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

Hello, everyone. Thanks for joining us on day 2 of the Goldman Sachs Global Healthcare Conference. Glad to see everybody survived, day 1. So before we start, we're required to make certain disclosures in public appearances about Goldman Sachs' relationships with companies that we discuss. The disclosures relate to investment banking relationships, compensation received or 1% or more ownership. We're prepared to read aloud disclosures for any issuer during the sessions upon our request. However, these disclosures are available in our most recent reports available to U.S. clients on our firm's portal. In addition, updates to those disclosures are available by ticker on the firm's public website. Goldman Sachs agrees to host this conference on the basis that no third-party speaker will provide confidential or material nonpublic information. In addition, by attending this conference, you provide Goldman Sachs the right to record and redistribute the conference information. The views of third-party speakers do not necessarily reflect those of Goldman Sachs. And so, super thrilled to be joined by Krish from Krystal Biotech. Obviously, fascinating couple of weeks and months for the company. So, really glad to have you here today.

Thanks, Madhu. Thanks for having me.

All right. Great. So first, obviously, top of mind is the -- congratulate you on the approval of VYJUVEK and DEB. Huge victory for Krystal and more importantly, a huge victory for patients who really need a treatment in this disease. And so at a high level, can we start with how have launched preparations have been progressing?

Sure. Well, thank you. It was a big milestone for the patients, a drug that fundamentally treats the disease, the convenience of being able to dose at home is a great flexibility for the patients. The topical painless administration, so whether you think about the patients, you think about the caregivers, if you think about a drug that fundamentally delivers COL7A1, it was, in our minds, a historic approval on behalf of the patients, and so we were super excited. In terms of launch preps, launch prep is going really well at the moment. If you think about launch prep, one aspect of the launch prep is to make sure the patients get access to the drug, access both financially and operationally. So we have been working really hard in terms of making sure that we have specialty pharmacies that help distribute the drug and get the drug to the patient, whether in a center of excellence setting, whether in a local doc setting or whether in a home setting. We've been having great conversations with the payers, in terms of the pricing structure we disclosed, which seems pretty amenable to the payers with the cap in place. That's been going on really well. And we've also worked very closely with the patient advocacy groups. Now that the drug is approved, they have been very useful in making to bringing awareness of the drug and we're already starting to get about the start forms that we're working over the next 8 to 12 weeks to take to realization.

Great. So, you mentioned the patients and physicians in this community. Can you give us an overview of how I think about those patients and those physicians specifically, we started talk about identified patients, which we'll get into more later on, where they are, and which physicians do they tend to be seeing right now?

Right now, the patients who are moderate to severe, who are part of the system that we've been able to glean through reimbursement codes have gone through the centers of excellence, at least once in their lifetime. So, there's a way some continue to be at the centers of excellence, some have been through and maybe shifted to a local treatment setting. That's where the identified patients are today, right? There are about 34 centers of excellence, was the moderate and the severe patients get treated. A lot of these moderate to mild patients probably have been in the system once before. And have now stayed away from it because there has to be no approved drug in the market, right? Most of the palliative approaches or antibiotics, anti-inflammatory and depending on the severity, you could choose to travel to a center of excellence periodically or just have your local paed derm administered as well. But most of them, the ones identified have gone through a center of excellence settled.

Maybe to follow up on this. This is going to sound like an almost naively simplistic question. How should we think about what a mild DEB patient is like? What does that actually entail? What does that actually represent? We'll come back to like, how to think about them as vis-a-vis the launch. But like, what is the mild DEB?

Yes. Chances are a mild DEB patient is probably a dominant dystrophic EB patient, that are exceptions, have a handful of blisters, say, less than 10 with a high degree of [ patelialization ], so they tend to open and close to some extent or they don't stay closed, that would be a picture of a mild patient, without too much in other areas of the body or internal organs.

Okay. So -- but they would -- you'd say, by and large, they would tend to know they have a condition like DEB, or do you think that there's still an uncertainty in terms of diagnosis there right now?

Uncertainty because a lot of them have not gone through sequencing, which determines exactly a, if you have DEB, a lot of times, people would -- EB get mischaracterized between simplex and DEB and junctional. And so, what we did early on, Andy did 18 months ago was to think about a Krystal -- a decode DEB program. We're willing to get patient sequence to figure out exactly what segment they fall in. And now, if they fall within the DEB segment, hopefully, there's a way for us to read them properly.

Excellent. So you mentioned in the beginning, home dosing. Obviously, that's a great plus for the label for the drug. So, at a more practical level, can you walk us through how a DEB patient would use VYJUVEK in the home setting, and give us an essence on roughly how many patients is feasible really primarily be treated at the home versus at a doctor's office?

Yes. If you're new to VYJUVEK, we believe that the patient and the parent would want to get treated in a physician office setting for a few weeks, a few couple of months before transitioning to a home setting. If you have been on the Krystal, orally study or the Phase III clinical study for an extended period, chances are they would opt to do get home dosing sooner rather than later. If you choose to get treated in a physician office setting, then essentially through the specialty pharmaceuticals where the physician can buy and bill, those are some options or we have specialty pharmacies get can mix and bring the drug over to the physician's office and they would get treated there. If it's a home dosing, then one of our specialty pharma distributors, Option Care has a network of nurses who can go to a patient's home on a weekly basis at a convenient time and get the patients treated. There are a handful of patients that live close to centers of excellence, whether it be Northwestern or Stanford or Cincinnati or Colorado. They may continue to go that if they have bigger complications. But in general, we see the patients over time, transitioning from centers of excellence to the local physician to eventually home dosing, over time.

Okay. So I actually get to our next question. Just how to think about kind of the launch strategy for VYJUVEK, in terms of centers of excellence versus kind of like the average dermatologists versus kind of the broader region, like how do you think that kind of staging of what you're looking to target in the commercial launch of the drug?

Well, as I said, centers of excellence is a natural obvious choice start. They have access to the patients. They kind of know the patient. A lot of them have been on our open-label extension study. So what -- the way we think about is our immediate objective is to get everybody who has been on Phase III, Phase I/II or OLE onto the drug as soon as possible. And then, almost simultaneously is to think about the centers of excellence, who have a bunch of patients try to decide and find them a site of care, which could be the center of excellence at a local paed derm depending on the location. So there is a wire of about 1,000 patients or so that would be the focus of Krystal, over the next 12, 18 months. But concurrently, a lot of effort going on in terms of identifying patients who are not in the system who have not -- who have been getting reimbursed and fallen out. But that's more a delayed issue for us than an immediate issue for us.

So, if you on that -- just the back of the envelope, say, of the 1,100 identified patients, about 1,000 centers of excellence, you would say or...

Have gone through the centers of excellence at least once, so some are still connected to the centers, which are easy to transition. The others may require a couple connecting the dots to get a hook to find them, and find them aside of it.

Okay. And then that remind me, what is the number of patients who have been on GEM-1, 2, GEM-3 and the OLE?

I would say between 45 and 55 patients.

Okay. Great. All right. So a question, we get all the time from people is how to think about KPIs for VYJUVEK's launch. I think the main one we get is how do you think about the disclosure strategy for patient start forms? And I guess, really coming into brass tacks, do you plan to share patient start forms at 2Q earnings?

Madhu, we are internally having a bunch of conversations around this specific matter. And, we're trying to figure out because what we should anchor our -- that kind of points to how well VYJUVEK is doing, when the upcoming Q2 earnings come up, so stay tuned. We haven't -- but because some of the obvious KPIs, Media One's net revenues, start forms, patients on drug, I mean, you can [indiscernible] and dice it said how Medicaid versus commercial, so we're in conversations internally, and we'll update shortly.

Let's actually speak to that. Can you remind me you discussed this at the approval call, but just remind us what is the split of payers in the U.S. for DEB between government versus private insurance kind of Medicaid versus other sources?

I would say, 5% Medicare, 45% Medicaid and the rest commercial.

Okay. So kind of practically from that, how should we think about kind of the cadence of going to the patient start form, reimbursement, medical exception process from those different buckets?

Look, Medicaid, depending on the state tends to take a certain amount of time between 3 to 6 to 9 months, there's a time when you file for Medicaid and when you get approval, so that will follow with [indiscernible] that are a few states. So depending on where the stock funds come in, that could change depending on if you're from Massachusetts, New York, or one of the Colorado, which is an easier state from a reimbursement perspective. The commercial patient launch sequence is purely a function of how quickly we get the payers on board, and we're engaging in great conversations right now. And as you know, they weren't really engaged until the drug gets approved. So you could have a bunch of conversations before, but now we're going through their internal process of getting them on board.

Okay. Great. So, I guess kind of to this point, we've kind of talked a little bit about this already, but you're discussing there's 1,100 identified patients by medical records and by these kind of contact sources that exist. But obviously, DEB prevalent to estimated you guys have talked about the investment the 3,000 patient range in the U.S. So, in a simple minded question, what's the disconnect in identified patients in the prevalent population?

The disconnect stems from two broad segments, patients who've been in the system before gotten discovered and stepped out of the system ; two, diagnose or undiagnosed patients who have chosen not to get a treatment given there is no approved treatment for the drug. And, I would say, if you split the difference, go from 1,000 to 2,000, those are maybe a bit more moderate patients who have been in the system or have tried 1 or 2 ways of treating the disease. And the last 1,000 will be totally naive, we have to go physician by physician to find out who they are, find a way for them to get tested and bring them onto the treatment paradigm.

So to that end, so you think that it may a great point from 1,100 to 2,000 is probably moderate patients who have reviews. And then, the 2,000 to 3,000, when it seems that those are mostly mild patients? Like, how do you think about uptake, both in terms of patients starting on drug? I guess, more practically like actual VYJUVEK consumption among those patients.

When we modeled then stated [indiscernible] state of 26 vials per patient per year, that was taking into consideration mild versus moderate versus severe. Obviously, the milder one will fall on the lower side of the 26, so if you divide 52 into different quartiles and 26 is the midpoint, I would say, milder patients that are in the lower quartile of that 26.

Okay. So I guess, stepping back in about VYJUVEK from a developmental perspective, is there any other real clinical development you think left to pursue? Like is there like real-world kind of like patient quality of life studies to perform anything that you think could be done to change or enhance the label? Or do you feel like you've got what you got, and so you want to go from there?

In terms of label look, we were ecstatic with the label we got. There's one -- right now, we're limited to mixing the drug in a pharmacy setting. We're working closely with the agency to see, if we can have the optionality of mixing the drug within the home setting, so that is something we're pursuing probably needs a quick human factor protocol study, which we were already planning on doing. There are incremental ideas we're thinking about. Right now, we have the vial, the B-VEC and the gel in two separate vials mixed in a pharmacy. We're thinking about, if there's a way to premix within Krystal and ship a mix drug directly, which all would save logistical complexity to some extent. But that all said, Madhu, really, look if all we were stuck as dislabel for an extended period, we are in a really good place. But, in terms of quality of life data, I think we are going to start correcting especially, as we launch into Europe, but some of those become more important from a price negotiation perspective, so we may engage in collecting data in an open-label basis to make arguments with the payers.

All right. So obviously, with the approval you all received a priority review voucher is a rare pediatric disease put simply, what are your plans for that?

At some point, we would like to monetize the PRV voucher. Right now, I believe [ Reata ] has one [ Acadia ] has one [ GSC ] you say it has one and there's a couple more for tropical diseases that are anticipated, upcoming because they too get a PRV. But I believe that as this IRA starts to get closer towards eventuality, the demand for PRV would get higher over time, not lower. So our initial hypothesis is to have -- is to wait and watch approach. The value of a PRV has kind of stabilized around $100 million, give or take, $4 million, $5 million. So we're going to wait and watch, given we did a financing, and we don't need to monetize it.

Fair enough. I guess one kind of last question, focused on, I guess, the U.S. really just on we're generally in VYJUVEK. How do you think about the competitive landscape in DEB? Obviously, now you all are on the street, so to speak. So now, it's more about what do you think other drugs need to do in a world where VYJUVEK is available?

I knew that would be a question. I haven't thought before, but the -- look, it's a horrible disease, and I'm fully supportive of as many companies that want to work to develop an approach to treating the disease. My only hope is that they provide some kind of additional benefit to what VYJUVEK does, given that in a tissue where the skin cells turn over constantly, the concept of one and done is almost nonexistent. If not, I don't know, why I even said almost, it's nonexistent. So whether you approach the problem as a gel, but it's an injection or a graft or a cell transfer, it would have to be repeated. And if something has to repeated, it's better if it's simple to begin with.

That's fair. Okay. So maybe moving outside of the U.S., how should we think about the European regulatory process for VYJUVEK?

We plan to file the MA in the -- marketing authorization in Europe in the second half of this year, depending on where we shake up accelerated versus regular review. Like, if you think about U.S., we had accelerated, but then we got pushed out 3 months and almost fell into regular, right? So, depending on what we hope to get approved sometime next year, we haven't provided a guidance on timing. In the interim, we're thinking about expanded access programs in a handful of countries to get familiarity with the drug, but our plan, as a company is to fundamental -- is to launch as Krystal within the EU 5, and open department ships elsewhere in the European Mainland.

Great. Okay. So I guess stepping back, is there anything else on VYJUVEK that you think investors are missing?

No, not at the moment. I think just to circle back, we got a really good label, thanks to the efforts of my team and all negotiating with the agency. No, I think, the drug is in a good place, and we look forward to updating you on the uptake over the next few months.

Perfect. So maybe moving on to the pipeline beyond VYJUVEK. Can you walk us through the approach you all have for other rare skin diseases like Ichthyosis, Netherton Syndrome? And how we should think about those programs in relation to VYJUVEK and DEB?

From risk perspective that the mechanism of action and the redosability was clearly established in VYJUVEK, so from a mechanism of action perspective, from a CMC perspective, from a cost of goods perspective, I think those programs have instantly derisked. The incremental risk is in ensuring that the endpoints, because there have been no drugs for this disease, are in alignment with the agency and the endpoints are something we can convince a pair of reimbursing for the drug. That's what we're thinking about with respect to Ichthyosis and Netherton Syndrome. But, not just limited to those [indiscernible] skin rare disease now or in the future, would benefit from the approval of B-VEC.

I guess, kind of in a more practical basis, when should we expect to see kind of the next data cut and I guess the [indiscernible] the first data cut in I guess the Netherton Syndrome?

We haven't yet commenced the Phase II in Ichthyosis. When we commenced, we will provide guidance on timing Netherton Syndrome, we're still working towards filing an IND. And with the B-VEC approval behind this, we definitely believe that we're in a good place to start focusing pretty strongly on the pipeline, which, to some extent, I will admit, has been neglected over the last 6 to 9 months. We're also close to building a patient in CF, in the first half of this year, which then opens the platform to pulmonary indications, which we are excited about.

So, let's talk about cystic fibrosis. So you just said you're close to dosing the first patient. How should we think about that program? How should we think about kind of measures of efficacy in that condition? And kind of what target population of patients you're looking to get to?

In the Phase I study, we're targeting a broader CF population. When I say broader CF with different types of mutations is our primary goal is evaluate safety, potentially durability of treatment and efficacy. Long-term strategy in CF is to focus development on the type 1 mutation or the null mutation where there are no treatment in the market today. That's about 10%, 15% of the CF population. It's an area, where we would not have to be compared to existing treatments. We would not have to win somebody off their current treatment to get them on our study, so I think it helps accelerate the approval process. But in terms of efficacy, look, we intend to do [indiscernible] on a handful of patients in the Phase I study which will give us some idea about the extent of molecular correction, what kind of cells -- the percentage of cells transfected the percentage of maybe DNA and the ensuing protein that's expressed. But we're also obviously looking for FEV1 improvements. And given the patients will already be on a drug, in some cases, we need a handful of patients before we discern anything meaningful out of that.

Yes. I guess kind of maybe we get a scientific question. How long do you think after transduction it takes to affect things like FEV1 and kind of functional change in the lung?

Pretty quickly. I mean CFTR is a membrane-bound protein, right? Once transfection happens, and if the right -- all types of cells, whether it's a goblet cells or the rest of the cells get transfected, the effects should start relatively quickly. Along the effect persists, depends upon the cells we transfect and the half-life of the cell we transfect, so that could vary a little bit patient to patient, depending on the -- where the transfection happens. But in the nonhuman primate study we did, [indiscernible] about 36, 37 nonhuman primates. We saw nice satisfaction across the different types of [indiscernible] cells and in the different logs of the lungs of that repeats in a human setting. We'd be pretty excited by the [indiscernible] .

All right. So let's maybe shift gears away from, I guess, depending one perspective away from pathology and towards aesthetics for some people aesthetics is pathology. But let's talk about [indiscernible] and the aesthetics indication. So obviously, there's been some early data, early optimism around the initial results. I guess kind of the question we get from investors a lot is, what is the -- like defining path for joining in these programs?

Yes. Look, in the Phase I study that we previously completed quickly, let me quickly summarize. We treated different areas. We treated the knee, we treated lower cheek and upper cheek. We saw good safety, like you mentioned, good efficacy, good durability. I think, the trick in aesthetics is to find an indication that you can get through the agency quickly. There tends to be some off-label use in this area. And so to that extent, we narrowed down the indication to cross feed. We're currently doing an open-label study of about 18, 20 patients just to see the visible improvement in cross feed before engaging on a larger Phase II study. That's where we are. And the expectation within Krystal is by the end of the Phase II, maybe there's an opportunity to have vision talked about separately than Krystal.

I want to get to that, but maybe before I go on, I guess, do you right now have a plan in place for an endpoint that could be sufficient for approval on something like cross feed or do you probably need to get kind of formal regulatory clarity on that front?

No, no. We got regulatory clarity at the end of the Phase I study. We know what the agency is expecting. I do want to remind people that unlike other -- most other aesthetics, we go through the OGTR part of the FDA and not the derm division.

Apologies, what is OGTR?

Yes. Obviously, the cell and gene therapy. The one that B-VEC went through. While derm is involved as part of the committee within OGTR, we're not going the other derm division, so I only say that so that people understand that the backbone has been validated previously. The safety has been observed in B-VEC patients and Ichthyosis patients, so it's a slightly different path than a classic derm development story.

Okay. So you mentioned the idea of [indiscernible] being separate from Krystal. So, how should we think about the plan of action there? How did the VYJUVEK approval potentially change, accelerate this? How should we think about kind of that process?

We're looking to -- I'm going to say, spin out [indiscernible] sometime, hopefully before the end of Phase II -- completion of the Phase II study. That would simply mean that Krystal decides to spin it out, with a handful of investors, some financial commitment, a separate team with agreements between Krystal and [indiscernible] on manufacturing and regulatory to whatever extent we can help them. The other option is to think about having a broad business development type relationship with one of the existing large aesthetics players, where we would continue to do the same manufacturing, but they would be taken on all the clinical risk and -- so we're looking at multiple options. We don't know where it's going to end up at the moment.

Okay. Maybe one last thing to think about is kind of what is the next step for Krystal kind of beyond the existing kind of pipeline approaches? Obviously, I think, you've disclosed pretty close before the approval of VYJUVEK, some data about treating kind of the ocular pathologies associated with DEB. How should we think about kind of like extensions of the technology beyond the kind of use cases that you already have kind of in practice right now?

Yes, that ocular data was very powerful. It was on -- in a DEB patient who had blisters in the eye and over a matter of months, went from hand motion, which is blindness to pretty much 2025, and now the patient is being treated in the other eye. So one immediate expansion is to think about finding a way to get B-VEC to get patients with the blister in the eye, right? It's about 750 patients or so, have that and we're starting to think about how to engage with the FDA to make that happen, but it does open up the platform to ocular indications, so Krystal right now is in skin. We want to get the [ pulmonary ] thing going definitely are starting to think about ocular indications for 2025 -- 2024.

Okay. So for those ocular indications, how should we thinking about it as a change of formulation? Like what is the kind of needed work to be kind of moving fully into really eye diseases versus eye manifestations of broadly skin disease?

Yes. So for eye, we could have -- we don't need the gel, we could be -- we could think about a drop like a topical drop in the eye for diseases is that -- are manifested in front of the eye or an injection, if we're going to target them back of the eye, so we're looking at a small team people looking at -- so B-VEC obviously, is pretty direct. You just drop B-VEC in the eye. And, we're thinking about, if we should modify the formulation to make it -- that are different than the current feedback, incremental modification. But with the rest of the other ocular, it will be some kind of injection into the back of the eye.

All right. I guess kind of one question that comes up a fair bit is how to think about business development for you all, both from a potentially bringing things in. But I think, predominantly kind of like partnering things out, how should we think about other BD besides the [indiscernible] spin-off?

Yes. So for -- we are very open to BD relationships, when larger indications are involved, whether it be in skin, whether it be in lung, alpha-1-antitrypsin, whether it be in the eye. I think, the approval of B-VEC provides a lot of confidence in the platform, both with respect to CMC and also with respect to safety, so that would be an important aspect of Krystal moving forward is to have conversations with companies on partnering on larger indications.

And it's kind of to that end as ever in [ smid-cap biotech ] land, the kind of follow-on question that often comes up from investors is how much are you all willing to be sellers of the company or individual assets in the company? How should we think about that kind of at a high level?

Approval of B-VEC was an important first step. I think, we want to prove out that the platform is truly amenable to other tissues, whether that be in the lung, whether it be in the eye or some other tissue. With rest with the rare disease, the goal of the company always has been to stay fully integrated and launched, never in a position where we're going to get it to a point and hand it off to somebody else. So, we will continue to execute on the vision of this company, which is to be fully integrated and rare and keep going and doing partnerships in larger indications. Should any opportunity arise as part of the fiduciary duty that I have, we'll discuss with the board and start with the right kind of..

Okay. Great. So finally, we asked this question of every company at the conference. What is the reason to own Krystal shares, in the next 12 months?

A truly validated platform, a large management inside ownership is still -- they're still the largest shareholders, they're totally aligned with the existing shareholder base, a very strong balance sheet in an otherwise turbulent macroeconomic time. A fantastic management team that has executed and will continue to execute.

Sounds great. Well, thanks very much, Krish. It's great to have you here, and great thanks everyone for joining us, this morning.

Thanks for having me.