Okay. I guess we can get going here. Thanks for joining this session with Krystal Biotech. My name is Alec Stranahan. I'm SMID biotech analyst at Bank of America covering Krystal, and it's my pleasure to introduce Krish Krishnan, Chief Executive Officer, and Suma Krishnan, President, and the Head of Research and Development at Krystal. Thanks for being here, guys.
Thanks for having us, Alec.
Yeah. Good to see you again. You know, maybe at a high level, just, you know, taking a flyover of the company in its current state, you know, you've delivered 11 consecutive quarters, maybe 12 of positive EPS, I've lost count. Gross margins consistently in the 90, 95% range. You've really built a good sustainable business model and a strong foundation for the company, which is, you know, this kind of financial profile is pretty unusual within biotech. I guess, when you think about the VYJUVEK launch, this is your main asset. You know, how is this launch going? You're expanding ex-US. Where do you sort of see the top line growth going?
You know, how does that flow down in terms of your cost structure to the bottom line?
Yeah, thanks, Alec. Appreciate those comments. The global launch, which is ex-U.S., 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. Reimbursement approvals are a proxy for patients on drug.
If you look at it that way, every quarter, somewhere between 40 and 50 reimbursement approvals, show that U.S. continues to grow. Overall, we're very pleased with the way the VYJUVEK launch is progressing. In terms of the impact to the cost structure, the teams in these different countries tend to be small, less than 10 per country. We don't see a big impact of the global launch on the cost structure. We expect the financials to look like they have been over the last 11, 12 quarters, moving forward. We do guide on the 2026 operating expense, which has not been that much higher than it was last year.
That's with putting new assets into the clinic.
Correct
which is how you're reinvesting the VYJUVEK revenues. Maybe we can talk a little bit about the U.S. revenue trajectory for VYJUVEK, and then we can get into the ex-U.S. launches, which are a growth driver we're seeing this year. How far penetrated are you into the U.S. population at this point? You know, is new patient identification kind of the primary growth lever here? Is it, you know, maintaining the compliance rate with patients?
Yeah. 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. That said, we feel very confident about the 1,200 number, and we're progressing towards that target as first step. Once we get there, we still do believe the prevalence is 3,000, incrementally, we're gonna 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 three 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. A lot of the patients who started early on, to some extent, and 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 is the tail on the drug for the long term.
We try to make sure that when a patient's ready to come back on drug, that coming back on drug is easy, simple, convenient, and fast for the patient.
That trend, the stops and starts, will stay in place in the U.S. going forward. Please do bear in mind, in terms of number of patients being added in the U.S., that number continues to grow up. If you look not at a quarter level, but if you look out 12, 15 months, we do expect that revenue to be growing, not just in ROW, but in the U.S. too.
Okay. Obviously having the ex-U.S. contribution this year should help smooth over that growth profile largely.
Yeah. I think, if you look at global launch of VYJUVEK, there should be no turbulence. The stop and start, the nuances by every European country, they all smooth out. Overall, the growth trajectory looks pretty positive at the moment.
Okay. Krish, I know when VYJUVEK was first approved, there was a $900K cap, sort of an agreement with payers, 'cause 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?
Yeah. With the exception of a very small number, most of the renewals have been without the cap. It was a good starting point to give payers reassurance on the on their contribution to VYJUVEK. Now with the renewals, I think there may be one or two still remaining, but most The cap story in the U.S. is pretty much going away.
Okay. Okay. Maybe thinking about the ex-U.S. launches, I guess Japan's kind of the first stop, Germany, France, coming online. Maybe just walk us through how those launches are going and we've gotten some questions sort around the pricing dynamics in the early launch as well, if you wanna speak to that.
Yeah. Japan launch has gone really well. That was the first outside country to launch, I mean, officially calling it like a commercial launch. In Japan, because of Cartagena, the only commercial requirement is the patient renew their prescription every two weeks for the first year of launch. It's a calendar year, it's not the first year of the patient on drug, it's the first year of launch. That should iron itself out going forward. 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.
Yeah.
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. 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.
Okay. 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?
You know, we started reporting out rough patient numbers because given the privacy issues in Europe, we're guessing based on vial distribution how many patients. We don't have an exact number like we do in the U.S.
We were providing that as a proxy because there were 2 quarters where the revenue was just overall revenue, and 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, we don't wanna be carrying around an approximation number for a very long time.
We haven't yet decided when we would stop or what, but the patient number is just a rough approximation. 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. I guess in terms of the pricing overall, you know, how has that been playing out in Japan? 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, traditionally Europe, you know, 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 cause there are a lot of global issues going on. To date, the conversations have been very positive on VYJUVEK.
Great. You've accelerated the Italy and Spain launches into, I think, the 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, you know, faster or easily than it was domestically?
much higher than it was in the U.S.
Has a lot to do with physicians 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, there was a big 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. Awareness is high.
Okay. Okay. Could you maybe walk us through, Krish, how the Italy and Spain launch model works? Is it accrual-based like Germany and France, or is it a pricing-first model? I guess how large are the patient populations in each of these?
Yeah. Between, you know, about I would say in terms of prevalence, 275-350 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. I guess, you know, when we think about kind of the, where the puck's going around Most Favored Nation and, does that, you know, influence sort of your approach to the ex-US launches and pricing, and is there maybe a lower bound for where you'd want to go?
No, we are very cognizant of 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 with rare diseases. 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. It's definitely a conversation that we use. If you look at our gross margins, it's not a financial decision, it's more like what could the long-term impact to the U.S. business be is the question we think about.
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. We can kind of go stepwise. You've got a few exciting programs in ocular, DEB, neurotrophic keratitis, cystic fibrosis. Maybe we can just go down the list. Let's start with KB803. This is your corneal abrasions in DEB. It was nice to get the, I guess the granularity around the cadence of when we could see those updates in 4Q. It sounds like this one will maybe be first up in terms of updates later this year. The study's fully enrolled. Maybe you could walk us through sort of the powering in the study, and, you know, how big of an issue this is for DEB patients.
Thanks, Alex. I mean, again, as you said, 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. We have over 100 patients in this natural history study. As we collected data in these patients, this is a prospectively designed study. It's just like the clinical study or the, in the protocol, they have weekly diaries. They fill in their symptoms in a weekly manner, we've been able to collect very meaningful and very good quality data on these patients.
Based on the, I mean, many of these patients had to be in the natural history 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. As you know, in these rare diseases it's very important to get the right patient population because you're looking at, you know, the effect in a very short period of time. We wanted to make sure we had the severe patients into the study.
that were severe, met the inclusion criteria to then move on and enroll into the study. I think, this is a intra-patient study, just like the VYJUVEK studies. It's a crossover design, randomized, placebo-controlled, double-blinded. Patients are either randomized to either drug or placebo. I mean, obviously from the natural history study helps us to understand the impact on these patients or the, you know, the patient-reported outcomes that we are measuring. We are hoping with the, based on that, we were able to come up with a, you know, as you said, a sample size because to see drug effect. We know from VYJUVEK 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 VII.
We believe if we can see expression, and we can, you know, we can improve those symptoms. We collectively with the animal studies, with the corrective nature, we were able to power the study to, for success. Being an intra-patient study, we know when they're not on drug, and a natural history study, you know, we'd be able to separate placebo versus treated. We feel very comfortable with the powering of the study, the intra-patient design to minimize variability. The statistical analysis plan that we have, you know, obviously got blessings from the agency. We're all set and we feel maximizes the chance of success.
Okay. Great. Obviously the collagen VII mechanism of action is pretty well validated in DEB with VYJUVEK.
Right.
It's the exact same thing. Same vector, just a different, tissues.
Tissues
and formulating them.
Yeah, formulation. All right.
We already have I guess a single patient of data.
Right
that you've shared. What is sort of a meaningful endpoint here for patients and I guess for regulators in terms of the alignment you achieve with the FDA? Is it, I guess, corneal abrasion? Are there any other symptoms that would increase kind of the quality of life for the patients?
Absolutely. I mean, again, you have to look at this therapy. It's more not unlike VYJUVEK, I kept an open wound, and then you're closing the wound. 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. What are the patients, these patients, they have-- It's not just the lesions. It's symblepharon. They have blisters on the eyelids, not just the cornea, but surrounding the eyes. I think, when we put the vector into the eye, you have exposure to all of these areas that can minimize their symptoms.
Again, our natural history study really, the main focus of this study was, you know I mean, DEB blisters in the eye, unlike, is very well-studied and very published literature. We have, you know, patient-reported outcome measurements. Based on what was in the literature, we came up with a scale. It's, you know, looking at different clinical, you know, complications and how you rate them.
The scale was developed from the natural history study. Again, this is something we have. You know, the agency is aware what the PRO scale is, and then we are looking at these multi measurements and measuring, you know, number of days of events. number of events, days of events, and treatment versus non-treatment improvement of the events.
it's a scale-based measurement, and then you look at placebo versus the treated cycle and see the improvement.
Okay. That makes sense. I guess when you look at your natural history study or even just experience, through the VYJUVEK launch and kind of feedback you're hearing from the field, you know, how many of the patients that are already on VYJUVEK would be candidates for your ocular DEB program?
I mean, if you look at a natural history, we have a good number of DDEB patients and RDEB patients because DDEB 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 VYJUVEK commercially. We do see that overlap.
I would add about half the rDEB population and a percentage of the dDEB.
Of the DDEB.
That's true in the commercial setting. It's also true in this clinical setting.
Okay. 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 VYJUVEK with 803?
I believe so. After all, the end physician is not that different. There's gonna be some ophthalmology overlap as we think about NK, but predominantly derms.
We feel that the uptake could be quicker given that we've already identified the patients. We've gone through the genetic testing. I mean, fingers crossed, once we get past the pivotal and the approval, all launches are difficult. On a relative scale, we feel it's a pretty, it's, the launch is in our sweet spot.
I mean, also, this clinical study has been being done by dermatologists, like EB specialists. It's not an ophthalmologist, and we do not require, you know, examination of the eye. It's more of a patient-reported outcome. 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. Just for the sake of time, maybe we can talk about NK disease. It's a pretty well-validated market, a billion-dollar 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? I guess what would KB801 need to show to support an accelerated approval here?
I just wanna correct. It's not a caregiver. It's gonna be patient.
Patient
administered.
I think It's gonna be like any, like Oxervate, like, 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 Oxervate. The only difference is obviously we are, you know, once a day administration versus multiple dose administration. In a clinical study, again, these patients, to initiate them in the clinical study, they come to the site because you have to, you know, take imaging of the eye to, you know, and make sure that they meet inclusion/exclusion criteria. We enroll them, basically train these patients how to administer in the first two visits, and then the drug is shipped into the patient's home, and they self-administer the drug.
Again, we don't anticipate, unlike VYJUVEK, it's going to be off the shelf into the patient's home, prescription written, shipped to the patient's home.
Administered by the patient.
Okay. I guess assuming we see the ocular DEB data first, is there any lateral reads either around the route of administration?
No. Absolutely.
Okay.
There's no lateral reads because different diseases, different very different endpoints.
Yeah.
Patient-reported outcome is 803. That's more of a noisy endpoint. Whereas with NK, I mean, I think it's very well established, like if you treat it with a vector and you can produce a neurotrophic protein, NGF, Oxervate has already shown that by having NGF and initiating neuronal growth, that'll help with healing. Very different endpoint. You measure the lesion at the baseline, and the endpoint is in eight weeks complete healing. It's an independent reader. It's not a patient. We'll have patient-reported outcomes as, you know, quality of life and improvements as secondary. The primary read is the photographic images are read by an independent reader to evaluate complete closure. Very different mechanism.
Different endpoints.
Okay, similar vector and formulation?
Correct. From a safety.
Yeah.
Safety read-through will be absolutely, it'll be overlap.
Okay. Okay. I want to ask about your CF program. We saw some pretty important, I guess, delivery expression type de-risking for the program. The next steps sound like, you know, 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 updates from the program? Is it alignment with the FDA on the pivotal? Should we get, you know, extended follow-up with maybe some functional type of endpoints? How should we be thinking about?
Yeah
the catalyst?
I mean, obviously, the very first thing that we showed was, I mean, the first part of the study was the 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 the single-dose administration, that we were able to bronc these patients and establish molecular correction, I mean, molecular expression. This is exactly what we did with our VYJUVEK program. If you look at it's the same, you know, same mechanism that we followed. We showed expression, and in VYJUVEK, obviously, based on that expression, we were able to get into a registrational trial and show that expression translated into effect. It's the same thing that we are following with the CF 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, you know, convinced that we do show 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. That's exactly that we have done. The protocol has been, you know, approved by the agency. We are in the process of, you know, enrolling patients. I think we should be enrolling that study pretty quickly, and it'll be a repeat dose to establish safety.
In parallel, we've always been, 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, you know, 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 reach data, which is their prospectively designed natural history data, which to allow us to, you know, efficiently design a clinical study so we can effectively use this external control in our pivotal phase III design.
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 to the agency and work very closely with the FDA. 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.
We plan to execute the pivotal trial beginning of next year.
Okay, great. Maybe in the last minute or so, if we could just, you know, rehash sort of the next 12-month outlook for the company. What gets you most excited from the pipeline? You know, what are you looking for to really gauge the strength of the VYJUVEK launch? How does your capital position sort of set you up to succeed?
From a ViiV launch perspective, it's in a good place. We're excited to bring this medication to patients, not just in Germany, France, but in Italy and Spain. Japan continues. 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, if the data were to read out, that would have a very strong impact. It's tough to handicap which one's better. At the same time, I would think about Hailey-Hailey, which is very similar to DEB, where we have an open label study ongoing. Definitely not to forget our DEB patients. Being able to provide some kind of relief in the eye is definitely a very positive thing for the DEB patient. Overall, a very busy but super exciting year. As I mentioned in the Q1, the next 12 to 24 months are the most exciting in the history 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. Thank you so much, Krish and Suma, for the great conversation, and thanks for everyone for attending. Thank you.
Yeah.