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

Good afternoon, everybody. Thank you for coming to the Morgan Stanley Healthcare Conference. My name is Albert Wang. I am on the investment banking side, I'm a Managing Director, and I co-head the U.S. health care business. I'm going to read a quick disclosure here. For important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley representative. Okay. Great. So Krish, maybe you can introduce yourself quickly before we get started.

Yes. Krish Krishnan, Chairman and CEO of Krystal Biotech. Thanks for having us here, Albert.

Okay. Great. So maybe we'll start out at a very high level, for the uninitiated, if you can give a couple of sentences on Krystal and some of the technology that you have and how you're differentiated from the other gene therapy companies out there?

So Krystal was founded to find a solution for monogenic diseases, monogenic as in diseases caused by a missing or mutated gene. And what we found was an effective way to deliver that -- a clean copy of that gene to a patient's cell. So whatever functionality was interrupted in the past now resumes. And that was our approach. And we started with a debilitating disease called dystrophic EB, which is caused by a mutation in COL7A1, and we found the perfect vector, which is herpes simplex virus 1, to treat the disease. Because skin cells keep turning over, and so you need an ability to redose the skin cells. You need a vector that will evade the immune response, whether it's immediate or delayed, and get -- and deliver that gene successfully over an extended period of time. So that's where we began. And I'm pleased to announce that a few months ago, our first drug was approved and we're in the midst of launching the drug in the United States.

Okay. So maybe before getting into VYJUVEK itself, you said something that was quite unique among gene therapy companies, and that is redosing. Can you talk a little bit about that and how you're able to do that compared to others that cannot?

Yes. Redosability of the HSV-1 vector is a combination of certain innate properties of the virus itself, coupled with some of the modifications we had made to the backbone. Herpes simplex virus has -- as you know, it hides in your body, has an ability to avoid the immediate immune response, what they call the MHC class -- prevents MHC class 1 loading. And if you're able to get the vector to deliver the gene in a timely manner into the nucleus of a cell, you'll avoid any immediate reaction. We modified the vector to be non-replicating. So one of the other instigators of a massive immune response is a replicating virus. And this being non-replicating, and quickly finds its way into the nucleus of the cells as opposed to the systemic circulation, adds to its ability to avoid the immediate. And by getting into the nucleus quickly and delivering the gene, any latent immune response, if any, does not hinder functionality. And now with -- and we had when we started as a company, some precedent. Amgen's T-VEC had been approved in the market at that point, and we knew that it was dosed on a biweekly basis to patients over the many years. So it wasn't -- so once we narrowed down on HSV-1, we felt, given the modification we made to be non-replicating, our hypothesis was we had a really good opportunity to redose and that has since shown, revealed itself, not just in DEB but in ichthyosis. In aesthetics, where we kind of inject into the face on a regular basis, it's been a very common theme, especially useful in skin were the cells turn over.

Okay. So with that technology, you've been able to develop VYJUVEK, which -- congratulations on the approval, I think, in May. The indication is for DEB. Can you talk about the size of that market? And DEB is not a well-known disease, but it is a devastating one to kids.

Yes. From a pure epidemiology perspective, we estimate about 3,000 patients in the U.S.; a similar number in Europe and ROW put together, about 3,000. So I would say there's around 9,000 patients or so globally. In the U.S., for genetic testing, it's not as prevalent because it had, in the past, not been reimbursed, still continues to be not reimbursed. Patient identification is a bigger issue in the U.S. than it is in Europe and ROW, like Japan. We have identified roughly 1/3 of the patients to date using ICD 10 codes and having a sales team that's now validating what we find in the ICD10 code. So we're launching off that reservoir of patients we know, and over time, we'll work -- and we've already started some of that work, will work to find the unidentified patients and get them on therapy.

Okay. And can you distinguish between the recessive and the dominant? I know the drug is approved for all DEB. But is there one that's more serious -- recessive is more serious.

Yes. Recessive is more severe. That's a broad statement. There are dominant patients who are just as debilitating as recessive patients, but they're few and far between. At a high level, the common is -- right, recessive is more severe. It tends to be severe to moderate. Dominant tends to be moderate to mild.

Okay. The therapy is approved for all. Okay. And when you treat the patient, because it is redoseable, is there an induction dose versus a maintenance dose?

Yes, that's a great question, especially amongst severe patients -- severe and moderate patients. We anticipate close to consumption of 1 vial a week, discounting for any compliance matters, not being available, going on vacation. So pretty high in the induction phase, somewhere north of 45 vials per patient per year. And once the majority of the wounds are healed and are incrementally opening, our estimate right now is that it will level off at about 26 doses -- or 26 vials per year per patient. There are some nuances that, that comment doesn't account for, the fact that a lot of our kids are pediatric and are growing and so the body surface area is increasing, so you're not dealing with a static patient and projecting. So that's important to know. There is also a general patient propensity towards dosing a bit more than less even if the wound is healed because they're so protective of the wounds being covered. So that could all skew that 26 number a bit, but at a very broad level, that was our estimate.

Okay. And maybe you can comment a little bit on the patient growing. So if you were to take a -- I don't know what the average age is of therapy. But the skin surface area relative to an adult, is it 1/3, 1/5? And how do you account for that as you think about therapy?

So we're allowed to dose for patients greater than 6 months of age. It could go up all the way. Look, there are no studies being done on vial usage versus PSA. My comment was directional. As a 6-month old baby turns in a 4-year old child or a 10-year-old or 18, there's a significant increase in body surface area. So new wounds will appear because it's a genetic disease, while existing ones tend to get treated. So unlike a patient who's above 18 where you can be much more definitive about induction and maintenance, the growing kids is more difficult to discern. It also skews a bit between recessive and dominant. Dominant tends to be milder, maybe may not require as many vials as recessive. So it's tough to put a finer point beside [ stock ] at a very high level that the maintenance is supposed to be less than the induction phase.

Okay. And I'm assuming that there hasn't been enough of a track record to see how this works over years. But is this something that you can assume a patient is on for life?

That's the assumption. The longest we've had a patient on drug to date is 3.5, 4 years. Patients who were on Phase I study migrated to Phase III and then in the open-label extension. And you would agree that in medicine, a 3-year look is like an extended look in terms of loss of efficacy, immune response, that you don't see an immune response 10 years into the launch of a drug. You see it very quickly, 6 months, 3 months. So the fact that a handful of patients have been on the drug 3 years, and some 2 and some 1, makes me believe that the patients are going to be on drug for life.

Okay. So within -- in that statement there, you don't see a loss of efficacy or you don't see any antidrug antibody buildup in the 1, 2 or 3 years.

We have not, yes.

Okay. Okay. Great. So you're now in, I guess, your second quarter, starting your second full quarter of launch. How have you felt the first -- I guess, the first fraction and then the first full quarter have gone?

We're not in the second quarter of launch. So we launched in '19. So we had 6 weeks of launch that we reported on. And Q3 will be the first full quarter of launch we're going to report on. In the first 6 weeks, we saw a pretty healthy, such strong input of start forms. We reported 121 start forms. And to give you a measure, if you think about 1,200 or so identified patients, it's about 10% to begin with. So it was a great number to launch off. We continue to see the launch performing well to date. We also had a good mix in the first 6 weeks of recessive versus dominant patients, which is a bit surprising to us given they don't really appear in the system as well as the recessive. The dominant one have to be found, and we were surprised by the awareness and the initial number of start forms from dominant patients. So to date, that 6 weeks of initial launch continues to track along. And we plan to report that in our earnings -- in our upcoming earnings call.

Okay. And can you talk about reimbursement a bit?

Yes. So reimbursement consists of mostly commercial, somewhat equally with Medicaid, and very little of Medicare at the moment. I would say 45% commercial, 20% (sic) [ 40% ] Medicaid -- am I saying that right? No. Yes, I'm trying to add to 95%. And 5% Medicare. So commercial is the big piece. To date, we believe -- I think if not all, like most of the commercial insurance companies have issued policies with the exception of one at the moment that we're working to bring along quickly. In terms of Medicaid, a lot of FFS, or fee-for-service Medicaid, have started covering the drug with the exception of a few states where, by law, they have to wait 6 months before they start. We expect a lot of the mandatory Medicaid to get effective October 1. Overall, if you look at all the little things -- all the things I said, we would estimate we're at about 65% covered at the moment, trying to get to about 95% or so by year-end. So going into 2024, we expect -- I mean we are looking at a [ claim ] where almost any patient on the drug gets paid either through Medicaid or Medicare or fee-for-service or commercial. So that's been good.

Are there other treatments for DEB out there right now?

None in the U.S.

Okay. So what we've seen in many rare diseases is that if there are no treatments, then patients tend to be under diagnosed or physicians don't know to look for the patients. Do you think that the 3,000 in the U.S. may actually be more because, say, the dominant form, you have to go find patients. It's encouraging that you say that dominant was more than expected. So are they finding you? Or do you think there are more dominant patients out there than you than you've estimated?

They are finding us. We have put in place some programs like Krystal Decode DEB. But a patient who is unsure, misdiagnosed or never been diagnosed is able to figure out if they have DEB. The patient advocacy organization, debra, definitely leans on the comment you made, that they believe there are more undiagnosed, more -- the prevalence is more than what I mentioned before, the 3,000. From Krystal's perspective we have to wait before we can comment on that hypothesis because we haven't really explored the dominant to the extent we would want to, but awareness is increasing. debra definitely, which is the patient advocacy, is doing a good job of getting the word out. So I would say at the moment, it's feasible, but I have no evidence to back my hypothesis.

Okay. Maybe we can move on to some other parts of your pipeline. As we think about other parts of the body where it's more surface rather than internal, the surface of the lung, you guys are going after CF. Can you talk about the program there? What is the gene that you're going after or genes? And is it the same HSV vector that you're using?

The foundation platform is based on HSV. So it's an HSV modified vector. HSV has a big payload capacity. So we're one of the -- in fact, the only company, I believe, that delivers full copies of the CFTR gene, which tends to be big. In fact, we delivered 2 full copies of this gene. We are in -- and the reason for going after CF specifically is a certain type of mutation, the type 1 mutation, is an unmet medical need. And so there are no available treatments, and we're hoping to target the null mutation to begin with. Even though one would argue that delivering a full copy of the gene makes the mutation agnostic, the focus is on type 1 mutation. And we are in Phase I, in the middle of enrolling patients in a dose escalating study, and anticipate having data in 2024.

Okay. And what does the Phase I look like? How many patients do you -- I know it's dose escalation, but what's the design and how many patients are you enrolling?

Yes. It's broken into 3 cohorts: low, medium, high dose. But I would call like an approval by the safety committee going between, going from. So you check out safety in the low dose before going to medium before going to high. We plan to do bronchoscopy and get molecular correction data in the high dose of the study. Overall, we have some flexibility in the number of patients in the study depending on how the study proceeds. But the low-dose cohort is about 3 patients. The medium is in the 3 to 5 patients. And then a lot more patients are staggered towards the higher dose.

Okay. And have you disclosed how many patients you've treated so far?

We have not specifically said anything to that.

And have you disclosed whether you've redosed some of these patients?

Not -- so let me be careful saying that. We've said the CF program that -- it depends -- I'm trying to -- I believe we have. So just to answer that, that we have redosed patients.

So you have redosed patients already. Okay. And I'm assuming since the trial is ongoing that -- this is a safety trial that's so far, so good.

Yes. Correct. No [ investments ], and it's proceeding well.

Okay. Great. And what is the path forward from here? So you find a dose and then you're going to meet with the FDA? What is the timing of that?

Too early. If we -- once we complete the study, our plan is to go to the FDA to align on a development path for a type 1 mutation. That's assuming the data is positive and pointed in the right direction.

Have you guided on timing on that?

No. The only thing we've said is we anticipate announcing data in 2024.

Okay. Okay. we can -- I want to leave a few minutes for questions, but also get into another therapeutic area, immuno-oncology. That's an area that looks like you're increasing focus on. Can you talk about the program or programs that you have there?

Yes. So the program is based on HSV-based vector, delivering a combination of 2 cytokines, IL-2 and IL-12 locally, targeting 2 tissues we are familiar with, skin and the lung. For the most part, an intratumoral injection in the skin and a nebulized delivery like CF in the lung. We believe this combination of IL-2, IL-12 is a very unique combination when delivered locally in our -- and to date, the animal studies we have shown in pretty robust or difficult cell line, whether it's the B16 F10 or the K7M2 for the lung, have shown really promising data, with respect to what these 2 cytokines when delivered locally, with respect to percent of survival, et cetera. A simple example of intratumoral in the skin is squamous cell carcinoma where a lot of our DEB patients, unfortunately, succumbed to at some point. So if there was a way for us to -- and if you are successful in squamous cell carcinoma, it has a broad impact, both in terms of us knowing where the patients are, the physicians prolonging life, hopefully, but we're also looking at other solid tumors that have unmet medical need. So we announced a few weeks ago that our IND has cleared through the FDA, we anticipate dosing a patient in the second half of this year. And we haven't said much about timing of data announcement at the moment.

Okay. And last question on this point, what is the benefit of gene therapy delivering IL-2 and IL-12 versus just some other form, either PEGylated or regular IL-2?

Yes. Two things. HSV localized delivery and be able to repeat dose, right, which we have established in other diseases like in EB. Second, the more -- this IL-2 especially has a very short half-life, so if we're delivering it by a vector transfected in a cell, you get a more sustained expression of the cytokines than a quick one. So the frequency of dosing is not burdensome on the patient. And I believe this combination is unique and we're starting to get patent protection around it, so it would not be too quick or too easy for somebody else to emulate using a PEGylated that stays around long enough for sustained expression.

Okay. Final question. In terms of near-term milestones, what do you think in the next, say, 6 to 9 months you have, obviously, reporting sales and scripts, that sort of thing?

Reporting scripts and sales, the aesthetics program, which is in the middle of a Phase I study, the advice that we have guided, that we would announce data from the lateral canthal line study before the end of the year, depending on how quickly the enrollment in CF goes. We talked about clinical data reporting in CF next year. Immuno-onc programs, given the excitement and the number of cancer centers invested in the study, if that enrollment goes fast, you're going to anticipate data announcement in 2024. And then other -- B-VEC related. We're filing the EMA application in the fall, so hopefully -- and then we're just starting a clinical study in Japan, a small open label ahead of the PMDA regulatory filing. So between the clinical readouts and the extension of B-VEC, I think we have a very productive next 9, 12 months ahead of us.

Okay. Great. All right. Left a little less time than I thought. But if there are any questions from the audience here, please ask away.

[indiscernible]

Not all of them. I would estimate with -- like maybe half of them were part of the start forms and half later. But I will say that they are all on the commercial side of the equation right now.

Any other questions?

[indiscernible]

Not more details than what I said in the call that it was not drug related, it was not launch related, and it was a personal decision.

Okay. Great. Krish, thank you very much. I thought that was very clear and very excited for the prospects of the company.

Thanks, Albert. Thanks for having me. It was a pleasure.