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

Hello. Good morning. Welcome to Day 1 of the 2022 Bank of America Healthcare Conference, and thank you for joining this session with Krystal Biotech. My name is Alec Stranahan. I'm Vice President and Senior Biotech Analyst covering Krystal here at BofA. And I'm pleased to be joined by Krish Krishnan, Chairman and CEO of Krystal. Thanks for joining us, Krish.

Thanks for having me.

Yes, so maybe we can just jump into the Q&A. And maybe we can just start off at a high level. Your redoseable gene therapy platform is pretty unique, right? And I think you've shown across multiple diseases that you can redose in sort of a sustainable way. So could you just sort of walk us through the technology and sort of where the company stands today?

Yes, I can. So a lot of diseases, genetic diseases are either caused by a mutation in a gene or a missing gene. And what we do at Krystal is deliver an extra copy of the gene to these patients. The vector we use is a modified herpes simplex virus 1, which has a large payload capacity and plus it's an episomal virus. And so it doesn't really integrate or modify or touch your existing DNA, simply delivers a copy of the gene. And when the cell turns over or when the protein is depleted, the process is repeated, right? That's where the redoseable gene therapy. It's more of delivering a gene to a patient than the way gene therapy is defined in the classic of one-and-done type approach.

And B-VEC, which is your lead asset, could you just sort of walk us through how that drug was designed? This has really been the commitment of Krystal for a number of years, and you're almost at the finish line, right?

Yes. So Krystal's origin is a bit unique because my wife Suma who is in the company had this intent to treat EB patients in a convenient, painless, simple manner. The current approach is then were autologous, meaning they were patient-specific. So something from you had to be taken out, modified and put back in to sell the skin, whatever. And the idea was we knew the problem we wanted to solve and were looking for the best way to solve it as opposed to saying, look, we're HSV experts looking for a problem to solve. And so all we wanted to do was -- and a lot of research -- long story short, we ended up with HSV1, which had the elements of a good way to deliver. For example, the skin genes are big. The skin cells turn over pretty fast. So some of the things of -- characteristics of HSV1 like it being episomal, like having a large payload capacity and had been in humans before through a drug called T-VEC. So give us some regulatory precedents, although in another indication, so we started there. That's the genesis. And along the way, we realized, look, if we could deliver called 7A1 gene -- we could deliver TGM1 ichthyosis and then real and slowly the evolution of the pipeline began. So it's an interesting start in the sense it was a problem solving as opposed to find a problem to solve-type situation.

Right, right. You have the tool, but you also have the nail from the get-go?

Yes, we knew the nail head. We're just looking at the right hammer.

Yes, yes, exactly. And I guess most recently, we saw data that you had AAD. So could you just sort of walk us through what was incremental at the conference and how this is may be feeding into the BLA submission?

Yes, so we announced top line data I believe in November of 2022, where we said, look, we separated nicely on the primary endpoint. We talked high level about the adverse events, which were pretty innocuous. So they were a top line data announcement. So at AAD, we provided more clarification on the efficacy data. We kind of provided segmentation on demographics and baseline characteristics, like what were the ages of the patients in the study, how many -- what were the sizes of wounds in the study, gender, race and at AAD, we announced that across all these segmentations B-VEC did really well than placebo. There were wounds of different sizes up to 20 up to 40 up to 80. Gender was somewhat equally distributed, male and female. Races were pretty divergent between Asians and Native Americans and white. Across all these, we separated well. Then we talked about -- we showed that at 6 months, B-VEC separated well against placebo. We extended that to thinking about how many met both at the 3-month time point and the 6-month time point. So again, I said some wounds were close at about, we kind of -- and that data was positive. And it's all in a presentation on our website. We also said how many that were closed at 30 could also say closed at 60. So not just they separated at 30 and 60, but how many were continued at both. That was good data. We also look for wounds that stay close for all 3 time points, 22, 24 to 26, and that separation was good. So across all efficacy dimensions, AAD allowed us to show that the drug separated well against placebo and could be potentially approvable. We are coming up to SID next week where we'll do the same segmentation on the safety side, like antibodies to HSV1, called 7A1. So we're on track to file the BLA in the second Q. We do not have any things we need to complete on the CMC side, preclinical side, anything we're waiting on from the FDA to file the BLA. So we're on track. It's our first BLA. We're super excited that we've gotten so close, especially since the company was founded on the EB patient idea, perhaps so things are good.

Right, right, knock on wood. And I think you reported your 1Q yesterday. And in the press release, you talked about the FDA allowing for the extension to include an outpatient administration. Can you just sort of talk about inpatient versus outpatient? I guess is the extension enough to ultimately get this added to the label?

Yes, so mobility is a big issue for EB patients. They have wounds all over, not easy for them to fly on an airplane, sit in a bus for any extended period of time. So the first benefit of EB is, look, they don't -- assuming the drug works and [indiscernible] work, gets approved, is that they don't have to go to specialty centers to get treated as much. They used to fly to Stanford or Cincinnati, some of these specialty KOL centers because there's a propensity of mortality from squamous cell carcinoma. So to kind of delay that frequent visits, a lot of palliative approaches. We wanted to get the drug to the patient. And so we've been working on home dosing for about 18 months now. We did some human factor protocol studies. It was a significant amount of work, get them comfortable with the vector, get them comfortable with disposing the vector, get them comfortable that a nurse can be trained to apply the drug. And so we got home dosing in this open-label extension study. Our expectation is to get dosing of patient at home either at launch or shortly thereafter. Should the agency ask us to do a human factor protocol testing in a commercial setting, post-launch, we could be amenable to that. But as of now there is no request. And so our expectation is a bit of an unknown. It's possible we get it at launch or sometime shortly thereafter. But our commercial strategy is to get the drug as close to a patient's home as possible and then having a nurse take it and getting it delivered is just incremental at that point. So we're trying to get as close to that, get the drug dosed in the patients, if any.

And let's say the inpatient is the first to be approved, do you think this would limit sort of the curve in terms of the launch trajectory or is there enough demand out there given the clear unmet need that there could be some pull from patients?

No, I think that fortunately, if you think about this disease, the EPI data is about 3,000 patients in this country. About 1,000, 1,200 of them have the severe and are pretty well identified. So unlike some rare diseases, we have a certain critical mass to launch from. Those are the severe types and maybe there's some patient finding with respect to moderate and mild. And just being able to fill these patients that they do not have to get on a plane is a big deal. They obviously visit their local physician at some frequency anyway. So driving 2 to 3 miles at least to begin the process if it were at a clinic will not be a huge burden. And if we can quickly get them to alleviate that we'll be in a good place. So we don't expect on the identified base launch to have any impact based on in the clinic versus bring the drug to home situation.

Right, right and maybe we can just touch on manufacturing as that's an important component of any launch. Will you be at commercial scale are you already there? And can you meet the initial demand whatever that looks like?

It goes back to the Krystal story, we wanted to treat the EB. And so early on, we built a GMP facility almost a few months after the IPO of the company just to support EB. So Ancoris, which is our lead -- first GMP facility was built to support the global commercial requirements of DED -- and I say globe, what does that mean? So we estimated about 9,000 patients globally, split somewhat equally between U.S., Europe and ROW. And Ancoris was built for that. So we don't expect any supply issues at launch. The virus is extremely stable. Our commercial validation is complete. The validation batches that we do, so we already have inventory and we have another 6 months to make more batches if we needed to. And everything about B-VEC launch happens from this facility. Someday, we are building a much larger facility nearby. And the long-term plans are Krystal, let's say, over 24 months, 36 months is to transition B-VEC into the larger facility. But for the first 3 years, it's all done out of a course.

Right, right, that's a huge windfall for you guys having that in-house already?

Yes, yes.

And in terms of the temperature of the FDA on approving drugs in EB, we saw one of your, I guess, competitors Amryt got a CRL for their submission in EB. I guess what is your stance on how the FDA looks at the EB -- and how could your submission be better?

Our approach is Amryt and Krystal are a bit different. We want to -- we're trying to treat the disease by providing the missing or mutated gene to produce collagen 7. As you know, their approach is palliative, minimizes some of the symptoms of the disease, whether it's pain or burn or whatever. So our approaches are different. So the CRO there versus -- it's not easy to compare directly even though I get it, it's the same indication. One of the things the FDA was insistent upon in our conversations with them was to show durability of response over a 2-week period -- which is why if you look at our endpoint, its complete closure at 22 and 24 or 24 and 26. That's for the FDA guidance. So that's an important requirement as we understood it. Plus our study itself is smaller because we're a gene therapy type study for a disease as opposed to a Pali. They went across all segments EB, Simplex and dystrophic and junctional. We're focused on dystrophic. So it's a much smaller study. You need 31 patients to show effect. The effect was strong. So we just needed 31 patients or so in a pivotal study. So there are a lot of differences. We're smaller in scale. We're more curative with gene therapy. We went after the classic endpoint definition per FDA guidance. So we feel that whatever happened at Amryt hopefully does not -- I mean, we don't see a connection yet.

Right, right. Obviously, very different technologies. And we're about halfway through, and I -- we could talk about B-VEC all day, but maybe we can -- you obviously got more to the company into your pipeline than that. But maybe as a segue now that that you've taken B-VEC through Phase III, I guess what are the lessons learned? What has, in your view, been derisked in terms of your platform? And how are you applying this to CF or ATD?

No, that's really a good question because what's been derisked the most is redosing to skin cells. The vector seems with respect to adverse events, redosability being able to scale the product, being able to meet an end point -- and so we threw on B-VEC immediately points to a high probability of success in my mind to Ichthyosis and Netherton syndrome because all topical same concept, different gene. And incrementally extend that to aesthetics, is a very different market, but same concept, intradermal delivery of a gene to a skin cell. So if you think about -- if you believe collagen 1/3 elastin combinations thereof, improve your skin texture and skin quality, that whole skin side is super derisked. But what's important to note is HSV has propensity not for skin cells, but for the epithelial cells in the skin of which they are abundant in the skin. But they're also abundant in [ resp v ] cells, respiratory cells. There, we have done -- so the success in B-VEC points a little bit that if you can get the vector close enough to our resp v cell, hopefully, that will have an impact. We saw it in about 36 nonhuman primates where we redosed. And I think the probability of success will get much higher when we're able to dose in humans and kind of show it safe and there's some signals of efficacy. So definitely, it reads through delivering to epithelial cells and redose epithelial cells. And so if you look at our pipeline, it's built on skin, hoping to build in pulmonary indications. We're already starting to get pretty aggressive on the aesthetic side because we injected the vector to the face of normal people in California and knew that any signal of adverse event would have a big read to it in fact it was safe in an aesthetic selling speaks to the safety of the vector to a large extent.

Right and the redosability?

And the redosability.

So maybe we can take those one by one, starting with CF. You've got your Australia study starting in 2Q U.S. study, maybe in the second half of this year. Could you just sort of speak to the strength you're delivering to CFTR genes? How does this make your approach stronger? And is there anything in terms of the inhaled route of delivery that had to be sold for?

Yes so 2 copies speaks to the carrying capacity of the vector and the idea being that if you can safely deliver more CFTR than less CFTR, hopefully, the efficacy signal is stronger, right? So that's what 2 talks about. We are anxiously waiting to get the study going in Australia. It has been a bit slower than anticipated because of COVID primarily TRIKAFTA being approved. But there is a percentage of the CF patient population that does not have a treatment, it is a null mutation. And so we believe we have a very unique value proposition in CF to begin with, even though delivering a full copy of the gene implies you have mutation-agnostic. So given that, we have a clear story in 10% of the CF population and hopefully, a great story across CF. And simultaneously, we were hoping the U.S. study would be a subsequent study to the Australia, but it now they're not that far apart in time, but it is, by far, the most exciting product Krystal story in the second half. In terms of importance, B-VEC BLA filing and getting the drug approved is important. Whereas you said what's the most exciting thing in the second half is we cannot wait to show some signal in CF patients because that gives us a whole new tissue to develop our pipeline on, right? We get the skin part. So that's like the one in anticipation is to get that study going and see some data.

Right. And I guess in terms of the target population in CF, is it going to be that 10% or so that's refractory to SOC?

Not in the Phase I, we're going to go across to get a nice broad signal Phase I/II. But as we start thinking about talking to patients what the pivotal study should look like, we haven't gotten there yet. The only point I was trying to make is we could have an accelerated path in an unmet medical need instead of fighting the war with Vertex and then talk about the broader CF at some point.

Right which AbbVie, obviously, is having challenges with that as well.

Right.

So in ATD, you mentioned the applicability of your platform to respiratory cells, but we know that ATD is also a disease of the liver. So could you just speak to addressing both of those sides of the coin?

I've been told while most people treat the disease in the liver, the predominance of the disease is in the lung, most of the current treatments try to prevent the production of this not so functional protein in the liver. But if we're able to treat the disease in the lung our thought always has been -- we could work with somebody in a collaborative fashion to provide a comprehensive solution for the disease that our company is Arrowhead online. I think I'll admit I was in AATD may have given it up Roche is a lot of company -- it's a big disease, a large study, not the kind of study we would feel comfortable going into where our expertise right now is in the rare disease, smaller studies type area. And so if you get a good signal, we get an IND file, it's definitely something we want to talk to some partners about we're providing a comprehensive solution to treating AATD. That's at least how we're thinking about it right now.

Okay and on aesthetics, you recently presented cohort 2 data, which you touched on. Could you sort of talk about what you learned and maybe the next steps? Obviously, it's more difficult to show physical changes in aesthetics versus EB. But what is sort of the approach that you're taking?

Yes look, what we found first, we were super hyper focused on safety. And so we were super careful with the dosing paradigm. We started clearly low relative to B-VEC type doses. Without exception, a lot of people who looked at the pictures felt there was a stark improvement before and after without exception. The subject satisfaction score, and you know these subjects are -- they have a high -- they have a very low tolerance for any blemish, any adverse event such as satisfaction scores were really high. The physicians' love the patient's conversations like informally reported at the clinic, we did not separate on the scale. The scale we need to do some work, which is what we're doing to make it specific for what we're going after because unlike fillers and Botox, some of the feedback we heard from patients was an increased glow and improvement in skin texture, felt the redness was reduced, a lot of qualitative attributes by producing collagen 3 as opposed to comparing us to a filler type treatment. So our goal is to -- we've got a bunch of experts into the story we made. We actually announced that. We're going to spend a lot of time thinking about what the scale should be. I'm going to talk to the FDA about the indication we're going after, which hoping to get skin quality and think sector into the indication we're hoping to and then start the Phase II. The expectation is to start the Phase II by Q4 of this year if we can get through. But without -- once we announce the data, qualitatively, we've gotten a lot of interest, a lot of excitement, although we have ways to go.

Right we're not there yet?

Yes.

Right and the scale you mentioned is an internally developed scale. So have you brought this to the FDA and I guess..?

We are going to. So we're having the KOLs. I think through the skills again, get them validated then have like a Type C meeting with the FDA. So here's the data. Here's the indication we're going after here is the scale. We won't complete alignment before we go into a Phase II.

Okay, okay. And as a sort of, I guess, confirmatory metric, how important is measuring KOL or last in basically the products of the gene therapy in these patients before and after treatment, obviously, it's difficult to see graphs but someone cheap, but what - was sort of your approach to be there?

Look, now we've gotten to a point where when we quoted gene, we're no longer anxious about it being expressed, right? We've seen it -- we did a biopsy in the buttocks of patients -- of subjects in the aesthetics to some place, not on the face. In the efficacy trial, we did a biopsy behind the ear. There are other places in the body where you can get inject and get a biopsy to check the box on protein expression. And at some point, maybe we do one for each of the proteins who are administering. And then it's all about subject satisfaction, skill separation and you don't have a Botox biopsy right. I mean I'm not saying it's the same, but it's tough on the face. It's almost impossible.

It's a good point. And on the topic of driving value from the gene subsidiary, how would you approach running these larger studies? Would you seek to partner or saw the future?

We know we need somebody to help -- do the heavy lifting at some point. We've contemplated spinning it out to ship to get -- there's some -- getting it funded and spinning it out and being its own company. Krystal will be tied at the hip from a manufacturing FDA relationship accounting. It's almost like a DevCo, development co-company. That's one path. The other path is to find a good partner who loves the approach as much as we do, and then we work in collaboration. So they have all, the infrastructure in place to do this right. We're open to doing that. So at some point, we expect that one of these things to happen. We're just trying to find the right time to do it to maximize Krystal value that's all.

Right. And just a last question on sort of the cash balance. And with the sector in the state that it is, obviously, funding is a growing concern for many biotechs in the space. I guess you ended 1Q with $468 million, pretty solid cash position. You may get some revenues if [indiscernible] is approved I guess. What is sort of -- how do you feel about your current position? And how do you plan to use the cash that you have?

Yes. And also, if we do get the drug approved, we're eligible for the pediatric review voucher which has a certain value to it in the open market. So yes, we're in a good place thankfully. On the balance sheet side, if you put aside long-term Jeune Aesthetics from the story, I think we're in a really good place for a very long -- tough to quantify, but at least 18 to 24 months, if not more, given the PRV, given the revenues, given that our spend tends to be moderate. And ASTRA is almost complete. Jeune, it will be nice to find a funding stream because you could be doing multiple Phase II studies in Jeune probably instead of a somewhat sequential approach we're taking. So that -- so if you put aside Jeune for a second, I think we're in a really good place in it.

Okay, very good. Well, I think with that, we're out of time. So I really want to thank you for your participation going through the company, a very interesting discussion.

Thanks, Alec. Thanks for having us.