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

All right. Great. Hey, everyone. Good afternoon, and welcome to day 1 of the 2022 Bank of America's mid Biotech Conference. Thanks for joining the session with Krystal Biotech. My name is Alec Stranahan, and I'm Vice President and Senior Biotech analyst covering Krystal here at BofA. I'm pleased to be joined today by Krish Krishnan, Chairman and Chief Executive Officer of Krystal. Krish, thanks for joining.

Thanks for having me, Alec.

Perfect. So this will be a fireside type of format, mostly question-and-answer. I've got a few here, but for those on the line, feel free to submit your questions via the Veracast platform, and I'll read them off anonymously as we go along. So Krish, maybe just to start on VYJUVEK. Maybe we can just do a quick recap of the sort of late-stage data that we've seen at AAD and SID as well most recently and maybe you could just give a high-level picture of what the completed BLA filing look like?

Sure. So the BLA filing included obviously, the data from the Phase III pivotal study, GEM-3 trial that was presented at AAD and SID and also the Phase I/II study that was completed prior to the commencement of the Phase III study. Those were the 2 clinical studies essentially in the BLA package. In terms of data that has been presented. Look, the Phase III study was a well-controlled study. It was double-blinded, multi-site, placebo-controlled, intra-patient. We used a McNemar analysis to calculate the primary endpoint. The primary endpoints were measured at 6 months and the definition of efficacy was 100% wound closure. Both AAD was much more focused on efficacy as a presentation in the conference on the efficacy data of GEM-3, and we showed that we met the primary endpoint. We also showed we met the secondary end point, which was at the 3-month time point. And besides those 2, we share data on some other endpoints like improvement in pain score and itch, which were directional, but not part of the primary efficacy analysis. It was also important to note that a certain percentage of wounds are like 50 -- 47%, 50% of the wounds were close to both at the 3-month and the 6-month time point. The safety profile was relatively innocuous. But those serious adverse events, no SAEs, separate drug related, no AEs of drug-related of any significance. So that's why we went into the BLA package along with all the associated preclinical data and the CMC work that has been done on B-VEC to date.

Okay. Perfect. That's great. And just on the regulatory commentary that you provided, I think you said that having 2 sequential time points with a benefit on wound closures is what the regulators want to see. Can you just maybe dig into that benefit a little bit more in the analysis?

Yes. So per guidance, FDA guidance on wounds, which you can find online, the agency wants you to measure primary efficacy at a point in time and subsequently 2 weeks or later. And so when I talk about a 6-month time point technically in the study design, it's referred to as a wound that was closed on week 22 and week 24 or a wound that was closed on week 24 or 26. And so it's 2 weeks on -- 2 weeks either to the left of the 6-month time point or 2 weeks to the right of the 6-month time. And they were pretty insistent with us that, that's how the endpoint should be defined for guidance, which is how we designed the study and reported the primary efficacy analysis.

Okay. Okay. And I remember after the top line release, there was some I guess, investor debate around concordant discordant wound pairs, which I think you addressed in subsequent updates. But can you just sort of -- for those who may be less familiar on the line, can you sort of talk through what that means and sort of how the data addresses that?

Yes. So this is related to the concordant discordant pairs, that conversation comes up in studies when a McNemar analysis is used primarily to measure the efficacy endpoint. Without getting into too much detail into the McNemar itself, the definition of concordant is when the wound behaves exactly the active applied, the wound that had the active applied behaves exactly like the wound onto which the placebo was applied. Therefor concordant, meaning if both the active and the placebo are open at a point in time when you're measuring, that's a concordant pair. If the active and the placebo are closed at a point in time when you're measuring that's a concordant pair. McNemar focus is on discordants, which means pairs where the active was closed and the placebo was not, is a classic definition of a discordant pair. And some of -- and McNemar in general, if you look across clinical programs, it's not used as frequently, I mean, it's used, but it's not one that investors are super familiar with. And so the way McNemar looks at concordant discordant is it-- for all practical purposes ignores the concordant pairs and focuses on divergence between the active and the placebo. So yes, there were a few questions on definition and how many were discordant and how many were concordant, but I think between ADD, SID and subsequent presentations, that noise has gone away. And I think most investors are pretty well aware of how they're measured and analyzed. And it actually makes the data look a lot stronger when you're doing a McNemar with discordant pairs.

Yes. I definitely agree with you. And one more point on the filing, and I guess potential patient population for approval, you have a few different subclasses of ADD in the study. Could you maybe talk about the data? I'm assuming that you're seeking approval in all the all the differentiation groups, correct?

Yes, there are 2 subgroups within DEB, recessive and dominant, and we're expecting the label -- expecting, hoping to -- for the label to read treatment of dystrophic EB, like a broad label is what we're expecting based on conversations today with the FDA.

Okay. Great. And also, along those lines of labeling, there is a potential for outpatient administration on VYJUVEK. Is this a component of the review, so it could be added to the label right away? Or is this something that you would maybe seek to add down the line?

No, we're -- right now, my team's expectation is to be able to dose a patient at home upon approval the -- that's the expectation. If we end up with just having to dose a patient in the physician office, then we expect that trying to get the patient dose at home would not be far away based on what -- because we already have home dosing in the open-label extension study that is ongoing. That said, marketing research to date shows that a lot of patients actually want to get started treatment in a physician office for the first few weeks, a couple of months until they get comfortable, and they understand it and then transition into home-based serving. But that being said, our commercial team is getting prepared to dose a patient at home or at a physician sitting upon launch. And depending on how many we get on what's part of the spectrum, we'll plan accordingly, but we're getting prepared to launch the patient to be dosed both at home and a physician office on once we get PDUFA clear.

Okay. Okay. So both could be part of the launch plan. I guess along those lines, could you just speak to the commercial readiness activities that are ongoing. I think this has been a topic on the past couple of earnings calls. So there's been some color. But I guess where are you at in terms of building out the sales force and what is sort of the initial path for your salespeople look like to sell up?

Yes. So from a -- let me start on the organizational front, we have about 17 reps hire who are supported by a handful of MSLs, medical science liaisons, PALS, patient access liaisons and cells where more customer focused on the education side of the disease side incrementally. So the hiring is complete for North American commercial team. Let me start with the stakeholders. We've had really productive conversations with payers. They understand the unmet nature of the medical, of the disease. They understand the current palliative burden for the disease has without approved drug. The concentration of patients per payer is not that high. So it's unlike hemophilia or some of these indications where a particular payer has a huge population of patients. It's much more manageable. So we mitigated the payers on the disease. We've educated them on the clinical studies, and we are in conversations to talk about -- this early conversations to talk about pricing, et cetera, with the payers. So that's going really well, and we feel good about that. With respect to physicians, both our MSL team spent a lot of time identifying Tier 1 physicians, Tier 2, Tier 3 physicians, educating them on the disease, educating them on the drug. The disease part, the education is not that high for the Tier 1, maybe some Tier 2. But as you go into -- so when I say Tier 1, Tier 2, I'm talking about KOLs in center of excellence is Tier 1, pediatric derms could be Tier 2 and then the average dermatologists could be -- and I don't mean average dermatologists, the regular dermatologists to be Tier 3. A lot of education around the Tier 3 component is happening really well. because at the end of the day, the patient would decide to receive the treatment at the local derm office instead of having to go to a center of excellence. And in terms of patient education, look, that awareness is increasing as we are progressing towards approval. So I would say we're building technology systems to help get the patient access and get on drug as soon as possible. And we started with commercial a while ago, like almost at the point when commercial efforts, at least when the pivotal study just kind of got started. So we believe we're in a really good place and ready for launch.

Great. And just one more point on the commercial supply, I guess, in terms of manufacturing ramp, do you feel comfortable that you'll be able to address the initial demand and scale from there?

Yes. We're launching from Ancoris, our first GMP facility. For the next 18, 24 months, all the supply will come out of Ancoris. It's got enough capacity for the global demand in the first 24, 36 months. But our plan also is to transition to ASTRA, which is our second larger facility in about 18 to 24 months. So ASTRA is not involved specifically with the launch, but in about 1.5 years, it could become a great -- we would like to transition to ASTRA and then maybe use our first facility to generate pipeline products. But everything with respect to 2023 and 2024, is all focused on ASTRA and -- all focused on Ancoris, and we're ready for launch. Yes.

Fantastic. Well maybe we can switch gears then to the rest of the pipeline. You guys gave a recent -- an update recently in aesthetics, that's probably the data that's most recent that people are thinking about you've got your CF studies ongoing as well. But maybe we can start with aesthetics, just talking about the -- what's the encore to be VYJUVEK? Obviously, harder to show physical changes in aesthetics versus diseases such as DEB. So I guess as you're planning your Phase II, I want to see if you've gotten any clarity on sort of the registration-enabling endpoint. I know you talked briefly about the internally developed rating skills. But any other details there would be great.

Yes. So we completed Phase I, where the drug showed good durability in below the lower -- below the zygomatic arch in the lower cheek. We saw, on average, 7 to 9 months of durability of the drug based on subject satisfaction scores. So we're pleased with the durability of the drug. So I think we're close on the final dose. Between the Phase I and the Phase II, we developed a new set of scales that we shared with the agency to get their agreed to -- align with them on the way the scales were developed and the fact we were planning on using the scales as a measure of primary efficacy endpoint in the Phase II trial. So we've gotten that and so the plan is to start a Phase II study early next year, we'll narrow it down to a specific indication. We have a specific scale; we have a specific endpoint and we're excited about getting that study go over. That's where we are to date, the safety profile has been very favorable. The durability of 7 to 9 months implies that the subject visits physician twice a year, which is in line with Botox, fillers and other treatments. So we're in a good place going into Phase II. Besides KB301, we do have an active pipeline at Jeune, the same idea but quoting for collagen I, collagen for elastin, there's a whole bunch of other genes that contribute to other factors like skin texture and skin quality. And over time, we want to have a comprehensive pipeline in Jeune. So that's what's happening in the aesthetics front. It's gotten a lot of -- Jeune has gotten a lot more visibility and questions since the Phase I durability data has come out. So we're pretty excited.

Great. And just on -- in terms of the Phase II endpoint. I understand having your own scale is maybe the primary, but would it make sense just in terms of comparability to other aesthetics medicine to use something like the wrinkle assessment scale as a secondary? And I'll...

Yes. So usually, typically, the agency likes to see an indication that's specific, like fine lines. And within that line, they'd like to agree on a scale that shows a 2-point improvement on a scale. So when I say 2-point improvement, you can imagine a scale, if your skin looks like a teenager is grade 1 and then the 20 -- 30 year olds at 2 and 40 year olds at 3 and 50 years olds at 4 and 60 years at 5, they'd like to see a 2-point improvement on that scale once it's agreed to by the agency. They also like the indication to be specific, and that's in line like if you go back and look at other toxins and other fillers. And they like -- that's very similar to toxins and fillers. So you can kind of equate that. But they like the assessment to be done both by the subject and by the physician, and they tend to expect co-primary end points in a Phase II trial, co-primary as in separation is determined by the investigator, aligning with separation is determined by the subject. That's classic. Companies have been able to negotiate a little bit of this classic endpoint in some special cases. So our goal is to identify a clear indication with this clear endpoint. And I think from that aspect, we will be aligned with the agency. We will be looking for exploratory endpoints in the study, improvements in skin quality, improvements in skin texture, which will serve as a basis for some future publication, but the primary will probably be a 2-point change on some specific scale.

Okay. Makes sense. I mean you mentioned dosing that you feel like you're coming close to identifying the Phase II dose. I guess, what's informing your thought process there? What are the metrics that you're looking at? And do you have a sense of what that dose could be? I think you showed a couple in the last update.

Yes. So what we observed in the Phase I was we did not see separation on -- we had 2 doses in the Phase I study. We did not see enough of a separation on the low dose. And so it was pretty apparent that going forward, we should stop at the high dose. The only unanswered question in that study, given the relatively comparable or innocuous AE profile is should the -- can the dose be higher than what we did in the Phase I study. In the Phase I study, while we saw improvement of 2 points on the scale on some of the patients, we did not see a 2-point improvement across enough of patients in the Phase II study -- in the Phase I study. And so our expectation going into Phase II is to incrementally increase the dose from Phase I but not dramatically because the durability assessment was pretty good, was in line. So we're not that far away from an optimal dose. We just would like a dose that would have more of a 2-point change in more patients in the Phase II study. So we're in the process of determining that. We have a good -- we are surrounded by a great bunch of advisers, a great bunch of consultants to help us navigate the aesthetics path. So we're looking to get the study started early next year.

Very good. And you mentioned the Jeune subsidiary having a bit more attention now that there's more meat to chew on in terms of the 301 study. How are you approaching building value either as keeping Jeune sort of under the Krystal umbrella or moving it as its own company? And what's sort of the gating around those 2 options?

Yes. I think our plan always has been to get Jeune away from under the Krystal shadow, right? Most conversations, it's probably the last 1 or 2 questions is about Jeune. I mean not in this conference, but usually, it's the last 1 or 2 questions. And so by the end of -- by the time we finish the Phase II, we're definitely thinking about spinning Jeune out as a separate entity today. The other option we have on the table is to form some kind of strategic alliance with a partner in the aesthetic space. We can still -- we're good on the manufacturing side, given B-VEC and the GMP facilities. We could definitely use some heavy lifting on doing multiple clinical studies across the different call 3 and call 1 and last and more simultaneously than if we were to do it, which would be a bit more sequential. And so we're open to 2 options. One is to spin it out as an independent entity, one is to have a strategic collaboration with a partner in the aesthetic space or both. Spin out and the form the strategic partnership. So hopefully, with the time Phase 2 ends next year, we're hoping to realize that vision. Krystal does have a good balance sheet. So we're able to -- we have no rush to have to do something now at lower valuations. We like do it at the right valuation with the right set of investors and hopefully, speak about Jeune separately than speaking about Krystal.

Got it. That makes sense. Maybe shifting over to cystic fibrosis, given this is sort of next up in terms of where your gene therapy technology could go. And I believe the Australian study is dosing patients, if I'm not mistaken. So maybe just at a high level, what has it taken to get to this point? You're delivering 2 full length CFTR gene through a nebulizer, which is obviously a much different approach than by VYJUVEK. So I guess what are the hurdles here? And sort of what's the expectation around the -- around timing of data from the clinical studies?

Yes. So we have -- the Australian study is screening patients has endorsed 1 yet. In the U.S., we have the IND cleared. I think it was cleared late August, and we're in the process of getting the sites up to speed, working closely with the CF Foundation to make them aware of the way our drug works and the data to date and hope to start dosing shortly in the U.S. That's where we are. One thing about -- I think the trick in CF always has been, can you get the vector close to the epithelial cells in the lung. We believe based on what we've seen in B-VEC and Ichthyosis, that if you're under Ichthyosis program, that if you get the vector close to epithelial cell, it does a really good job of transfecting the cell and expressing the cell machinery reexpressing the required protein. We have -- we've got a lot of confidence on being able to get the vector close to the epithelial cell in the lung based on the nonhuman primate study that we did before we filed the IND in about 36 nonhuman primates, we saw good levels of good levels of expression, broad distribution of expression across the different lobes of the lung. And if you believe that being able to reach the epithelial cell in the nonhuman primate is a proxy for in humans, and we have a pretty good shot of showing some good reasonable positive data in the Phase I study. That said, the nonhuman primates were healthy nonhuman primates. The micro environment in the lung tends to be a bit more marquee with all the mucus. But like other companies have shown like 4DMT, if bacteria can penetrate mucus, our hypothesis is that viruses should be able to penetrate the mucus too. That's our going-in hypothesis and if that were not to be the case, there are ways to de mucus a patient prior to dosing, which would make the Phase I a bit more complicated, but we're going in hypothesis is that the virus should be able to penetrate the mucus based on some in vitro studies we have done and shown previously.

Okay. Okay. Got it. And just in time in terms of timing around data, I guess, it will depend on how quickly patients are enrolled and dosed in those studies, right? Could we be looking at data maybe second half next year? I guess what's -- how would you frame that for us?

We'll provide guidance when we dose our first patient, but it's not unreasonable to think we should be able to announce top line data in Ichthyosis and CF sometime towards the end of second half -- towards the end of next year.

Okay. Okay. And just along those lines, in terms of the catalyst timing, obviously, all eyes are on the VYJUVEK PDUFA, February next year. I guess beyond that, what are sort of the catalysts we should be looking for, either from aesthetics VF/ATD, I know you also have in the pipe.

Yes. So the catalyst next year will obviously be PDUFA followed by a ramp rate in B-VEC in Q2 and Q3 and Q4. That's a separate stream. If we're able to show top line data on KB407 and KB105, it shows both a continuation of an existing skin rare disease platform and the power of the platform to go across different tissues. So those are good inflection points. On the aesthetic study, we plan to start the study. We don't know how quickly we can finish the study. But once the study finishes, our Phase II reporting on Jeune would be a really strong inflection point as with other aesthetics companies. It's much more a proxy for pivotal trials than in the aesthetic space. So I think that's -- more than one really important is we filed the marketing authorization. We're going through the validation process, and should we get accepted and we have expedited review. And so sometime towards the later of next year, towards the end of next year. We're expecting to get approved in the EMA and then have a European launch subsequently. So that's a quick summary of the more immediate things that come to mind on the questions. So...

Okay. Perfect. Lots to look forward to. Well, I think with that, unfortunately, we're up for time. But Krish, I wanted to thank you for a great discussion and for taking the time to participate in the conference.

My pleasure, Alec. Thanks for having me.

Okay. Thanks a lot.

Bye.

Take care.