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

Good morning, and thank you for joining us on Jeune Aesthetics, Inc. call to discuss data from our PEARL-1 durability results. My name is Meg Dodge, Head of Investor Relations and Communications at Krystal Biotech. I'd like to remind listeners that Jeune Aesthetics is a wholly owned subsidiary of Krystal Biotech. Additionally, this presentation and the questions and answers may contain forward-looking statements, which are based on our current expectations and beliefs. For forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially. Please see the panel entitled Forward Looking Statements in Krystal Biotech's filings with the SEC, including its most recent filings on Forms 10-K and 10-Q for a discussion of important risk factors that could cause actual events or results to differ materially from those in these forward-looking statements. Today's call will be recorded and available on the Investors section of our website. At this time, I'd like to turn the presentation over to September Riharb, Senior Vice President of Marketing at Jeune Aesthetics, Inc.

Thank you, Meg, and good morning. We're excited to share the results of the PEARL-1 Cohort 2 extension study. I'm going to start today's call by providing a short summary of our aesthetic focus and our drug product candidate, KB301, and then Hubert Chen, our Senior Vice President of Clinical Development, will walk us through the PEARL-1 Cohort 2 study results, and then I'll provide some insights on our future Phase II study. It is well established by collagen and elastin and other structural proteins play an essential role in maintaining the health of our skin. And as we age, these key proteins are impaired by reduced production and increased degradation. Ultimately, our skin loses volume, which leads to skin aging. So why did we select Collagen III as our first product candidate? It's produced abundantly by our bodies when we are babies and provides tensile strength and influences cell adhesion, migration and proliferation, which are all fundamental to our skin's health. It's for those reasons that this was a starting point for our first product candidate. KB301 augments the aesthetic technologies that are available today by a novel method of action that enables the patient's body to produce natural Collagen III. They can be applied to all skin types, it's injected just like a filler and a neurotoxin, which are well known by both patients and physicians, and the 33 gauge needle is extremely small, which mitigates the need for pain killers during the treatment. Collagen onset is seen within days, enabling the patient to plan for big events, and we have data now that shows extended sustained benefit up to 9 months. The aesthetic market today have well-established technologies, again such as fillers and neurotoxin, which address key facial aging issues, such as volume deficit due to fat loss and wrinkles associated with facial expressions. KB301 promises to augment these existing technologies by reversing the aging process of the skin, specifically volume loss of the skin, not the fat, through replenishment of the key skin proteins. Now for existing aesthetic patients, KB301 will be folded into their existing filler and neurotoxin regimens. And our clinical advisers also believe that KB301 could tap into the broader commercial market that currently uses possibly sunscreen and skin care products such as retinol that has not yet pursued any aesthetic treatments. One of our advisers frames the promise of KB301 as fundamentally changing the way we age, meaning maintaining the health of your skin as you age. Our first indication for KB301 will be in the face, but we know that the market will want applications in target areas of the body as well, which we do intend to pursue over time. And we also intend to advance all the key skin proteins through the commercial development, with elastin being the next target in our product pipeline. Now our pipeline is strong, but one of our biggest advantages is our relationship with Krystal. Jeune has a significant advantage [ manage ] being able to leverage the gene therapy vector that Krystal developed in rare diseases. This gene delivery vehicle has been extensively studied in the B-VEC program Phase I, II and III clinical studies, and those studies have helped form Jeune's clinical strategy. Plus Krystal's manufacturing facilities, which have been designed to meet GMP requirements, will be utilized for production of Jeune's future products. On that note, I'd like to pass the call to Hubert Chen, who will walk us through our PEARL-1 Cohort 2 extension study results.

Thanks, September. It's my pleasure to present the top line readout from our open-label extension of our PEARL-1 study. This slide provides a high-level overview of our Phase I program for KB301. The Phase I was conducted in 3 parts. The first cohort mainly focused on establishing safety and confirming tissue expression of Collagen III, and it was conducted in the open-label study with injections to the buttocks and skin biopsies to demonstrate molecular correction. The second part of the study focused on demonstrating efficacy, while exploring different doses in various scales. And the second cohort was designed as a double-blind, placebo-controlled, randomized split-face study, where we administered doses to the neck, upper and lower cheeks, as well as above the knees. And then finally, the third portion of the study, Cohort 2E, for which we're presenting data today, we assess durability of efficacy that we observed in the previous Cohort 2. This portion of the study was an open-label extension among subjects who have received the high dose regimen from Cohort 2 and were observed for durability of effect. In addition, extension also provided open-label treatment, subjects who had previously received KB301 to 1 side of their face and desired treatment on the placebo side to correct for an asymmetry. Shown here the results from the efficacy portion of the study that were previously presented earlier this year. As a reminder, we observed improvement in subject satisfaction scores in the lower cheeks that were treated with high-dose KB301 as compared to those cheeks that were treated with placebo. Of note, visits 5 and 6, shown here were only 2 to 4 weeks after the last dose, depending on the number of injections they received. So for Cohort 2E, we focused our attention on the efficacy that was observed in the high-dose subjects. Of the 23 subjects who completed Cohort 2 for efficacy, there were 10 that rolled into the extension study and were followed for durability. 9 subjects did not receive high-dose during Cohort 2, and therefore, were not eligible for the extension and 4 subjects did not enroll. Of the 10 subjects that we enrolled into the Cohort 2 extension, 7 had previously received high dose to 1 cheek and placebo to the other cheek, and 3 had previously received high dose to both cheeks. And therefore, there were a total of 13 cheeks for which we have long-term durability assessment in the extension study. As previously mentioned, as part of the extension study, KB301 was also offered to the 7 subjects who had previously received placebo on 1 side in an attempt to correct any unevenness in their appearance. Shown here are the key durability assessments that were performed during the Cohort 2 extension. Approximately 5 to 6 months had elapsed between the last dose in Cohort 2 and the initiation of Cohort 2E. Therefore, the months 1, 2 and 3 visits of the extension study corresponds to approximately 7, 8 and 9 months after the last dose. Durability was assessed using the same subject satisfaction score that was previously used in the efficacy portion of the study. And in addition, investigator assessments were also performed at each visit comparing photographs of the subject taken at baseline prior to any treatment. Shown here is the change in subject satisfaction scores during the Cohort 2 extension. For comparison, we've also included the score for the same 13 cheeks evaluated during the efficacy portion of Cohort 2. And as you can see, those cheeks that received high-dose KB301 continue to demonstrate changes in subject satisfaction up to 9 months later that are roughly similar to the changes that we observed at the weeks 5 and 6, indicating a durable effect. In addition to looking at mean change in subject satisfaction, we also looked at the proportion of responders defined as either a 1- or 2-point change from baseline on the subject satisfaction score. As shown in the left panel, a substantial portion of cheeks continued to demonstrate evidence of an improvement in the subject satisfaction rating based on a responder definition up to 9 months after the last dose. And in addition to subject satisfaction, investigator assessments were also performed at each visit to determine whether a clinically meaningful difference was observed relative to baseline. And as shown on the right, you can see that there are high proportion of cheeks that also demonstrated meaningful difference based on investigator assessment 9 months after the last dose. So taken together, the durability data from our Cohort 2 extension suggests persistence of an effect well beyond the initial treatment period. At this point, I'll hand it back to September to discuss some of the [ stem ] changes that were observed.

Thanks, Hubert. This first subject image at baseline shown on the left is before treatment with KB301 and it shows extensive superficial lines. And the image on the right shows the improvement of the skin following KB301 treatment in the lower cheek sustained out to 9 months. And this is the driver side or the left side of the same subject's face at baseline and 9 months after KB301 treatment. Even at age 65, on an area of the face that receives greater photo damage due to sun exposure when driving, the results have not returned to baseline at 9 months. This subject has a deeper wrinkle that originates from our nasolabial fold and extends to the lower cheek area. And the image on the right shows the same area at 9 months after KB301 treatment, and you can see that the wrinkle has vanished and has not returned 9 months later. So in summary, we have successfully advanced the clinical development of KB301 to show sustained durability up to 9 months after treatment as measured by subject satisfaction scores and investigator assessment. So our next step is to initiate our Phase II study or what we call our PEARL-2 study. We are in the process of designing the study based on the positive results of our Phase I program and with feedback and guidance from the FDA. Our study design will be a prospective, multi-center, randomized, double-blind, placebo-controlled study to assess improvement of fine lines and target spatial regions. And KB301 dose will be optimized in our Phase IIa cohort. Our efficacy measurements will include safety and tolerability of KB301, and our primary efficacy endpoint will be a composite endpoint in which is a subject is defined as a responder if both the subject and the investigator independently agree. Finally, KB301 specific scale for fine lines and wrinkles will be utilized, as well as other subjects and investigator exploratory endpoints. At this time, we would like to open the line to questions.

[Operator Instructions] Our first question for today comes from Alec Stranahan from Bank of America Merrill Lynch.

Just a couple from us. First, on the Phase II, do you have a sense of what the FDA would accept as a primary efficacy metric here? Have you been able to reach alignment on either your in-house developed metric? Or do you think the FDA would prefer to see something like the wrinkle assessment scale used in other registrational studies? And second question from us. What are your expectations in regards to ease of showing a durable benefit in a younger cohort of patients? I think your press release indicated that you may be including younger patients in the Phase II. I'm just trying to better understand the characteristics and the needs of these 2 groups.

Hubert, do you want to take a stab at the endpoint question first? And I'll let Suma talk about the durability pump.

Sure, Krish. The FDA has indicated that we would like to -- that it's appropriate to go after a fine line indication and the scales are still currently under discussion.

Okay. I'm going to jump in. Yes. I mean, I will just add to what Hubert said. The good thing is we have got some guidance from the FDA. We have shared the Phase II synopsis. We are fine with that. With regards to the scales, as Hubert said, they give us some guidance. So I think it is very valuable, the guidance. I mean, I think now we have to just validate the scale and implement that into Phase 2. With regards to the second question.

On the durability, will they allow existing scales to [ the final scale ]?

Yes. I mean, again, the phase that -- the scales that we have worked with the agency and that we'll finalize in a Phase II scale is the scale that we're going to use for -- to move forward into the durability study.

September, do you want to add anything to that comment?

No, I think that's great. And then with regard to the younger patient population, the FDA did want to see the first application and older demographic, and we were able to show that there is an effect in an older aged patient. But we know that the biology will allow us to have an even greater effect in a younger patient population. And the standard aesthetic market is typically a younger demographic. So we're looking forward to including a younger patient population in our Phase II study.

Next question comes from Joe Pantginis from H.C. Wainright.

Congratulations on the data. I guess, I just wanted to focus on, again, when you're talking about the endpoints that the FDA and you might be aligned. You talk about newly developed internal scale. So I'm just curious, maybe if you can't give the specifics, maybe some sort of scale of, no pun intended, of how new these are, how different?

That's a great question. So we revised the scale at the end of the Phase II efficacy study. We submitted to -- we validated them, we submitted to the FDA. They seem to be aligned with the scales with respect to the indication of fine lines and wrinkles. What we will do, it is incrementally different than the standard fine line wrinkle scale that is out there for other types of treatment. With the announced study at the protocol -- when we announce the protocol design for Phase II prior to commencing the study, we will share the scales, and we will give you an idea what the differences are between the new sales and the existing scales. So stay tuned for an upcoming disclosure of the Phase II study.

Okay. I understand. And then looking forward to PEARL-2 and the profile of 301, obviously you talked about it as being a -- and on today's comments as well, as being an add-on to fillers and toxins and what have you. But when you look at the controlled environment of a randomized Phase II like PEARL-2, how are you looking at the control arm with regard to -- is it in all comers with regard to background therapies? Or how are you looking to control for what patients are already using?

The study design is placebo controlled, and the area we're going after, the fine line wrinkles in the lower cheek is not an area that's well treated by either fillers or toxins to date. So we're looking for fine lines and wrinkles that -- and we're also exploring above the [indiscernible] cards, where we had good data. So yes, the indication is fine lines, wrinkles, but the target areas are presently not amenable to toxins or fillers. And I'd like September to maybe add -- if there's anything to add to that comment, September, that would be great.

Yes. Exactly. Krish is sharing that the application of our technology is very specific to areas that are very hard to treat today. They are very challenging with the existing toolbox, if you will, of the aesthetic physicians. Obviously, our exclusion requires that a patient hasn't had applications that would affect the outcome leading up to the study and then during the study, so we don't have any sort of conflicting impact on the skin. So that the data is very clean. But we do know that, from a commercial standpoint, this will fold in beautifully with the regimen that the patients have today.

Our next question comes from Anvita Gupta from Cowen.

This is Anvita on for [ Ritu ] today. Congrats on the data. A few questions from us. So with this durability data in hand, how are you thinking about the trial design in -- Phase II trial design in terms of study duration, trial size and maybe the doses to start up? And I have some follow-ups.

Look, we were hoping to at least get 6 months durability when we started the durability trial, because there are 2 injections a year, is kind of in line with what toxins and fillers go through, so it's a pretty good bar to hit. Now what we observed was a higher durability than the 6-month time point. So we are -- but that is in older patients, right? So we are in the middle of discussing with our KOLs, how we should design the Phase II study. We're right in the middle of those conversations. So rather than me try to -- yes, for the trial design it's going to be, I would suggest there are opportunities to decrease the dose, opportunities to increase the dose if we wanted a larger durability. And so stay tuned, we'll disclose the Phase II trial ahead of starting the study.

Got it. And then any color on why did the 4 subjects from the original 23 patients in the Cohort 2 did not enroll into the extension period?

They were not related by any means. They're scheduling related. September, do you want to add some color to that?

Yes. That's pretty much it. We had 2 patients that just dropped out due to scheduling conflicts. We had a patient that when they learned that it was going to be a split face, because they didn't want to have any sort of potential unevenness, they dropped out. And then I believe the fourth patient dropped out after -- for scheduling purposes after the initial injection dosing behind the ear. They just couldn't meet the requirements of the study.

Got it. Any anecdotal comments from the extension period, Krishnan?

I'm going to -- Hubert, September, like I remember hearing 1 or 2, but maybe you guys know more?

Yes. I can share that. So we had 2 investigators, Dr. [ Guide ] and Dr. Yoelin, and they are both very excited about the results. What they know that they have available to use on their aesthetic patients today, there is a large hole that is this unmet area of the superficial lines, and this technology is addressing it. So the thing that they really -- the thing that stood out, pardon me, that they have not seen with other products is the early onset. And then what they were terming the Jeune glow, the patients just had this like radiant glow associated with their skin after the injection.

Got it. Helpful. Final question on the pipeline in aesthetic. How are you thinking about developing the elastin program based on the 301 results that we have seen so far? Any potential first indications there?

Not yet, Anvita. We're still talking to our KOLs about it's a very complementary, elect addition to the thing, and we don't have an indication for elastin at the moment.

Our next question comes from Madhu Kumar from Goldman Sachs.

This is Rob on for Madhu. Just a couple of questions. First, going forward, do you expect to continue operating Jeune as a wholly owned subsidiary? Or is there any plans to like split it off as a stand-alone company? And then second, just where do you think that this drug positions versus other biologics that are currently on the market?

With respect to your question on splitting off, that's always been the intent, depending on macro conditions and internal development distance. We're trying to figure out what the right timing is. I think that the -- we definitely wanted to get past the Phase 1 with respect to safety, efficacy and durability. So starting the beginning of the Phase II trial, some time and assuming the Phase II trial lasts through the end of 2023, some kind of investment we're definitely thinking through and planning for at least talking about Jeune separately. When and how that happens is a bit unsure and is a function of market conditions, but that's definitely in the strategic plan with respect to overall positioning of Jeune. Krystal, Jeune will be tied to the hip, as September mentioned, manufacturing, prior regulatory interaction. But the goal is to keep Jeune focused on cash pay type treatment, and that's a clean line segregating what applications belong to Jeune, which is what application [ full scale ] are Krystal. But we are definitely thinking through that. In terms of positioning, how does this position with respect to pillars of BOTOX? I'll turn it over to September to reiterate what she's heard and how she thinks about positioning [ tier one ].

Yes. So the market is very well established, as we all know. So the neurotoxin is used for -- to address expression associated wrinkles. And then fillers are really used to fill in deficits where you have fat loss over time, or if you just want to augment areas that, for aesthetic reasons look better. With regard to fine line, that has been a significant challenge and defines superficial lines of the cheek area, the eye area, perioral area, there's lots of areas that are targeted, areas that they use energy devices. They've used chemical peels. We have different ways of trying to treat them today that are typically in energy or heat, basically, inflicting some level of damage to trigger a collagen response. And this is where the application of KB301 will be able to come in and be able to communicate to that specific area of the skin and rebuild the extracellular matrix and essentially rejuvenate the skin, kind of reverse the clock, the biological clock. So that is the position that we see our product being able to fold into the existing market and really fill that unmet need. Does that answer your question?

Yes, that's really helpful.

Our next question comes from Raju Prasad from William Blair.

Just curious kind of the durability of response data that you're seeing, whether there's any cost to slipping 301 into some of the more common indications for neurotoxins like crows feet lines or [ smile line ].

September, do you want to take that one?

Yes. Yes, absolutely. Yes, I think this is going to be the perfect layering technology with regard to your crow's feet and your lateral campus, any of those areas where you address the expression wrinkles. You sometimes have that layering of that leftover, if you will, superficial wrinkles, that can't be addressed just by paralyzing the muscle. And so going in with KB301 to address those superficial wrinkles either before or after would be perfect.

Great. And then, Krish, on the manufacturing side, I think you got -- I think, both facilities now up and running. Can you maybe just comment a little bit on where you're at with potential manufacturing 301 in addition to [ Vijuvek ]?

Yes. I think -- and [ call it ] like I've mentioned, would be close for the most part, exclusively focused on the [ Vijuvek ] launch. As is anticipated to come online, meaning get a run done before the end of the year, like a trial run before the end of the year and fully functional in the first half of next year. And so with respect to making future materials for KB301, I think primarily it will be the [ Astra ] facility. And because the doses are small and the frequency of administration is small, we're not really talking at least for file lines and wrinkles, too many fronts within the asset facility, but the plan going forward for Jeune would be to make it out of the [ Astra ] facility.

[Operator Instructions] Our next question from today comes from Geulah Lifshitz from Chardan.

I think you mentioned earlier, you see potential in patients who are not existing aesthetics. Can you expand on that a little bit with regard to what kind of profile you think that type of person we would be looking for with regard to either exclusivity or variability or any other parameters?

September probably knows that.

Yes. So the market outside of aesthetic treatments or current aesthetic patients, they have typically focused on taking their skin care up to the level of maybe a physician dispensed skin care cream, but they haven't moved into an injectable. And there is quite a bit of research out there, and we did our own research through IQVIA looking at what is that trigger for them to move into an injectable. And it is, we believe, KB301 addressing basically the decline in key proteins in the skin and rebuilding of the extracellular matrix. The result is you have rejuvenated skin, which is also the goal for skin care creams. And so this is the first product that is designed specifically for rejuvenation of the skin that's an injectable. And we believe that this will actually enable this technology to tap into that basically untapped market at this point, which represents -- the aesthetic treatment market represents in the U.S. roughly 7% of the U.S. adult population. So we think our technology will extend beyond that tapped market for those reasons.

Our next question comes from David Hoang from SMBC Nikko.

So I just had a couple. First one, can you just talk a little bit about what kind of data package would be needed to support registration for a product in this space? And extending on that, how should we think about the Phase II trial in that context? Is this a larger proof-of-concept type study? Or could it potentially be used to support registration?

Suma, do you want to take that?

Yes. I mean, obviously, we have gotten guidance from the FDA. So the Phase 2 will be -- I don't think it will be powered enough, but the intended to study the endpoint. And of course, it will be used overall in the support of the clinical package. But for this indication, you will need 2 well-controlled Phase III studies. But I think, again, the challenge is not getting those studies up and running. They're pretty -- enrolling patients and getting them is not the challenge. I think the biggest point is the CMC. And I think we feel very comfortable like to meet those time lines. Right now it's 1 of 3 going through the FDA, they're understanding the assays, the commonalities of some of the assays that we can leverage, and that's going to accelerate the overall time line. So we believe, because they're going to be tight on the CMC, we understand CMC, we can leverage our existing platform assays, and we can really scale this up and we really know what to do with the CMC. So we feel very comfortable that the clinical studies can get up and running and we can move in parallel with -- on the CMC function to get this -- an application forward.

Got it. That's very helpful. And then I had a question on, let's say, post-approval in the first indication for KB301, that point could do a lot off-label prescribing to get broader usage of the product, or do you think you would need to, I guess, to do additional studies to go after label extensions and further indications?

September?

Yes. So our initial indication, we know that, that product will be administered initially on label. And then as the physicians get comfortable with the technology, the masses, of physicians get comfortable with the technology and what it's capable of doing, we know that it's very common in the aesthetic field to use products where needed. So off-label authentication. So we know that the initial indication, initial activity will get things started, things will progress from there. We do intend to continue to advance our pipeline, moving to all -- through all the key skin proteins. But we also intend to allow from a marketing standpoint, marketing claims, to be able to educate the market on other areas of application. So we will, in parallel, with advancing our pipeline be pursuing other indications so that we can communicate and educate the market.

Thank you. We have no further questions for today. So I'll hand back to Krish Krishnan for any further remarks.

Guys, thank you all. As you can tell, we're super excited by the development. Jeune Aesthetics is a big optionality on the Krystal story. I've always said that. And if you think about the risks of an aesthetics program, as Suma mentioned, we believe that the CMC side for a biologic is significantly derisked. In terms of repeat dosing and mechanism of action and immunogenicity, that has been derisked. And so what we have to do to get, right is a good study design in Phase II with end points, which we think we are in agreement with the agency. And if we get a good readout, well-controlled Phase II trial, I think that points to kind of transferring efficacy onto the 2 Phase III well-controlled trials. So I think a lot of focus on Jeune right now is on making sure that it's designed right, the dose is right, we have safety. As you saw, we have decent efficacy. We were a little down on the scales, which we have corrected, modified and validated for the Phase II. The patient population is going to be lower. So we're not stuck with 65 and 75. We are hoping the efficacy impact is higher. So that's what -- and in the interim, we're going to continue to develop the elastin and some of the other pipeline products. But a big goal for Jeune would be do a well-controlled, nicely done, clear endpoints, clear scales Phase II, and I think that will set the ball in motion on Jeune. But thankfully, all the hard work we did on CMC with KB103 and 105, and all the learnings have questions we've gotten are definitely going to be beneficial as this program moves forward. So that said, thank you all for joining the call. We're excited by the durability data we saw, and we're happy to answer questions going forward on the aesthetics program.