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

Hello, everyone. Thanks for joining this session with Krystal Biotech and welcome to day 2 of the 2025 Bank of America Healthcare Conference. My name is Alec Stranahan. I'm senior biotech analyst covering Krystal at Bank of America, and I have the pleasure of being joined today by Krish Krishnan, Chief Executive Officer of Krystal. Thanks for being here, Krish.

Thanks for having me.

Yes. Great. Well, we've got about 30 minutes to run through questions. I've got a bunch here. If you have any, just raise your hand and we'll bring you a mic. But Krish, maybe just to set the stage, provide an overview of where the company is today. You're a commercial-stage company, but you do have a pipeline of pretty interesting assets too. So what's the focus points today?

Yes. So Krystal Biotech, we develop and bring to market generic medicines primarily for monogenic diseases. We're based in Pittsburgh. We have 2 manufacturing facilities in Pittsburgh. The reason I mention that is all of our manufacturing is done in the U.S. All the IP is housed in the U.S. Most of our employees now are in the U.S. And so from -- and some of the noise you hear about MFN or tariffs, we're really insulated from all of that. And as Alec mentioned, we launched our drug VYJUVEK for the treatment of dystrophic EB about 18-or-so months ago in the U.S. We just got approved in Europe, and we hope to launch in Europe and Japan later this year. So we have a commercial drug and a pretty healthy pipeline targeting the lung as a tissue, which is a big focus this year. We're trying to -- we're getting into the eye as a tissue for next year. We're already trying to use an existing VYJUVEK for the eye. So we're positioning for the eye next year and early entry and foray into oncology with a very similar kind of approach. So yes, big pipeline, but we've been cash flow-positive for the last 7 quarters. Balance sheet is pretty strong. We're not looking to do any kind of financing over the next few years given our OpEx and the pipeline. So all in all, from a company perspective, we're in a good place.

Great. Well, maybe we can first turn to VYJUVEK. Maybe walk us through the trends you were seeing in 1Q, new patient starts and sort of the efforts being made to better penetrate the market.

Yes. So there were 3 drivers in 1Q. One, a lot of patients were getting completely healed, which is what as a sponsor you want when you develop a drug is for patients to heal. So a lot of patients took a break primarily because of complete wound healing. And because the skin cells turn over, we're expecting them back over the next 60, 90 days, 120 days back into the drug. Pauses are really positive feature for VYJUVEK because it is a chronic medication. And given the long tail on the drug, we want patients to be in a very comfortable place with respect to stops and starts as this continues for a long time. So pausing is not something we try and do anything with. We just let patients pause and come back on drug at the right time. And that caused a little bit of a reduction in what otherwise would have been net revenue. But in the long term, it's actually a big positive because a lot of these patients could come back, and it's tough to predict its impact on net revenue. The other big driver is it's taking us -- it's taking our reps a bit longer to pull through a prescription or a start form. And we have about 17 reps covering 52 states. And as patients get more dispersed in the community, as physicians get more spread out in the community, the time to get a prescription multiple conversations is taking longer. And so what we announced in 1Q was we're trying to -- we've already -- Christine Wilson, who runs our sales and marketing, has started to strengthen the sales force in the company, meaning try and figure out a way where the reps can be much more efficient with their time as opposed to keep commuting into the community multiple times. The third factor, which happens to a lot of companies, is Q1 is a Q where there are a lot of insurance changes, and so a lot of people shift insurance. And when you shift insurance, we've got to go get approval in a new insurance company and that -- always. But that's a very temporary thing because all these patients catch up after a couple of weeks and the impact -- that impact shows more in Q2 than in Q1 because they all come back. So that was the situation. And I want to be clear that we are very confident about the total market opportunity of 1,200-or-so identified patients and 3,000 in the U.S. So this revenue impact in 1Q is more a tactical thing for us, not something bigger than what it appears to be.

Okay. So is it possible given the insurance changes, that maybe brought numbers down slightly in 1Q? Could that reverse here in 2Q? I guess my question is, how many of the impacts that you saw were isolated to the quarter? And do you get maybe a swing in the other direction as we enter the second quarter?

With respect to insurance pausing, that definitely is a swing in the positive direction. With respect to pauses, it's tough to predict because you could have a Q where a lot of people who paused come back on drug pretty quickly. You could also have incremental pauses. It depends on the durability and the type of patient. And definitely, some of the efforts we're putting in on the commercial side with respect to getting more prescriptions -- getting prescription faster should definitely have an impact through Q2 and Q3.

Okay. Is there -- are there -- have there been -- obviously, it's a new drug launch still. Have there been any patients that have benefited from the drug to the extent that they maybe haven't hit their annual cap? Or is it just too early to say there?

We'll see how this year goes. But the way we think about accruing for cap is on a quarterly basis. We really thought we did a phenomenal job last year. There was hardly any fluctuation in net revenue. And because we do it every Q, we're able to come pretty close to the cap when compared to the accrual. But definitely, as more people pause, the probability of hitting the cap starts to go the other way.

Okay. And I guess last question just on the print. It looks like maybe new reimbursement approvals slowed down a little bit. Since the percent of the access determinations appears to be stable, is this sort of a natural shrinking in the addressable population? Or should we maybe expect some swings on this number as well?

No, no. I would not go towards -- the addressable population is and continues to be what we've always said it has been. The reason is simply -- so reimbursement approvals are basically a proxy for prescription. You get a prescription, it translates to reimbursement approval. And as I mentioned, it's taking us a bit longer to get the prescription, and so that translated to it's taking us a bit longer to get reimbursement approval. So hopefully, with some of the efforts, we're hoping this is transitory and we get back to a normal pace shortly.

Okay, okay. That's encouraging. And then this year, you also have the benefit of launch in the EU and maybe Japan as well. I guess, how are things going on those fronts? And when could we start to see an impact to the top line?

Yes. EU, we were very happy with the full approval we got as opposed to conditional. The label is a bit broader than what it is in the U.S. in terms of allowing patients based on their physician conversation to self-administer, either via caregiver or self-administer. We're -- the team in Germany and France is pretty well baked at the moment. We're hoping to launch in Q3. Germany and France will be the first 2 countries. And then we're also working in the background to get the drug approved -- launched in some of the other EU countries: Germany, France, which I already mentioned; Switzerland; some of the adjoining countries. We're also working to put distributor agreements in place for MENA, which is the Middle East and Israel and some of the other countries. So in terms of any impact, and I would be -- I wouldn't expect a big impact in Q3 given we're launching in Q3. But I do believe in the long run, given how well patients are identified in Europe and how they are generically confirmed and the value proposition of the drug, I'll repeat: I do believe the market underestimates VYJUVEK launch in EU. And then Japan, we're just hoping to get approved in Q3. We got to go through pricing negotiations before we launch. So our expectation is to launch hopefully in Q4.

Okay. And obviously, good to see the broad label treating patients from birth. That's different than the language on the U.S. label. How does the initial dose that patients receive differ between the U.S. and the EU? I think maybe a health care provider needs to provide the first VYJUVEK dose in the EU. Is that right? And how are you sort of managing that from a rollout perspective?

Yes. So the first -- so in the U.S., just to level set, a patient could start day 1 dosing in a home setting, does not really have to visit the physician office. A lot of them do, but it's not mandatory. So if they got a prescription, they can send a nurse to the patient's home and they get going. In the EU, it is mandatory that the first time they get a prescription, it's in a physician office. So one of the things we're trying to manage is how to work with the Centers of Excellence in Germany and France to enable them to get more patient visits early on. So we are -- we were aware of this issue even well before the label officially came out. So we're working with Centers of Excellence to ensure that they're able to manage a lot of patient appointments. So hopefully, it plays out well. So that definitely is a time factor that someone has to account for in the launch. But once they have the first visit, then they can go back home and self-administer or caregiver administration. It gets really easy post the first visit.

Okay, okay. Have you heard that patients maybe would prefer that initial high-touch introduction to the medicine from their provider like to give them more confidence to self-administer?

Yes. I think early on and -- like what we saw in the U.S. is early on when you're talking about gene therapy and a viral vector-based, people want to talk to the Centers of Excellence. But over time, with -- like in the U.S., the Facebook community, people understand how simple and easy -- I mean, at the end of the day, it's a gel that's put on a wound, right? And I think -- I mean, look, the -- I think EU, we were even surprised we got home administration, let alone caregiver administration. And so we were very comfortable during negotiation having the first visit be in a physician office. It just sets the right tone and -- for the rest of the launch.

Yes. That makes sense. And I guess when you think about pricing dynamics, what should we sort of be thinking about as we model out pricing in the EU and then Japan? Obviously, it depends...

It varies by country. Yes, it depends -- varies by country. Usually, companies do well in Germany, not so well in France. It all varies. But I will say this: it's an unmet medical need. It's a pretty debilitating disease. There is no corrective therapy in Europe. We've been fortunate to have a few patients on -- have access to the drug as of late last year going into this year, and the feedback has been very positive. That all said, our -- we would accrue thinking we're going to end up at 50% the U.S. price, but our expectation is to end at like 70%, 75% of the U.S. price. So a conservative accrual but a more optimistic view on where we would end up with pricing.

Okay. And obviously, that gradually changes over the first year so it's not like the starting price is the final price. It depends on the geography.

Right. We wouldn't know. So we got to like accrue in anticipation of a final price. And most companies err on the side of being conservative to avoid paying out some kind of lump sum at the end of the 12- or 18-month period.

Okay. That makes sense. And Krish, you mentioned the relatively straightforward administration procedure. I mean this is something a patient can do by themselves at home. There has been another approval in DEB in the U.S., definitely less straightforward. How do you view this in the context of VYJUVEK's growth? Or is it kind of a wait and see?

I don't see having any impact on VYJUVEK growth. It's an autologous approach. Convenience is paramount to DEB patients, 98% of our patients choose to be dosed at home, don't even want to do the 3- or 4-mile ride to the local physician office. And in the case of this recently approved drug, there are a couple of centers in this country, and you have to go there to get the procedure. It just -- on the face of it, it feels burdensome. And I particularly don't see any meaningful -- any impact to the VYJUVEK launch trajectory in the U.S. or in the rest of the world.

Has your conversation with payers in the U.S. changed at all after that approval?

It has been really good. It's been consistent. As we mentioned in the Q, we have not had any denials. I mean we're able to convince them to get back on drug. Access, honestly, Alec, has been very good for Krystal since the beginning. We haven't had -- I think we spent a lot of time developing a value proposition that was attractive to both sides.

Okay. That makes sense. Maybe shifting gears to the pipeline. You've got a number of readouts. You had a few first-in-human proof points end of last year and beginning of this year. Which pipeline assets are you most excited about? Obviously, you love all your kids, but where would you sort of be focusing on for this year?

Look, this -- the immediate excitement is on CF and alpha-1 antitrypsin because they're upcoming over the next few months. In CF, for a couple of reasons. I think we have a very strong value proposition in patients who have a null mutation where there is no medication. And the second attractive value proposition for KB407 is the fact that it can be redosed. So if we can establish a pretty meaningful beachhead in the first administration, assuming safety continues to stay the way it has been, it can only get better from that point. So redosing with a simple nebulizer for less than 10 minutes to treat CF, maybe biweekly or monthly, for null patients potentially at home is a huge -- is a big change in terms of convenience and benefit to the patient. On the heels of that is also alpha-1 antitrypsin, where we showed 30%-or-so transduction efficiency when we reported, which means we're able -- and just to remind everyone alpha-1 lungs also have mucus, maybe not to the extent of a CF lung, but a mucus-filled lung. So the fact we were able to deliver to the lung, express meaningful levels of alpha-1 in the lung, have them go through the lobes into systemic circulation was a big positive for us. So we also look forward to getting more patients on the Cohort 2 that we showed early data on, moving them on to a redosing paradigm. So this year, and with no regard, it's for us the year of the lung, and we're excited about both those announcements for the short term.

Okay. And I think before we saw sort of those first-in-human evidence of activity, it wasn't obviously clear that you could deliver your HSV vector to a pretty severely damaged lung, right? It's definitely high-hanging fruit than dripping it on an open wound, technologically speaking. I guess, how does -- how did those readouts sort of increase your confidence in the pipeline?

Yes, a lot because just to say -- I can't say much about it, but we have a lung cancer announcement. NSCLC is an indication coming up at ASCO. And in that case, we're delivering cytokines to the lung repeatedly, right? And patients have been on drug, some for a year, 9 months. We were at different stages. It's not a big sample size. But that provides conviction that, yes, we can go to a lung over and over again safely and repeatedly. Then we showed alpha-1, which is mucus-filled lung, and we were able to consistently deliver single dose to that. And so the alpha-1 data definitely reinforced our excitement about the upcoming CF data. CF, we did not do any brands until we got into Cohort 3. And especially if we're able to show expression in a null mutation patient, it would be really good for the company and the pipeline in the long term.

Okay. Looking forward to sort of the framing of the data from that study, should the editing piece or the expression piece be most important? Or is there maybe a molecular bar that you could point folks to that you're hoping to clear to progress this trial?

CF or -- in CF?

Yes.

No. Look, in CF, the bar for null mutation tends to be lower than the bar for non-null mutation. In the non-null mutation, if your first gives you a mid- to high teens type beachhead in terms of levels, then you can build upon it with redosing. And our belief, like if -- I remember listening to Vertex on the null mutation. The expectation is if you are in the mid-single digit starting, that's a big -- nice, big bar for the null mutation and you can build upon it with redosing. But it remains to be seen how it evolves, but that would be an early read into what a threshold could potentially be for approval.

And I guess on the redosing piece, I guess, we'll get evidence of that at ASCO because it's a similar administration through the nebulizer. In CF specifically, would you expect a deepening of molecular change in the lung upon repeat dosing?

Yes. So I mean you can imagine, each time -- every time we dose, the lung is in a better place than it was before, right? That's the beauty of redosing depending on the state. So our belief is that every repeat dose will have a bigger benefit than the early-on dose if the lung clears. And so yes, I do believe what you just said.

Okay, okay. Great. And then on alpha-1, is 11 micromolar sort of the bar that's kind of the widely held one from physicians in the field? Is that the right way to be thinking about it? And how would you sort of focus on functional versus AAT?

No. 11 micromolar is the bar for systemic administration. The bar for delivering in the lung is about 5% to 10% of that number. So if you notice, when we did the single administration alpha-1, we were at 0.75 micromolar. So we're well within the therapeutic range. And our objective is to, with redosing, get that number up to a very meaningful level that would be beneficial. So I want to clarify, 11 is for the augmentation therapy, it's for systemic. It's not for levels in the lung.

Okay, okay. Do you think there's a way for you also to treat the liver implications of one? Or are you really just solely focused on the lung?

No, we're focused on the lung. I believe there are RNAi and other editing approaches targeting the liver. If you look at the data announcement, there was a small percentage of alpha-1 that permeated through the lung lobes and seeped into systemic circulation, but it wasn't a meaningful number to say, "Hey, we're going to have a big impact on the liver." So we're hoping to be complementary with those targeting the liver.

Okay, okay. And I guess maybe just to frame sort of the duration of patients on the therapy, what should we sort of be expecting in the next update?

For CF or alpha-1?

For alpha-1.

Yes. For alpha-1, we announced early data from Cohort 2, which was the mid-dose, which is a therapeutic dose. In our opinion, it was safe. We added more patients to that cohort just to get confirmation on the levels and the data. We're also working to enroll in Cohort 3, which is a higher dose. That's just as an alternative to see it's meaningfully better, but we're already happy with Cohort 2, which is a therapeutic dose. And as soon as we get done with the 2 patients, we're moving all of them into a redosing paradigm later this year. So that's the -- so in terms of -- depending on when we choose to do the readout, you could either see single-dose data on more patients or repeat-dose data on all patients, depending on the timing of the data.

Okay, okay. But you'll obviously update the markets when you think you've got a material update?

Correct. Yes.

Got it. And then you've got ophthalmology as well, KBM-803 (sic) [ KB803 ]. This is for the ocular complications of DEB Phase III study, right? This would be a separate, I guess, label and submission. So maybe a little bit different pricing dynamic from VYJUVEK. I guess walk us through the market opportunity here and how you're sort of seeing the path forward to launch.

Yes. About 50% of the RDEB population identified in the -- I mean 50% of the RDEB population and about 10% to 15% of the dominants have lesions in the eye. So we have -- we are going into a registrational study. We're hoping to dose the first patient in the upcoming weeks. We're pretty close. We will provide full information on study design, endpoints. But I will say we expect the registrational trial to be blinded and placebo-controlled. It's a 6-month study following which, as you were mentioning, we filed the BLA, which hopefully is a 6-month review process. I hesitate because of some of the changes going on in the administration today, but we're hoping for at least 6 months. And then it would follow -- and that's a good -- great product for us because we have the sales team, we know the patients, they understand the drug. So it's a quick drop-in into an existing market and should launch really well early on because we have all the pieces in place. The other eye program is a new indication called neurotrophic keratitis. Most people, if you dig into the market, it's supposed to be a blockbuster market. There's one private company in it. We're super excited. It's not a 2025 drug for us. I mean we could complete Phase I/II before the end of the year, but we think about the eye as more like a 2026. Like if you think of this year as being the lung, next year, the focus will be on 801, 803 and how that's evolving. And so we're super excited by the opportunity. The prevalence in the U.S. is about 75,000 patients. There's one drug on the market, which has got some inconvenience with respect to dosing and AEs. So we believe KB801 affords a terrific value proposition for patients with NK.

Okay. Great. And maybe in the last minute or so, you mentioned that you're in a great place cash-wise, maybe not needing to raise for the next few years. I guess, what's sort of contemplated within that runway assumption in terms of powering through the VYJUVEK launch, getting some of these assets into mid-stage or potentially later stage for ophthalmology? Is that kind of all wrapped up into your runway assumptions?

Yes, it is. We're -- look, the one guiding principle when we are faced with a large indication -- when I say large indication, a high prevalence, not a rare disease like DDEB. Our objective at some point is to partner that drug with some strategic. So our niche is bringing rare drugs to market and launching them in the U.S. And now we're developing competencies in Europe and Japan with the launch. So yes, when I say we're fine from a cash perspective, I'm including pretty much everything we're contemplating. And aesthetics, we already hired a couple of individuals to find a way to get Jeune Aesthetics financed and spun out at the right time. So yes.

Okay. Great. Well, looking forward to the updates that we outlined. And I think with that, we are at time. So we'll have to leave it there. But please join me in thanking Krish for the great conversation and for being here at the conference.

Thank you. Thanks for having me, Alec.