KRYSTAL BIOTECH, INC. The following information should be read in conjunction with the consolidated financial statements and related notes thereto included in this Annual Report on Form 10-K. In addition to historical information, this report contains forward-looking statements that involve risks and uncertainties which may cause our actual results to differ materially from plans and results discussed in forward-looking statements. We encourage you to review the risks and uncertainties discussed in the sections entitled Item 1A. "Risk Factors" and "Forward-Looking Statements" included at the beginning of this Annual Report on Form 10-K. The risks and uncertainties can cause actual results to differ significantly from those forecast in forward-looking statements or implied in historical results and trends. We caution readers not to place undue reliance on any forward-looking statements made by us, which speak only as of the date they are made. We disclaim any obligation, except as specifically required by law and the rules of theSEC , to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based, or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements. This section of this Form 10-K generally discusses 2021 and 2020 items and year-to-year comparisons between 2021 and 2020 of the Company. Discussions of 2019 items and year-to-year comparisons between 2020 and 2019 that are not included in this Form 10-K can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Company's Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 .
Overview
We are a clinical stage biotechnology company leading the field of redosable gene delivery. Using our patented platform that is based on engineered HSV-1, we create vectors that efficiently deliver therapeutic transgenes to cells of interest in multiple organ systems. The cell's own machinery then transcribes and translates the encoded effector to treat or prevent disease. We formulate our vectors for non-invasive or minimally invasive routes of administration at a doctor's office or potentially in the patient's home by a healthcare professional. Our goal is to develop easy-to-use medicines to dramatically improve the lives of patients living with rare diseases and chronic conditions. Our innovative technology platform is supported by in-house, commercial scale cGMP manufacturing capabilities. Refer to Part I, Item 1 - Business for more information about our clinical development pipeline and research programs and the status of our product candidates.
Pipeline Highlights:
•Vyjuvek is a topical gel containing our novel vector designed to deliver two
copies of the COL7A1 transgene for the treatment of dystrophic epidermolysis
bullosa ("dystrophic EB"), a serious rare skin disease caused by missing or
mutated type VII collagen protein ("COL7"). Our randomized, double-blind,
placebo-controlled GEM-3 pivotal study was designed to evaluate topical Vyjuvek
as compared to placebo in dystrophic EB patients. On November 29, 2021 , we
announced positive topline results from the GEM-3 study. Details of the pivotal
study can be found at www.clinicaltrials.gov under NCT identifier NCT04491604.
We expect to file a BLA with the FDA in 1H22, and an MAA with the EMA in 2H22.
During 2Q21, we began enrolling patients into an open label extension ("OLE")
study, including patients who participated in the Phase 3 study, as well as new
participants who meet all enrollment criteria. Details of the OLE study can be
found at www.clinicaltrials.gov under NCT identifier NCT04917874. Nothing
included on this website shall be deemed incorporated by reference into this
Annual Report on Form 10-K.
•KB105 is a topical gel containing our novel vector designed to deliver two
copies of the TGM1 transgene for the treatment of TGM1-deficient autosomal
recessive congenital ichthyosis ("TGM1-ARCI"), a serious rare skin disorder
caused by missing or mutated TGM1 protein. A randomized, placebo-controlled
Phase 1/2 study is ongoing. On July 1, 2021 , we announced data from the fourth
patient dosed in the trial, showing repeat topical KB105 dosing continued to be
well tolerated with no adverse events or evidence of immune response. Details of
the Phase 1/2 study can be found at www.clinicaltrials.gov under NCT identifier
NCT04047732. Nothing included on this website shall be deemed incorporated by
reference into this Annual Report on Form 10-K.
•KB407 is an inhaled (nebulized) formulation of our novel vector designed to
deliver two copies of the full-length CFTR transgene for the treatment of cystic
fibrosis, a serious rare lung disease caused by missing or mutated cystic
fibrosis transmembrane conductance regulator ("CFTR") protein. On September 29,
2021 , we announced that the Bellberry Human Research Ethics Committee in
Australia granted approval to conduct a Phase 1 clinical study of inhaled KB407
in patients with cystic fibrosis, and trial initiation is anticipated in 1H22.
More detailed data from the Good Laboratory Practice "GLP" toxicology and
biodistribution study was presented at the virtual 2021 North American Cystic
Fibrosis Conference that took place November 2-5, 2021 . We plan to submit an IND
and initiate a Phase 1 trial in the U.S. in 2H22.
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•KB104 is a topical gel formulation of our novel vector designed to deliver two
copies of the SPINK5 transgene for the treatment of Netherton Syndrome, a
debilitating autosomal recessive skin disorder caused by missing or mutated
SPINK5 protein. We expect to initiate a Phase 1 clinical study in 2022.
•KB408 is an inhaled (nebulized) formulation of our novel vector designed to
deliver two copies of the SERPINA1 transgene, that encodes for normal human
alpha-1 antitrypsin protein, for the treatment of alpha-1 antitrypsin
deficiency. We presented preclinical pharmacology data for KB408 at the European
Society of Gene & Cell Therapy Virtual Congress that was held October 19-22,
2021 .
We have several other product candidates in various stages of preclinical development.
We are also leveraging the ability of our platform to deliver proteins of
interest to cells in the skin in the context of aesthetic medicine via our
wholly-owned subsidiary
•KB301 is a solution formulation of our novel vector for intradermal injection designed to deliver two copies of the COL3A1 transgene to address signs of aging or damaged skin caused by declining levels of, or damaged proteins within the extracellular matrix, including type III collagen. A Phase 1 study is currently ongoing. We anticipate announcing top line data from the efficacy cohort in 1Q 2022. Details of the Phase 1 study can be found at www.clinicaltrials.gov under NCT identifier NCT04540900. Nothing included on this website shall be deemed incorporated by reference into this Annual Report on Form 10-K.
Jeune has several other aesthetic medicine product candidates in various stages of preclinical development.
Business Highlights: •OnJanuary 29, 2021 , the Company entered into a Purchase and Sale Agreement for ASTRA with Northfield related to the purchase option exercised by the Company onOctober 15, 2020 for a purchase price of$9.4 million . The transaction closed onMarch 5, 2021 . •OnFebruary 1, 2021 , the Company completed a public offering of 2,211,538 shares of its common stock, at$65.00 per share. Net proceeds to the Company from the offering were$134.9 million after deducting underwriting discounts.
•On
•On
•OnJune 30, 2021 , the Company entered into a Standard Form of Contract for Construction and the corresponding General Conditions of the Contract for Construction with Whiting-Turner, pursuant to which Whiting-Turner is constructing and managing the construction of ASTRA located in thePittsburgh, Pennsylvania area. The ASTRA facility is under construction and expected to be completed and validated in 2022.
•On
•OnOctober 12, 2021 , we announced a collaboration withGeneDx, Inc. , a wholly-owned subsidiary ofBioReference Laboratories, Inc. , an OPKO Health company, to offer no-charge genetic testing for all types of Epidermolysis Bullosa (EB). The goal of the program, called Krystal Decode DEBTM, is to help patients with the dystrophic form of this genetic condition, also known as dystrophic EB, get a definitive diagnosis sooner, with highly accurate results obtained with a blood or cheek swab sample. •OnDecember 3, 2021 , the Company completed a public offering of 2,866,667 shares of its common stock, which includes 200,000 shares purchased by the underwriters, at$75.00 per share. Net proceeds to the Company from the offering were$201.9 million after deducting underwriting discounts and commissions and other offering expenses payable by the Company. •OnJanuary 18, 2022 , we announced thatJing Marantz , MD, PhD, MBA had resigned from the Board of Directors to accept the position as Chief Business Officer with the Company andE. Rand Sutherland was appointed as a member of the Board of Directors to fill the vacancy.
COVID-19
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The COVID-19 pandemic has prompted governments and businesses to take
unprecedented measures, such as restrictions on travel and business operations,
temporary closures of businesses, and quarantines. In an effort to slow the
spread of the virus, The Commonwealth of Pennsylvania where the Company's
primary offices, laboratory and manufacturing spaces are located, enacted
stay-at-home orders, and sweeping restrictions to travel were initiated by
corporations and governments. Although these restrictions have been lifted, it
is not known at this time whether they will be reestablished or the extent to
which the Company will be impacted. The degree of the pandemic's effect on the
Company's clinical, operational and financial performance will depend on future
developments, including additional protective measures that may be implemented
by governmental authorities or the Company to protect its employees, or by
investigators, caregivers or patients to minimize exposure, all of which are
uncertain and difficult to predict. To date the impact of the pandemic on our
business and clinical trials in the U.S. has been minimal and the increased
vaccination rates in the U.S. are encouraging. We will continue to assess the
potential impact of the pandemic on our business and operations, including our
supply chain and preclinical and clinical trial activities. Outside of the U.S. ,
we have experienced pandemic-related delays in clinical trial initiation in
Australia , and we will continue to closely monitor this rapidly evolving
situation. For additional information regarding the impact of the coronavirus
pandemic, please see "Risk Factor - Business interruptions resulting from the
pandemic or similar public health crises could cause a disruption of the
development efforts of our product candidates and adversely impact our
business."
Financial Overview
Revenue
We currently have no approved products for commercial marketing or sale and have
not generated any revenue from the sale of products or other sources to date. In
the future, we may generate revenue from product sales, royalties on product
sales, or license fees, milestones, or other upfront payments if we enter into
any collaborations or license agreements. We expect that our future revenue will
fluctuate from quarter to quarter for many reasons, including the uncertain
timing and amount of any such payments and sales.
Research and Development Expenses
Research and development expenses consist primarily of costs incurred to advance our preclinical and clinical candidates, which include:
•expenses incurred under agreements with contract manufacturing organizations, consultants and other vendors that conduct our preclinical activities;
•costs of acquiring, developing and manufacturing clinical trial materials and lab supplies;
•facility costs, depreciation and other expenses, which include direct expenses for rent and maintenance of facilities and other supplies; and
•payroll related expenses, including stock-based compensation expense.
We expense internal research and development costs to operations as incurred. We expense third party costs for research and development activities, such as the manufacturing of preclinical and clinical materials, based on an evaluation of the progress to completion of specific tasks such as manufacturing of drug substance, fill/finish and stability testing, which is provided to us by our vendors. We expect our research and development expenses will increase as we continue the manufacturing of preclinical and clinical materials and manage the clinical trials of, and seek regulatory approval for, our product candidates and expand our product portfolio. In the near term, we expect that our research and development expenses will increase as we continue our OLE study for Vyjuvek, our Phase 1/2 clinical trial for KB105, our Phase 1 safety and efficacy study for KB301, and incur preclinical expenses for our other product candidates. Due to the numerous risks and uncertainties associated with product development, we cannot determine with certainty the duration, costs and timing of clinical trials, and, as a result, the actual costs to complete clinical trials may exceed the expected costs.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and other
related costs, including stock-based compensation, for personnel in our
executive, commercial, business development and other administrative functions.
General and administrative expenses also include legal fees relating to
intellectual property and corporate matters, professional fees for accounting,
auditing, tax and consulting services, insurance costs, travel, facility related
expenses and other operating costs.
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We anticipate that our general and administrative expenses will increase in the
future to support the continued research and development of our product
candidates and to operate as a public company. These increases will likely
include increased costs for insurance, costs related to the hiring of additional
personnel and payments to outside consultants, lawyers and accountants, among
other expenses. Additionally, we anticipate that we will increase our salary and
personnel costs and other expenses as a result of our preparation for commercial
operations.
ASTRA Capital Expenditures
On March 5, 2021 , we closed on the purchase of the building that was constructed
to house our second cGMP facility, ASTRA. We are currently in the process of
constructing the interior build-out of this facility and we have entered into a
contract with Whiting-Turner who will manage the construction of ASTRA. Further,
we have entered into various non-cancellable purchase agreements for long-lead
materials to help avoid potential schedule disruptions or material shortages.
These contracts typically call for the payment of fees for services or materials
upon the achievement of certain milestones. We expect to continue to incur
significant capital expenditures related to ASTRA as we construct and validate
this facility, which is expected to be completed in 2022.
Interest Income
Interest income consists primarily of income earned from our cash, cash equivalents and investments.
Interest Expense
Interest expense consists primarily of non-cash interest expense recognized to accrete the build to suit financial obligation to a balance that equaled the cash consideration that was paid upon the close of the purchase of ASTRA.
Critical Accounting Policies and Significant Judgments and Estimates
Our management's discussion and analysis of our financial position and results of operations is based on our financial statements, which have been prepared in accordance withU.S. generally accepted accounting principles, or GAAP. The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, we evaluate estimates which include, but are not limited to, estimates related to clinical trial and contract manufacturing prepayments and accruals, stock-based compensation expense, construction-in-progress, and reported amounts of related expenses during the period. We base our estimates on historical experience and other market-specific or other relevant assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from those estimates or assumptions. While our significant accounting policies are described in more detail in the notes to our financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe the following accounting policies to be most critical to the judgments and estimates used in the preparation of our financial statements.
As part of the process of preparing our financial statements, we are required to
estimate our accrued research and development expenses, prepaid assets and other
current liabilities. This process involves reviewing open contracts and
commitments, communicating with our personnel to identify services that have
been performed for us and estimating the level of service performed and the
associated cost incurred for the service when we have not yet been invoiced or
otherwise notified of the actual cost. The majority of our service providers
invoice us monthly in arrears for services performed or when contractual
milestones are met. We make estimates of our accrued research and development
expenses, current assets and other current liabilities as of each balance sheet
date in our financial statements based on facts and circumstances known to us at
that time. Examples of estimated accrued research and development expenses,
prepaid assets and other current liabilities include fees paid to contract
manufacturers made in connection with the manufacturing of preclinical and
clinical trials materials.
We base our expenses related to clinical manufacturing on our estimates of the
services performed pursuant to contracts with the entities producing clinical
materials on our behalf. The financial terms of these agreements are subject to
negotiation, vary from contract to contract and may result in uneven payment
flows. Payments under these types of contracts depend heavily upon the
successful completion of many separate tasks involved in the manufacturing of
drug product. In accruing service fees, we estimate the time period over which
services will be performed, and the actual services performed in each period. If
our estimates of the status and timing of services performed differs from the
actual status and timing of services performed we may report amounts that are
too high or too low in any particular period. To date, there have been no
material differences from our estimates to the amount actually incurred.
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--------------------------------------------------------------------------------Stock-Based Compensation
We have applied the fair value recognition provisions of Financial Accounting
Standards Board Accounting Standards Codification, or ASC, Topic
718, Compensation-Stock Compensation ("ASC 718"), to account for stock-based
compensation. We recognize compensation costs related to stock options granted
based on the estimated fair value of the awards on the date of grant. Described
below is the methodology we have utilized in measuring stock-based compensation
expense.
ASC 718 requires all stock-based payments, including grants of stock options and restricted stock, to be recognized in the statements of operations based on their grant-date fair values. Compensation expense is recognized on a straight-line basis based on the grant-date fair value over the associated service period of the award, which is generally the vesting term.
Determining the amount of stock-based compensation to be recorded requires us to develop estimates of the fair value of stock-based awards as of their measurement date. We recognize stock-based compensation expense over the requisite service period, which is the vesting period of the award. Calculating the fair value of stock-based awards requires that we make highly subjective assumptions. We use the Black-Scholes option pricing model to value our stock option awards. Use of this valuation methodology requires that we make assumptions as to the volatility of our common stock, the risk-free interest rate for a period that approximates the expected term of our stock options and our expected dividend yield. Once the Company's own sufficient historical volatility data was obtained, the Company eliminated the use of a representative peer group and as of Q4 2021 the Company uses only its own historical volatility data in its estimate of expected volatility given that there is now sufficient amount of historical information regarding the volatility of its own stock price. We use the simplified method to calculate the expected term as prescribed by theSEC Staff Accounting Bulletin No. 107, Share-Based Payment as we do not have sufficient historical stock option activity data to provide a reasonable basis upon which to estimate the expected term of stock options granted to employees. We utilize a dividend yield of zero based on the fact that we have never paid cash dividends and have no current intention of paying cash dividends. The risk-free interest rate used for each grant is based on theU.S. Treasury yield curve in effect at the time of grant for instruments with a similar expected life.
Leases
We account for our lease agreements in accordance with FASB ASC Topic 842,
Leases ("ASC 842"). As the Company's lease agreements do not provide an implicit
rate and as the Company does not have external borrowings, we use an estimated
incremental borrowing rate based on the information available at lease
commencement in determining the present value of lease payments. The incremental
borrowing rate is the rate of interest that the Company would expect to borrow
on a collateralized and fully amortizing basis over a similar term an amount
equal to the lease payments in a similar economic environment.
For lease arrangements where it has been determined that the Company has control
over an asset that is under construction and is thus considered the accounting
owner of the asset during the construction period, the Company records a
construction-in-progress asset ("CIP") and corresponding financial obligation on
the consolidated balance sheet. Once the construction is complete, an assessment
will be performed to determine whether the lease meets certain "sale-leaseback"
criteria. If the sale-leaseback criteria are determined to be met, the Company
will remove the asset and related financial obligation from the balance sheet
and treat the building lease as either an operating or finance lease based on
our assessment of the guidance. If, upon completion of construction, the project
does not meet the "sale-leaseback" criteria, the lease will be treated as a
financing obligation and the Company will depreciate the asset over its
estimated useful life for financial reporting purposes.
Results of Operations
Years Ended
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Years Ended December 31, Change
2021 vs. 2020 vs.
(in thousands) 2021 2020 2019 2020 2019
Expenses
Research and development $ 27,884 $ 17,936 $ 15,616 $ 9,948 $ 2,320
General and administrative 40,391 15,063 6,465 25,328 8,598
Total operating expenses 68,275 32,999 22,081 35,276 10,918
Loss from operations (68,275) (32,999) (22,081) (35,276) (10,918)
Other Expense
Interest and other income, net 197 832 2,993 (635) (2,161)
Interest expense (1,492) - - (1,492) -
Total interest and other income, net (1,295) 832 2,993 (2,127) (2,161)
Net loss $ (69,570) $ (32,167) $ (19,088) $ (37,403) $ (13,079) Research and Development Expenses
Research and development expenses increased$9.9 million for the year endedDecember 31, 2021 compared to the year endedDecember 31, 2020 . Higher research and development expenses were due to increases in preclinical, clinical and pre-commercial manufacturing activities of$3.3 million , payroll related expenses of approximately$3.1 million which is primarily driven by an increase in personnel to support overall growth and includes a$2.4 million increase in stock-based compensation, an increase in outsourced research and development activities of$2.0 million , travel related expenses associated with our clinical trial sites of$187 thousand , and other research and development expenses of$1.3 million , primarily due to depreciation and rent. Research and development expenses increased$2.3 million for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 . Higher research and development expenses were due to increases in lab supplies of$142 thousand , payroll related expenses of approximately$2.0 million which is primarily driven by an increase in personnel to support overall growth and includes a$417 thousand increase in stock-based compensation, and other research and development expenses of$757 thousand , with a decrease in outsourcing research and development activities of$560 thousand .
General and Administrative Expenses
General and administrative expenses increased$25.3 million for the year endedDecember 31, 2021 compared to the year endedDecember 31, 2020 . Higher general and administrative spending was due largely to increased payroll related expenses of approximately$14.7 million which is primarily driven by an increase in personnel to support overall growth and includes an approximate$9.6 million increase in stock-based compensation, commercial preparedness expenses of approximately$3.8 million , legal and professional fees of approximately$3.7 million which is net of$2.1 million of insurance proceeds, software related costs of$1.0 million , medical affairs costs of$508 thousand , insurance costs of$427 thousand and other administrative expenses of 1.2 million. General and administrative expenses increased$8.6 million for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 . Higher general and administrative spending was due largely to increased payroll related expenses of approximately$4.0 million which is primarily driven by an increase in headcount to support overall growth and includes an approximate$1.6 million increase in stock-based compensation, market research related expenses of approximately$2.0 million , legal and professional fees of approximately$1.6 million , insurance expense of$693 thousand and other administrative expenses of$295 thousand .
Other Income (Expense)
Interest and other income for the year endedDecember 31, 2021 and 2020 was$197 thousand and$832 thousand , respectively, and consisted of interest and dividend income earned from our cash, cash equivalents and investments. This decrease was driven by a decline in market interest rates. Interest expense for the year endedDecember 31, 2021 and 2020 was$1.5 million and zero, respectively, and related to accretion of the financial obligation for the build to suit lease liability during the year endedDecember 31, 2021 to a balance that equaled the purchase consideration for ASTRA. 61 -------------------------------------------------------------------------------- Interest and other income for the year endedDecember 31, 2020 and 2019 was$832 thousand and$3.0 million , respectively, and consisted of interest and dividend income earned from our cash, cash equivalents and investments. This decrease was driven by a decline in market rates.
Liquidity and Capital Resources
Overview
AtDecember 31, 2021 , our cash, cash equivalents and short-term investments balance was approximately$438.1 million . Since operations began, we have incurred operating losses. Our net losses were$69.6 million and$32.2 million for the years endedDecember 31, 2021 and 2020, respectively. AtDecember 31, 2021 , we had an accumulated deficit of$140.8 million . With the net proceeds raised from its public and private securities offerings, including the public offerings of its common stock completed in February and December of 2021, the Company believes that its cash, cash equivalents and short-term investments will be sufficient to allow us to fund our operations for at least 12 months from the filing date of this Form 10-K. As the Company continues to incur losses, a transition to profitability is dependent upon the successful development, approval and commercialization of our product candidates and the achievement of a level of revenues adequate to support the Company's cost structure. The Company may never achieve profitability, and unless and until it does, the Company will continue to need to raise additional capital. Costs related to clinical trials can be unpredictable and therefore there can be no guarantee that we will have sufficient capital to fund our continued clinical studies of Vyjuvek, KB105, KB301 or our planned preclinical studies for our other product candidates, or our operations. Further, we do not expect to generate any product revenues until 2022, at the earliest, assuming we receive marketing approval for Vyjuvek on the schedule we currently contemplate. While we are in the process of building out our internal vector manufacturing capacity, some of our manufacturing activities will be contracted out to third parties. Additionally, we currently utilize third-party contract research organizations to carry out our clinical development activities. As we seek to obtain regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses as we prepare for product sales, marketing, manufacturing, and distribution. Our funds may not be sufficient to enable us to conduct pivotal clinical trials for, seek marketing approval for or commercially launch Vyjuvek, KB105, KB301 or any other product candidate. Accordingly, to obtain marketing approval for and to commercialize this or any other product candidates, we may be required to obtain further funding through public or private equity offerings, debt financings, collaboration and licensing arrangements or other sources. Adequate additional financing may not be available to us on acceptable terms, if at all. Our failure to raise capital when needed could have a negative effect on our financial condition and our ability to pursue our business strategy.
Operating Capital Requirements
Our primary uses of capital are, and we expect will continue to be for the near future, compensation and related expenses, manufacturing costs for preclinical and clinical materials, third party clinical trial research and development services, laboratory and related supplies, clinical costs, legal and other regulatory expenses and general overhead costs. In order to complete the process of obtaining regulatory approval for any of our product candidates and to build the sales, manufacturing, marketing and distribution infrastructure that we believe will be necessary to commercialize our product candidates, if approved, we may require substantial additional funding. We have based our projections of operating capital requirements on assumptions that may prove to be incorrect and we may use all of our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, we are unable to estimate the exact amount of our operating capital requirements. Our future funding requirements will depend on many factors, including, but not limited to:
•the timeline and costs of our OLE study for Vyjuvek;
•the progress, timing and costs of our ongoing Phase 1/2 clinical trials for KB105;
•the progress, results and costs of our Phase 1 clinical trials for KB301;
•the progress, timing, and costs of manufacturing of Vyjuvek;
•the continued development and the filing on an IND application for future product candidates;
•the initiation, scope, progress, timing, costs and results of drug discovery, laboratory testing, manufacturing, preclinical studies and clinical trials for any other product candidates that we may pursue in the future, if any;
•the costs of maintaining our own commercial-scale cGMP manufacturing facilities;
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--------------------------------------------------------------------------------•the outcome, timing and costs of seeking regulatory approvals;
•the costs associated with the manufacturing process development and evaluation of third-party manufacturers;
•the costs of future activities, including product sales, medical affairs, marketing, manufacturing and distribution, in the event we receive marketing approval for our current and future product candidates;
•the extent to which the costs of our product candidates, if approved, will be paid by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or will be reimbursed by government authorities, private health coverage insurers and other third-party payors;
•the costs of commercialization activities for our current and future product candidates if we receive marketing approval for such product candidates we may develop, including the costs and timing of establishing product sales, medical affairs, marketing, distribution and manufacturing capabilities;
•subject to receipt of marketing approval, if any, revenue received from commercial sale of our current and future product candidates;
•the terms and timing of any future collaborations, licensing, consulting or other arrangements that we may establish;
•the amount and timing of any payments we may be required to make, or that we may receive, in connection with the licensing, filing, prosecution, maintenance, defense and enforcement of any patents or other intellectual property rights, including milestone and royalty payments and patent prosecution fees that we are obligated to pay pursuant to our license agreements;
•our current license agreements remaining in effect and our achievement of milestones under those agreements;
•our ability to establish and maintain collaborations and licenses on favorable terms, if at all; and
•the extent to which we acquire or in-license other product candidates and technologies.
We expect that we will need to obtain substantial additional funding in order to receive regulatory approval and to commercialize our product candidates. To the extent that we raise additional capital through the sale of common stock, convertible securities or other equity securities, the ownership interests of our existing stockholders may be materially diluted and the terms of these securities could include liquidation or other preferences that could adversely affect the rights of our existing stockholders. In addition, debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, that could adversely affect our ability to conduct our business. If we are unable to raise capital when needed or on attractive terms, we could be forced to significantly delay, scale back or discontinue the development or commercialization of our product candidates, seek collaborators at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available, and relinquish or license, potentially on unfavorable terms, our rights to our product candidates that we otherwise would seek to develop or commercialize ourselves.
Contractual Obligations
Operating Leases
Operating lease payments represent the Company's commitments for future minimum rent made under non-cancelable leases for our corporate headquarters inPittsburgh, PA , office location inBoston, Massachusetts , and for the ground lease associated with our second cGMP manufacturing facility, ASTRA. The total future payments for our operating lease obligations atDecember 31, 2021 are$18.2 million , of which$1.4 million is due in the next twelve months and the remaining payments are due over the terms of the respective leases. For additional details regarding our leases, see Note 6 to our consolidated financial statements included in this Annual Report on Form 10-K.
Clinical Supply and Product Manufacturing Agreements
The Company enters into various agreements in the normal course of business with
Contract Research Organizations ("CROs"), Contract Manufacturing Organizations
("CMOs") and other third parties for preclinical research studies, clinical
trials and testing and manufacturing services. The Company is obligated to make
milestone payments under certain of these agreements. The estimated remaining
commitment as of December 31, 2021 under these agreements is approximately $3.0
million , all of which is expected to be due in the next twelve months.
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The Company has contracted with various third parties to facilitate, coordinate and perform agreed upon commercial preparedness and market research activities relating to our lead product candidate, Vyjuvek. These contracts typically call for the payment of fees for services upon the achievement of certain milestones. The estimated remaining commitment as ofDecember 31, 2021 is$2.4 million , all of which is expected to be due in the next twelve months.
ASTRA Contractual Obligations
The Company has contracted with various third parties to construct our second cGMP facility, ASTRA. Additionally, we have entered into various non-cancellable purchase agreements for long-lead materials to help avoid potential schedule disruptions or material shortages. These contracts typically call for the payment of fees for services or materials upon the achievement of certain milestones. The estimated remaining commitment as ofDecember 31, 2021 is$24.7 million , all of which is expected to be due in the next twelve months.
Cash Flows
The following table summarizes our sources and uses of cash (in thousands):
Years Ended December 31,
2021 2020
Net cash used in operating activities$ (47,938) $
(26,083)
Net cash used in investing activities (226,770)
(11,181)
Net cash provided by financing activities 347,685 118,019 Net increase in cash$ 72,977 $ 80,755 Operating Activities Net cash used in operating activities for the yearDecember 31, 2021 was$47.9 million and consisted primarily of a net loss of$69.6 million adjusted for non-cash items of$18.1 million made up of depreciation and amortization of$2.8 million and stock-based compensation expense of$15.3 million , build to suit interest expense of$1.5 million , and cash used by decreases in net operating liabilities of approximately$2.1 million . Net cash used in operating activities for the year endedDecember 31, 2020 was$26.1 million and consisted primarily of a net loss of$32.2 million adjusted for non-cash items of$5.2 million primarily made up of depreciation and amortization of$1.9 million and stock-based compensation expense of$3.3 million , and cash used by decreases in net operating liabilities of approximately$928 thousand .
Investing Activities
Net cash used in investing activities for the year endedDecember 31, 2021 was approximately$226.8 million and consisted primarily of purchases of$190.5 million of available-for-sale investment securities, and expenditures of$68.3 million on the build-out of our ASTRA facility, leasehold improvement of new office space, and purchases of computer and laboratory equipment, partially offset by proceeds of$32.0 million from maturities of investments. Net cash used in investing activities for the year endedDecember 31, 2020 was$11.2 million and consisted primarily of purchases of$3.2 million of short-term available-for-sale investment securities, and expenditures of$14.8 million on the build-out of our ASTRA facility, leasehold improvement of new office space, and purchases of computer and laboratory equipment, partially offset by proceeds of$6.9 million from maturities of short-term investments.
Financing Activities
Net cash provided by financing activities for the year endedDecember 31, 2021 was$347.7 million and was primarily from proceeds from follow-on public offerings of 2,211,538 shares of its common stock, including 288,461 shares purchased by the underwriters, at$65.00 per share and 2,866,667 shares of its common stock, including 200,000 shares purchased by the underwriters, at$75.00 per share. Net proceeds to the Company from the offerings were$336.8 million after deducting underwriting discounts and commissions of approximately$21.5 million , and other offering expenses payable by the Company of$425 thousand . Net cash provided by financing activities for the year endedDecember 31, 2020 was$118.0 million and was primarily from proceeds from our public offering onMay 21, 2020 of 2,275,000 shares of our common stock to the public at$55 per 64 -------------------------------------------------------------------------------- share. Net proceeds to the Company from the offering were$117.2 million after deducting underwriting and commissions of approximately$7.5 million and other offering expenses of approximately$463 thousand .
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements as defined in Item
303(a)(4)(ii) of Regulation S-K promulgated by the
Recent Accounting Pronouncements
InOctober 2020 , the FASB issued ASU 2020-08, Codification Improvements to Subtopic 310-20, Receivables - Nonrefundable Fees and Other Costs ("ASU 2020-08") to provide further clarification and update the previously issued guidance in ASU 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20: Premium Amortization onPurchased Callable Debt Securities ) ("ASU 2017-08"). ASU 2017-08 shortened the amortization period for certain callable debt securities purchased at a premium by requiring that the premium be amortized to the earliest call date. ASU 2020-08 requires that at each reporting period, to the extent that the amortized cost of an individual callable debt security exceeds the amount repayable by the issuer at the next call date, the excess premium shall be amortized to the next call date. The new standard was effective beginningJanuary 1, 2021 and should be applied on a prospective basis as of the beginning of the period of adoption for existing or newly purchased callable debt securities. The adoption of ASU 2020-08 did not have a material impact on the Company's financial position or results of operations upon adoption. 65
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