Thank you for standing by and welcome to the Krystal Biotech Third Quarter 2023 Earnings Conference Call. As a reminder today’s conference call is being recorded. I would now like to hand the conference over to your host Meg Dodge, Head of Investor Relations and Corporate Communications. Please begin.

Good morning and thank you all for joining today's call. Earlier we released our financial results for the third quarter of 2023. The press release is available on our website at krystalbio.com. Our earnings 8-K was filed earlier today and additionally we filed our 10-Q with the SEC. Joining me on the call are Krish Krishnan, Chairman and Chief Executive Officer; Suma Krishnan, President of Research and Development; and Kate Romano, Chief Accounting Officer. I'd like to note that during this call we will be making a number of forward-looking statements about our future business plans, strategies, financial performances, and projections, product candidate development plans including statements about VYJUVEK. These forward-looking statements involve risks and uncertainties, any of which are beyond Krystal's control. Actual results could materially differ from these forward-looking statements as any and such risk can materially and adversely affect the business, results of operations, and trading price of Krystal's common stock. For a detailed description of applicable risks and uncertainties, we encourage you to view our SEC filings. The company does not undertake any obligation to publicly update its forward-looking statements including any financial projections provided today based on subsequent events or circumstances. With that I'd like to now turn the call over to Krish. Krish?

Thank you Meg. Welcome to Krystal Biotech’s first ever earnings call. It's a bit of a coincidence that we're having our first earnings call when we have positive earnings but I want to be clear that this quarter's positive EPS is simply driven by the sale of the Priority Review Voucher in Q3. More importantly, we are having this call on the heels of EB Awareness Week. We thank the entire dystrophic epidermolysis bullosa community who worked tirelessly to improve outcomes for patients with this genetic disease. As we recognize the challenges that the patients and their families face every single day, our goal remains focused on helping as many DEB as possible. We know that this disease extends far beyond the skin and we're committed to continuing to work to treat this disease comprehensively. We will discuss our early initial efforts in treating DEB patients with lesions in the eye and those with squamous cell carcinoma of the skin later in this call. With that I'd like to say that after the first full quarter into the VYJUVEK launch, I'm extremely pleased and proud by the commercial progress we are making. We continue to see strong patient demand into Q4 and as we announced we finished Q3 with 284 start forms since VYJUVEK was approved. Our estimate right now is about an 85% conversion from start forms to patients on drug, but we'll continue to update the stat in subsequent quarters as more and more start farms continue to convert. That said, even at 85% we are at a 20% penetration of the identified base of patients following one full quarter post launch. Of the 284 start forms received, 20% were from patients suffering from the dominant form of DEB. As I have mentioned before, patients from dominant DEB…

Thank you, Krish. This is an exciting time for us and that with the approval of VYJUVEK, our commercial team is leading the way for a successful U.S. launch. Our objective is to provide access to VYJUVEK globally, and someday treat this debilitating disease comprehensively. To that extent, we filed a marketing authorization with the European medical agency in October, and we anticipate an approval in the EU in the second half of 2024. Additionally, following acceptance of the open label extension study of B-VEC by Japan's pharmaceuticals and medical device agency in July 2023, we initiated the extension study and dosed five patients. Following completion of the open label extension study in Japan, we intend to file a Japanese new drug application for B-VEC for DEB in the first half of 2024. We are presently expecting launch in the EU and in Japan in 2025. With respect to treating this disease comprehensively, you have all seen the remarkable benefits including B-VEC patients with lesions in the eye, and we are in early stages of working with PFT [ph] to develop an approach for studying VYJUVEK for this indication. We estimate proximately 750 patients with this manifestation in the U.S. In addition, we are hoping to enroll DEB patients with squamous cell carcinoma of the skin in our Phase 1 oncology study. While VYJUVEK could potentially slow down the onset of SCC in the skin in the long-term, having a near-term benefit with KB707 will go a long way towards treating this disease comprehensively. Moving on to a rich clinical pipeline using our HSV-1 platform. On KB407 we completed Cohort 1 of the CORAL-1 study with no severe or serious adverse events, and plan on initiating Cohort 2 in the upcoming weeks. We anticipate announcing data from this study in…

Thank you Suma. With our focus in the VYJUVEK launch being centered around the patient journey, and resulting initial strong patient adherence on drug in the first few months of launch, we reported $8.6 million in net product revenues, which began in August of 2023 through the end of the third quarter. As VYJUVEK was approved by the FDA in May of 2023, there were no comparative period revenues. Cost of goods sold was $223,000 for the quarter as compared to zero for the previous year’s third quarter due to initial sales of VYJUVEK after FDA approval was obtained on May 19, 2023. Prior to receiving FDA approval, costs associated with the manufacturing of VYJUVEK were expensed as research and development expense, and as such a portion of the cost of inventory sold during the period had been previously expensed prior to FDA approval. We expect that cost of goods sold will continue to be lower as we sell off the remaining inventory that had portion of its costs that were previously expensed as R&D prior to approval. Research and Development expenses for the quarter were $10.6 million inclusive of $2.3 million of stock based compensation, compared to $11.5 million inclusive of $2.2 million of stock based compensation for the quarter ended September 30, 2022. This overall decrease of $887,000 was primarily due to costs related to the manufacturing of VYJUVEK being recorded to inventory following our FDA approval that were previously expensed to research and development expense. Selling, general, and administrative expenses for the quarter were $23.7 million inclusive of $6 million of stock based compensation, compared to $19.9 million, inclusive of $6.9 million of stock based compensation for the quarter ended September 30, 2022. This overall increase of $3.8 million was largely due to costs incurred related to launching VYJUVEK, such as salaries, travel, technology, and other professional fees. And was offset by lower marketing costs due to the timing of developing marketing materials. This quarter, we also recorded a gain from the sale of our rare pediatric disease Priority Review Voucher, which was awarded to the company in connection with the FDA’s approval of VYJUVEK, of $100 million. I want to emphasize that this gain was a one-time item recorded in other income and was the primary driver of net income and positive EPS this quarter. Finally, we closed the quarter well capitalized with $598.6 million in cash, cash equivalents and investments on hand as of September 30th. And we believe this cash on hand is sufficient to fund all of our planned activities for the next several quarters. And with that, I will turn the call back over to Krish.

Thanks, Kate. Well, Krystal has always been known for execution on the developmental front. The third quarter demonstrated our ability to execute equally well on a commercial front. We're now a fully integrated company with a commercially validated platform that allows us the privilege of developing medicines to serve patients with debilitating diseases. With a strong launch, a productive pipeline, and $600 million or so on the balance sheet we are in a strong place financially to execute on our objectives. Finally, as the largest shareholders in the company, management is aligned and well positioned to continue to deliver increasing value to all our shareholders now, and over the years ahead. Thanks for listening. And I'd like to now open the call for Q&A.

Absolutely. [Operator Instructions]. The first question comes from the line of Robert Finke with Guggenheim Partners. Your line is now open.

Hey, good morning, team. This is Robert on for Debjit. Thanks for taking our questions and congrats on the strong launch. One question from us today, do you anticipate any slowdown in the fourth quarter compared to third quarter as far as patient start form rate and if so, what does this imply about peak demand? Thank you. Krish, excuse me, but there's nothing coming from your line. You might be on mute.

Oh, I'm sorry. Oh, thanks Rob, I was going on and on for a minute. So as of now, Robert, the pace continues to be as it was at the end of 3Q. What is difficult to predict is how the holidays if at all are going to have an impact on the patient start forms. So my best answer is as of now we continue at the same pace and it remains to be seen how the next few months go by. With respect to peak demand, look when I -- when we made the call at the time of approval, it was simply based on a base of 1200 to 1500 identified patients paying about $500,000 annually. That's how we came up with 750 million. As we find more dominant patients, as we start getting approved in Europe and Japan, as the base of identified patient grows, we'll continue to update that number.

Great, thank you and one follow-up from us. The start form numbers start from approximately 20 per week in second quarter to 13.5 per week in the third quarter. What's your best explanation for why this occurred? Thanks, Krish.

Look, maybe the first six weeks where there was a little bit of bolus from the open label extension study, as I mentioned, we're also a bit careful of rushing to put somebody on a start form if we don't have a clear line of sight into when the nurse is going to come home or they're going to get reimbursed. The worst thing we can do is to have a patient submit us our form and have them wait a significant amount of time before converting. And so to some extent, we manage the inbound queue a little bit. That's just started to open up as I mentioned with access, we pretty much have majority of the commercial plans in place. A significant amount of the Medicaid plans in place, especially a bunch starting in October. And so some of it is the OLE some of it a bit is our own doing to maximize patient experience.

Great, thank you.

Thank you. The next question comes from the line of Alec Stranahan with Bank of America Merrill Lynch. Your line is now open.

Hey, guys, thanks for taking our questions. And congratulations as well on the early launch progress. Just a couple of questions from us. Maybe first, could you walk us through the process a bit further of getting new patient start forms and then converting those patients onto therapy and what was the barrier for maybe the 15% or so that that didn’t confer and I think you just touched on this in the last question, but do you think it's reasonable to assume that now that insurance is probably coming online that the rate of conversion between start form and initialization on therapy could accelerate?

We believe so, that 85% is an estimate, right. We don't have enough to make a very substantive prediction on that number. 85% is just based on some patients may be wanting not to get going for a while, some patients do not have insurance, some patients choosing to wait to see how other patients are doing. So it's a pure estimate. We definitely expect that number to go up. I alluded to that in the call. But in terms of process, look, we like to get quality and audited start form to begin with. Because that helps from a timing perspective of converting them to patient on drug. Because if you don't have a fully filled start form with the physician report and the genetic sequencing, a lot of information on prior what they have -- the prior history of the patient, it takes longer. At least in the beginning, it took longer with insurance to get them reimbursed. And to avoid that, we were trying to get a clear line of sight before we totally accepted a start form internally, because patients get very anxious once they submit a start form to get access to the to the drug as soon as possible. We try to bridge that gap with some free vial program while waiting for the insurance and that varies depending on if you're a commercial or Medicaid. And once we get a start form, essentially about a couple of things happen in parallel once about getting them on the reimbursement. And the other path is to work with our specialty pharmacy to get the nurse scheduled to come home at a time that's convenient to them and that usually takes a week or two. So that's essentially the process. But once the patient is on drug and the reimbursement is in place, the adherence rate has been really high because of the nurses essentially basically going home to fit with the patient's schedule, as opposed to put any burden on the patient having to travel week after week to some site. And as I mentioned, a significant percentage of our patients are on home dosing at the moment.

Okay, thanks. And one more question. When you look to approval and launch in the EU and Japan, Krish, how will you be approaching these markets? And if you do seek to partner, would you still be making VYJUVEK yourselves presumably and how would this work logistically? Thanks.

Yeah, I think we're sticking to what we've been saying that our intent is to launch in the EU and Japan. We already have a team in the EU. We're starting to think about building out a small team in Japan in anticipation of a launch in 2025. In terms of supply of a drug, it will all be supplied from [indiscernible] which has the capacity for a global supply of VYJUVEK at the right point in time may be supplemented with Astra which is now up and running. So essentially, we do not anticipate setting up any manufacturing facility in either Europe or Japan.

Okay, great. Well, thanks. Congrats again on the progress.

Thanks, Alec.

Thank you. The next question comes from the line of Ritu Baral with Cowen. Your line is now open.

Good morning, guys. Thanks for taking the question. And thanks for hosting the call this time. Krish, I wanted to sort of get my arms around the sort of intent to prescribe. So you mentioned that the 284 start forms if I'm interpreting it correctly, the 284 start forms that you reported this morning, these are high quality, accepted start forms. And there are additional start forms that either you have not accepted or that you are sort of pushing back. And I guess waiting to tally as part of your report. Can you give us an idea of qualitative or quantitative about the number of outstanding, like half-filled start forms or inadequate start forms just to give us an idea of intent to prescribe? And then I'm also wondering about the non-Center of Excellence prescribing doctors, is there a profile of these doctors that is emerging? And then I have another follow-up, thanks.

Yeah, I will start with the second one first. Predominantly, derms [ph] is the profile of the community physician, but that varies three two. It could be a dermatologist, some of the patients go to blood transfusion centers, probably getting tired of going to dermatologists and managing palliative at home in the past. But in terms of the start form itself, we like to accept a very high quality stuff. Sometimes we make exceptions when there is an urgent need or a request by the physician. But by and large, the start forms are highly audited. In terms of providing any kind of guidance on how many is in the queue that we're trying to convert, I think it would be a bit premature, and not right for me to talk about that. But I will say that we expect now with access in place, we expect the pace to be just as good if not better going forward.

Got it. And then I just wanted to ask a follow up on the persistence rate. How are you defining that 96%, is it patients who are reimbursed and who either skip a week, or are they -- are you finding -- are you telling patients who skipped like, two weeks I don't intend to resell and I'm just wondering how that 96% is defined? Thank you.

It's basically I mean to simplify, look if your look by the week sometimes once in a while somebody misses a visit, for some personal reason or schedule. But most of the patients on drugs today are at four vials a week, whether they're recessive or dominant. So when I say compliance is really high it means we're shipping four vials a week to a patient at the moment.

Got it. Thank you very much.

Four vials a month, I'm sorry. I meant to say month.

Thank you. The next question comes from a line of Carly Kenselaar with Citigroup. Your line is now open.

Great, good morning. Thank you for taking my questions. Two questions for me. First, on the reimbursement side, just wondering if there has been any surprises with respect to the policies insurance companies are putting in place, particularly as it relates to the payer process, just anything unexpected there? And then the second question is if you can just remind us what proportion of patients -- of the identified patients are tied to Centers of Excellence in the U.S.? Thank you.

On Access Carly, thanks for the question Carly. On Access things have been relatively smooth, there's nothing unexpected. We have a good system of offering contracts to payers. If they are accepting then they get eligible for the price gap. So both on the commercial side and on the government side, Access has been at a good pace like we're pleased. We expect to get the J Code finalized, officially published in January, which is I think on time based on when we got approval. So overall, pretty pleased, nothing unexpected. In terms of patients at the Center of Excellence, that's a great question. It's a tough one because a lot of patients who once saw or saw a physician at a Center of Excellence, a lot of them are actually stuck and gone back to the local community in the absence of an approved drug. And so trying, what we like to the way we think about it is the number of active patients present really at the Center of Excellence. And so -- which is why, if you look at the start forms for the -- if you think about like only 46% came from the Center of Excellence, we believe there is demand left at the Centers of Excellence, limited by the two factors I mentioned. One, physicians wanting to literally have a patient visit prior to getting them on VYJUVEK, which happens in rare diseases are quite a bit. And it's a tough one to overcome because they'd like to see their patient talk to them about it, at least some of them. And the second is something we're trying to educate around which is when physicians decide I'm going to put a handful of my patients, see how those works, before opening the gate to the remainder of the patients, and that we disagree a bit with and we're using our medical affairs to work very closely with these scale ups, to convey the urgency of getting the patient on drugs.

Okay, that's very helpful. Thank you.

Thank you. The next question comes from the line of Dae Gon Ha with Stifle. Your line is now open.

Hey, good morning, guys. Thanks for taking the question. Thanks for the first call and congrats on the progress Krish. Maybe one more on the VYJUVEK before switching over to KB407. In terms of the third quarter, I guess, can you talk about sort of the cadence of start forms that kind of came in, I know you don't want to talk about sort of the queue but what can you qualitatively say about that and bearing in mind the holiday season is upon us, is that cadence at all kind of representative you think or at least 20%-30%, how should we think about that from a modeling perspective? And then second question on KB407, just wondering if you can narrow that guidance in 2024, is it closer to ECFS or NACFC and just looking at the competitor’s recent data, it seems like expression of the protein may not necessarily be representative of clinical profile, so can you maybe remind us what's the differentiation that you think you're going for? Thanks so much.

Yeah, look on cadence with the holidays I wouldn't -- I wasn't advocating any kind of discount. I was simply saying that the pace has been good as of now as of this call. And with the upcoming holidays, we don't know if it will continue or will there be a pause and it varies depending on the patient and the urgency and the family situation. So I wasn't guiding to any slowdown at all, I was just saying we don't know. On the 407, look it is tough for us to guide when without access to the TDN network where because it does take us -- Suma mentioned in the call it takes a long -- it takes us a bit longer to find these patients outside the network, convince them, get them on drugs. So unfortunately, not able to like with the other programs make a good prediction on when we will data. Suma, do you want to comment on -- let me say one thing on the expression, I'll turn it over to Suma, our view on full DMT [ph] which I think you were asking look, you have to remember, it's a micro CFTR. Right, so micro, it's not the full gene it is a micro gene. And so I would disagree with the comment. I think one should expect that protein expression should be reverted to functionality in our opinion, but Suma do you want to add to that.

I think you've covered it pretty much on the dot Krish. Agree, I mean, again if you look at the histo-chemistry, it's not very clear where you see the expression because it's all over. There's a lot of questions. We also spoke with some of the experts on that expression data. And they had similar concerns. So again, we don't know what the agenda question is. If they're seeing this kind of expression level, is it the full CFTR protein and how does that correlate to function. It is a question that's still unanswered. With regards to TDN we are working very diligently, we have done beyond what other companies have done with regards to joint [ph] function. And we are pretty confident we'll get there. So we are close, we are looking at all different studies including NPD animal studies, we are looking -- we know we can express the full length protein by [indiscernible]. We see it, we're very confident. We just need to get the assay for function optimized. So we feel pretty good. I think, hopefully we will get there sooner, and we can get that study more fully, aggressively enrolled.

Great. Thank you very much for taking the questions.

Thank you. The next question comes from the line of Tim Lugo with William Blair. Your line is now open.

Thanks for the question. Going back to VYJUVEK. Can you talk about the progress you've made identifying patients outside of the initial I think 1200 or 1100 patients that you had identified during the summer? And I guess on top of that, penetrating 30% into that, as of now, I think is what you mentioned, can you talk about, I guess, really the need for CCO if you're going to get 50% penetrated into the population within the next couple of quarters?

Tim, I didn't follow the second -- the second part of the question, what were you saying in terms of penetration?

Yeah, the second part was I believe you mentioned you're about 30% penetrated. And it looks like the 20% [Multiple Speakers], oh, 20%. Okay. Alright, well, just an update on just the 1200 cases, or 1100 patients that you have identified so far?

Yeah, what I did to get to 20% just to be clear, we got 284 start forms, you multiply that by 85% conversion rate divvied by 1200, you're close to 21%. That's how we estimate that 20% penetration, it could be a bit higher if the 85% is higher than we estimate at the moment. With respect to finding patients, to date after one full quarter into launch, it's been more opportunistic than deliberate. Meaning we're still working off the tier one tier twos that we identified going after, trying to get them converted. Our objective is to get more serious about finding patients past 1200 early next year, as we start to drain out the bases, there was a wire of identified patients.

And with that I guess can you update us on your thoughts around a new Chief Commercial Officer, I feel like previously you mentioned that that would be the focus of a new CCO?

Yes, so we are in the process of looking earnestly. We've gotten a few candidates at different levels in the queue at the moment. We hope to have one in place early in 2024, that's the objective. What's important to us is they find someone with a good fit in the way we operate and thankfully, there's been a lot of interest from potential candidates so far.

Fantastic. Thank you for the question.

Thank you. The next question comes from a line of Gavin Clark-Gartner with Evercore ISI. Your line is now open.

Good morning, congrats on the progress of the launch. So you noted our goal of getting to two to three weeks for the conversion cycle from PFS to paid revenue. Where did the number start from launch and how long do you think it'll take you to get to that two to three weeks?

Yeah, we're hoping to get to two to three weeks in 2024 hopefully in the first half, first quarter. Right now it's pretty, I mean, it was long and it continues to come down. When we started it was more like six, seven weeks and a lot of it had to do with submitting for reimbursement, getting denied, resubmitting single case forms. The reimbursement was not smooth. So that was a big aspect. And that has gotten steadily better over time. So that's one of the reasons we feel good about getting to two to three weeks. We find that families take about two to three weeks to schedule a nurse visit. There's some time in figuring out the right nurse that they're comfortable with, finding a time that works for them. That I don't think is compressible. So our goal is two to three weeks in 2024. And so every month that's gone by we've been steadily coming down the curve of conversion and we are at a good point at the moment, and we hope to get to two to three weeks, early in 2024.

Okay, that makes sense. And you noted 45% of the PFS are coming through for commercial patients. Are you able to disclose the commercial versus Medicaid split of patients that are on paid drug?

That are on paid drug, I would say the percentage of commercial versus Medicaid if our estimate right now is 51% commercial or 35% Medicaid.

Okay. Oh, go ahead.

Yeah, and as we go into -- starting October we expect a lot of the mandatory states to start covering and so we expect the Medicaid number to go up a bit.

Yeah, that makes sense. Just a last quick clarification on LLE patients. Have all of these patients converted over to drug, just confirming this was captured in the PFS number and how much of this came through in the second quarter versus the third quarter?

Yes, it all converted. I would say 60% in the second, 40% in the third.

Got it, that's very helpful. Thanks so much, and congrats again.

Are there any other further questions?

My apologies, Robert, your line is now open with a follow-up question from Guggenheim Partners.

Thank you and Krish, thanks for taking our follow up. On the comment you made about expecting it to be the same or better now that reimbursement is largely in place, does that pertain to patient start forms or conversion to reimbursement on therapy? Thank you.

I may have said they are common in both contexts. Definitely conversion with Access. I mean, that's a given, that's obvious. Like if we're not getting dinged and we're getting reimbursed when we file, if that process is smooth definitely the conversion should be faster and better. The comment I made on start farms was the base continues to be good at the moment. And I left it open to figure out what happens over the holidays, which we have no visibility into at the moment.

Appreciate it. Once again, thank you.

Thank you. We now have another follow-up question from the line of Ritu Baral with Cowen. Your line is now open.

Hi guys, thanks for taking the follow-up. Krish just going back to the rejected start forms. Can you mention like what are the most frequent reasons for that, that you're encountering, is it formal genotyping of these patients, is it insurance coverage, is it like purely administrative paperwork sort of stuff, what is that reason? And then I have another quick follow up.

Mostly genotyping.

Got it. And then are you seeing any early trends intend to implement by and bill from any of these centers and are you seeing like clinics at Centers of Excellence sort of adding either clinic days or availability for appointments, such that patients can come in more easily?

Thank you. Buy and bill has been minimum. I'm searching to remember if there's one, actually it's probably zero. What happens at the Center of Excellence, like there is -- everybody, the KOLs at Centers of Excellence, the payers, everybody would like the patient to be dosed at home. And so the only thing guiding in the case of a Center of Excellence is the first visit. I mean first visit on VYJUVEK, I mean. So they wait for a patient to come visit them, examine the patient before putting them on VYJUVEK. But once they decide to put him on VYJUVEK the actual process is not by buy and bill but sent back to the patient's home for home dosing.

Got it. Thank you.

Thank you. That will conclude today's conference call. Thank you for your patience and your participation. You may now disconnect your lines.