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

Thank you for standing by, and welcome to the Krystal Biotech VYJUVEK FDA Approval Conference Call. As a reminder, today's call is being recorded. I would now like to hand the conference over to your host, Meg Dodge, Head of Investor Relations and Corporate Communications. Please begin.

Hello, and thank you for joining us today to discuss the FDA approval of VYJUVEK as the first and only treatment in the U.S. for Dystrophic Epidermolysis Bullosa or DEB. With me on the call are Chairman and CEO, Krish Krishnan; Co-Founder and President of Research and Development, Suma Krishnan; Chief Commercial Officer, Andrew Orth; and Kate Romano, Chief Accounting Officer. As we begin, I would like to point out that we'll be making forward-looking statements that are based on our current expectations and beliefs. These statements are subject to certain risks and uncertainties, and our actual results may differ materially. I encourage you to consult the risk factors discussed in our SEC filings for additional details. I will now turn the call over to Krish.

Thank you, Meg, and thanks to everyone for joining this call. Today marks an exceptional milestone for patients with Dystrophic Epidermolysis Bullosa or DEB and for VYJUVEK. I'm thrilled that the U.S. FDA has approved VYJUVEK for the treatment of DEB in patients 6 months and older. VYJUVEK is approved for both the recessive and dominant forms of the disease. Only a health care professional can apply VYJUVEK onto the wounds, but can do so in either a health care professional setting or in a patient's home. DEB as many of you know, is caused by one of more mutations in the COL7A1 gene. And when that gene is missing unmutated, there are no anchoring fibrils produced to hold the skin together. The skin gets fragile, blisters and tears, even with minor friction or trauma, and that leads to skin infections and fibrosis, in some cases, fusion of fingers and toes and in many cases, the risk of developing an aggressive form of skin cancer that leads to mortality. So a very debilitating disease for both patients and caregivers. We founded the company in 2016 on Suma's dream of finding an elegant painless and a convenient way to fundamentally treat their patients. And today is the realization of that dream after 7 years of Taro's commitment by her and our entire team to bring this important medicine to these patients, a superb job for the entire [ consult ] team. Now we're a small company in the world of dermatology. So while we achieved today is something remarkable. We ran our pivotal trial during the peaker covet in a timely manner. We built 2 GMP facilities along the way. We hired an excellent launch team, all in anticipation of the DEB. This path has not always been easy and especially over these past 9 months as we work with the FDA through the approval process. I'm so glad to have all that behind us. Throughout VYJUVEK's development, people were asking, can gene therapy be really redoseable? Will VYJUVEK be able to treat not just recessive but even the dominant form of the disease? Are you limited to small wounds or can you treat larger wounds? Are you able to dose a patient at home? And I'm pleased to say that the answer to all the above questions is a resounding yes. Our dream is to treat this disease comprehensively. I'm sure most of you recently saw the ARVO poster, where we installed VYJUVEK topical in the eye to treat an ortho patient who develop ticketizing conjunctivitis, and we showed the dramatic improvement from hand motion, which is pretty much blindness or close to blindness division of 2040 in 7 months. And now we're starting to treat the other eye in this patient. So systematically, we are also working on formulation plans, defined a way to treat these blisters in other parts of the patient's body. Our plan is to work with the FDA highlight the importance of treating other areas besides the skin and slowly extend the label to allow us to treat this disease comprehensively. Now before I turn it over to Suma, I'd like to take a moment to thank all the people who have gotten us here. I want to thank the patients, their families and their caregivers. They have been our inspiration and motivation since day 1. It's their courage, their perseverance in the face of this disease that's been our driving force. I'd like to thank DEBRA, EBRP, EBMR all the patient advocacy organizations and all the work they did to support patients and bring awareness to this disease. I would like to recognize our incredible team at Krystal Biotech, your unwavering commitment and your pursuit of the highest level of scientific integrity. It is set an honor for me to be on this journey with every one of you. With this approval, we have only begun what we can accomplish together. Finally, I'd like to thank our partners and investors and for their support. You should just be as proud for making a difference in the lives of these patients. And with that, I'll now turn the call over to Suma.

Thank you, Krish. Before speaking about the VYJUVEK label, I would like to say how proud I am that Krystal is bringing the first and only FDA-approved treatment to patients with DEB. I would like to extend my deepest gratitude, most and foremost, to the patients and their families as well as to the clinical investigators, [indiscernible], patient advocacy group and the entire research and development team for supporting the development and now approval of VYJUVEK. The approval of VYJUVEK is based on targeted results from 2 clinical studies in the U.S., our GEM-1/2 trial and our GEM-3 trials. VYJUVEK was evaluated in a Phase III trial known as GEM-3 trial. The GEM-3 trial was a multicenter, randomized, double-blinded and placebo-controlled trial. It was an intra-patient controlled trial, meaning that they conserve as their own control and 2 primary wounds were chosen in each patient, one randomized to VYJUVEK and one to placebo. Wounds were dosed once weekly and to wound closure and will read those if they reopened over a 6-month period. The GEM-1/2 trial was an intra-patient, open-label, single-center, randomized, placebo-controlled study, showing that repeat topical application of VYJUVEK was associated with durable wound closure, full-length cutaneous COL7 expression and anchoring fibril assembly with minimal reported adverse events. It is important to note that strong molecular correction, evidence of COL7 expression and the formation of functional anchoring fibril were clearly established in the GEM-1/2 trial and the label reflects that VYJUVEK's fundamentally treats the root cause of the disease. As you can see here, data from the GEM-3 trial showed consistent evidence of treatment response. There were 31 patients that get enrolled in the trial that made up the intent-to-treat population used for all primary and secondary efficacy analysis. The trial was opened to all DEB patients, including those with dominant and receptive mutations. The baseline demographics of the patients were largely as expected based on the epidemiology of the disease. As shown, the study met its primary endpoint of investigator assess complete wound healing our 100 plus percent on closure for 2 consecutive weeks at the end of 6-month study. The study also met its key secondary endpoint that assess complete wound healing for 2 consecutive weeks at the end of 3 months. The results of this study were published in the New England Journal of Medicine in December 2022. However, you will notice a slight difference between the results shown on this slide and the median publication. This is based on how the agency requested us to handle data relating to the 3 missing patients during labeling negotiations for the purpose of packaging sent. We were asked to apply a worst-case scenario on 2 subjects, which assumes that the placebo-treated wound achieved complete wound closure, while the VYJUVEK treated wound did not. On the third missing patient, the agency asked that to use the remote assessment previously captured for the purpose of the analysis. Despite having to make the adjustments, given the strength of VYJUVEK efficacy, the adjustments did not materially alter the results of the outcome. Moving on to the primary endpoint of complete wound healing. You can see at 6 months, the treatment response with VYJUVEK regardless of gender or age. The table breaks down response rates by baseline wound size. And again, you can see that the response rate was in favor of VYJUVEK treatment in all wound size categories. VYJUVEK has a well demonstrated safety profile in both our GEM-1/2 and GEM-3 trials and our open-label extension study. The most common adverse reaction reported in patients receiving VYJUVEK for DEB include itching, chills, redness, rash, cough and runny nose. I would like to speak to the molecular correction observed also published and viable in Nature Medicine which can be found on the Investors section of our website. Preclinical in vitro and in vivo data provided the scientific rationale for the initiation of a randomized, open-label, placebo-controlled GEM-1/2 trial of VYJUVEK. On the left, you can see an indirect immunofluorescence analysis of collagen VII NC1 and NC2 expression in topical VYJUVEK, treated patient's skin at day 0, day 15 and day 97. On the right, you can see how Full-Length COL7, promotes the formation of mature anchoring fibrils following treatment. These images are the immunoelectron microscopy [indiscernible] Collagen VII NC1 and NC2 expression and anchoring fibril and VYJUVEK treated skin of the same patient. [. Moving on to the label. This is a strong label and paints a very clear picture of what VYJUVEK can do for patients with DEB across different age groups and moon sizes in patent 6 months or older. We are extremely grateful for our collaborative interactions with the FDA throughout the process. We believe that being able to dose the patient in a home setting will offer a significant advantage to the patient and improve compliance. While the U.S. launch of VYJUVEK remains our immediate priority, this is just the first step in our efforts to make wiser available globally to patients with DEB. We plan on filing a marketing authorization with the European Medicine Agency later this year with an anticipated approval in 2024 and anticipate marketing approval and launch in 2025. With that, I would like to turn it over to Andy to talk a bit about our commercial lAUNCH for VYJUVEK. Thank you.

Thank you, Suma. I want to start by reinforcing the earlier comments around what an incredible milestone this is for the dystrophic EB community and for Krystal. The FDA approval is our first step towards bringing this meaningful medicine to a long underserved patient population around the world. We believe there are approximately 9,000 DEB patients in reimbursable markets across the world with 1/3 of those being appropriately diagnosed today. As Suma mentioned, global preparations are underway to enable us to reach more patients with VYJUVEK with expected launches in Europe in 2024 and Japan in 2025. In the U.S., we estimate a total DEB patient population of 3,000, evenly split between the more severe receptive, or RDEB, and dominant, or DDEB patients. Of the 3,000, we believe we have identified roughly 1,100 via claims analytics. Our field teams have begun to validating these estimates on the ground, and our early read is that the 1,100 number is valid. The unmet need for these patients is high, particularly the readily diagnosed severe and moderate patients. Additionally, until now, there have been no approved treatments for DEB in the United States, and patients, families and physicians were limited to palliative care. We have built best-in-class, customer-facing teams with deep launch and rare disease experience. The teams have been in the field for more than 5 months and are excited for the opportunity to help bring the first and only FDA-approved treatment for DEB to patients, families and physicians. The field team will soon be engaging with customers of all types to share the robust advisory efficacy and safety data from the GEM-3 trial, which Suma shared earlier. We have 17 regional gene therapy consultants, three patient assistance liaison, community education liaisons and 4 medical science liaisons across the country, actively educating physicians on VYJUVEK and how to start their patients on therapy. The core of VYJUVEK launched success lies in getting appropriately diagnosed DEB patient onto VYJUVEK as rapidly as possible. Unlike many rare diseases, severe and moderate DEB is fairly readily diagnosed at an early age. Given this, the primary directive at launch is getting diagnosed patients onto therapy as soon as possible. Payer coverage and appropriate sites of care for treatment are critical to achieving this. We have been in active and repeated discussions with the largest commercial plans representing over 150 million lives. For each of these plans, we have introduced DEB, Krystal technology and the VYJUVEK GEM-3 results. Additionally, we've been profiling appropriate sites of care where patients can receive treatment with VYJUVEK as close to their home as possible. Every wound matters for these patients, and enabling treatment sites near to or in the home is paramount for adherence to therapy. We will also focus on getting DEB patients the information they need to seek treatment with VYJUVEK. debra, the largest EB patient advocacy group and the longtime partner of Krystal, has a large and significant presence in the DEB patient community, and we look forward to partnering to supplement our efforts to help educate patients about VYJUVEK. Krystal Connect is our in-house patient services capability and was purpose-built to help patients access and maintain their treatment with VYJUVEK. The Krystal Connect team is made up of experienced professionals who interact with patients, caregivers, insurers and health care professionals in a variety of capacities. The team will educate patients and family members on all aspects of DEB and VYJUVEK, including the genetic nature of the disease. The team will assist in navigating the patient's insurance coverage applicable to VYJUVEK and can offer financial assistance in the form of co-pay assistance or potentially a free drug for those who qualify. The team can also help patients find a site of care for VYJUVEK treatment that is most convenient for them. Additionally, the team can provide reimbursement support for buy-and-bill activities for offices and health care professionals as needed. Let's move on to pricing for VYJUVEK. The dosing dynamic for VYJUVEK is unique with high variability in annual VYJUVEK utilization expected on an inter and intrapatient level. After considering the input of many stakeholders throughout the DEB community in the U.S. and the clinical benefit and significant unmet need satisfied by VYJUVEK, we have priced VYJUVEK for an expected steady state usage across the DEB population following an adoption period. Different patients will utilize different amounts of VYJUVEK based upon their disease severity as well as their overall body surface area. Additionally, patients are expected to utilize less VYJUVEK over time as their overall wound burden decreases. The average annual steady-state utilization rate per patient is estimated at 26 vials per year, following an 18- to 24-month induction period. The wholesale acquisition cost for WAC price for a vial of VYJUVEK is $24,250 with an expected annual steady-state average cost per patient of $631,000 or $485,000 after mandatory government discounts. As we have shared previously, we expect our payer mix to be approximately 55% commercial, 40% Medicaid and 5% other. Importantly, we are proactively offering a patient consumption adjustment for PCA equivalent to an annual patient cap at $900,000 for all commercial payers. This will assist in cost predictability for these payers during the induction period and assist in optimizing coverage for and access to VYJUVEK. We have letters of intent out with 6 of the largest national plans with more expected in the coming weeks. We expect the gross to net rate for VYJUVEK to be in the mid-teens in 2023, increasing to the mid-20s in 2024 as the Medicaid patient population increases and the patient consumption adjustment is triggered. VYJUVEK will be in the channel and available for purchase in Q3. We expect to have more clarity on the launch trajectory, magnitude and ramp after Q3 of this year. I'd now like to turn things over to Kate to give us a financial update.

Thank you, Andy. I will now provide insight into the company's cash outlook. As of March 31, 2023, we maintained a strong balance sheet with approximately $355.5 million in cash, cash equivalents and investments, and we currently have no outstanding debt. Additionally, upon approval, the FDA granted Krystal a rare pediatric disease priority review voucher, which provides us the ability to obtain expedited review for a subsequent application or the option to monetize the voucher at a later point in time via sale to another party. Based on our current plan, we believe our cash balance will enable us to fund our operations and advance our pipeline through the end of 2024. With the potential to sell the priority review voucher or by other means, we believe we can extend our cash runway beyond 2024. As we move forward, we are evaluating options for additional funding to further strengthen our balance sheet, which will allow us to continue the growth of VYJUVEK outside of the U.S. as well as to continue to advance and develop our pipeline. Please note that on today's call, we will not provide any guidance on revenue or expense metrics. We will continue to evaluate the possibility of providing guidance in the future as we gain comfort over the next few quarters with the ramp-up of the launch, market dynamics and other key metrics. With that, I will turn the call back over to Krish.

Thanks, Kate. In closing, we now believe VYJUVEK could be a $750 million-plus market worldwide. Our plan is to launch in the U.S., in EU and Japan and enter into licensing and/or distribution relationships in other countries. With respect to manufacturing, VYJUVEK will be manufactured at Ancoris. It has been inspected and licensed by the FDA. Ancoris is equipped to manufacturer the global expectations of VYJUVEK. After our second manufacturing facility is anticipated to have its first manufacturing run in the upcoming months and will serve as our backup to Ancoris and handle our pipeline candidates over the next 2 years. And eventually, our plan is to transition commercial production to ASTRA. On gross margins. We expect gross margins to be around 90% at launch. We are internally pursuing scale-up and scale-up activities with respect to VYJUVEK manufacturing. And we anticipate gross margins to go up early towards the mid-90s in the next 2 to 2.5 years. And then finally, I want to circle back to home dosing and redosability. Both these attributes read through to the rest of our pipeline. The approval of VYJUVEK finally validates our platform. With safety and CMC of our backbones clearly established with this approval, we believe the development risk of our pipeline products going forward is mostly limited to clinical efficacy. I'd like to once again thank all the committed stakeholders involved in the approval of VYJUVEK. This approval is truly transformational for DEB patient. Thank you all again. And with that, I ask the operator to please open the call to Q&A.

[Operator Instructions] The first question is from the line of Alec Stranahan with Bank of America Merrill Lynch.

Congrats on the approval. A couple from us. Maybe first for Krish. On the at-home dosing, how much training do you think will be required for the medical professionals? And I guess how do you plan to approach this logistically? Are the nurses going by the pharmacy each week to pick up VYJUVEK on demand for each patient? And what kind of training will be required? And then maybe one for Andy. You guys are building out the market and DEB. Could you expand upon how you plan to continue to engage with the community? And for your go-to-market strategy, how much of the uptake do you expect will be through your interactions with providers versus patient-driven demand upfront and then longer term? And then just lastly, any thoughts on what you plan to do with the PRB?

Thanks, Alec. On the training, if you think about how it's applied, you're essentially drawing both VYJUVEK and gel into 1 syringe and drop on top of the wounds in equally spaced places. It's pretty well characterized in the label. What we observed following the clinical study in the open-label extension is we were able to train nurses pretty quickly. And so what they've done since the beginning of our release is to kind of standardize the entire training procedure, both intensive videos and instruction manuals and what's on the label. It's not a complicated procedure at all, and we found no difficulty in any nurse being able to handle the application of VYJUVEK. Andy?

Great. Great. So on the first one, continued engagement with the community, this is the beginning for the commercialization network for that. So across the patient advocacy world, the patient community, the physician community as well as the payer community, we're going to continue those interactions from this day going forward and are looking forward to that. In terms of the source of demand, certainly, a physician needs to prescribe VYJUVEK. So at the end, so to speak, it's going to be a position who is responsible there. However, I think more to the nature of your question here, we expect a good chunk, call it, a quarter, et cetera, of demand to come in to be patient-driven, and those patients seeking out a physician to prescribe VYJUVEK, and we're in a position here to help do that the right way, et cetera.

Yes. On the PRV, this is the third part of your question, at the moment, we haven't made a firm decision. It all depends on -- and it also has a function of timing, it's a question of demand versus the number of PRVs in the market. So as we get closer to making the decision, we shall definitely inform all of you.

The next question is from the line of Debjit Chattopadhyay with Guggenheim Partners.

Congrats on the approval on the broad label. One simple question from me. The team has a sense of the like demand from the dominant side. And does your $750 million projection from earlier [indiscernible]?

Debjit, before I turn it over to Andy, let me add one thing. Look, from the -- pretty much the beginning of the company, we have positioned DEB in the past as a $500 million type market opportunity. While we think based on what we're seeing in the market in terms of prevalence, in terms of inbound input and in terms of pricing, we're kind of just moving the peg from $500 million to $750 million at the moment. Now as we see the launch trajectory and how it picks up in Europe and Japan and other countries around the world, we may continue to change that number, but we like to gradually set expectations as opposed to try and anticipate what global pixels could be at the present moment.

Good. And on the uptake on the RDEB versus PDEB. So while we know why the FDA is split pretty much down the middle, recessive versus dominant, the identified patient base is larger the more severe patients, which again are disproportionately recessive. So in the first phases of the launch, it is going to be known patients on to drug and those are going to be disproportionately recessive. The second phase of the launch will be a little bit more traditional patient finding, et cetera, for some of those less severe patients. So clearly, recessive here in the first 12 months, et cetera.

The next question is from the line of Madhu Kumar with Goldman Sachs.

Everyone, first, congratulations. What a fantastic day for patients with dystrophic epidermolysis bullosa. So should be really proud of what's accomplished here. So really 2 questions from us. The first one is, given the like really clear unmet need and demand from patients with a DEB, the number of identified patients, while you haven't given -- you're not giving revenue and expense guidance, how do you think about the path to breakeven from here? You're kind of $45 million or so quarterly kind of operating cash burn rate. Like what do you think is the path to get towards breakeven and kind of beyond that? And I guess kind of following up on this notion of $75 million of peak sales, when you look at 1,100 identified DEB patients, and you're assuming like a $485,000 kind of steady state pricing with the government discounts, I mean for $750 million in the total market, you're going to get $530 million from just identified patients at the initial launch price. Like how do you think about what's the gap up to $750 million and why it shouldn't reasonably be expected to be much more than that?

Andy, do you want to take that?

Sure. Just to make sure we do this right, the 1,100 number is the U.S. only, right? So I just want to make sure you're clear on that. That's the U.S. only...

No exactly. Yes.

Identified today -- we're going to -- okay. Good. Good. Yes.

So Madhu, the question is, look, we tend to be much more conservative on projections, right? We did the math, too, and I kind of easily follow your question. The question is we haven't launched yet. So we want to see how the launch goes. And as I mentioned before, definitely, we'll keep updating the number as we start to see the demand flow in. So we've been at $500 million forever, even though along the way, we saw an increase in prevalence and stuff like that. So my simple answer to your question is, look, this is us being conservative in our view, and we'll definitely update as we get going.

The next question is from the line of Ritu Baral with Cowen.

Congratulations from me as well. Really fantastic day for patients to finally get an option for this. Another launch question from me. I guess I want to ask about the shape of the curve, Andy and Krish. Do you expect a bolus of at least start forms out of the gate amongst recessive patients in Q3 and Q4? And how should we be thinking about conversion of the start forms to actual booking of revenue? What are the time to fill lag times that we should anticipate sort of in the first four quarters? And also, as you think about the first 4 quarters, would you be giving away any free drug? Or will there be any significant bridging that we need to model for the patients currently in the open label that will convert to commercial?

Andy?

Great. Great. So Ritu, let me try and take it to pieces and make sure I get everything here. So there is a known patient group out there today. So with that, I think you -- I guess you can call it a bolus of individuals who will, in fact, generate start forms over the next couple of quarters. And then also, as you said, what is the time frame for those different groups of patients to get out to therapy? So one of the main variables here is when do we have supply? And right now, that's mid-July that we're estimating that we'll have drug into channel. The second piece of that is when will those patients fees "reimbursable?" Now commercial, as we've said, we're going to go after very quickly and very hard and are proactively doing so. And those will be the first patients to be on drug. Medicaid, which is a significant patient population here, will be staggered throughout 2023 as they come out to draw it, right, as certain states opt to cover. And certainly, we have a plan on the strategy that we're interacting on that front. So that helps to shape that curve with that known patient group. Now again, we're going to generate more known patients in the second half of this year with our field teams. But that bolus, as you call it, is going to be made up like that. In terms of significant bridging, et cetera, we do not -- we have a predrug program that is for taking to qualify that for insured, right, or antigen patients. We are not doing quite out bridging or other activities on that in a meaningful way. We're going to fight the fight with the payers and get the patients on to drug. That's going to be a little difficult on some Medicaid states candidly, but for the patients who got in the OLE right now, we're going to try to flip in as quickly as we can with their paid insurance.

How many patients are in the OLE right now?

45.

45. Got it. And just a quick question on the -- a follow-up on the commercial plans. I mean since the label is exactly what you thought, I assume that you talk to payers with a mock label that looks exactly like the real label. What's your current thought on cryo authorizations required before reimbursement for the commercial plan?

Yes. And you're right, right? We did have label discussions with them on labels, et cetera. We've even had reviews, right, on some of their medical policies that they thought might be appropriate. So in terms of -- so specifically, Ritu, help me again with the question?

Prior authorization, will it be like a builder genetic price metric or...

Yes. So genetic testing will be required as it should be, right? We're all in favor of that. And as you know, we have a free testing program for that. And there will be fire offs for this every single time. That's kind of table stakes when you get to this price level. I mean we're fine with that, and we know how to navigate that, right, with our patient system liaison relationships with the patients, but also the physicians we can help navigate that. So that should be expected and is built into our time lines of the forecast between the start form and getting them on drugs.

Got it. Can you say what some of those prior authorizations will be like a certain severity or a certain body area covered or that sort of thing?

There are going to be a wide ranging depending on the payer. But the most important part here is that in order to qualify for that cap, right, for our discount or contract that we want to take with them, they have to cover us to the label. So they can't go back into the inclusion, exclusion criteria, they can't go back in anywhere else. So that will help minimize, if you will, some of the more arduous fire off. So they should be pretty straightforward.

The next question is from the line of Joe Pantginis with H.C. Wainwright.