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

Greetings. Welcome to the Jeune Aesthetics KB304 Clinical Data Update Conference Call. [Operator Instructions] I would now like to turn the call over to your host, Nishant Saxena. Please go ahead.

Good afternoon, and thank you all for joining today's call. Earlier today, we announced positive safety and efficacy results for Jeune's KB304 Phase I PEARL-2 study, a randomized, double-blind, placebo-controlled study for moderate to severe wrinkles in the décolleté. The press release is available on the Krystal Biotech website at www.krystalbio.com and the Jeune website at www.jeuneinc.com. Both the press release and today's presentation have also been included as exhibits to Krystal Biotech's Form 8-K furnished to the SEC. Joining me today will be Marc Forth, Chief Executive Officer of Jeune; September Riharb, Chief Marketing Officer of Jeune; and Suma Krishnan, Founder and President of Research and Development at Krystal Biotech. This presentation will, and our responses to questions may contain forward-looking statements. You are cautioned not to rely on these forward-looking statements, which are based on current expectations using the information available as of the date of this webcast and are subject to certain risks and uncertainties that may cause the company's actual results to differ materially from those projected. A description of these risks, uncertainties and other factors can be found in Krystal Biotech's SEC filings. With that, I'm pleased to turn the presentation to Marc Forth, Chief Executive Officer of Jeune. Marc?

Thanks, Nishant. We are very excited to be sharing today's clinical data update on KB304, which is designed to deliver full-length human collagen III and elastin to the skin. As you will soon see, I think this update highlights the potential of our unique approach to addressing the underlying biology of aging skin. Before sharing the data, as a reminder, I'd like to talk about how Jeune is structured and the support that Krystal currently provides to Jeune. Jeune is a wholly owned subsidiary of Krystal and leverages Krystal's proprietary technology platform in cash pay indications. It is a validated platform that to date has resulted in one approved drug VYJUVEK for the treatment of dystrophic epidermolysis bullosa. Krystal provides Jeune with exceptional capabilities across R&D, regulatory, manufacturing, legal, human resources and finance. Jeune is leveraging Krystal's technology of using a modified vector designed to repeatedly deliver the appropriate genes to skin cells of interest and reverse the trend of extracellular matrix decline associated with aging. If we turn to Slide 5. Just a few words on KB304 before we get into the data. KB304 was designed to deliver both collagen III A1 gene that encodes the pro-alpha 1 chains of Type III collagen and the elastin gene that encodes elastin. As you may know, humans have plentiful amounts of collagen III when young, but as we age, production of collagen III diminishes. While less abundant than collagen I, collagen III is critical for skin pliability and repair and its degradation is one of the primary contributors to thin age skin. Additionally, while elastin is estimated to only constitute 2% to 3% of the dermis, it plays a crucial function in the appearance of healthy skin. Elastin expression is highest in early development and expression decreases during adulthood. Age-related reduction in elastin production and damage to the elastin have a substantial impact on the skin's appearance, resulting in looser, sagging and fragile skin. Elastin and elastic fibers are particularly vulnerable to intrinsic and extrinsic factors such as sun damage, in that there is a very low and slow turnover. The overall half-life of elastin is estimated at more than 70 years. KB304 is designed to supplement collagen III and elastin expression from an individual's own skin cells, restoring protein levels and rejuvenating the skin. I'll now turn the presentation to September Riharb, Chief Marketing Officer, at Jeune, who will introduce the study and share the results. September?

Thank you, Marc. PEARL-2 is a randomized, double-blind, placebo-controlled study of KB304, evaluating dynamic wrinkles in the décolleté in an adult female population. The décolleté is a target site with no approved injectables and a priority area for subjects as it is highly susceptible to premature aging and damage. A total of 19 subjects were enrolled and treated in the study. One subject discontinued the study. So 18 subjects were assessed to the 3-month follow-up. The subjects enrolled in the study ranged in age from 47 to 75 years old and the median age was 62. The study was randomized 2:1 with 12 subjects receiving KB304, injected with a 33 gauge needle, and seven subjects receiving the placebo, which was saline and was also injected with a 33 gauge needle. We evaluated KB304 safety as well as efficacy, with efficacy assessed by both the investigator and the subjects utilizing the Global Aesthetic Improvement Scale or GAIS. Subjects also reported on their overall satisfaction with their wrinkle appearance using the Subject Satisfaction Questionnaire. In today's readout, we will be presenting safety and efficacy results as assessed 1, 2 and 3 months after completing three treatments, which were each injected 2 weeks apart. Safety findings are summarized here. KB304 was generally well tolerated with a safety profile consistent with previous clinical studies of KB301. Injection site reactions have all been within the expected range of aesthetic injectables and with all reported as mild to moderate and transient. Adverse events were primarily related to the initial treatment and the frequency and severity of adverse events decreased with repeat treatment. And we had no reported AEs in the placebo arm. We saw clear and clinically meaningful improvements in wrinkles of the décolleté for those subjects treated with KB304 and a clear separation between the active and placebo arms. Starting with the GAIS results, the study investigator reported an improvement of 1 point or better in 100% of the subjects treated with KB304 at all three assessments. The subject self assessment on the GAIS also shows clear separation between the KB304 active arm and the placebo arm. The KB304 subjects reported an improvement in décolleté wrinkles of at least 1 point and 72.7% of the subjects at the first and third assessment. And at the second assessment, 90.9% of the subjects reported at least a 1 point or better improvement in wrinkles with their décolleté. In addition to wrinkles, the GAIS tool also captures other key skin quality attributes. As this slide shows, KB304 had a 100% responder rate by the final assessment on elasticity, crepiness, hydration, radiance and texture as reported by the investigator. On this slide, we have highlighted subject assessments on the same skin attributes. This is an exciting finding and point to the potential benefit of KB304's unique mechanism of collagen III and elastin replenishment to meet the strong demand among injectable aesthetic users for products that go beyond wrinkles and address the overall quality of skin. The Subject Satisfaction Questionnaire includes a question that asks for the subject's willingness to recommend to a family and friend. And again, we can see clear separation between the KB304-treated subjects and those treated with placebo. We also see an increase in satisfaction and willingness to recommend increasing over time. This data supports KB304 treatment of décolleté wrinkles by directly addressing the underlying biology of aging skin. We believe KB304's unique mechanism to deliver natural skin cell produced collagen and elastin, directly to the extracellular matrix will help replenish these proteins and restore a more useful skin appearance. Here is a before and after picture of one of the study subjects. As you can see from the area identified by the inverted triangle, there is a clear improvement in the appearance of wrinkles in the area of interest. But also a significant improvement in other skin attributes, including skin texture, hydration, crepiness, radiance and elasticity. In Slide 14, as you can see from the image, this is an older subject with extensive wrinkling and skin crepiness at baseline. And you can see how the skin is rebuilt in this older subject by month 3. The creepy skin has completely disappeared in the middle of the chest. And now I would like to hand off to Marc to discuss Jeune's plans for KB304 moving forward. Marc?

Thank you, September. With evidence of improvement across multiple skin attributes and high levels of subject satisfaction, we believe that today's results highlight the potential of our fundamentally rejuvenative approach to replenishing native proteins and restoring youthful vibrancy to the skin. We have selected the décolleté as the indication for Phase II development. As you may recall, we were developing a décolleté-specific photonumeric scale and an assessment tool for patient-reported outcomes. I'm pleased to say that we have not only completed that process, but we have also validated the scale. We plan to submit that photonumeric scale to the FDA and align on a Phase II protocol for KB304 later this year. Our goal is to initiate Phase II development in early 2026. Turning to the current market and the potential market opportunity. Today's primary aesthetic tools manipulate the skin and are not designed to address the underlying biology of aging skin. Neurotoxins paralyze muscles that create dynamic wrinkles and aren't helpful for areas where there are wrinkles present at rest. Fillers are designed to replace fat and bone loss as a result of the aging process. Energy-based devices purposefully injure the skin to elicit a response. As we have said, our approach is fundamentally different. We seek to replenish native proteins and restore the vibrancy and useful appearance of the skin. If we turn to Slide 18, the ideal primary skin rejuvenation tool will address the root cause of the issue, replenishing the skin's key proteins to rebuild the skin naturally, be injected with standard syringes and be shipped and stored as other aesthetic injectables. And lastly, not require a capital investment. The Jeune technology checks every box. Turning to Slide 19. The décolleté remains a high priority treatment area. This area is highly susceptible to premature aging and damage. There were an estimated 9.9 million cosmetic neurotoxin procedures and 6.3 million filler procedures last year in the United States alone. But to date, the FDA has not approved any aesthetic injectables for this region. We believe off-label use is minimal, because of the unique challenges of treatment in this area of the skin. Lasers are sometimes used to treat this area, but they inflict injury to the skin in the hopes of producing collagen. We believe there is a significant pent-up demand as the décolleté has become an extension of the face with today's designers showcasing the beauty of the female form in their deep plunging necklines. KB304 is designed to be the ideal treatment to address this aged and pigmented skin by using the body's own natural production of collagen and elastin, and the décolleté is the perfect canvas for our first product candidate. In addition to the significant demand from existing aesthetic patients, there are market expansion trends that could significantly expand the number of patients seeking a more natural approach to rejuvenating their skin. First, the global population spend an estimated $25 billion on skin rejuvenation products and services in 2023. The market has largely been driven by the over 40 patient population. This population is expected to grow by 500 million people to 3.5 billion by 2030. Additionally, there is an increased focus on beauty, wellness, self-care and aging. We believe these trends will continue and drive greater expenditures on skin treatments. We believe KB304 will appeal to consumers who to date have only purchased over-the-counter or physician-dispensed topical creams. KB304 is minimally invasive and natural-looking results have the potential to provide the skin rejuvenation solutions that this market segment has been and continues to seek. Next, demand for minimally invasive procedures such as neurotoxin and filler injections is on the rise in younger demographics, including a reported 50% increase between 2015 and 2020 in the millennial age bracket. And aesthetic treatments are even more accepted and pursued by the Gen Z population in their 20s, the so-called use of baby Botox. Both the millennials and Gen Z generations believe in prejuvenation or treating their skin prior to when wrinkles and before pigmentation issues arise. They are actively looking for minimally invasive natural looking skin rejuvenation treatments. Moreover, skin laxity has become a concern following rapid weight loss resulting from the widespread use of GLP-1. Plastic surgeons have reported that their patients who have lost weight with the GLP-1 have accelerated aging of their skin, making surgical procedures more challenging. KB304 could be used to rebuild the skin prior to or in replace of a plastic surgery procedure. Lastly, we believe that there remains a significant untapped market potential. Only 24% of Americans have had an aesthetic or cosmetic procedure, and this number includes dental work. These figures are even lower in other countries. With the growing acceptance and public acknowledgment of celebrities that have had cosmetic procedures, we think this could drive a massive uptick in market demand. Turning to Slide 21. We believe that the existing aesthetic patients will quickly incorporate KB304 into their treatment cycles of neurotoxins and fillers and consumers who have not advanced beyond over-the-counter or physician dispensed topical creams will seek out providers that offer the minimally invasive natural looking skin rejuvenation provided by KB304, thereby making it their first and only choice in minimally invasive aesthetic treatments. Moving ahead, I would remind you all of the robust pipeline of other product candidates at Jeune. We have already demonstrated strong safety and efficacy data for KB301. With today's announcement, we have decided to prioritize the development of KB304 for the décolleté. Accordingly, we do not plan to move KB301 forward in Phase II development in the décolleté. Instead, we are evaluating the potential of KB301 in other indications where the expression of collagen III alone could be beneficial. We will make a determination regarding KB301, once we've completed that review. Our Vector platform is amenable to the delivery of various payloads, including other extracellular matrix genes that are high priorities in the field of aesthetics. In earlier stages of development, we have KB303, which is designed to deliver elastin alone. KB302, which is designed to deliver collagen I, and KB305, which is designed to deliver Collagen IV. Our goal is to continue to advance our pipeline and move an additional candidate into the clinic within the next 12 to 24 months. Turning to the long-term vision for Jeune. As I mentioned, we plan to progress KB304 into a Phase II study. We are still evaluating the trial design, protocol and endpoints for the trial. We expect to have those discussions with the FDA later this year and initiate the Phase II study in early 2026. As we evaluate other potential indications for KB301, we will continue to evaluate other product candidates with a goal to move another product candidate into the clinic in the next 12 to 24 months. As the pipeline progresses, the need for dedicated resources will expand. Jeune is a wholly owned subsidiary of Krystal and was designed to allow the optionality to pursue and capitalize on value-creating events, whether those be a partnership or a separation from Krystal. We will continue to leverage this optionality and evaluate shareholder maximizing opportunities as we deliver on our vision of creating a new category of minimally invasive therapies addressing cash pay markets. Before we open it up to questions, I would just like to end with what I truly believe differentiates Jeune. One, we are leveraging a derisk validated approach that directly addresses the root cause of aging skin. Second, we have generated substantial data from both KB301, and now KB304. Third, we have a deep pipeline of additional product candidates addressing large attractive cash pay markets. Fourth, we believe we have the right leadership team to move Jeune forward. And five, finally, we are fortunate to be able to leverage Krystal's validated gene delivery platform, comprehensive IP, manufacturing and operational and regulatory capabilities. And now, operator, we would like to open the line to questions.

Thank you. Ladies and gentlemen, the floor is now open for questions. [Operator Instructions] And your first question today is coming from Ritu Baral from TD Cowen.

I wanted to ask about the photonumeric scale that you've developed. Can you guys talk about the correlation between that and the GAIS or the PRO that you used? And how should we think about the -- that Phase II design as far as sizing and powering against that photonumeric scale? And as a quick follow-up on the procedure.

Okay. Thanks, Ritu, for the question. Related to the photonumeric scale and the GAIS, let's first just cover GAIS. The GAIS is the Global Aesthetic Improvement Scale. It's a very standard scale, commonly used across multiple products in aesthetics. So the minimally invasive products currently in the market have used the scale extensively. Importantly, you can go only go up 2 points in either direction in this scale. So the way that we define responder of greater than 1 point, that's how we kind of defined it in the GAIS. So that's specific to the wrinkles. And when we looked at that question. So the GAIS is going to be likely a secondary endpoint. You've seen it across multiple products very standard in this space. The photonumeric scale will be specific to Jeune. So it's our Jeune décolleté wrinkle scale. We have completed and validated as we mentioned in the earlier remarks, and that we'll be meeting with FDA as it relates to the scale alignment, the endpoints and the Phase II protocol design. So early stages on what those will look like, but that will be the focus for us in Phase II is aligning on the scale of the protocol and the end points.

And proposed, is the photonumeric scale, like is it an improvement scale? Or is it like a static scale?

Yes. So I'll turn it over to September, who can provide a little more detail on that. Go ahead, September.

Yes, it's a static scale. So the concept is at baseline. The subject and the investigator separately would determine the subjects grade at that point. And then at the assessments, whatever time period that is in our Phase II protocol, the same process will take place. The investigator will assess and determine the grade level of the subject at that point, and the subject separately will look at a mirror and determine her grade level as well.

And does there need to be alignment in the 2? Or are they -- are those scores combined?

So we don't have -- we haven't had discussions yet with the FDA. So it's too early for us to comment.

Got it. And then, just going back to the administration. I guess like how much office time or procedure time is needed for administration across the décolleté? And how much of those AEs, as presented on the slide, were sort of needle related administration-related discomfort?

Sure. Yes. So it's a very tiny 33 gauge needle. So they're just tiny little pin pricks that are dispersed across the décolleté, focused initially on the wrinkle and dispersed across the décolleté. And so time-wise, less than 5 minutes. And because the needle is so tiny, you really don't need to do any sort of pre-numbing of the area. If a patient is neophobic, you can have ice treatment or something like that, but for the most part, it's not necessary. The AE profile was not really related to, for the most part, related to the needle poking. It's more just the standard body reaction to the treatment.

Your next question is coming from Alec Stranahan from Bank of America.

Thanks for the questions. It's been about a year, I think, since we saw the KB301 update. Maybe you could just expand a little bit on your thought process around prioritizing KB304 over KB301, given, I think, some of the GAIS scores were fairly comparable both on the 1-point and 2-point improvement. I guess, what's sort of your thought process given the data you're seeing? And how does adding elastin into the mix maybe help with, say, durability or sort of your impression of the overall effect going out beyond 3 months?

Yes. Alec, thanks for the question. Just recall that KB301 was an open-label study, whereas PEARL-2 with KB304 is a randomized, double-blind, placebo-controlled study. So it's very difficult to kind of compare across trials, of course. But we believe that what we're seeing in terms of all the benefits from KB301, we're seeing those in KB304, plus directionally higher improvements across the skin attributes, especially in elasticity and crepiness. We think that those two attributes lend themselves very nicely to the inclusion of elastin. So we think that we're seeing good signals as a result of those two attributes. That and also, we have really strong preclinical data that suggests the elastin is clearly being expressed as well. So it's really based on KB304 and those attributes specific to elasticity and crepiness in addition to the animal data, we think it makes very good sense to move forward with 304.

This is Suma. I'll just add to -- yes, this is Suma, I can just expand on what Marc said. The nice thing about 304, it's a 301 vector. So we basically add elastin. So you still expect the same amount of collagen III, we've now added elastin to it. So again, what we see is, again, we see patients feedback. They feel the skin is smoother, they feel less crepiness. So I -- we think that, we see the benefits of 304, but adding the elastin, certainly, there is texture quality improvement in the skin. So I think -- we still get all the benefits, because it's the same vector, same gene copies of collagen III with added elastin within the vector.

Okay. Yes, that makes sense. And maybe one quick follow-up on that point. The slide that you presented on the improving over time, 1 month, 2 months and 3 months. Is that something you also saw with 301? And I guess, what would sort of be your expectation, sort of, looking out beyond 3 months of follow-up?

Yes. Perfect. I'll have September handle that. September?

Yes. We did see that continued improvement and with going back to the KB301, we did follow that group for an extended period of time, and we saw durability and we would expect the same with KB304 for the same reasons that Suma just mentioned.

Yes. And I'm just going to add to what September said. Keep in mind, elastin is a protein. I mean, it comes as a pro-elastin and then it gets into its fibro formation. So very -- and elastin is your neogenesis, I mean, you don't produce elastin after the prenatal. So it's very interesting that, I mean, it cannot be -- people have tried to make it, express it, and isolate it ex-vivo are almost impossible. So I think, you don't need much elastin. I think -- we hope that elastin is very durable once -- I mean, in animal studies, we clearly show not just the pro-elastin, but the fibro formation by immunofluorescence in our animal skin when we treat them. So we're pretty excited. I think, there will be -- I mean, obviously, we believe that this could be a prophylactic even before the skin aging. I mean, this is what we need to get into figuring out, I mean, to prevent or protect the skin from skin damage and elasticity. Because, that's the first thing that we lose in the décolleté, right? Because exposure is skin, you see the elasticity of the skin is lost. So we truly believe now adding that elastin and able to deliver it to the skin, even in a small amount, it's plenty to bring that into the texture. I mean, again, as September said, just using straightforward photonumeric scale, we may also discuss with the agency about other ways, biomarkers or whatever to add elastin into it. So this is something -- again, this is pretty novel, never done before. So we will certainly have those discussions with the agency.

Great. Congrats on the progress.

Your next question is coming from Roger Song from Jefferies.