Thank you for standing by and welcome to the Krystal Biotech Fourth Quarter and Full Year 2023 Earnings Conference Call. At this time, all participants are on a lesson-only mode. After the speakers' presentations, there will be a question-and-answer session. As a reminder, today's conference 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 today, we released our financial results for the fourth quarter and full year of 2023. The press release is available on our website at www.krystalbio.com. Our earnings 8-K was filed earlier today, and additionally we filed a 10-K with the SEC. Joining me will be 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, during this webcast 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 material 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 review 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, let me now turn the call over to Krish.

Meg, thank you. Good morning and thanks for joining the Krystal’s earnings call. 2023 was a spectacular year for Krystal and an inflection point for our company. With the approval and launch of VYJUVEK for the treatment of dystrophic epidermolysis bullosa, or DEB, we've now brought to market the first and only treatment that addresses the genetic cause of this debilitating disease. It has been immensely rewarding to hear from patients, families, and the entire DEB community on the positive impact VYJUVEK has had on their lives. It's also exciting to have secured this first approval for an entirely new treatment paradigm. We believe that a redosable topical off-the-shelf gene therapy that can be dosed at home by a HCP holds significant potential not only for DEB patients,, but for many others suffering from other rare and serious diseases. We've only just begun tapping into the power of the HSV-1 based gene therapy platform. As I will share in a moment, our US launch of VYJUVEK is in a great place, tracking closely to some of the most successful rare disease launches from recent years with over $50 million in net product revenue from VYJUVEK in the last six months since approval. We've seen rapid uptake across the US, patient compliance is high, access is almost behind us, and all these are starting to reflect in our net revenue. We're also making significant progress globally and look forward to growing the number of patients benefiting from VYJUVEK in the days, months, and years to come. Our success in 2023 allowed us to deliver another year of significant value creation for our shareholders and perhaps more importantly, set us down a path for continued growth in the years to come. Our vision for Krystal has always been to build a fully…

Thank you, Krish. 2023 was a milestone year for Krystal, and our development team securing the first ever FDA approval for a redosable gene therapy. It has been immensely gratifying to see a growing number of US patients benefit from VYJUVEK as our commercial launch progresses. However, our work is not yet done. Our goal has always been to enable global access for patients suffering from DEB. And I'm happy today to share we are on track for commercial launches in both Europe and Japan by 2025. For Europe, we announced in October that we filed for a marketing authorization with the European Medical Agency. Subsequently, in November, our filing was validated by the Agency, putting us on track for a decision by the European authorities in the second half of 2024. In Japan, we recently announced in December that we had received orphan drug designation by Japan's Pharmaceuticals and Medical Device Agency, a designation which confers specific benefit for orphan drug development, including priority review of applications, extended registration validity, and reduced development costs. With our open-label bridging study in Japanese patients fully enrolled, we are on track for a Japanese new drug application filing in 2024 and a decision by Japanese authorities in 2025. We are also making important progress on our broader clinical pipeline, where we have four programs in the clinic and more coming in the first half of this year. As said previously, we are committed to treating DEB comprehensively. Ocular complications are thought to affect over half of patients with recessive DEB, and to date, only supportive care and surgical interventions are available. Earlier this month, the New England Journal of Medicine published the clinical results of the first patient treated with topical B-VEC to the eye. The improvement seen in this patient was…

Thank you, Suma. We concluded 2023 with $358.3 million of cash on hand and $594.1 million of cash and investments, which positions us well for our future growth, the expansion of VYJUVEK outside of the US, and our pipeline development plans. In our second quarter since the launch, we recorded $42.1 million in net product revenues from VYJUVEK in the fourth quarter and $50.7 million for the year ended 2023. As VYJUVEK was approved by the FDA in May of 2023, there were no comparative period revenues. Cost of goods sold was $2.9 million for the quarter, or about 7% of net product revenues, and $3.1 million for the year, or about 6% of net product revenues. Cost of goods sold increased on a sequential quarter basis as a portion of the initial cost associated with the manufacturing of VYJUVEK were expensed as research and development costs earlier in the year prior to approval. Research and development expenses for the quarter were $11.4 million, inclusive of stock-based compensation of $2.4 million, compared to $10.7 million for the prior year's quarter, inclusive of $2.4 million of stock-based compensation. Research and development expenses for the year were $46.4 million, inclusive of stock-based compensation of $10.1 million, compared to $42.5 million in the prior year, inclusive of $7.9 million of stock-based compensation. Higher research and development expenses in 2023 were due to increases in payroll and facility-related costs, primarily driven by an increase in personnel to support our overall growth, especially as we ramp up our KB707 program, partially offset by decreases in R&D manufacturing costs as, following our FDA approval, our costs related to the manufacturing of VYJUVEK are now recorded as part of our cost of inventory. Selling, general and administrative expenses for the quarter were $24.8 million, inclusive of stock-based…

Before we open the call up to Q&A, I'd like to underscore our excitement for 2024 as we have successfully transitioned Krystal to a fully integrated commercial biotech with a deep clinical pipeline. With a great launch underway and growing revenue to contribute to our already strong balance sheet, we believe we are well positioned to create value for our shareholders and deliver our mission for patients now and in the future. Thanks for listening and I'd like to now open the call for Q&A.

Thank you. [Operator Instructions] First question today is coming from Alec Stranahan from Bank of America. Alec, your line is live.

Hey guys, thanks for taking our questions and congrats on the strong close to ’23. Two questions from us. I guess what has been the -- roughly the average conversion time between new start forms and initiating therapy in 4Q? And where do you see this tracking over the next few quarters, or is this really not the metric we should be looking at anymore? And second, could you maybe walk us through the anticipated J-code impact to uptake, looking at the next couple of quarters, especially in the Medicare segment? Thanks.

Thanks, Alec. Hey, on your first question, at the end of Q3, we were tracking like at a two month pace between start forms to patient on drug. We were making progress and presently we're about 30 days from a start form to patient on drug. Our goal, at least by the second half of this year, is to shrink it down by a few weeks, maybe two to three weeks. A lot of it has to do with single case agreements and with access getting behind us, we expect the trend to only decrease and get to a steady state of two to three weeks in the second half of this year. With respect to the J-code, the reason I mentioned that comment, look, J-code is a great tailwind for the company long term. I just was simply pointing out that in January, as our specialty pharmacy was transitioning people from -- into the official J-code from a prior J-code, you should expect a few weeks of a revenue hit to the story in the interim. But outside of that, we don't particularly see the J-Code having any impact going forward, especially impact in the positive direction, not having any kind of impact in the other direction.

Thank you.

Thank you. The next question is coming from [indiscernible] from Citi. Igor, your line is live.

Hi, Krish and team. Thank you so much for taking the question. Could you just help us clarify on the numbers? The 228 reimbursement approvals and the 35% of the 1,200, the 420, is the 228 a subset of the 420 or are they distinct populations? Just to clarify, please.

I mean, let me answer it this way. The one, the 35%, the 420, that's clearly the stock firms that we've been mentioning in the past. The 228 talks about out of the stock firms we've gotten, the exact number of reimbursement we have gotten from. We like that metric because it's a much closer indicator of net revenue in the long term. And so, yes, obviously it is a subset of all the start forms we've gotten to sort of answer that very directly. But it's a different metric in the sense that it's a more important metric as revenue becomes a much more important part of the story going forward.

Okay, thanks. And then you referenced that, I think you said 60 of the 195 were prescribed [two] (ph) or more. I was just trying to do a little math on that. It suggests that for those higher prescribers, it's somewhere around five patients per prescriber? Is that the correct thinking or is it different? Thanks.

I think -- I mean, it's a difficult question to answer immediately, but I think you're right. I think you're right. Like all we were trying to show is that people who prescribe VYJUVEK to begin with are now getting more familiar with the drug and are repeat prescribing, and that's a good metric for us because it shows the confidence in the drug. It shows they are expanding to a broader base of patients. There were a couple COEs, I've mentioned this before, who were positioning that let me get my [ardent] (ph) patients on drug before I get my dominant patients on drug and see how they're doing. All in all, the reason for that metric is to show increasing confidence of a prescriber to what's continuing to prescribe by VYJUVEK.

Okay. And then just one quick one on the eye drop, certainly very interesting early data. Can you just discuss the strategy there longer term? Is that going to be provided as an adjunct to the topical for those that have the eye complications or would it be an additionally priced drug separate from the cream?

I think it's a bit too early to be very definitive on the matter, but our objective is to have a separately priced product like we do right now on that single patient. We ship that patient an extra vial. And so our thinking is to have a separate NDC number, a separate pricing, and send it along with the topical gel.

Okay. Thank you very much.

Thank you. The next question is coming from…

I just want to clarify, sorry, on the eye. As I said, we have pre-IND guidance from the Agency, so this is going to be a new IND and it's going to be a BLA, so a brand new label with a new NDC code, as Krish mentioned. Just want to clarify.

Thank you.

Thank you. The next question is coming from Debjit Chattopadhyay from Guggenheim. Debjit, your line is live.

Hey, good morning, team. This is Robert on for Debjit. Can you provide any color on the number of dominant patients on therapy as of December 31st and Feb 24, and also the number of recessive patients on therapy as of December 31st? And then I have a follow-up on the ocular complications.

No, I think for now, and I don't want to dig through to figure this split out, I think for now, as we mentioned in the call, 25% of the total start forms were the dominant type. We did not, just to be clear, see any big change in the trend of the dominant [versus successive] (ph) at the moment.

Okay, thank you. And then on ocular, do you currently have 10 or more patients with complications identified who could quickly be enrolled? And how long is follow up planned for the study?

I can answer this question, yes. In fact, we have a lot of patients and the reason we are accelerating is because there is request for even off-label. So [we’d] (ph) want to avoid that. Yes, we do have enough patients who have a good natural history of their disease and as you can see it's a single arm open label study. So it should be pretty straightforward.

Great, Thank you.

Thank you. The next question is coming from Dae Gon Ha from Stifel. Dae Gon, your line is live.

Great. Thanks for taking our questions and let me add my congrats on the quarter as well. Krish, just going back to the roughly 136 start forms that you've reported as of February. I was just kind of curious if you could talk about the cadence of patients. I know it's kind of a combination of Q4 and a little bit of ‘24. And you've added a lot of conviction around sort of the year end, I mean the opportunity this year. So if you could kind of comment on that cadence? And then going back to the more than $1 billion opportunity you were talking about, I guess a little early, but if you can maybe frame for us, what exactly are you thinking, because in prior, I guess, VYJUVEK approval, you've given some conservative estimates that you had to revise. So what should we be thinking in terms of B-VEC ophthalmic solution there? Thanks so much.

Great. Hey, on the cadence of patients, just to correct you, I think 35% of 1,200, I want to be clear, that's the number of start forms. I heard a number of 136 that I wasn't sure about. But that said, look, definitely the holiday period was a bit slow. Slow as in appointments getting pushed out by a week or two, EB clinics being rescheduled and that was a singular cadence that we observed which is why we kind of pushed out the start form reporting to as of February. So that's the cadence on that. On the opportunity, look, there was some confusion when we first reported. When we first reported the market opportunity, all we had was an approval in the US and it felt a bit conservative. The feedback I got was super conservative. Now we're starting to see feedback from the MA. We're starting to see feedback from the Japanese authorities. Our conviction in the drug getting approved in Europe and Japan is definitely a lot higher than it was six months ago. Then, we're also starting to align with the agency on the ophthalmic indication in the eye. And now that it's a single label study, and as Suma mentioned, there are people with natural history, we feel at the moment pretty good about 50% of the RDEB patients or 25% of the total DEB patients, however you want to look at it, also adding to the market opportunity. And so we thought we'd take the moment to alleviate any confusion from prior and be very definitive on the market opportunity of B-VEC going forward.

I guess just to clarify on that point, are you able to give some percentage breakdown of how much would that be from B-VEC as it currently is as VYJUVEK or B-VEC formulation?

You mean the eye formulation? Look, without the eye formulation, we believe it's north of $1 billion. The eye formulation, and this is a very premature estimate from my end, probably adds another $250 million to $300 million to the opportunity itself.

Excellent. Thank you very much.

Thank you, The next question is coming from Joe Pantginis from HC Wainwright. Joe, your line is live.

Hi, everybody. Good morning. Thanks for taking the question. Of course, congrats as well, but also thank you, Krish, because of the real clarity and visibility that you're providing around the launch, so we all appreciate that. So I guess two questions. First, I guess when you come to the actual patients, do you have any data that you can share with us about the ranges of the treatment area sizes, number one? And then number two, I know there's great compliance so far, as you alluded to, anything you could share with us as to the reasons for patient stops? Thanks a lot.

It's a great question, Joe. In terms of ranges and area sizes, let me say, look, as the patient population grows and as the visits are weekly, we're not particularly tracking every single patient and every single wound. But that said, through feedback, through Krystal Connect, we do know that there are a good number of patients treating large wound sizes, a good number of patients choosing to start with the small ones moving into the large ones. We see no difference in the way the drug works between the current and chronic. And all in all, we believe that VYJUVEK has been great to treat wounds of all sizes and wounds of all cadence as in recurring versus chronic, et cetera. The only point that we are working on, not immediately, but in the medium term or so, is to see if we can increase the dosage per vial per week. That would be beneficial, but that's not an immediate solution. People seem very happy with the drug, people seem very happy with the home dosing. I will say, one of the best things we got on the label was home dosing. Compliance is high because of this, we see patients unwilling to even go to a local physician to get it done on a weekly basis. And so home dosing has really helped a lot with the launch. In terms of compliance, look, when we look back at our clinical studies, I mean like just before the launch or the first few months of launch, compliance was very high. We expect compliance to continue to be high in 2024, but as wounds start to heal, one has to think about maybe a handful of patients slowing down, either taking a pause and restarting, or going from four to maybe two to two vials a month, but it's not immediate. I think our original assumption of having a patient on vials for 12 months or longer, as of today, continues to track properly.

Great, thank you. Really appreciate it.

Thank you, the next question is coming from Andrea Tan from Goldman Sachs. Andrea, your line is live.

Good morning, thanks for taking our question. Krish, just could you speak a little bit more about the evolution of the competitive landscape as you see it and how you envision the treatment paradigm shifting if Abeona’s graft is approved?

Great. Hey, on the competitive landscape, Krystal was started in 2016 when we realized that the competitive landscape was not a very commercially viable approach to treating DEB. I mean, we obviously appreciate anyone and all working in this debilitating disease. But our view right now, and this could be different, since VYJUVEK has the ability to treat larger wounds, we doubt if patients would go through the inconvenience of having to graft over and over and again in the same location and takes a certain bit of time. If you look at the convenience aspect, it gets much -- VYJUVEK obviously is much more convenient and amenable. So we're not presently watching or too anxious about an autologous approach to treating the disease at the moment. We feel that the convenience aspect of VYJUVEK is much more -- that it's much more convenient. Now on the other competitive environment, which does not fundamentally address the cause of the disease, we're less concerned about that because at the end of the day, we believe that most patients and most physicians want an approach that fundamentally treats the nature of the disease.

And I'm just going to add another point to Abeona’s therapy. Keep in mind it's 50% wound closure. I mean we had a high bar of 100% wound closure. So we are seeing even with large wounds, pretty good closure. So I think again, as Krish mentioned, easy to apply, topical. We don't have to biopsy these patients. These patients cannot stand any sort of pain or inflict [unhospitalization] (ph). They can't afford that. So I think from that perspective, because of ease of application and good efficacy, again, we're not concerned.

Great, And then, Suma, maybe one question here on the pipeline, if you think about the upcoming data reads that you have across the different programs. Just wondering if you could help frame expectations into each one of those, and what would trigger either a go or no-go decision to bring those forward? Thanks so much.

I mean, again, 407, we are excited. We finished Cohort 1. Cohort 2 is, I mean, the acceleration of enrolling those patients is ongoing right now. So we are excited to move that and quickly into Cohort 3. We think we really believe we have already sites that are established who can do bronchoscopy and we have now patients identified. So we believe in 407, we should by end of the year, be able to dose those patients and have some positive bronchoscopy data. But also we are working on some preclinical models, which we feel we have some promise in getting confidence to get -- to establish a functionality for TDN to collaborate with us. So we feel pretty positive on 407. 408, again, as we mentioned, we dosed our first patient. This patient was not on augmentation therapy. So again, with the biomarkers that we are measuring because we're going to see blood levels of A1AT. And again, it's easy to measure both neutrophil elastase, binding of neutrophil elastase in sputum and see the -- in plasma levels. We feel that these biomarkers will help us identify or get a faster read on 408. And we are very excited actually about 408. I think with the division, the OTP division, open to biomarker approach for approval, we think with 408 we hold a good chance of getting in front of them once we have positive data to discuss a biomarker approach for approval. So again, 408 is an exciting program for us. 707 is also exciting. I mean, we have, as Krish mentioned, we haven't provided too many specifics, but the program with the intratumoral injection is moving forward. So hopefully we'll have some outcome and data read end of the year. And of course our lung program, also again we are excited. So hopefully end of the year, it could be exciting data reads on all our programs.

Thank you. [Operator Instructions] The next question is from Tim Lugo from William Blair.

Congratulations on the quarter and also all the clarity. Can you give us a sense of product revenue ramping through 2024? It sounded like there was some seasonality on scheduling in Q4, and we're also two-thirds of the way through Q1. Do you have a sense of what's going to be kind of incremental increases, at least in the near term, or if there might be some lumpiness quarter to quarter?

Tim, we're not providing any guidance to it with respect to revenue. Nice try. There's not much of a seasonality. I was just pointing out that J-code transition is a one-time event, it's not a seasonal event. And with that, it's a powerful tailwind behind us. The second, as I mentioned, I mentioned about a handful of patients hitting the cap at the end of the year, and what we're trying to do is to kind of accrue for it as we move through the year, to avoid any kind of lumpiness in Q4 one way or the other. So, that said, I think as more and more patients come on drugs, you can start figuring out what the revenue potential of VYJUVEK is going to be this year. But no comment from us.

I understand. Maybe a question on your platform. You obviously have some unique capabilities with the platform and redosing. Are there any pipeline opportunities? You've built out a number of pipeline assets, but are there any that you looked at that might have just been too expensive to run the clinicals on that you think a partner would be appropriate for and getting a sense of the kind of capacity there is within the manufacturing and kind of development side?

Yeah, look, Our position on this has stayed the same for large indications. I'll talk about alpha-1 antitrypsin, large indication. Some areas in oncology, large indication. Anytime in CF, we're primarily going up to the null mutation, so we view it much more as a rare disease than as a really large indication. I think we are always open to partnering on large indications. The company wants to stay focused on its ability to develop, manufacture, and commercialize rare diseases and definitely would like to seek partner on larger indications, but we have enough capacity manufacturing-wise to support any partnership, small or large, with the product either in the development stage or the commercial stage.

Understood. Thank you and congratulations.

Thanks.

Thank you. The next question is coming from Gavin Clark-Gartner from Evercore ISI. Gavin, your line is live.

Hey, thanks for taking the questions. Just had a couple clarifications and then questions. On the 228 reimbursement approvals, wanted to be clear, was this also through mid-February or was that at the end of December?

It said on the deck, as of February, if I'm not mistaken, then we hold to that. Let’s not -- we're not trying not to get too cute between mid versus early versus late, but it was as of February.

Okay, that's helpful. And just trying to quantify the holiday impact a little bit, were the start forms coming in, in January, February, were those actually at a higher rate than later November or December?

Yes, it was a shift, right? And so that kind of affected the rate, shifting from say middle of December onto January, et cetera.

Okay. And have there been any differences in the conversion rate or the conversion time between the Medicaid and commercial patients?

In the -- that's a good question because it doesn't have a time dimension. Now in the past, in like 2023, Medicaid definitely took a bit longer because there was no J-code, different states were at different points, and the commercial was doing pretty well. And I think right now, I wouldn't say, starting now going forward, I don't see a measurable difference between the two. We do depend, and in fact, on the commercial side, if you end up with a single case agreement on a patient, it could take just as long as Medicaid. So, I mean, to answer your question simply, and I was thinking as I was responding, we don't see any meaningful difference in time, especially going forward. And we might have seen some in the past.

Okay, great. And last one, I just wanted to ask what your latest expectations for VYJUVEK pricing in Europe was, and thanks for taking all the questions.

We don't know. We -- look, it's a differentiated drug. The efficacy profile is very strong. We're seeing really good demand on name patient sales from a handful of countries. Our conversations with the MA are going well. Our job is to make a case for, we know it's going to be lower, but our job is to get to less than a 50% discount if we're fortunate. Less as in, like, I hope I'm not confusing people there, something north of, say, $15,000 per vial would be great for us.

That makes sense. Thank you.

Thank you. The next question is coming from Josh Schimmer from Cantor. Josh, your line is live.

Great. Thanks for taking the questions. I have two quick ones. So, 228 reimbursement approvals out of around 428 start forms, that's 55% conversion. For the remaining 45%, how many of those or what proportion of those do you expect to be able to capture with the new J-code and over what period of time? Second question is if you can quantify any contribution from either inventory building or named-patient access in Europe? And then last question, the annual cap of $900,000 gross, is that on a per patient basis or a per plan basis averaged across their population? Thank you.

Look, on the first one, our internal goal is to try and get to all, you talked about the gap between the start forms and the thing. We're trying to get to -- get all the patients in 2023 on to reimbursement by the end of Q1. That's the goal. And then, so I don't -- instead of -- answering your question as 228 versus 428, our internal goal is all the patients who we know of at the end of 2023, we want them on reimbursement by the end of Q1. In terms of, was there any inventory or NPP, hardly any yet. We're just starting to get NPP, it'll probably get reflected more going forward. And on the annual cap, look, it is -- the overall discount, I think I've mentioned is measured at the payer level. So it's kind of like a blended average depending on the number of patients in the plan.

Thank you.

Thank you. And the next question is coming from Ritu Baral from TD Cowen. Ritu, your line is live.

Hi, good morning, guys. This is [Technical Difficulty] for Ritu today. Congrats on the quarter. I have two questions. So as you see more reauthorizations taking place, could you just expand on how -- what's the process of that, and then what does the prescriber need to show for a successful reauthorization? And I have a follow-up after that.

Yeah, and the reauthorization happens every six months, usually you need a, it's called clinical notes from a physician saying that the VYJUVEK is working. Some of them certified without a patient visit and some certified wanting a patient visit and we're talking a local patient visit for the most part and that's what it entails. So depending on the patient, it could take a certain amount of time, but usually it's pretty quick.

Got it. And then could you talk about the market research efforts in the EU ahead of the potential launch there and like in terms of how patients are currently managed there and now -- and just to confirm, now you're expecting a launch there in next year versus later this year? Thank you.

Look, later, I want to be clear, it depends on when we get approved. And if you saw what happened to us in the US, we're always adding three months to PDUFA date from this point on. It appears to be the norm that anything management says. Having said that, if the launch is scheduled for late in the year, like say in December, we'd probably push it out to January. In terms of launch plans, I think we're going to have a General Manager in Germany at the beginning of March to build out the team. That will be the first country of launch. In terms of market research, our current EU General Manager, Laurent, has already been talking to physicians and centers of excellence who have really strong registries, so we feel really good about the identified patient population. A lot of home dosing in Europe is handled by the hospital, so a lot of the logistical complications you see in the US, like getting home dosing in place, finding patients are not as big issues in Europe. What is important in EU is that we get to a good place on access. If you get to a good place with respect to access, then the EU launch becomes a bit simpler logistically than the US launch. And kind of very similar in Japan story.

Great, very helpful. Thank you.

Thank you. There were no other questions in queue at this time. This now concludes the call at this time. Thank you all participants for joining the Krystal Biotech fourth quarter and full year 2023 earnings call. You may now disconnect.