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

All right. Great. Well, thanks, everyone, for joining us. I'm Andrea Tan, analyst at Goldman Sachs. Super pleased to be joined by Krish Krishnan, Chairman and CEO of Krystal.

Krish, maybe we can start here. You've just passed the 1-year mark of being a commercial company. What has surprised you most during this transition?

Thanks for having me. From my perspective I think the fact that compliance continues to be high, has surprised me higher than what we expected at the time of launch. Access has been relatively easy to date, both on the commercial side and on the government side. And the ease with which we got all access has been surprising. And I've also been surprised to how many patients in DEB have either never been sequenced or have lost the sequencing genetic report, which maybe they got done a while ago, right? I would say those are 3 things that have been a bit surprising.

Great. Well, maybe we can dig into some of those components here. On demand, you've -- I think maybe prelaunch always have identified 1,200 patients. On a previous call, you've noted 35% penetration into that population across both RDEB as well as DDEB. What needs to be done now to capture the remaining patients?

Yes. If you look at some of the really good launches that have happened in the past, they have often gotten to about 60% penetration 2 years from launch. And when we started, we had that as a base goal for us with respect to the launch, and I'm pleased to report that to date, we're tracking positively towards achievement of that goal, at the very least the goal.

Do you believe that, I guess, maybe when you say that you're tracking towards that, is that over with the similar 2-year time frame? Or could you reach 60% sooner than that?

Right now, we're not commenting. We're still holding on to the 2-year. If it happens sooner, it's great for the patient, great for us. But I will say the launch has been progressing at the very least, the best of our expectations. It's been going well.

Great. And the compliance that you've mentioned being surprised by, how much of that is a function of this at-home dosing and maybe help us remind us where that stands in terms of the utilization right now?

We'll report on compliance. The Q2 -- we reported Q1, we'll report it when we report Q2. Patients with DEB have a difficult time going from place to place. And so home dosing is such a positive convenience on the patients that it would be our -- it would be difficult to say that it has no impact on compliance. But you also have to think about we're talking primarily about severe patients with a lot of wounds in the body. And it takes a certain amount of time to treat all the wounds given the weekly dose. And so it's a combination of severity of the disease and, to some extent, home dosing.

Are you surprised to see, I guess, maybe such a high compliance rate? I think maybe the last reported was over 90%.

Yes, I open with the like it's high, right? But our expectation always has been to have high compliance for the first 15, 18 months post launch and then settle into a more reasonable. And when I say maybe compliance is not the right word, if the utilization is 4 vials a month right now, maybe settle into 2 vials a month, 15, 18 months post launch.

Got it. Okay. And maybe on those prior expectations that you've just kind of alluded to there, the 45 vials a year or roughly 4 per month and then incorporating some skip doses, 26 vials over the maintenance period. How has the launch been progressing thus far to maybe influence how you think about those numbers? Is there scope for those numbers to shift at all or to the best of your knowledge?

Andrea, for now, we're going to hold to our original assertion that expect high compliance for the first 15, 18 months. We haven't had the -- we're getting to the cusp for 15, 18 months, like we don't have a full 18 months behind this. I think we would have a much better answer by the end of this year. Right now, compliance continues to be high as we expected, and we're hoping maybe in 2025, it starts to settle into it, but we haven't seen any evidence of that yet. So it's very difficult between our theoretical modeling and what's happening in reality.

And now that patients have been on treatment for quite a number of months now. What are you seeing or what are you hearing in terms of wound closure, the experience, how long patients are staying on drug? Obviously, your compliance number incorporates that to some extent, but maybe help us understand some of the dynamics there.

No. Patient experience has been really good on the drug. And I'm not talking just about small wounds; wounds of all sizes, small, medium large have all been -- have all had great reports of efficacy, different types of wounds, recurring versus chronic. We see no difference in -- maybe chronic takes a bit longer to close, but we see good efficacy. Durability, our expectation on durability continues to be that the half-life of collagen is 30 days. And you should expect collagen to persist for 90 days or so in an area, in the basement membrane zone, after which you would have to redose that area to continue providing collagen to the wound.

And is that what underpins your belief that there will be a long tail here is that durability, the need to continually over a long period of time, essentially be retreating these patients?

Yes. Look, skin cells turn over, half-life of collagen is 30 days. Unless you find a stem cell in every wound or a group of stem cells, there is no one and done in this indication, no matter how you approach this problem. So one of the reasons we believe that tail on VYJUVEK could be good, it is based on the fact that if the wounds are healing and they stay closed for 90 days, they are going to get disrupted. It's not always exactly at the 90-day mark. We have seen wounds that have been closed for 4 months, wounds that have been closed for 2.5 months, so it's a bit dispersed. But on average, every 90 days, you should expect to replenish collagen VII.

And is that fairly consistent between RDEB and DDEB? Or are there any differences between those patient populations?

Not particularly. In dominant patients, some of them already have nonfunctional collagen VII. So there is a certain displacement. They call them the parking lot, the displacement theory, where you need a high-producing system to displace the existing collagen VII. But once in place, the half-life of functional collagen VII is 30 days. And we don't expect that to change.

Okay. Maybe we can move over to access and reimbursement. You mentioned that also being another positive surprise here. Maybe remind us what you saw in 1Q and your level of confidence that, that was truly a onetime headwind.

Yes. What we saw -- so prior to us getting the take of all our patients, commercial and government were on an interim J-code. And when we got the permanent J-code, our specialty pharmacy was reluctant to ship a vial with the new J-code unless they got confirmation of payment. And since it happened so quickly over the 3-week period, which is the time it took for all systems to recognize the new J code, we had to provide free vials. So it was a 3-week issue. It's 100% behind this. And now when I talk about J-code being a tailwind, it means that reimbursement for Medicaid patients should go a lot faster than it did a few months ago.

Remind us where you stand in terms of covered lives in...

We're close to 98% -- 99%. I forgot. I can't recall what we reported, but it's a very high number on it.

Okay. So no issues there.

No issues there.

Okay. And then as of your last reporting, 330 reimbursement approvals, but there has been some maybe hurdles in terms of the amount of time it takes, right? Or maybe the hurdle isn't the right word, but there's a lag between being able to fill the script. Where do you stand now in that?

So there are 3 phases for us to get a script. When a script, if a script has patient's genetic information, it instantly becomes a start form. If a script does not have -- if the patient does not have a genetic sequencing, it takes about 3 weeks for a script to become an adjudicated start form. Once a start form is in place, access to date is such a good place that it's down to about a week or so to get reimbursement. Once reimbursement and generic, all the other pieces are in place, then it's all about the patient finding the right nurse that they're comfortable with and scheduling the first visit. We've seen some variability in that. Some patients start pretty quickly, some take a couple of weeks to find the right nurse, some adult dominant patients take a few extra weeks to even start the therapy because they have lived with somewhat of a milder condition for 10, 15, 20 years. And it requires education on the part of our patient services, medical affairs team, our reps to some extent on the physician to the extent they can talk about the label to kind of emphasize that every wound matters. And the sooner you start treatment, the better the long-term outcome. So we are constantly trying to improve that. I would say right now, we're still under the 2-month time window but more and more are getting, I hope, by the time the second half of 3Q and 4Q roll around, we hope to bring it down to under a month. That's the objective.

I guess maybe when you think about all those moving parts that you just described, what component -- what really underpins your confidence that you can bring it down from under 2 months to under 1 month?

I think it's Look, the genetic testing piece if they don't have sequencing information, that's 3 weeks, and there's nothing we can do about the time it takes to turn that around. We can definitely help on once all the pieces are in place, we can help with the scheduling part from a try to figure out what kind of -- what they're comfortable with and get the scheduling going, educate them on the importance of thinking ahead of scheduling if they are planning a vacation, little things we can do to speed it up, but it's all about everything is in place, how quickly can we get ship of vial to a patient.

Got it. And remind us how you're managing the accrual of patients on your commercial plan to be able to handle that price cap that you've set?

Yes. So we made an estimate at the beginning of the year. The price cap only applies to commercial patients. And at the end of every quarter, we determine do we have to adjust the accrual. It's important to realize a couple of things, that patients who start on drug after April will not have any impact on the price cap. And the second point to remember is price cap is not at a patient level, but at a payer level. So our expectation is that this year, we were probably a bit too conservative given it's academic for us when we started in January. But 2024 will give us a good window into what a meaningful accrual should be going forward. So -- but we do adjust it every quarter. And if you hold the stock for a year, you should barely see any impact.

Got it. One of the things that you've laid out here our expectations for $1 billion-plus in peak global sales. Maybe help us understand what are the underlying assumptions that go into that peak sales assumption? And then also talk about that in the context of your strategy for longer-term growth.

So the first point I want to make clear is when we talked about $1 billion plus for the B-VEC franchise, it's skin and not about the eye. We haven't thought about B-VEC for the eye, which affects about 50% of the RDEB population or 25% of the DEB population. Within the skin indication, the $1 billion plus comes from, the identified patients in the U.S., an estimate of what steady state pricing should be, and we put that out on a slide, and I believe, in the Q4 report and expectation of what price we could get in Europe against the higher prevalence of identified patients in Japan. So it's essentially our guess -- we know the price in the U.S. Everything else is a bit up in the air, but we feel good based on the prevalence, the compliance, the reimbursement and some of the early conversations in Europe about putting up the dossier. We feel good about getting past the $1 billion on the skin alone.

Okay. To clarify, does that assume only penetration to the 1,200 patients or you can then potentially explore and identify additional patients that are within that 3,000 that are estimated in the U.S.?

We modeled it on slightly north of 1,200 but not the extent of 3,000.

Got it. Okay. What are -- what's your understanding of the capacity to be able to identify more patients than the slightly north of 1,200?

Look, we've started -- we hired Christine Wilson who has prior experience in finding patients in rare diseases. We have a lot of -- now that we're a year into launch, we've put in place, the genetic testing is one source of finding patients to some extent, although it's a convoluted, given all we know is somebody tested positive for DEB. Family conversations are starting to happen. Every patient who is dominant probably as a relative who is recessive . Now that the first patient has been on drug and is happy, we're starting to have these -- patient services starting to have these conversations on family trees. A lot of data analytics, we're starting to use phenotypes to predict a patient who could have DEB for whom we could go get genetically tested to bring him in. But having said that, Andrea, we're still -- our primary focus is we want to get -- we have 1,200 identified patients. We want to get them all into the system. We're starting efforts on finding patients but it's much more meaningful. It will become a much more meaningful effort in 2025.

Got it. And maybe speak to your efforts with physician education. If you were to characterize maybe the broad level of physicians that you interact with now, what is their awareness, their receptivity to prescribing VYJUVEK? And how do you anticipate that to change over the next couple of years?

Look, the receptivity has been high in the case of some primarily derms and [ ped ] derms. In some community -- at the community physician level, we've had to educate some physicians on the vector, which is nonreplicating and redoseable. We had to educate them on home dosing and gene replacement, what we're doing. But by and large, the physician experience on VYJUVEK has been very positive to date both at the COE level and at the community level.

And our physicians right now, are they prescribing to multiple patients at the same time? Or do you see a scenario where they prescribe to maybe one, they follow them for a little bit of time to understand how it plays out before they prescribe to their second?

The majority are pretty quick to put their patients on drug. That have been physicians, a handful who chose to start with the recessive, the most severe patients, see -- figure out reimbursement and efficacy of the drug and safety and then open the gates to their dominant patients. Not ideal, not something we think it's the right way, but it's the physician's preference, and we try to make sure that they are comfortable, especially given that it's chronic and the tail on the drug, it's -- we believe it's good to have the patient be fully aware when they come on board and their experience is good, and we try to replicate that on the physician side without trying to be overtly aggressive on the matter. But it's been very positive for us.

If you had to put a number on that, what proportion falls into that second bucket that is maybe a little slower to...

I would say less than 10%, maybe less than 5%. I've heard a few anecdotes of Carewell doing it, but by and large, it's been pretty quick.

And I think you'll have additional data in the second half of this year, your long-term extension data. To what extent will that maybe help the conversation with some of these physicians, particularly those that might be in that second bucket you described, how will that impact prescribing behavior?

Look, OLE data, you have to realize that the launch has gone for so long, like we're 1 year into launch, and the OLE was a 6-month study. It just reinforces the safety of the drug, reinforces that it works on dominant as well as recessive, reinforces it works on different types of wounds. And it has a certain level of durability, right? So we don't expect it to be something so surprising that it changes any of the paradigms today but to simply reinforce and it provides a good document for us to, as we get into payer conversations in Europe and Japan in terms of talking about durability and dominant and recessive patients because in the clinical trial, we had one dominant and we've had plenty of dominant; not plenty, but a meaningful number of dominant patients in the OLE study.

Got it. Maybe that's a good segue to your ex U.S. strategy here. What is your understanding then to the regulatory agencies? Are there any differences in terms of what data set or level of evidence they're looking for relative to how the FDA approached this?

Not in the EU. We are well into conversations with the EMA. As we mentioned, they are amenable to home dosing. We're hoping to get approval hopefully by the end of the year. So all preparations for the launch in Europe is progressing. In Japan, they required us to do a clinical study on a handful of Japanese patients, which we did. We completed. That was the only additional requirement. We plan to file the [ JNDA ] in second half of this year and hopefully get approved sometime next year. So things are going pretty well, both with respect to regulatory filings in EU and Japan. And we've also started building out management teams in these countries to get prepared for launch.

How does the dynamics differ in the U.S. versus Europe or Japan, whether in terms of the treatment paradigm, the receptivity to a gene therapy, help us think through that?

Yes. So we expect the launch in EU to be a bit easier than the launch in the U.S., given a lot of patients are identified. They all have genetic information. It's -- we have taken the time to verify the identified patients. A lot of hospitals actually have nursing infrastructure to help with home dosing. So from logistics of commercial launch, it appears it could potentially be easier in EU than the U.S.; however, access could be a bigger challenge in EU and while B-VEC is -- while the disease is debilitating, an unmet medical need, and we have a pretty convenient curative treatment, we still have to figure out where we end up on access. Japan is kind of somewhere in between the U.S. and Europe, where access is and could be in a good place at the end of the conversation. Patients are identified, concentrated in centers. There's one provider, one payer, you have to negotiate with in all these places. But that's how I see it playing out. Like in the U.S., the real tough difficulty of the launch has been beyond the 1,200, you've got to go not knock door to door and find them. It's just less of a challenge in Europe.

Got it. And you've referenced earlier an ophthalmic version of this drug. Maybe remind us where you stand with that? And what is the incremental commercial opportunity? I think you've put out maybe guess is that $250 million to $300 million, but any updated views on that?

Yes. So about half the RDEB patients get lesions in the eye. So we see the 50% of the RDEB, about 25% of the DEB patient population. We've aligned with the agency on the pivotal trial. We plan to start the trial in the second half of this year. It's an open -- it's a study on about 10 to 11 patients at best with the 6-month endpoint of no lesions in the eye as evidenced by fluorescent staining. We had really good success on that one patient, compassionate use patient that was published in NEJM. So our development idea is to complete the clinical study early next year, file the BLA. We are hoping it's just a 6-month review, and plan for the launch in 2026. The $250 million, $300 million simply came from us taking 1/4 of our estimate on the EB market and applying it to the eye. And as we get closer to the launch, we'll get more granular in our estimates globally.

Got it. Okay. That makes sense. You obviously have a very large pipeline that we have not even touched on. Maybe I'll give you an opportunity to highlight some of your favorites from there. What are you most excited about? Obviously, we have the aesthetics program that still has data reading out in the near term. Maybe just some updates on those.

So we have 3 clinical updates this year that we've guided to, Aesthetics, Alpha-1 antitrypsin and Solid Tumors, which is oncology in the skin. And the ones next year, we have B-VEC in the eye, hopefully, lung cancer, I mean, our oncology and pulmonary, in the lung and CF worse -- Look, we are super excited about the CF program, although it's been so much lower than we expected it to be compare and contrast to A1AT where we started the study early this year and we're guiding to data by the end of this year. That said, the excitement in CF comes from the following; that we are redoseable. And so if there is a certain hurdle to be hit, whether it's a 10% improvement or a 20% improvement or a 40% improvement in FEV, we don't have to get to the answer on the first dose. So if we get to the high single-digit number on the first dose, the lung gets that much more better, and we can chip away at the problem. So the redoseable -- redoseability of the platform gets us excited about the pulmonary programs. But obviously, B-VEC in the eye from a risk perspective is given we've seen what happened to one patient has probably the highest POS of success. But now, we're excited about all of them, oncology and any one of these positive data readouts could really put the company in a very different place than it is today, where the entire valuation is based on B-VEC.

Makes sense. Maybe in that context, and you touched on this, your platform, obviously, across multiple areas, whether it's dermatology, respiratory, oncology, maybe help us understand that strategy to be so diversified versus maybe taking a more focused approach and specializing only in one therapeutic area.

Right. So if you think about the platform, the platform is about delivering any type of exogenous genetic material to an epithelial cell. And what we found, we were extremely focused on the first indication where for the first 4.5 years, all we did was B-VEC. We got the drug approved. And now it's time to think about a broad application of the area with the focus being that if it's a rare disease, we want to be fully integrated as a company and if it's a larger indication, we are determined to find a partner to develop the indication. And so I think what it shows is the ability to have a few shots on goal to figure out where we're going to ideally see optimal benefit. Although at this point, we're pretty excited by both pulmonology, and I think in oncology, it's a very unique combination of IL-2 IL-12 that we're excited about. And so we feel good about our pipeline. And we are careful, if you look at our R&D on a Q-over-Q basis, we're very prudent about R&D spending and not rushing to expand without seeing proof of concept.

Maybe on that point, as you think about these different indications, is there one that mechanistically would say there has a higher probability of success to see benefit from this platform.

I think -- look, I will say rare skin has already been derisked. We're hoping -- we're actually hoping to finally get KB105 going, hopefully, by the end of this year. And it is based on what we've seen in B-VEC, it is or the risk on KB105 is significantly mitigated, so is B-VEC in the eye. But that -- put that aside for a second, if we see any positive impact in A1AT or CF, one has a read-through to all pulmonary programs. And so we'll see how it goes. But for now, we feel good about the skin indication.

Perfect. We're looking forward to it. With that, Chris, thank you so much.

Thanks, Andrea.