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

All right. So thanks, everyone, for joining us this morning at the Goldman Sachs Global Healthcare Conference. Really pleased to be joined by Krish from Krystal Biotech to give us an update on where things are, where things are headed. Obviously, it's a really important year for the company. And so thanks for joining us, Krish.

Thanks for having me.

Great. So let's start with the discussion of your lead drug VYJUVEK for dystrophic epidermolysis bullosa, or DEB. So first level, let's start with the kind of straightforward high-level discussion of the mechanism of action of VYJUVEK.

So yes, so VYJUVEK is a modified HSV-1 vector that codes for 2 copies of the COL7A1 gene, formulated with HPMC solution to form a gel-like drug product that's applied directly on a patient's wound in DEB. Once applied, the vector transfects -- HSV-1 has propensity for skin cells, so transfects both keratinocytes and fibroblasts and being episomal in nature is in the nucleus of these cells. And once in the nucleus the cell machinery takes over, converts them to transcripts, the protein gets produced and secreted and that collagen VII protein assembles itself into anchoring fibrils in the basement membrane zone, essentially holding the 2 layers of the skin together. So that's essentially the high-level mechanism of drug action.

Okay. Great. So based on that, can you walk through some of the existing clinical data for VYJUVEK? I think maybe before we go to there, why don't we start with, can you walk through the disease of dystrophic epidermolysis bullosa? What the pathology is like? What are the kind of major groupings of disease in DEB? And what are the available treatment options?

Yes. So dystrophic EB is caused by a mutation in the COL7A1 gene, missing or mutated. And when that happens, COL7A1 gene is responsible for producing the protein collagen VII, which holds your epidermis and dermis together. And in the absence of collagen VII, the skin slubs off pretty easily on just basic friction, rubbing, and it's a pretty serious condition in these patients. There are 2 subgroups within dystrophic EB, recessive and dominant, depending on how you inherit -- how the patient inherits those genes. Recessive patients have no collagen VII. Dominant patients have some nonfunctional collagen VII. So that's the difference between the two. Typically, in recessive -- having recessive form of DEB, you have a high propensity of getting squamous cell carcinoma and a lot of patients die pretty young. There are no treatments today for DEB, but centers of excellence have come up with palliative approaches to help prolong the onset of squamous cell carcinoma and mitigate some of the symptoms of the disease.

Okay. Great. So with that information in mind, but the mechanism of action of VYJUVEK and its notion of the disease, could you walk through the existing clinical data for VYJUVEK from the Phase I/II study, GEM-1/2, even the Phase III trial of GEM-3?

Yes. Yes. Phase I/II was a single-site study where we were looking to figure out, does the drug actually produce collagen VII, you know VYJUVEK? That -- is the collagen VII that's produced orient itself to form anchoring fibrils? And are the anchoring fibrils functional? So there was a mechanistic component to Phase I/II to evaluate that. There was also a clinical component to kind of figure out what should be the frequency of dosing, and what is the durability of wound closure. So we tried several different dosing regimens, looked for time to wound closure, duration of wound closure and extent upon closure. Like is it fully closed or is it 90% close? And we -- what the Phase I/II allowed us to do -- and the results were positive on both the mechanistic and clinical endpoints and, more importantly, on the safety side. So we are confident using that data. We designed a Phase III pivotal study following conversations with the FDA. The Phase III study was a classic randomized, double-blinded, placebo-controlled study, multisite in about 31 or so patients. And what we look -- we ended up with a weekly dosing on a wound until the wound completely closed and then the dosing would resume should the wound were to open over the duration of the study. And we looked for complete wound closure at the 6-month time point. And by FDA guidance, you've got to look for the same end point 2 weeks later. So we had an endpoint that was a bit -- 2 weeks before the 6-month end point and 2 weeks after the 6-month endpoint. We were really pleased that the active separated really well from placebo on the primary endpoint at 6 months. We were also pleased that safety was relatively innocuous in the Phase III trial. We observed that even patients who had prior HSV-1 antibodies behaved similarly to the treatment in patients who did not have antibodies hit to the vector or the collagen VII. And then there were some alternate endpoints. We looked for a key secondary endpoint at 3 months. We looked for improvements in pain and patient-reported outcomes. And overall, we were very pleased with the way the drug worked on these patients. And we enrolled and continue to enroll new patients into an open-label extension study following the end of the pivotal data.

Okay. Great. So kind of following from that, one of the questions that comes up a lot in investor conversations is, how to think about this redosing that happens. You mentioned that you would dose until closure. And if the wound reopens, you can redose with the gene therapy. So how do we think about -- like when these -- like the additional data that kind of walks through some of that redosing dynamic from reopened wounds, what happens when they get retreated?

Yes. The half-life of collagen VII is 30 days. So one -- if you're just looking at it from a scientific perspective, the hypothesis is a wound once closed will stay -- remain closed for 2 to 3 half-lives of 30 days, which is somewhere in the 60- to 90-day range. But one important thing to realize is, depending on the location of the wound, depending on how frequently the patient rubs that area against the wall or the table, like where you're sitting versus -- there is variability in durability even within a patient between young fresh wounds versus wounds that have been around a long time, there's a lot of variability. But 60 to 90 days is a good rough way of thinking about what a median number would be. That said, we do plan to release some of this information. We are collecting some of this in the open-label extension study. We have some preliminary data from the Phase III study, which was over a 6-month period. And we plan to announce that data prior to launch closer to sometime hopefully in the late Q4, early Q1 time frame.

Okay. Great. So it's kind of broadly beyond the point, you mentioned the open-label extension. How should we think about kind of the ongoing treatment in that open-label extension, both in terms of how it defines the efficacy profile for VYJUVEK, but also how it described it's kind of practical utility in a more real world setting?

Yes. Look, presently, we're thinking about VYJUVEK as being a weekly application upfront, either at a site of care. And the site of care, the patient could decide to get dosed at a local clinic or by a nurse in their homes, but they definitely don't have to travel to the centers of excellence hopefully anymore. In terms of what we think is the consumption of VYJUVEK per patient, well, tend to reduce over time over 2 to 3 years and some kind of steady state would be reached where the -- some number of wounds are opening and closing, maybe they're not completely opening. You got to account for some new wounds showing up in these patients and will reach some kind of steady state. So I would say, we're thinking that the average patient, if you look at literature, has about 18 to 20 wounds in the average patient. So we look at dosing being high upfront and reaching some kind of steady state in subsequent years.

So I want to get into that a little bit because that's really interesting. The literature described -- you're right, these high wound burden patients. But we also think about the epidemiology of DEB, both recessive and dominant. I guess one question we kind of come up against is, what's -- how representative are those high wound burden patients in the DEB community versus like them being kind of like the ones that are studied the most because, obviously, they have a high disease burden? How do you -- in your market work that you guys have done so far, what is the distribution of these kind of high wound versus kind of lower moderate, maybe like 1 or 2 wounds a year type patients?

Yes. So we estimate the prevalence in the U.S. to be about 3,000 patients. We're able to identify 1/3 of them today. And I think an overwhelming number of that number are patients with high burden because they have been proactive and looked at -- go to the centers of excellence, as I talked about. The second 1/3, which we're having some programs to identify and get them exposed to the nature of the disease and the correct classification of the disease are maybe roughly split 50% high burden and 50% low burden. And the last 1/3, there's a preponderance of low burden, maybe 85-15. It switches from the first 1/3. So the challenge for us is not upon launch, but over time, I find a way to identify the entire prevalence that exists and ensure that they're sequenced.

Okay. So to that -- and that's really interesting. To what extent do you think this is a drug that, if approved, just becomes like a prescription you have just in your freezer at all times? Because you never know when you're going to like fall over or run into a wall or something and need it as compared to like as a kind of like base case or like low wound burden population. Like how do you think about that kind of like -- something just will always be kind of refilled as needed in the DEB community?

That's an interesting question. I think scripts are written for a short period of time. But you're right that the recessive patients typically will have higher frequency. So I think the way to simply answer the question, if I'm hearing it right, is for the doc to figure out the burden of the patient and then assign the scripts accordingly.

Okay. You mentioned the idea of at-home dosing in the open-label extension. How important do you think that will be to uptake of VYJUVEK to have to be able to administer it in the home?

Yes. So 2 things. That's a really interesting question because the first thing to note is the high burden patients are probably going to get on the drug upfront, which is relevant to your question. The high burden patients, one of their biggest burdens that they face today is having to travel to the centers of excellence like Stanford or Cincinnati. So getting the drug close to the patient's home, call it, site of care, whether at home or close to home, is a huge benefit for the high burden patients to begin with. So our approach has been to get the drug as close to the patient's home as possible and either at launch or shortly thereafter, they would have the option to get the drug dosed at home, if needed. Because I think the complaint they have is less about going to a nearby clinic. It's more about getting on a plane and traveling to a center of excellence.

Okay. Fair enough. So kind of stepping back from all of this, how do we think about VYJUVEK's utility in kind of palliative therapy and kind of dealing with kind of acute wounds as they happen as compared -- and like how that impacts consumption versus, say, kind of the chronic therapy of wounds that have not closed for a long time?

Yes. What we found from the Phase I/II study -- and we don't have too many wounds for me to definitively say what I'm about to say. But what we observed is the acute wounds tended to close rapidly. The -- and then stayed closed for a certain amount of time before they opened. And I say that because the chronic -- the 1 or 2 chronic wounds we had in the Phase I/II, they took longer to close, so required more weeks of application. But ironically, once they closed, stayed close for more than the 30-day median that I was alluding to. So we don't know if that is reflective of all chronic or acute wounds. But based on the Phase I/II, the chronic wounds took longer to close, but stayed closed more durably than the active wounds.

Okay. Asking you to speculate because that's what we love to do. What do you think is a biological explanation there? Do you think that acute wounds, because the disruption of the epithelium has been more recent, there's just less like scar tissue or something? Like how do you think about those differences in wound closure dynamics?

Yes. I'm not expert in the disease, but I have heard from KOLs that chronic wounds start off as acute wounds and eventually lose their ability to epithelialize over time. So you could think of an acute wound as being a newer wound and a chronic wound being as an older wound. Collagen VII promotes epithelialization. Other collagens also do that. So I would say, look, it's a wound that's lost its epithelialization, takes a lot of reapplications to get them to start going again versus an active that is still in the epithelialization -- de-epithelialization cycle. And ironically, it's the active wounds I've heard have a higher propensity for squamous cell carcinoma, given the rapid turnover of the cells in those wounds.

Okay. So with all of that context, which has been very helpful, remind us where are you guys in the process of filing for approval of VYJUVEK, both in the U.S. and Europe and other places.

Yes. We're on track to file the BLA this quarter. We're expecting -- we are on track or planning to file the marketing authorization in EU in the second half of this year and in early conversations with PMDA in Japan. The company presently intends to launch in those geographies and still thinking through about other geographies at the moment.

Okay. So for the BLA submission in the U.S., I mean, the question we invariably get from investors in all these regulatory filings for novel in therapies and novel indications, do you expect an advisory committee meeting from the FDA? And I guess, kind of what are the steps you're taking to prepare for such a meeting?

Presently, we're not expecting to get an AdCom for a couple of reasons. We think we were well aligned with the agency on the well-controlled Phase III study that we did. It was double-blinded, it was randomized, it was multisite endpoints in alignment with the FDA guidance. So it's a well-controlled study with not much left for debate, and they separated nicely. Second, the HSV vector that we use, there's a precedent on a drug called T-VEC. So it's not a brand. It's not a totally new approach to delivering something. And so given that the study was well defined, well controlled and given the vector is -- has been on the market through T-VEC for the last 4, 5 years, we're not expecting one. We're presently not really planning for one. But should we get it, I think we'll be well prepared and we'll probably learn more during the review process.

Okay. I'll pressure test a little bit. What would you expect to be kind of the point of discussion in AdCom if it were to emerge?

My thoughts would be -- and that's actually a really good question. One would be long-term application compared to antibody response. The safety profile, which we're really pleased, how the safety profile turned out. Should the drug think about dystrophic EB or maybe begin with recessive and have us do a smaller study in dominant patients. But that all said, I'm not -- I'm purely speculating as a response to your question, we firmly believe and we are asking for a broad label. We do not believe the antibody has any depletions on efficacy. We've had patients on trials for longer than 6 months. So those would be the type of questions that could come up in an AdCom setting.

Okay. Great. So given that, can you walk through kind of how you think VYJUVEK fits in the potential treatment paradigm for DEB versus other agents? Obviously, there's no approved agents for DEB versus other agents in development that are out there.

Yes. I would broadly categorize competition into those that fundamentally want to treat the disease, which is find a way to provide the gene to a patient or the protein to a patient, which is COL7. And then the other segment would be dose that have palliative approaches to treating the disease. The ones that are working to fundamentally treat appear to be cumbersome and difficult, and they're autologous. So it's a burden on the patient to -- and given the skin turnover, it's always some kind of repeated treatment. And on the other side, on the palliative, the convenient can be dosed at home. Patients don't have to go anywhere, but they don't fundamentally address the problem or fixing the mutated gene or producing the required protein. I think Krystal fits nicely in the intersection of both, where it is convenient and also fundamentally helps treat the disease.

Good. So how are you preparing for a potential commercial launch of VYJUVEK in DEB? And I guess, you mentioned before the kind of like sequencing strategy to Krystal Connect. Can you walk us through the Krystal Connect strategy?

Yes. Krystal Connect, as I think about it, is providing a white glove service to the patient from ensuring that they get reimbursed, answering any questions they have about the disease, just alleviating all the logistical issues of getting the drug to the patient. So think of it as a white glove approach to answering all their problems as finding a doctor, what if a wound opened and they needed a gel. That's Krystal Connect. In terms of launch, look, we have a commercial officer who's launched in rare disease before. We think that the 1/3 of the patients are well known, well identified. We're having good conversations with payers to date. The KOLs who we've educated or who are part of the trial are excited that finally, a convenient option could potentially be available. But to come back to your question, Krystal Connect is essentially a hub like other companies have done hubs to manage the access to a -- to manage the patient's access to the drug as smoothly as possible.

Okay. So I'll ask this question. You're probably not going to answer, but I'm going to try anyway. How should we think about pricing for VYJUVEK?

That the burden -- the financial burden of the disease is already high, that the drug really separates itself to date based on the results from the palliative approaches, both in safety and efficacy. The conversations with payers have been good to date, and they all understand the burden of the disease and it's really the most horrible disease you've not heard of. But that all said, you're right that I'm not going to talk pricing yet, and we'll provide more clarity as we get closer to launch.

Let me snippet this one, one more time. What would you say is like the rough cost of palliative care and kind of palliative management of DEB today?

Based on literature, somewhere between -- literature that was done a few years ago, somewhere between $200,000 per patient per year to $400,000 per patient per year. And I've heard, based on comments by patient advocacy groups, that number has gone up over the last 4, 5 years.

Okay. So to that end, given the efficacy profile you've observed, the wound closure, the ability to have wounds closed for months at a time, would you expect to command a premium over that range? Would that be a reasonable expectation?

Don't know yet. We're working to make the argument and do the right thing for payers, patients and the sponsor.

Okay. So let's step outside of DEB, let's step outside of VYJUVEK now. How should we think about the broader HSV gene therapy opportunity at Krystal and other dermatology indications, probably other orphan dermatology indications?

Yes. So success of VYJUVEK in B-VEC in Phase III helps develop a pipeline in rare skin diseases where pretty much the approach is the same, but the gene is of -- it's a different gene. And so where we have a rare disease skin franchise with Ichthyosis and Netherton Syndrome, that's easy. We're close to getting a study -- human study going in CF. And should that data pan out, the platform now expands from being dermatological to pulmonary indications. And you could think about alpha-1 antitrypsin and other pulmonary indications. We're doing some skunkworks, platform work internally in the company to think about other tissues, and I'm talking -- we got skin, we got pulmonary. But the big optionality on the story, which is the aesthetic market where the approach is similar to what we do for DEB, but in aesthetics, we're trying to deliver collagen III, elastin. It's a very different market. It's a cash pay market. So one could think about the HSV platform as having starting to have broad applicability.

Okay. I want to step through each of those one at a time. Let's start with orphan skin indication. So can you remind us where you are in Ichthyosis and Netherton Syndrome? And when can we expect data updates from those programs?

We hope to resume the phase -- the second half of the clinical study that was ongoing in the second half of this year, where the thinking is to dose adults and pediatrics. Once the study starts, we will guide to data announcement on that one. Meanwhile, in skin, we're looking to file an IND for Netherton Syndrome by the end of the year unless -- yes, that's kind of the present plan on rare skin.

Okay. So moving over to cystic fibrosis. Can you remind us kind of like how you're thinking about the opportunity in cystic fibrosis for a redosable gene therapy? What's kind of the product -- the patient population you're looking to pursue? And I guess kind of beyond just starting that Phase I trial, really like a question we deal with a lot of people who work in these kind of lung diseases, what does clinical proof-of-concept mean to you?

So first, 10% of the CF patients do not have a drug available today and that's the null mutation. Our thinking always has been to develop KB407 for the null mutation because it's a high unmet medical need in CF. To that extent, we are planning to start a Phase I study in Australia. We're still guiding to the end of this month, fingers crossed. We have missed -- it's been taken -- it's taken a while, but we're also looking to file an IND and get a clinical study going in the U.S. in the second half of this year. That all said, efficacy, simply put, in CF can be looked at as an improvement in FEV values, but we are working to get some kind of molecular data, it's a bronchoscopy in the U.S. study. We've not been successful, trying to get bronc in Australia. So hopefully, by the end of this year or early next year, we're able to show some mechanistic improvement and a clinical benefit on null mutation. And then talk to the agency about how highly unmet the null population.

Can you just remind us what is the transgene payload in KB407?

Two copies of the full CFTR gene.

Okay. And then on to aesthetics, can you remind us that -- you talked a little bit about kind of like how you're pursuing that. Remind us of the initial data you had in that program and kind of what are the logical kind of next steps for aesthetics?

Yes, our lead product in aesthetics is KB301, which is encoded for collagen III. We announced safety data early in 2022, where we wanted to show that in a non-facial region of the body, we're able to inject KB301, and there are no adverse events like inflammation. I mean you realize that in aesthetics, the bar for AEs is a lot lower. And following the safety, which was real positive, we ran an efficacy study, injecting subjects in the lower cheek, the upper cheek and the knee. Just to quickly summarize the data, what was great, the subject satisfaction proposed were very positive, which means they enjoyed -- not enjoyed, but they were satisfied with the outcome of the injection. The KOL's feedback was positive. The adverse events were transitory, but we had -- we realized that we have to develop scales that are particular to this product. So next steps in 301 are to get a validated scale, align with the FDA on the indication and how we measure using that scale. And we hope to get a Phase II study started in Q4 of this year. And there's a pipeline with the last seen in INDs following, but...

Yes. So I guess kind of following from that, how should we think about the broader pipeline development for the HSV platform? How should we think about kind of other indications, other areas of pursuit?

Look, HSV-1, what we're realizing is, at least to date, we're comfortable delivering it locally, but we're agnostic to what we can deliver. So one could think about you could [ incur ] for antibodies, you could deliver -- potentially deliver CRISPR/Cas9 machinery, and these are I'm talking long term. But in all those instances presently of different delivery modalities, we're looking for local opportunities. So if there's a case made for a local antibody delivery, not a systemic for safety reasons, HSV-1 would be very amenable. Local areas like the eye, the ear like anything like a local tissue area is something you can think about on HSV. But presently, the company is in skin, pulmonary and aesthetics.

Okay. So then finally, the question we're asking every company at the conference, and I think this question is kind of silly for you guys given the context of our discussion today. What is the reason to own Krystal stock in the next 12 months?

In this market, a company that is 8 to 10 months out, hopefully, to derive product revenue is a starting point with biological margins. So hopefully, a path to profitability and not too far out. So that's one good reason. Second reason, I think HSV has a productive pipeline like you talked about. And third, a great balance sheet in the company that we don't have a need to raise money in the upcoming months or year or 2, for sure. And last, a pretty dedicated team with the founders of the company still being the largest shareholder and aligned with whoever owns the stock in the company.

Excellent. Well, thank you so much for joining us today, Krish. Great to have the discussion, and thanks everyone for joining us.

Thanks for having me.