Krystal Biotech, Inc. (KRYS) Earnings Call Transcript & Summary

Hi, everyone. Welcome to the last day of the Cowen Health Care Conference in 2021, and the Krystal fireside chat. I'm covering analyst, Ritu Baral. And with us from Krystal is CEO and Chair, Krish Krishnan, who many of you know. Thanks, Krish, for joining us this morning.

Thanks for having me.

So let's start with your Phase III program in epidermolysis bullosa, and feel free to take a few like a minute or 2 just to go through the technology and the approach. But you have started the Phase III in July 2020. How is enrollment going in that relatively small study? And how quickly do you anticipate completing enrollment?

Thanks, Ritu. So as you know, we're a HSV-based gene delivery company. We make modifications to herpes simplex virus 1. And then encode for the gene of interest and have different approaches to delivering that particular gene. In the case of EB, it's a topical delivery. We use intradermal in the aesthetics program, and we're working on nebulizing the vector for cystic fibrosis. But essentially, it's -- Krystal is much more of a gene-delivery type story. And because the vector is episomal and some of the tissues we target turnover, we're much more of a chronic administration type story than a classic one-and-done gene therapy story. But that's a quick rundown. Our dreams and aspirations are to be a fully integrated rare disease company and fully integration where, along the way, we have 1 GMP manufacturing facility up and running. We're building a second one out. Building out a commercial team in Boston. So the dreams and aspirations are to be fully integrated into the rare disease space. But that said, to answer your specific question on enrollment, it's going well. Our clinical team has done a fantastic job planning for and executing this study in a really tough COVID situation that coincided with the start of the pivotal study. We're on track to complete enrollment this quarter.

And how many patients are you enrolling as part of that study?

We're enrolling about 30 patients in that study.

Great. And can you remind us just what the primary endpoint of the Phase III is? And what the Phase I/II data showed on that Phase III analysis?

Great. Okay. Yes. So it's a 6-month study. The primary endpoint is complete wound closure as assessed by the investigator at weeks 20, 22 and 24. Part of the reason for having multiple time points is to accommodate the variability in placebo. It's a classic double-blinded, inter-patient-controlled, placebo-controlled study. And so having multiple time points enables the placebo ones, especially, which could randomly sometimes be close at one particular time point to kind of be open at subsequent time points. The Phase I/II study, the difference is it was mostly very similar to the design of the pivotal study, excepting that it was an open-label study, it wasn't double-blinded. And we assessed similar type endpoints over weeks 8, 10 and 12 as opposed to 20, 22 and 24. So it's about -- it's a 90-day -- it's a 3-month study. It was a 3-month study versus 6-month study in the pivotal. And we assessed complete wound closures at week 8, 10 and 12. And so one can think about the Phase III study as essentially 2 cycles of the Phase I/II study, but what we do have is the ability to redose should a wound open past the 90-day time point. So it's essentially dose upfront, get to closure. If it opens, redose, take it to closure.

It was -- did the FDA have any specific requirement for retreatment within the Phase III to generate safety on retreatment?

Not beyond the length of the study, but they did want these 2 cycles of the wound closing and some of the wounds opening past 90 days, and being able to retreat to get that chronic application on the label. So they did want to go through 1 cycle of closing and opening and reclosing. But beyond that, there was no other requirement.

So 1 retreatment was sufficient for review? Got it. And is there -- any beyond retreatment, is there any other safety data required by FDA beyond what will be generated in the Phase III by the primary endpoint, 6 months and the 12-month follow-up?

No, not a requirement for the BLA filing. No. So following the study, our expectation is to file a BLA shortly thereafter.

Got it. Any discussion of any post-marketing commitment on safety even now? I know that usually gets negotiated later.

Yes. But because it's an episomal virus, unlike one-and-done, we don't have to follow the patient for life. I believe we've had conversations where we're expected, like in the commercial setting, to follow the patient for a few years. If I recall correctly, it's either 3 or 4. So -- but it's not as burdensome as one-and-done gene therapies.

Got it. Okay. And then let's get to the issue of dominant disease. So your Phase I/II was conducted in recessive disease, where the patient just doesn't generate collagen VII. And dominant disease is a little different in that these patients do generate -- they do generate collagen VII, but it's conformationally useless, but it is hanging out and it's misfolded. So the KOLs we've spoken to have suggested that you actually need higher levels of expression to overcome the misfolded collagen VII in dominant. Can you remind us how -- what proportion of patients you are planning to have with dominant disease in the Phase III? What is your guess as to what their clinical response will be?

I think you said all -- we do believe -- because we encode for 2 copies of collagen VII into our backbone that we believe we have a high expression system, which was the hypothesis behind going after the dominant, the DDEB segment of the population. The FDA in our conversations wanted us to put in best efforts to enroll dominant patients as part of the study. They're not as easy to enroll just from a practical perspective, given they have to be on the study -- come to the site once a week for like a 6-month period. The expectation is that the dominant patients will not be more than 10% of the total enrollment, which is about 30, so about -- somewhere in the 1:3 patients in that range. That's the expectation for the study. And from a statistical perspective, we made -- also made sure that the study is powered well enough in the unlikely event, we don't see as favorable an outcome in dominant as we see in the recessive.

Okay. Got it. Once you have data in hand from this Phase III, how fast can you turn that BLA discussion around -- sorry, BLA into submission around? And can you speak to your plans for Europe as well?

Yes. Look, if we're successful, which we definitely think it hopefully will be, we're also in a hurry to get the BLA filed. But just bear in mind, it's our first BLA and what we want to do is to just ensure that we get all the Is dotted and the Ts crossed before we file. So we've been saying -- using the term shortly after, but it's tough to -- we're not guiding to an exact number of months at this point, but we're fully aware that we want to get that done. We are aligned with the EMA on the requirements for filing a marketing authorization. And currently, our plan is to get the BLA filed and then file the MA shortly thereafter. And a lot of the sections are similar even though the formatting is different. So we don't have to do any kind of study in Europe to file the marketing authorization.

Okay. do you need to go through a scientific advice process over in Europe first before filing?

None has been mentioned or asked as of now, so none to our knowledge. There will be a meeting with the EMA prior to us filing the marketing authorization to ensure we're aligned. But at this moment, we haven't been asked -- we've been -- our expectation is to file the MA following that meeting. And nothing's come up.

So what's outstanding? Any -- and can you -- specifically, can you address the status of the CMC module, given the focus in gene therapy on CMC?

Yes. So with respect to CMC, we're in a good shape. We believe, on the CMC side, we've been producing B-VEC in our in-house facility at a commercial scale. So in terms of next steps, we'll be running our process validation batches this year, which is typical when you're running a Phase III study. So there is -- as of now, as I sit and speak to you, there is nothing outstanding that will be needed that I'm aware of at the moment. We just have to get the PV batches done and filed as part of the BLA.

Got it. Let's go to the competitive landscape. How do you see the landscape of potential therapies evolving between your topical and the competitive graft-based therapy? Do you expect to enter the market first based on time lines? And how -- I guess, how do you think the mechanics will go, given there's going to be potentially 2 new therapies to a market that has had nothing but bandages and ointment?

Yes. There are -- we see the competitive landscape as -- right now, there are 2 broad segments. One is the convenience segment. So in that, Amryt is an example of something that's convenient and is topical, can be applied at home, but it's not disease corrective, but it's convenient. So it's just -- it's a palliative treatment that potentially closes the wound faster. And on the other side are these autologous therapies, whether it'd be Abeona or Castle Creek, which we believe are a bit more invasive and a bit more cumbersome and not as convenient on the patient. Krystal sits in the intersection of these two, right? It's -- if you imagine a Venn diagram, we fall in the middle, where, on one hand, we're convenient, can be applied at home topical by a health care professional. On the other side, we are disease corrective. And a lot of the patients who suffer from the disease, especially in RDEB, the correctiveness is important because of the propensity for the onset of squamous cell carcinoma of the skin, which leads to mortality. So yes, they do like convenience, they don't like to travel and the burden, but just as important, in fact, more important is the ability to correct the disease. Now in terms of timing to market, that's tough to say. Amryt's already successfully announced that their Phase III data was positive a few months ago. So don't know what the next steps there are. We haven't heard much on the autologous companies in terms of enrollment completion. It appears to us that we could potentially be the first to complete enrollment. And if you use that as a marker, you look, there are still -- you got to file the BLA, you got to get the BLA reviewed. I mean, there is a good possibility that we could definitely be first to market given -- I'm speaking where I sit right now. It's definitely possible in the corrective landscape.

How do you see -- Krish, how do you see pricing evolving for this therapy? Again, no precedent within EB, what proxies in the rare disease space? Are you sort of looking to, to help guide pricing?

That's a good -- 2 ways to answer the question. The financial burden of the disease even without a drug on the market is already high. People -- patients are spending $200,000 to $400,000, in fact, much closer to $400,000 on palliative care because they want to watch every wound and kind of delay the onset of squamous carcinoma. That's what is driving this. It's kind of -- so different specialty bandages, specialty ointments, et cetera. Look, we're -- in the gene therapy space, we are much more, if such a term exists, we're much more similar to enzyme replacement. So if there is such a thing as gene replacement therapy, because we've got a chronic administration, some of the analogs we're thinking about are the ERTs, et cetera, in this space. So between the financial burden that exists, and we're starting to have conversations with payers. Right now, our commercial team is, and so we're thinking through all the benefits of something that can be home administered and really super convenient to the patient and chronic. So the analogs definitely are closer to ERTs than to classic [indiscernible].

Got it. And where are you in home administration? Is your label going to allow for home administration off the bat?

We're hoping to. The pivotal study for all practical and timing reasons was all done in the clinic. It provides a level of quality control that is tough to replicate in a home setting, but we're -- as these patients roll over into the extension study, which we're planning on rolling whoever signs up from the Phase III study on to the extension study, we're hoping to dose a sizable number of patients in the extension study in a home setting. We're in the final back and forth with respect to logistics of elimination of bandages, elimination of the drug, bringing back the drug with the agency, and we're seriously hopeful that a big chunk of the extension study will be home-dosed, and we'll use that as a basis for getting that on the label.

Got it. And have you had conversations with payers around -- obviously, you've had some conversations because you mentioned that the ERT proxies. But any other details of the payers' understanding of the disease, the risk you mentioned. You guys have been approaching it and from the -- and clinicians from the risk of squamous cell carcinoma angle. As you have these conversations with payers, like where are they on knowing EB, knowing how to calculate the cost of the health care system, both current treatments and future risk?

Yes. So there is no treatment. So we did -- you do definitely have to educate them on the disease and the burden, not just to the patient, but to the family. But in the few -- in the limited conversations we've had to date, we're able to convey, and they're able to understand the burden of this disease. I mean, you just have to see a couple of videos to know how traumatic it is. Not just on the patient but on the families and the travel burden. So the burden gets communicated well, but we do have to educate payers, especially, there's quite a few in the United States on what the disease is and the burdensome, but that's not a difficult hurdle to go over. When we use the term gene therapy, it immediately rings one-and-done in their mind. So we're spending a lot of time educating the payers on, "Hey, we're much more similar to what we've seen before with ERTs, et cetera." And so the agreements are not as complicated as some of the value-based agreements of onetime gene therapies. This is much more, it has been done before. It's just instead of the enzyme, it's a gene or it's a gel or whatever. So that part is easy for them to grasp. It takes a little bit of when we use the term Krystal is a gene therapy company, when we come there, so we have to educate around that. But by and large, the conversations in the U.S. have been favorable. It was just the early stage getting -- and our commercial team is starting to get full press on developing dossiers and getting to educate more of these payers. And we'll definitely inform the investors over the upcoming months as that gets more formalized.

Right. So let's move to some of your pipeline programs. Let's move first to TGM1 ichthyosis. So the histopath from the Phase I/II portion showed distinct signals of protein expression. The photographic capture of phenotypic improvement, clinical improvement, didn't really show a whole lot. And maybe we were spoiled by EB, where you had these great gaping lesions that just closed up and looked profoundly different. But why -- is it the disease? Was it the protocol? How can you best illustrate clinical benefit in this disease with this therapy, if it's not going to be photography or can it be photography?

Yes. I mean, I can't disagree with pretty much anything you said. The biomarker data was fantastic. The -- if you talk to my PI, she felt the skin improvement was dramatic in that small region. But it doesn't present visually unless you've seen the disease and seen enough patients. And plus, we're talking about adults who don't take care of the skin, and it's kind of let it slide to a level where an improvement is not as apparent. So to circumvent that, what we have done in the Phase II is to treat a larger area with a much higher dose. Unfortunately, when you say high dose, the agency makes you start with an adult before you can embark on the dose in pediatric patients. So that's what we did. Now due to COVID and some of the northwestern logistical issues, it took us longer to get that study completed, but it is. We're waiting for data, and we anticipate announcing that data in the first half of this year. That -- assuming that we're able to see something drastic out of the PIs, comment on how good the improvement is, that -- if that's really good, then we would move into pediatrics almost immediately, and it doesn't have to be staggered this time. It can be all done at the same time. And if the data comes out, where we may have to increase the frequency of dosing, then we may enroll 1 or 2 adults, along with the pediatric and kind of -- but -- so the second part of the study is either all pediatric or a couple of adults and pediatrics, but they will not be staggered given that we've already established safety on the high dose. So that's where we are on the program. Now in terms of endpoints, yes, the scale is an accepted endpoint, although some work has to be done on the scale to kind of normalize it for patients who are compliant, especially when they're young versus patients who are not compliant, but...

Is it CGI? Krish, is it the CGI scale that you're talking about?

There are two. There is a patient -- there's an IgA scale and a patient investigator. So there are 2 scales. And they just have to be normalized for patient compliance. Now we are starting to talk to Dr. Paller about other biomarker data, whether it's water loss. Because, look, the thing that you don't see is that the co-location of TGM1 and filaggrin closes the skin, right? And from a functional perspective, it's great for the skin to be closed, but it's very difficult to show that in like a picture. So we have some thinking to do in terms of how best to get that across to the investor base.

Got it. Okay. And how many new patients of data will we be seeing with the update?

In the Phase II, it's that 1 single patient study, but it sets the tone to get the remainder of the phase -- it sets the direction and the basis to get the rest of the study done. And with northwestern opening this year, if all goes well, we should be well on our way to get that study going. But that's assuming we see the data and figure out what we have to do next.

Got it. So next steps, expansion, pediatric patients and then in pivotal after that?

That's the thinking. It could be either pediatric or pediatrics and adults, depending on how the data comes out.

Great. So there's been a lot of focus on your CF program that is due to enter the clinic. Can you briefly describe the therapeutic approach and rationale? And just very high level, the preclinical data that you released late last year?

Yes. So it's a vector that encodes for 2 copies of the full-length CFTR gene. The large packaging capacity of the vector allows us to do that. We have formulated it to be nebulized via a clinically approved nebulizer that patients are already familiar with. So it's basically delivering the vector to the apical or the epithelial cells of the lung. What we -- just to level set, at the ASGCT last year, we presented in vitro data that first said, "Hey, the vector can be nebulized without losing titer." Then we showed data that it does transfuse primary airway epithelial cells from CF patients. We also showed that the protein that was produced was properly glycosylated. Then we showed the ability to correct CF patient organoids. And then in November, we said, "Hey, here is the in vivo data on both mice and monkey that kind of showed we can nebulize the vector, see the distribution throughout the lung and, more importantly, not see any vector anywhere else, that all of it was going to the lung. And dosing was safe, no evidence of immune response even when the monkey got repeat doses. Now what we're almost done, which was the IND-enabling study is 40 -- 36 to 40-or-so nonhuman primate safety study, where we're also trying creative ways to show some efficacy. So our expectation is we complete that study and restart the clinical study, and then we're still thinking through if we announce the data with the start of the clinical study or if they are separated, but that's kind of the plan going forward.

Got it. And so how -- what sort of unmet need does the therapy address in CF, that Vertex's big portfolio won't address? Who's the ideal CF patient do you think?

That's a good question. Look, we're all aware that 10% to 20% of the patients with CF are not amenable to VRTX therapy, right? So that said, because we're a gene delivery or a gene replacement story, we are mutation agnostic, right? So if you look at immediate unmet medical need, the thinking is to go after the 10%, but there is nothing, maybe the trials are shorter. Maybe it's a faster track through the agency, but without forgetting that, look, if -- and you know our durability is a function of either the half-life of the protein or the turnover of the epithelial cells in the lung and if we're able to, we don't know yet, have some delayed frequency -- monthly nebulization or biweekly, something that's convenient instead of 3 times a day pills with food -- if we're able to make it convenient to the patient, we have a good shot at going after the broader segment at some point. But the immediate strategy is, let's try and target the unmet.

10% to 15%.

Yes. It's my understanding.

Got it. Is this something that the company is interested in taking forward itself? Is this going to be part of the -- you've always said like we're going to be an orphan drug company. Is this going to fall within -- enough within the orphan mandate that if this -- this is something you can take across to the finish line itself? And then remind us what the first clinical trial is going to look like? Is it a Phase I healthy volunteer? Or can you go into patients, you think?

Yes. So to -- look, from a pure goal of the company, the dream of the company is to be fully integrated rare disease or orphan disease company. So it fits squarely within that ideology or goal or dream of the company. The Phase I, we view the Phase I as a proof-of-concept Phase I. The questions we're trying to answer are, a, obviously, safety; b, try to get a sense of the frequency of administration. So we're probably thinking of weekly versus biweekly versus monthly because we don't know what the frequency of the repeat dosing would be; and three, obviously, improvement in FEV1 values, which is a classic clinical outcome. And we're also thinking through, are there some clever biomarkers because we're not IV, some of the obvious biomarkers don't -- present are not conducive to us. So we're thinking through with some KOLs on what other biomarkers could we test on to kind of show beyond just FEV, but stay tuned. Yes.

Got it. Got it. Very helpful. And in the last minute, can you talk about what you plan with your aesthetics program? And any other favorite programs from the pipeline?

Along with the start of the clinical study on 407, we plan to announce our second program in pulmonary. So we're pretty excited based on the preclinical data we saw on 407, our ability to deliver a gene safely to monkeys and mice, so that's exciting. On the aesthetics, we're -- in this quarter, we plan to announce safety data from the clinical study that's ongoing. And once that's behind us and hopefully good, that puts us into going forward with 2 efficacy studies, one in fine lines and acne scars. But all those assets are in a separate subsidiary that we have some strategic thinking to do with respect to -- we're trying for Krystal not to pay for aesthetic clinical studies beyond Phase I. So we're thinking through strategic options on management for this -- what other options, it could be business development, could it be us keep the sub kind of launching itself on its own. So we're thinking through all that at the moment.

So we're at time, Krish, thank you so much for joining us today. This was really helpful. And looking forward to the TGM1 ichthyosis additional data and the Phase III top line EB by the end of the year. Thanks again, Krish. Take care.

Thanks so much, Ritu. Thanks for having me. Bye.