Krystal Biotech, Inc. (KRYS)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following information should be read in conjunction with the consolidated financial statements and related notes thereto included in this Annual Report on Form 10-K. In addition to historical information, this report contains forward-looking statements that involve risks and uncertainties which may cause our actual results to differ materially from plans and results discussed in forward-looking statements. We encourage you to review the risks and uncertainties discussed in the sections entitled Item 1A. “Risk Factors” and “Forward-Looking Statements” included at the beginning of this Annual Report on Form 10-K. The risks and uncertainties can cause actual results to differ significantly from those forecast in forward-looking statements or implied in historical results and trends. We caution readers not to place undue reliance on any forward-looking statements made by us, which speak only as of the date they are made. We disclaim any obligation, except as specifically required by law and the rules of the U.S. Securities and Exchange Commission, or SEC, to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.

This section of this Annual Report on Form 10-K generally discusses 2024, 2023 and 2022 items and year-to-year comparisons between 2024 and 2023, and 2023 and 2022 of the Company’s results of operations and cash flows.

Overview

We are a fully integrated, commercial-stage biotechnology company focused on the discovery, development, 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 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 encoded effector to treat or prevent disease. We formulate our vectors 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 goal is to develop easy-to-use medicines to dramatically improve the lives of patients living with rare and serious diseases. Our innovative technology platform is supported by an in-house, FDA and EMA-inspected, commercial scale Current Good Manufacturing Practice (“CGMP”) manufacturing facility and a second, completed and qualified, commercial scale CGMP facility to support future expansion. Refer to Part I, Item 1 - Business for more information about our FDA approved product, VYJUVEK®, clinical development pipeline and research programs, and the status of our product candidates.

Our FDA Approved Commercial Product

VYJUVEK (beremagene geperpavec-svdt or B-VEC; referred to as B-VEC outside the United States)

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 in either a clinical setting or in the home. We possess exclusive rights to develop, manufacture, and commercialize VYJUVEK and all our pipeline product candidates throughout the world.

Net VYJUVEK product revenue was $290.5 million for the year ended December 31, 2024. Since launch in 2023, we have reported cumulative net product revenue of 341.2 million.

Gross margin for the year ended December 31, 2024 was 93%. We define gross margin as product revenue, net less cost of goods sold expressed as a percentage of product revenue, net.

We have secured strong nationwide access and reimbursement for VYJUVEK in the United States since launch and, as of February 2025, positive access determinations have been achieved for 97% of lives covered under commercial and Medicaid plans. In January 2024, we announced that the United States Centers for Medicare & Medicaid Services, or CMS, had assigned a permanent and product-specific J-code for VYJUVEK, effective on January 1, 2024.

As of February 2025, we have secured over 510 reimbursement approvals for VYJUVEK in the United States.

We seek to make the experience of starting and continuing on VYJUVEK treatment seamless for the patient. Since launch, the infrastructure has been in place for patients to be treated in their home by a healthcare professional, reducing the need for regular visits to a clinic or hospital. Krystal ConnectTM, our United States in-house patient services call center, has been active since FDA approval and assists patients, caregivers and healthcare professionals interested in accessing VYJUVEK. Since launch and through the fourth quarter of 2024, patient compliance with once weekly treatment while on VYJUVEK remains high at 85%.

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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 MAA to the EMA for B-VEC for the treatment of DEB. In February 2024, the EMA completed inspection of our manufacturing facility as part of the MAA review process and, in May 2024, EU GMP certification was granted by the EMA. EMA review of our MAA is ongoing and we currently expect a CHMP opinion the first quarter 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. 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 JNDA with Japan’s 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 United States, with B-VEC exhibiting a safety profile consistent with previous studies and all four patients that completed the study achieving the primary endpoint of complete wound closure at six months. The JNDA is under priority review and a decision by the PMDA is expected in the second half of 2025.

Pipeline Highlights and Recent Developments

Ophthalmology

KB803 is a redosable eye drop formulation of B-VEC, designed for the treatment of ocular complications that are thought to affect over 25% of DEB patients. These complications, which include corneal erosions, abrasions, blistering and scarring, can lead to progressive vision loss. There is currently no corrective therapy available.

Based on early clinical evidence of safety and potential benefit following topical B-VEC application to the eye of a DEB patient under compassionate use, we started discussions with the FDA on a potential clinical development path for KB803 and, in February 2024, we aligned with the FDA on our proposed single arm, open label registrational Phase 3 study to enable approval of KB803 to treat ocular complications of DEB. We expect to initiate the study in the first half of 2025 and plan to enroll up to 30 DEB patients.

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 Phase 3 study. Enrollment in the study is ongoing and, as of February 2025, we had enrolled approximately 50 patients in the study.

We are also actively evaluating multiple, internal preclinical-stage genetic medicine candidates for the treatment of front and back of the eye diseases.

Respiratory

KB407 is an inhaled (nebulized) formulation of our novel vector designed to deliver two copies of the full-length CFTR transgene for the treatment of 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 December 2024, we announced an interim safety data update for patients treated with KB407 in the first two dose escalation cohorts, in which we found single and repeat inhaled administration of KB407 to be safe and well tolerated. In January 2025, the CFF TDN Clinical Research Executive Committee granted full sanctioning of our KB407 Phase 1 CORAL-1 study protocol. We expect to report safety and CFTR delivery data from patients in the third and final cohort in mid-2025.

KB408 is an inhaled (nebulized) formulation of our novel vector designed to deliver two copies of the SERPINA1 transgene, that encodes for normal human AAT protein, for the treatment of AATD, a serious rare lung disease. In February 2024, we announced that we had 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 December 2024, we announced an interim clinical update from the first two dose escalation cohorts of SERPENTINE-1. Inhaled KB408 was safe and well-tolerated at both tested dose levels and clear evidence of successful SERPINA1 delivery and AAT expression was observed in both patients that underwent bronchoscopies. Following this data update, we simultaneously expanded the second cohort and opened enrollment in the third and final cohort of SERPENTINE-1 for more comprehensive molecular assessments at both dose levels. We expect to report results for both cohorts in the second half of 2025.

Oncology

KB707 is a redosable, immunotherapy designed to deliver genes encoding both human IL-2 and IL-12 to the tumor microenvironment and promote systemic immune-mediated tumor clearance. Two formulations of KB707 are in development,

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a solution formulation for transcutaneous injection and an inhaled (nebulized) formulation for lung delivery. Both intratumoral and inhaled KB707 have been granted RPDD and Fast Track Designations by the FDA.

Inhaled KB707 is currently under evaluation in KYANITE-1, an open-label, multi-center, dose escalation and expansion Phase 1/2 study, evaluating inhaled KB707, as monotherapy or in combination, in patients with locally advanced or metastatic solid tumors of the lung. In December 2024, we announced an initial clinical update for the monotherapy dose escalation and expansion cohorts of KYANITE-1. Early evidence of monotherapy activity was observed in the evaluable cohort of 11 patients with heavily pre-treated advanced NSCLC, achieving an ORR of 27% and a DCR of 73% as of data cut-off. Inhaled KB707 was also reported to be safe and generally well tolerated as monotherapy in the 37 patients included in the safety analysis. The majority of treatment-related adverse events have been mild to moderate in severity and transient with no Grade 4 or 5 adverse events observed. Evaluation of inhaled KB707 in monotherapy and combination dose expansion cohorts is ongoing.

Intratumoral KB707 is currently under evaluation in OPAL-1, an open-label, multi-center, dose escalation and expansion Phase 1/2 study, evaluating intratumoral KB707, as monotherapy or in combination, 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. The final monotherapy dose escalation cohort was cleared in May 2024 and evaluation of intratumoral KB707 in monotherapy and combination dose expansion cohorts is ongoing.

Dermatology

KB105 is a topical gel containing our novel vector designed to deliver two copies of the TGM1 transgene encoding the human enzyme TGM1 for the treatment of TGM1-deficient LI, a serious rare skin disorder most often caused by missing or mutated TGM1 protein. We expect to initiate the Phase 2 portion of JADE-1, a randomized, placebo-controlled Phase 1/2 study evaluating KB105 for the treatment of TGM1-deficient LI in 2026.

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. Jeune Aesthethics’ lead program, 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 COL3. In August 2024, Jeune Aesthetics 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. Based on these Phase 1 results, Jeune Aesthetics has selected treatment of the dynamic wrinkles of the décolleté for advanced clinical development. Jeune Aesthetics has initiated development of a décolleté-specific evaluation scale and expects to start a Phase 2 study evaluating KB301 in this indication in the second half of 2025.

In November 2024, Jeune Aesthetics dosed the first subject in the PEARL-2 study, an ongoing, 2:1 randomized and placebo-controlled Phase 1 study evaluating its second clinical-stage investigational aesthetic therapy KB304 for the treatment of wrinkles. KB304 is a solution formulation of our novel vector for intradermal injection designed to deliver one copy of the COL3A1 transgene and one copy of the ELN transgene to address various signs of skin aging including elasticity loss. Jeune Aesthetics expects to report top-line results from the study in the second half of 2025.

Jeune Aesthetics 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.

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 2 of the notes to the consolidated financial statements included in this Form 10-K for additional information.

Cost of Goods Sold

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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. 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.

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Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial position 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. On an ongoing basis, we evaluate estimates which include, but are not limited to, 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 during the period. We base our estimates on historical experience and other market-specific or other relevant assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from those estimates or assumptions.

While our significant accounting policies are described in more detail in the notes to our financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe the following accounting policies to be most critical to the judgments and estimates used in the preparation of our financial statements.

Revenue Recognition

After FDA approval of VYJUVEK in May 2023, we began commercial marketing and made our first product sales in 3Q 2023. Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”), Topic 606, Revenue from Contracts with Customers (“ASC 606”) requires us to make estimates of variable consideration, included in our contracts, to be included in the transaction price.

Revenue is recognized when, or as, the Company satisfies a performance obligation by transferring control of the promised good to the customer. The only performance obligation in the Company’s contracts with customers is the timely delivery of the product to the customer’s designated location.

The Company sells VYJUVEK to a limited number of specialty pharmacy (“SPs”) providers that mix the medication to be administered by a healthcare professional in either a healthcare professional or home setting and to a limited number of hospitals or specialty distributors (“SDs”) who deliver to hospitals where patients are administered the medication in a healthcare setting. Revenue is recognized when the customer obtains control of the product, which occurs at a point in time, upon delivery to the customer.

Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring VYJUVEK and is generally based upon a list price and is recorded at the net sales price upon delivery and transfer of control to the customer, and includes an estimate of variable consideration, which results from discounts, rebates, copay assistance, and returns that are offered within contracts between the Company and its customers. These reserves, representing the Company’s best estimates of the amount of consideration to which the Company is entitled, are based on the terms of the contract.

Variable consideration reduces the transaction price to reflect the Company’s best estimate of the amount of consideration to which the Company is entitled based on the terms of the contracts and is recorded in the same period the related product revenue is recognized. The amount of variable consideration that is included in the transaction price may be constrained and is included in the net sales price only to the extent that it is considered probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. Actual amounts of consideration ultimately received may differ from our estimates. If actual results in the future vary from our estimates, the Company will adjust these estimates in the period these variances become known.

•Prompt Pay Discounts: As an incentive for prompt payment, the Company may offer cash discounts to its counterparties. The Company estimates accrued prompt pay discounts using the most likely amount method. The Company expects that all eligible counterparties will comply with the contractual terms to earn the discount. The Company records the discount as a reduction of revenue on the consolidated statements of operations and as an allowance against accounts receivable, net on the consolidated balance sheets.

•Government Rebates: The Company participates in certain government rebate programs including Medicaid, Medicare and Tricare. For Medicare, the Company estimates the accrued liability based on the estimated number of patients in the prescription drug coverage gap under the Medicare Part D program. The Company also estimates accrued government rebates using the expected value method based on estimated percentages of VYJUVEK that will be prescribed to qualified patients, estimated rebate percentages and estimated levels of inventory in the distribution channel that will be prescribed to qualified patients and records the rebates as a reduction of revenue on the consolidated statements of operations and accrued rebates and other long-term liabilities on the consolidated balance sheets.

•Commercial Rebates: The Company participates in certain commercial rebate programs. Under these rebate programs, the Company pays a rebate to the commercial entity or third-party administrator of the program.

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Accrued commercial rebates are estimated using the expected value method based on estimated percentages of VYJUVEK that will be prescribed to qualified patients and estimated levels of inventory in the distribution channel. Accrued commercial rebates are recorded as a reduction of revenue on the consolidated statements of operations and are included in accrued rebates on the consolidated balance sheets.

•Copay Assistance: The Company provides copay assistance to qualified patients with commercial insurance in states that allow copay assistance, helping them meet copay obligations to their insurance provider. The Company reimburses pharmacies for this discount through third-party vendors. The Company estimates copay assistance costs using the expected value method based on estimated percentages of VYJUVEK that will be prescribed to qualified patients, average assistance paid based on reporting from third-party vendors and estimated levels of inventory in the distribution channel. Copay assistance costs are recorded as reductions to revenue on the consolidated statements of operations and are recorded in accrued expenses and other current liabilities on the consolidated balance sheets.

•Product Returns: The Company offers limited return rights relating only to product damage or defects identified upon receipt, and therefore the Company expects minimal returns. Returns are estimated taking into consideration several factors including these limited product return rights, historical return activity, and other relevant factors. The Company has not experienced significant product returns to date, and accordingly no allowance for returns was recorded for the year ended December 31, 2024.

Accrued Research and Development Expenses

As part of the process of preparing our financial statements, we are required to estimate our accrued research and development expenses, prepaid assets and other current liabilities. This process involves reviewing open contracts and commitments, communicating with our personnel to identify services that have been performed for us and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met. We make estimates of our accrued research and development expenses and other current liabilities as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time. Examples of accrued research and development expenses, prepaid assets and other current liabilities include fees paid to contract manufacturers made in connection with the manufacturing of preclinical and clinical trials materials.

We record our expenses related to clinical manufacturing based on our estimates of the services performed pursuant to contracts with the entities producing clinical materials on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. Payments under these types of contracts depend heavily upon the successful completion of many separate tasks involved in the manufacturing of drug product. In accruing service fees, we estimate the time period over which services will be performed, and the actual services performed in each period. If actual results in the future vary from our estimates, we will adjust these estimates in the period these variances become known.

Stock-Based Compensation

We have applied the fair value recognition provisions of Financial Accounting Standards Board Accounting Standards Codification, or ASC, Topic 718, Compensation—Stock Compensation (“ASC 718”), to account for stock-based compensation. We recognize compensation costs related to stock granted based on the estimated fair value of the awards on the date of grant.

ASC 718 requires all stock-based payments, including grants of stock options and restricted stock, to be recognized in the consolidated statements of operations and comprehensive income (loss) based on their grant-date fair values. Compensation expense for stock options, restricted stock awards and restricted stock units is recognized on a straight-line basis based on the grant-date fair value over the associated service period of the award, which is generally the vesting term. Compensation expense for performance-based restricted stock units is recognized for the awards that are probable of vesting over the service period of the award. On a quarterly basis, management estimates the probable number of performance-based restricted stock units that would vest until such time that the ultimate achievement of the performance criteria are known.

Determining the amount of stock-based compensation to be recorded requires us to develop estimates of the fair value of stock-based awards as of their measurement date. We recognize stock-based compensation expense over the requisite service period, which is the vesting period of the award. Calculating the fair value of stock-based awards requires that we make assumptions. We estimate the fair value of its stock options using the Black-Scholes option pricing model, which requires the input of subjective assumptions, including: (i) the expected stock price volatility; (ii) the expected term of the award; (iii) the risk-free interest rate; and (iv) expected dividends.

We estimate the expected term of stock options using the “simplified” method as prescribed by SEC Staff Accounting Bulletin No. 107, Share-Based Payments, whereby the expected term equals the arithmetic mean of the vesting term and the

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original contractual term of the option. The risk-free interest rates are based on US Treasury securities with a maturity date commensurate with the expected term of the associated award. The Company has never paid and does not expect to pay dividends in the foreseeable future. The Company accounts for forfeitures as they occur. Stock-based compensation expense recognized in the financial statements is based on awards for which service conditions are expected to be satisfied.

Results of Operations

Years Ended December 31, 2024, 2023 and 2022

Product Revenue, Net

Product revenue, net was $290.5 million for the year ended December 31, 2024 as compared to $50.7 million for the year ended December 31, 2023 and zero for the year ended December 31, 2022 due to initial sales of VYJUVEK after FDA approval was obtained on May 19, 2023. The increase in product revenue, net from 2023 to 2024 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 $20.1 million for the year ended December 31, 2024 as compared to $3.1 million for the year ended December 31, 2023 and zero for the year ended December 31, 2022 due to initial sales of VYJUVEK after FDA approval was obtained on May 19, 2023. The increase in cost of goods sold from 2023 to 2024 was driven by an increase in VYJUVEK sales 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 approximately $7.1 million for the year ended December 31, 2024 as compared to the year ended December 31, 2023. The increase was primarily driven by the following:

•an increase of $4.2 million in payroll related expenses, including stock-based compensation, primarily driven by an increase in headcount to support overall growth,

•an increase of $3.8 million in manufacturing expenses related to our product candidates,

•an increase of $3.6 million in clinical development costs,

•an increase of $3.6 million in other research and development expenses primarily relating to licensing and regulatory costs and facilities and equipment related costs, and

•an increase of $602 thousand in depreciation due to the Company’s second CGMP facility being placed into service throughout 2023 and 2024 partially offset by the capitalization of depreciation associated with increased commercial batches of VYJUVEK.

The increases were partially offset by:

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•a decrease of $7.4 million due to the capitalization of allocated overhead costs for increased commercial batches of VYJUVEK and

•a net decrease of $1.4 million in direct manufacturing expenses due to the costs to manufacture VYJUVEK being capitalized into inventory and cost of goods sold.

Research and development expenses increased $4.0 million for the year ended December 31, 2023 compared to the year ended December 31, 2022. The increase was primarily driven by the following:

•an increase of $5.8 million in payroll related expenses which was primarily driven by an increase in personnel to support overall growth and includes a $2.2 million increase in stock-based compensation,

•an increase of $2.2 million in depreciation, and

•an increase of $428 thousand in other research and development expenses, primarily due to increases in facilities expenses.

These decreases were partially offset by:

•a decrease of $2.0 million in preclinical, clinical and pre-commercial manufacturing due to the costs related to the manufacturing of VYJUVEK following FDA approval being recorded as inventory and due to fewer receipts of raw materials and lab supplies period over period that were purchased for planned manufacturing runs of our products,

•a decrease of $1.3 million from overhead allocations to inventory, and

•a decrease of $1.2 million from outsourced research and development costs.

The following table summarizes our research and development expenses by product candidate or program, and for unallocated expenses, by type, for the years ended December 31, 2024, 2023 and 2022:

(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.

As noted above, research and development expenses increased approximately $7.1 million in the year ended December 31, 2024 compared to the year ended December 31, 2023. The increase was primarily driven by the following:

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•an aggregated increase of $4.9 million related to KB304 costs, KB105 costs, KB408 costs, KB803 costs, other ophthalmology programs and other aesthetics programs all related to increases in manufacturing expenses, payroll costs and professional services related to pre-clinical contracts,

•an increase of $4.8 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, an increase in contract research expenses in preparation for clinical trials, and an increase in clinical trial costs associated with our Phase 1/2 clinical trial of KB707 that commenced in 2024,

•an increase of $978 thousand in other unallocated expenses, which largely relates to (1) depreciation due to the Company’s second CGMP facility being placed into service throughout 2023 and 2024 partially offset by the capitalization of depreciation associated with increased commercial batches of VYJUVEK and (2) other facilities and equipment related costs, and

•an increase of $707 thousand in other research programs.

The increases were partially offset by:

•a decrease of $3.5 million in other unallocated manufacturing expenses primarily due to the costs related to the manufacturing of VYJUVEK following FDA approval being recorded as inventory and cost of goods sold, and

•a decrease of $814 thousand in stock-based compensation due to the allocation of labor costs related to work performed to manufacture VYJUVEK to inventory.

Research and development expenses increased $4.0 million in the year ended December 31, 2023 compared to the year ended December 31, 2022. The increase was primarily driven by the following:

•an increase of $3.4 million in KB707 spending due to increased payroll related costs and increased contract research costs in preparation for the Phase 1/2 clinical trial,

•an increase of $2.2 million in stock-based compensation due to an increase in internal resources to support overall research and development growth,

•an increase of $1.4 million in other unallocated expenses primarily due to increases in depreciation expense offset by a decrease from rent expense allocated to inventory, and

•an increase of $943 thousand in KB103 expenses primarily due to increased payroll related expenses to support VYJUVEK’s preapproval activities, clinical trial costs, license and regulatory costs, costs associated with overseas clinical trials and regulatory agency filings, and increased allocated research.

These increases were partially offset by:

•a decrease of $2.5 million in other unallocated manufacturing expenses primarily due to the costs related to the manufacturing of VYJUVEK following FDA approval being recorded as inventory and due to fewer receipts of raw materials period over period that were purchased for planned manufacturing runs of our products and product candidates,

•a decrease of $852 thousand in KB301 expenses due to the timing of clinical research costs, and

•a increase of $6 thousand in KB105 expenses.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $15.3 million for the year ended December 31, 2024 compared to the year ended December 31, 2023. The increase was primarily driven by the following:

•an increase of $10.0 million in stock-based compensation,

•an increase of $3.7 million in selling expenses related to the commercial launch of VYJUVEK, which includes $1.2 million related to our patient access program, and

•an increase of $3.3 million related to professional services incurred to support our commercial growth.

The increases were partially offset by:

•a decrease of $2.0 million in marketing costs due to the timing of marketing activities ahead of the VYJUVEK commercial launch.

Selling, general and administrative expenses increased $20.7 million for the year ended December 31, 2023 compared to the year ended December 31, 2022. The increase was primarily driven by the following:

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•an increase of $15.1 million in payroll related expenses which is primarily driven by an increase in personnel to support overall growth and includes a $4.5 million increase in stock-based compensation,

•an increase of $1.7 million in selling expenses related to the launch of VYJUVEK,

•an increase of $2.1 million in information technology infrastructure costs,

•an increase of $1.3 million in software-related costs,

•an increase of $1.1 million in travel costs,

•an increase of $425 thousand in sponsorships,

•an increase of $381 thousand in net legal costs, which consists of a decrease in litigation proceeds of $570 thousand, offset by a increase in legal and professional fees of $189 thousand, and

•an increase of $676 thousand in other selling, general and administrative expense, primarily due to increases in depreciation and rent expense.

These increases were partially offset by:

•a decrease of $1.2 million of commercial preparedness expenses,

•a decrease of $466 thousand in medical affairs costs, and

•a decrease of $428 thousand in business development costs.

Litigation Settlement

Litigation settlement for the years ended December 31, 2024, 2023 and 2022 was $37.5 million, $12.5 million and $25.0 million, respectively, and consisted of amounts related to the settlement of litigation with PeriphaGen. See “Legal Proceedings” in Note 7 of the notes to consolidated financial statements included in this Form 10-K for more information.

Gain from Sale of Priority Review Voucher

Gain from sale of priority review voucher for the year ended December 31, 2023 was $100.0 million and was related to the sale of our rare pediatric 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 years ended December 31, 2024, 2023 and 2022 was $29.7 million, $22.6 million and $5.2 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 and more favorable interest rates as compared to the prior period and an increase in our balance of cash, cash equivalents, and investments.

Income Tax Expense

Income tax expense for the years ended December 31, 2024, 2023 and 2022 was $6.2 million, $2.0 million, and zero, respectively. In 2023 and 2024, income tax expense related to state, federal and foreign income taxes. See Note 11 of the notes to consolidated financial statements included in this Form 10-K for more information.

Liquidity and Capital Resources

Overview

As of December 31, 2024, our cash, cash equivalents and short-term investments balance was approximately $597.5 million. As of December 31, 2024, we had an accumulated deficit of $180.7 million. We believe that our cash, cash equivalents and short-term investments will be sufficient to allow us to fund our operations for at least 12 months from the filing date of this Annual Report on Form 10-K.

Our ability to continue to achieve operating profitability is dependent upon the continued successful commercialization of VYJUVEK and the successful development, approval, manufacturing, and commercialization of product candidates. Furthermore, we expect to incur increasing costs associated with satisfying regulatory and quality standards, maintaining and initiating product clinical trials, and furthering our efforts to discover, develop, manufacture, and commercialize current and future product candidates. We intend to fund future operations through on hand cash and cash equivalents, revenue generated from the sale of VYJUVEK, the sale of equity, debt financings, and we may also seek additional capital through arrangements with strategic partners or other sources.

Costs related to clinical trials can be unpredictable and, therefore, there can be no guarantee that we will have sufficient capital to fund the continued or planned pre-clinical and clinical studies for our product candidates, or our operations.

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Further, we expect future revenue to fluctuate from quarter to quarter for many reasons, including the uncertain timing and amount of any product sales. While we are in the process of building out our internal vector manufacturing capacity, some of our manufacturing activities will be contracted out to third parties. Additionally, we currently utilize third-party contract research organizations to carry out some of our clinical development activities. As we seek to obtain regulatory approval for our product candidates, we expect to continue to incur significant manufacturing and commercialization expenses as we prepare for product sales, marketing, commercial manufacturing, packaging, labeling and distribution. Furthermore, pursuant to our settlement agreement with PeriphaGen, we will be required to pay a $6.25 million milestone payment as a result of reporting $100.0 million in cumulative sales during the second quarter of 2024 payable within 120 days following December 31, 2024 and two additional $12.5 million milestone payments as a result of reporting $200.0 million in cumulative sales during the third quarter of 2024 and $300.0 million in cumulative sales during the fourth quarter of 2024, both of which are payable within 30 days following the filing by the Company of its Annual Report on Form 10-K for the year ended December 31, 2024. Our funds may not be sufficient to enable us to conduct pivotal clinical trials for, seek marketing approval for or commercially launch our product candidates. Accordingly, to obtain marketing approval for and to commercialize these or any other product candidates, we may be required to obtain further funding through public or private equity offerings, debt financings, collaboration and licensing arrangements or other sources. Adequate additional financing may not be available to us on acceptable terms, if at all. Our failure to raise capital when needed could have a negative effect on our financial condition and our ability to pursue our business strategy.

ATM Program

On December 31, 2020, the Company entered into a sales agreement with Cowen and Company, LLC ("Cowen") with respect to an at-the-market equity offering program (“2020 ATM Program”), under which the Company issued and sold from time to time through Cowen, acting as agent and/or principal, shares of its common stock, par value $0.0001 per share, having an aggregate offering price up to $150.0 million (“2020 Placement Shares”). The issuance and sale of the 2020 Placement Shares were made pursuant to the Company's effective “shelf” registration statement on Form S-3 that was filed with the SEC on May 4, 2020 (the “2020 Shelf Registration Statement”). During the year ended December 31, 2022, the Company issued and sold 434,782 2020 Placement Shares at a weighted average price of $69.00 per share for net proceeds of $29.1 million after deducting selling commissions of approximately $900 thousand.

The Company’s 2020 Shelf Registration Statement expired on May 4, 2023, and the Company put in place a new at-the-market equity offering program under substantially the same terms as the 2020 ATM Program (the “New ATM Program”). Accordingly, on May 8, 2023, the Company entered into a sales agreement with Cowen 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 New ATM Program at any time upon 10 days’ notice to Cowen. If not earlier terminated, the New 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 New 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 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.

Operating Capital Requirements

Our primary uses of capital are, and we expect will continue to be for the near future, compensation and related expenses, manufacturing costs for preclinical and clinical materials, regulatory expenses, third-party clinical trial research and development services, laboratory and related supplies, selling expenses, costs to manufacture our commercial product, legal expenses, payments of settlement amounts to PeriphaGen and general overhead costs. In order to complete the process of obtaining regulatory approval for any of our product candidates and to build the sales, manufacturing, marketing and distribution infrastructure that we believe will be necessary to commercialize our product candidates, if approved, we may require substantial additional funding.

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We have based our projections of operating capital requirements on assumptions that may prove to be incorrect, and we may use all of our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with research, development, manufacturing and commercialization of genetic medicines, we are unable to estimate the exact amount of our operating capital requirements. Our future funding requirements will depend on many factors, including, but not limited to:

•the costs needed to commercialize and market our lead product, VYJUVEK;

•the progress, timing and costs of clinical trials of our current product candidates;

•the progress, timing and costs of manufacturing of VYJUVEK and revenue received from commercial sale of VYJUVEK;

•the continued development and the filing of an IND application for current and future product candidates;

•the initiation, scope, progress, timing, costs and results of drug discovery, laboratory testing, manufacturing, preclinical studies and clinical trials for any product candidates that we may pursue in the future, if any;

•the costs of maintaining our own commercial-scale CGMP manufacturing facilities;

•the outcome, timing and costs of seeking regulatory approvals;

•the costs associated with the manufacturing process development and evaluation of third-party manufacturers;

•the extent to which the costs of VYJUVEK and our product candidates, if approved, will be paid by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or will be reimbursed by government authorities, private health coverage insurers and other third-party payors;

•the costs of commercialization activities for our current and future product candidates if we receive marketing approval for such product candidates, including the costs and timing of establishing product sales, medical affairs, marketing, distribution and manufacturing capabilities;

•subject to receipt of marketing approval, if any, revenue received from commercial sale of our current and future product candidates;

•the terms and timing of any future collaborations, licensing, consulting or other arrangements that we may establish;

•the amount and timing of any payments we may be required to make, or that we may receive, in connection with the licensing, filing, prosecution, maintenance, defense and enforcement of any patents or other intellectual property rights, including milestone and royalty payments and patent prosecution fees that we are obligated to pay pursuant to our license agreements;

•our current license agreements remaining in effect and our achievement of milestones under those agreements;

•our ability to establish and maintain collaborations and licenses on favorable terms, if at all; and

•the extent to which we acquire or in-license other product candidates and technologies.

We may need to obtain substantial additional funding in order to receive regulatory approval and to commercialize our product candidates. To the extent that we raise additional capital through the sale of common stock, convertible securities or other equity securities, the ownership interests of our existing stockholders may be materially diluted and the terms of these securities could include liquidation or other preferences that could adversely affect the rights of our existing stockholders. In addition, debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, that could adversely affect our ability to conduct our business. If we are unable to raise capital when needed or on attractive terms, we could be forced to significantly delay, scale back or discontinue the development or commercialization of our product candidates, seek collaborators at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available, and relinquish or license, potentially on unfavorable terms, our rights to our product candidates that we otherwise would seek to develop or commercialize ourselves.

Contractual Obligations

Operating Leases

Operating lease payments represent our commitments for future minimum rent made under non-cancelable leases for our corporate headquarters in Pittsburgh, Pennsylvania and our global office locations, and for the ground lease associated with our second CGMP manufacturing facility, ASTRA. The total future payments for our operating lease obligations that had commenced as of December 31, 2024 are $14.6 million, of which $1.3 million is due in the next twelve months and the

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remaining payments are due over the terms of the respective leases. For additional details regarding our leases, see Note 8 and Note 14 to our consolidated financial statements included in this Annual Report on Form 10-K.

Clinical Supply and Product Manufacturing Agreements

We enter into various agreements in the normal course of business with Contract Research Organizations, Contract Manufacturing Organizations and other third parties for preclinical research studies, clinical trials and testing and manufacturing services. We are obligated to make milestone payments under certain of these agreements. The estimated remaining commitment as of December 31, 2024 under these agreements is approximately $627 thousand, all of which is expected to be due in the next twelve months.

Sources and Uses of Cash

The following table summarizes our sources and uses of cash:

Operating Activities

Net cash provided by operating activities for the year ended December 31, 2024 was $123.4 million and consisted primarily of net income of $89.2 million adjusted for $48.7 million of non-cash items and a $14.5 million decrease in cash due to an increase in net working capital. Non-cash adjustments included depreciation of $6.0 million, amortization of operating lease right-of-use assets of $747 thousand, stock-based compensation expense, net of $49.1 million, and other adjustments of $652 thousand offset by realized gain on investments of $6.1 million and accretion on marketable securities of $1.7 million.

Net cash used by operating activities for the year ended December 31, 2023 was $88.8 million and consisted primarily of net income of $10.9 million adjusted for $61.2 million of non-cash items and a $38.5 million decrease in cash due to an increase in net working capital. Non-cash adjustments included gain on sale of priority review voucher of $100.0 million, which is classified as an investing activity, realized gain on investments of $5.1 million and accretion on marketable securities of $2.2 million, partially offset by stock-based compensation expense, net of $39.9 million, depreciation of $5.0 million, amortization of operating lease right-of-use assets of $904 thousand and other adjustments of $217 thousand.

Net cash used in operating activities for the year December 31, 2022 was $100.6 million and consisted primarily of a net loss of $140.0 million adjusted for $36.7 million of non-cash items and an increase in cash due to a decrease in net working capital of $2.7 million. Non-cash adjustments included stock-based compensation expense, net of $33.2 million, depreciation of $2.6 million, amortization of operating lease right-of-use assets of $742 thousand, amortization of marketable securities of $670 thousand and other adjustments of $34 thousand, partially offset by realized gain on investments of $570 thousand.

Investing Activities

Net cash used in investing activities for the year ended December 31, 2024 was $163.4 million and consisted of $457.7 million in purchases of short-term and long-term investments and $4.2 million in purchases of property and equipment, partially offset by $298.5 million received from the maturities of investments.

Net cash provided by investing activities for the year ended December 31, 2023 was $82.6 million and consisted of $503.2 million received from the maturities of investments and $100.0 million in proceeds from the sale of priority review voucher, partially offset by $508.8 million in purchases of short-term and long-term investments and $11.8 million in purchases of property and equipment.

Net cash used in investing activities for the year ended December 31, 2022 was approximately $114.1 million and consisted of $318.8 million in purchases of short-term and long-term investments and $53.0 million in purchases of property and equipment on the build-out of our ASTRA facility, leasehold improvement of new office space and computer and laboratory equipment, partially offset by $257.7 million received from the maturities of short-term investments.

Financing Activities

Net cash provided by financing activities for the year ended December 31, 2024 was $27.0 million and consisted of proceeds of $32.4 million from exercises of stock options, partially offset by $4.2 million used for employee tax withholding

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payments related to vested restricted stock units and $1.2 million used for employee tax withholding payments for settlement of vested restricted stock awards.

Net cash provided by financing activities for the year ended December 31, 2023 was $202.8 million and consisted of proceeds of $159.7 million from issuances of common stock, net of offering costs and proceeds of $43.8 million from exercises of stock options, partially offset by $749 thousand used for employee tax withholding payments for settlement of vested restricted stock awards.

Net cash provided by financing activities for the year ended December 31, 2022 was $35.3 million and was primarily from proceeds from public offerings of 434,782 shares of our common stock at a weighted-average price of $69.00 per share through our at-the-market equity offering program. Our net proceeds from the offerings were $29.0 million after deducting underwriting discounts and commissions of approximately $900 thousand. Additionally, we received $7.0 million from exercises of stock options, offset by $649 thousand used for employee tax withholding payments for settlement of vested restricted stock awards.

Recent Accounting Pronouncements

See Note 2 to our consolidated financial statements.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following information should be read in conjunction with the consolidated financial statements and related notes thereto included in this Annual Report on Form 10-K. In addition to historical information, this report contains forward-looking statements that involve risks and uncertainties which may cause our actual results to differ materially from plans and results discussed in forward-looking statements. We encourage you to review the risks and uncertainties discussed in the sections entitled Item 1A. “Risk Factors” and “Forward-Looking Statements” included at the beginning of this Annual Report on Form 10-K. The risks and uncertainties can cause actual results to differ significantly from those forecast in forward-looking statements or implied in historical results and trends. We caution readers not to place undue reliance on any forward-looking statements made by us, which speak only as of the date they are made. We disclaim any obligation, except as specifically required by law and the rules of the U.S. Securities and Exchange Commission, or SEC, to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.

This section of this Form 10-K generally discusses 2023, 2022 and 2021 items and year-to-year comparisons between 2023 and 2022, and 2022 and 2021 of the Company’s results of operations and cash flows.

Overview

We are a fully integrated, commercial-stage biotechnology company focused on the discovery, development, 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 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 encoded effector to treat or prevent disease. We formulate our vectors 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 goal is to develop easy-to-use medicines to dramatically improve the lives of patients living with rare and serious diseases. Our innovative technology platform is supported by an in-house, FDA-inspected, commercial scale Current Good Manufacturing Practice (“CGMP”) manufacturing facility and a second, completed and qualified, commercial scale CGMP facility to support future expansion. Refer to Part I, Item 1 - Business for more information about our United States Food and Drug Administration (“FDA”) approved product, VYJUVEK®, clinical development pipeline and research programs, and the status of our product candidates.

Highlights and Recent Developments

VYJUVEK (beremagene geperpavec-svdt or B-VEC; referred to as B-VEC outside the U.S.)

In May 2023, the FDA approved B-VEC for the treatment of patients, six months of age or older, suffering from dystrophic epidermolysis bullosa (“DEB”). FDA approval was based, in part, on our pivotal Phase 3 clinical trial, a randomized, double-blind, intra-patient placebo-controlled multi-center study, that demonstrated that B-VEC was both well-tolerated and significantly improved wound closure in DEB patients. Clinical data from our registrational Phase 3 B-VEC trial were published in the New England Journal of Medicine in December 2022. B-VEC is marketed as VYJUVEK in the United States and is the first and only corrective medicine approved by the FDA for the treatment of DEB, both recessive and dominant. VYJUVEK can be administered by a healthcare professional in either a healthcare professional or home setting.

We launched VYJUVEK in the United States in the second quarter of 2023. Net product revenue for VYJUVEK for the year ended December 31, 2023 was $50.7 million.

We have made steady progress securing access and reimbursement for VYJUVEK since launch and have secured positive policies or coverage decisions from plans covering over 93% of commercial and Medicaid lives in the United States. In January 2024, we announced that the United States Centers for Medicare & Medicaid Services, or CMS, had assigned a permanent and product-specific J-code (J3401) for VYJUVEK, effective on January 1, 2024.

We seek to make the patient experience of starting and continuing on VYJUVEK treatment as seamless as possible. Since launch, the infrastructure has been in place for patients to be treated in their home by a healthcare provider, or 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. We also continue to offer no-cost genetic testing through our DecodeDEB program. Through the end of 2023, patient compliance with once weekly VYJUVEK treatment has been 96%.

We continue to pursue development and commercialization activities to maximize access to B-VEC in the United States and globally. Recent highlights subsequent to FDA approval are summarized below:

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•In December 2023, B-VEC was granted orphan drug designation, or ODD, status for the treatment of DEB by the Japan Ministry of Health, Labour and Welfare, a designation which confers specific benefits for orphan drug development including priority review of applications, extended registration validity, and reduced development costs. We anticipate filing our Japan New Drug Application with Japan’s Pharmaceuticals and Medical Devices Agency (“PMDA”) in the second half of 2024 enabling a potential authorization 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 patients from birth. In November 2023, we were notified that the MAA had been validated and was now under Committee for Medicinal Products for Human Use review. We expect an EMA decision on our MAA in the second half of 2024.

•In July 2023, the PMDA in Japan officially accepted the open label extension (“OLE”) study of B-VEC. Following that acceptance, we initiated the Japan OLE study and completed study enrollment. A total of 5 Japanese DEB patients have been enrolled. Details of the study can be found at jrct.niph.go.jp under JRCT ID jRCT2053230075. Nothing included on this website shall be deemed incorporated by reference into this Annual Report on Form 10-K.

•In April 2023, we announced clinical data on the compassionate use of B-VEC, administered as an eye drop, to treat a patient suffering from ocular complications of DEB. Data were first presented at the Association for Research in Vision and Ophthalmology 2023 Annual Meeting in April 2023, 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 3 months and visual acuity improvement from hand motion to 20/25 by 8 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 to align on a potential clinical development path for ophthalmic B-VEC.

•In January 2024, the United States Patent and Trademark Office, or USPTO, issued U.S. Patent No. 11,865,148, covering methods of delivering human transgenes to the eye using replication-incompetent HSV-1. This patent covers the administration of B-VEC to the eye, as well as novel applications of our HSV-1 based platform to deliver genetic material to the eye via multiple routes of administration for the potential treatment of genetic eye diseases. The patent expires in 2037. Refer to Part I, Item 1 - Business for more information about our intellectual property and issued patents.

•In February 2024, the FDA agreed with our proposed single arm, open label study in approximately 10 patients to enable approval of B-VEC eyedrops to treat ocular complications which are thought to affect over 25% of DEB patients. We plan to initiate this study in the second half of 2024.

Pipeline

•KB407 is an inhaled (nebulized) formulation of our novel vector designed to deliver two copies of the full-length cystic fibrosis transmembrane conductance regulator, or CFTR, transgene for the treatment of cystic fibrosis (“CF”), a serious rare lung disease caused by missing or mutated CFTR protein. In August 2022, we announced that the FDA had accepted our investigational new drug (“IND”) application to evaluate KB407 in a clinical trial to treat patients with cystic fibrosis. In July 2023, we dosed the first patient in our Phase 1 CORAL-1 study evaluating KB407, delivered via a nebulizer, for the treatment of patients with CF. The CORAL-1 study is a multi-center, dose-escalation trial of KB407 in patients with CF, regardless of their underlying genotype. In the fourth quarter of 2023, we completed the first cohort of the CORAL-1 study with no severe or serious adverse events and, in January 2024, we initiated dosing in the second of three cohorts. Details of the Phase 1 study can be found at www.clinicaltrials.gov under NCT identifier NCT05504837. Nothing included on this website shall be deemed incorporated by reference into this Annual Report on Form 10-K. In January 2023, the European Commission granted Orphan Designation for KB407 for the treatment of CF.

•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, or AATD. In September 2023, the FDA accepted our IND application to evaluate KB408, delivered via a nebulizer, in a clinical trial to treat patients with AATD. In February 2024, the Company dosed the first patient in the KB408 Phase 1 SERPENTINE-1 study for the treatment of Alpha-1 Antitrypsin Deficiency. SERPENTINE-1 is a Phase 1 open-label, single dose escalation study in adult patients with AATD with a PI*ZZ genotype. Three planned dose levels of KB408 will be evaluated in up to 12 patients to evaluate the safety, tolerability, and proof-of-mechanism of KB408. Cohorts 1 and 2 will focus predominantly on safety with dose escalation and pharmacodynamic activity in the lung will be assessed at the highest dose by bronchoscopy in Cohort 3. We are working closely with the Alpha-1 Foundation and their Therapeutic Development Network on SERPENTINE-1 study and intend to announce interim data from the study in the second half of 2024. The FDA granted ODD to KB408 for the treatment of AATD in September 2023. We presented preclinical pharmacology data for KB408 at the European Society of Gene & Cell Therapy Congress that was held in October 2023.

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•KB707 is a redosable, immunotherapy designed to deliver genes encoding both human IL-2 and 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. In July 2023, the FDA granted intratumoral KB707 Fast Track Designation for the treatment of anti-PD-1 relapsed/refractory locally advanced or metastatic melanoma and accepted our IND application to evaluate intratumoral KB707 in a clinical trial to treat patients with locally advanced or metastatic solid tumors. The study, OPAL-1, is an open-label, multi-center, monotherapy, dose escalation and expansion Phase 1 study, enrolling 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. We dosed the first patient in the OPAL-1 study in October 2023 and enrollment is ongoing. Details of the Phase 1 study can be found at www.clinicaltrials.gov under NCT identifier NCT05970497. Nothing included on this website shall be deemed incorporated by reference into this Annual Report on Form 10-K. We presented preclinical efficacy data generated in syngeneic mouse models using murine equivalents to KB707 at the Society for Immunotherapy in Cancer Annual Meeting that was held in November 2023.

•In January 2024, the FDA accepted an amendment to our IND application to evaluate inhaled KB707 in a clinical trial to treat patients with locally advanced or metastatic solid tumors of the lung. We plan on initiating this open-label, multi-center, monotherapy, dose escalation and expansion Phase 1 study, KYANITE-1, in the first half of 2024. Details of the Phase 1 study can be found at www.clinicaltrials.gov under NCT identifier NCT06228326. Nothing included on this website shall be deemed incorporated by reference into this Annual Report on Form 10-K. Inhaled KB707 also received Fast Track Designation from the FDA in February 2024, for the treatment of patients with solid tumors with pulmonary metastases that are relapsed or refractory to standard of care therapy.

•In October 2023, the USPTO issued U.S. Patent No. 11,779,660, covering compositions of matter containing engineered HSV constructs encoding IL-2 and IL-12, including KB707. The patent expires in 2042. Refer to Part I, Item 1 - Business for more information about our intellectual property and issued patents.

•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 TGM1-deficient autosomal recessive congenital ichthyosis, a serious rare skin disorder caused by missing or mutated TGM1 protein. A randomized, placebo-controlled Phase 1/2 study is ongoing. On July 1, 2021, we announced complete data from the Phase 1 trial, showing repeat topical KB105 dosing continued to be well tolerated with no adverse events or evidence of immune response. Details of the Phase 1/2 study can be found at www.clinicaltrials.gov under NCT identifier NCT04047732. Nothing included on this website shall be deemed incorporated by reference into this Annual Report on Form 10-K. We plan to resume enrollment in the Phase 2 portion of this trial later in 2024. In August 2023, the USPTO issued U.S. Patent No. 11,717,547, the second composition of matter and method of use patent related to KB105. The patent expires in 2039. Refer to Part I, Item 1 - Business for more information about our intellectual property and issued patents.

•KB104 is a topical gel formulation of our novel vector designed to deliver two copies of the SPINK5 transgene encoding serine protease inhibitor Kazal-type 5 (“SPINK5”) for the treatment of Netherton Syndrome, a debilitating autosomal recessive skin disorder caused by missing or mutated SPINK5 protein. The FDA has granted KB104 Rare Pediatric Designation for the treatment of Netherton Syndrome. We plan to file an IND application and initiate a clinical trial of KB104 to treat patients with Netherton Syndrome following initiation of the KB105 Phase 2 study. In May 2023, the USPTO issued U.S. Patent No. 11,642,384, covering compositions of matter containing replication-defective HSV constructs encoding SPINK5, including KB104. The patent expires in 2039. Refer to Part I, Item 1 – Business for more information about our intellectual property and issued patents.

•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 April 2023, Jeune Aesthetics, Inc. (“Jeune Aesthetics”), our wholly-owned subsidiary, initiated and treated the first subject in the PEARL-1 Cohort 3 clinical study. The PEARL-1 Cohort 3 study is an open label study to evaluate different doses of KB301 for the improvement of lateral canthal lines, or LCL, at rest in up to 20 subjects. In January 2024, Jeune Aesthetics initiated the PEARL-1 Cohort 4 clinical study, an open label study to evaluate KB301 for the improvement of dynamic wrinkles of the décolleté in up to 20 subjects. These studies are running simultaneously, and Jeune Aesthetics expects to announce results for both cohorts in the first half of 2024. Following completion of this study, Jeune Aesthetics plans to initiate a Phase 2 study of KB301. Details of the Phase 1 study can be found at www.clinicaltrials.gov under NCT identifier NCT04540900. Nothing included on this website shall be deemed incorporated by reference into this Annual Report on Form 10-K. Jeune Aesthetics has several other aesthetic medicine product candidates in various stages of preclinical development.

2023 Business Highlights

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•In August 2023, we sold our Rare Pediatric Disease Priority Review Voucher, or PRV, for $100.0 million. The PRV was awarded in connection with the FDA’s accelerated approval of VYJUVEK for the treatment of DEB for patients 6 months of age and older.

•In August 2023, we began research and development operations in our second commercial scale CGMP biologics manufacturing facility, ASTRA, a 155,000 sq. ft. state-of-the-art CGMP facility with comprehensive end-to-end capabilities.

•In May 2023, shortly after we received FDA approval of VYJUVEK, we issued and sold 1,729,729 shares of common stock at a price of $92.50 per share in a private placement (the “PIPE”) to certain accredited investors. Net proceeds from the PIPE were approximately $160.0 million. We filed a registration statement with the SEC in July 2023 registering the resale of the shares of common stock issued in the PIPE.

•On March 6, 2023, we announced the appointment of Catherine Mazzacco to our Board of Directors.

Financial Overview

Product Revenue

After FDA approval of VYJUVEK in May 2023, we began commercial marketing and sales of the product throughout the United States and began recognizing revenue in 3Q 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 (“SPs”) that mix the medication and administer it to patients in the patient’s home by a healthcare professional and through a specialty distributor (“SD”) to hospitals and outpatient clinics where patients are administered the medication at a healthcare professional’s office. 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 our contracts. Refer to Note 2 of our consolidated financial statements for additional information.

Cost of Goods Sold

We recognize cost of goods sold for 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 expense. As such, a portion of the cost of inventory sold during 2023 was expensed prior to FDA approval.

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 (“CMOs”), 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 expand our product portfolio. In the near term, we expect that our research and development expenses will increase as we continue our Japan OLE study for B-VEC, continue our Phase 1 trials for KB407, KB408, and intratumoral KB707, initiate our Phase 1 trials for inhaled KB707, resume dosing with KB105 Phase 1/2 clinical trial, complete Phase 1 Cohorts 3 and 4 and initiate a Phase 2 trial for KB301, begin our open label study with ophthalmic B-VEC, and incur preclinical expenses for our other product candidates. Due to the numerous risks and uncertainties associated with product

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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, commercial, business development and other administrative functions. Selling, general and administrative expenses also include professional fees associated with corporate and intellectual property-related legal expenses, consulting and accounting services, facility-related costs and expenses associated with obtaining and maintaining patents. Other selling, general, and administrative costs include travel expenses, patient access program fees, management service fees, and other selling expenses which include transportation, shipping and handling fees.

We anticipate that our selling, general and administrative expenses will increase in the future to support the continued research and 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 CGMP facility, ASTRA. We received the permanent occupancy permit for ASTRA in March 2023, which permitted utilization of certain parts of the building, and subsequently placed a portion of ASTRA into service. Qualification of the facility was completed later in 2023, and we began research and development operations. 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

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

Interest and other income consists primarily of income earned from our cash, cash equivalents and investments.

Interest Expense

Interest expense consists primarily of non-cash interest expense recognized to accrete the build to suit financial obligation to a balance that equaled the cash consideration that was paid upon the close of the purchase of ASTRA.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial position 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. On an ongoing basis, we evaluate estimates which include, but are not limited to, 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 during the period. We base our estimates on historical experience and other market-specific or other relevant assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from those estimates or assumptions.

While our significant accounting policies are described in more detail in the notes to our financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe the following accounting policies to be most critical to the judgments and estimates used in the preparation of our financial statements.

Revenue Recognition

After FDA approval of VYJUVEK in May 2023, we began commercial marketing and made our first product sales in 3Q 2023. ASC 606 Revenue from Contracts with Customers requires us to make estimates of variable consideration, included in our contracts, to be included in the transaction price.

Product revenue, net is recorded at the net sales price, or transaction price, upon delivery and transfer of control to the customer, and includes an estimate of variable consideration, which results from discounts, rebates, copay assistance, and returns that are offered within contracts between the Company and its customers.

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–Prompt Pay Discounts: As an incentive for prompt payment, we offer a cash discount to our counterparty. We estimate accrued prompt pay discounts using the most likely amount method. We expect that all eligible counterparties will comply with the contractual terms to earn the discount. We record the discount as an allowance against accounts receivable, net and a reduction of revenue.

–Government Rebates: We participate in certain government rebate programs including Medicaid, Medicare and Tricare. We estimate accrued government rebates using the expected value method. We accrue estimated rebates based on estimated percentages of VYJUVEK that will be prescribed to qualified patients, estimated rebate percentages and estimated levels of inventory in the distribution channel that will be prescribed to qualified patients and record the rebates as a reduction of revenue. Accrued government rebates are included in other accrued liabilities on the consolidated balance sheets. For Medicare, the Company also estimates the accrued liability based on the number of patients in the prescription drug coverage gap under the Medicare Part D program.

–Commercial Rebates: We participate in certain commercial rebate programs. Under these rebate programs, we pay a rebate to the commercial entity or third-party administrator of the program. Accrued commercial rebates are estimated using the expected value method. We accrue estimated rebates based on contract prices, estimated percentages of VYJUVEK that will be prescribed to qualified patients and estimated levels of inventory in the distribution channel and record the rebate as a reduction of revenue. Accrued commercial rebates are included in other accrued liabilities on the consolidated balance sheets.

–Copay Assistance: The Company provides copay assistance to qualified patients with commercial insurance in states that allow copay assistance, helping them meet copay obligations to their insurance provider. The Company reimburses pharmacies for this discount through third-party vendors. The Company estimates copay assistance costs using the expected value method. The estimate is based on contract prices, estimated percentages of VYJUVEK that will be prescribed to qualified patients, average assistance paid based on reporting from third-party vendors and estimated levels of inventory in the distribution channel. Copay assistance costs are recorded as reductions to revenue and are accrued in other accrued liabilities on the consolidated balance sheets.

–Product Returns: We offer SPs and SDs limited return rights relating only to product damage or defects identified upon receipt, and therefore we expect minimal returns. Returns are estimated taking into consideration several factors including these limited product return rights, historical return activity, and other relevant factors.. There were no returns for the year ended December 31, 2023.

Variable consideration is estimated and reduces the transaction price to reflect our best estimate of the amount of consideration to which we are entitled based on the terms of the contracts and are recorded in the same period the related product revenue is recognized. The amount of variable consideration that is included in the transaction price may be constrained and is included in the net sales price only to the extent that it is considered probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. Actual amounts of consideration ultimately received may differ from our estimates. If actual results in the future vary from our estimates, we will adjust these estimates in the period these variances become known.

Accrued Research and Development Expenses

As part of the process of preparing our financial statements, we are required to estimate our accrued research and development expenses, prepaid assets and other current liabilities. This process involves reviewing open contracts and commitments, communicating with our personnel to identify services that have been performed for us and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met. We make estimates of our accrued research and development expenses and other current liabilities as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time. Examples of accrued research and development expenses, prepaid assets and other current liabilities include fees paid to contract manufacturers made in connection with the manufacturing of preclinical and clinical trials materials.

We record our expenses related to clinical manufacturing based on our estimates of the services performed pursuant to contracts with the entities producing clinical materials on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. Payments under these types of contracts depend heavily upon the successful completion of many separate tasks involved in the manufacturing of drug product. In accruing service fees, we estimate the time period over which services will be performed, and the actual services performed in each period. If actual results in the future vary from our estimates, we will adjust these estimates in the period these variances become known.

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Stock-Based Compensation

We have applied the fair value recognition provisions of Financial Accounting Standards Board Accounting Standards Codification, or ASC, Topic 718, Compensation—Stock Compensation (“ASC 718”), to account for stock-based compensation. We recognize compensation costs related to stock options granted based on the estimated fair value of the awards on the date of grant. Described below is the methodology we have utilized in measuring stock-based compensation expense.

ASC 718 requires all stock-based payments, including grants of stock options and restricted stock, to be recognized in the statements of operations based on their grant-date fair values. Compensation expense is recognized on a straight-line basis based on the grant-date fair value over the associated service period of the award, which is generally the vesting term.

Determining the amount of stock-based compensation to be recorded requires us to develop estimates of the fair value of stock-based awards as of their measurement date. We recognize stock-based compensation expense over the requisite service period, which is the vesting period of the award. Calculating the fair value of stock-based awards requires that we make assumptions. We use the Black-Scholes option pricing model to value our stock option awards. Use of this valuation methodology requires that we make assumptions as to the volatility of our common stock, the risk-free interest rate for a period that approximates the expected term of our stock options and our expected dividend yield. Once our own sufficient historical volatility data was obtained, we eliminated the use of a representative peer group and as of Q4 2021 we use only our own historical volatility data in its estimate of expected volatility given that there is now sufficient amount of historical information regarding the volatility of our own stock price. We use the simplified method to calculate the expected term as prescribed by the SEC Staff Accounting Bulletin No. 107, Share-Based Payments as we do not have sufficient historical stock option activity data to provide a reasonable basis upon which to estimate the expected term of stock options granted to employees. We utilize a dividend yield of zero based on the fact that we have never paid cash dividends and have no current intention of paying cash dividends. The risk-free interest rate used for each grant is based on the U.S. Treasury yield curve in effect at the time of grant for instruments with a similar expected life.

Results of Operations

Years Ended December 31, 2023, 2022 and 2021

Product Revenue, net

Product revenue, net was $50.7 million for the year ended December 31, 2023 as compared to zero for the years ended December 31, 2022 and 2021 due to initial sales of VYJUVEK after FDA approval was obtained on May 19, 2023. To date, all of our product revenue has been generated in the United States.

Cost of Goods Sold

Cost of goods sold was $3.1 million for the year ended December 31, 2023 as compared to zero for the years ended December 31, 2022 and 2021 due to initial sales of VYJUVEK after FDA approval was obtained on May 19, 2023. Prior to

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receiving FDA approval for VYJUVEK in May 2023, costs associated with the manufacturing of VYJUVEK were expensed as research and development expense. As such, a portion of the cost of inventory sold during 2023 was expensed prior to FDA approval.

Research and Development Expenses

Research and development expenses increased approximately $4.0 million for the year ended December 31, 2023 compared to the year ended December 31, 2022. Higher research and development expenses were due to increases in payroll related expenses of $5.8 million which was primarily driven by an increase in personnel to support overall growth and includes a $2.2 million increase in stock-based compensation, an increase in depreciation of $2.2 million, and an increase in other research and development expenses of approximately $428 thousand, primarily due to increases in facilities expenses. These increases were partially offset by decreases of $2.0 million in preclinical, clinical and pre-commercial manufacturing due to the costs related to the manufacturing of VYJUVEK following FDA approval being recorded as inventory and due to fewer receipts of raw materials and lab supplies period over period that were purchased for planned manufacturing runs of our products, a decrease from overhead allocations to inventory of $1.3 million, and a decrease from outsourced research and development costs of $1.2 million.

Research and development expenses increased $14.6 million for the year ended December 31, 2022 compared to the year ended December 31, 2021. Higher research and development expenses were due to increases in payroll related expenses of $8.9 million which was primarily driven by an increase in personnel to support overall growth and includes a $4.5 million increase in stock-based compensation, an increase in outsourced research and development activities of $2.3 million, an increase in preclinical, clinical and pre-commercial manufacturing activities of $1.0 million, and an increase in other research and development expenses of $2.4 million, primarily due to increases in depreciation and licensing fees.

The following table summarizes our research and development expenses by product candidate or program, and for unallocated expenses, by type, for the years ended December 31, 2023, 2022 and 2021:

(1)For the year ended December 31, 2023, KB103 expenses consist of pre-approval activity costs, post marketing study costs and overseas preclinical and clinical trial costs, licensing and regulatory costs.

(2)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.

(3)Other unallocated expenses include rental, storage, depreciation, and other facility related costs that we do not allocate to our individual product candidates.

As noted above, research and development expenses increased approximately $4.0 million in the year ended December 31, 2023 compared to the year ended December 31, 2022. Expenses for KB103 increased $943 thousand due to increased payroll related expenses to support VYJUVEK’s pre-approval activities, clinical trial costs, license and regulatory costs, costs associated with overseas clinical trials and regulatory agency filings, and increased allocated research and

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development expenses. KB707 spending increased $3.4 million due to increased payroll related costs and increased contract research costs in preparation for the Phase 1 clinical trial. Stock-based compensation increased $2.2 million due to an increase in internal resources to support overall research and development growth. Additionally, other unallocated expenses increased by $1.4 million primarily due to increases in depreciation expense offset by a decrease from rent expense allocated to inventory. These increases were partially offset by a decrease in other unallocated manufacturing expenses of $2.5 million due to the costs related to the manufacturing of VYJUVEK following FDA approval being recorded as inventory and due to fewer receipts of raw materials period over period that were purchased for planned manufacturing runs of our products and product candidates, a decrease in KB301 expenses of $852 thousand due to the timing of clinical research costs, and a decrease in spending on other dermatology programs of $498 thousand due to a reduction in contract manufacturing expenses.

Research and development expenses increased $14.6 million in the year ended December 31, 2022 compared to the year ended December 31, 2021. Expenses for KB103 increased $1.9 million primarily due to increased payroll expenses and clinical trial costs related to OLE studies. Expenses for KB407 increased $908 thousand due to increased payroll expenses and pre-clinical costs. Other respiratory expenses increased $692 thousand due to increased contract research costs. Expenses for KB707 increased $400 thousand primarily related to payroll supporting initial research activities. Stock-based compensation increased due to an increase of $4.5 million in internal resources to support overall research and development growth. Unallocated manufacturing expenses increased by $5.8 million primarily due to receipts of raw materials purchased for planned manufacturing runs our products.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased $20.7 million for the year ended December 31, 2023 compared to the year ended December 31, 2022. Higher selling, general and administrative spending was due largely to increased payroll related expenses of approximately $15.1 million which is primarily driven by an increase in personnel to support overall growth and includes an approximate $4.5 million increase in stock-based compensation, increased selling expenses related to the launch of VYJUVEK of $1.7 million, increased information technology infrastructure costs of $2.1 million, increased software-related costs of $1.3 million, increased travel costs of $1.1 million, an increase in sponsorships of $425 thousand, an increase in net legal costs of $381 thousand, which consists of a decrease in litigation proceeds of $570 thousand, offset by a decrease in legal and professional fees of $189 thousand and an increase of other selling, general and administrative expense of $676 thousand, primarily due to increases in depreciation and rent expense. These increases were partially offset by a decrease of $1.2 million of commercial preparedness expenses, a decrease in medical affairs costs of $466 thousand, and a decrease in business development costs of $428 thousand.

General and administrative expenses increased $37.3 million for the year ended December 31, 2022 compared to the year ended December 31, 2021. Higher general and administrative spending was due largely to increased payroll related expenses of approximately $28.8 million which is primarily driven by an increase in personnel to support overall growth and includes an approximate $13.4 million increase in stock-based compensation, increased commercial preparedness expenses of approximately $5.7 million, increased medical affairs costs of $581 thousand, increased travel costs of $536 thousand, and an increase in other administrative expenses of $2.9 million, primarily due to increases in utilities, information technology costs, and conference fees. These increases were partially offset by a decrease in net legal costs of $1.2 million, which consists of a decrease in legal and professional fees of $2.8 million offset by a decrease in litigation proceeds of approximately $1.6 million, due primarily to the settlement of the PeriphaGen litigation.

Litigation Settlement

Litigation settlement for the years ended December 31, 2023 and 2022 was $12.5 million and $25.0 million, respectively, and consisted of amounts related to the settlement of litigation with PeriphaGen. See "Legal Proceedings" in Note 7 of the notes to consolidated financial statements included in this Form 10-K for more information.

Gain from sale of Priority Review Voucher

Gain from sale of priority review voucher for the year ended December 31, 2023 was $100.0 million related to the sale of our rare pediatric PRV, which was awarded to the Company in connection with the FDA’s approval of VYJUVEK.

Other Income (Expense)

Interest and other income for the years ended December 31, 2023, 2022, and 2021 was $22.6 million, $5.2 million and $197 thousand, respectively, and consisted of realized gains from maturities of our investments, interest income earned from our cash, cash equivalents and investments.

Interest expense for the years ended December 31, 2023, 2022 and 2021 was zero, zero, and $1.5 million, respectively. The 2021 interest expense related to accretion of the financial obligation for the build to suit lease liability during the year ended December 31, 2021.

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Income Tax Expense

Income tax expense for the years ended December 31, 2023, 2022, and 2021 was $2.0 million, zero, and zero, respectively. In 2023, income tax expense related to U.S. state and federal taxes related to the PRV sale and our initial commercial activities in those jurisdictions. See Note 11 of the notes to consolidated financial statements included in this Form 10-K for more information.

Liquidity and Capital Resources

Overview

On December 31, 2023, our cash, cash equivalents and short-term investments balance was approximately $532.2 million. Since operations began, we have incurred operating losses. Net income was $10.9 million for the year ended December 31, 2023, and our net losses were $140.0 million and $69.6 million for the years ended December 31, 2022, and 2021, respectively. At December 31, 2023, we had an accumulated deficit of $269.8 million. With the net proceeds raised from our previous public and private offerings and sale of the PRV, we believe that our cash, cash equivalents and short-term investments will be sufficient to allow us to fund our operations for at least 12 months from the filing date of this Form 10-K.

Our transition to operating profitability is dependent upon the continued successful commercialization of VYJUVEK and the successful development, approval and commercialization of our product candidates and the achievement of a level of revenue adequate to support our cost structure. Furthermore, we expect to incur increasing costs associated with satisfying regulatory and quality standards, maintaining product and clinical trials, and furthering our efforts around our current and future product candidates. We intend to fund future operations through on hand cash and cash equivalents, revenue generated from the sale of VYJUVEK, the sale of equity, debt financings, and we may also seek additional capital through arrangements with strategic partners or other sources.

Costs related to clinical trials can be unpredictable and therefore there can be no guarantee that we will have sufficient capital to fund our continued clinical studies of KB105, KB407, KB301, KB707 or our planned clinical and preclinical studies for our other product candidates, or our operations. Further, we expect future revenue to fluctuate between periods for many reasons, including the uncertain timing and amount of any product sales. While we are in the process of building out our internal vector manufacturing capacity, some of our manufacturing activities will be contracted out to third parties. Additionally, we currently utilize third-party contract research organizations to carry out some of our clinical development activities. As we seek to obtain regulatory approval for our product candidates, we expect to continue to incur significant manufacturing and commercialization expenses as we prepare for product sales, marketing, commercial manufacturing, packaging, labeling and distribution. Furthermore, pursuant to our settlement agreement with PeriphaGen, we will be required to pay three $12.5 million contingent milestone payments upon reaching $100.0 million in total cumulative sales, $200.0 million in total cumulative sales and $300.0 million in total cumulative sales. Our funds may not be sufficient to enable us to conduct pivotal clinical trials for, seek marketing approval for or commercial launch of KB104, KB105, KB407, KB408, KB301, KB707 or any other product candidate. Accordingly, to obtain marketing approval for and to commercialize these or any other product candidates, we may be required to obtain further funding through public or private equity offerings, debt financings, collaboration and licensing arrangements or other sources. Adequate additional financing may not be available to us on acceptable terms, if at all. Our failure to raise capital when needed could have a negative effect on our financial condition and our ability to pursue our business strategy.

Operating Capital Requirements

Our primary uses of capital are, and we expect will continue to be for the near future, compensation and related expenses, manufacturing costs for preclinical and clinical materials, regulatory expenses, third-party clinical trial research and development services, laboratory and related supplies, selling expenses, costs to manufacture our commercial product, legal expenses, payments of settlement amounts to PeriphaGen and general overhead costs. In order to complete the process of obtaining regulatory approval for any of our product candidates and to build the sales, manufacturing, marketing and distribution infrastructure that we believe will be necessary to commercialize our product candidates, if approved, we may require substantial additional funding.

We have based our projections of operating capital requirements on assumptions that may prove to be incorrect, and we may use all of our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, we are unable to estimate the exact amount of our operating capital requirements. Our future funding requirements will depend on many factors, including, but not limited to:

•the costs needed to commercialize and market our lead product, VYJUVEK;

•the progress, timing and costs of clinical trials of our current product candidates;

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•the progress, timing and costs of manufacturing of VYJUVEK and revenue received from commercial sale of VYJUVEK;

•the continued development and the filing of an IND application for current and future product candidates;

•the initiation, scope, progress, timing, costs and results of drug discovery, laboratory testing, manufacturing, preclinical studies and clinical trials for any product candidates that we may pursue in the future, if any;

•the costs of maintaining our own commercial-scale CGMP manufacturing facilities;

•the outcome, timing and costs of seeking regulatory approvals;

•the costs associated with the manufacturing process development and evaluation of third-party manufacturers;

•the extent to which the costs of VYJUVEK and our product candidates, if approved, will be paid by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or will be reimbursed by government authorities, private health coverage insurers and other third-party payors;

•the costs of commercialization activities for our current and future product candidates if we receive marketing approval for such product candidates, including the costs and timing of establishing product sales, medical affairs, marketing, distribution and manufacturing capabilities;

•subject to receipt of marketing approval, if any, revenue received from commercial sale of our current and future product candidates;

•the terms and timing of any future collaborations, licensing, consulting or other arrangements that we may establish;

•the amount and timing of any payments we may be required to make, or that we may receive, in connection with the licensing, filing, prosecution, maintenance, defense and enforcement of any patents or other intellectual property rights, including milestone and royalty payments and patent prosecution fees that we are obligated to pay pursuant to our license agreements;

•our current license agreements remaining in effect and our achievement of milestones under those agreements;

•our ability to establish and maintain collaborations and licenses on favorable terms, if at all; and

•the extent to which we acquire or in-license other product candidates and technologies.

We may need to obtain substantial additional funding in order to receive regulatory approval and to commercialize our product candidates. To the extent that we raise additional capital through the sale of common stock, convertible securities or other equity securities, the ownership interests of our existing stockholders may be materially diluted and the terms of these securities could include liquidation or other preferences that could adversely affect the rights of our existing stockholders. In addition, debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, that could adversely affect our ability to conduct our business. If we are unable to raise capital when needed or on attractive terms, we could be forced to significantly delay, scale back or discontinue the development or commercialization of our product candidates, seek collaborators at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available, and relinquish or license, potentially on unfavorable terms, our rights to our product candidates that we otherwise would seek to develop or commercialize ourselves.

Contractual Obligations

Operating Leases

Operating lease payments represent our commitments for future minimum rent made under non-cancelable leases for our corporate headquarters in Pittsburgh, Pennsylvania, office location in Boston, Massachusetts, office locations in Switzerland and Netherlands, and for the ground lease associated with our second CGMP manufacturing facility, ASTRA. The total future payments for our operating lease obligations at December 31, 2023 are $16.2 million, of which $1.5 million is due in the next twelve months and the remaining payments are due over the terms of the respective leases. For additional details regarding our leases, see Note 8 to our consolidated financial statements included in this Annual Report on Form 10-K.

Clinical Supply and Product Manufacturing Agreements

We enter into various agreements in the normal course of business with CROs, CMOs and other third parties for preclinical research studies, clinical trials and testing and manufacturing services. We are obligated to make milestone payments under certain of these agreements. The estimated remaining commitment as of December 31, 2023 under these agreements is approximately $1.7 million, all of which is expected to be due in the next twelve months.

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ASTRA Contractual Obligations

We have contracted with various third parties to complete and qualify our second CGMP facility, ASTRA. These contracts typically call for the payment of fees for services or materials upon the achievement of certain milestones. The estimated remaining commitment as of December 31, 2023 is $8.2 million, all of which is expected to be due in the next twelve months.

Cash Flows

The following table summarizes our sources and uses of cash (in thousands):

Operating Activities

Net cash used in operating activities for the year December 31, 2023 was $88.8 million and consisted primarily of net income of $10.9 million adjusted for non-cash items of $61.9 million primarily comprised of a gain on sale of the rare pediatric PRV of $100.0 million, stock-based compensation expense of $39.9 million, realized gain on investments of $5.1 million, depreciation and amortization of $3.7 million, other non-cash items of $451 thousand, and cash used by increases in net working capital of approximately $37.9 million.

Net cash used in operating activities for the year December 31, 2022 was $100.6 million and consisted primarily of a net loss of $140.0 million adjusted for non-cash items of $36.6 million primarily made up of stock-based compensation expense of $33.2 million and depreciation and amortization of $4.1 million, and cash provided by decreases in net working capital of approximately $2.8 million.

Net cash used in operating activities for the year December 31, 2021 was $47.9 million and consisted primarily of a net loss of $69.6 million adjusted for non-cash items of $19.1 million primarily made up of stock-based compensation expense of $15.3 million, depreciation and amortization of $2.8 million and build to suit interest expense of $1.5 million, and cash provided by decreases in net working capital of approximately $2.5 million.

Investing Activities

Net cash provided by investing activities for the year ended December 31, 2023 was approximately $82.6 million and consisted primarily of proceeds of $100.0 million from the sale of the rare pediatric PRV, proceeds from maturities of investments of $503.2 million, offset by purchases of available-for-sale investment securities of $508.8 million, and expenditures of $11.8 million on the build-out of our ASTRA facility, leasehold improvement of new office space, and purchases of computer and laboratory equipment.

Net cash used in investing activities for the year ended December 31, 2022 was approximately $114.1 million and consisted primarily of purchases of $318.8 million of available-for-sale investment securities, and expenditures of $53.0 million on the build-out of our ASTRA facility, leasehold improvement of new office space, and purchases of computer and laboratory equipment, partially offset by proceeds of $257.7 million from maturities of investments.

Net cash used in investing activities for the year ended December 31, 2021 was approximately $226.8 million and consisted primarily of purchases of $190.5 million of available-for-sale investment securities, and expenditures of $68.3 million on the build-out of our ASTRA facility, leasehold improvement of new office space, and purchases of computer and laboratory equipment, partially offset by proceeds of $32.0 million from maturities of investments.

Financing Activities

Net cash provided by financing activities for the year ended December 31, 2023 was $202.8 million and consisted primarily of proceeds of $160.0 million received from a private placement equity offering and proceeds of $43.5 million primarily from exercises of stock options, partially offset by $749 thousand used for the employee tax withholding payment for settlement of vested restricted stock awards.

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Net cash provided by financing activities for the year ended December 31, 2022 was $35.3 million and was primarily from proceeds from public offerings of 434,782 shares of our common stock at a weighted average price of $69.00 per share through our at-the-market equity offering program (“ATM”) Program. Our net proceeds from the offerings were $29.1 million after deducting underwriting discounts and commissions of approximately $900 thousand. Additionally, we received $7.0 million of proceeds related to the exercise and settlement of employee stock options and restricted stock awards, offset by $649 thousand of taxes paid for the settlement of restricted stock awards.

Net cash provided by financing activities for the year ended December 31, 2021 was $347.7 million and was primarily from proceeds from follow on public offerings of 2,211,538 shares of our common stock, including 288,461 shares purchased by the underwriters, at $65.00 per share and 2,866,667 shares of our common stock, including 200,000 shares purchased by the underwriters, at $75.00 per share. Our net proceeds from the offerings were $336.8 million after deducting underwriting discounts and commissions of approximately $21.5 million, and other offering expenses payable of $425 thousand.

Recent Accounting Pronouncements

See note 2 to our consolidated financial statements.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following information should be read in conjunction with the consolidated financial statements and related notes thereto included in this Annual Report on Form 10-K. In addition to historical information, this report contains forward-looking statements that involve risks and uncertainties which may cause our actual results to differ materially from plans and results discussed in forward-looking statements. We encourage you to review the risks and uncertainties discussed in the sections entitled Item 1A. “Risk Factors” and “Forward-Looking Statements” included at the beginning of this Annual Report on Form 10-K. The risks and uncertainties can cause actual results to differ significantly from those forecast in forward-looking statements or implied in historical results and trends. We caution readers not to place undue reliance on any forward-looking statements made by us, which speak only as of the date they are made. We disclaim any obligation, except as specifically required by law and the rules of the SEC, to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.

This section of this Form 10-K generally discusses 2022, 2021 and 2020 items and year-to-year comparisons between 2022 and 2021, and 2021 and 2020 of the Company’s results of operations and cash flows.

Overview

We are a biotechnology company focused on developing and commercializing genetic medicines for patients with rare diseases. Using our patented platform that is based on engineered 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 encoded effector to treat or prevent disease. We formulate our vectors for non-invasive or minimally invasive routes of administration at a healthcare professional’s office or potentially in the patient’s home by a healthcare professional. Our goal is to develop easy-to-use medicines to dramatically improve the lives of patients living with rare diseases and chronic conditions. Our innovative technology platform is supported by in-house, commercial scale CGMP manufacturing capabilities. Refer to Part I, Item 1 - Business for more information about our clinical development pipeline and research programs and the status of our product candidates.

Pipeline Highlights and Recent Developments:

•B-VEC is a topical gel containing our novel vector designed to deliver two copies of the COL7A1 transgene for the treatment of DEB, a serious rare skin disease caused by missing or mutated COL7 protein. We submitted a BLA to the FDA for B-VEC for the treatment of DEB in June 2022. The FDA accepted the BLA in August 2022 granting B-VEC a Priority Review Designation with a PDUFA action date of February 17, 2023. In January 2023, the FDA notified us, that based on manufacturing information submitted to the Agency on December 20, 2022 in response to an information request from the FDA, the PDUFA date has been revised to May 19, 2023. In this notification, we were also informed that there will be no Advisory Committee meeting for B-VEC and a REMS program is not needed for the B-VEC application. Commercial readiness efforts have been underway for the past two years as we prepare for the potential approval of B-VEC by the FDA and the EMA. In the United States our Medical Science Liaisons have been interacting with and educating HCPs on DEB and the importance of genetic testing in ensuring an accurate diagnosis. We have completed the build of Krystal Connect, our US in-house patient services call center staffed with Krystal employees, and are ready, pending FDA approval of B-VEC, to assist patients, care givers and HCPs interested in accessing B-VEC. Additionally, we have hired, trained and deployed commercial field teams who are interacting with physicians, patients, commercial payers across the U.S. to educate on DEB and to prepare for a U.S. launch of B-VEC. We are interacting frequently with the leading physicians in the major markets across Europe and in Japan.

•We submitted a request for MAA with the EMA in November 2022 for B-VEC for the treatment of DEB in patients 6 months and older. The Company was informed by the EMA in January 2023 to modify the PIP waiver request to include patients between birth and 6 months. The Company is modifying the application so that the MAA procedure can officially start in the second half of 2023 with an approval expected in early 2024.

•KB105 is a topical gel containing our novel vector designed to deliver two copies of the TGM1 transgene for the treatment of TGM1-ARCI, a serious rare skin disorder caused by missing or mutated TGM1 protein. A randomized, placebo-controlled Phase 1/2 study is ongoing. On July 1, 2021, we announced complete data from the Phase 1 trial, showing repeat topical KB105 dosing continued to be well tolerated with no adverse events or evidence of immune response. Details of the Phase 1/2 study can be found at www.clinicaltrials.gov under NCT identifier NCT04047732.

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Nothing included on this website shall be deemed incorporated by reference into this Annual Report on Form 10-K. We plan to initiate a Phase 2 study in 1H 2023.

•KB104 is a topical gel formulation of our novel vector designed to deliver two copies of the SPINK5 transgene for the treatment of Netherton Syndrome, a debilitating autosomal recessive skin disorder caused by missing or mutated SPINK5 protein. The FDA has granted KB104 rare pediatric designation for the treatment of Netherton Syndrome. We plan to file an IND and initiate a clinical trial of KB104 to treat patients with Netherton Syndrome in 2023.

•KB407 is an inhaled (nebulized) formulation of our novel vector designed to deliver two copies of the full-length CFTR transgene for the treatment of cystic fibrosis, a serious rare lung disease caused by missing or mutated CFTR protein. On September 29, 2021, we announced that the Bellberry Human Research Ethics Committee in Australia granted approval to conduct a Phase 1 clinical study of inhaled KB407 in patients with cystic fibrosis, and trial initiation is anticipated in first half of 2023. In August 2022, we announced that the FDA had accepted our IND application to evaluate KB407 in a clinical trial to treat patients with cystic fibrosis. We are closely working with Therapeutics Development Network (“TDN”) of the Cystic Fibrosis Foundation (“CFF”) to validate our Phase 1 clinical protocol and plan on initiating a Phase 1 clinical trial in the US in first half of 2023.

•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"). We presented preclinical pharmacology data for KB408 at the European Society of Gene & Cell Therapy Virtual Congress that was held October 19-22, 2021. We are planning to file an IND for KB408 to treat AATD patients in 2023.

•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. We initiated a Phase 1 clinical trial, the PEARL-1 trial, for the treatment of aesthetic skin conditions on August 25, 2020. The Phase 1 dose-ranging trial evaluated the safety, tolerability, and initial efficacy of intradermal injections of KB301 in adult subjects aged 18-75. Details of the Phase 1 study can be found at www.clinicaltrials.gov under NCT identifier (NCT04540900). Nothing included on this website shall be deemed incorporated by reference into this Annual Report on Form 10-K. Complete results from Cohort 1 focused on safety were presented at the 2021 SID Annual Meeting. In March 2022, we announced positive proof-of-concept efficacy and safety data from Cohort 2 of the PEARL-1 study of KB301 for the treatment of aesthetic skin indications. Cohort 2 is a randomized, double-blind, placebo-controlled clinical trial that evaluated the safety and efficacy of KB301 for the improvement of fine lines and skin texture in the lower and upper cheek and for improvement in skin thickness in the knee. Cohort 2 enrolled 27 subjects across two trial sites. Bilateral treatment areas included the neck behind the ear to assess initial safety and on the cheek below and above the zygomatic arch (lower and upper cheek), and around the knee. Subjects were randomized 2:1 to receive low dose KB301 or placebo in the upper cheek and knee as multiple micro depot injections over the selected treatment area with a 33 G needle. Subjects receiving KB301 in the lower check were randomized 2:1 to receive either low dose KB301, high dose KB301 or placebo. Four patients dropped out of the Cohort 2 study – one subject following the initial safety assessment behind the ear, two subjects for unspecified reasons, and one subject due to unevenness in face between active and placebo during the study. A subset of subjects from the PEARL-1 Cohort 2 trial (Cohort 3) were enrolled into a durability trial to look for duration of effect, reduction of the unevenness in placebo treated sites, and for long term safety monitoring. Ten subjects from the PEARL-1 Cohort 2 study were enrolled in durability trial, an open-label study to assess duration of effect below the zygomatic arch (the lower cheek area). The extension cohort enrolled subjects who had received the high dose regimen of KB301 during the efficacy cohort in one or both of their lower cheeks. Subject Satisfaction Scores and Investigator Assessments were measured monthly for three consecutive visits that correspond to timepoints up to nine-months following administration of the last dose of KB301. In addition, subjects with placebo-treated lower cheeks were dosed with KB301 during the open-label extension cohort to normalize their appearance. In November 2022, we announced nine-month durability of effect in Cohort 3 of the PEARL-1 study of KB301. We are planning to initiate a Phase 2 study in fine lines in 2023.

Jeune Aesthetics has several other aesthetic medicine product candidates in various stages of preclinical development reflected in the chart above in Item 1- Business.

Business Highlights:

•In March 2022, we presented additional results from our Phase 3 study of the clinical efficacy and safety of B-VEC for the treatment of DEB at the 2022 American Academy of Dermatology Annual Meeting.

•In March 2022, results from the complete Phase 1/2 study of topical B-VEC for the treatment of DEB were published in Nature Medicine.

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•On April 5, 2022, the Company issued and sold 434,782 shares of common stock at a weighted average price of $69.00 per share for net proceeds of $29.1 million after deducting selling commissions of approximately $900 thousand.

•On April 28, 2022, the Company entered into a final settlement agreement with PeriphaGen, Inc. (“PeriphaGen”) to resolve all claims in the trade secret litigation filed by PeriphaGen in May 2020. We paid PeriphaGen an upfront payment of $25.0 million for: (i) the release of all claims in the trade secret litigation with PeriphaGen; (ii) the acquisition of certain PeriphaGen assets, and (iii) the grant of a license by PeriphaGen for dermatological applications. Upon approval of the Company's first product by the FDA, the Company will pay PeriphaGen an additional $12.5 million, followed by three additional $12.5 million contingent milestone payments upon reaching $100.0 million in total cumulative sales, $200.0 million in total cumulative sales and $300.0 million in total cumulative sales.

•In April 2022, following feedback from the FDA, we announced that we planned to offer patients with DEB, who were enrolled in the GEM-3 OLE, the opportunity to be dosed in their homes by a health care professional.

•In April 2022, Jeune Aesthetics announced the formation and members of its Scientific Advisory Board, comprised of industry leaders to serve as strategic advisors assisting with program strategy and clinical development.

•In May 2022, we presented new data entitled “GEM-3: phase 3 safety and immunogenicity results of Beremagene Geperpavec (“B-VEC”), an investigational, topical gene therapy for dystrophic epidermolysis bullosa (DEB)” at the SID 2022 Annual Meeting.

•In December 2022 full results from the GEM-3 trial of B-VEC for DEB were published in the New England Journal of Medicine.

COVID-19 Update

To date the impact of the COVID-19 pandemic on our business and clinical trials in the U.S. has been minimal. We will continue to assess the potential impact of the pandemic on our business and operations, including our supply chain and preclinical and clinical trial activities. Outside of the U.S., we have experienced pandemic-related delays in clinical trial initiation in Australia, and we will continue to closely monitor the impact that future pandemic developments have on this and our other clinical trials, going forward. For additional information regarding the impact of the coronavirus pandemic, please see “Risk Factors - Business interruptions resulting from the COVID-19 outbreak or similar public health crises could cause a disruption of the development efforts of our product candidates and adversely impact our business.”

Financial Overview

Revenue

We currently have no approved products for commercial marketing or sale and have not generated any revenue from the sale of products or other sources to date. In the future, we may generate revenue from product sales, royalties on product sales, or license fees, milestones, or other upfront payments if we enter into any collaborations or license agreements. We expect that our future revenue will fluctuate from quarter to quarter for many reasons, including the uncertain timing and amount of any such sales.

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 (“CMOs”), 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

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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 expand our product portfolio. In the near term, we expect that our research and development expenses will increase as we continue our open label extension study for B-VEC, resume dosing with KB105 Phase 1/2 clinical trial, initiate a Phase 2 trial for KB301, initiate Phase 1 trials for KB407, initiate a Phase 1 trial for KB104, and incur preclinical expenses for our other 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.

General and Administrative Expenses

General and administrative expenses consist principally of salaries and other related costs, including stock-based compensation, for personnel in our executive, commercial, business development and other administrative functions. General and administrative expenses also include professional fees associated with corporate and intellectual property related legal expenses, consulting and accounting services, facility-related costs and expenses associated with obtaining and maintaining patents. Other general and administrative costs include travel expenses.

We anticipate that our general and administrative expenses will increase in the future to support the continued research and 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 as a result of our preparation for commercial operations.

ASTRA Capital Expenditures

In March 2021, we closed on the purchase of the building that was constructed to house our second CGMP facility, ASTRA. We are currently in the process of constructing the interior build-out of this facility and we have entered into a contract with Whiting-Turner who manages the construction of ASTRA. Further, we have entered into various non-cancellable purchase agreements for long-lead materials to help avoid potential schedule disruptions or material shortages. These contracts typically call for the payment of fees for services or materials upon the achievement of certain milestones. We expect to continue to incur significant capital expenditures related to ASTRA as we construct and validate the facility, which is expected to be completed in 2023.

Interest Income

Interest income consists primarily of income earned from our cash, cash equivalents and investments.

Interest Expense

Interest expense consists primarily of non-cash interest expense recognized to accrete the build to suit financial obligation to a balance that equaled the cash consideration that was paid upon the close of the purchase of ASTRA.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial position 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. On an ongoing basis, we evaluate estimates which include, but are not limited to, estimates related to clinical trial and contract manufacturing prepayments and accruals, stock-based compensation expense, accrued expenses, the fair value of financial instruments, the incremental borrowing rate for lease liabilities, and the valuation allowance included in the deferred income tax calculation during the period. We base our estimates on historical experience and other market-specific or other relevant assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from those estimates or assumptions.

While our significant accounting policies are described in more detail in the notes to our financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe the following accounting policies to be most critical to the judgments and estimates used in the preparation of our financial statements.

Accrued Research and Development Expenses

As part of the process of preparing our financial statements, we are required to estimate our accrued research and development expenses, prepaid assets and other current liabilities. This process involves reviewing open contracts and

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commitments, communicating with our personnel to identify services that have been performed for us and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met. We make estimates of our accrued research and development expenses, prepaid assets and other current liabilities as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time. Examples of accrued research and development expenses, prepaid assets and other current liabilities include fees paid to contract manufacturers made in connection with the manufacturing of preclinical and clinical trials materials.

We base our expenses related to clinical manufacturing on our estimates of the services performed pursuant to contracts with the entities producing clinical materials on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. Payments under these types of contracts depend heavily upon the successful completion of many separate tasks involved in the manufacturing of drug product. In accruing service fees, we estimate the time period over which services will be performed, and the actual services performed in each period. If our estimates of the status and timing of services performed differs from the actual status and timing of services performed we may report amounts that are too high or too low in any particular period. To date, there have been no material differences from our estimates to the amount actually incurred.

Stock-Based Compensation

We have applied the fair value recognition provisions of Financial Accounting Standards Board Accounting Standards Codification, or ASC, Topic 718, Compensation—Stock Compensation (“ASC 718”), to account for stock-based compensation. We recognize compensation costs related to stock options granted based on the estimated fair value of the awards on the date of grant. Described below is the methodology we have utilized in measuring stock-based compensation expense.

ASC 718 requires all stock-based payments, including grants of stock options and restricted stock, to be recognized in the statements of operations based on their grant-date fair values. Compensation expense is recognized on a straight-line basis based on the grant-date fair value over the associated service period of the award, which is generally the vesting term.

Determining the amount of stock-based compensation to be recorded requires us to develop estimates of the fair value of stock-based awards as of their measurement date. We recognize stock-based compensation expense over the requisite service period, which is the vesting period of the award. Calculating the fair value of stock-based awards requires that we make assumptions. We use the Black-Scholes option pricing model to value our stock option awards. Use of this valuation methodology requires that we make assumptions as to the volatility of our common stock, the risk-free interest rate for a period that approximates the expected term of our stock options and our expected dividend yield. Once our own sufficient historical volatility data was obtained, we eliminated the use of a representative peer group and as of Q4 2021 we use only our own historical volatility data in its estimate of expected volatility given that there is now sufficient amount of historical information regarding the volatility of our own stock price. We use the simplified method to calculate the expected term as prescribed by the SEC Staff Accounting Bulletin No. 107, Share-Based Payment as we do not have sufficient historical stock option activity data to provide a reasonable basis upon which to estimate the expected term of stock options granted to employees. We utilize a dividend yield of zero based on the fact that we have never paid cash dividends and have no current intention of paying cash dividends. The risk-free interest rate used for each grant is based on the U.S. Treasury yield curve in effect at the time of grant for instruments with a similar expected life.

Leases

We account for our lease agreements in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 842, Leases (“ASC 842”). As our lease agreements do not provide an implicit rate and as we do not have external borrowings, we use an estimated incremental borrowing rate based on the information available at lease commencement in determining the present value of lease payments. The incremental borrowing rate is the rate of interest that we would expect to borrow on a collateralized and fully amortizing basis over a similar term an amount equal to the lease payments in a similar economic environment.

For lease arrangements where it has been determined that we have control over an asset that is under construction and is thus considered the accounting owner of the asset during the construction period, we record a construction-in-progress asset (“CIP”) and corresponding financial obligation on the consolidated balance sheet. Once the construction is complete, an assessment will be performed to determine whether the lease meets certain “sale-leaseback” criteria. If the sale-leaseback criteria are determined to be met, we will remove the asset and related financial obligation from the balance sheet and treat the building lease as either an operating or finance lease based on our assessment of the guidance. If, upon completion of construction, the project does not meet the “sale-leaseback” criteria, the lease will be treated as a financing obligation and we will depreciate the asset over its estimated useful life for financial reporting purposes.

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Results of Operations

Years Ended December 31, 2022, 2021 and 2020

Research and Development Expenses

Research and development expenses increased $14.6 million for the year ended December 31, 2022 compared to the year ended December 31, 2021. Higher research and development expenses were due to increases in payroll related expenses of $8.9 million which is primarily driven by an increase in personnel to support overall growth and includes a $4.5 million increase in stock-based compensation, an increase in outsourced research and development activities of $2.3 million, an increase in preclinical, clinical and pre-commercial manufacturing activities of $1.0 million, and an increase in other research and development expenses of $2.4 million, primarily due to increases in depreciation and licensing fees.

Research and development expenses increased $9.9 million for the year ended December 31, 2021 compared to the year ended December 31, 2020. Higher research and development expenses were due to increases in preclinical, clinical and pre-commercial manufacturing activities of $3.3 million, payroll related expenses of approximately $3.1 million which is primarily driven by an increase in personnel to support overall growth and includes a $2.4 million increase in stock-based compensation, an increase in outsourced research and development activities of $2.0 million, travel related expenses associated with our clinical trial sites of $187 thousand, and other research and development expenses of $1.3 million, primarily due to depreciation and rent.

General and Administrative Expenses

General and administrative expenses increased $37.3 million for the year ended December 31, 2022 compared to the year ended December 31, 2021. Higher general and administrative spending was due largely to increased payroll related expenses of approximately $28.8 million which is primarily driven by an increase in personnel to support overall growth and includes an approximate $13.4 million increase in stock-based compensation, increased commercial preparedness expenses of approximately $5.7 million, increased medical affairs costs of $581 thousand, increased travel costs of $536 thousand, and an increase in other administrative expenses of $2.9 million, primarily due to increases in utilities, information technology costs, and conference fees. These increases were partially offset by a decrease in net legal costs of $1.2 million, which consists of a decrease in legal and professional fees of $2.8 million offset by a decrease in litigation proceeds of approximately $1.6 million, due primarily to the settlement of the PeriphaGen litigation.

General and administrative expenses increased $25.3 million for the year ended December 31, 2021 compared to the year ended December 31, 2020. Higher general and administrative spending was due largely to increased payroll related expenses of approximately $14.7 million which is primarily driven by an increase in personnel to support overall growth and includes an approximate $9.6 million increase in stock-based compensation, commercial preparedness expenses of approximately $3.8 million, legal and professional fees of approximately $3.7 million which is net of $2.1 million of insurance proceeds, software related costs of $1.0 million, medical affairs costs of $508 thousand, insurance costs of $427 thousand and other administrative expenses of $1.2 million.

Litigation settlement

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We incurred litigation settlement expenses for the year ended December 31, 2022 of $25.0 million, which consisted of the settlement of litigation with PeriphaGen. See “Legal Proceedings” in Note 6 of the notes to consolidated financial statements included in this Form 10-K for more information.

Other Income (Expense)

Interest and other income for the year ended December 31, 2022, 2021, and 2020 was $5.2 million, $197 thousand and $832 thousand, respectively, and consisted of realized gains from maturities of our investments, interest, and dividend income earned from our cash, cash equivalents and investments.

Interest expense for the year ended December 31, 2022, 2021 and 2020 was zero, $1.5 million, and zero, respectively. The 2021 interest expense related to accretion of the financial obligation for the build to suit lease liability during the year ended December 31, 2021 to a balance that equaled the purchase consideration for ASTRA.

Liquidity and Capital Resources

Overview

On December 31, 2022, our cash, cash equivalents and short-term investments balance was approximately $379.2 million. Since operations began, we have incurred operating losses. Our net losses were $140.0 million, $69.6 million, and $32.2 million for the years ended December 31, 2022, 2021, and 2020 respectively. At December 31, 2022, we had an accumulated deficit of $280.8 million. With the net proceeds raised from our previous public offerings, we believe that our cash, cash equivalents and short-term investments will be sufficient to allow us to fund our operations for at least 12 months from the filing date of this Form 10-K.

As we continue to incur losses, a transition to profitability is dependent upon the successful development, approval and commercialization of our product candidates and the achievement of a level of revenues adequate to support our cost structure. Furthermore, we expect to incur increasing costs associated with satisfying regulatory and quality standards, maintaining product and clinical trials, and furthering our efforts around our current and future product candidates. We may never achieve profitability, and until we do, the Company will continue to need to raise additional capital or obtain financing from other sources.

Costs related to clinical trials can be unpredictable and therefore there can be no guarantee that we will have sufficient capital to fund our continued clinical studies of B-VEC, KB105, KB301 or our planned clinical and preclinical studies for our other product candidates, or our operations. Further, we do not expect to generate any product revenues in the first quarter of 2023, assuming we receive marketing approval for B-VEC on the schedule we currently contemplate. While we are in the process of building out our internal vector manufacturing capacity, some of our manufacturing activities will be contracted out to third parties. Additionally, we currently utilize third-party Contract Research Organizations (“CROs”) to carry out some of our clinical development activities. As we seek to obtain regulatory approval for any of our product candidates, we expect to continue to incur significant manufacturing and commercialization expenses as we prepare for product sales, marketing, commercial manufacturing, packaging, labeling and distribution. Furthermore, pursuant to our settlement agreement with PeriphaGen, we will be required to pay $12.5 million upon the approval of our first product by the FDA, followed by three additional $12.5 million contingent milestone payments upon reaching $100.0 million in total cumulative sales, $200.0 million in total cumulative sales and $300.0 million in total cumulative sales. Our funds may not be sufficient to enable us to conduct pivotal clinical trials for, seek marketing approval for or commercially launch B-VEC, KB105, KB301 or any other product candidate. Accordingly, to obtain marketing approval for and to commercialize these or any other product candidates, we may be required to obtain further funding through public or private equity offerings, debt financings, collaboration and licensing arrangements or other sources. Adequate additional financing may not be available to us on acceptable terms, if at all. Our failure to raise capital when needed could have a negative effect on our financial condition and our ability to pursue our business strategy.

Operating Capital Requirements

Our primary uses of capital are, and we expect will continue to be for the near future, compensation and related expenses, manufacturing costs for preclinical and clinical materials, third-party clinical trial research and development services, laboratory and related supplies, clinical costs, legal and other regulatory expenses, payments of settlement amounts to PeriphaGen and general overhead costs. In order to complete the process of obtaining regulatory approval for any of our product candidates and to build the sales, manufacturing, marketing and distribution infrastructure that we believe will be necessary to commercialize our product candidates, if approved, we may require substantial additional funding.

We have based our projections of operating capital requirements on assumptions that may prove to be incorrect and we may use all of our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated

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with research, development and commercialization of pharmaceutical products, we are unable to estimate the exact amount of our operating capital requirements. Our future funding requirements will depend on many factors, including, but not limited to:

•the timeline and cost of our OLE study for B-VEC;

•the progress, timing and costs of our ongoing Phase 1/2 clinical trials for KB105;

•the progress, results and costs of our Phase 2 clinical trials for KB301;

•the progress, results and costs of our Phase 1 clinical trials for KB407;

•the progress, timing, and costs of manufacturing of B-VEC;

•the continued development and the filing of an IND application for future product candidates;

•the initiation, scope, progress, timing, costs and results of drug discovery, laboratory testing, manufacturing, preclinical studies and clinical trials for any other product candidates that we may pursue in the future, if any;

•the costs of maintaining our own commercial-scale CGMP manufacturing facilities;

•the outcome, timing and costs of seeking regulatory approvals;

•the costs associated with manufacturing process development and evaluation of third-party manufacturers;

•the extent to which the costs of our product candidates, if approved, will be paid by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or will be reimbursed by government authorities, private health coverage insurers and other third-party payors;

•the costs of commercialization activities for our current and future product candidates if we receive marketing approval for such product candidates we may develop, including the costs and timing of establishing product sales, medical affairs, marketing, distribution and manufacturing capabilities;

•subject to receipt of marketing approval, if any, revenue received from commercial sale of our current and future product candidates;

•the terms and timing of any future collaborations, licensing, consulting or other arrangements that we may establish;

•the amount and timing of any payments we may be required to make, or that we may receive, in connection with the licensing, filing, prosecution, maintenance, defense and enforcement of any patents or other intellectual property rights, including milestone and royalty payments and patent prosecution fees that we are obligated to pay pursuant to our license agreements;

•our current license agreements remaining in effect and our achievement of milestones under those agreements;

•our ability to establish and maintain collaborations and licenses on favorable terms, if at all; and

•the extent to which we acquire or in-license other product candidates and technologies.

We may need to obtain substantial additional funding in order to receive regulatory approval and to commercialize our product candidates. To the extent that we raise additional capital through the sale of common stock, convertible securities or other equity securities, the ownership interests of our existing stockholders may be materially diluted and the terms of these securities could include liquidation or other preferences that could adversely affect the rights of our existing stockholders. In addition, debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, that could adversely affect our ability to conduct our business. If we are unable to raise capital when needed or on attractive terms, we could be forced to significantly delay, scale back or discontinue the development or commercialization of our product candidates, seek collaborators at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available, and relinquish or license, potentially on unfavorable terms, our rights to our product candidates that we otherwise would seek to develop or commercialize ourselves.

Contractual Obligations

Operating Leases

Operating lease payments represent our commitments for future minimum rent made under non-cancelable leases for our corporate headquarters in Pittsburgh, Pennsylvania, office location in Boston, Massachusetts, office locations in Switzerland and Netherlands, and for the ground lease associated with our second CGMP manufacturing facility, ASTRA. The

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total future payments for our operating lease obligations at December 31, 2022 are $17.8 million, of which $1.6 million is due in the next twelve months and the remaining payments are due over the terms of the respective leases. For additional details regarding our leases, see Note 7 to our consolidated financial statements included in this Annual Report on Form 10-K.

Clinical Supply and Product Manufacturing Agreements

We enter into various agreements in the normal course of business with CROs, CMOs and other third parties for preclinical research studies, clinical trials and testing and manufacturing services. We are obligated to make milestone payments under certain of these agreements. The estimated remaining commitment as of December 31, 2022 under these agreements is approximately $2.1 million, all of which is expected to be due in the next twelve months.

Commercial Preparedness Agreements

We have contracted with various third parties to facilitate, coordinate and perform agreed upon commercial preparedness and market research activities relating to our lead product candidate, B-VEC. These contracts typically call for the payment of fees for services upon the achievement of certain milestones. The estimated remaining commitment as of December 31, 2022 is $8.4 million, all of which is expected to be due in the next twelve months.

ASTRA Contractual Obligations

We have contracted with various third parties to construct our second CGMP facility, ASTRA. Additionally, we have entered into various non-cancellable purchase agreements for long-lead materials to help avoid potential schedule disruptions or material shortages. These contracts typically call for the payment of fees for services or materials upon the achievement of certain milestones. The estimated remaining commitment as of December 31, 2022 is $16.3 million, all of which is expected to be due in the next twelve months.

Cash Flows

The following table summarizes our sources and uses of cash (in thousands):

Operating Activities

Net cash used in operating activities for the year December 31, 2022 was $100.6 million and consisted primarily of a net loss of $140.0 million adjusted for non-cash items of $36.6 million primarily made up of stock-based compensation expense of $33.2 million and depreciation and amortization of $4.1 million, and cash provided by decreases in net working capital of approximately $2.8 million.

Net cash used in operating activities for the year December 31, 2021 was $47.9 million and consisted primarily of a net loss of $69.6 million adjusted for non-cash items of $19.1 million primarily made up of stock-based compensation expense of $15.3 million, depreciation and amortization of $2.8 million and build to suit interest expense of $1.5 million, and cash provided by decreases in net working capital of approximately $2.5 million.

Net cash used in operating activities for the year ended December 31, 2020 was $26.1 million and consisted primarily of a net loss of $32.2 million adjusted for non-cash items of $5.2 million primarily made up of depreciation and amortization of $1.9 million and stock-based compensation expense of $3.3 million, and cash provided by decreases in net working capital of approximately $918 thousand.

Investing Activities

Net cash used in investing activities for the year ended December 31, 2022 was approximately $114.1 million and consisted primarily of purchases of $318.8 million of available-for-sale investment securities, and expenditures of $53.0 million on the build-out of our ASTRA facility, leasehold improvement of new office space, and purchases of computer and laboratory equipment, partially offset by proceeds of $257.7 million from maturities of investments.

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Net cash used in investing activities for the year ended December 31, 2021 was approximately $226.8 million and consisted primarily of purchases of $190.5 million of available-for-sale investment securities, and expenditures of $68.3 million on the build-out of our ASTRA facility, leasehold improvement of new office space, and purchases of computer and laboratory equipment, partially offset by proceeds of $32.0 million from maturities of investments.

Net cash used in investing activities for the year ended December 31, 2020 was $11.2 million and consisted primarily of purchases of $3.2 million of short-term available-for-sale investment securities, and expenditures of $14.8 million on the build-out of our ASTRA facility, leasehold improvement of new office space, and purchases of computer and laboratory equipment, partially offset by proceeds of $6.9 million from maturities of short-term investments.

Financing Activities

Net cash provided by financing activities for the year ended December 31, 2022 was $35.3 million and was primarily from proceeds from public offerings of 434,782 shares of our common stock at a weighted average price of $69.00 per share through our at-the-market equity offering program (“ATM”) Program. Our net proceeds from the offerings were $29.1 million after deducting underwriting discounts and commissions of approximately $900 thousand. Additionally, we received $7.0 million of proceeds related to the exercise and settlement of employee stock options and restricted stock awards, offset by $649 thousand of taxes paid for the settlement of restricted stock awards.

Net cash provided by financing activities for the year ended December 31, 2021 was $347.7 million and was primarily from proceeds from follow-on public offerings of 2,211,538 shares of its common stock, including 288,461 shares purchased by the underwriters, at $65.00 per share and 2,866,667 shares of its common stock, including 200,000 shares purchased by the underwriters, at $75.00 per share. Our net proceeds from the offerings were $336.8 million after deducting underwriting discounts and commissions of approximately $21.5 million, and other offering expenses payable of $425 thousand.

Net cash provided by financing activities for the year ended December 31, 2020 was $118.0 million and was primarily from proceeds from our public offering in May 2020 of 2,275,000 shares of our common stock to the public at $55 per share. Our net proceeds from the offering were $117.2 million after deducting underwriting and commissions of approximately $7.5 million and other offering expenses of approximately $463 thousand.

Recent Accounting Pronouncements

See note 2 to our consolidated financial statements.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following information should be read in conjunction with the consolidated financial statements and related notes thereto included in this Annual Report on Form 10-K. In addition to historical information, this report contains forward-looking statements that involve risks and uncertainties which may cause our actual results to differ materially from plans and results discussed in forward-looking statements. We encourage you to review the risks and uncertainties discussed in the sections entitled Item 1A. “Risk Factors” and “Forward-Looking Statements” included at the beginning of this Annual Report on Form 10-K. The risks and uncertainties can cause actual results to differ significantly from those forecast in forward-looking statements or implied in historical results and trends. We caution readers not to place undue reliance on any forward-looking statements made by us, which speak only as of the date they are made. We disclaim any obligation, except as specifically required by law and the rules of the SEC, to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.

This section of this Form 10-K generally discusses 2021 and 2020 items and year-to-year comparisons between 2021 and 2020 of the Company. Discussions of 2019 items and year-to-year comparisons between 2020 and 2019 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

Overview

We are a clinical stage biotechnology company leading the field of redosable gene delivery. Using our patented platform that is based on engineered 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 encoded effector to treat or prevent disease. We formulate our vectors for non-invasive or minimally invasive routes of administration at a doctor’s office or potentially in the patient’s home by a healthcare professional. Our goal is to develop easy-to-use medicines to dramatically improve the lives of patients living with rare diseases and chronic conditions. Our innovative technology platform is supported by in-house, commercial scale cGMP manufacturing capabilities. Refer to Part I, Item 1 - Business for more information about our clinical development pipeline and research programs and the status of our product candidates.

Pipeline Highlights:

•Vyjuvek is a topical gel containing our novel vector designed to deliver two copies of the COL7A1 transgene for the treatment of dystrophic epidermolysis bullosa ("dystrophic EB"), a serious rare skin disease caused by missing or mutated type VII collagen protein ("COL7"). Our randomized, double-blind, placebo-controlled GEM-3 pivotal study was designed to evaluate topical Vyjuvek as compared to placebo in dystrophic EB patients. On November 29, 2021, we announced positive topline results from the GEM-3 study. Details of the pivotal study can be found at www.clinicaltrials.gov under NCT identifier NCT04491604. We expect to file a BLA with the FDA in 1H22, and an MAA with the EMA in 2H22. During 2Q21, we began enrolling patients into an open label extension ("OLE") study, including patients who participated in the Phase 3 study, as well as new participants who meet all enrollment criteria. Details of the OLE study can be found at www.clinicaltrials.gov under NCT identifier NCT04917874. Nothing included on this website shall be deemed incorporated by reference into this Annual Report on Form 10-K.

•KB105 is a topical gel containing our novel vector designed to deliver two copies of the TGM1 transgene for the treatment of TGM1-deficient autosomal recessive congenital ichthyosis ("TGM1-ARCI"), a serious rare skin disorder caused by missing or mutated TGM1 protein. A randomized, placebo-controlled Phase 1/2 study is ongoing. On July 1, 2021, we announced data from the fourth patient dosed in the trial, showing repeat topical KB105 dosing continued to be well tolerated with no adverse events or evidence of immune response. Details of the Phase 1/2 study can be found at www.clinicaltrials.gov under NCT identifier NCT04047732. Nothing included on this website shall be deemed incorporated by reference into this Annual Report on Form 10-K.

•KB407 is an inhaled (nebulized) formulation of our novel vector designed to deliver two copies of the full-length CFTR transgene for the treatment of cystic fibrosis, a serious rare lung disease caused by missing or mutated cystic fibrosis transmembrane conductance regulator ("CFTR") protein. On September 29, 2021, we announced that the Bellberry Human Research Ethics Committee in Australia granted approval to conduct a Phase 1 clinical study of inhaled KB407 in patients with cystic fibrosis, and trial initiation is anticipated in 1H22. More detailed data from the Good Laboratory Practice "GLP" toxicology and biodistribution study was presented at the virtual 2021 North American Cystic Fibrosis Conference that took place November 2-5, 2021. We plan to submit an IND and initiate a Phase 1 trial in the U.S. in 2H22.

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•KB104 is a topical gel formulation of our novel vector designed to deliver two copies of the SPINK5 transgene for the treatment of Netherton Syndrome, a debilitating autosomal recessive skin disorder caused by missing or mutated SPINK5 protein. We expect to initiate a Phase 1 clinical study in 2022.

•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. We presented preclinical pharmacology data for KB408 at the European Society of Gene & Cell Therapy Virtual Congress that was held October 19-22, 2021.

We have several other product candidates in various stages of preclinical development.

We are also 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"). A Summary description of Jeune’s key product candidate and its status is as follows:

•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. A Phase 1 study is currently ongoing. We anticipate announcing top line data from the efficacy cohort in 1Q 2022. Details of the Phase 1 study can be found at www.clinicaltrials.gov under NCT identifier NCT04540900. Nothing included on this website shall be deemed incorporated by reference into this Annual Report on Form 10-K.

Jeune has several other aesthetic medicine product candidates in various stages of preclinical development.

Business Highlights:

•On January 29, 2021, the Company entered into a Purchase and Sale Agreement for ASTRA with Northfield related to the purchase option exercised by the Company on October 15, 2020 for a purchase price of $9.4 million. The transaction closed on March 5, 2021.

•On February 1, 2021, the Company completed a public offering of 2,211,538 shares of its common stock, at $65.00 per share. Net proceeds to the Company from the offering were $134.9 million after deducting underwriting discounts.

•On March 24, 2021, the Company announced the appointment of Dr. Bhushan Hardas, M.D., MBA as President of Jeune.

•On May 3, 2021, the Company announced the appointment of Andy Orth to the position of Chief Commercial Officer of Krystal Biotech.

•On June 30, 2021, the Company entered into a Standard Form of Contract for Construction and the corresponding General Conditions of the Contract for Construction with Whiting-Turner, pursuant to which Whiting-Turner is constructing and managing the construction of ASTRA located in the Pittsburgh, Pennsylvania area. The ASTRA facility is under construction and expected to be completed and validated in 2022.

•On September 15, 2021, we announced the appointment of Laurent Goux as the General Manager of Europe.

•On October 12, 2021, we announced a collaboration with GeneDx, Inc., a wholly-owned subsidiary of BioReference Laboratories, Inc., an OPKO Health company, to offer no-charge genetic testing for all types of Epidermolysis Bullosa (EB). The goal of the program, called Krystal Decode DEBTM, is to help patients with the dystrophic form of this genetic condition, also known as dystrophic EB, get a definitive diagnosis sooner, with highly accurate results obtained with a blood or cheek swab sample.

•On December 3, 2021, the Company completed a public offering of 2,866,667 shares of its common stock, which includes 200,000 shares purchased by the underwriters, at $75.00 per share. Net proceeds to the Company from the offering were $201.9 million after deducting underwriting discounts and commissions and other offering expenses payable by the Company.

•On January 18, 2022, we announced that Jing Marantz, MD, PhD, MBA had resigned from the Board of Directors to accept the position as Chief Business Officer with the Company and E. Rand Sutherland was appointed as a member of the Board of Directors to fill the vacancy.

COVID-19

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The COVID-19 pandemic has prompted governments and businesses to take unprecedented measures, such as restrictions on travel and business operations, temporary closures of businesses, and quarantines. In an effort to slow the spread of the virus, The Commonwealth of Pennsylvania where the Company’s primary offices, laboratory and manufacturing spaces are located, enacted stay-at-home orders, and sweeping restrictions to travel were initiated by corporations and governments. Although these restrictions have been lifted, it is not known at this time whether they will be reestablished or the extent to which the Company will be impacted. The degree of the pandemic’s effect on the Company’s clinical, operational and financial performance will depend on future developments, including additional protective measures that may be implemented by governmental authorities or the Company to protect its employees, or by investigators, caregivers or patients to minimize exposure, all of which are uncertain and difficult to predict. To date the impact of the pandemic on our business and clinical trials in the U.S. has been minimal and the increased vaccination rates in the U.S. are encouraging. We will continue to assess the potential impact of the pandemic on our business and operations, including our supply chain and preclinical and clinical trial activities. Outside of the U.S., we have experienced pandemic-related delays in clinical trial initiation in Australia, and we will continue to closely monitor this rapidly evolving situation. For additional information regarding the impact of the coronavirus pandemic, please see "Risk Factor - Business interruptions resulting from the pandemic or similar public health crises could cause a disruption of the development efforts of our product candidates and adversely impact our business."

Financial Overview

Revenue

We currently have no approved products for commercial marketing or sale and have not generated any revenue from the sale of products or other sources to date. In the future, we may generate revenue from product sales, royalties on product sales, or license fees, milestones, or other upfront payments if we enter into any collaborations or license agreements. We expect that our future revenue will fluctuate from quarter to quarter for many reasons, including the uncertain timing and amount of any such payments and sales.

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, 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 expand our product portfolio. In the near term, we expect that our research and development expenses will increase as we continue our OLE study for Vyjuvek, our Phase 1/2 clinical trial for KB105, our Phase 1 safety and efficacy study for KB301, and incur preclinical expenses for our other 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.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in our executive, commercial, business development and other administrative functions. General and administrative expenses also include legal fees relating to intellectual property and corporate matters, professional fees for accounting, auditing, tax and consulting services, insurance costs, travel, facility related expenses and other operating costs.

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We anticipate that our general and administrative expenses will increase in the future to support the continued research and development of our product candidates and to operate as a public company. 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 increase our salary and personnel costs and other expenses as a result of our preparation for commercial operations.

ASTRA Capital Expenditures

On March 5, 2021, we closed on the purchase of the building that was constructed to house our second cGMP facility, ASTRA. We are currently in the process of constructing the interior build-out of this facility and we have entered into a contract with Whiting-Turner who will manage the construction of ASTRA. Further, we have entered into various non-cancellable purchase agreements for long-lead materials to help avoid potential schedule disruptions or material shortages. These contracts typically call for the payment of fees for services or materials upon the achievement of certain milestones. We expect to continue to incur significant capital expenditures related to ASTRA as we construct and validate this facility, which is expected to be completed in 2022.

Interest Income

Interest income consists primarily of income earned from our cash, cash equivalents and investments.

Interest Expense

Interest expense consists primarily of non-cash interest expense recognized to accrete the build to suit financial obligation to a balance that equaled the cash consideration that was paid upon the close of the purchase of ASTRA.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial position 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. On an ongoing basis, we evaluate estimates which include, but are not limited to, estimates related to clinical trial and contract manufacturing prepayments and accruals, stock-based compensation expense, construction-in-progress, and reported amounts of related expenses during the period. We base our estimates on historical experience and other market-specific or other relevant assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from those estimates or assumptions.

While our significant accounting policies are described in more detail in the notes to our financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe the following accounting policies to be most critical to the judgments and estimates used in the preparation of our financial statements.

Accrued Research and Development Expenses

As part of the process of preparing our financial statements, we are required to estimate our accrued research and development expenses, prepaid assets and other current liabilities. This process involves reviewing open contracts and commitments, communicating with our personnel to identify services that have been performed for us and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met. We make estimates of our accrued research and development expenses, current assets and other current liabilities as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time. Examples of estimated accrued research and development expenses, prepaid assets and other current liabilities include fees paid to contract manufacturers made in connection with the manufacturing of preclinical and clinical trials materials.

We base our expenses related to clinical manufacturing on our estimates of the services performed pursuant to contracts with the entities producing clinical materials on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. Payments under these types of contracts depend heavily upon the successful completion of many separate tasks involved in the manufacturing of drug product. In accruing service fees, we estimate the time period over which services will be performed, and the actual services performed in each period. If our estimates of the status and timing of services performed differs from the actual status and timing of services performed we may report amounts that are too high or too low in any particular period. To date, there have been no material differences from our estimates to the amount actually incurred.

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Stock-Based Compensation

We have applied the fair value recognition provisions of Financial Accounting Standards Board Accounting Standards Codification, or ASC, Topic 718, Compensation—Stock Compensation ("ASC 718"), to account for stock-based compensation. We recognize compensation costs related to stock options granted based on the estimated fair value of the awards on the date of grant. Described below is the methodology we have utilized in measuring stock-based compensation expense.

ASC 718 requires all stock-based payments, including grants of stock options and restricted stock, to be recognized in the statements of operations based on their grant-date fair values. Compensation expense is recognized on a straight-line basis based on the grant-date fair value over the associated service period of the award, which is generally the vesting term.

Determining the amount of stock-based compensation to be recorded requires us to develop estimates of the fair value of stock-based awards as of their measurement date. We recognize stock-based compensation expense over the requisite service period, which is the vesting period of the award. Calculating the fair value of stock-based awards requires that we make highly subjective assumptions. We use the Black-Scholes option pricing model to value our stock option awards. Use of this valuation methodology requires that we make assumptions as to the volatility of our common stock, the risk-free interest rate for a period that approximates the expected term of our stock options and our expected dividend yield. Once the Company's own sufficient historical volatility data was obtained, the Company eliminated the use of a representative peer group and as of Q4 2021 the Company uses only its own historical volatility data in its estimate of expected volatility given that there is now sufficient amount of historical information regarding the volatility of its own stock price. We use the simplified method to calculate the expected term as prescribed by the SEC Staff Accounting Bulletin No. 107, Share-Based Payment as we do not have sufficient historical stock option activity data to provide a reasonable basis upon which to estimate the expected term of stock options granted to employees. We utilize a dividend yield of zero based on the fact that we have never paid cash dividends and have no current intention of paying cash dividends. The risk-free interest rate used for each grant is based on the U.S. Treasury yield curve in effect at the time of grant for instruments with a similar expected life.

Leases

We account for our lease agreements in accordance with FASB ASC Topic 842, Leases ("ASC 842"). As the Company's lease agreements do not provide an implicit rate and as the Company does not have external borrowings, we use an estimated incremental borrowing rate based on the information available at lease commencement in determining the present value of lease payments. The incremental borrowing rate is the rate of interest that the Company would expect to borrow on a collateralized and fully amortizing basis over a similar term an amount equal to the lease payments in a similar economic environment.

For lease arrangements where it has been determined that the Company has control over an asset that is under construction and is thus considered the accounting owner of the asset during the construction period, the Company records a construction-in-progress asset ("CIP") and corresponding financial obligation on the consolidated balance sheet. Once the construction is complete, an assessment will be performed to determine whether the lease meets certain "sale-leaseback" criteria. If the sale-leaseback criteria are determined to be met, the Company will remove the asset and related financial obligation from the balance sheet and treat the building lease as either an operating or finance lease based on our assessment of the guidance. If, upon completion of construction, the project does not meet the "sale-leaseback" criteria, the lease will be treated as a financing obligation and the Company will depreciate the asset over its estimated useful life for financial reporting purposes.

Results of Operations

Years Ended December 31, 2021, 2020 and 2019

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Research and Development Expenses

Research and development expenses increased $9.9 million for the year ended December 31, 2021 compared to the year ended December 31, 2020. Higher research and development expenses were due to increases in preclinical, clinical and pre-commercial manufacturing activities of $3.3 million, payroll related expenses of approximately $3.1 million which is primarily driven by an increase in personnel to support overall growth and includes a $2.4 million increase in stock-based compensation, an increase in outsourced research and development activities of $2.0 million, travel related expenses associated with our clinical trial sites of $187 thousand, and other research and development expenses of $1.3 million, primarily due to depreciation and rent.

Research and development expenses increased $2.3 million for the year ended December 31, 2020 compared to the year ended December 31, 2019. Higher research and development expenses were due to increases in lab supplies of $142 thousand, payroll related expenses of approximately $2.0 million which is primarily driven by an increase in personnel to support overall growth and includes a $417 thousand increase in stock-based compensation, and other research and development expenses of $757 thousand, with a decrease in outsourcing research and development activities of $560 thousand.

General and Administrative Expenses

General and administrative expenses increased $25.3 million for the year ended December 31, 2021 compared to the year ended December 31, 2020. Higher general and administrative spending was due largely to increased payroll related expenses of approximately $14.7 million which is primarily driven by an increase in personnel to support overall growth and includes an approximate $9.6 million increase in stock-based compensation, commercial preparedness expenses of approximately $3.8 million, legal and professional fees of approximately $3.7 million which is net of $2.1 million of insurance proceeds, software related costs of $1.0 million, medical affairs costs of $508 thousand, insurance costs of $427 thousand and other administrative expenses of 1.2 million.

General and administrative expenses increased $8.6 million for the year ended December 31, 2020 compared to the year ended December 31, 2019. Higher general and administrative spending was due largely to increased payroll related expenses of approximately $4.0 million which is primarily driven by an increase in headcount to support overall growth and includes an approximate $1.6 million increase in stock-based compensation, market research related expenses of approximately $2.0 million, legal and professional fees of approximately $1.6 million, insurance expense of $693 thousand and other administrative expenses of $295 thousand.

Other Income (Expense)

Interest and other income for the year ended December 31, 2021 and 2020 was $197 thousand and $832 thousand, respectively, and consisted of interest and dividend income earned from our cash, cash equivalents and investments. This decrease was driven by a decline in market interest rates.

Interest expense for the year ended December 31, 2021 and 2020 was $1.5 million and zero, respectively, and related to accretion of the financial obligation for the build to suit lease liability during the year ended December 31, 2021 to a balance that equaled the purchase consideration for ASTRA.

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Interest and other income for the year ended December 31, 2020 and 2019 was $832 thousand and $3.0 million, respectively, and consisted of interest and dividend income earned from our cash, cash equivalents and investments. This decrease was driven by a decline in market rates.

Liquidity and Capital Resources

Overview

At December 31, 2021, our cash, cash equivalents and short-term investments balance was approximately $438.1 million. Since operations began, we have incurred operating losses. Our net losses were $69.6 million and $32.2 million for the years ended December 31, 2021 and 2020, respectively. At December 31, 2021, we had an accumulated deficit of $140.8 million. With the net proceeds raised from its public and private securities offerings, including the public offerings of its common stock completed in February and December of 2021, the Company believes that its cash, cash equivalents and short-term investments will be sufficient to allow us to fund our operations for at least 12 months from the filing date of this Form 10-K.

As the Company continues to incur losses, a transition to profitability is dependent upon the successful development, approval and commercialization of our product candidates and the achievement of a level of revenues adequate to support the Company’s cost structure. The Company may never achieve profitability, and unless and until it does, the Company will continue to need to raise additional capital.

Costs related to clinical trials can be unpredictable and therefore there can be no guarantee that we will have sufficient capital to fund our continued clinical studies of Vyjuvek, KB105, KB301 or our planned preclinical studies for our other product candidates, or our operations. Further, we do not expect to generate any product revenues until 2022, at the earliest, assuming we receive marketing approval for Vyjuvek on the schedule we currently contemplate. While we are in the process of building out our internal vector manufacturing capacity, some of our manufacturing activities will be contracted out to third parties. Additionally, we currently utilize third-party contract research organizations to carry out our clinical development activities. As we seek to obtain regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses as we prepare for product sales, marketing, manufacturing, and distribution. Our funds may not be sufficient to enable us to conduct pivotal clinical trials for, seek marketing approval for or commercially launch Vyjuvek, KB105, KB301 or any other product candidate. Accordingly, to obtain marketing approval for and to commercialize this or any other product candidates, we may be required to obtain further funding through public or private equity offerings, debt financings, collaboration and licensing arrangements or other sources. Adequate additional financing may not be available to us on acceptable terms, if at all. Our failure to raise capital when needed could have a negative effect on our financial condition and our ability to pursue our business strategy.

Operating Capital Requirements

Our primary uses of capital are, and we expect will continue to be for the near future, compensation and related expenses, manufacturing costs for preclinical and clinical materials, third party clinical trial research and development services, laboratory and related supplies, clinical costs, legal and other regulatory expenses and general overhead costs. In order to complete the process of obtaining regulatory approval for any of our product candidates and to build the sales, manufacturing, marketing and distribution infrastructure that we believe will be necessary to commercialize our product candidates, if approved, we may require substantial additional funding.

We have based our projections of operating capital requirements on assumptions that may prove to be incorrect and we may use all of our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, we are unable to estimate the exact amount of our operating capital requirements. Our future funding requirements will depend on many factors, including, but not limited to:

•the timeline and costs of our OLE study for Vyjuvek;

•the progress, timing and costs of our ongoing Phase 1/2 clinical trials for KB105;

•the progress, results and costs of our Phase 1 clinical trials for KB301;

•the progress, timing, and costs of manufacturing of Vyjuvek;

•the continued development and the filing on an IND application for future product candidates;

•the initiation, scope, progress, timing, costs and results of drug discovery, laboratory testing, manufacturing, preclinical studies and clinical trials for any other product candidates that we may pursue in the future, if any;

•the costs of maintaining our own commercial-scale cGMP manufacturing facilities;

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•the outcome, timing and costs of seeking regulatory approvals;

•the costs associated with the manufacturing process development and evaluation of third-party manufacturers;

•the costs of future activities, including product sales, medical affairs, marketing, manufacturing and distribution, in the event we receive marketing approval for our current and future product candidates;

•the extent to which the costs of our product candidates, if approved, will be paid by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or will be reimbursed by government authorities, private health coverage insurers and other third-party payors;

•the costs of commercialization activities for our current and future product candidates if we receive marketing approval for such product candidates we may develop, including the costs and timing of establishing product sales, medical affairs, marketing, distribution and manufacturing capabilities;

•subject to receipt of marketing approval, if any, revenue received from commercial sale of our current and future product candidates;

•the terms and timing of any future collaborations, licensing, consulting or other arrangements that we may establish;

•the amount and timing of any payments we may be required to make, or that we may receive, in connection with the licensing, filing, prosecution, maintenance, defense and enforcement of any patents or other intellectual property rights, including milestone and royalty payments and patent prosecution fees that we are obligated to pay pursuant to our license agreements;

•our current license agreements remaining in effect and our achievement of milestones under those agreements;

•our ability to establish and maintain collaborations and licenses on favorable terms, if at all; and

•the extent to which we acquire or in-license other product candidates and technologies.

We expect that we will need to obtain substantial additional funding in order to receive regulatory approval and to commercialize our product candidates. To the extent that we raise additional capital through the sale of common stock, convertible securities or other equity securities, the ownership interests of our existing stockholders may be materially diluted and the terms of these securities could include liquidation or other preferences that could adversely affect the rights of our existing stockholders. In addition, debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, that could adversely affect our ability to conduct our business. If we are unable to raise capital when needed or on attractive terms, we could be forced to significantly delay, scale back or discontinue the development or commercialization of our product candidates, seek collaborators at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available, and relinquish or license, potentially on unfavorable terms, our rights to our product candidates that we otherwise would seek to develop or commercialize ourselves.

Contractual Obligations

Operating Leases

Operating lease payments represent the Company's commitments for future minimum rent made under non-cancelable leases for our corporate headquarters in Pittsburgh, PA, office location in Boston, Massachusetts, and for the ground lease associated with our second cGMP manufacturing facility, ASTRA. The total future payments for our operating lease obligations at December 31, 2021 are $18.2 million, of which $1.4 million is due in the next twelve months and the remaining payments are due over the terms of the respective leases. For additional details regarding our leases, see Note 6 to our consolidated financial statements included in this Annual Report on Form 10-K.

Clinical Supply and Product Manufacturing Agreements

The Company enters into various agreements in the normal course of business with Contract Research Organizations ("CROs"), Contract Manufacturing Organizations ("CMOs") and other third parties for preclinical research studies, clinical trials and testing and manufacturing services. The Company is obligated to make milestone payments under certain of these agreements. The estimated remaining commitment as of December 31, 2021 under these agreements is approximately $3.0 million, all of which is expected to be due in the next twelve months.

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Commercial Preparedness Agreements

The Company has contracted with various third parties to facilitate, coordinate and perform agreed upon commercial preparedness and market research activities relating to our lead product candidate, Vyjuvek. These contracts typically call for the payment of fees for services upon the achievement of certain milestones. The estimated remaining commitment as of December 31, 2021 is $2.4 million, all of which is expected to be due in the next twelve months.

ASTRA Contractual Obligations

The Company has contracted with various third parties to construct our second cGMP facility, ASTRA. Additionally, we have entered into various non-cancellable purchase agreements for long-lead materials to help avoid potential schedule disruptions or material shortages. These contracts typically call for the payment of fees for services or materials upon the achievement of certain milestones. The estimated remaining commitment as of December 31, 2021 is $24.7 million, all of which is expected to be due in the next twelve months.

Cash Flows

The following table summarizes our sources and uses of cash (in thousands):

Operating Activities

Net cash used in operating activities for the year December 31, 2021 was $47.9 million and consisted primarily of a net loss of $69.6 million adjusted for non-cash items of $18.1 million made up of depreciation and amortization of $2.8 million and stock-based compensation expense of $15.3 million, build to suit interest expense of $1.5 million, and cash used by decreases in net operating liabilities of approximately $2.1 million.

Net cash used in operating activities for the year ended December 31, 2020 was $26.1 million and consisted primarily of a net loss of $32.2 million adjusted for non-cash items of $5.2 million primarily made up of depreciation and amortization of $1.9 million and stock-based compensation expense of $3.3 million, and cash used by decreases in net operating liabilities of approximately $928 thousand.

Investing Activities

Net cash used in investing activities for the year ended December 31, 2021 was approximately $226.8 million and consisted primarily of purchases of $190.5 million of available-for-sale investment securities, and expenditures of $68.3 million on the build-out of our ASTRA facility, leasehold improvement of new office space, and purchases of computer and laboratory equipment, partially offset by proceeds of $32.0 million from maturities of investments.

Net cash used in investing activities for the year ended December 31, 2020 was $11.2 million and consisted primarily of purchases of $3.2 million of short-term available-for-sale investment securities, and expenditures of $14.8 million on the build-out of our ASTRA facility, leasehold improvement of new office space, and purchases of computer and laboratory equipment, partially offset by proceeds of $6.9 million from maturities of short-term investments.

Financing Activities

Net cash provided by financing activities for the year ended December 31, 2021 was $347.7 million and was primarily from proceeds from follow-on public offerings of 2,211,538 shares of its common stock, including 288,461 shares purchased by the underwriters, at $65.00 per share and 2,866,667 shares of its common stock, including 200,000 shares purchased by the underwriters, at $75.00 per share. Net proceeds to the Company from the offerings were $336.8 million after deducting underwriting discounts and commissions of approximately $21.5 million, and other offering expenses payable by the Company of $425 thousand.

Net cash provided by financing activities for the year ended December 31, 2020 was $118.0 million and was primarily from proceeds from our public offering on May 21, 2020 of 2,275,000 shares of our common stock to the public at $55 per

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share. Net proceeds to the Company from the offering were $117.2 million after deducting underwriting and commissions of approximately $7.5 million and other offering expenses of approximately $463 thousand.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated by the SEC.

Recent Accounting Pronouncements

In October 2020, the FASB issued ASU 2020-08, Codification Improvements to Subtopic 310-20, Receivables - Nonrefundable Fees and Other Costs ("ASU 2020-08") to provide further clarification and update the previously issued guidance in ASU 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20: Premium Amortization on Purchased Callable Debt Securities) ("ASU 2017-08"). ASU 2017-08 shortened the amortization period for certain callable debt securities purchased at a premium by requiring that the premium be amortized to the earliest call date. ASU 2020-08 requires that at each reporting period, to the extent that the amortized cost of an individual callable debt security exceeds the amount repayable by the issuer at the next call date, the excess premium shall be amortized to the next call date. The new standard was effective beginning January 1, 2021 and should be applied on a prospective basis as of the beginning of the period of adoption for existing or newly purchased callable debt securities. The adoption of ASU 2020-08 did not have a material impact on the Company's financial position or results of operations upon adoption.

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