical data on the compassionate use of B-VEC, formulated and administered as an eyedrop, to treat a patient suffering from ocular complications of DEB. Data was first presented at the Association for Research in Vision and Ophthalmology (“ARVO”) 2023 Annual Meeting and subsequently published in the New England Journal of Medicine in February 2024. Regular application of B-VEC to the eye was well tolerated and associated with full corneal healing at three months and visual acuity improvement from hand motion to 20/25 by eight months.
Based on this early clinical evidence of safety and potential benefit under compassionate use, we started discussions with the FDA in the first quarter of 2024 on a potential clinical development path for KB803, an ophthalmic formulation of B-VEC, and in February 2024, we aligned with the FDA on our proposed single arm, open label study in approximately 10 to 15 patients to enable approval of KB803 to treat ocular complications which are thought to affect over 25% of DEB patients. We plan to initiate the registrational IOLITE study in the first half of 2025.
In August 2024, we initiated a natural history study to prospectively collect data on the frequency of corneal abrasions in patients with DEB and serve as a run-in period for patients who may be eligible to participate in the registrational study. Enrollment in the study is ongoing.
We are actively evaluating multiple, preclinical-stage genetic medicine candidates for the treatment of front and back of the eye diseases.
Oncology
KB707 is a redosable, immunotherapy designed to deliver genes encoding both human interleukin-2 (“IL-2”) and interleukin-12 (“IL-12”) to the tumor microenvironment and promote systemic immune-mediated tumor clearance. Two formulations of KB707 are in development, a solution formulation for transcutaneous injection and an inhaled (nebulized) formulation for lung delivery. Both intratumoral and inhaled KB707 have been granted Rare Pediatric Disease Designation (“RPDD”) by the FDA, with intratumoral receiving RPDD for the treatment of rhabdomyosarcoma in August 2024 and inhaled KB707 receiving RPDD for the treatment of osteosarcoma in May 2024. Both formulations of KB707 have also been granted Fast Track Designation by the FDA.
In October 2023, we dosed the first patient in OPAL-1, an open-label, multi-center, monotherapy, dose escalation and expansion Phase 1 study, evaluating intratumoral KB707 in patients with locally advanced or metastatic solid tumors, who relapsed or are refractory to standard of care, with at least one measurable and injectable tumor accessible by transcutaneous route of administration. In May 2024, we cleared the safety evaluation window for our third and final dose escalation cohort of the OPAL-1 study. Enrollment in the dose expansion cohort is ongoing. Details of the Phase 1 study can be found at www.clinicaltrials.gov under NCT identifier NCT05970497.
In April 2024, we dosed the first patient in KYANITE-1, an open-label, monotherapy, dose escalation and expansion Phase 1 study, evaluating inhaled KB707 in patients with locally advanced or metastatic solid tumors of the lung. In August 2024, the dose escalation portion of the study was completed and a dose was selected for expansion. Enrollment in the dose expansion cohort is ongoing. Details of the Phase 1 study can be found at www.clinicaltrials.gov under NCT identifier NCT06228326.
Based on the current pace of enrollment in OPAL-1 and KYANITE-1, we expect to report initial interim data for KB707 in the fourth quarter of 2024.
Dermatology
KB105 is a topical gel containing our novel vector designed to deliver two copies of the TGM1 transgene encoding the human enzyme transglutaminase-1 (“TGM1”) for the treatment of lamellar icthyosis, a serious rare skin disorder most often caused by missing or mutated TGM1 protein. We expect to resume enrollment in the Phase 2 portion of JADE-1, a randomized, placebo-controlled Phase 1/2 study evaluating KB105 for the treatment of lamellar icthyosis in the first half of 2025. Details of the JADE-1 Phase 1/2 study can be found at www.clinicaltrials.gov under NCT identifier NCT04047732.
Aesthetics
In addition to focusing on genetic medicines to treat patients with diseases with high unmet medical needs, we are leveraging the ability of our platform to deliver proteins of interest to cells in the skin in the context of aesthetic medicine via our wholly-owned subsidiary, Jeune Aesthetics, Inc. (“Jeune”). KB301 is a solution formulation of our novel vector for intradermal injection designed to deliver two copies of the COL3A1 transgene to address signs of aging or damaged skin caused by declining levels of, or damaged proteins within the extracellular matrix, including type III collagen. In August 2024, Jeune announced positive interim safety and efficacy results from Cohorts 3 and 4 of the Phase 1 study PEARL-1, open label studies evaluating KB301 in the treatment of lateral canthal lines at rest and dynamic wrinkles of the décolleté, respectively. Meaningful and sustained improvements in multiple skin aesthetic attributes, including wrinkles, crepiness, hydration, and radiance, were reported by the study investigators and subjects alike in both the décolleté and lateral canthal regions. Increased subject satisfaction with wrinkle appearance was also reported. Details of the Phase 1 study can be found at www.clinicaltrials.gov under NCT identifier NCT04540900. Based on these Phase 1 results, Jeune has selected treatment of the dynamic wrinkles of the décolleté for advanced clinical development and expects to initiate a Phase 2 study evaluating KB301 in this indication in 2025. Jeune has several other aesthetic medicine product candidates in various stages of preclinical development.
Financial Overview
Product Revenue, Net
After FDA approval of VYJUVEK in May 2023, we began commercial marketing and sales and began recognizing revenue during the third quarter of 2023. Our future revenue will fluctuate from quarter to quarter for many reasons, including the uncertain timing and amount of any such sales.
We have contracted to sell VYJUVEK to a limited number of specialty pharmacy providers that mix the medication and administer it to patients in the patient’s home by a healthcare professional and through a limited number of hospitals and distributors where patients are administered the medication in a hospital or clinic. The transaction price that we recognize as revenue for VYJUVEK sales includes an estimate of variable consideration, which includes discounts, returns, copay assistance and rebates that are offered within contracts. Refer to Note 3 of the notes to condensed consolidated financial statements included in this Form 10-Q and Note 2 of our consolidated financial statements in our 2023 10-K for additional information.
Cost of Goods Sold
Cost of goods sold includes direct and indirect costs related to the manufacturing of VYJUVEK. These costs consist of manufacturing costs, personnel costs including stock-based compensation, facility costs, and other indirect overhead costs. Cost of goods sold may also include period costs related to certain manufacturing services and inventory adjustment charges.
Prior to receiving FDA approval in May 2023, costs associated with the manufacturing of VYJUVEK were expensed as research and development expenses.
Research and Development Expenses
Research and development expenses consist primarily of costs incurred to advance our preclinical and clinical candidates, which include:
•expenses incurred under agreements with contract manufacturing organizations, contract research organizations, consultants and other vendors that conduct our preclinical activities;
•costs of acquiring, developing and manufacturing clinical trial materials and lab supplies;
•facility costs, depreciation and other expenses, which include direct expenses for rent and maintenance of facilities and other supplies; and
•payroll related expenses, including stock-based compensation expense.
We expense internal research and development costs to operations as incurred. We expense third-party costs for research and development activities, such as the manufacturing of preclinical and clinical materials, based on an evaluation of the progress to completion of specific tasks such as manufacturing of drug substance, fill/finish and stability testing, which is provided to us by our vendors.
We expect our research and development expenses will increase as we continue the manufacturing of preclinical and clinical materials and manage the clinical trials of, and seek regulatory approval for, our product candidates and as we expand our product portfolio. In the near term, we expect that our research and development expenses will increase as we continue our preclinical and clinical trials and studies and incur preclinical and clinical expenses for our product candidates. Due to the numerous risks and uncertainties associated with product development, we cannot determine with certainty the duration, costs and timing of clinical trials, and, as a result, the actual costs to complete clinical trials may exceed the expected costs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist principally of salaries and other related costs, including stock-based compensation for personnel in our executive, finance, legal, commercial, business development, information technology and other general and administrative functions. Selling, general and administrative expenses also include professional fees associated with corporate and intellectual property-related legal expenses, consulting and accounting services, insurance, facility-related costs and expenses associated with obtaining and maintaining patents. Other selling, general and administrative costs include travel expenses, patient access program costs, management service fees, marketing expenses, and selling expenses which include transportation, shipping and handling fees.
We anticipate that our selling, general and administrative expenses will increase in the future relating to our commercialization efforts and to support the development of our product candidates. These increases will likely include increased costs for insurance, costs related to the hiring of additional personnel and payments to outside consultants, lawyers and accountants, among other expenses. Additionally, we anticipate that we will continue to increase our salary and personnel costs and other expenses to support B-VEC commercialization globally.
ASTRA Capital Expenditures
In March 2021, we closed on the purchase of the building that was constructed to house our second commercial scale CGMP facility, ASTRA. In March 2023, we received the permanent occupancy permit for ASTRA which allowed the Company to begin utilizing certain parts of the building for research and development operations once qualification was completed and a portion of the assets were placed into service throughout 2023 and 2024. We incurred significant capital expenditures related to the construction of ASTRA in 2023 and expect to continue to incur capital expenditures related to ASTRA throughout the operational life of the facility.
Gains from Sale of Priority Review Voucher (“PRV”)
Gain from sale of priority review voucher relates to proceeds from sale of the rare pediatric PRV we received in connection with the FDA’s approval of VYJUVEK.
Interest and Other Income, Net
Interest and other income, net consists primarily of income earned from our cash, cash equivalents and investments.
Critical Accounting Policies, Significant Judgments and Estimates
There have been no significant changes during the nine months ended September 30, 2024 to our critical accounting policies, significant judgments and estimates as disclosed in our management’s discussion and analysis of financial condition and results of operations included in our 2023 10-K.
Results of Operations
Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.
Three Months Ended September 30, 2024 and 2023
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Change |
| 2024 | | 2023 | | $ | | % |
(in thousands) | (unaudited) | | | | |
Product revenue, net | $ | 83,841 | | | $ | 8,556 | | | $ | 75,285 | | | 880 | % |
Expenses | | | | | | | |
Cost of goods sold | 6,684 | | | 223 | | | 6,461 | | | 2897 | % |
Research and development | 13,511 | | | 10,629 | | | 2,882 | | | 27 | % |
Selling, general and administrative | 28,713 | | | 23,697 | | | 5,016 | | | 21 | % |
Litigation settlement | 12,500 | | | — | | | 12,500 | | | — | % |
Total operating expenses | 61,408 | | | 34,549 | | | 26,859 | | | 78 | % |
Income (loss) from operations | 22,433 | | | (25,993) | | | 48,426 | | | (186) | % |
Other income | | | | | | | |
Gain from sale of priority review voucher | — | | | 100,000 | | | (100,000) | | | (100) | % |
Interest and other income, net | 7,336 | | | 6,740 | | | 596 | | | 9 | % |
Income before income taxes | 29,769 | | | 80,747 | | | (50,978) | | | (63) | % |
Income tax expense | (2,589) | | | — | | | (2,589) | | | — | % |
Net income | $ | 27,180 | | | $ | 80,747 | | | $ | (53,567) | | | (66) | % |
Product Revenue, Net
Product revenue, net was $83.8 million for the three months ended September 30, 2024, as compared to $8.6 million for the three months ended September 30, 2023. The increase in product revenue, net was driven by an increase in VYJUVEK sales following initial commercial sales recorded in August 2023.
Cost of Goods Sold
Cost of goods sold was $6.7 million for the three months ended September 30, 2024, as compared to $223 thousand for the three months ended September 30, 2023, due to increased sales of VYJUVEK following initial commercial sales recorded in August 2023. Prior to receiving FDA approval for VYJUVEK in May 2023, costs associated with the manufacturing of VYJUVEK were expensed as research and development expense.
Research and Development Expenses
Research and development expenses increased $2.9 million in the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The increase was primarily driven by the following:
•an increase of $1.8 million in clinical development costs,
•an increase of $1.5 million in other research and development expenses primarily relating to facilities and equipment related costs, and
•an increase of $636 thousand in manufacturing expenses related to our product candidates.
These increases were partially offset by:
•a decrease of $1.1 million due to the capitalization of allocated overhead costs, including facilities costs, for increased commercial batches of VYJUVEK.
Research and development expenses consist primarily of costs relating to our preclinical development, the development of our product candidates and our clinical trial programs. Direct research and development expenses associated with our product candidates or development programs consist of compensation related expenses for our internal resources conducting research and development activities, fees paid to external consultants, contract research organizations, or for costs to support our clinical trials. Indirect research and development expenses that are allocated to our product candidates or programs consist of lab supplies and software fees. A significant portion of our research and development expenses are not allocated to individual product candidates and preclinical programs, as certain expenses benefit multiple product candidates and preclinical programs. For example, we do not allocate costs associated with stock-based compensation, manufacturing of preclinical or clinical development products or costs relating to facilities and equipment to individual product candidates and preclinical programs.
The following table summarizes our research and development expenses by product candidate or program, and for unallocated expenses, by type, for the three months ended September 30, 2024 and 2023.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Change |
| 2024 | | 2023 | | $ | | % |
(in thousands) | (unaudited) | | | | |
B-VEC | $ | 1,255 | | | $ | 1,759 | | $ | (504) | | (29) | % |
KB105 | 449 | | | 8 | | | 441 | | 5513 | % |
KB301 | 138 | | | 150 | | | (12) | | (8) | % |
| | | | | | | |
KB407 | 180 | | | 441 | | | (261) | | (59) | % |
KB408 | 612 | | | 340 | | | 272 | | 80 | % |
KB707 | 3,312 | | | 1,265 | | | 2,047 | | 162 | % |
KB803 | 180 | | | — | | | 180 | | — | % |
Other ophthalmology programs | 303 | | | 9 | | | 294 | | 3267 | % |
| | | | | | | |
| | | | | | | |
Other aesthetics programs | 189 | | | 9 | | | 180 | | 2000 | % |
Other research programs | 247 | | | 163 | | | 84 | | 52 | % |
Other development programs | 171 | | | 160 | | | 11 | | 7 | % |
Stock-based compensation | 2,267 | | | 2,336 | | | (69) | | (3) | % |
Other unallocated manufacturing expenses(1) | 2,212 | | | 2,672 | | | (460) | | (17) | % |
Other unallocated expenses(2) | 1,996 | | | 1,317 | | | 679 | | 52 | % |
Research and development expense | $ | 13,511 | | $ | 10,629 | | $ | 2,882 | | 27 | % |
(1)Unallocated manufacturing expenses consist of shared pre-commercial manufacturing costs, primarily relating to raw materials, contract manufacturing, contract testing, process development, quality control and quality assurance activities and other manufacturing costs which support the development of multiple product candidates in our preclinical and clinical development programs.
(2)Other unallocated expenses include rental, storage, depreciation, and other facility related costs that we do not allocate to our individual product candidates.
The primary changes in our research and development expenses by product candidate or program in the three months ended September 30, 2024 compared to the three months ended September 30, 2023 are as follows:
•an increase of $2.0 million in KB707 costs following the expansion of our research and development pipeline to oncology consisting of an increase in payroll related costs to support our research and an increase in contract research expenses for our Phase 1 clinical trial of inhaled KB707,
•an increase of $679 thousand in other unallocated expenses primarily driven by facilities and equipment related costs, and
•an increase of $441 thousand in KB105 costs to further advance this program.
The increases were partially offset by:
•a net decrease of $504 thousand in B-VEC costs due to the timing of the manufacturing process optimization activities and
•a decrease of $460 thousand in other unallocated manufacturing expenses primarily due to the increased costs related to the manufacturing of VYJUVEK which are recorded as inventory and cost of goods sold, offset by an increase in facility related expenses.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $5.0 million in the three months ended September 30, 2024 as compared to the three months ended September 30, 2023. The increase was primarily driven by the following:
•an increase of $5.1 million in stock-based compensation,
•an increase of $439 thousand related to professional services incurred to support our commercial growth, and
•an increase of $434 thousand in marketing costs to support commercial sales of VYJUVEK.
The increases were partially offset by:
•a decrease of $714 thousand in payroll related costs.
Litigation Settlement
Litigation settlement for the three months ended September 30, 2024 and 2023 was $12.5 million and zero, respectively, and consisted of amounts related to the settlement of litigation with PeriphaGen. See “Legal Proceedings” in Note 7 of the notes to condensed consolidated financial statements included in this Form 10-Q for more information.
Gain from Sale of Priority Review Voucher
Gain from sale of priority review voucher for the three months ended September 30, 2024 and 2023 was zero and $100.0 million, respectively, and consisted of amounts related to the sale of our rare pediatric disease PRV, which was awarded to the Company in connection with the FDA’s approval of VYJUVEK.
Interest and Other Income, Net
Interest and other income, net for the three months ended September 30, 2024 and 2023 was $7.3 million and $6.7 million, respectively, and consisted of interest and dividend income earned from our cash, cash equivalents and investments. The increase in interest and dividend income is the result of increased investment activity.
Income Tax Expense
Income tax expense for the three months ended September 30, 2024 and 2023 was $2.6 million and zero, respectively, as a result of initial commercial sales of VYJUVEK recorded in August 2023. Income tax expense for the three months ended September 30, 2024 relates to state, federal and foreign income taxes.
Nine Months Ended September 30, 2024 and 2023
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | Change |
| 2024 | | 2023 | | $ | | % |
(in thousands) | (unaudited) | | | | |
Product revenue, net | $ | 199,376 | | | $ | 8,556 | | | $ | 190,820 | | | 2230 | % |
Expenses | | | | | | | |
Cost of goods sold | 15,112 | | | 223 | | | 14,889 | | | 6677 | % |
Research and development | 40,050 | | | 35,061 | | | 4,989 | | | 14 | % |
Selling, general and administrative | 82,398 | | | 73,637 | | | 8,761 | | | 12 | % |
Litigation settlement | 37,500 | | | 12,500 | | | 25,000 | | | 200 | % |
Total operating expenses | 175,060 | | | 121,421 | | | 53,639 | | | 44 | % |
Income (loss) from operations | 24,316 | | | (112,865) | | | 137,181 | | | (122) | % |
Other income | | | | | | | |
Gain from sale of priority review voucher | — | | | 100,000 | | | (100,000) | | | (100) | % |
Interest and other income, net | 22,430 | | | 15,105 | | | 7,325 | | | 48 | % |
Income before income taxes | 46,746 | | | 2,240 | | | 44,506 | | | 1987 | % |
Income tax expense | (3,066) | | | — | | | (3,066) | | | — | % |
Net income | $ | 43,680 | | | $ | 2,240 | | | $ | 41,440 | | | 1850 | % |
Products Revenue, net
Product revenue, net was $199.4 million for the nine months ended September 30, 2024 as compared to $8.6 million for the nine months ended September 30, 2023 due to initial sales of VYJUVEK after FDA approval was obtained on May 19, 2023.
Cost of Goods Sold
Cost of goods sold was $15.1 million for the nine months ended September 30, 2024 as compared to $223 thousand for the nine months ended September 30, 2023 due to initial sales of VYJUVEK. Prior to receiving FDA approval for VYJUVEK in May 2023, costs associated with the manufacturing of VYJUVEK were expensed as research and development expense.
Research and Development Expenses
Research and development expenses increased $5.0 million in the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The increase was primarily driven by the following:
•an increase of $2.8 million in clinical development costs,
•an increase of $2.4 million in manufacturing expenses related to our product candidates,
•an increase of $2.5 million in other research and development expenses primarily relating to licensing and regulatory costs and facilities and equipment related costs, and
•an increase of $1.0 million in depreciation due to the Company’s second CGMP facility being placed into service in 2023 partially offset by the capitalization of depreciation associated with increased commercial batches of VYJUVEK.
The increases were partially offset by:
•a decrease of $2.4 million due to the capitalization of allocated overhead costs for increased commercial batches of VYJUVEK partially offset by increased payroll related expenses, including stock-based compensation, primarily driven by an increase in headcount to support overall growth and
•a net decrease of $1.3 million in direct manufacturing expenses due to the costs to manufacture VYJUVEK being capitalized into inventory and cost of goods sold.
The following table summarizes our research and development expenses by product candidate or program, and for unallocated expenses, by type, for the nine months ended September 30, 2024 and 2023:
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, | | Change |
| 2024 | | 2023 | | $ | | % |
(in thousands) | (unaudited) | | | | |
B-VEC | $ | 7,068 | | | $ | 6,337 | | | $ | 731 | | 12 | % |
KB105 | 484 | | | 274 | | | 210 | | 77 | % |
KB301 | 522 | | | 480 | | | 42 | | 9 | % |
| | | | | | | |
KB407 | 1,631 | | | 1,259 | | | 372 | | 30 | % |
KB408 | 1,107 | | | 749 | | | 358 | | 48 | % |
KB707 | 6,469 | | | 2,633 | | | 3,836 | | 146 | % |
KB803 | 394 | | | — | | | 394 | | — | % |
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