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

Good morning, everyone, and welcome I hope you enjoyed the beginning of the conference. My name is Alex Buckley. I'm with the Healthcare Investment Banking Group at JPMorgan. And it's my pleasure to introduce firstly, Krystal Biotech. And joining us is Krish Krishnan, CEO and Chairman; and Suma Krishnan, President of R&D. We'll have some time at the end for Q&A. If you could just raise your hand and a microphone will be passed around. And with that, I will pass over to Krish and Suma to kick things off.

Good morning, everyone. Thanks for coming. Thanks, Alex and JPMorgan for having us. This presentation, roughly about 20 minutes, divided into 2 primary parts. I'll spend about 10 minutes-or-so talking about our thinking with respect to advancing Krystal over the next 5 years. And then Suma will follow-up and talk about the specific deliverables and objectives for 2026. That's how the presentation is structured. And before I commence the presentation, I'd like you all to take a moment to look at the forward-looking statements, and spend a couple of minutes looking throughout it. We will be making forward-looking statements. Before I talk about our ambitions for the next 5 years, it's good to spend a couple of minutes on where we are today. And I'd like to start with VYJUVEK, which we launched around September of 2023. I wanted to spend a few minutes for the treatment of patients with dystrophic epidermolysis bullosa. And I want to talk about how differentiated this product is and how it completely changed the way people thought about genetic medicines. VYJUVEK is the first drug that was redoseable in genetic medicines, and that was the first. VYJUVEK was the first drug that could be applied at home, in a patient's home, and that was the first for gene therapy. VYJUVEK was the first. There was a topical gel that was easily conveniently applicable to a patient's wound and now to the lung and other parts as we advance our pipeline. VYJUVEK was the first genetic medicine that could be applied by a primary care physician, a health care professional, a caregiver at a patient's home or by a patient. So -- and the reason I mentioned the attributes of VYJUVEK today and how differentiated it is, is there's a read through to a lot of products in our pipeline in terms of some of those attributes or in fact many, if not all, of those attributes. And so it's important to understand VYJUVEK. And so we launched 2 years ago in the U.S., the launch has gone well. The patient experience, the physician experience on the drug has been really positive. The conveniences has been really good for the patients, especially to the moderate and mild patients to be able to get the drug at home, to be able to travel with the drug has provided a level of convenience, and that shows in the compliance in the drug and it reflects in the number of patients on the drug and the number of reimbursement approvals we get. And then last year, we launched in Europe in both France and Germany and in Japan. And then are working on a bunch of distribution agreements to tackle some of the countries where Krystal has no plants to self-launch. So our -- as a company, we kind of decided that we were going to self-launch in Germany, France, I mean, the EU4 in U.K. and Japan and all the other countries with patients suffering from DEB, our strategies to use distributors to get the drug to the patients. So that launch has gone really well and hope -- and our objective with respect to VYJUVEK is to get one other European country launched sometime during the middle of this year, and then work towards the remaining 1 or 2. So overall, we're very pleased that the drug has provided a great benefit to patients with this debilitating disease. What the launch has done for us is kind of put us in a really good financial position also. So as you can see from the chart. Ever since the launch, we've had almost 10 consecutive quarters of positive EPS. Our balance sheet is pretty strong. And when someone says balance sheet is strong, I think the implication is that we're not planning on any kind of financing in the company over the next -- I mean, fingers crossed over the next many, many years, if not forever. EPS is positive. But the more important thing on this slide is the 2 manufacturing facilities that you see on the top of the right side of that slide. And Krystal, even before we had our pivotal readout realized that CMC was probably the most important function when you are developing genetic medicine. And it is important not only to have control of CMC, but keep all the trade secrets in-house. And so we built one facility, about 20,000 square feet-or-so for B-VEC, but then immediately start of construction and a much larger facility as a backup and most of the CMC was in place even before the drug was approved. And what we're doing in the launch is trying to take control of more and more functions in the supply chain. We're trying to bring packaging in-house. In fact, packaging is in-house for the most part. Our drugs to Europe and Japan are being supplied from the 2 manufacturing facilities in Pittsburgh, Pennsylvania. And I also want to point out that the way the company -- because this idea came from Suma, and we built a lab and started with a handful of scientists working on the idea. We do not have any royalty obligations to any universities or any pharma companies, the idea was not licensed. And so Krystal has complete ownership of all its pipeline and all its products and with the CMC in hand, we feel we're really positioned to talk about ambitions over the next 5 years. So let me get to our dreams over the next 5 years. Our vision, you got to take a stand somewhere, it's about 4 marketed rare disease products. We say a rare disease because one of the things the launch has done for us is to realize we're really good. We're really, really -- our capability competence is developing and commercializing rare diseases. I think we're very convinced of that. And in our pipeline, any time you see a rare disease in our pipeline, you should assume the intent of Krystal is to self-launch in the U.S. in EU4 and Japan. That's how we think about our pipeline. And when you see an indication that's much larger, you should assume that at the right time there is still intense to partner with somebody to commercialize that drug. We do have a strong balance sheet to take development as far as we have to before we get into a commercialization stage, but -- and that's why when you look at our pipeline, while it looks like a lot of items in the pipeline, you can break it down simply into 2 buckets. There's a bucket called the rare disease pipeline, which we plan to develop, commercialize and launch. There is a bucket called the expanded pipeline that we're thinking about advancing to the extent possible before we can find a partner willing to commercialize with us. And so the focus of the 4 approved drugs and the 10,000 patients you saw is primarily based on 803 for DEB, 801 for NK, 407 for CF, KB111 for Hailey-Hailey and any potential additional rare disease program that could come over the next 4 years. We're not ignoring or talking differently about 408 or 707. In fact, we're super excited about both those programs. We just feel at this point, given where Krystal is, we would advance them to the extent we need to be, and then hopefully find a partner to get to patients worldwide. So briefly, let me talk briefly about the 5 indications and how we get there, and it's pretty much the last 1 or 2 slides of my presentations because the story is simple. We have KB803, and Suma will get into the details. It treats lesions in the eye of DEB patients. It has a prevalence of about 1,000-plus patients in U.S. and Europe. And I kind of talk about the market potential of that drug. We feel really good about 803 because it's not that different from VYJUVEK. And we've already had one patient with clinical data, who has had tremendous benefit over many years. While it may be a singular data point, it is a clinical data point and we do know about VYJUVEK, the way VYJUVEK operates and functions. And that ability to dose in front of the eye leads us to neurotrophic keratitis, KB801, which I know many of you are excited about. We are also enrolling for a registrational trial. So we have 2 studies that we are enrolling registrational right now. That's a much bigger market, but it's still a rare disease. And there are -- there's a prior evidence of a company self-launching the drug. So the ability to sell-launch NK is well understood, not just in U.S. but in Europe and Japan. And then the exciting data we announced a few days ago for CF, where for the first time a company has been able to deliver 2 full copies of functional CFTR to patients with a null mutation. Null mutation is an unmet medical need. And we're super excited about the data. We're super excited about the level of safety we saw. And again, the concept is a simple nebulizer maybe nebulize for a few minutes, potentially when the drug is approved at home in a patient, by a patient. So it affords all the conveniences that VYJUVEK enjoys for the most part, and we'll work to get there. And the last drug on that list is Hailey-Hailey, which just phenotypically is very similar to VYJUVEK. I mean it's not the same indication. It's not the same complication on the patient, but Hailey-Hailey is a skin disease with lesions, and we feel really good about being able to tackle that. It's an unmet medical need and has a lot of the common attributes of B-VEC. So there is -- I'll close with saying, look, the market potential is over $4 billion. The patients are over 10,000. Most of these registrational studies either have started or are planning to be started in 2026. So we feel really good about getting the drug launched over the next 4 years. And a lot of the pricing negotiations we've had in Japan and Europe and has really helped us refine the pipeline a lot better because you start learning about how people and other countries would pay for a drug, reimburse the drug, the distribution of a drug. And so VYJUVEK global launch has been instrumental for us in figuring out how to prioritize the pipeline. With that, I'm going to turn it over to Suma to talk about much more specifics on 2026 and what we're going to do over the next 12 months. Suma?

Thanks, Krish. So this is -- here is just basically outline of our platform. I think many of you guys who have been following us, I mean, understand our platform. I think Krish has touched upon it. Again, the advantage of HSV is it's got a large payload capacity, it's got broad tropism, as we have now recognized and as you'll see the additional indications that we are going after because of the broad tropism, flexible administration, redoseable, low immunogenicity, this is pretty important because we can repeat dose. Now we have in commercial setting with VYJUVEK. We have dosed a large number of patients over several years, and immunogenicity is something that is, again, never comes up, pretty safe. And again, we have a very scalable manufacturing. And that's very important because CMC is one of the biggest, most important things in the gene therapy because a lot of the nuances with all of the assays, the manufacturing, the process validation, I think we've got a very good handle on this. So this makes it very easy for all our pipeline products. Now let's start with 803. Again, Krish touched upon it. We are very excited for this particular indication. I mean, as you know, dystrophic epidermolysis bullosa even though it's recognized as skin disease, it's not that simple because, I mean, again, collagen VII is essential to hold the basement membrane zone together. So these patients not only are just impacted by the skin, but it's also the eye and internal organs like the epithelia, inside the -- in the esophageal ear regions and all of the internal organs, all of those areas get affected. So this is why this disease is very severe. Now eye is pretty -- I mean, these patients, again, eye is impacted in these patients, it's pretty bad as much as the skin. I mean, we hear from patients that they get constant blistering and as a result of the blistering these patients, it can really impact days of their lives because they're not able to open the eye in addition to all of the skin and the other complications, this can again affect the quality of the life. And what happens is with repeat scarring and blistering in the eyes, these patients can have extreme scoring. And in a subset of these patients, because of extreme scarring, it can lead to blindness. So this is an example of one patient that we treated on a compassionate patient -- on a basis. This patient was 5 years old when he went completely blind in actually both his eyes. I mean he had severe scarring. He underwent surgery to remove the scarring, was treated with plasma-derived and all the other topical treatments that were available to him, but none of that helped. So right after his surgery, he would go blind again because, I mean, again, because of the underlying molecular correction was not addressed. So for this patient, we -- after his surgery, we started treating them with B-VEC on a compassionate basis. And what we noticed was with treatment of continuous use of B-VEC. These patient's scarring was addressed, I mean his blisters did not come back and he got his vision back. And as you can see from the table, which time he got his complete vision back. And this patient is -- has been on the drug for almost 3 years and has his complete vision. So very exciting. So based on the results and outcome of this compassionate use study, we decided that we should explore using B-VEC in patient's eye prophylactically to prevent blisters. So again, as you know, 803 is we have an ongoing registrational study where we have discussed with the agency on the study design is a patient-reported outcome. The drug is administered in the patient's home. And we look -- I mean, it's a crossover design where we start the patient with either drug or placebo, and then we look -- and the patient is -- fills out a diary and reports patient -- how many blisters is blistering during the treatment, and then we look at analysis where placebo versus treated. And so we hope we are actively recruiting patients in the study. We expect to finished enrollment pretty soon, and we'll make an announcement once we finish enrollment, and we expect to have data from that study by end of the year. The next program, 801, again, pretty exciting neurotrophic keratitis. Again, this can be a pretty debilitating disease. I mean, we have one approved drug called Oxervate, which is a recombinant protein. The problem with -- it's a recombinant NGF. The problem with the protein is it's got a very short half-life. So within minutes, the protein is -- it degrades. So the outcome of using is Oxervate as a result, you have to administer very frequently. So if you look at the label for Oxervate, it's 6 times a day. And these are usually older patients, very inconvenient. They are not compliant. It's very inconvenient for them to keep applying 6 doses frequently throughout the day. So this is where we believe that our platform would really help these patients with using our platform, we could deliver in NGF in a more consistent way because -- and again, hopefully, in a durable manner, so we can avoid frequent application. This is based on animal study where we did with a wounding study in mice, where we compared recombinant NGF with our 801 vector that again is coded for 2 copies of NGF. So we have good release of NGF, and as you can see, we see in the wounding model that you see within the -- within the first 10 hours, all of the NGF from the recombinant NGF is gone. And within -- at 34 hours, we consistently still see the same levels of NGF. So again, the main goal for this study for us is to differentiate us from Oxervate, were with infrequent administration and hopefully, with a durable response. And so where do we stand with this study, again, this is going to be a registrational study. We have increased the number of N for the study based on the animal study. And we have had our discussions with the agency on the protocol design. We have got agreement with the agency, and we -- and this is a registrational study. So this study started out as a Phase I, Phase II study, but looking at the robustness in the pharmacokinetic profile of the data, we believe that we could translate this into the clinic, so we turn this from a Phase I, Phase II to a registrational study. And this study is recruiting. And hopefully, we are aggressively looking at multiple sites and getting the site getting patients enrolled. The goal for this study is to finish enrollment by end of the year, and hopefully, we can announce some data by end of the year. 407 for cystic fibrosis. Again, we very recently announced our very exciting data on our null patients from this study again from our cohort III. I mean clearly, we have shown robust expression of CFTR in the lung, I mean, across the entire lung. I mean, we have biopsy these null patients top of the lung, middle -- top lobe, middle lobe and the lower lobe across all of the different lobes. Consistently in all the biopsies that was usable, we saw robust CFTR expression and the expression was in the right area. Again, very exciting because we know that if you can produce the full-length CFTR, hopefully, we know that will translate into clinical benefit. I mean, again, this -- we have this confidence because, again, from our VYJUVEK, this is exactly what we did. We started with our Phase I study where we showed molecular correction. We were able to show full-length collagen VII and anchoring fibrils and which in our first few patients, I mean, based on that, we designed our registrational study. And obviously, Phase III study was very successful. So we believe that if you are going to express the right protein in the right location, that should translate into clinical. So based on that, we are working with the agency to design our registrational study, so hopefully, we hope to get concurrence with the agency shortly on that study. And once we have that, we are going to proceed into the registrational study and start enrolling patients first half of this year. Last not least, this is another exciting program, Hailey-Hailey. I think this is an exciting program because there is -- there's a real unmet need. There is no therapy available for these patients. I know as Krish mentioned, it's very similar to dystrophic epidermolysis bullosa. But the -- this is a genetic disease. The onset of disease is usually in adolescence, that's when the disease begins, and it's a dominant disease. So it's very interesting. Usually, this disease is, if 1 member in the family has it, you'll see multiple family members have this disease. People don't talk about it. I mean there is Facebook, even for us as we explore, and we learn to understand and study this disease a little more because we are beginning to now engage with patients and try to really understand. We realize there's a lot of patients, but they do not talk about this disease, though the -- I mean, it's estimated 10,000 to 15,000 patients in the U.S., we expect even more because, as I said, this is usually because there are areas that are affected by this disease is usually in -- where in the growing or under the arms, where there's excessive sweating. And patients usually suffer in silence because they're a little bit embarrassed about the disease and they -- it's pretty painful, and it never goes away. It keeps recurring, and it's a constant -- just like EB, it's a constant chronic disease for these patients. Again, unmet need. Patients just -- and there's -- as you can imagine, adults with areas that's affected that can really affect the quality of life and can be pretty miserable. So we hope with our approach, very similar. We use the HSV vector. We're going to formulate into a gel. We have learned a lot from VYJUVEK. So hopefully, we can come with even a clever, right, instead of mixing the drug with the gel, we'll hopefully come with prefilled clever ideas of prefilled syringes. So application becomes very easy. And again, so we are pretty excited. Again, we have filed the IND. We have got clearance from the agency. We are in communication with the FDA. We have agreed upon a clinical endpoint, which is going to be a patient-reported outcome. The FDA has given us guidance on what's needed. We have -- the scale that we have presented is acceptable to the agency. Now we are in the process of validating the scale, again, because this is a pretty new indication. Again, there is nothing that's out there. The scales are not developed specifically for this indication. So we are in the process of actively validating the scale, which we hope to finish in the first half of this year. And once the scales have been validated, we hope to get into a clinical trial. And we hope to get into -- directly into registrational trial because we know based on some of our animal model, and we can capitalize what's based on VYJUVEK, the expression profile, we hope that we can accelerate this program. And there's a lot of patients. Again, it's -- the good thing is one person in the family has it. There's multiple people that are involved. So we hope with the nature of this disease, we will be able to enroll, make more -- create more disease awareness and enroll these patients pretty quickly. So again, very exciting clinical program. We have potentially 3 registrational trials, 803, 801 and hopefully 407. And also 111, we think we can get into registrational trial by this year. So 4 exciting registrational trials this year. And then with 408 and with our 707, those are also exciting programs, but I think we are continuing to do additional clinical studies and hope to announce some data in the future. I mean, again, I want to really make this point. The clinical study is one aspect, but there is the whole CMC aspect of it. And I think as you -- as we have announced with KB111, we have the platform technology, and we hope to apply for the platform technology for all of these programs. And I think it makes a big difference because, again, we interact with the same division, a lot of our manufacturing and process validations, all of that, we can really capitalize on what was done with VYJUVEK. So we don't have to do those extensive validation and especially assays. They're very tricky. I mean we have 12 different assays to release each of these products. I know people don't understand it, sometimes underestimate CMC. Even if you have one assay that does not work or fail, you're stuck. The FDA will not clear you because they're very picky on these kinds of things. And fortunately, there's overlap on these -- all these assays. 90% of assays are very similar across all of the programs. Again, that makes it very easy, so that we don't have to spend excessive time and effort, and we have a team that's very well versed that we can use for -- we don't have to build expertise every for every program because of the platform technology. And so we are very excited with all our clinical programs and hope to execute all of them as we promise for this year. So 2026 is an exciting year for Krystal. I see. And that concludes my talk.

Thank you very much for the updates and fantastic to see the progress. It certainly sounds like an exciting 2026. I'll open to questions from the room. If not, I've got some here.

Maybe just to start. Could you speak a bit more about the global launch for VYJUVEK and particularly, I suppose, in the rollout in Europe? And how you expect that cadence to go?

Yes. I think -- can you hear me?

Yes.

I think we launched first in Germany and subsequently in France, somewhere, I believe, around Q3. Each country, what we learned that each country, the distribution and the reimbursement is a bit nuanced. And it takes a certain amount of time to understand how to get a generic medicine to a patient's home because across the world, like as I mentioned, VYJUVEK can be applied at home by a patient. And some of these countries, you have to work with the existing infrastructure to make this amenable or possible. So there's a little bit of growing pains, but I think we had thought about this way before we got the approval. And so both the launch in Germany and France have gone really well. We also launched in Japan, which is a very -- which is very different from both the U.S. and in Europe. And we also spent a lot of time negotiating a reimbursement price in Japan, which gave us a lot of insight into how to -- the clinical data of VYJUVEK, the pivotal data of VYJUVEK was really, really strong, and that helps a lot. But it's also good to understand local nuances as you negotiate a price in all these different countries. So we were fortunate to get a good price in Japan, and we hope that, that provides a window into a potential outcome in Europe, which is traditionally a bit difficult to get the extent of pricing that a sponsor usually requires. We're on track to launch in Italy sometime mid this year, all the efforts now that we've done a couple of countries in Europe, I think we seem to have the recipe to kind of how to go about launching in all these different countries. And then our plan, obviously, the 2 remaining ones are Spain and U.K., and we'll get that in time. So overall, the launch has gone really well. We're also aggressively going after distributors to get this medicine out to patients in countries that are outside the EU4, U.K. and Japan. And so whether countries like Eastern Europe, Israel, South America, Canada, Australia, so all these countries, there's a big effort in the company to get them generic medicines.

Fantastic. And moving maybe to the rare disease pipeline, which you spent some time speaking to. Could you maybe speak about how those indications were nominated and maybe the potential differentiation there of Krystal within those spaces?

I'll say, and I'll have Suma add a few things. Look, it's -- there's a burden and a curse with platform technology. On one hand, you could do a lot -- you get a lot of ideas. On the other hand, you got to be careful you pick the right ideas because everything in drug development takes many years to realize you made a mistake. But I will say one of the good things at Krystal is if we start realizing that either on the clinical side or on the reimbursement side, we're not going to be successful, we stop quickly because we have a lot of ideas. And so it has taken us honestly, a couple of iterations to get at this pipeline that we showed today. That hasn't come on first guess. For example, the CF program has been around for 6 years, but we were so convinced that it was a great program that against all odds and some odds were not our doing, we got to this point. Like we were relentless in the pursuit of CF because we believed we had a differentiated product. We finally have arrived at a good pipeline. But the basic criteria, as Suma mentioned, large genes, we try to stay in areas where other vectors can deliver genes. We like the redosability concept. We like the idea that a patient can dose at home. And so we look for indications that have those.

Yes. I think, Krish, you covered most of it. But as Krish said, the big thing is for us is getting this -- I mean, we are the first ever gene therapy that can be home dosed by patients. I mean it took us extensive working with the agency, collecting the data. So again, once we have done that for one product, it becomes very easy. And we are a gene therapy. So again, we need to work on indications that differentiate, right? If there are indications that this one and done, if you have an integrating virus and that can suffice, then that's not what we -- that's not the area we'll play with. Skin is a very interesting organ, again, because it turns over. So one and done solutions are almost impossible because it will turn over, unless you go into stem cells complex. So that's where we look at those indications that we can really -- our platform can work that -- and there are no other products before. So -- and lung is another same as the skin. I mean, usually one-and-done solutions don't work for the lung. So again, that's an area that we are in. So we are very deliberate in when we pick indications, again, should they -- I mean, can we -- I mean, from platform, we can make all of them and we can scale them. That's not an issue. And again, I work with Krish and Krish's team with [ Stephane ] to really understand the market and the competition and the landscape before we fully put our engage.

Super. And I want to open again to the room for questions.

I'm [indiscernible] from Laboratorios Sophia. For your ophthalmic assets, KB803 and KB801, have you considered any kind of global partnerships or regional partnerships. What is your strategy behind that?

Because -- as I mentioned, because 803 and 801 are rare diseases, and it's something we strongly believe we can handle -- we can self-launch. We have not looked for partnerships in either of 801 or 803 at the moment. There have been occasional inbounds on interest, but not specifically for 801, 803. Yes.

If there are no further questions, I think we can wrap up. And thank you very much again for your time.

Thank you.

Thank you.