Thank you for standing by, and welcome to Krystal Biotech's First Quarter 2024 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded. I would now like to hand the conference over to your host, Stéphane Paquette, Vice President of Corporate Development. Please begin. Stéphane Paquette: Good morning, and thank you all for joining today's call. Earlier today, we released our financial results for the first quarter of 2024. The press release is available on our website at www.krystalbio.com. We also filed our earnings 8-K and 10-Q with the SEC earlier today. Joining me today will be Krish Krishnan, Chairman and Chief Executive Officer; Suma Krishnan, President of Research & Development; Jennifer McDonough, Senior Vice President of Patient Access, Analytics and Operations; Christine Wilson, Senior Vice President and Head of U.S. Sales and Marketing; and Kate Romano, Chief Accounting Officer. This conference call will and our responses to questions may contain forward-looking statements. You are cautioned not to rely on these forward-looking statements, which are based on current expectations using the information available as of the date of this call, and are subject to certain risks and uncertainties that may cause the company's actual results to differ materially from those projected. A description of these risks, uncertainties and other factors can be found in our SEC filings. With that, I will turn the call over to Krish.

Thank you, Stéphane, and thank you all for joining Krystal's conference call. I'm pleased to share that the momentum in 2023 continues with a strong start to 2024, driven by excellent execution across all parts of our business, commercial, clinical, and manufacturing. VYJUVEK is reaching more and more patients per the day and is rapidly changing the treatment paradigm for patients suffering from this debilitating disease, Dystrophic Epidermolysis Bullosa or DEB. Increasingly, DEB patients are able to benefit from the durable wound healing afforded by VYJUVEK for a fundamental genetic correction and also the convenience of being administered at home as a topical [ chart. ] As real-world experiences with VYJUVEK grows, it has been immensely rewarding to hear and see the improvements that patients have made while on therapy. As you will hear this morning, our U.S. commercial launch continues to progress very well, driven by robust demand, rapid growth in reimbursement approvals and high patient compliance. We're also moving quickly towards launching VYJUVEK outside of the U.S. We recently successfully completed the efficacy portion of our open-label extension study in Japan, put us on track to file with the Japanese regulators before year-end. This will be our second ex U.S. filing after submitting to the EMA last year. Global infrastructure build-out is underway in anticipation of commercial launches in both Japan and Europe next year. At the same time, we are building momentum across our clinical pipeline. With accelerating enrollment and new trial starts setting us up for a wave of data readouts starting later this year. With the recent initiation of KYANITE-1, our study evaluating inhaled KB707 for treatment of solid tumors of the lung. We now have five active clinical trials and that points to add a sixth ophthalmic B-VEC in the second half of this…

Thank you, Krish. Moving to Slide 5. It has been exceptionally rewarding to lead patient access and Krystal Connect team in support of this transformational product with hundreds of U.S. patients now benefiting from access to VYJUVEK we really are changing the treatment paradigm for this terrible disease. Commercial and Medicaid access continues to improve for VYJUVEK. We now have received positive policies or decisions for roughly 96% of all covered lives. This is up from over 93% in our last report and driven mostly by an additional 7 state Medicaid programs, including Texas now providing coverage for VYJUVEK following the issuance of the permanent J-code earlier this year. As we entered the first quarter, we were prepared for the challenges of January insurance verification season and the VYJUVEK permanent J-code reauthorization process. So we are very proud of the team's success in supporting continuing coverage for existing patients. At the same time, new patient conversions continue to progress well. And as of April, we have secured over 330 patient reimbursement approval. We did see a onetime impact to our overall reimbursement approvals in Q1 due to a cybersecurity incident affecting our specialty pharmacy provider, but this has now been resolved. This incident is not unique to us and affected many of our other colleagues in the pharmaceutical industry. With strong payer access, the permanent J-code assigned and ongoing operational improvements, the team is laser focused on patient experience and optimizing time to first VYJUVEK application. With that, conversion times continue to shorten, albeit at a slower pace than we previously expected. As patients are increasingly identified in the community setting, where physicians are a bit less familiar with Dystrophic EB and the reimbursement process for rare disease medicines. We are finding that additional support is needed to navigate these…

Thank you, Jen. I'm incredibly excited to have joined Krystal and to build on the great early momentum we are seeing in the VYJUVEK launch. I know firsthand the challenges that come with launching a rare disease medicine in the community setting. Patients are often undiagnosed or lost to follow-up. Genetic tests have never been run. Familiarity with innovative therapies and navigating reimbursement is low. And sadly, disillusionment with the health care system is all too common. Even if you would expect a patient suffering from a severe disease to proactively seek care, many of these patients have been disappointed by their treatment options in the past and have disengaged. However, none of these issues are unique, and we have at our disposal, an extensive toolkit to help find and activate rare disease patients wherever they are in the U.S. We are also starting from a strong position with great early adoption of VYJUVEK , giving us plenty of success stories to amplify and disseminate. Today, I would like to touch on some of the key strategic initiatives, which we are pursuing to drive sustained long-term growth of VYJUVEK in the U.S. Our commercial efforts can be grouped together into three main pillars. The first is data analysis. Our analytics hub includes real-time claims, alerts to identify potential patients. Through this data, we can quickly deploy our seasoned rare disease sales team, while in parallel engaging HCPs through non-personal promotion. The combination of these two activities drives awareness and education of VYJUVEK to our targeted HCP audience and is already hoping to grow our identified patient pool. There are also future opportunities to expand the scope of our analytics work to include DEB adjacent claims codes on our path to finding all DEB patients across the U.S. Importantly, these clean-based…

Thank you, Christine. Our development team has made great progress to start 2024 as we work towards our ultimate goal for treating DEB comprehensively and globally, while simultaneously advancing a broader pipeline of redosable genetic medicines for many of the other rare and serious diseases that lack adequate treatment options. With respect to our B-VEC development, steady progress towards European and Japanese regulatory authorization has us on track for launches in both regions by 2025. In Europe, EMA's review of our marketing authorization application continues. In February, manufacturing facility inspections were completed, and we expect to receive GMP certification in the second half of this year. Based on recent discussions, we believe EMA, like the FDA, is also supportive of home dosing. We continue to expect a decision on our marketing authorization application before the end of the year. In Japan, we have now successfully completed the efficacy portion of our open-label bridging study in Japanese patients enabling us to proceed with the Japanese new drug application, which we expect to file in the second half of the year. Having previously received orphan drug designation by Japan's Pharmaceuticals and Medical Device Agency, a designation, which confers specific benefits for orphan drug development including priority review application, we remain on a trajectory for both a decision by Japanese authorities as well as launch in 2025. With respect to our broader clinical pipeline, there were two major themes in the first quarter, expansion and acceleration. With an expanding pipeline and accelerating enrollment we are setting up for a number of exciting data readouts starting later this year. Our oncology program, KB707 has been progressing rapidly to start 2024. Recall that KB707 is the modified HSV-1 vector designed to deliver genes and coding both IL-12 and IL-2 to the tumor microenvironment and promote…

Thank you, Suma. We ended the first quarter with $359 million in cash on hand and $622.3 million in total cash and investments. an increase over year-end cash and investments of about $28.1 million. VYJUVEK net product revenue for the quarter was $45.3 million. As VYJUVEK was approved by the FDA in May of 2023, there was no comparative period revenue. Cost of goods sold was $2.4 million for the quarter or about 5% of net product revenue, making gross margin 95%. In the first quarter of 2023, costs associated with the manufacturing of VYJUVEK were expensed as research and development costs prior to approval, and therefore, there are no comparative period costs in the first quarter of 2023. Research and development expenses for the quarter were $11 million, inclusive of stock-based compensation of $1.9 million compared to $12.3 million for the prior year's first quarter, inclusive of $2.5 million of stock-based compensation. Lower research and development expenses in the first quarter of 2024 were due to decreased VYJUVEK manufacturing and overhead costs as following FDA approval, those costs are now recorded as part of our cost of inventory. This decrease was partially offset by additional clinical development costs and R&D-related depreciation expenses. Selling, general and administrative expenses for the quarter were $26.1 million, inclusive of stock-based compensation of $7.4 million, compared to $24 million for the prior year's first quarter, inclusive of stock-based compensation of $7.9 million. Higher selling, general and administrative expenses in the first quarter of 2024 compared to the prior year's first quarter were primarily the result of increased selling expenses related to the launch of VYJUVEK, in particular, an increase of about $1.5 million related to the additional patient access program related costs that were incurred in light of the J-code transition that was previously discussed. Other increases included higher professional services, payroll, and other administrative costs, offset by lower marketing-related expenses compared to the prior year's first quarter. This quarter, we also recorded litigation settlement expense of $12.5 million due to our anticipation of reaching the first milestone payment in the PeriphaGen settlement at $100 million in net product revenues. Our net income for the quarter was $932,000, which represented $0.03 per basic and diluted share. We would also like to reiterate our previously issued guidance of between $150 million to $175 million in combined non-GAAP, R&D, and SG&A costs in 2024. As a reminder, this projection excludes an estimate for stock-based compensation. We continue to expect higher research and development costs relating to our several active pipeline projects and higher selling, general, and administrative costs relating to the continued launch of VYJUVEK across the United States and our pre-commercial activities in Europe and Japan. And now I will turn the call back over to Krish.

Thanks, Kate. If there's one message that I hope you take away from today's call, it is our excitement for the path ahead at Krystal. Our U.S. launch continues to progress very well with high compliance, broad access and a growing number of patient conversions, putting us on an excellent trajectory. Momentum is also building outside of the U.S. with the rapid completion of our Japan OLE and soon to be the second regulatory filing in a major ex U.S. market. We look forward to further expanding access to VYJUVEK here and abroad, all while progressing a deep clinical pipeline addressing urgent unmet needs in rare and serious diseases. Thanks for listening. And I'd like to now open the call for Q&A.

Thank you. [Operator Instructions] And the first question today is coming from Alec Stranahan from Bank of America.

Just two quick ones for me. First, can you maybe talk about patient compliance that you saw in the quarter? What has the feedback been from the field on this to date? And then, I didn't see any mention of new start forms, but any trends here that you would highlight? And I guess what else needs to happen to shorten that time to less than a month for conversion?

Thanks, Alec. On your question on compliance, I'm going to turn it over to Jennifer.

Sure. Thanks, Alec. So when it comes to compliance, we are just thrilled with the patient experience. Overall, patients continue to see the impact of VYJUVEK. And because it's dosed weekly, they understand that it's important to keep up with those weekly doses. That's definitely what we're hearing. With that, they continue -- the home dosing is important for them. But with that in the time on therapy, there are opportunities to potentially miss a week here or there. So overall, patients are completely I think, aligned with the idea that weekly is important, so that the dose is important for wound healing. They're thrilled with the outcomes that they're receiving with VYJUVEK, and we work with them for flexibility and understanding that life happens and they may miss a week or that here or there. But overall, compliance is just on stellar.

Alec, on the Start Form question, look, we stopped talking about Star Forms last quarter. We think reimbursement approvals is a much closer predictor of net revenue than PSFs at this stage of the launch. But having said that, demand continues to be really good with respect to patients coming on drug and I'll turn it over to Christine to maybe say a sentence or two, having come into the story over the last couple of months.

Yes. Thank you, Krish. Yes, we continue to be very pleased by the volume of new starts we're seeing. And we are beginning to see some of that transition from the COEs into the community base. But as that awareness continues to grow, the education, the clinical experiences, we intend to build on that momentum that we're currently seeing.

The next question is coming from Tim Lugo from William Blair.

Krish, I believe you mentioned that you're confident in hitting revenue projections in 2024 despite what was a disruption this quarter given the J-code switch. Can you just talk a bit about the IP consensus around $255 million this year. Is that just something we are generally comfortable with?

Look, without getting into the specifics of what I think about is, what I see the analysts projecting and the consensus estimate, whether it be average or median realize that 1Q was slight on the revenue side, but not on the fundamentals of the commercial launch, right? When the J-code issue surfaced, two things happened. I think our specialty pharmacy probably underestimated the time it would take to convert. We probably assume that, that was right. But when the actual issue surfaced, because the dosing is at a weekly level, we don't have time to think about what we could have done in the past. We had to jump in quickly provide access to free vials and we ended up spending about 400 free vials, as I mentioned in the call. But by the time we started to learn to figure out how to address such an issue either now or in the future, the issue was well behind us. So it was a very transitory resulted in about 400 free vials, which you can imagine, is about slightly north of $8 million in net revenue. But we were really pleased that we kept the patients on drug and provide continuity without having to slip up on that front. That's more important to us since patient experience is at the forefront of what -- of this launch before -- over everything else in the story. But Tim, coming back to your question, we feel good about generally where we think we're going to end up in 2024.

Understood. And maybe switching to the pipeline a bit for KB407. The third cohort is about to get enrollment. Can you narrow down when we should expect first data coming out of the study given the first 2 cohorts are behind us now? And is there -- are there any trends maybe in the second cohort that make you more or less confident in the program?

This is Suma. I'm going to take that question. I mean, again, we are very excited about KB407. We are working with two sites because remember, we need sites that have the capability to do bronchoscopy, because this is a procedure that needs a lot of specific how do you biopsy the patient to make sure we increase the chances of getting the right tissues to show expression. So yes, we are working on that. Also remember that we are looking at now patients, potentially patients that are not on modulators or correctors. So we see -- I mean, there is no interference from that. So again, it's that kind of population that we're looking for. We have identified patients. We are actively working with the sites to get the study up and running. Our goal is to try to enroll all of them by the end of the year. We're going to work hard at it. I mean, again, remember, we are looking for a specific patient population that is not on modulators corrector. So there will -- I mean, again, we are working to get those patients enrolled.

Tim, just to complete that because we're outside the TDN, we're not guiding -- we have never guided on CF, we never know, but things are trending in a positive direction.

The next question is coming from Ritu Baral from TD Cowen.

Great. I wanted to ask about Europe and Japan, specifically what you guys are planning on commercial build-out or Europe right now? And if you can just give us an update on the MAA process, whether you're past the 180-day questions and whether you anticipate oral arguments there.

Thanks, Ritu. On the commercial side, we anticipate our first launch to be Germany, either very late this year or early next year, depending on when we get approval. We do have a German GM in place with -- coming from Shire. And so we're super excited about the launch in Germany. Meanwhile, we're setting up for name patient sales, expanded access, whatever, and the demand has been really good in Europe in terms of experience with the drug prior to actual launch and approval. Japan is maybe a little bit behind relative to Europe, maybe 6 months or so. We do have a GM in Japan in place. And I'll now turn it over to Suma to talk about where we are with respect to timelines and approval in both these countries.

Thanks, Krish. Yes, I mean, we have received the 120-day questions. We also have -- remember, we have had scientific discussions through them, throughout the process. There were no surprises in the questions. We also met with the EMA recently to go over some of the key questions that we needed for the clarification. I think, the meeting went pretty well. We have clear clarity on what the expectations are, and we expect to respond to the LOQ in the next couple of months. And I think the process -- the timeline is on track for an approval end of this year. So overall, we're very pleased with the process. And as you know, the inspection was also completed. I think, we had a very successful inspection. And based on the feedback, looks like we should get GMP certification in a couple of months from now. And then in Japan, again, we have -- as Krish mentioned, we have completed the faced the open-label Japanese patient population study. The data looks very promising. We are in the process of writing up the study report, we have a meeting scheduled with the PMDA to talk about the Japanese NDA, and we are on track for filing the Japanese application. We are working with the CRO, the process of converting the European and the U.S. BLA to the Japanese NDA has begun, and we anticipate filing this application end of this year.

Got it. And then moving back to the U.S. Can you tell us what is current conversion time to commercial? I believe, it was -- Jen, you mentioned that it was -- sorry, I think it was Christine, who mentioned that it was getting a little longer than expected. Can you discuss what some of the headwinds to shorten that to the target 30 days has been?

Let me start, and I'll turn it over to Jen to provide specifics. Look, there are three pieces, right? First, the part in the middle is access. Once you get access, it's about how quickly can you get a nurse into the home that you like and get treatment going. The piece before access is, once the doctor thinks about writing a prescription, is the genetic information in place, whether you're in the community setting or in a COE setting, getting all the paperwork and genetic information in place. I'll start by saying the access part is really quick, maybe less than a week. So any time we're spending is either on the front end, depending on the type of the patient or on the back end where the caregiver is being pretty picky on the nurse that comes home and scheduling up the nurse to come home. With that said, in terms of turnaround time, Jen, maybe you can weigh in on that.

Yes. Just like Krish had explained there, there are several dynamics when it comes to getting that patient on their first treatment, working with the payer, and submitting those clinicals definitely takes time. As we move into the community setting, some of those offices are not at -- they don't have the staffing, some of that chart work or the lab work is maybe potentially in the center, so that takes some time. So we continue to work our team and we have a great field team that's working with the offices supporting providing the education at the payer level. So we expect that to kind of shorten as we continue that education. Once we submitted to the payers, as Krish said, that really is a very positive process. For the most part, our payers are well aligned. We have great policy. We understand what they need to be able to provide the approval. So that kind of turnaround time on determination seems to be shortening for sure as the payers are much more understanding of what's needed. And then that third part, scheduling with the family. Part of that, of course, is getting the nurses making sure we have a trained VYJUVEK nurse and that we have the schedule and the flexibility that the family needs, and that just takes a little bit of time. But once we -- the exciting part is once we get a patient on the routine is established, they have a great experience, and we'll continue to kind of shorten that up. We understand it needs to be as short as possible. We need to get these patients on therapy as fast as possible, and that's our goal.

The next question is coming from Benazir Ali from Stifel.

This is Benazir on for Dae Gon. Can you guys hear me okay?

Yes.

Okay. Just a couple of questions. First, Christine, based on your experience with Filspari, which one of those three priorities that you find most impactful in onboarding patients and -- any sense of what kind of growth we can kind of envision going forward?

Yes. Thanks for the question. So really, all three of those pillars continue to be very important to this launch. And I find there's some uniqueness certainly in the DEB space, but there's also some consistency that you see in the rare space. And so all three of those priorities continue to be important, the education of the HCP, the patient outreach and activation. So when you take a look across this, right, where our focus is in the three pillars that we talked about previously. And then, we want to make sure that only -- not only are we educating the HCPs, but that we're really working with the patient population to share that education with them, to make sure that we're building on the momentum that has been created thus far.

Okay. And then just one more question for either you or Krish. I think you mentioned about like 5,000 HCPs are aware of VYJUVEK. What's the geographic distribution? Like what areas are you going to focus on in the rest of 2024?

Yes, I can take that question. I mean, really, what's exciting is that we are starting to identify patients, not just in the COEs, but outside the community. And really, we are seeing those patients all across the country. This DEB population really can sit in some more rural locations. It also sits obviously in our COE setting. So that's the exciting, I think, evolution of this launch that we're really starting to understand that the alerts are helping us with, really identify patients across the country, but also across different specialties we're starting to see as well.

The next question is coming from Andrea Tan from Goldman Sachs.

Krish, maybe one for you. Just as patients have been on commercial drug now for quite a bit of time, just wondering if you could provide an update on what you're hearing on the experience of these patients with respect to wound closure. Curious if you're starting to hear of any patients starting to come off therapy as their wounds close? Or do you still believe the induction phase that previously you had projected at 2 years is still intact?

Yes. So to start with your last question, I think we continue to see a very high level of compliance -- it has been almost a year. Actually, August is the first time a patient got on VYJUVEK in a commercial setting. But compliance seems to be high, and we are continuing to say that the injection period, we expect injection to last maybe 15 to 18 months, after which you should expect patients to consume less number of vials going forward as the wounds heal. Now look, at 91% or 93% on a high -- over 90% compliance. If you think about 200 to 300 patients on drug on a weekly administration to get to 91%, we're talking a handful of patients may be missing a week here and there. So for all practical purposes, most of the patients are still on track. Now there have been one or two instances with dominant patients where we've actually heard look, all the wounds appeared to be healed, especially in really young patients and calling us to ask "Hey, can we take a pause and resume if we see some kind of disruption in the wound?" It hasn't happened a lot. It just happens with young kids predominantly on dominant DEB, DDEB, but it does have happened. Anything else, Jen, you want to add to that question?

No. I think, again, I think real world experience, we continue to hear very, very positive feedback from patients and pictures that we're seeing from our patients showing the improvement in the skin. The durability of the skin, just the skin feeling different all over. So the patients are very excited and we're happy that they are where they're at.

Perfect. So just to confirm, the majority of your patients you are still seeing receive about 1 vial per week?

Absolutely, yes.

[Operator Instructions] The next question is coming from Gavin Clark-Gartner from Evercore ISI.

I have a few, so I'll just go one by one. First, for the reimbursement approvals, are all these patients going on to receive paid drug? Or is there any leakage along the way?

Sure. So while definitely the majority are going on therapy. We continue to work with those that are -- as we get through the process. But for the most part, they are all going on therapy, yes.

Okay. And you note -- I believe, you noted that the Change Healthcare hack resulted in a lower number of reimbursement approvals in the quarter. Can you just help us quantify what that impact is?

Yes. I don't have -- quantifying it. In most part, it slowed it down a bit if you're aware of that when it came to change, some of that claim adjudication, some of the benefit verification had to pause, because our partner relied on changed exclusively, I think. They definitely had a pause there. So it's back to normal, and we're back kind of expediting those approvals as fast as possible.

Gavin, I would say, look, if you do track something at reimbursement approvals on a weekly basis, the disruption can be quantified as a 1 week to 2 weeks of disruption.

That helps. And I wanted to just clarify on the compliance metric, that 91% that you provided. I think you noted it was 91% of patients who are on once-weekly therapy, is the other -- are the other 9%? Are they on less frequent therapy? Or is there a different group of patients who have kind of discontinued treatment altogether?

No. That measurement is actually compliant to weekly therapy. How many patients receive their treatments weekly, if they miss a dose, and that would negatively impact it. But in general, 91% of patients receive it weekly. And then if they miss a dose, again, it could take it down a bit. But does not mean that patients are getting it any alternative way. It's weekly. That's how it's prescribed, that's how it's dosed.

Okay. Like is there a different group of patients who have discontinued?

No, no. It's just the balance of adverts that just missed a dose.

And the next question is coming from Yigal Nochomovitz from Citigroup.

Krish and team, thank you for taking the question. I just had a question on the ophthalmic study, this small open-label study in 10 patients. Could you just explain, are these patients, ones that are existing VYJUVEK patients or could they have been or is the use of VYJUVEK an exclusion criteria for those 10 patients? And then regarding your inhaled technology, I don't think you've talked a lot about the delivery system there. Could you just explain or using a nebulizer. How long is the inhalation session per dose? Could you just explain a little bit more about the way that's delivered?

This is Suma. I'll answer the first part of your question. With regarding to the eye, yes, a good chunk of the patients that are on a Phase III study also have manifestation, I mean, impact on their eye. They have severe blistering or wounding, as a result, they can't open the eye and it's very painful. So we already have a good chunk of patients who know about the study and are actually proactively want to enroll in the study. So we feel pretty good, we should be able to enroll these patients pretty rapidly. Again, as I said, as we discussed with the agency, it seven to eight patients, small number of patients that we need to show wound healings compared to their actual history. It is a pretty straight forward study and we anticipate enrolling this, with the study pretty rapidly, because we already know patients that are lining up for the study. With regarding to your second question with the inhalation, yes, it's a standard nebulizer that is off the shelf, that's available. The beauty of our product is unlike some of the mRNA deliveries because of the viscous nature of the material, you have to dilute a lot for it to go through the mesh. In our case, I mean, this is -- you can nebulize the product in less than 15 minutes. So it's a pretty rapid, fast nebulization time for these patients.

Okay. And just one quick follow-up on Japan and Europe. I assume that those approvals would be for the skin application first and then the ophthalmic application later? Or is there any possibility that the data from the ophthalmic product could be included with those submissions?

I mean, obviously, at the moment, it's all for the skin, it's the same. But once we complete the U.S. study, we may use the same strategy to go into these two countries. You can use the U.S. data to seek approval in those regions.

Thank you. And there were no other questions at this time. And this does conclude today's conference call. At this time, thank you all participants for joining the Krystal Biotech first quarter 2024 earnings conference call. You may now disconnect.