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

All right. Great. Welcome, everyone. I'm Yigal Nochomovitz, one of the biotech analysts here at Citi. Our second session of the morning is with Krystal Biotech, Krish Krishnan, CEO. Welcome. Thank you so much for taking the time. Remember, if you have questions, we have microphones in the audience. So just grab a mic and ask the question and we'll weave it into the conversation. So thanks again for doing this. Appreciate it.

Thanks for having me.

Yes. Maybe we can just start out with a quick overview of the company, talk about the gene therapy platform using HSV-1 and why -- what are the advantages of that strategy.

Great. Yes. So our approach is to deliver exogenous genetic materials through a modified vector or a virus. The virus, in our case, happens to be herpes simplex virus, HSV-1. It's got a lot of unique attributes, which makes it a great delivery vehicle for the indications we're going after, a huge payload carrying capacity. So monogenic diseases caused by missing or mutated genes that are pretty large, we don't have to trim the gene. In fact, we can put 2 full copies of the gene into the backbone. So payload is a big differentiator. The vector is episomal. So you don't run into any kind of random integration with your existing DNA. The vector is transient, amenable to local delivery and most importantly, redosable, which is such an amazingly new idea in one-and-done gene therapy world, because of its ability to avoid the innate and the permanent immune reaction that happens when you deliver a biologic. So if you look at the indications we've picked as a company, usually, it involves large genes. It involves cells that turn over at some frequency, so redosability. Our approach is local as opposed to systemic. So we target epithelial cells. And using this approach, just as a company, Yigal, we got VYJUVEK, the lead drug for dystrophic EB approved May of 2023. The launch in the U.S. has gone really well to date. We're hoping to launch in EU and Japan next year. So we're on track to do that. And we also found a formulation of B-VEC to treat lesions in the eye of DEB patients that is close to a registrational trial in a few months and hopefully launch in 2026. So overall, the B-VEC franchise, like if you think about the company commercially, we're in a good place. Clinically, we have a huge pipeline. We have 2 upcoming readouts this quarter and 2 more, like, in the first half of next year. Financially, we've had 5 quarters of positive EPS and a strong balance sheet. So overall, I'd say this herpes simplex virus vector has served us well to date.

Okay. We'll get to all of those points in a second. Just to continue on the high level. So the payload, so how big a gene could you put in there?

Now theoretically up to 45 kb. What we have done is get to in the mid-20s easily without disrupting anything about the vector. And not just -- so we -- so because we have so much payload, we can encode 1, 2, in some cases, 3 copies of the gene into the backbone.

All right. And then -- so you mentioned transient episomal. So just -- can we just dig into that? So what's the lifetime? Like can you just give some numbers around the transient aspect?

Yes. So HSV, modified HSV vector has a high propensity for transfecting almost any cell, but particularly epithelial cells of the skin and the lung. The vector quickly gets into the nucleus and stays pretty much for the life of the cell, like, as a cell divides and what -- one interesting attribute with respect to modification is we make the vector nonreplicating. So what goes into a cell, whether it's 1 PFU or a handful of PFU just stays within the cell until the cell's gone. And if you look at cells of the skin particularly -- keratinocytes have a half-life of, like, 14 days, fibroblast maybe 24. So in less than a month, the vector is gone from the cell. But during that time period, it continues to express the required protein. So that's -- that gives you an idea. Now in the lung, our expectation is the cells turn over a bit more slowly. So our frequency of dosing may necessarily not to be once a week. It could be as long as biweekly or once a month, depending on the half-life of the protein and the cell. So it all varies depending on the cell that we transfect.

Okay. And as far as the lifetime of the -- just quickly, the patent protection on this entire system, what are we talking about here?

Yes. We have a pretty robust patent estate because not many people thought about HSV-1 as a delivery vehicle. As you know, gene therapy was filled with AAV and lentiviral approaches. So we have composition of matter on the backbone. We have method-of-use patents. When I say method-of-use, it's the use of that modified vector for DEB or CF or alpha-1. We formulate it differently. In the case of the skin, it's a gel. In the case of the lung, it's nebulized. So we have formulation patents. And finally, geographic and a lot of patents get issued pretty quickly in our case, and there's a whole list, I believe, in the corporate website and the patents last at least, the earliest expiration, I believe, is 2036. And if you're in rare diseases, and the thing about HSV besides patents is as you scale a viral vector, particularly one that's not so widely used by other companies, there are a lot of trade secrets in manufacturing that are really, really difficult to emulate or takes a while. Yes. We feel good about the patent estate.

Okay. So with that backdrop, let's talk specifics. You mentioned VYJUVEK, so let's just kind of run through that, 5 quarters of, you said, positive EPS, the launch going well. Talk about how you see the next leg of growth for this product. Where are you going to find new patients? How are you going to get beyond the, I think you said 1,100, 1,200 that have been "identified?"

Yes.

So let's kind of go through that.

Yes. So yes, you're right. It's about 1,100, 1,200 identified patients. Our goal, since launch, has been to get to a 60% market share in 2 years. We're on track to do that. We're about, what, 16, 17 months into launch at this point. So we have plenty of room to grow, just getting to that 720 number and to the 1,200 number. So we haven't actively pursued any kind of, let's call hunt-and-find patients type approach. There's enough for us to bring into the fold for the next 12, 15 months. But already, the word is getting out. The drug is working well. It seems to have -- it has a strong efficacy profile. Safety is good. The physician experience has been really strong. The patient experience has been good with home dosing. Compliance is high. So word is getting out. The network effect of VYJUVEK is into the community and so we believe once we get past the next 15 months, we would have already put a lot -- we would have already sown a lot of seeds in the ground with respect to finding and hunting for new patients. So for us, finding new patients as more of a 2026 type problem than it is a 2025 problem. And we also have ways to have a lot of patients get genetically tested. How do you bring patients who have left the fold, meaning they no longer put a claim for DEB because there's not been an indication -- medication to date, how do you get them into the fold. So we have some ideas that we're starting to think about to put in place over the next 15 months or so.

I believe, correct me if I'm wrong, but you said you wanted to get to that 60% threshold within 2 years?

2 years and...

It seems like you're well on the glide path to achieving that based on the numbers I have in front of me.

Yes, I believe so. Yes, we're -- in fact, we talked about that in the Q3 earnings call. The rate at which we're growing and -- appears to be on track to get to that number, roughly around 2 years since launch, yes.

Okay. Anything else -- with the learnings that you've garnered over the last several quarters, anything else that you would tweak or change in terms of how you approach the next phase of commercialization? Or is it just a continued rinse and repeat?

I think -- look, the launch has gone really well. And so the last thing we want to do is to try to tweak something, because everything has got a derived problem or an issue associated. So we're not really tweaking or doing much about the launch right now. But what we are thinking about are ways to further improve patient experience, so I'll give you an example. There are some patients who would rather be administered the drug via the caregiver than a nurse showing up every week to their house. So we're trying to enable caregiver administration and try to get that on the label at some point. There are some patients, older patients with -- dominant, who are trying to make a case for self-administration because it's a gel and the administration is not that difficult. It's simply -- it's literally -- even though it's gene delivery, is literally a gel that you put on a wound. And so areas like caregiver administration, self-administration, not to the entire patient base, but to target it or ways to improve compliance and patient experience in targeted segments. And so we're working towards that as one aspect of life cycle extension of the product.

And they want the caregiver, I guess, because it's the same person. They're familiar with that person. They know them versus perhaps a different person each week coming from outside. Is that possible?

The nurses are pretty consistent. It's not a different person coming in each week. They are careful to pick the right nurse. But then one step further would be, hey, I have a parent who can administer this drug. I don't need a nurse coming in. That is a caregiver. And then there are adults who say I don't need a caregiver. I have, like, dominant adult patients go, I have 4, 5 wounds. I can do it myself. I don't need to schedule an appointment with a nurse. So these things take time because it's -- you have to do a human factor protocol study, work with the agency to get a label change, but we are working towards those type of improvements.

I guess for the self-administered it's case by case, they have to be able to reach.

Yes. So this would not be "one solution applies to all," right?

Yes, yes, yes. Okay.

We're just giving the patient the flexibility to choose the right approach.

Okay, got you. All right. So Europe and Japan, let's talk about the plans there. How are you thinking about those markets? So is it similar to the States in terms of the way you'll approach? Or are there specific factors that are going to have to change?

Look, it varies by country. We talk about Europe as one country. It's not, really. Germany is probably closer to the U.S. than France is. France appears to be a bit more centralized. The nursing networks are a bit different in every country. So there are tactical things you have to think about. But what we're hoping to do is we're expecting a CHMP opinion before year-end. We're looking to launch in Germany ideally, hopefully, first half of 2025. In France, it's not really a launch till we get the pricing negotiated. They have a program called Access AP1, AP2 and AP1, where you still get paid for the drug, but it's more under an Access type program. You cannot detail the drug and the demand is -- the patient has to ask for the drug until you get the pricing figured out. So we launch in Germany and France next year. And then we're looking to launch in Japan second half. [Technical Difficulty] And we have teams and, like, a lot of prelaunch activities happening in full swing in all these countries at the moment.

How many -- what is the scale in terms of the identified patients in those 2 territories in Europe and Japan? How does it compare to the 1,200?

Yes, in -- which is great because a lot of patients in Europe have been genetically confirmed and tested. There are legitimate registries for dystrophic EB. We believe we have identified close to 2,000 patients in Germany and France, maybe about 300 in Japan, give or take, 250 to 300. So we don't have the issue of educating people on the importance of genetic testing, offering genetic testing. That's all in place already. The bigger thing we have to overcome is the pricing in Europe. So we're working towards and thinking about how to get the right price the product deserves in these countries.

Okay. So -- but unlike in the U.S. where you have the special math around the cap that -- that's not going to happen in those places? Or is it going to be?

We're -- the cap -- so first, in these countries, there's -- it's almost a single payer system. And there is an invisible cap, not just for us, but for all companies in these countries because it's budgeting based. So when -- they have a certain budget for rare diseases. And if you start tripping the budget, then you got to keep offering further discounts to stay under the budget. So there's a natural cap.

Right, right. I guess I just meant in terms of the gymnastics on the imputation...

We don't have that.

Okay. Yes, yes. All right. Okay. Okay. Let's -- you mentioned -- let's talk about the ocular because that's important. So where are you with the B-VEC? And I think you said you're going to start the registrational study first half of next year. How many patients would you expect would be candidates for that as well as the gel?

Yes. So this is virtually an eye drop.

Yes.

Right? Lesions in the eye roughly affects about 50% of the RDEB population and about 10% to 15% of the dominant population. We're in the middle of a natural history study at the moment, which we hope completes early next year, in time to start the registrational trial following the completion of the natural history. It's a 6-month study with a 6-month end point. And so following the completion of the study, we plan to file a BLA.

Is that with patients that are on VYJUVEK or just other patients? How is that...

It's depending on who volunteers for the study, but being on VYJUVEK is not a inclusion or exclusion. It's great if they are on VYJUVEK. In fact, the one patient that was published in the New England Journal of Medicine is a patient on VYJUVEK, but continues to get the eye drop on a weekly basis.

The one -- the child, is that what you're saying?

The child, a boy.

That had 1 eye and the other one blind?

Yes, we treated both eyes. Went from blindness to -- with just hand motion to, like, pretty much close to 20/20, 20/30 vision. That kid is commercially on VYJUVEK and on an Access basis on this eye drop and has been for, like, 1.5 years, 2 now.

Okay.

So the good thing about the eye is we have the commercial infrastructure in place. We've identified a lot of patients already. We know the payer system. We have the medical affairs. So a lot of things are in place. It's like adding another drug to the bag of a rep once we get approved.

And then I can put you on my ophthalmology panel once you have more data, and we'll have a cross pollination.

Oh, that was -- yes, it'd be great.

Okay. So another one that maybe doesn't get enough attention is the Jeune Aesthetics program, which is a different animal, obviously, and you showed some recent data, which looked promising. So let's talk about that and how you see that evolving in the context of Krystal and whether you would see that maybe going in a different direction as a different company, or How are you thinking about that?

Yes. So yes, the Phase I data that we announced was promising, was good. We've gotten feedback from people in the aesthetics community that the data is pointed in the right direction. So we're getting ready to start a Phase II study middle of -- sometime in the middle of next year. The reason -- it takes a little bit of time. You've got to develop the scales, set it particular to your product. You got to get the FDA to bless the scales before you go into a Phase II. And the Phase II is anticipated to be about 100 or so patients. Now long term, aesthetics, like you said, it's a very different market. It's cash pay. Marketing is a huge aspect of aesthetics launches, and so what we are working towards is to spin out Jeune from Krystal at some point before we complete the Phase II study. That could take a variety of different structures and shapes, but the idea -- the medium- to long-term idea is to have Jeune as an independent company with an aesthetics management team working towards getting the drug approved. Krystal, obviously, will be involved. We can manufacture at scale. The CMC is in place. We have good relation with the Office of Cell and Gene Therapy, OGT, where it'll be presented for approval or -- and so we have good working relationships based on the platform. So we'll be connected loosely with the company, but we would like Jeune to be independent.

I don't know how far you've gotten in your thing. Would this be something you would seed with some of your own cash? Would you look for new investors for that?

A lot of options. One could be a business development deal with a large aesthetics company, which -- it's kind of like separated, where they would develop and commercialize. The other option is to spin it out to Krystal's shareholders at some point. The third option is for Krystal and whoever is interested finance Jeune like a series A and send it off. There's a lot of ways to think about this, but the objective is to make it a separate organization with a separate board and a separate management team.

So would this be like -- I don't know the aesthetics world much, but is it going to be like a Botox where they -- you get proof of principle in certain indications. And then once the surgeons have access to it, they can use it as they see fit?

That's what the surgeons say. There's a funny quote they say, the indication follows the off-label use in aesthetics because they dose so many patients that now you have enough clinical data to go make a case for the indication, which is kind of the path Allergan took, to a large extent. But I think the indication we're going after. Décolleté is an unmet aesthetic need.

I forgot to mention that. Yes, thank you.

It's -- there are treatments for the phase, whether it's Botox or fillers. And I really think it addresses an unmet aesthetic need for people in the U.S.

Okay. All right. Let's come back to some of your -- what I assume will continue to be your proprietary program. So there are 2 on the respiratory front: 408 is for AATD, alpha-1 antitrypsin; and 407 for CF. So I guess we can start with AATD. Therapeutic hypothesis, how you're dosing there? There's obviously been -- we know there's been various challenges with the delivery to the lung tissue for some of these other -- these therapies. As we know, it's been very challenging. It's been immune-related issues with other platforms. You just don't get enough into the -- deep into the lung. So how are you addressing all of that?

AATD were about delivering that protein specifically to the lung. We're not thinking too much about systemic levels of AATD circulating. And it's -- we -- our approach is to nebulize it, encode 2 copies of the gene into our backbone and deliver it directly to the lung. And it's a good complement, there are companies in RNAi working to fix the same issue in the liver. So it's -- if you can think about it as a complement to that if you're treating the liver and the lung. The preclinical studies we've done to date, both on 408 and 407, which is our CF indication product, have been relatively safe. In CF, we did nonhuman primate study in about 37, 38 monkeys with repeat dosing and saw a good clean expression without any serious adverse events for over 28, 30 days. We've already dosed 2 cohorts of CF patients. Cohort 1 and 2 has been relative -- has been innocuous. We are in cohort 2 of the alpha-1 antitrypsin study. And to date, we're talking 3, 6, 10, 15, 16 patients who have used a nebulizer once or twice during the study, both across CF and AAT and it's been safe. So we're excited and looking forward to progressing both these programs.

Can you talk -- so the data for both, can you just say when you were expecting the next tranche? And what do you -- what is the threshold for the kind of go, no go? What do you need to see?

So the data and upcoming data announcement is in alpha-1 antitrypsin. We've guided to announcing CF in the first half of 2025. So if you read literature, alpha-1 levels in systemic circulation pegged, in normal human beings is about 11 micromolar and anywhere from 5% to 10% of dose levels in the lung is considered normal and healthy. So for us, if 11 micromolar is circulating trough levels, somewhere in the range of 0.5 to 1 or north of 1 is a good readout for us. We also have -- we are also a redosing type paradigm, so we could build upon efficacy. So it's like you establish a beachhead and you just -- you could, by redosing, build upon AAT levels over time. So the way, I think, about -- we think about this, Yigal, is if the number is off the chart, like, 1.5 or higher, we don't need to go into cohort 3. If we're in the range of 0.5 to 1, we think about redosing in cohort 2 while maybe dosing a couple of patients in the higher dose to see if it's dramatically different. And if it's below 0.5, we definitely go into the higher dose. So that's how we think about the Cohort 2 data announcement. This all assumes that the drug -- that it's safe and there are no any -- most of the adverse events are mild to moderate and transient. That's the expectation. But it's a good -- because it's a quick nebulizer, like it's a 10-, 15-minute nebulizer. Based on the NHP data, we're hoping maybe we have to dose close to once a month. We may -- that all depends on how the redosing study goes. So we feel good about -- and it's a simple concept. We're just delivering alpha-1 antitrypsin to the lung.

And you're measuring with -- how you're measuring it? With a cocktail lavage or...

So we were fortunate to get a couple of patients in cohort 2, who are willing to -- we had a physician willing to do the bronch and a patient willing to provide the bronch. So we're looking at lavage and trying to measure protein levels. We're doing brushings, bronch data to see, to look at transduction in the airway cells.

How much variability is there? Because if you're going into different branches in the lung, you might get a good spot, you might get a bad spot.

I know. Look, you build with the tools you've got. Like we all know how difficult it is to get bronch. We all know that levels could be different in the upper low versus the lower low. But if we get a decent -- irrespective of the lobe, if you get to that micromolar range that we talked about, we get to a good amount of neutrophil elastase binding. We start to see transduction in the airway cells. You look at it more holistically than argue, if I had gone to another lobe of the lung, would it have been higher? Maybe, but you could keep doing that for many years if you want to...

Yes. Of course. Yes.

You're optimizing directionally. So that's how we think about it. It's a complete -- it's a comprehensive set of biomarkers we look at, and we make the call, do we stop at cohort 2, or do we have to go into cohort 3.

Now with -- you're delivering CFTR. Is that right?

Correct.

So that's different, though, because that's not secreted. Is that correct?

Correct. It's [ drained ] down.

So therefore, it's going to be a bit of a different -- you're not going to do biopsies in the lung, are you? I mean, are you going to look at FEV? How are you going to look at that?

I think, there, the bronch data in AAT is more telling of the probability of success in CF, right?

Okay. Yes.

As opposed to lavage and all that kind of stuff. I would say, look, in CF we're going after the null patients for the -- that's a long-term plan, similar biomarkers, and you could get FEV1 data in CF a lot more easily than alpha-1 antitrypsin. So it's a [ climb ] -- there, it's a bit more efficacy driven than biomarker-driven for us in CF.

But the nulls are just starting -- I mean if this works in the nulls, I mean, you could go to all the different variants, yes?

Correct. But null is an unmet medical need. We could make a good argument with the FDA about moving pretty fast if the data works out. And once we get that sort of -- development pathway is, "Let's work towards getting the null mutation done," but it's obvious that we are mutation agnostic. And at some point, we could make a run for the broader indication.

Okay. Okay. And that data, you said, is next year.

One -- first half of 2025.

How many -- can you say, like, just ballpark, how many patients are we talking about?

It's 3 cohorts. It's an ascending dose. We have dosed 3 to 4 in cohort 1, 3 to 4 in Cohort 2. We're close to enrolling a patient in cohort 3, which we believe is our efficacy dose. And we hope to announce data first half of 2025. The alpha-1 program, relatively speaking, has gone a lot faster than the CF program and that just has to do with finding patients, getting enrolled than anything else.

Because what's the fraction of the null patients in CF? It's not huge.

10% to 15%.

Yes, yes. Right. Right. Okay. And we don't want to forget about your work in oncology. So let me talk about that quickly in the last 5 minutes. IL-12, IL-2.

If you remember my opening comment, I said we use the virus to deliver exogenous generic materials. And the reason I said that is, while we are delivering genes in DEB and CF and A1AT, we're delivering cytokines, and for our oncology program, the whole premise is based on the unique combination of IL-2, IL-12, delivered locally. Like, more IL-2, IL-12 where it matters and hardly any elsewhere, because these cytokines are notorious for the toxicity in systemic circulation. So same idea, same concept. Let me use the lung as a great example. Targeting solid tumors in the lung, using a nebulized viral vector encoded for IL-2, IL-12. And the idea being -- so where we are with respect to that program, we expect to announce data before the end of the year, very early data. Our objective in these announcements, whether it be AAT or oncology is fundamentally to demonstrate that Krystal can safely and repeatedly deliver to the lung and also show good signs of early efficacy. That's the point, because we're talking 2 patients in AAT, talking a handful of patients in oncology, but it kind of shows the power of the platform. And then where we are as a company in oncology is trying to move into a combo therapy as the next stage in advancement and more to come on that later.

So can you -- these are lung patients. Can you get into more detail? Like, what are we -- are these non-small cell, small cell, what stage are they, have they had immunotherapy.

Yes. Just at a high level, we targeted pretty broad -- different types of tumors in the lung, the majority of them in our Phase I are NSCLC patients. We get those that have been -- that are at 4 lines of prior therapy before they get on our disease -- our treatment. Age is, like, 67, 68, 69, so they don't have a lot of time left. So that is the profile of the patients on our lung cancer study. Obviously, besides the lung, many of them, the tumors have metastasized to other areas of the body. But our objective is to see if we can shrink the target lesions over time, maybe show abscopal effect, either with an anti-PD-1 or as a monotherapy, but we're in the early stages, right? I want to be careful in stating we're talking about 12, 15, 18 patients, not hundreds of patients at this moment.

And would you consider -- so of you mentioned abscopal effects, so intra-tumoral, would that be something you would look at in the future perhaps? I mean not the inhaled version, but if you have, say, a skin lesion?

Oh, we have a similar program going for the skin. The skin is -- look, there are a lot of treatments for melanoma, for example, right? So you have to be really differentiated to make a play in melanoma, for example. But there are also some rare disease tumors that we could go after. So we are dosing a broad spectrum of solid tumors in the skin and hoping to find a niche that we can go after as opposed to just be one more player in a competitive indication. That's where we are.

And one last one. So what's -- what could be next for the platform? And you're in such a broad span of --aesthetics, ophthalmology, skin, pulmonology, oncology. Is there another area where we should be thinking about...

Very quickly. Look, we're primarily in the skin and the lung, right, given the -- and we're delivering a genetic material to the skin or to the lung, right, whether it's a cytokine or a gene. So simplistically, we are in 2 tissues today. The eye, given where we're going, would be a natural next tissue for us to go after and more to come on that later. We have enough on the plate already. Our goal in the eye is to get B-VEC approved for the eye in 2025 and then think beyond that later.

Makes perfect sense. Well, thank you so much, Krish. Appreciate it.

Thanks, Yigal. Thanks for having me.

You're welcome.

Appreciate it. Thank you.

Thank you.