Krystal Biotech, Inc. ($KRYS)

Okay. I guess we can get going here. Thanks for joining this session with Crystal Biotech. My name is Alex Stranahan. I'm SMid biotech analyst at Bank of America, covering Krystal, and it's my pleasure to introduce Kris Krishnan, Chief Executive Officer; and Suma Krishnan, President and Head of Research and Development at Krystal. Thanks for being here, guys.

Thanks for having us, Alex. Yes.

Good to see you again. Maybe at a high level, just taking a flyover of the company in its current state. You've delivered 11 consecutive quarters, maybe $12 million of positive EPS of lost count, gross margins consistently in the 90%, 95% range. So you've really built a good sustainable business model and a strong foundation for the company. which is this kind of financial profile is pretty unusual within biotech. I guess, when you think about the VYZVIClaunch, this is your main asset. How is this launch going? You're expanding ex U.S. where do you sort of see the top line growth going? And how does that flow down in terms of your cost structure to the bottom line?

Yes. Thanks, Alex. Appreciate those comments. The global launch, which is ex U.S. launch has exceeded our expectations to date. As you saw from the 1Q data, we've been able to make the drug and the team have been able to make a compelling value proposition, both in France and in Germany and in Japan and we're actually a bit ahead of schedule, working to launch in Italy and Spain in the second half of this year. While there are nuances to every country, overall, we expect ex-U.S. launch to be very positive over the next year and a few years going forward. In the U.S., we're still in a growth mode as evidenced by the reimbursement approvals that we report every quarter and reimbursement approvals are a proxy for patients on drug and if you look at it that way, every quarter, somewhere between 40 and 50 reimbursement approvals show that U.S. continues to grow. So overall, we're very pleased with the way the Wise launch is progressing. In terms of the impact of the cost structure, the teams in these different countries tend to be small, less than 10 per country. And so we don't see a big impact of the global launch on the cost structure. And so we expect the financials to look like they have been over the last 11, 12 quarters moving forward. And we do guide on the 2026 operating expense which has not been that much higher than it was last year.

And that's with putting new assets into the clinic, which is how you're reinvesting the BIZVEcrevenues. Maybe we can talk a little bit about the U.S. revenue trajectory for due and then we can get into the ex U.S. launches, which are a growth driver we're seeing this year. How far we penetrated are you into the U.S. population at this point? Is new patient identification kind of the primary growth lever here? Is it maintaining the compliance rate with patients?

Yes. So if you look at reimbursement approvals, we're roughly at the 60% share of the identified patients. U.S. has about 1,200 identified patients, and we expect to continue to head towards that number over time. Definitely, as you go beyond the 60% market share, the probability of new patients coming on drug tend to be moderate and mild as opposed to severe. But that said, we feel very confident about the 1,200 number and we're progressing towards that target as a first step. And then once we get there, we still do believe the prevalence is 3,000. So incrementally, we're going to go try and go beyond the 1,200 once we get to that point or close to that point. In terms of compliance, look, the drug has been launched for 3 years now. The drug has worked really well. The patient experience on the drug has been really positive. The physicians have been very happy with the way that patients are responding to the drug, and so a lot of the patients have started early on to some extent on the moderate and the mild patients are starting to heal. We feel the stop and start in the U.S. is what keeps the patient on drug and it's the tail on the drug for the long term. So we try to make sure that when the patient is ready to come back on drug, that coming back on drug is easy, simple, convenient and fast for the patient. So that trend, the stops and starts will stay in place in the U.S. going forward. But please do bear in mind in terms of number of patients being added in the U.S., that number continues to grow up. And so if you look not at a quarter level, but if you look out 12, 15 months, we do expect the revenue to be growing, not just in AutoW, but in the U.S., too.

Okay. And obviously, having the ex-U.S. contribution this year should help smooth over that growth profile largely.

Yes. I think if you look at global launch of Isobe, there should be no turbulence. The stop and start the nuances by every European country, but they all smooth out overall, the growth trajectory looks pretty positive at the moment.

Okay. And Kris, I know when VIDUVIC was first approved, there was a 900,000 cap sort of an agreement with payers because honestly, they probably didn't know how much they were going to have to actually pay with a novel drug like this. for a rare skin condition like DEB. Is that cap going away? How are your recent payer conversations kind of around the reimbursement piece?

Yes. With the exception of a very small number, most of the renewals have been without the cap. So it was a good starting point to give payers reassurance on the -- on their contribution to Viva, but now with the renewals, I think there may be 1 or 2 is still remaining, but most -- the CAP story in the U.S. is pretty much going away.

Okay. Okay. And maybe thinking about the ex U.S. launches. I guess Japan is kind of the first , Germany, France coming online. Maybe just walk us through how those launches are going and -- we've gotten some questions around the pricing dynamics in the early launch as well, if you want to speak to that?

Yes. So Japan launch has gone really well. That was the first outside country to launch. I mean, officially calling it like commercial launch. In Japan, because of Cartagena, the only commercial requirement is the patient renew their prescription every 2 weeks for the first year of launch. So that's -- and it's a calendar year. It's not the first year of the patient on drug. It's the first year of launch. So that should iron itself out going forward. Pricing has been -- pricing has exceeded the pricing we got has been very positive, and it reflects the value the drug brings the value proposition the drug brings to the patient. In Germany and France has also evidenced, in terms of patient numbers, they continue to go really well. And we expect that in Italy and Spain, too, which will happen second half of this year. In terms of pricing, we started accruing in Germany middle of February. And so that accrual will continue until we get a firm pricing in Germany, which should happen second half of this year. In France, we have been accruing since the beginning of launch, which is, I believe, in Q4 of last year and that will continue until 2027. But outside of Germany and France, there are no accrual issues at the moment because in all the other countries, we will have a price before we launch.

I've seen some investors trying to do some fancy arithmetic around the linking between the scripts or the prescriptions that in the ex U.S. geographies with the revenues reported, I guess how would you sort of help folks think through the accruals and the revenue recognition sort of as the negotiations get finalized?

We were -- we started reporting out rough patient numbers because given the privacy issues in Europe, we're guessing based on bile distribution, how many patients. So we don't have an exact number like we do in the U.S., and we were providing that as a proxy because there were a couple of quarters where the revenue was just overall revenue. And I wanted to give a sense of what piece of that could have been Europe. Now that we're splitting out Europe and Japan from our global revenue line, then we don't want to be carrying around an approximation number for a very long time. we haven't yet decided when we would stop a what, but the patient number is just a rough proximation. I think the way to think about global revenue is simply the revenue number itself as opposed to try to make some kind of fancy arithmetic around an approximate number.

Okay. And I guess in terms of the pricing overall, how has that been playing out in Japan? And does that maybe set up expectations for what you expect in the rest of Europe, especially as you expand to Italy and Spain?

Japan pricing, we've been very happy with the outcome. We are in ongoing negotiations in Germany. We may have the pricing in Italy ahead of the final pricing in Germany. We don't know. We feel good going into these negotiations. It does vary by country. Traditionally Europe, we expect to end up in a good place based on what we saw in Japan, but it's tough for me to think about it until we get to the endpoint because there are a lot of global issues going on. But to date, the conversations have been very positive on Buchele.

Great. And you've accelerated the Italy and Spain launches into, I think, potentially the second half of this year, how have you seen physician awareness overall, given the pretty established launch in the U.S. at this point? Has it made education faster or easily than it was domestically?

Much higher than it was in the U.S. has a lot to do with physician sharing the U.S. experiences in global setting, either in scientific conferences. We find that in all these countries, the physician awareness is high. They've been able to see what the drug can do. We were not expecting to launch in Spain this year, but there was a big -- it came because of demand from the Spanish authorities and the physicians in Spain that their patients need to be treated, that we had to quickly pivot and figure out how to launch in Spain in the second half of this year. So awareness is high.

Okay. Okay. Could you maybe walk us through, Kris, how the Italy and Spain launch model works? Is it accrual base like Germany and France? Or is it a pricing first model? And I guess how large are the patient populations in each of these?

I would say, in terms of prevalence, $275 million to $350 is a good number to use in Italy, in Spain, at a prevalence level in terms of prevalence. In terms of pricing, in both these countries, there are no accruals, we will negotiate a price before we launch in these countries.

Okay. Okay. And I guess when we think about kind of the -- where the puck is going around most favored nations and does that influence sort of your approach to the ex U.S. launches and pricing? And is there maybe a lower bound for where you'd want to go?

No, we are very cognizant and aware and constantly thinking about MFN. There are some conversations that it may or may not apply to companies in the rare disease space, but we're proceeding with the view that it could someday come and have an impact on companies, I mean, with the rare diseases. So we do try and bring awareness in these countries where we negotiate about the impact MFN could have, not just on the company, but also on the patients. So it's definitely a conversation that we use. But if you look at our gross margins, so it's not a financial decision, it's more like what could the long-term impact of the U.S. business be? Is the question we think about -- and we fully intend to -- once we know where a country is going to land on price, we'll definitely think about MFN before we decide to launch in that country.

Okay. Okay. I want to shift gears here maybe in the second half of our time to talk about the pipeline. And we can kind of go step wise. You've got a few exciting programs and ocular DB, neurotrophic keratitis, fibrosis. So maybe we can just go down the list. Let's start with KB 803. This is your corneal abrasions in DEB. It was nice to get the -- I guess, the granularity around the the cadence of when we could see those updates in 4Q. It sounds like this 1 will maybe be first up in terms of updates later this year. The study is fully enrolled. Maybe you could walk us through sort of the powering in the study -- and how big of an issue this is for DEB patients?

Yes. Thanks, Alex. I mean, again, as you said, is the -- good news is we have enrolled all the patients -- as you may be aware, we had a natural history study that we deployed 1.5 years ago. So we have over 100 patients in this natural history study. So as we collected data in these patients, this is a prospectively designed study. It's just like the clinical study or in the protocol, they have weekly diaries, they fill in their symptoms in a weekly manner, and we've been able to collect very meaningful and very good quality data on these patients. And based on the -- I mean, the -- many of these patients had to be in the natural industry study, to enroll into the pivotal trial, and this was -- there was a rationale behind it because we wanted to enroll the very severe patients in this study because as you know, in these rare diseases, it's very important to get the right patient population because -- you're looking at the effect in a very short period of time. So we wanted to make sure we had the severe patients into the study for patients that were severe met the inclusion criteria to then move on and enroll into the study. So I think this is an intra-patient study, just like the big-bag study. It's a crossover design, randomized, placebo-controlled, double-blinded -- so patients are either randomized to either drug or placebo. So I mean, obviously, from the natural study helps us to understand -- I mean the impact on these patients or the patient-reported outcomes that we are measuring. And we are hoping with the -- based on that, we were able to come up with as you said, a sample size because to see drug effect. We know from Bijuva that this is a corrective therapy. The reason that these patients have these lesions or blisters in the eye is because of a defect of collagen even -- so we believe if we can see expression and we can improve those symptoms. So we collectively with the animal studies with the corrective nature, we were able to power the study to success and being an intrapatient study, we know when they're not on raw and our natural history study, we'll be able to separate placebo was is treated. So we feel very comfortable with the powering of the study, the intrapatient designed to minimize variability. And so the statistical analysis plan that we have obviously got blessings from the agency. So we all said and we feel maximizes the chance of success.

Okay. Great. And obviously, the Collagen 7 mechanism of action is pretty well validated in DEB with the exact same thing, same vector, just the different tissues and escalation and we already have, I guess, a single patient of data that you've shared. What is sort of a meaningful end point here for patients and I guess for regulators in terms of the alignment you achieved with the FDA. Is it I guess, corneal abrasion and are there any other symptoms that would increase kind of the quality of life for the I mean again, you have to look at this therapy.

It's more not -- I mean, unlike Viswaat a open wound, and then you're closing the world. This is more of a prophylactic design because, again, this is something we work very closely with the agency, and this is why it's a patient-reported outcome. It's because what are the patients -- I mean, these patients they have. It's not just the lesions, it's that simplify, they have blisters on the eyelets, not just the cornea, but surrounding the eyes. So I think when we put the vector into the eye, you have exposure to all of these areas that can minimize symptoms. So again, our natural history study really the main focus of this study was, I mean, blisters in the eye unlike is very well studied and very published literature. We have patient-reported outcome measurements, so based on what was in the literature, we came up with the scale is looking at different clinical complications and how you rate them. So the scale was developed from the natural history study again. This is something we have -- the agency is aware what the PRO scale is. And then we are looking at these multi-measurements and measuring number of days of events. It's a number of events, days of events and treatment versus nontreatment improvement, so it's a scale-based measurement and then you look at placebo versus the treated cycle and see the improvement.

Okay. That makes sense. And I guess when you look at your natural history study or even just experience through the VIGVIC launch and kind of feedback you're hearing from the field, how many of the patients that are already on DUV would be candidates for your ocular DB program.

I mean if you look at a natural history, we have a good number of DDA patients and RET patients because DDA patients also -- I mean they have similar eye complications. I mean most of the patients that are on a natural history study are also on the bit commercially. So we do see that overlap.

I would add about half the RD population and percentage -- that's true in the commercial setting. It's also true in this clinical side.

Okay. And I guess when we think about assuming that the study reads out positive and you're advancing towards the launch of your second product, is there an opportunity to piggyback off the sales force and the commercial scale that you have for VIJUVEC with 803?

I believe so after all, the end physician is not a different there could be some ophthalmology overlap when we -- as we think about NK, but predominantly terms. We feel that the uptake could be quicker given that we've already identified the patients, we've gone through the genetic testing. So we're -- I mean, thinkers cross once we get past the pivotal and the approval, all launches are difficult, but on a relative scale, we feel it's a pretty -- the launch is in our sweet spot.

I mean also this clinical study has been done by dermatologists, like EV space. So it's not an ophthalmologist. And we do not require examination of the eye. It's more of a patient reported outcome. So based on the label and the prescribing physicians and participants in the clinical trial, we think it's the same physicians that be able to write the prescription for these patients.

Okay. And just for the sake of time, maybe we can talk about NK disease. It's a pretty well-validated market, $1 billion market at least, probably more, some clear benefits to improve upon the existing approved therapy. You recently upsized your study to 60 patients with daily home administration after updating the protocol. How does this kind of help the caregiver flexibility around the dosing? And I guess what would KB-801 need to show to support an accelerated approval here?

I just want to correct, it's not a caregiver. It's going to be patient administered. So I think this is obvious, it's going to be like oat right? I mean you ship it to the patient's home. The patient can administer. There's no caregiver. It's going to be just like ops-awake. The only difference is, obviously, are we are -- once-a-day administration versus multiple dose administration. So in the clinical study, again, these patients to initiate them in the clinical study, they come to the site because you have to take imaging of the eye to -- and make sure that they meet inclusion explosion criteria. We enroll them, basically train these patients, how to administer in the first 2 visits, and then the drug is shipped into the patient's home and they self-administer the drug. So again, we don't anticipate unlike Visa, it's going to be up the shelf into the patient home, prescription, we can ship to the patients administered by the patient.

Okay. And I guess assuming we see the ocular DB data first, is there any lateral reads either around the route of administration?

There's no lateral weeds because different diseases, very different endpoints because patient reported outcome is 803. That's more of a noisy endpoint, whereas with MK, I mean, I think it's very well established, like if you treat it with our vector and you can produce a neurotropic protein Oxalate has already shown that by having NGF and initiating neuronal growth that will help with healing. So varying different endpoint, you measure the lesion at the baseline and the endpoint is in 8 weeks, complete healing. So it's an independent reader. It's not a patient -- we will have patient reported outcomes as quality of life and improvements as secondary. The primary read is the photographic images are read by an independent reader to evaluate complete closures. So a very different mechanism, different end points.

Okay. But similar vector and formulation.

Correct. From a safety read-through will be absolutely it will be overlap.

Okay. Okay. I want to ask about your CF program. We saw some pretty important, I guess, delivery expression type derisking for the program. Now the next steps sound like aligning on sort of a registrational endpoint and really connecting the dots between expression and function. What should investors look forward to sort of in the second half of this year? What are sort of the next update from the program? Is it the alignment with the FDA on the pivotal? Should we get extended follow-up with maybe some functional type of endpoints? How should we be thinking about the catalyst?

Yes. I mean, obviously, the very first thing that we showed was -- I mean the first part of the study was a dose ranging. We had a safe effective dose. I think the biggest achievement for us internally was basically showing that the dose that we picked with a single-dose administration that we were able to bank these patients and established molecular correction, I mean, molecular expression. This is exactly what we did with our IG program. If you look at it, it's the same mechanism that we followed. We showed expression and in [indiscernible], obviously, based on that expression, we were able to get into a registrational trial and show that expression translated into effect. We -- it's the same thing that we are following with the -- in the CF population. I mean, obviously, we have met with the agency. We have shared the expression data. We have discussions around the data. The agency is convinced that we do so expression, this molecular correction, what the agency's request was that since we had not established safety in CF patients with repeat dose administration, they wanted us to do a small patient population to establish safety in a repeat dose administration setting. And this is exactly what we have done. The protocol has been approved by the agency. And we are in the process of enrolling patients. We are pretty -- I think we should be enrolling that study pretty quickly, and it will be a repeat dose to establish safety. In parallel, we have also been discussing with the agency on a registrational trial design, the statistical analysis and sample size. I mean you can see from the data that we showed expression -- now that we have blessings from the TDN and the CFF Foundation. The TDN is working very closely with us and the FDA. They're actually in the meetings with the agency with us. We're coming up with a hybrid design model, where we can use CFF or TDN's externREACH data, which is their prospectively designed natural history data. which to allow us to efficiently design a clinical study so we can effectively use this external control in our pivotal Phase III design. So these are the discussions that we will be having with the agency. We are in the process of finalizing the study design, the protocol, the statistical analysis plan, and we intend to submit that with the agency and work very closely with the FDA, and we are pretty confident that by end of the year, we'll have agreement with the agency and sign off on this design and the sample, and we plan to execute the pivotal trial beginning of next year.

Okay. Great. Maybe in the last minute or so, if we could just rehash sort of the next 12-month outlook for the company, what gets you most excited from the pipeline? What are you looking for to really gauge the strength of the Vivek launch? And how does your capital position sort of set you up to -- from a Vision perspective, it's in a good place.

We're excited to bring this medication to patients, not just in Germany, trends but in Italy and Spain, Japan continues, and we are working to find a way to get beyond these countries and maybe into other nations of the world next year. With respect to the pipeline, look, it's a very important clinical year for us. Obviously, the open-label data on the CF is kind of exciting because this is a program that we've been working on for a very long time. and being able to communicate that expression does translate to functionality would be very big for the company and for the patient long term. NK, of course, well-established market -- we know the value proposition. So if the data were to read out, that would have a very strong impact. It's tough to handicap which one is better. But at the same time, I would think about Haley-Haley, which is very similar to DEB where we have an open-label study ongoing and definitely not to forget our deration being able to provide some kind of relief in the eye is definitely a very positive thing for the DEB patient. So Overall, a very busy but super exciting year and as I mentioned in the Q1. The next 12 to 24 months are the most exciting in the industry of Krystal, although we've had a pretty remarkable 10-year look back.

Great. Well, with that, I think we'll have to end it there. So thank you so much, Kris and Suma for the great conversation, and thanks for everyone for attending.

Thank you.