10-K – 2026-02-17 – krys-20251231.htm

Risks Related to Our Intellectual Property
If we are unable to obtain and maintain adequate United States and foreign patent protection for VYJUVEK, our current product candidates, and any future product candidates we may develop, and/or our vector platform, or if the scope of the patent protection obtained is not sufficiently broad, our competitors could develop and commercialize products and technologies similar or identical to ours, and our ability to successfully commercialize VYJUVEK, our current product candidates, any future product candidates we may develop, and our platform technologies may be adversely affected.
Our success depends, in large part, on our ability to obtain and maintain patent protection in the United States and other countries with respect to our approved product, current product candidates, additional product candidates in our pipeline, and current and future innovations related to our vector platform. The patent prosecution process is expensive, time-consuming, and complex; we may not be able to file, prosecute, maintain, and/or enforce all necessary or desirable patent applications and issued patents at a reasonable cost or in a timely manner.
Even if we are granted the patents we are currently pursuing, they may not issue in a form that will provide us with the full scope of protection we desire, they may not prevent competitors or other third parties from competing with us, and/or they may not otherwise provide us with a competitive advantage. Our competitors, or other third parties, may be able to circumvent our patents by developing similar or alternative technologies or products in a non-infringing manner. Moreover, our patent estate does not preclude third parties from having intellectual property rights that could interfere with our freedom to use our platform, including for our intended indications. Even assuming patents issue from our pending and future patent applications, changes in either the patent laws or interpretation of the patent laws in the United States and foreign jurisdictions may diminish the value of our patents or narrow their scope of protection.
We also may not be aware of all third-party intellectual property rights potentially relating to technologies similar to our own. Publications of discoveries in the scientific literature often lag their actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after earliest priority date or, in some cases, not at all until patents are issued. Therefore, it is impossible to be certain that we were the first to develop the specific technologies as claimed in any owned patents or pending patent applications, or that we were the first to file for patent protection of such inventions.
We may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting, and defending patents on VYJUVEK, our product candidates, and current and future innovations related to our vector platform, in all countries throughout the world would be prohibitively expensive, and intellectual property rights in some countries outside the United States may differ in scope from those eventually granted in the United States. Thus, in some cases, we may not have the opportunity to obtain patent protection for certain technologies in some jurisdictions outside the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same
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extent as federal and state laws in the United States. Consequently, we may not be able to prevent third parties from practicing our inventions in all countries outside the United States, even in jurisdictions where we do pursue patent protection. Competitors may use our technologies in jurisdictions where we have not pursued and obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as that in the United States. These products may compete with VYJUVEK and our product candidates that are approved, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets, and other intellectual property protection, particularly those relating to biotechnology products. Such challenges in enforcing rights in these countries could make it difficult for us to stop the infringement of our patents, if pursued and obtained, or marketing of competing products in violation of our proprietary rights generally. Proceedings to enforce our current and future patent rights in foreign jurisdictions could result in substantial costs and may divert our efforts and attention from other aspects of our business; could put our patents at risk of being invalidated or interpreted narrowly; could put any future patent applications, including continuation and divisional applications, at risk of not issuing; and could provoke third parties to assert claims against us. We may not prevail in any lawsuits, and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce any intellectual property rights around the world stemming from intellectual property that we develop may be inadequate to obtain a significant commercial advantage in these foreign jurisdictions.
Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on the success of our business.
Our commercial success depends upon our ability (and the ability of any potential future collaborators) to market and sell VYJUVEK and to develop, manufacture, market, and sell our product candidates for which marketing approvals are granted, and to freely use our proprietary technologies without infringing the rights and intellectual property of others. Many companies and institutions have filed, and continue to file, patent applications related to various aspects of gene therapy. Because patent applications can take many years to issue, may be confidential for 18 months or more after filing, and can be revised before issuance, there may be applications now pending which may later result in issued patents that a third-party asserts are infringed by the manufacture, use, sale, or importation of VYJUVEK or any of our product candidates, if approved. The biotechnology and pharmaceutical industries are characterized by extensive and complex litigation regarding patents and other intellectual property rights. We may become party to, or be threatened with, adversarial proceedings or litigation regarding intellectual property rights with respect to VYJUVEK, our product candidates, or related technologies, including, for example, interference proceedings, post grant review challenges, and inter partes review before The United States Patent and Trademark Office. Our competitors or other third parties may assert infringement claims against us, alleging that our products, manufacturing methods, formulations or administration methods are covered by their patents. Moreover, we may face patent infringement claims from non-practicing entities that have no relevant product revenue, and against whom our patent portfolio may therefore have no deterrent effect.
There is a risk that third parties may choose to engage in litigation with us to enforce or to otherwise assert their patents or other intellectual property rights against us. Even if we believe such claims are without merit, a court of competent jurisdiction could hold that these third-party patents are valid, enforceable, and infringed, which could materially and adversely affect our ability to commercialize VYJUVEK or any of our product candidates, if approved. In order to successfully challenge the validity of any such U.S. patent in federal court, we would need to overcome a presumption of validity. As this burden is a high one requiring us to present clear and convincing evidence as to the invalidity of any such U.S. patent claim, there is no assurance that a court of competent jurisdiction would invalidate the claims of any such U.S. patent. In such a hypothetical situation, there is no assurance that a court of competent jurisdiction would find that our product, product candidates, or technologies do not infringe a third-party patent.
Patent and other types of intellectual property litigation can involve complex factual and legal questions, and their outcomes are uncertain. If we are found, or believe there is a risk that we may be found, to infringe a third-party’s valid and enforceable intellectual property rights, we could be required (or may choose) to obtain a license from such a third-party to continue developing, manufacturing and marketing our approved product, product candidates, and technologies. However, we may not be able to obtain any required license on commercially reasonable terms, if at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors and other third parties access to the same technologies licensed to us, and further, it could require us to make substantial licensing and royalty payments. We could be forced, including by court order, to cease developing, manufacturing, and commercializing the infringing product or technologies. We also could be found liable for monetary damages, including treble damages and attorneys’ fees, if we are found to have willfully infringed a patent or other intellectual property rights. A finding of infringement could prevent us from manufacturing and commercializing our products and technologies or force us to cease some or all our business operations. Claims that we
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have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact on our business, financial condition, results of operations, and prospects.
Intellectual property litigation could cause us to spend substantial resources and distract our personnel from their normal responsibilities.
Litigation or other legal proceedings relating to intellectual property claims, with or without merit, is unpredictable and generally expensive and time consuming. Competitors may infringe our current or future patents, should such patents issue, or we may be required to defend against claims of infringement or other unauthorized use of intellectual property. Even if resolved in our favor, litigation or other legal proceedings relating to intellectual property claims may cause us to incur significant expenses and could distract our scientific and management personnel from their normal responsibilities. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. In addition, there could be public announcements of the results of hearings, motions, or other interim proceedings or developments, and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock. Such litigation or proceedings could substantially and adversely impact our financial results and reduce the resources available for development activities or any future sales, marketing, or distribution activities.
We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing, misappropriating, or successfully challenging our intellectual property rights. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.
We have been subject to claims asserting that we, our employees, or our advisors have wrongfully used or disclosed alleged trade secrets of other parties, and we may face such claims in the future or claims asserting ownership of what we regard as our own intellectual property.
Certain of our employees or advisors are currently, or were previously, employed at universities or other biotechnology or pharmaceutical companies, including potential competitors, and we have and may in the future enter into agreements providing us with rights to intellectual property of third parties for limited purposes. Although we endeavor to observe the terms of agreements under which we obtain access to third-party intellectual property and to ensure that our employees and advisors do not use the proprietary information or know-how of others in their work for us, we have been in the past, and may be again in the future, subject to claims that these individuals, or we, have used or disclosed intellectual property, including trade secrets or other proprietary information, of third parties or the current or former employers of employees or advisors. If we fail to successfully defend any such claims, in addition to paying monetary damages, we may be subject to an injunction and may lose valuable intellectual property rights or personnel. Moreover, any such litigation, or the threat thereof, may adversely affect our ability to hire new employees or contract with independent contractors. A loss of key personnel or their work product could hamper or prevent our ability to commercialize VYJUVEK or our product candidates, if approved, which could have an adverse effect on our business, results of operations, and financial condition. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.
While it is our policy to require our employees and contractors who may be involved in the conception of intellectual property to execute agreements assigning such intellectual property rights to us, unforeseen complications may arise when fully and adequately executing such an agreement with each party who, in fact, conceives of intellectual property that we regard as our own. Examples of such complications may include, for example, when we obtain agreements assigning intellectual property to us, the assignment of intellectual property rights may not be self-executing, or the assignment agreements may be breached. Such complications may lead to us being forced to bring claims against third parties or current and former employees, or defend claims that they may bring against us, to determine the ownership of what we regard as our intellectual property. Moreover, individuals executing agreements with us may have preexisting or competing obligations to a third-party, such as an academic institution, and thus an agreement with us may be insufficient in fully perfecting ownership of inventions developed by that individual. Disputes about the ownership of intellectual property may have a material adverse effect on our business.
Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect VYJUVEK or our product candidates.
Patent reform legislation could increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of issued patents. For example, in September 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act included several significant changes to U.S. patent law, including provisions that affected the way patent applications are prosecuted, and altered strategies regarding patent litigation. These provisions also switched the United States from a “first-to-invent” system to a “first-to-file” system, allowed third-party submissions of prior art to the United States Patent and Trademark Office (“USPTO”) during patent prosecution, and set forth
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additional procedures to attack the validity of a patent through various post grant proceedings administered by the USPTO. As patent reform legislation can inject serious uncertainty into the patent prosecution and litigation processes, it is not clear what impact future patent reform legislation will have on the operation of our business. However, such future legislation, and its implementation, could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of any issued patents, all of which could have a material adverse effect on our business, financial condition, results of operations, and prospects.
Moreover, the patent positions of companies engaged in the development and commercialization of biologics and pharmaceuticals are particularly uncertain given the ever evolving and constantly shifting nature of precedential patent cases decided by both the U.S. Court of Appeals for the Federal Circuit and the U.S. Supreme Court. We cannot assure you that our efforts to seek patent protection for our technology, commercial product, and product candidates will not be negatively impacted by future court decisions or changes in guidance or procedures issued by the USPTO. These decisions, and any guidance issued by the USPTO (or changes thereto), could have a material adverse effect on our existing patent portfolio and our ability to protect and enforce our intellectual property rights in the future.
If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest and our business may be adversely affected.
Although we have registered certain of our trademarks and trade names, they may be challenged, infringed, circumvented, or declared generic or determined to be infringing on other marks. We may not be able to protect our rights to these trademarks and trade names, which are important for building name recognition among potential partners or customers in our markets of interest. At times, competitors may adopt trade names or trademarks similar to ours, thereby impeding our ability to build brand identity and possibly leading to market confusion. There also could be potential trade name or trademark infringement claims brought by owners of other registered trademarks or trade names that incorporate variations of our registered or unregistered trademarks or trade names. Over the long term, if we are unable to establish name recognition based on our trademarks and trade names, then we may not be able to compete effectively, and our business may be adversely affected. Our efforts to enforce or protect our proprietary rights related to patents, trademarks, trade secrets, domain names, copyrights or other intellectual property may be ineffective and could result in substantial costs and diversion of resources and could adversely impact our financial condition or results of operations.
Intellectual property rights and regulatory exclusivity rights do not necessarily address all potential threats.
The degree of current and future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations and may not adequately protect our business or permit us to maintain our competitive advantage. For example:
• others may be able to make gene therapy products that are similar to our approved product or any of our product candidates but that are not covered by the claims of our current patents, or of patents that we may own or license in the future;
• we, or any license partners or collaborators, may not have been the first to file patent applications covering certain aspects of the relevant products or technologies;
• others may independently develop similar or alternative technologies, or duplicate any of our technologies, that may fall outside the scope of our current or future issued patent claims and therefore may not infringe our intellectual property rights;
• it is possible that our pending or future patent applications may not result in issued patents;
• issued patents to which we currently hold rights or to which we may hold rights in the future may be held invalid or unenforceable, including as a result of legal challenges by third parties or our competitors;
• others may have access to any future intellectual property rights licensed to us on a non-exclusive basis;
• our competitors might conduct research and development activities in countries where we do not have or pursue patent rights, and then use the information learned from such activities to develop competitive products for sale in our major commercial markets;
• we may not develop additional proprietary technologies that are patentable;
• the patents or other intellectual property rights of others may have an adverse effect on our business; and
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• we may choose not to file a patent application covering certain of our trade secrets or know-how, and a third-party may subsequently file a patent covering such intellectual property.
Should any of these events occur, they could significantly harm our business, financial condition, results of operations, and prospects.

Risks Related to Our Financial Position and Need for Additional Capital
We have incurred net losses in the past and may not sustain profitability.
We have generated net income for each of the previous three years starting with the year ended December 31, 2023; however, we previously incurred recurring losses and negative cash flows from operations since our inception. Our transition to consistent operating profitability depends on our ability to (i) successfully commercialize VYJUVEK in the United States and abroad, and (ii) complete the development of, and obtain the regulatory approvals necessary to successfully commercialize our product candidates with significant market potential. We have devoted substantially all our efforts to date to (i) research and development of our gene therapy platform, product candidates and our manufacturing infrastructure, and, more recently, (ii) commercializing VYJUVEK in the United States, European Union, and Japan. We expect to continue to incur significant expenses for the foreseeable future and our operating results may fluctuate significantly from quarter to quarter. We anticipate that our expenses will increase substantially if, and as, we:
• manufacture, market, and sell our lead product, VYJUVEK, in the United States and market and sell VYJUVEK in the EU and Japan;
• continue our research, preclinical studies, and the clinical development of our current product candidates, including our current clinical trials and planned clinical trials;
• initiate preclinical studies and clinical trials for any additional product candidates;
• prepare for regulatory approvals for our product candidates in the United States, EU, Japan, and in other key geographies;
• continue to operate our in-house commercial-scale CGMP manufacturing facilities, ANCORIS and ASTRA, and as we seek to obtain FDA approval for commercial manufacture of VYJUVEK at ASTRA, which approval may not be granted;
• manufacture material for commercial sales of VYJUVEK and clinical trials or potential commercial sales of our product candidates;
• further develop our gene therapy platform;
• further establish our sales, marketing, and distribution infrastructure to commercialize VYJUVEK and product candidates for which we may obtain marketing approval;
• develop, maintain, expand, and protect our intellectual property portfolio; and
• acquire or in-license other product candidates and technologies.
To sustain profitability over the long term, we must be successful in a range of challenging activities, including designing, initiating, and completing clinical trials for our product candidates, developing, validating, and maintaining commercial scale manufacturing processes, obtaining marketing approvals, manufacturing, marketing, and selling VYJUVEK and any product candidates for which we may obtain marketing approval, and satisfying any post-marketing requirements. If we are required to discontinue the development of any of our product candidates, if VYJUVEK does not receive regulatory approval outside the United States, the EU, or Japan, if any of our product candidates do not receive regulatory approvals, or if VYJUVEK or any of our product candidates, if approved, fail to achieve sufficient market acceptance, our ability to remain profitable and our business prospects and financial condition could be materially adversely affected.
We currently have one commercial product, VYJUVEK, approved by the FDA, the European Commission, and MHLW and several product candidates in the clinical trials stages. However, we may never develop, acquire or in-license additional product candidates. We may never generate revenue from any of our product candidates. Even with sustained net income in recent periods, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to sustain profitability would decrease the value of our company and could impair our ability to maintain our research and development efforts, expand our business, raise capital, or continue our operations. A decline in the value of our company also could cause stockholders to lose all or part of their investment.
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Because of the numerous risks and uncertainties associated with development of our product candidates, we are unable to accurately predict the timing or amount of increased expenses. If we are required by the FDA, the EMA, the European Commission, the MHLW, or other regulatory authorities to perform studies in addition to those currently expected, or if there are any delays in completing our clinical trials or the development of our product candidates, our expenses could increase and the timing or amount of revenue from product candidates in development could be adversely affected.
We may need to raise additional funding to maintain and expand our commercialization capabilities and to complete the development of, and obtain the regulatory approvals necessary to, commercialize our product candidates. Such funding may not be available on acceptable terms, or at all. Failure to obtain this necessary capital when needed may force us to delay, limit, or terminate certain of our product development efforts or other operations.
To complete the process of obtaining regulatory approval for our product candidates and to continue building the manufacturing, sales, marketing, and distribution infrastructure that we believe is or will be necessary to successfully commercialize VYJUVEK and our product candidates, if approved, we may require substantial additional funding. We expect to continue to incur significant expenses related to sales, medical affairs, marketing, manufacturing, and distribution of VYJUVEK in the United States and abroad. In addition, if we obtain marketing approval for our product candidates, we expect to incur significant additional expenses related to product sales, medical affairs, marketing, manufacturing, and distribution. We may need additional funding to complete the development of our product candidates and to commercialize any such approved products. Our future capital requirements will depend on many factors, including:
• the ability of VYJUVEK to generate sufficient revenue;
• the costs of product sales, medical affairs, marketing, manufacturing, and distribution for VYJUVEK;
• the progress, timing, results, and costs of our current and planned clinical trials;
• the continued development and the filing of IND applications for our 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;
• the costs of maintaining our own commercial-scale CGMP manufacturing facilities;
• the outcome, timing, and costs of seeking regulatory approvals for any of our product candidates;
• the costs associated with the manufacturing process development and evaluation of third-party suppliers or manufacturers, if necessary;
• the costs of future activities, including product sales, medical affairs, marketing, manufacturing, and distribution, in the event we receive marketing approval for any of 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;
• subject to receipt of marketing approval, if any, revenue received from commercial sales of our current and future product candidates;
• the terms and timing of any current or future collaborations, distribution, licensing, consulting, or other arrangements;
• 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, if any;
• the terms of our license agreements, if any, 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.
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Identifying product candidates and conducting preclinical testing and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales for our product candidates currently in development or future product candidates. Revenue will be derived from VYJUVEK until we have another product candidate receive marketing approval. Accordingly, we may need to rely on additional financing to achieve our business objectives. Any additional fundraising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our product candidates. Moreover, the terms of any financing may adversely affect the holdings or the rights of our stockholders and the issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance may cause the market price of our common stock to decline. The sale of additional equity or convertible securities would dilute all of our existing stockholders. Existing stockholders may not agree with our financing plans or the terms of such financings. Adequate additional financing may not be available to us on acceptable terms, or at all. The terms of additional financing may be impacted by, among other things, general market conditions, the market’s perception of our approved product, VYJUVEK, and product candidates, our growth potential, and the market price per share of our common stock. See “Raising additional capital could cause the price of our common stock to decline and cause dilution to our stockholders, restrict our operations or require us to relinquish rights.” Failure to obtain necessary capital when needed could force us to delay, limit, or terminate certain of our product development efforts or other operations, which could significantly harm our business, financial condition, results of operations, and prospects.
Changes in tax law may adversely affect our business and financial condition
We are subject to evolving and complex tax laws in the United States and the foreign jurisdictions in which we operate. New income, sales, use or other tax laws, statutes, rules, regulations, or ordinances could be enacted at any time, or interpreted, changed, modified, or applied adversely to us, any of which could adversely affect our business operations and financial performance. Changes to tax laws (which could apply retroactively) could adversely affect us and our stockholders. In recent years, such changes have been made and changes are likely to occur in the future, which could have a material adverse effect on our business, cash flow, financial condition, and results of operations.
Our ability to use our net operating loss carryforwards and certain tax credit carryforwards may be subject to limitation.
The Company fully utilized its federal net operating losses in 2025. We have state net operating loss carryforwards, which are available to reduce future taxable income. These state net operating losses will begin to expire in 2037. We also have federal research and development tax credits and federal orphan drug tax credits which may be used to offset future tax liabilities and expire beginning in 2042.
Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, changes in our ownership may limit the amount of our net operating loss carryforwards and tax credit carryforwards that could be utilized annually to offset our future taxable income. This limitation would generally apply in the event of a cumulative change in ownership of our company of more than 50% within a three-year period. Any such limitation may significantly reduce our ability to utilize our net operating loss carryforwards and tax credit carryforwards before they expire and could have a material adverse effect on our results of operations in future years.

Risks Related to Ownership of Our Common Stock
Our Chief Executive Officer and Chairman of the Board of Directors and our Founder, President, Research & Development and Director have the ability to substantially influence all matters submitted to stockholders for approval.
Krish S. Krishnan and Suma M. Krishnan, our Chief Executive Officer and Chairman of the Board and our Founder, President, Research & Development and Director, respectively, in the aggregate, collectively beneficially own over 10% of our outstanding common stock. As a result, they will be able to substantially influence all matters submitted to our stockholders for approval, as well as our management and affairs. For example, they could influence the election of directors and approval of any merger, consolidation, or sale of all or substantially all our assets. This concentration of voting power could delay or prevent an acquisition of our company on terms that other stockholders may desire or result in the management of our company by persons with whom our other stockholders disagree.
If securities analysts publish negative evaluations of our stock, the price of our stock could decline.
The trading market for our common stock relies in part on the research and reports that industry or financial analysts publish about us or our business. If securities analysts covering our business downgrade their evaluations of our stock, the price of our stock could decline. If one or more of these analysts cease to cover our stock, we could lose visibility in the market for our stock, which in turn could cause our stock price to decline.
Raising additional capital could cause the price of our common stock to decline and cause dilution to our stockholders, restrict our operations, or require us to relinquish rights.
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In the future, we may need to finance our cash needs through a combination of private and public equity offerings, debt financings, collaborations, strategic alliances, and licensing arrangements. We may issue additional common stock or restricted securities as part of such financing activities and any such issuances may have a dilutive effect on our then-existing stockholders. Sales of substantial amounts of our common stock in the open market, or the availability of such shares for sale, could adversely affect the price of our common stock.
The incurrence of indebtedness would result in fixed payment obligations and a portion of our operating cash flows being dedicated to the payment of principal and interest on such indebtedness, and we may be required to agree to certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell, or license intellectual property rights, and other operating restrictions that could adversely impact our ability to conduct our business.
If we are unable to raise additional funds through equity or debt financings when needed, and instead raise additional capital through marketing and distribution agreements or other collaborations, strategic alliances, or licensing arrangements with third parties, we may have to relinquish certain valuable rights to our current and future product candidates, technologies, future revenue streams, or discovery programs or grant licenses on terms that may not be favorable to us.
The price of our common stock may be volatile and fluctuate substantially, which could result in substantial losses for holders of our common stock.
The price of our common stock has been and is likely to continue to be volatile. The stock market in general and the market for biotechnology and pharmaceutical companies in particular, has experienced extreme volatility that has often been unrelated to the operating performance of such companies. As a result of this volatility, a stockholder may not be able to sell their common stock at or above the price that they paid for it. The market price of our common stock may be influenced by many factors, including:
• our ability to continue to successfully sell VYJUVEK in the United States and internationally;
• our ability to successfully proceed to and conduct clinical trials;
• results of clinical trials of our product candidates or those of our competitors;
• our ability to obtain regulatory approval for our product candidates and our ability to successfully commercialize any of our approved product candidates;
• the success of competitive products or technologies;
• commencement or termination of collaborations;
• regulatory or legal developments in the United States and other countries;
• the recruitment or departure of key personnel;
• the level of expenses related to VYJUVEK and any of our product candidates or clinical development programs;
• the results of our efforts to discover, develop, acquire, or in-license additional product candidates;
• actual or anticipated changes in estimates as to financial results, development timelines, or recommendations by securities analysts;
• our inability to manufacture adequate product supply for VYJUVEK and any other approved product or inability to do so at acceptable costs;
• disputes or other developments relating to proprietary rights, including patent applications, and issued patents;
• our ability to obtain patent protection for our product candidates and technologies;
• significant lawsuits, including patent or stockholder litigation;
• variations in our financial results or those of companies that are perceived to be similar to us;
• changes in the structure of healthcare payment systems;
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• market conditions in the pharmaceutical and biotechnology sectors;
• general economic, industry, and market conditions; and
• the other factors described in this “Risk Factors” section.
If we fail to maintain effective internal control over financial reporting, we may not be able to accurately report our financial results, which may adversely affect investor confidence in our company and, as a result, the value of our common stock.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting and is required to have an independent auditor assess the effectiveness of our internal control over financial reporting, pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”). We cannot provide any assurance that material weaknesses will not be identified in connection with our compliance with the provisions of Section 404 of the Sarbanes-Oxley Act. The existence of any material weakness would preclude a conclusion by management and our independent auditors that we maintained effective internal control over financial reporting. Our management may be required to devote significant time and expense to remediate any material weaknesses that may be discovered and may not be able to remediate any material weakness in a timely manner. The existence of any material weakness in our internal control over financial reporting could also result in errors in our financial statements that could require us to restate our financial statements, cause us to fail to meet our reporting obligations, and cause investors to lose confidence in our reported financial information, all of which could lead to a decline in the market price of our common stock.
Provisions in our certificate of incorporation and bylaws, as well as provisions of Delaware law, could make an acquisition of our company that may be beneficial to our stockholders more difficult and could prevent or deter our stockholders from replacing or removing our current management.
Provisions in our certificate of incorporation and our bylaws may discourage, delay, or prevent a merger, acquisition, or other change in control of us that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares. These provisions also could limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. In addition, because our board of directors is responsible for appointing the members of our management team, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors. Among other things, these provisions:
• establish a classified board of directors such that not all members of the board are elected at one time;
• allow the authorized number of our directors to be changed only by resolution of our board of directors;
• limit the manner in which stockholders can remove directors from the board;
• establish advance notice requirements for stockholder proposals that can be acted on at stockholder meetings and nominations to our board of directors;
• require that stockholder actions must be effected at a duly called stockholder meeting and prohibit actions by our stockholders by written consent;
• limit who may call stockholder meetings;
• authorize our board of directors to issue preferred stock without stockholder approval, which could be used to institute a stockholder rights plan, or so-called “poison pill,” that would work to dilute the stock ownership of a potential hostile acquirer, effectively preventing acquisitions that have not been approved by our board of directors; and
• require the approval of the holders of at least 80% of the votes that all our stockholders would be entitled to cast to amend or repeal certain provisions of our bylaws.
Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner.
We have broad discretion in the use of our cash, cash equivalents, and marketable securities and may not use them effectively.
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Our management has broad discretion in the application of our cash, cash equivalents, and marketable securities and could spend these funds in ways that do not improve our results of operations or enhance the value of our common stock. The failure by our management to apply these funds effectively could result in financial losses that could have a material adverse effect on our business, cause the price of our common stock to decline, and delay the development of our product candidates. Pending their use, we may invest our cash and cash equivalents in a manner that does not produce income or that results in a loss of value.
Because we do not anticipate paying any cash dividends on our common stock in the foreseeable future, capital appreciation, if any, will be stockholders’ sole source of gain.
We have never declared or paid cash dividends on our common stock. In addition, the terms of any future debt agreements may preclude us from paying dividends. As a result, capital appreciation, if any, of our common stock will be stockholders’ sole source of gain for the foreseeable future.
Issuing additional shares of our common stock could cause the price of our common stock to decline and cause dilution to our stockholders.
To the extent we raise additional capital by issuing additional shares of our common stock, or securities convertible into or exchangeable or exercisable for common stock, our existing stockholders may experience substantial dilution. Additionally, if we issue additional shares of our common stock or instruments convertible into our common stock, the trading price of our common stock could decline. We cannot predict whether we will raise additional capital by issuing shares of our common stock, or securities convertible into or exchangeable or exercisable for common stock, the size of any future issuances, or the effect, if any, that they may have on the market price for our common stock. We also have stock options, restricted stock units, and performance-based restricted stock units outstanding, and we expect to issue additional equity awards to directors and employees. The issuance of restricted common stock, common stock upon exercise of outstanding options, common stock upon vesting of restricted stock units, or common stock upon vesting of performance-based restricted stock units would be dilutive and may cause the market price for our common stock to decline. If we issue preferred stock in the future, the holders of that preferred stock could gain rights superior to our holders of common stock, such as liquidation and other preferences, or the market price of our common stock could be adversely affected.
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Item 1B. Unresolved Staff Comments.
None.

Item 1C. Cybersecurity.
Cybersecurity represents a critical component of our overall approach to risk management. Our cybersecurity policies, standards, and practices are integrated into our enterprise risk management approach, and cybersecurity risks are among the core enterprise risks that are subject to oversight by our Board of Directors (the “Board”) . We generally approach cybersecurity threats through a cross-functional, multilayered approach, with specific goals of: (i) identifying, preventing and mitigating cybersecurity threats to the Company; (ii) preserving the confidentiality, security and availability of the information that we collect and store; (iii) protecting the Company’s intellectual property; (iv) maintaining the confidence of our employees, patients, HCPs, suppliers, and other third parties; and (v) providing appropriate public disclosure of cybersecurity risks and incidents when required. Our cybersecurity program is developed using industry standards and best practices as a guide, including the National Institute of Standards and Technology (“NIST”) Cybersecurity Framework. The NIST framework provides us with a common language and structure for identifying, assessing, and managing cybersecurity risks across our organization.
Cyber Security Risk Management and Strategy
Our cybersecurity program focuses on the following areas:
• Vigilance: Our cybersecurity threat operations function 24/7 with the specific goal of identifying, preventing and mitigating cybersecurity threats and responding to cybersecurity incidents in accordance with our established incident response and recovery plans.
• Systems Safeguards: We deploy systems safeguards that are designed to protect the Company’s information systems from cybersecurity threats, including firewalls, intrusion prevention and detection systems, anti-malware functionality and access controls, which are evaluated and improved through ongoing vulnerability assessments and cybersecurity threat intelligence.
• Third-Party Risk Management: We maintain a comprehensive, risk-based approach to identifying and overseeing cybersecurity risks presented by third parties, including vendors, service providers and other external users of the Company’s systems, as well as the systems of third parties that could adversely impact our business in the event of a cybersecurity incident affecting those third-party systems.
• Training: We provide periodic mandatory training for personnel regarding cybersecurity threats, which reinforces the Company’s information security policies, standards and practices.
• Incident Response and Recovery Planning: We have established and maintain incident response and recovery plans that address the Company’s response to a cybersecurity incident and the recovery from a cybersecurity incident, and such plans are tested and evaluated on an regular basis.
• Communication, Coordination and Disclosure: We utilize a cross-functional approach to address the risk from cybersecurity threats, involving management personnel from the Company’s technology, operations, legal, financial, and other key business functions, as well as the members of the Board in an ongoing dialogue regarding cybersecurity threats and incidents, while also implementing controls and procedures so that decisions regarding the disclosure and reporting of such incidents can be made by management in a timely manner.
A part of our strategy for managing risks from cybersecurity threats is assessment and testing of the effectiveness of our cybersecurity measures. We engage third parties to perform assessments on our cybersecurity measures, including annual penetration testing, and we adjust our cybersecurity measures as necessary based on the information provided by the assessments.
Governance
The Board oversees the management of risks from cybersecurity threats. The Board receives regular presentations and reports on cybersecurity, which address a wide range of topics and also receives prompt and timely information regarding any cybersecurity incident that is or may become material, as well as ongoing updates regarding such incident until it has been addressed. At least once each year, the Board discusses the Company’s approach to cybersecurity risk management with the Company’s Executive Director of Information Technology Operations and Information Security, who is the member of management that is principally responsible for overseeing cybersecurity at the Company, in partnership with other business leaders across the Company, including our Chief Executive Officer, Chief Accounting Officer, General Counsel, and Human Resources leader. Our Senior Director of Cyber Security has served in various roles in information technology and information security for over 20 years, including serving as Information Security Officer for a global medical device manufacturer. He holds degrees in Global Business Management and Computer Science.
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Cybersecurity threats, including as a result of any previous cybersecurity incidents, have not materially affected or are reasonably likely to affect the Company, including its business strategy, results of operations, or financial condition.

Item 2. Properties.
As of December 31, 2025, we leased approximately 67,000 square feet of combined laboratory and office space in Pittsburgh, Pennsylvania that we use for our research, development and manufacturing efforts. The lease for combined laboratory and office space expires in October 2031.
In 2021, we completed the acquisition of the building shell for ASTRA, our second commercial scale CGMP facility located outside of Pittsburgh, PA, and entered into an associated ground lease. Astra is an approximately 155,000 sq. ft., state-of-the-art CGMP manufacturing facility that, in addition to adding significant capacity to support our growing pipeline, also allows for in-house incorporation of raw material preparation, excipient manufacturing, testing, packaging, labeling and distribution, thereby fully integrating all components of the supply chain from starting materials to patient experience. ASTRA was completed and validated in 2023.
As of December 31, 2025, we also leased international office space in Switzerland, Netherlands, France, Germany, Japan, Italy, and Spain.

Item 3. Legal Proceedings.
The information set forth in Note 7 of the Notes to the Consolidated Financial Statements included in Part II Item 8 of this Annual Report on Form 10-K is incorporated by reference into this Item 3.

Item 4. Mine Safety Disclosures.
Not applicable.
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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our common stock trades on the Nasdaq Global Select Market under the symbol “KRYS.”
Holders of Record
As of February 11, 2026, there were four stockholders of record of our common stock. The actual number of stockholders is greater than this number of record holders, and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees. This number of holders of record also does not include stockholders whose shares may be held in trust by other entities.
Dividend Policy
We have never declared or paid cash dividends on our capital stock. We currently intend to retain any future earnings for use in the operation and growth of our business and do not intend to declare or pay any cash dividends in the foreseeable future. Any further determination to pay dividends on our capital stock will be at the discretion of our Board, subject to applicable laws, and will depend on our financial condition, results of operations, capital requirements, general business conditions and other factors that our Board considers relevant.
Securities Authorized for Issuance Under Equity Compensation Plans
Information about securities authorized for issuance under existing equity compensation plans is incorporated by reference from Part III, Item 12 of this Annual Report on Form 10-K.
Purchases of Equity Securities by the Issuer or Affiliated Purchasers
There were no repurchases of shares of common stock made during the three months ended December 31, 2025.
Sales of Unregistered Securities
There have been no sales of unregistered securities by us during the past three years except as previously disclosed on prior Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.
Stock Performance Graph
Set forth below is a graph comparing the cumulative total return on an indexed basis of a $100 investment in the Company’s common stock, the Nasdaq Composite Index and the Nasdaq Biotechnology Index commencing on December 31, 2020 and continuing through December 31, 2025. The graph assumes our closing sale price on December 31, 2020 of $60.00 per share as the initial value of our common stock for indexing purposes. Points on the graph represent the performance as of the last business day of each of the months indicated.
The comparisons shown in the graph below are based upon historical data. We caution that the stock price performance shown in the graph below is not necessarily indicative of, nor is it intended to forecast, the potential future performance of our common stock.
This performance graph shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Exchange Act or incorporated by reference into any filing of Krystal Biotech, Inc. under the Securities Act or the Exchange Act, except to the extent we specifically incorporate it by reference into such filing. The past performance of our common stock is no indication of future performance.

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Item 6. [Reserved]

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. 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 materially 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 2025, 2024 and 2023 items and year-to-year comparisons between 2025 and 2024, and 2024 and 2023 of the Company ’ s results of operations and cash flows.

Overview
We are a fully integrated, commercial-stage, global biotechnology company focused on the discovery, development, manufacturing, and commercialization of genetic medicines to treat diseases with high unmet medical needs. Using our patented gene therapy technology platform that is based on engineered herpes simplex virus-1 (“HSV-1”), we create vectors that efficiently deliver therapeutic transgenes to cells of interest in multiple organ systems. The cell’s own machinery then transcribes and translates the transgene to treat the disease. Our vectors are amenable to formulation for non-invasive or minimally invasive routes of administration at a healthcare professional’s office or in the patient’s home. Our innovative technology platform is supported by two in-house, commercial scale Current Good Manufacturing Practice (“CGMP”) manufacturing facilities.. Refer to Part I, Item 1 - Business for more information about our commercial product, VYJUVEK ® , clinical development pipeline and research programs, and the status of our product candidates.
Our Commercial Product
VYJUVEK (beremagene geperpavec-svdt or B-VEC)
VYJUVEK is a non-invasive, topical, redosable gene therapy approved in the United States, Europe, and Japan for the treatment of 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 designed to deliver two copies of the COL7A1 gene when applied directly to DEB wounds, providing the patient’s skin cells the template to make normal type VII collagen protein and thereby addressing the fundamental disease-causing mechanism.
We are commercializing VYJUVEK directly in the United States, major European markets, and Japan. We launched VYJUVEK in the United States in 2023, in Germany in August 2025, and in France and Japan in October 2025. The launch in France is under the post-marketing authorization early reimbursed access Accès Précoce program.
Pricing negotiations are underway in both Germany and France and are expected to continue until at least the second half of 2026 in Germany and 2027 in France. Pricing negotiations were successfully completed in Japan prior to launch.
We are advancing pricing discussions with Italian reimbursement authorities to enable a potential launch in Italy in the second half of 2026. We are also preparing regulatory filings for the United Kingdom and Switzerland, as well as initiating pricing discussions with relevant authorities in other key Western European markets. The timing of additional European launches will depend on the cadence and outcomes of regulatory interaction and pricing negotiations.
We continue to expand our specialty distributor network to support the commercialization of VYJUVEK in territories outside of the United States, major European markets, and Japan.
Net VYJUVEK product revenue was $389.1 million for the year ended December 31, 2025. Since launch in August 2023, we have reported cumulative net product revenue of $730.3 million.
Gross margin for the year ended December 31, 2025 was 94%. We define gross margin as product revenue, net less cost of goods sold expressed as a percentage of product revenue, net.
Pipeline
Respiratory
KB407 for Cystic Fibrosis (“CF”)
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KB407 is an inhaled (nebulized) formulation of our novel vector designed to deliver two copies of the full-length cystic fibrosis transmembrane conductance regulator (“CFTR”) transgene for the treatment of CF, a serious rare lung disease caused by missing or mutated CFTR protein. In January 2026, we announced a positive interim clinical update from Cohort 3, the highest dose cohort of CORAL-1, our Phase 1 study evaluating KB407 for the treatment of patients with CF, regardless of their underlying genotype. We are working on the study design for CORAL-3, a clinical study intended to evaluate the safety and efficacy of repeat KB407 administration, including through regular assessments of lung function by spirometry, and to support potential registration. We expect to align on the CORAL-3 study design with the FDA and start enrollment in the potentially registrational CORAL-3 study in the first half of 2026. Additional details on the study design will be provided by the time of study initiation.
KB408 for Alpha-1 Antitrypsin Deficiency (“AATD”) Lung Disease
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 (“AAT”) protein, for the treatment of AATD, a serious rare lung disease. We are currently running a a Phase 1 study, SERPENTINE-1, evaluating KB408 for the treatment of AATD in adult patients with AATD with a Pi*ZZ or a Pi*ZNull genotype. We expect to report interim safety and SERPINA1 transgene delivery data from the repeat dose cohort of SERPENTINE-1 in 2026.
Ophthalmology
KB803 (Ophthalmic B-VEC) for Ocular Complications of DEB
KB803 is a redosable eye drop formulation of B-VEC, designed for the treatment of ocular complications in patients with DEB. These complications, which include corneal erosions, abrasions, blistering and scarring, can lead to progressive vision loss. There is currently no corrective therapy available. We are currently running a Phase 3 registrational study, IOLITE, evaluating KB803 for the treatment of and prevention of corneal abrasions in DEB patients six months of age or older. We expect to complete enrollment in IOLITE in the first half of 2026 and report top-line results later in 2026.
KB801 for Neurotrophic Keratitis (“NK”)
KB801 is an eye drop formulation of our novel HSV-1 based vector designed to deliver two transgene copies to the corneal epithelium for the sustained, localized expression and secretion of nerve growth factor and the treatment of NK, a rare, degenerative corneal disease caused by nerve damage in the eye that leads to corneal epithelial defects, ulcers, and perforation. Our engineered HSV-1 viral vector used in KB801 was granted platform technology designation by the FDA in October 2025. We are currently running a registrational, randomized, double-masked, multicenter, placebo-controlled study, EMERALD-1, evaluating KB801 for the treatment of NK. We expect to enroll approximately 60 adult patients with Stage 2 or Stage 3 NK in EMERALD-1. Enrollment is ongoing, and we expect to report top-line data in 2026.
Dermatology
KB111 for Hailey-Hailey Disease (“HHD”)
KB111 is a topical gel formulation of our novel vector designed to deliver two copies of the ATP2C1 transgene encoding the human calcium transporter ATPase type 2C member 1 (“ATP2C1”) for the treatment of HHD, a serious and rare monogenic skin disorder characterized by painful rash and blistering in skin folds and linked to low ATP2C1 expression levels in keratinocytes. We are currently developing an HHD-specific evaluation scale necessary for the clinical evaluation of KB111. We expect to complete development and validation of the scale in the first half of 2026 and initiate a registrational study evaluating KB111 for the treatment of HHD in the second half of 2026.
Oncology
KB707 for Solid Tumors
KB707 is a redosable, cancer immunotherapy designed to deliver genes encoding both human interleukin-2 and interleukin-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. We have prioritized development of the inhaled KB707 formulation for the treatment of non-small cell lung cancer (“NSCLC”) based on early evidence of efficacy from KYANITE-1, our ongoing, Phase 1/2 study evaluating inhaled KB707, as monotherapy or in combination to treat patients with locally advanced or metastatic solid tumors of the lung. We opened a new cohort in KYANITE-1 in late 2025 to evaluate inhaled KB707 in combination with chemotherapy in patients with advanced NSCLC. Enrollment in this cohort is ongoing, and we expect to report interim efficacy data and potential registrational study plans in 2026.
We continue to follow patients enrolled in OPAL-1, our Phase 1/2 study, evaluating intratumoral KB707, as monotherapy or in combination, for the treatment of locally advanced or metastatic solid tumors.
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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. Based on the broad aesthetic improvements observed following KB304 treatment in PEARL-2, our Phase 1 study evaluating KB304 for the treatment of wrinkles of the décolleté, we are progressing KB304 into Phase 2 study for the treatment of wrinkles of the décolleté. We have aligned with the FDA on our validated décolleté-specific photonumeric scale, and we now expect to initiate the Phase 2 study in 2027.
Jeune Aesthetics has several other aesthetic medicine product candidates in various stages of development, including our clinical-stage product candidate KB301 that is designed to deliver two copies of the COL3A1 transgene for the treatment of aesthetic skin conditions. We are currently evaluating aesthetic indications most suitable for advanced clinical development of KB301.

Financial Overview
Product Revenue, Net
After FDA approval of VYJUVEK in May 2023, we launched VYJUVEK in the United States in 2023, in Germany in August 2025, and in France and Japan in October 2025. 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 may include discounts, returns, 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
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 development programs and the development and manufacturing of our product candidates, which include:
• agreements with contract research organizations, consultants and other third parties that conduct preclinical activities, clinical trials and other research and development activities on our behalf;
• costs of acquiring, developing and manufacturing product candidates and clinical trial materials, lab supplies and consumables;
• facility costs, depreciation and other related expenses, which include expenses for rent and the maintenance of our facilities;
• other testing and support costs and supplies; and
• payroll related expenses, including stock-based compensation expense.
We expense research and development costs to operations as incurred.
We expect our research and development expenses will increase as we continue the manufacturing of preclinical and clinical materials, 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 and are expensed as incurred. 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
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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 Vyjuvek 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 and gains and losses on foreign currency transactions.

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, and the valuation allowance included as part of the net deferred tax assets 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 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 at a healthcare professional’s office or in the patient’s home 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
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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. 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
• 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, 2025.
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. 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 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 include costs associated with services for preclinical development, manufacturing of our product candidates and the conduct of clinical trials. 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-based awards 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 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
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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 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.
Income Taxes
The Company is subject to tax in the United States and numerous foreign jurisdictions. Significant judgments and estimates are required in the determination of consolidated income tax expense. Income tax expense reflects the Company’s best estimate of current and future taxes to be paid. The Company records deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities using enacted tax rates expected to be in effect when the differences are expected to reverse. Valuation allowances are provided when necessary to reduce net deferred tax assets to the amount that is more likely than not to be realized. The Company weighs all available evidence, including cumulative income and forecasted future income in order to assess the realizability of deferred tax assets. The assumptions about future taxable income require the use of significant judgment and are consistent with the plans and estimates the Company is using to manage the underlying business. In the event the Company determines that it will be able to realize deferred tax assets for which a valuation allowance was used to reduce their carrying value, the adjustment to the valuation allowance will be recorded as a reduction to the provision for income taxes in the period such determination is made.
The calculation of tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions across global operations. Significant judgment is required in the identification and measurement of uncertain tax positions. The liability for unrecognized tax benefits contains uncertainties because the Company is required to make assumptions and to apply judgment to estimate the exposures associated with our various filing positions. The Company adjusts the liabilities when judgment changes as a result of new information not previously available.

Results of Operations
Years Ended December 31, 2025, 2024 and 2023

  Years Ended December 31, Change
(in thousands) 2025 2024 2023 2025 vs.
2024
2024 vs.
2023

Product revenue, net $ 389,130  $ 290,515  $ 50,699  $ 98,615  $ 239,816 
Operating expenses

Cost of goods sold 23,049  20,061  3,094  2,988  16,967 
Research and development 58,045  53,580  46,433  4,465  7,147 
Selling, general and administrative 146,741  113,626  98,289  33,115  15,337 
Litigation settlement —  37,500  12,500  (37,500) 25,000 
Total operating expenses 227,835  224,767  160,316  3,068  64,451 
Income (loss) from operations
161,295  65,748  (109,617) 95,547  175,365 
Other income

Gain from sale of priority review voucher —  —  100,000  —  (100,000)
Interest and other income, net 28,176  29,608  22,514  (1,432) 7,094 
Income before income taxes
189,471  95,356  12,897  94,115  82,459 
Income tax benefit (expense)
15,360  (6,197) (1,965) 21,557  (4,232)
Net income
$ 204,831  $ 89,159  $ 10,932  $ 115,672  $ 78,227 

Product Revenue, Net
Product revenue, net was $389.1 million for the year ended December 31, 2025 as compared to $290.5 million for the year ended December 31, 2024 and $50.7 million for the year ended December 31, 2023 due to sales of VYJUVEK after FDA
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approval was obtained on May 19, 2023. The increase in product revenue, net from 2024 to 2025 was driven by an increase in VYJUVEK sales as compared to the prior year.
Cost of Goods Sold
Cost of goods sold was $23.0 million for the year ended December 31, 2025 as compared to $20.1 million for the year ended December 31, 2024 and $3.1 million for the year ended December 31, 2023 due to initial sales of VYJUVEK after FDA approval was obtained on May 19, 2023. The increase in cost of goods sold from 2024 to 2025 was driven by an increase in VYJUVEK sales partially offset by a decrease primarily due to manufacturing process optimizations that resulted in lower average costs per unit.
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, 2025, 2024 and 2023:

Years Ended December 31, Change
(in thousands) 2025 2024 2023 2025 vs.
2024
2024 vs.
2023

B-VEC
$ 6,690  $ 8,760  $ 9,039  $ (2,070) $ (279)
KB111
1,837  —  —  $ 1,837 $ —

KB301 184  635  485  (451) 150
KB304
960  1,342  66  (382) 1,276
KB407 1,805  1,877  1,668  (72) 209
KB408
882  1,630  1,043  (748) 587
KB707 10,856  8,677  3,828  2,179 4,849
KB801
2,175  1,314  —  861 1,314
KB803
2,564  604  —  1,960 604
Other dermatology programs 12  935  284  (923) 651

Other ophthalmology programs
44  554  71  (510) 483
Other programs
2,493  2,098  1,506  395 592

Stock-based compensation 10,375  9,237  10,051  1,138 (814)

Other unallocated expenses (1)
17,168  15,917  18,392  1,251 (2,475)
Research and development expense $ 58,045 $ 53,580 $ 46,433 $ 4,465 $ 7,147

(1) Other unallocated expenses consist of shared pre-commercial manufacturing costs, primarily relating to certain raw materials, process development, quality control and quality assurance activities, as well as other manufacturing and facility related costs including rent, storage and depreciation which support the development of multiple product candidates.
Research and development expenses increased $4.5 million for the year ended December 31, 2025 compared to the year ended December 31, 2024. The increase was primarily driven by the following:
• an increase of $2.1 million in payroll related expenses, inclusive of $1.1 million in stock-based compensation, to support our research and development primarily due to an increase in KB111, KB801, KB803 and other research & development programs partially offset by a decrease in B-VEC and KB304; and
• a net increase of $2.3 million in clinical development costs, primarily due to an increase in KB707 costs related to our Phase 1/2 clinical trials for inhaled KB707.
Research and development expenses increased $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:
• an aggregated increase of $4.9 million related to KB304 costs, KB408 costs, KB803 costs, other dermatology programs, 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; and
• an increase of $0.7 million in other research programs.
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The increases were partially offset by:
• a net decrease of $2.5 million in other unallocated expenses primarily due to the costs related to the manufacturing of VYJUVEK following FDA approval being recorded as inventory and cost of goods sold, partially offset by increases related 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
• a decrease of $0.8 million in stock-based compensation due to the allocation of labor costs related to work performed to manufacture VYJUVEK to inventory.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $33.1 million for the year ended December 31, 2025 compared to the year ended December 31, 2024. The increase was primarily driven by the following:
• an increase of $9.2 million of payroll costs, including stock-based compensation;
• an increase of $5.5 million in other general and administrative costs mainly related to $1.5 million in charitable contributions, $1.1 million in taxes and $1.1 million in subscriptions;
• an increase of $11.1 million related to professional services, including legal and consulting services; and
• an increase of $6.7 million in marketing costs to support commercial sales of VYJUVEK.
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.
Litigation Settlement
Litigation settlement for the years ended December 31, 2025, 2024 and 2023 was zero, $37.5 million and $12.5 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 Annual Report on 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, 2025, 2024 and 2023 was $28.2 million, $29.6 million and $22.5 million, respectively, and consisted of interest and dividend income earned from our cash, cash equivalents and investments as well as the effects of foreign exchange rates. The decrease in interest and other income for the year ended December 31, 2025 compared to the year ended December 31, 2024 is primarily the result of the effects of foreign exchange rates. The increase in interest and other income for the years ended December 31, 2024 compared to the year ended December 31, 2023 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 Benefit (Expense)
Income tax benefit for the year ended December 31, 2025 was $15.4 million. Income tax expense for the years ended December 31, 2024 and 2023 was $6.2 million, and $2.0 million, respectively. In 2023 and 2024, income tax expense related to state, federal and foreign income taxes. In 2025, we determined that it was more likely than not that the benefit from certain of our deferred tax assets will be realized. Accordingly, the related valuation allowance was released and a one-time benefit was recognized. See Note 11 of the notes to consolidated financial statements included in this Form 10-K for more information.
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Liquidity and Capital Resources
Overview
As of December 31, 2025, our cash, cash equivalents and short-term investments balance was approximately $827.8 million. As of December 31, 2025, we had a retained earnings balance of $24.2 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.
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. 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 and prepare for product sales, marketing, commercial manufacturing, packaging, labeling and distribution, we expect to continue to incur significant manufacturing and commercialization expenses. 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.
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 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, 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 cost of manufacturing 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;
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• 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, 2025 are $17.0 million, of which $1.9 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 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 expected to be due in the next twelve months as of December 31, 2025 under these agreements is immaterial.

Sources and Uses of Cash
The following table summarizes our sources and uses of cash:

  Years Ended December 31,
(in thousands) 2025 2024 2023
Net cash provided by (used in) operating activities
$ 200,865  $ 123,420  $ (88,804)
Net cash (used in) provided by investing activities
(58,417) (163,439) 82,638 
Net cash provided by financing activities 8,705  27,014  202,750 
Effect of exchange rate changes on cash and cash equivalents 286  (458) (156)
Net increase (decrease) in cash
$ 151,439  $ (13,463) $ 196,428 

Operating Activities
Net cash provided by operating activities for the year ended December 31, 2025 was $200.9 million and consisted primarily of net income of $204.8 million adjusted for $32.5 million of non-cash items and a $36.4 million decrease in cash due to an increase in net working capital. Non-cash adjustments included depreciation of $5.7 million, amortization of operating lease right-of-use assets of $0.8 million, stock-based compensation expense, net of $54.5 million, and other adjustments of
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$0.7 million offset by a change in our deferred income taxes of $22.8 million, realized gain on investments of $6.0 million and accretion on marketable securities of $0.5 million.
Net cash used 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 $0.7 million, stock-based compensation expense, net of $49.1 million, and other adjustments of $0.7 million offset by realized gain on investments of $6.1 million and accretion on marketable securities of $1.7 million.
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 $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 of 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 $0.9 million and other adjustments of $0.2 million.
Investing Activities
Net cash used in investing activities for the year ended December 31, 2025 was $58.4 million and consisted of $422.5 million in purchases of short-term and long-term investments and $12.0 million in purchases of property and equipment, partially offset by $375.6 million received from the maturities of investments and $0.4 million received in proceeds from disposal of assets.
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.
Financing Activities
Net cash provided by financing activities for the year ended December 31, 2025 was $8.7 million and consisted of proceeds of $22.7 million from exercises of stock options, partially offset by $12.1 million used for employee tax withholding payments related to vested restricted stock units and $1.8 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, 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.
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 issuance of common stock, net of offering costs and proceeds of $43.8 million from exercises of stock options, partially offset by $0.7 million used for employee tax withholding payments for settlement of restricted stock awards.

Recent Accounting Pronouncements
See Note 2 to our consolidated financial statements.
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Item 7A. Qualitative and Quantitative Disclosures About Market Risk
We had cash, cash equivalents and short-term investments of approximately $827.8 million as of December 31, 2025, which consisted primarily of money market funds, commercial paper, corporate bonds and U.S. government agency securities. The investments in these financial instruments are made in accordance with an investment policy which specifies the categories, allocations and ratings of securities we may consider for investment. The primary objective of our investment activities is to preserve principal while at the same time maximizing the income we receive without significantly increasing risk. Some of the financial instruments in which we invest could be subject to market risk. This means that a change in prevailing interest rates may cause the value of the instruments to fluctuate. For example, if we purchase a security that was issued with a fixed interest rate and the prevailing interest rate later rises, the value of that security will probably decline. To minimize this risk, we intend to maintain a portfolio which may include cash, cash equivalents and short-term investment securities available-for-sale in a variety of securities which may include money market funds, government and non-government debt securities and commercial paper, all with various maturity dates. Based on our current investment portfolio, we do not believe that our financial position would be materially affected by an immediate change of 1% in interest rates.
We also have established operations in Europe and Japan and hold cash in Swiss Francs, Euros and Japanese Yen. We are subject to foreign exchange rate risk arising from transactions conducted in the aforementioned foreign currencies, however, our foreign operations are not currently material to our business. We do not believe that our results of operations or our financial position would be materially affected by an immediate change of 10% in foreign currency exchange rates
We do not hold or issue derivatives, derivative commodity instruments or other financial instruments for speculative trading purposes. Further, we do not believe our cash, cash equivalents and short-term investments have significant risk of default or illiquidity. While we believe our cash, cash equivalents and short-term investments do not contain excessive risk, we cannot provide absolute assurance that any investments we make in the future will not be subject to adverse changes in market value. Our cash, cash equivalents and short-term investments are recorded at fair value.
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Item 8. Financial Statements and Supplementary Data.
INDEX TO FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm (KPMG, LLP, Pittsburgh, PA (US Firm), PCAOB ID No. 185 )
F- 2

   
Consolidated Balance Sheets as of December 31, 2025 and 2024
F- 4

   
Consolidated Statements of Operations and Comprehensive Income for the Years Ended December 31, 2025, 2024 and 2023
F- 5

   
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2025, 2024 and 2023
F- 6

   
Consolidated Statements of Cash Flows for the Years Ended December 31, 2025, 2024 and 2023
F- 7

   
Notes to Consolidated Financial Statements
F- 9

F-1

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors
Krystal Biotech, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Krystal Biotech, Inc. and subsidiaries (the Company) as of December 31, 2025 and 2024, the related consolidated statements of operations and comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2025, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2025, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 17, 2026 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Evaluation of the sufficiency of audit evidence over the Medicaid rebate accrual
As discussed in Notes 2 and 3 to the consolidated financial statements, the Company recognizes product revenue on sales of VYJUVEK when the customer obtains control of the product, which occurs at a point in time, upon delivery to the customer. Product revenue, net is recorded at the net sales price, or transaction price, and includes an estimate of variable consideration, which results from discounts, rebates and returns that are offered within the Company's contracts. Government rebates, which include Medicaid, are accrued 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 are recorded as a reduction of revenue. Rebates were $61.9 million as of December 31, 2025, of which a portion relates to the Medicaid rebate accrual.
We identified the evaluation of the sufficiency of audit evidence over the Medicaid rebate accrual as a critical audit matter. Subjective auditor judgment was required to evaluate the Medicaid rebate accrual because of the audit effort involved in determining the nature and extent of procedures to be performed.
The following are the primary procedures we performed to address the critical audit matter. We applied auditor judgment to determine the nature and extent of procedures to be performed over the Medicaid rebate accrual. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s Medicaid rebate accrual process.
F-2

We evaluated the relevance and reliability of the historical customer data used by the Company in developing the estimate of the Medicaid rebate accrual by performing a trend analytic over the estimated percentages of VYJUVEK that will be prescribed to qualified patients. We evaluated the Company’s ability to accurately estimate the Medicaid rebate accrual by comparing the estimated Medicaid rebate accrual to the actual invoiced amounts that were paid by the Company throughout the period. We developed an independent estimate of the Medicaid rebate accrual by confirming the year-to-date units delivered to the customer and vouching payments made during the year, and compared the result to the Company’s estimated Medicaid rebate accrual. We assessed the sufficiency of evidence obtained over the Medicaid rebate accrual by assessing the results of procedures performed, including the appropriateness of the nature and extent of audit effort.
/s/ KPMG LLP
We have served as the Company’s auditor since 2022.
Pittsburgh , Pennsylvania
February 17, 2026
F-3

Krystal Biotech, Inc.
Consolidated Balance Sheets

December 31,
(in thousands, except par value) 2025 2024
Assets
Current assets
Cash and cash equivalents $ 496,304   $ 344,865  
Short-term investments 331,487   252,652  
Accounts receivable, net 127,425   104,746  
Inventory 40,475   26,508  
Prepaid taxes
14,006   1,617  
Prepaid expenses and other current assets 14,905   11,657  
Total current assets 1,024,602   742,045  
Property and equipment, net 150,776   155,168  
Long-term investments 128,066   152,114  
Right-of-use assets 7,239   6,280  
Deferred tax asset, net of valuation allowance
22,824   —  
Other non-current assets 287   231  
Total assets $ 1,333,794   $ 1,055,838  
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable $ 3,238   $ 4,985  
Current portion of lease liability 1,771   1,217  
Accrued rebates 58,181   36,804  
Accrued expenses and other current liabilities 39,752   58,989  
Total current liabilities 102,942   101,995  
Lease liability 7,568   6,044  
Other long-term liabilities 3,724   1,419  
Total liabilities 114,234   109,458  
Commitments and contingencies (see note 7)
Stockholders' equity
Common stock; $ 0.00001 par value; 80,000 shares authorized as of December 31, 2025 and 2024; 29,192 and 28,794 shares issued and outstanding as of December 31, 2025 and 2024, respectively.
—   —  
Additional paid-in capital 1,194,261   1,127,238  
Accumulated other comprehensive income (loss)
1,136   ( 190 )
Retained earnings (accumulated deficit)
24,163   ( 180,668 )
Total stockholders’ equity 1,219,560   946,380  
Total liabilities and stockholders’ equity $ 1,333,794   $ 1,055,838  

The accompanying notes are an integral part of these consolidated financial statements.
F-4

Krystal Biotech, Inc.
Consolidated Statements of Operations and Comprehensive Income

Years Ended December 31,

(in thousands, except per share data) 2025 2024 2023
Product revenue, net $ 389,130   $ 290,515   $ 50,699  
Operating expenses

Cost of goods sold 23,049   20,061   3,094  
Research and development 58,045   53,580   46,433  
Selling, general and administrative 146,741   113,626   98,289  
Litigation settlement —   37,500   12,500  
Total operating expenses 227,835   224,767   160,316  
Income (loss) from operations 161,295   65,748   ( 109,617 )
Other income

Gain from sale of priority review voucher —   —   100,000  
Interest and other income, net 28,176   29,608   22,514  
Income before income taxes
189,471   95,356   12,897  
Income tax benefit (expense)
15,360   ( 6,197 ) ( 1,965 )
Net income
204,831   89,159   10,932  
Unrealized gain (loss) on available-for-sale securities, net of tax
642   ( 440 ) 1,432  
Foreign currency translation 684   ( 388 ) ( 66 )
Comprehensive income
$ 206,157   $ 88,331   $ 12,298  

Net income per common share:

Basic $ 7.08   $ 3.12   $ 0.40  
Diluted $ 6.84   $ 3.00   $ 0.39  

Weighted-average common shares outstanding:
Basic 28,944   28,592   27,154  
Diluted 29,951   29,740   27,752  

The accompanying notes are an integral part of these consolidated financial statements.
F-5

Krystal Biotech, Inc.
Consolidated Statements of Stockholders' Equity

Common Stock Additional Paid-in Capital
Accumulated Other Comprehensive Income (Loss)
Retained Earnings (Accumulated Deficit)
Total Stockholders' Equity

(in thousands) Shares Amount
Balances as of January 1, 2023
25,764   $ —   $ 803,718   $ ( 728 ) $ ( 280,759 ) $ 522,231  
Issuance of common stock pursuant to ATM Program, net of offering costs
1,730   —  159,909   —  —  159,909  
Issuance of common stock upon exercise of stock options
753   —  43,773   —  —  43,773  
Shares of restricted stock awards surrendered for taxes ( 10 ) —  ( 749 ) —  —  ( 749 )
Stock-based compensation —  —  41,179   —  —  41,179  
Unrealized gain on investments
—  —  —  1,432   —  1,432  
Foreign currency translation —  —  —  ( 66 ) —  ( 66 )
Net income
—  —  —  —  10,932   10,932  
Balances as of December 31, 2023
28,237   $ —   $ 1,047,830   $ 638   $ ( 269,827 ) $ 778,641  
Issuance of common stock in private placement offering, net of offering costs 526   —  32,400   —  —  32,400  
Issuance of common stock upon exercise of stock options
39   —  ( 4,181 ) —  —  ( 4,181 )
Shares of restricted stock awards surrendered for taxes ( 8 ) —  ( 1,205 ) —  —  ( 1,205 )
Stock-based compensation —  —  52,394   —  —  52,394  
Unrealized (loss) on investments —  —  —  ( 440 ) —  ( 440 )
Foreign currency translation —  —  —  ( 388 ) —  ( 388 )
Net income —  —  —  —  89,159   89,159  
Balances as of December 31, 2024
28,794   $ —   $ 1,127,238   $ ( 190 ) $ ( 180,668 ) $ 946,380  
Issuance of common stock upon exercise of stock options
310   —  22,661   —  —  22,661  
Vesting of restricted stock units, net of shares withheld for taxes 98   —  ( 12,144 ) —  —  ( 12,144 )
Shares of restricted stock awards surrendered for taxes ( 10 ) —  ( 1,812 ) —  —  ( 1,812 )
Stock-based compensation —  —  58,318   —  —  58,318  
Unrealized gain on investments, net of tax
—  —  —  642   —  642  
Foreign currency translation
—  —  —  684   —  684  
Net income —  —  —  —  204,831   204,831  
Balances as of December 31, 2025
29,192   $ —   $ 1,194,261   $ 1,136   $ 24,163   $ 1,219,560  

The accompanying notes are an integral part of these consolidated financial statements.
F-6

Krystal Biotech, Inc.
Consolidated Statements of Cash Flows

  Years Ended December 31,

(in thousands) 2025 2024 2023
Operating Activities
Net income
$ 204,831   $ 89,159   $ 10,932  
Adjustments to reconcile net income to net cash used in operating activities

Gain from sale of priority review voucher —   —   ( 100,000 )
Deferred tax asset
( 22,845 ) —   —  
Depreciation 5,724   5,967   5,007  
Accretion of marketable securities
( 498 ) ( 1,706 ) ( 2,183 )
Amortization of operating lease right-of-use assets 827   747   904  
Stock-based compensation expense, net 54,514   49,127   39,933  
Realized gain on investments ( 5,953 ) ( 6,069 ) ( 5,092 )
Other, net 684   652   217  
Changes in operating assets and liabilities
Accounts receivable, net
( 22,124 ) ( 62,706 ) ( 42,040 )
Inventory ( 6,286 ) ( 11,907 ) ( 4,475 )
Prepaid taxes
( 12,389 ) ( 1,617 ) —  
Prepaid expenses and other assets
( 2,270 ) ( 7,292 ) ( 1,612 )

Lease liability ( 578 ) ( 833 ) ( 829 )
Other long-term liabilities
2,280   1,419   —  
Accounts payable 826   1,011   ( 101 )
Accrued rebates 21,268   30,827   5,977  
Accrued expenses and other current liabilities 14,104   5,391   4,558  
Accrued legal settlement ( 31,250 ) 31,250   —  
Net cash provided by (used in) operating activities
200,865   123,420   ( 88,804 )

Investing Activities
Proceeds from disposal of assets
435   —   —  
Proceeds from sale of priority review voucher —   —   100,000  
Purchases of property and equipment ( 11,951 ) ( 4,238 ) ( 11,799 )
Purchases of investments ( 422,540 ) ( 457,740 ) ( 508,776 )
Maturities of investments 375,639   298,539   503,213  
Net cash (used in) provided by investing activities
( 58,417 ) ( 163,439 ) 82,638  

Financing Activities
Proceeds from issuance of common stock, net —   —   159,726  
Proceeds from exercise of stock options
22,661   32,400   43,773  
Taxes paid for employee tax withholding related to restricted stock units ( 12,144 ) ( 4,181 ) —  
Taxes paid related to settlement of restricted stock awards ( 1,812 ) ( 1,205 ) ( 749 )
Net cash provided by financing activities 8,705   27,014   202,750  

Effect of exchange rate changes on cash and cash equivalents 286   ( 458 ) ( 156 )

Net change in cash and cash equivalents 151,439   ( 13,463 ) 196,428  

Cash and cash equivalents at beginning of year 344,865   358,328   161,900  
Cash and cash equivalents at end of year $ 496,304   $ 344,865   $ 358,328  

Supplemental Disclosures of Non-Cash Investing and Financing Activities
Unpaid purchases of property and equipment $ 3,067   $ 8,497   $ 8,602  
Initial recognition of right-of-use assets $ 1,786   $ —   $ —  
Supplemental Disclosure of Cash Flow Information

Income taxes paid
$ 15,673   $ 5,665   $ —  

F-7

The accompanying notes are an integral part of these consolidated financial statements.
F-8

Krystal Biotech, Inc.
Notes to Consolidated Financial Statements

1.     Organization
Krystal Biotech, Inc. (the “Company,” or “we” or other similar pronouns) commenced operations in April 2016. In March 2017, we converted from a California limited liability company to a Delaware C-corporation, and changed our name from Krystal Biotech LLC to Krystal Biotech, Inc. In April 2019, we incorporated Jeune Aesthetics, Inc. (“Jeune Aesthetics”), a wholly-owned subsidiary, in Delaware, for the purpose of undertaking preclinical and clinical studies for aesthetic skin conditions. In January 2022, August 2022, December 2022, August 2023, March 2024, November 2024, December 2024 and July 2025 we incorporated wholly-owned subsidiaries in Switzerland, Netherlands, France, Germany, Japan, Italy, Spain, and the UK, respectively, for the purpose of establishing operations in Europe and Japan for the commercialization of VYJUVEK ® and our product pipeline.
We are a fully integrated, commercial-stage, global biotechnology company focused on the discovery, development, manufacturing, and commercialization of genetic medicines to treat diseases with high unmet medical needs. Using our patented gene therapy technology platform that is based on engineered herpes simplex virus-1 (“HSV-1”), we create vectors that efficiently deliver therapeutic transgenes to cells of interest in multiple organ systems. The cell’s own machinery then transcribes and translates the transgene to treat the disease. Our vectors are amenable to formulation for non-invasive or minimally invasive routes of administration at a healthcare professional’s office or in the patient’s home. Our innovative technology platform is supported by two in-house, commercial scale Current Good Manufacturing Practice (“CGMP”) manufacturing facilities.

Liquidity
As of December 31, 2025, the Company had a retained earnings balance of $ 24.2 million. Our operating profitability is dependent upon the continued successful commercialization of VYJUVEK, our U.S. Food and Drug Administration (“FDA”), European Commission (“EC”), and Japan’s Ministry of Health, Labour, and Welfare (“MHLW”) approved product, as well as successful development, approval and commercialization of our product candidates. Management intends to fund future operations through its on hand cash and cash equivalents and revenue generated from the sale of VYJUVEK, and may also seek additional capital through arrangements with strategic partners, the sale of equity, debt financings or other sources.
The Company is subject to risks common to companies in the biotechnology industry, including but not limited to the failure of product candidates in clinical and preclinical studies, the development of competing product candidates or other technological innovations by competitors, dependence on key personnel, protection of proprietary technology, compliance with government regulations and the ability to commercialize product candidates. The Company expects to incur significant costs in connection with, among other things, advancing its product pipeline, expanding its commercialization capabilities, and complying with EU post-authorization regulatory requirements and EU member state–specific pricing, reimbursement, and market access activities. The Company believes that its cash, cash equivalents and short-term investments of approximately $ 827.8 million as of December 31, 2025 will be sufficient to allow the Company to fund its planned operations for at least the next 12 months from the date of this Annual Report on Form 10-K.

2.     Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”). All intercompany balances and transactions have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform to the current period presentation. The reclassified amounts have no impact on the Company’s previously reported financial position or results of operations.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results could materially differ from those estimates. Management considers many factors in developing the estimates and assumptions that are used in the preparation of these financial statements. Management must apply significant judgment in this process. In addition, other factors may affect estimates, including: expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates, and whether historical trends are expected to be representative of future trends. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes and management must select an amount that falls within that range of reasonable estimates. If actual results in the future vary from the Company’s estimates, the Company will adjust these estimates in the period these variances
F-9

Krystal Biotech, Inc.
Notes to Consolidated Financial Statements—Continued

become known. Estimates are used in the following areas, among others: variable consideration associated with revenue recognition, stock-based compensation expense, accrued expenses, and income taxes.
Segment and Geographical Information
Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company operates as one operating segment, which is focused on the discovery, development, manufacturing and commercialization of pharmaceutical products. See Note 13 to these consolidated financial statements for additional discussion.
Cash, Cash Equivalents and Investments
Cash and cash equivalents consist of money market funds and bank deposits. Cash equivalents are defined as short-term, highly liquid investments with original maturities of 90 days or less at the date of purchase.
Investments with maturities of less than one year are classified as short-term investments on the consolidated balance sheets and consist of commercial paper, corporate bonds and U.S. government agency securities and treasuries. Investments with maturities of greater than one year are classified as long-term investments on the consolidated balance sheets and consist of corporate bonds and U.S. government agency securities and treasuries. Accrued interest on investments is also classified as short-term investments on the consolidated balance sheets.
As the Company’s entire investment portfolio is considered available for use in current operations, it classifies all investments as available-for-sale securities. Available-for-sale securities are carried at fair value, with unrealized gains and losses reported in accumulated other comprehensive income, which is a separate component of stockholders’ equity on the consolidated balance sheets. Any premium arising at purchase is amortized to the earliest call date and any discount arising at purchase is accreted to maturity. Amortization and accretion of premiums and discounts are recorded in interest and other income, net on the consolidated statements of operations and comprehensive income.The Company evaluates its available-for-sale debt securities on a quarterly basis to determine whether a decline in fair value below amortized cost is attributable to credit-related factors. During the years ended December 31, 2025, 2024 and 2023, the Company concluded that no allowances for credit losses on investments were required.
Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. There is a three-level hierarchy that prioritizes the inputs used in determining fair value by their reliability and preferred use, as follows:
• Level 1 —Valuations based on quoted prices in active markets for identical assets or liabilities.
• Level 2 —Valuations based on quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets and liabilities in inactive markets, or other inputs that are observable, or can be corroborated by observable market data.
• Level 3 —Valuations based on inputs that are both significant to the fair value measurement and unobservable.
To the extent that a valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized within Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. 
There have been no (1) significant changes to the valuation methods utilized by the Company or (2) transfers between Level 1, Level 2 and Level 3 during the years ended December 31, 2025, 2024 and 2023.
The carrying amounts of financial instruments consisting of cash and cash equivalents, investments, accounts receivable, net, prepaid expenses and other current assets, accounts payable, accrued expenses, accrued rebates, and other current liabilities included in the Company’s consolidated balance sheets, are reasonable estimates of fair value, primarily due to their short maturities.
Our available-for-sale, short-term and long-term investments, which consist of commercial paper, corporate bonds, and U.S. government agency securities and treasuries are considered to be Level 2 financial instruments. The fair value of Level 2 financial assets is determined using inputs that are observable in the market or can be derived principally from or corroborated by observable market data such as pricing for similar securities, recently executed transactions, cash flow models with yield curves, and benchmark securities. In addition, Level 2 financial instruments are valued using comparisons to like-kind financial instruments and models that use readily observable market data as their basis.
F-10

Krystal Biotech, Inc.
Notes to Consolidated Financial Statements—Continued

Revenue Recognition
The Company recognizes product revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”), Topic 606, Revenue from Contracts with Customers (“ASC 606”). Under ASC 606, the Company is required to complete the following five steps:
(i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price, including variable consideration, if any; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation.
Revenue is recognized when 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 at a healthcare professional’s office or in the patient’s home 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
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.
The following are the Company’s significant categories of variable consideration:
• 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. 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
• 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, 2025.
F-11

Krystal Biotech, Inc.
Notes to Consolidated Financial Statements—Continued

Cost of Goods Sold
Cost of goods sold includes direct and indirect costs related to the manufacturing of VYJUVEK. These costs consist of manufacturing costs, personnel costs including stock-based compensation, facility costs, and other indirect overhead costs. Cost of goods sold may also include period costs related to certain manufacturing services and inventory adjustment charges.
Prior to receiving FDA approval in May 2023, costs associated with the manufacturing of VYJUVEK were expensed as research and development expenses.
Accounts Receivable
Accounts receivable represents amounts arising from product sales and is recorded net of allowances for prompt payment discounts, returns, and credit losses. The Company estimates an allowance for credit losses by considering factors such as credit quality, the age of the accounts receivable balances, and current economic conditions that may affect a customer’s ability to pay. The Company has no historical write-offs of its accounts receivable and its payment terms are generally 90 days or less from the invoice date. The Company evaluates the creditworthiness of each counterparty on a regular basis. As of December 31, 2025, the credit profiles for these counterparties were deemed to be in good standing and, as such, an allowance for credit losses was not recorded.
Concentration of Credit Risk and Off-Balance Sheet Risk
Financial instruments that subject the Company to credit risk primarily consist of cash and cash equivalents, short-term investments, long-term investments, and accounts receivable, net. The Company maintains its cash and cash equivalent balances with high-quality financial institutions and, consequently, the Company believes that such funds are subject to minimal credit risk. The Company is exposed to credit risk in the event of default by the financial institutions to the extent amounts recorded on the consolidated balance sheets are in excess of insured limits. The Company has not experienced any credit losses in such accounts and does not believe it is exposed to any significant credit risk on these funds. The Company’s marketable securities, which primarily consist of U.S. government agency securities and treasuries, corporate bonds and commercial paper, potentially subject the Company to concentrations of credit risk. The Company has no financial instruments with off-balance sheet risk of loss.
Inventories
The Company capitalizes inventory costs associated with products when future economic benefit is expected to be realized. These costs consist of raw materials, manufacturing-related costs, personnel costs including stock-based compensation, facility costs, and other indirect overhead costs. Prior to receiving FDA approval for VYJUVEK in May 2023, the Company expensed costs related to inventory for clinical and pre-commercial purposes directly to research and development expense. Following the FDA’s approval of VYJUVEK, the Company began capitalizing inventory related to commercialized products held for sale, in-process of production for sale, and raw materials to be used in the manufacturing of inventory.
The Company values its inventories at the lower-of-cost and net realizable value, on a first-in, first-out basis. The Company adjusts the net realizable value of any excess, obsolete or unsalable inventories in the period in which they are identified. For the years ended December 31, 2025, 2024 and 2023, there were no inventory write-downs. See Note 6 to these consolidated financial statements for additional discussion.
Property and Equipment, Net
Property and equipment, net, is stated at cost, less accumulated depreciation. Maintenance and repairs that do not improve or extend the lives of the respective assets are expensed to operations as incurred, while costs of major additions and betterments are capitalized. Upon disposal, the related cost and accumulated depreciation is removed from the accounts and any resulting gain or loss is included in the results of operations. Depreciation is recorded using the straight-line method over the estimated useful lives of the respective assets, which are as follows:

Buildings and building improvements
7 - 47 years

Computer equipment and software 3 - 7 years

Manufacturing equipment
3 - 30 years

Laboratory equipment
3 - 15 years

Furniture and fixtures 3 - 7 years

Leasehold improvements lesser of remaining useful life or remaining life of lease

The Company reviews the estimated useful lives of its property and equipment on a continuing basis. In evaluating the useful lives, the Company considers how long assets will remain functionally effective, whether the technology continues to be relevant and considers other competitive and economic factors. If the assessment indicates that the assets will be used for a
F-12

Krystal Biotech, Inc.
Notes to Consolidated Financial Statements—Continued

shorter or longer period than previously anticipated, the useful life of the assets is adjusted, resulting in a change in estimate. Changes in estimates are accounted for on a prospective basis by depreciating the current carrying values of the assets over their revised remaining useful lives.
Construction in progress is not depreciated until the asset is placed in service.
Impairment of Long-Lived Assets
The Company evaluates long-lived assets for potential impairment when events or changes in circumstances indicate the carrying value of the assets may not be recoverable. The Company reviews the recoverability of the net book value of long-lived assets whenever events and circumstances indicate (“triggering events”) that the net book value of an asset may not be recoverable from the estimated undiscounted future cash flows expected to result from its use and eventual disposition. In cases where a triggering event occurs and undiscounted expected future cash flows are less than the net book value, the Company recognizes an impairment loss equal to an amount by which the net book value exceeds the fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell. The Company has not experienced any triggering events or recognized any impairment losses for the years ended December 31, 2025, 2024 and 2023.
Leases
The Company accounts for its lease agreements in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 842, Leases . Right-of-use lease assets represent the right to use an underlying asset during the lease term and the lease liabilities represent the commitment to make lease payments arising from the lease. Right-of-use lease assets and obligations are recognized based on the present value of remaining lease payments over the lease term. As the Company’s existing lease agreements do not provide an implicit rate and as the Company does not have any external borrowings, the Company has used an estimated incremental borrowing rate based on the information available at lease commencement in determining the present value of lease payments. Operating lease expense is recognized on a straight-line basis over the lease term. Variable lease expense is recognized in the period in which the obligation for the payment is incurred. In addition, the Company also has made an accounting policy election to exclude leases with an initial term of twelve months or less from its consolidated balance sheets and to account for lease and non-lease components of its operating leases as a single component.
Research and Development Expenses
Research and development costs are charged to expense as incurred in performing research and development activities. These costs include employee compensation costs, facilities and overhead, preclinical and clinical activities, contract research and manufacturing expenses.
The Company estimates contract research and manufacturing expenses based on the services performed pursuant to contracts with research organizations in the Company’s ongoing preclinical and clinical studies. Non-refundable advanced payments for goods or services to be received in the future for use in research and development activities are deferred and capitalized. The capitalized amounts are expensed as the related goods are delivered or the services are performed.
In accruing service fees, the Company estimates the time period over which services will be performed and the level of effort to be expended in each period. These estimates are based on communications with third-party service providers and the Company’s estimates of accrued expenses using information available at each balance sheet date. If the actual timing of the performance of services or the level of effort varies from the estimate, the Company will adjust the accrual accordingly.
Stock-Based Compensation Expense
The Company has 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. The Company recognizes compensation costs related to stock-based awards 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 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.
The Company estimates 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.
F-13

Krystal Biotech, Inc.
Notes to Consolidated Financial Statements—Continued

The Company estimates the expected term of its stock options using the “simplified” method, whereby the expected term equals the arithmetic mean of the vesting term and the 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.
Foreign Currency Transaction Gain (Loss)
Gains and losses arising from transactions denominated in currencies other than U.S. dollars are recorded in interest and other income, net on the statement of operations and comprehensive income. The Company recorded losses of $ 1.2 million for the year ended December 31, 2025, and immaterial losses for the years ended December 31, 2024 and 2023.
Income Taxes
The Company accounts for income taxes in accordance with FASB ASC Topic 740, Income Taxes (“ASC 740”), which provides for deferred taxes using an asset and liability approach. Under this method, the Company records deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities using enacted tax rates expected to be in effect when the differences are expected to reverse. Valuation allowances are provided when necessary to reduce net deferred tax assets to the amount that is more likely than not to be realized. As of December 31, 2025, after weighing all available evidence, including three-year cumulative income and forecasted future income, the Company is able to support the realizability of its deferred tax assets, except certain state tax attributes. Accordingly, except for certain state net operating loss and tax credits, the Company recorded no valuation allowance as of December 31, 2025 attributable to its deferred tax assets. The Company recorded a full valuation allowance as of December 31, 2024. The Company intends to continue assessing the realizability of the remaining valuation allowance until sufficient evidence exists to support its reversal.
The Company accounts for unrecognized tax benefits in accordance with the provisions of ASC 740. When unrecognized tax benefits exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit will more likely than not be realized. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances.
See Note 11 to these consolidated financial statements for additional discussion.
Comprehensive Income
Comprehensive income is defined as the change in equity during a period from transactions from non-owner sources. Unrealized gains or losses on available-for-sale securities is a component of other comprehensive gains or losses and is presented net of taxes. The Company records reclassifications from other comprehensive gains or losses to interest and other income, net on the consolidated statements of operations and comprehensive income related to realized gains on sales of available-for-sale securities.

Recently Issued Accounting Pronouncements, Not Yet Adopted
In November 2024, the FASB issued ASU 2024-03 Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. This standard calls for enhanced disclosures about components of expense captions on the face of the income statement. This standard will be effective for fiscal years beginning after December 15, 2026, with the option to apply it retrospectively. Early adoption is allowed. Currently, the Company is assessing the potential impact of this guidance on its consolidated financial statement disclosures.
In December 2025, the FASB issued ASU 2025-11 Interim Reporting (Topic 270): Narrow-Scope Improvements. This standard clarifies current interim reporting requirements on Topic 270 and introduces a disclosure principle requiring entities to disclose events since the end of the last annual reporting period that have a material impact on the entity. This standard will be effective for fiscal years beginning after December 15, 2027, with the option to apply it retrospectively. Early adoption is allowed. Currently, the Company is assessing the potential impact of this guidance on its consolidated financial statement disclosures.
Recently Adopted Accounting Pronouncements
In December 2023, the FASB issued ASU 2023-09 Income Taxes (Topic 740): Improvements to Income Tax Disclosures . The purpose of this guidance is to enhance the transparency and usefulness of income tax disclosures and provide comprehensive income tax information, particularly in relation to rate reconciliation and income taxes paid in the U.S. and foreign jurisdictions. The Company adopted ASU 2023-09 during the year ended December 31, 2025. See Note 11 to these consolidated financial statements for additional discussion.
F-14

Krystal Biotech, Inc.
Notes to Consolidated Financial Statements—Continued

3.     Product Revenue, Accounts Receivable and Reserves for Product Sales
Following FDA approval in May 2023, the Company began commercial marketing and sales of VYJUVEK and began recognizing revenue in the third quarter of 2023. The Company’s product revenue, net of sales discounts and allowances totaled $ 389.1 million, $ 290.5 million and $ 50.7 million for the years ended December 31, 2025, 2024 and 2023, respectively. For the years ended December 31, 2025, 2024, and 2023, approximately 75 %, 87 % and 100 %, respectively, of the Company’s product revenue, net was generated from a single customer in the U.S. No other customer exceeded 10% of the Company’s product revenue, net.
The Company’s accounts receivable, net balance relating to VYJUVEK sales was $ 127.4 million and $ 104.7 million as of December 31, 2025 and 2024, respectively. Net product revenue receivable from the Company’s customers who individually accounted for 10% or more of net product revenue receivable consisted of the following:

Percent of Net Product Revenue Receivable

Year Ended December 31,

2025 2024
Customer A
66   % 81   %
Customer B
14   % 13   %

The following table summarizes changes in allowances and discounts:

(in thousands) Rebates Prompt Pay Other Accruals Total

Balance as of December 31, 2023
$ 5,977   $ 858   $ 279   $ 7,114  
Provision
45,853   9,212   420   55,485  
Payments/Credits
( 13,607 ) ( 7,500 ) ( 373 ) ( 21,480 )
Balance as of December 31, 2024
$ 38,223   $ 2,570   $ 326   $ 41,119  
Provision 65,273   13,478   507   79,258  
Payments/Credits ( 41,591 ) ( 10,214 ) ( 455 ) ( 52,260 )
Balance as of December 31, 2025
$ 61,905   $ 5,834   $ 378   $ 68,117  

Rebates are included in accrued rebates and other long-term liabilities on the consolidated balance sheets. Prompt pay discount is recorded as an allowance against accounts receivable, net on the consolidated balance sheets. Other long-term liabilities include $ 3.7 million of long-term accrued rebates. Other accruals are included in accrued expenses and other current liabilities on the consolidated balance sheets. Provisions for rebates, prompt pay discount and other accruals are recorded as reductions to product revenue, net on the consolidated statements of operations and comprehensive income.

4.     Net Income Per Share Attributable to Common Stockholders
Basic net income per share attributable to common stockholders is calculated by dividing net income attributable to common stockholders by the weighted-average shares outstanding during the period, without consideration for common stock equivalents. Diluted net income per share attributable to common stockholders is computed by dividing the net income by the weighted-average number of shares of common stock and common stock equivalents outstanding for the period. Common stock equivalents consist of common stock issuable upon (1) exercise of stock options and (2) vesting of restricted stock awards, restricted stock units and performance-based restricted stock units (collectively, “restricted stock”).
For the years ended December 31, 2025, 2024 and 2023, there were (1) 571 thousand, 236 thousand and 897 thousand, respectively, common stock equivalents outstanding in the form of stock options, and (2) 1 thousand, 1  thousand and zero , respectively, in unvested restricted stock that have been excluded from the calculation of diluted net income per common share as their effect would be anti-dilutive.
F-15

Years Ended December 31,
(in thousands, except per share data) 2025 2024 2023
Numerator:
Net income
$ 204,831   $ 89,159   $ 10,932  
Denominator:
Weighted-average basic common shares 28,944   28,592   27,154  
Dilutive effect of stock options and unvested restricted stock 1,007   1,148   598  
Weighted-average diluted common shares 29,951   29,740   27,752  

Net income per common share—basic
$ 7.08   $ 3.12   $ 0.40  
Net income per common share—diluted
$ 6.84   $ 3.00   $ 0.39  

5.     Fair Value Instruments
The following tables show the Company’s cash, cash equivalents and available-for-sale securities by significant investment category as of December 31, 2025 and 2024:

  December 31, 2025

(in thousands) Amortized Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Aggregate Fair
Value Cash and Cash
Equivalents Short-term
Marketable
Securities (1)
Long-term
Marketable
Securities (2)

Level 1:              
Cash and cash equivalents $ 496,304   $ —  $ —  $ 496,304   $ 496,304   $ —  $ — 
Subtotal 496,304   —  —  496,304   496,304   —  — 
Level 2:
Commercial paper 12,887   2   ( 1 ) 12,888   12,888   —  
Corporate bonds 211,268   535   ( 6 ) 211,797   142,801   68,996  
U.S government agency securities and treasuries 234,216   653   ( 1 ) 234,868   175,798   59,070  
Subtotal 458,371   1,190   ( 8 ) 459,553   —  331,487   128,066  
Total $ 954,675   $ 1,190   $ ( 8 ) $ 955,857   $ 496,304   $ 331,487   $ 128,066  

  December 31, 2024

(in thousands) Amortized Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Aggregate Fair
Value Cash and Cash
Equivalents Short-term
Marketable
Securities (1)
Long-term
Marketable
Securities (2)

Level 1:              
Cash and cash equivalents $ 344,865   $ —  $ —  $ 344,865   $ 344,865   $ —  $ — 
Subtotal 344,865   —  —  344,865   344,865   —  — 
Level 2:
Commercial paper 15,373   4   ( 8 ) 15,369   —  15,369   —  
Corporate bonds 177,771   423   ( 225 ) 177,969   —  86,693   91,276  
U.S government agency securities and treasuries 211,283   318   ( 173 ) 211,428   —  150,590   60,838  
Subtotal 404,427   745   ( 406 ) 404,766   —  252,652   152,114  
Total $ 749,292   $ 745   $ ( 406 ) $ 749,631   $ 344,865   $ 252,652   $ 152,114  

(1) The Company’s short-term marketable securities mature in one year or less.
(2) The Company’s long-term marketable securities mature between one year and two years .
See Note 2 to these consolidated financial statements for additional discussion regarding the Company’s fair value measurements.
F-16

Krystal Biotech, Inc.
Notes to Consolidated Financial Statements—Continued

6.     Balance Sheet Components
Inventory
Inventory consisted of the following:

December 31,
(in thousands) 2025 2024
Raw materials $ 15,938   $ 13,639  
Work-in-process 15,224   10,743  
Finished goods 9,313   2,126  
Inventory $ 40,475   $ 26,508  

Property and Equipment, Net
Property and equipment, net consisted of the following:

December 31,
(in thousands) 2025 2024
Building and building improvements 109,242   111,444  
Manufacturing equipment 29,279   27,161  
Leasehold improvements 27,227   25,673  
Construction in progress
8,108   5,778  
Laboratory equipment 3,490   3,183  
Computer equipment and software 2,559   2,032  
Furniture and fixtures
2,152   1,816  
Total property and equipment 182,057   177,087  
Accumulated depreciation ( 31,281 ) ( 21,919 )
Property and equipment, net $ 150,776   $ 155,168  

Depreciation expense was $ 5.7 million, $ 6.0 million and $ 5.0 million for the years ended December 31, 2025, 2024 and 2023, respectively. Depreciation expense capitalized into inventory was $ 4.1 million, $ 3.5 million and $ 1.1 million for the years ended December 31, 2025, 2024 and 2023, respectively.
Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities consisted of the following:

December 31,
(in thousands) 2025 2024
Accrued payroll and benefits 11,457   9,558  
Accrued taxes 10,919   4,288  
Accrued professional fees 5,936   2,659  
Accrued preclinical and clinical expenses 4,667   2,537  
Other current liabilities 3,579   2,403  
Accrued construction in progress 2,189   5,077  
Accrued inventory
1,005   1,217  
Accrued litigation settlement —   31,250  
Total $ 39,752   $ 58,989  

7.     Commitments and Contingencies
Agreements with Contract Manufacturing Organizations and Contract Research Organizations
The Company enters into various agreements in the normal course of business with Contract Manufacturing Organizations (“CMOs”), Contract Research Organizations (“CROs”) and other third parties for preclinical research studies, clinical trials and testing and manufacturing services. The agreements with CMOs primarily relate to the manufacturing of our sterile gel that is mixed with in-house produced vectors as part of the final drug product for VYJUVEK. Agreements with third
F-17

Krystal Biotech, Inc.
Notes to Consolidated Financial Statements—Continued

parties may also include research and development consulting activities, clinical-trial agreements, testing of our clinical-stage, pre-commercial and commercial stage products and/or storage, packaging and labeling. The Company is obligated to make milestone payments under certain of these contracts. The Company has incurred research and development expenses related to commitments under these agreements of $ 9.3 million, $ 7.1 million and $ 5.2 million for the years ended December 31, 2025, 2024 and 2023, respectively.
Legal Proceedings
In the ordinary course of business, the Company may be subject from time to time to various proceedings, lawsuits, disputes, or claims. In accordance with FASB ASC Topic 450, Contingencies (“ASC 450”), the Company accrues a liability for legal contingencies when it is probable that a liability has been incurred, and the amount of the loss can be reasonably estimated. If there is at least a reasonable possibility that a loss may be incurred, ASC 450 requires disclosure of a loss contingency. For the year ended December 31, 2025, no loss contingency exists.
In May 2020, PeriphaGen, Inc. (“PeriphaGen”) commenced litigation against the Company alleging breach of contract and misappropriation of trade secrets. In April 2022, the Company and PeriphaGen entered into a final settlement agreement. In exchange for an upfront payment of $ 25.0  million and four contingent milestone payments of $ 12.5  million each, PeriphaGen (i) released all claims in the litigation; (ii) transferred certain assets to the Company and (iii) granted the Company a license for dermatological applications.
During the year ended December 31, 2025, the Company paid $ 31.25  million, and together with the $ 43.75  million paid prior to 2025, has fully paid the $ 75.0  million of total consideration in connection with the settlement of the PeriphaGen litigation. The Company recorded litigation settlement expense for the contingent milestone payments of zero , $ 37.5  million and $ 12.5  million for the years ended December 31, 2025, 2024, and 2023, respectively, on the consolidated statements of operations and comprehensive income.
In the first quarter of 2025, the Company and certain of its employees received subpoenas from the U.S. Department of Justice requesting that the Company produce certain documents regarding its sponsored genetic testing program relating to VYJUVEK and commercial practices relating thereto. The Company is cooperating and providing information in response to the subpoenas. It is not possible to estimate the amount of any loss or range of possible loss that might result from this inquiry, and because the final outcome cannot be predicted with certainty, unfavorable or unexpected developments or outcomes could result in a material impact to the Company’s results of operations.
On September 18, 2025, a stockholder filed a derivative complaint in the Court of Chancery of the state of Delaware naming the Company’s directors as defendants and the Company as a nominal defendant. The complaint alleges claims for breach of fiduciary duty, unjust enrichment, and waste of corporate assets based on allegedly excessive non-employee director compensation in each of 2021 through 2024. The complaint seeks unspecified damages in favor of the Company, restitution of compensation and other benefits from the individual defendants, reforms and improvements to the Company’s corporate governance and internal procedures, and the award of costs and disbursements of the complaint, including reasonable attorneys’ fees. The parties have reached an agreement in principle on settlement terms but must still negotiate and execute a definitive settlement agreement, which will be filed with the Delaware Court of Chancery and is subject to court approval. If approved, the Company will adopt, implement, and maintain certain corporate governance reforms for a period of five ( 5 ) years. At this time, the Company cannot reasonably estimate the likelihood of an unfavorable outcome or estimate the potential loss, if any.

8.     Leases
Lease Agreements
The Company’s operating leases primarily consist of leased office, manufacturing and laboratory space. The Company has an operating lease for laboratory and office space in Pittsburgh, Pennsylvania that commenced in June 2016 (the “Wharton Lease”). The Wharton Lease currently consists of approximately 67,000 square feet of office, lab, manufacturing, and warehouse space, including our commercial scale CGMP-compliant manufacturing facility (“ANCORIS”) for a term ending on October 31, 2031.
In January 2021, in connection with the Company’s second commercial gene therapy manufacturing facility (“ASTRA”) in the Pittsburgh, Pennsylvania area, the Company entered into a ground lease with a term ending on January 31, 2071.
F-18

Krystal Biotech, Inc.
Notes to Consolidated Financial Statements—Continued

As of December 31, 2025, future minimum commitments under the Company’s operating leases were as follows:

(in thousands) December 31, 2025

2026 $ 1,864  
2027 1,919  
2028 1,954  
2029 1,990  
2030
2,016  
Thereafter 7,279  
Future minimum operating lease payments 17,021  
Less: Interest ( 7,682 )
Present value of lease liability $ 9,339  

As of December 31, 2025 and 2024, the Company's weighted-average remaining lease term for operating leases was 10.1 years and 12.2 years, respectively, and the Company’s weighted-average discount rate for operating leases was 9.7 % and 9.5 % as of December 31, 2025 and 2024, respectively.
The components of the Company's lease expense are as follows:

  Years Ended December 31,
(in thousands) 2025 2024 2023
Lease cost:
Operating lease expense $ 1,594   $ 1,215   $ 1,596  
Variable lease expense 226   210   203  
Total lease expense $ 1,820   $ 1,425   $ 1,799  

9.     Capitalization
ATM Program
The Company has an effective shelf registration statement on Form S-3 that expires on April 6, 2026. The Company has a $ 150  million at-the-market offering ("ATM") program under that shelf registration statement that has never been utilized. The Company does not currently intend to renew the ATM program after the shelf registration statement expires.
2023 Private Placement Offering
In May 2023, the Company sold an aggregate of 1,729,729 shares of our common stock in private placements to certain institutional investors at a price of $ 92.50 per share for aggregate net proceeds of $ 160.0  million.

10.     Stock-Based Compensation
In 2017, the Company adopted the 2017 IPO Stock Incentive Plan (“Plan”), which governs the issuance of equity awards to employees, certain non-employee consultants, and directors. Initially, the Company reserved 900  thousand shares for issuance under the Plan with an initial sublimit for incentive stock options of 900  thousand shares. On an annual basis, the amount of shares available for issuance under the Plan increases by an amount equal to four percent of the total outstanding shares of common stock as of the last day of the preceding calendar year. The sublimit of incentive stock options is not subject to the increase. The Company has historically granted stock options, restricted stock awards (“RSAs”), restricted stock units (“RSUs”) and performance-based restricted stock units (“PSUs”) to certain employees.
Shares remaining available for grant under the Plan were 2.0 million at December 31, 2025
Stock Options
Options granted to employees and non-employees vest ratably over a four-year period and stock options granted to directors of the company vest ratably over one-year or three-year periods. Stock options have a life of ten years .
F-19

Krystal Biotech, Inc.
Notes to Consolidated Financial Statements—Continued

The following table summarizes the Company’s stock option activity for the years ended December 31, 2025 and 2024:

Stock
Options
Outstanding Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Life
(in years)
Aggregate
Intrinsic
Value (1)
(in thousands)

Balance as of January 1, 2024
2,606,592   $ 66.39   7.9 $ 150,405  
Granted 348,642   $ 168.67  
Exercised ( 525,857 ) $ 61.62  
Cancelled or forfeited ( 380,314 ) $ 78.98  

Balance as of December 31, 2024
2,049,063   $ 82.69   7.3 $ 156,404  
Granted 395,903   $ 168.08  
Exercised ( 310,323 ) $ 73.02  
Cancelled or forfeited ( 104,226 ) $ 109.35  

Balance as of December 31, 2025
2,030,417   $ 99.45   6.8 $ 298,662  
Exercisable as of December 31, 2025
1,140,898   $ 73.28   5.8 $ 197,676  

(1) Aggregate intrinsic value represents the difference between the closing stock price of our common stock on December 31, 2025, 2024 and 2023, respectively, and the exercise price of outstanding in-the-money options on the respective date.
The total intrinsic value (the amount by which the fair market value exceeded the exercise price) of stock options exercised during the years ended December 31, 2025, 2024 and 2023 was $ 35.4  million, $ 54.8  million and $ 43.8  million, respectively.
The weighted-average grant-date fair value per share of options granted to employees, non-employees and directors during the years ended December 31, 2025, 2024 and 2023 was $ 110.50 , $ 114.31 and $ 63.38 , respectively.
There was $ 58.6  million of unrecognized stock-based compensation expense related to employees’, non-employees’ and directors’ options that is expected to be recognized over a weighted-average period of  2.7 years as of December 31, 2025.
The fair value of options granted was estimated at the date of grant using the Black-Scholes valuation model with the following weighted-average assumptions for the years ended December 31, 2025, 2024 and 2023:

Years Ended December 31,
2025 2024 2023
Expected stock price volatility 69   % 73   % 73   %
Expected term of the award (years) 6.2 6.1 6.0
Risk-free interest rate 4.06   % 4.21   % 3.96   %
Weighted-average exercise price
$ 168.08   $ 168.67   $ 92.14  

Dividend Yield —   % —   % —   %

F-20

Krystal Biotech, Inc.
Notes to Consolidated Financial Statements—Continued

Restricted Stock Awards
The following table summarizes the Company’s RSA activity for the years ended December 31, 2025 and 2024:

Number of Shares Weighted- Average
Grant Date
Fair Value

Non-vested RSAs as of January 1, 2024
44,400   $ 78.89  

Vested ( 14,523 ) $ 78.89  
Surrendered for taxes
( 7,677 ) $ 78.89  
Non-vested RSAs as of December 31, 2024
22,200   $ 78.89  

Vested ( 11,925 ) $ 78.89  
Surrendered for taxes ( 10,275 ) $ 78.89  
Non-vested RSAs as of December 31, 2025
—   $ —  

Restricted Stock Units
RSUs granted to employees vest ratably over a four-year period. The following table summarizes the Company’s RSU activity for the years ended December 31, 2025 and 2024:

Number of Shares Weighted- Average
Grant Date
Fair Value

Non-vested RSUs as of January 1, 2024
160,900   $ 81.91  
Granted 230,403   $ 160.15  

Vested
( 40,084 ) $ 81.93  
Forfeited
( 43,123 ) $ 119.02  
Non-vested RSUs as of December 31, 2024
308,096   $ 135.22  
Granted 139,256   $ 178.51  
Vested ( 84,524 ) $ 129.82  
Forfeited
( 31,254 ) $ 154.42  
Non-vested RSUs as of December 31, 2025
331,574   $ 152.97  

There was $ 37.7  million of unrecognized stock-based compensation expense related to employees’ RSU awards that is expected to be recognized over a weighted-average period of  2.6 years as of December 31, 2025.
Performance-Based Restricted Stock Units
PSUs granted to employees vest ratably over two years based upon continued service through the vesting date and the achievement of specific regulatory and commercial performance criteria as determined by the Compensation Committee of the Company’s Board of Directors. The performance criteria are to be completed by the end of the year in which the PSU awards were granted. Each PSU represents the right to receive one share of the Company's common stock upon vesting. The Company recognizes stock-based compensation expense for the fair value of the PSU awards relating to the portion of the awards that are probable of vesting over the service period.
The following table summarizes the Company’s PSU activity for the years ended December 31, 2025 and 2024:
F-21

Krystal Biotech, Inc.
Notes to Consolidated Financial Statements—Continued

Number of Shares Weighted- Average
Grant Date
Fair Value

Non-vested PSUs as of January 1, 2024
50,000   $ 81.91  
Granted 112,500   $ 159.47  
Forfeited
—   $ —  
Vested
( 25,000 ) $ 81.91  
Non-vested PSUs as of December 31, 2024
137,500   $ 145.37  
Granted —   $ —  
Forfeited
—   $ —  
Vested ( 81,250 ) $ 135.61  
Non-vested PSUs as of December 31, 2025
56,250   $ 159.47  

There was $ 1.4  million of unrecognized stock-based compensation expense related to employees’ PSU awards that is expected to be recognized over a weighted-average period of  two months as of December 31, 2025.
Stock-Based Compensation Expense, Net
The Company recorded stock-based compensation expense, net related to stock options, RSAs, RSUs and PSUs in the consolidated statements of operations and comprehensive income for the years ended December 31, 2025, 2024 and 2023 as follows:

Years Ended December 31,
(in thousands)
2025 2024 2023
Research and development $ 10,375   $ 9,237   $ 10,054  
Selling, general and administrative 44,139   39,890   29,879  
Total stock-based compensation $ 54,514   $ 49,127   $ 39,933  

After the FDA approval of VYJUVEK in May 2023, the Company began capitalizing stock-based compensation associated with the allocation of labor costs related to work performed to manufacture VYJUVEK. For the years ended December 31, 2025, 2024, and 2023 the Company capitalized $ 3.8 million, $ 3.3 million, and $ 1.1 million, respectively, into inventory.
Historically, the Company also capitalized the portion of stock-based compensation related to work performed on the construction of our manufacturing facilities. For the years ended December 31, 2025, 2024 and 2023, the Company capitalized zero , zero and $ 0.2 million, respectively, into property, plant and equipment .

11.     Income Taxes
Income before income tax benefit (expense) by jurisdiction consisted of the following: