KRYSTAL BIOTECH, INC. – 10-Q – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of
operations should be read together with the unaudited condensed consolidated
financial statements and related notes included in Item 1 of Part I of this
Quarterly Report on Form 10-Q and with the audited financial statements and the
related notes included in our Annual Report on Form 10-K for the fiscal year
ended December 31, 2020, as filed with the SEC, on March 1, 2021.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, or the
Securities Act, and Section 21E of the Securities Exchange Act of 1934, as
amended, or the Exchange Act. Forward-looking statements include all statements
that are not historical facts and can be identified by terms such as
"anticipate," "believe," "continue," "could," "estimate," "expect," "intend,"
"may," "plan," "potential," "predict," "project," "seek," "should," "target,"
"will," "would," or similar expressions and the negatives of those terms. These
statements relate to future events or to our future operating or financial
performance and involve known and unknown risks, uncertainties and other factors
that may cause our actual results, performance or achievements to be materially
different from any future results, performances or achievements expressed or
implied by the forward-looking statements. Some of such factors include, but are
not limited to:
•changes in expectations with respect to the initiation, timing, progress and
results of preclinical and clinical trials for B-VEC, KB105, KB104, KB407,
KB408, KB301, KB303 and any other product candidates, including the timing of
initiation and completion of studies or trials and related preparatory work, the
period during which the results of the trials will become available and our
research and development programs and expenses;
•the continuing impact that the COVID-19 pandemic and measures implemented to
prevent its spread may have on our business operations, access to capital,
research and development activities, and preclinical and clinical trials for our
product candidates;
•the timing, scope or results of regulatory filings and approvals, including
timing of final US Food and Drug Administration ("FDA"), marketing and other
regulatory approval of our product candidates;
•our ability to achieve certain accelerated or orphan drug designations from the
FDA;
•changes in our estimates regarding the potential market opportunity for B-VEC,
KB105, KB104, KB407, KB408, KB301, KB303 and any other product candidates;
•our ability to raise capital to fund our operations;
•increased costs associated with our research and development programs for our
product candidates;
•our general and administrative expenses;
•risks related to our ability to successfully develop and commercialize our
product candidates, including B-VEC, KB105, KB104, KB407, KB408, KB301, KB303
and our other product candidates;
•our ability to identify and develop new product candidates;
•our ability to identify, recruit and retain key personnel;
•risks related to our commercialization, marketing and manufacturing
capabilities and strategy;
•our ability of our business model, strategic plans for our business, product
candidates and technology;
•the scalability and commercial viability of our proprietary manufacturing
methods and processes;
•the rate and degree of market acceptance and clinical utility of our product
candidates and gene therapy, in general;
•our competitive position;
•our intellectual property position and our ability to protect and enforce our
intellectual property;
•our financial performance;
•developments and projections relating to our competitors and our industry;
•our ability to establish and maintain collaborations or obtain additional
funding;
•our estimates regarding expenses, future revenue, capital requirements and
needs for or ability to obtain additional financing;
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•risks related to our ongoing litigation;
•our ability to successfully resolve any intellectual property or other claims
that have been brought against us to date and may be brought against us in the
future;
•global economic conditions; and
•the impact of changes in laws and regulations.
Forward-looking statements are subject to a number of risks, uncertainties and
assumptions, including those described in "Risk Factors" elsewhere in this Form
10-Q and in other filings we make with the SEC from time to time. Moreover, we
operate in a very competitive and rapidly changing environment, and new risks
emerge from time to time. It is not possible for our management to predict all
risks, nor can we assess the impact of all factors on our business or the extent
to which any factor, or combination of factors, may cause actual results to
differ materially from those contained in any forward-looking statements we may
make. In light of these risks, uncertainties and assumptions, the
forward-looking events and circumstances discussed in this Quarterly Report on
Form 10-Q may not occur and actual results could differ materially and adversely
from those anticipated or implied in the forward-looking statements. Given these
uncertainties, you should not place undue reliance on these forward-looking
statements. Also, forward-looking statements represent our management's beliefs
and assumptions only as of the date of this Quarterly Report. You should read
this Quarterly Report completely and with the understanding that our actual
future results may be materially different from what we expect.
Except as required by law, we assume no obligation to update these
forward-looking statements publicly, or to update the reasons actual results
could differ materially from those anticipated in these forward-looking
statements, even if new information becomes available in the future.
Throughout this Form 10-Q, unless the context requires otherwise, all references
to "Krystal," "the Company," we," "our," "us" or similar terms refer to Krystal
Biotech, Inc., together with its consolidated subsidiaries.
Overview
We are a clinical stage biotechnology company leading the field of redosable
gene delivery for the treatment of serious rare diseases. Using our patented
platform that is based on engineered HSV-1, we create vectors that efficiently
deliver therapeutic transgenes to cells of interest in multiple organ systems.
The cell's own machinery then transcribes and translates the encoded effector to
treat or prevent disease. We formulate our vectors for non-invasive or minimally
invasive routes of administration at a 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. Our innovative technology platform is supported by in-house,
commercial scale cGMP manufacturing capabilities.

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Our Product Candidates
The following table summarizes information regarding our product candidates in
various stages of clinical and preclinical
development:[[Image Removed: krys-20210930_g1.jpg]]

There can be no assurance that the upcoming milestones will be met on the
expected timeline or at all.

Pipeline Highlights and Recent Developments
• B-VEC is a topical gel containing our novel vector designed to deliver two
copies of the COL7A1 transgene for the treatment of dystrophic epidermolysis
bullosa ("DEB"), a serious rare skin disease caused by missing or mutated type
VII collagen protein ("COL7"). The randomized, double-blind, placebo-controlled
GEM-3 pivotal study was designed to evaluate topical B-VEC as compared to
placebo in DEB patients. On October 25, 2021,

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we announced completion of the GEM-3 study, and we expect to announce top line
data in 4Q21. Details of the pivotal study can be found at
www.clinicaltrails.gov under NCT identifier NCT04491604. 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.clinicaltrails.gov under NCT identifier NCT04917874. Nothing included on
this website shall be deemed incorporated by reference into this Quarterly
Report on Form 10-Q. On September 9, 2021, we announced that the U.S. FDA
approved a compassionate use request from a physician for the use of topical
(eye drop) B-VEC in the system of a single DEB patient after undergoing surgical
removal of the scarred layer of the cornea.
•  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 Quarterly Report on Form 10-Q.
•  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 4Q21.
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.
•  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.
•  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.
We are also leveraging the ability of our platform to deliver proteins of
interest to cells in the skin in the context of aesthetic medicine via our
wholly owned subsidiary Jeune Aesthetics, Inc. ("Jeune"). A summary description
of Jeune's key product candidate and its status is as follows:
•  KB301 is a solution formulation of our novel vector for intradermal injection
designed to deliver two copies of the COL3A1 transgene to address signs of aging
or damaged skin caused by declining levels of, or damaged proteins within the
extracellular matrix, including type III collagen. A Phase 1 study is currently
ongoing. On August 2, 2021, Jeune announced the dosing of the first patient in
the second Cohort of the PEARL-1 study. This cohort is a randomized,
double-blind, saline controlled evaluation of safety and efficacy of KB301 for
the improvement of skin quality. Enrollment of this cohort completed in October
2021, and Jeune expects to announce initial data from Cohort 2 in early 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 Quarterly Report on Form 10-Q
Jeune has several other aesthetic medicine product candidates in various stages
of preclinical development.
Business Highlights and Recent Developments
•On September 15, 2021, we announced the appointment of Laurent Goux as the
General Manager of Europe.
•On October 12, 2021, we announced a collaboration with GeneDx, Inc., a
wholly-owned subsidiary of BioReference Laboratories, Inc., an OPKO Health
company, to offer no-charge genetic testing for all types of Epidermolysis
Bullosa (EB). The goal of the program, called Krystal Decode DEBTM, is to help
patients with the dystrophic form of this genetic condition, also known as DEB,
get a definitive diagnosis sooner, with highly accurate results obtained with a
blood or cheek swab sample.

COVID-19 Update

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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. While to date the impact of the pandemic on
our business and clinical trials has been minimal and the increased vaccination
rates in the U.S. are encouraging, we will continue to assess the potential
impact of the coronavirus disease ("COVID-19") pandemic on our business and
operations, including our supply chain and preclinical and clinical trial
activities. For additional information regarding the impact of the coronavirus
pandemic, please see "Risk Factor - Business interruptions resulting from the
COVID-19 outbreak or similar public health crises could cause a disruption of
the development efforts of our product candidates and adversely impact our
business."
Financial Overview
Revenue
We currently have no approved products for commercial marketing or sale and have
not generated any revenue from the sale of products or other sources to date. In
the future, we may generate revenue from product sales, royalties on product
sales, or license fees, milestones, or other upfront payments if we enter into
any collaborations or license agreements. We expect that our future revenue will
fluctuate from quarter to quarter for many reasons, including the uncertain
timing and amount of any such 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 with our pivotal Phase 3
clinical trial for B-VEC, conduct our ongoing Phase 1/2 clinical trial for
KB105, conduct our phase 1 safety 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 our clinical trials, and, as a result, the actual
costs to complete our clinical trials may exceed the expected costs.
General and Administrative Expenses
General and administrative expenses consist principally of professional fees
associated with corporate and intellectual property-related legal expenses,
consulting and accounting services, facility-related costs and expenses
associated with obtaining and maintaining patents. Other general and
administrative costs include stock-based compensation and travel expenses.
We anticipate that our general and administrative expenses will increase in the
future to support the continued research and development of our product
candidates and to operate as a public company. These increases will likely
include increased
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costs for insurance, costs related to the hiring of additional personnel and
payments to outside consultants, lawyers and accountants, among other expenses.
Additionally, if and when we believe a regulatory approval of our first product
candidate appears likely, 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, Significant Judgments and Estimates
There have been no significant changes during the three and nine months ended
September 30, 2021 to our critical accounting policies, significant judgments
and estimates as disclosed in our management's discussion and analysis of
financial condition and results of operations included in our Annual Report on
Form 10-K for the year ended December 31, 2020.
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Results of Operations
Three Months Ended September 30, 2021 and 2020
                                         Three Months Ended September 30,
                                                2021                       2020         Change
(In thousands)                                      (unaudited)
Expenses
Research and development         $            6,080                     $  5,100      $    980
General and administrative                    9,572                        4,580         4,992
Total operating expenses                     15,652                        9,680         5,972
Loss from operations                        (15,652)                      (9,680)       (5,972)
Other Income
Interest and other income, net                   63                           70            (7)
Net loss                         $          (15,589)                    $ (9,610)     $ (5,979)


Research and Development Expenses
Research and development expenses increased $980 thousand in the three months
ended September 30, 2021 compared to the three months ended September 30, 2020.
Higher research and development expenses were due to an increase in preclinical,
clinical and pre-commercial manufacturing activities of $538 thousand, payroll
related expenses of $363 thousand, which were primarily driven by an increase in
headcount to support overall growth, and includes a $327 thousand increase in
stock-based compensation, software related costs of $167 thousand, and other
research and development expenses of $191 thousand, primarily due to
depreciation and rent. These increases were offset by decrease in outsourced
research and development activities of approximately $279 thousand.
General and Administrative Expenses
General and administrative expenses increased $5.0 million in the three months
ended September 30, 2021 as compared to the three months ended September 30,
2020. Higher general and administrative spending was due largely to increases in
payroll related expenses of approximately $3.1 million, which was primarily
driven by an increase in headcount to support overall growth, and includes a
$2.0 million increase in stock-based compensation, commercial preparedness
expenses of approximately $1.2 million, medical affairs costs of $101 thousand,
software related costs of $453 thousand, and other administrative expenses of
$422 thousand, primarily due to rent and insurance costs. These increases were
offset by a decrease in legal and professional fees of approximately $316
thousand, which includes $1.6 million of insurance proceeds.
Other Income
Interest and other income for the three months ended September 30, 2021 and 2020
was $63 thousand and $70 thousand, respectively, and consisted of interest and
dividend income earned from our cash, cash equivalents and investments.

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Nine Months Ended September 30, 2021 and 2020

                                         Nine Months Ended September 30,
                                               2021                     2020          Change
 (In thousands)                                    (unaudited)
 Expenses
 Research and development         $         18,875                   $  12,264      $   6,611
 General and administrative                 27,524                      10,315         17,209
 Total operating expenses                   46,399                      22,579         23,820
 Loss from operations                      (46,399)                    (22,579)       (23,820)
 Other Income (Expense)
 Interest and other income, net                127                         795           (668)
 Interest expense                           (1,492)                          -         (1,492)
 Net loss                         $        (47,764)                  $ (21,784)     $ (25,980)


Research and Development Expenses
Research and development expenses increased $6.6 million in the nine months
ended September 30, 2021 compared to the nine months ended September 30, 2020.
Higher research and development expenses were due to an increase in outsourced
research and development activities of approximately $2.0 million, preclinical,
clinical and pre-commercial manufacturing activities of $1.8 million, payroll
related expenses of $1.9 million, which was primarily driven by an increase in
headcount to support overall growth, and includes a $1.6 million increase in
stock-based compensation, travel related expenses associated with our clinical
trial sites of $199 thousand, software related costs of $212 thousand, and other
research and development expenses of $611 thousand, primarily due to
depreciation and rent.
General and Administrative Expenses
General and administrative expenses increased $17.2 million in the nine months
ended September 30, 2021 as compared to the nine months ended September 30,
2020. Higher general and administrative spending was due largely to increases in
payroll related expenses of approximately $9.0 million, which was primarily
driven by an increase in headcount to support overall growth, and includes a
$5.9 million increase in stock-based compensation, commercial preparedness
expenses of approximately $2.2 million, medical affairs costs $437 thousand,
software related costs of $715 thousand, legal and professional fees of
approximately $3.6 million which includes $1.6 million of insurance proceeds,
insurance costs of $408 thousand, and other administrative expenses of $768
thousand, primarily due to rent.
Other Income (Expense)
Interest and other income for the nine months ended September 30, 2021 and 2020
was $127 thousand and $795 thousand, respectively, and consisted of interest and
dividend income earned from our cash, cash equivalents and investments.
Interest expense for the nine months ended September 30, 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 nine months ended
September 30, 2021 to a balance that equaled the purchase consideration for
ASTRA.
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Liquidity and Capital Resources
Overview
At September 30, 2021, our cash, cash equivalents and short-term investments
balance was approximately $343.1 million. Since operations began, we have
incurred operating losses. Our net losses were $15.6 million and $9.6 million
for the three months ended September 30, 2021 and 2020 and $47.8 million and
$21.8 million for the nine months ended September 30, 2021 and 2020,
respectively. At September 30, 2021, we had an accumulated deficit of
$119.0 million. With the net proceeds raised from its public and private
securities offerings, including the public offering completed on February 1,
2021 and the ATM Program, the Company believes that its cash, cash equivalents
and short-term investments as of September 30, 2021 will be sufficient to allow
the Company to fund its operations for at least 12 months from the filing date
of this Form 10-Q.
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. Furthermore, we expect to incur increasing
costs associated with operating as a public company, meeting financial controls,
satisfying regulatory and quality standards, maintaining product and clinical
trials, and furthering our efforts around our current and future product
candidates. The Company may never achieve profitability, and unless and until it
does, the Company will continue to need to raise additional capital or obtain
financing from other sources.
Costs related to clinical trials can be unpredictable and therefore there can be
no guarantee that we will have sufficient capital to fund our continued clinical
studies of B-VEC, KB105, KB301 or our planned 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 B-VEC on the schedule we currently contemplate. While we are in the
process of building out our internal vector manufacturing capacity, some of our
manufacturing activities will be contracted out to third parties. Additionally,
we currently utilize third-party contract research organizations 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 B-VEC, KB105, KB301 or any other product candidate. Accordingly, to
obtain marketing approval for and to commercialize these or any other product
candidates, we may be required to obtain further funding through public or
private equity offerings, debt financings, collaboration and licensing
arrangements or other sources. Adequate additional financing may not be
available to us on acceptable terms, if at all. Our failure to raise capital
when needed could have a negative effect on our financial condition and our
ability to pursue our business strategy.
Operating Capital Requirements
Our primary uses of capital are, and we expect will continue to be for the near
future, compensation and related expenses, manufacturing costs for preclinical
and clinical materials, third party clinical trial research and development
services, laboratory and related supplies, clinical costs, legal and other
regulatory expenses 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 will 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 cost of our pivotal Phase 3 clinical trials for B-VEC;
•the progress, timing, results 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 B-VEC for our pivotal Phase
3 clinical trials;
•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.
Sources and Uses of Cash
The following table summarizes our sources and uses of cash (in thousands):
                                                   Nine Months Ended September 30,
                                                         2021                     2020
                                                             (unaudited)
Net cash used in operating activities       $        (27,038)                  $ (18,059)
Net cash used in investing activities               (100,230)                     (4,964)
Net cash provided by financing activities            145,613                     117,878
Net increase in cash                        $         18,345                   $  94,855

Operating Activities
Net cash used in operating activities for the nine months ended September 30,
2021 was $27.0 million and consisted primarily of a net loss of $47.8 million
adjusted for non-cash items primarily of depreciation and amortization and
stock-based

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compensation expense of $12.2 million and build to suit interest expense of $1.5
million, as well as increases in net operating liabilities of approximately
$7.1 million.
Net cash used in operating activities for the nine months ended September 30,
2020 was $18.1 million and consisted primarily of a net loss of $21.8 million
adjusted for non-cash items of depreciation and amortization and stock-based
compensation expense of approximately $4.1 million, and decreases in net
operating liabilities of approximately $371 thousand.
Investing Activities
Net cash used in investing activities for the nine months ended September 30,
2021 was $100.2 million and consisted primarily of expenditures of $27.5 million
on the build-out of our ASTRA facility, leasehold improvement of new office
space, and purchases of computer and laboratory equipment, $83.8 million on the
purchase of short-term and long-term investments, partially offset by proceeds
of $11.0 million received from the maturities of short-term investments.
Net cash used in investing activities for the nine months ended September 30,
2020 was $5.0 million and consisted primarily of purchases of $3.2 million of
short-term available-for-sale investment securities, and expenditures of
$7.6 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 $5.9 million received from the maturities of short-term
investments.
Financing Activities
Net cash provided by financing activities for the nine months ended
September 30, 2021 was $145.6 million and consisted primarily of proceeds of
$153.6 million received from our public offering, ATM Program and exercises of
stock options, partially offset by expenditures of $8.0 million used for the
purchase of the ASTRA building.
On February 1, 2021 the Company completed a public offering of 2,211,538 shares
of its common stock at $65.00 per share. Net proceeds to the Company from the
offering were $134.9 million after deducting underwriting discounts and
commissions of approximately $8.6 million and other offering expenses of
approximately $198 thousand.
During the nine months ended September 30, 2021, pursuant to the ATM Program the
Company issued 262,500 shares of common stock at a weighted average price of
$66.50 per share for net proceeds of $16.9 million after deducting underwriting
discounts and commissions of approximately $524 thousand. The Company also
incurred $172 thousand of other offering expenses related to the ATM Program.
For the nine months ended September 30, 2021, the Company received proceeds of
$1.9 million from the exercise of stock options.
Net cash provided by financing activities for the nine months ended
September 30, 2020 was $117.9 million and was primarily from proceeds from our
public offering in May 2020 of 2,275,000 shares of our common stock to the
public at $55.00 per share. Net proceeds to the Company from the offering were
$117.2 million after deducting underwriting discounts 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 the rules and
regulations of the SEC.
Contractual Obligations
There have been no material changes to our contractual obligations as previously
disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020
other than as described in Note 6 "Commitments and Contingencies" of our
condensed consolidated financial statements on this Form 10-Q.
JOBS Act Accounting Election
We are an emerging growth company, as defined in the Jumpstart Our Business
Startups Act of 2012 ("the JOBS Act"). Under the JOBS Act, emerging growth
companies can delay adopting new or revised accounting standards issued
subsequent to the enactment of the JOBS Act until such time as those standards
apply to private companies. We have irrevocably elected not to avail ourselves
of this exemption from new or revised accounting standards and, therefore, are
subject to the same new or revised accounting standards as other public
companies that are not emerging growth companies. Beginning with our fiscal year
ending December 31, 2022, we will cease to be an emerging growth company.
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