Krystal Biotech Inc

NASDAQ:KRYS

Earnings Call Analysis

Krystal Biotech Sees Strong Revenue Growth and Clinical Progress

In Q2 2024, Krystal Biotech reported a significant revenue increase of 55.3%, with net revenues reaching $70.3 million. The company maintained high gross margins of 91% and achieved a net income of $15.6 million, or $0.54 per share, up from $0.03 per share in Q1 2024. Krystal plans to expand its global footprint with DEB treatment launches in Europe and Japan by 2025. The company's ongoing clinical trials, including the KB408 for alpha-1 antitrypsin deficiency and intratumoral KB 77 for solid tumors, are expected to yield interim updates by the end of the year, potentially boosting their margins and market reach further.

Strong Financial Performance

In the second quarter of 2024, Krystal Biotech reported an impressive net product revenue of $70.3 million, marking an increase of 55.3% from the first quarter. This growth was driven by robust demand and successful market fundamentals. Gross margins stood at 91% and are expected to remain above 90% in the upcoming quarters. With gross to net adjustments at 18%, the company's performance reflects strong market traction and effective operational strategies.

Expansion Plans

Krystal Biotech is gearing up for international expansion, with launches planned in Europe and Japan by 2025. The company is also investing heavily in its manufacturing capabilities, aiming to increase production efficiency fourfold. This includes a potential approval of a scaled-up manufacturing process by the end of the year, thus enhancing price yields and margins.

Pipeline Progress

The company’s clinical pipeline is advancing with several key updates expected by the end of the year. These include interim clinical updates for KB408 (targeting alpha-1 antitrypsin deficiency) and intratumoral KB 77 (treating solid tumors). Moreover, data readouts for the gen aesthetics program, KB301, are also anticipated soon, showcasing the breadth of Krystal’s gene therapy platform.

Compliance and Reimbursement

Krystal Biotech’s patient compliance remains high, with 96% of treatments administered at home and a 90% adherence rate to weekly applications. The company has secured positive reimbursement policies from roughly 97% of all covered lives, ensuring strong nationwide access. Over 400 patient reimbursement approvals have been obtained, demonstrating the company's ability to navigate the complexities of insurance authorization effectively.

Future Growth Prospects

With an annualized product revenue run rate over $250 million and consistent positive EPS for four consecutive quarters, Krystal Biotech is well-positioned for sustained growth. The company’s strategic focus on enhancing its clinical pipeline and expanding its global reach promises further value creation. Investors can expect continued updates on Krystal’s progress towards bringing highly differentiated genetic medicines to market.

Profitability and Capital Reserves

Krystal Biotech reported a profitable quarter with earnings of $0.54 per share, up from $0.03 per share in the previous quarter. Despite accruing $12.5 million in litigation expenses, the company managed to maintain a strong cash position, ending the quarter with $345.8 million in cash and $628.9 million in total investments. This financial resilience underscores Krystal's capability to execute its long-term growth plans.

Strategic Commercial Initiatives

The company’s integrated commercial strategy, based on clean analytics, medical education, and patient activation, is yielding strong results. Through targeted field force deployments and awareness efforts, Krystal is successfully raising VYJUVEK awareness among healthcare providers and patients, significantly enhancing its commercial footprint in the U.S.

Earnings Call Transcript 2024-Q2

[Operator]

Thank you for standing by, and welcome to Krystal Biotech's Second Quarter 2024 Earnings Conference Call. [Operator Instructions]. After the speakers' presentation, there will be a question-and-answer session. [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, executive]

Good morning, and thank you all for joining today's call. Earlier today, we released our financial results for the second quarter of '24. 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 and 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.

[Krish Krishnan, executive]

Thank you, Stéphane. Thank you all for joining the call. Q2 2024 was a great quarter for us, during which we continued to make great progress both with respect to [indiscernible] and on the clinical pipeline. More importantly, it was quiet, quiet from external disruptions that we faced in 1Q of this year.

Today's strong results reflect our commitment to improving the lives of patients suffering from DEB. The benefits that DEB patients are realized [indiscernible] is the first and only corrective therapy for this debilitating disease serve as a powerful reminder of what we can achieve as an organization. They also push us forward in our mission to treat debt comprehensively and to develop new medicines for urgent unmet needs.

As we will discuss in a moment, strong fundamentals continue to propel our U.S. launch. Patient demand remains high and we are increasingly seeing positive impacts, both in patient starts and new patient identification.

[ Access, ] as you are aware, is in a great place and compliance remains strong. Net product revenue growth in the quarter was up over 55% compared to 1Q 2024. We look forward to delivering further growth both in the U.S. and in overseas markets as we progress towards launches in Europe and Japan in 2025.

We're also on the verge of a wave of clinical data readouts. Later this quarter, we expect to announce the first of these clinical updates for our gen aesthetics program, KB301, which is being evaluated in 2 parallel Phase I cohorts for the treatment of wrinkles in unmet aesthetic areas. And before year-end, we expect to issue interim clinical updates, both for KB408 for the treatment of alpha-1 antitrypsin deficiency and intratumoral [ KB 77 ] for the treatment of injection accessible solid tumors.

Additional clinical updates are expected in 2025. As enrollment continues across our expanding clinical pipeline, we continue to invest in our manufacturing infrastructure and are presently working with the FDA on a scale-up of our current approved manufacturing process to increase both price yields and margins with the potential for approval by end of the year. The scale process would increase the number of vials produced for manufacturing run by fourfold.

As you can discern, this will further improve margins with fewer packaging slots at our vendor and ease any potential supply chain constraints to meet the growing demand from global markets. We're also on track to start tech transfer of our commercial process to ASTRA later this year.

Finally, I'm happy to report another profitable quarter for Krystal at $0.54 per share, up sequentially from $0.03 per share in the first quarter of 2024. In Q2, we accrued $12.5 million in litigation expenses that once again mitigated our EPS as it did in Q1. We presently anticipate one more final accrual of the litigation expense this year. With strong and growing capital reserves [ revenues ]and 2 commercial scale CMP facilities were well evisioned as ever to execute on our long-term growth plans, expand our global footprint and bring to market a portfolio of highly differentiated generic medicines.

Moving now to our results. Net [indiscernible] revenue for the quarter came in at $70.3 million, an increase of 55.3% compared to revenues from the first quarter of 2024. Note that this prior quarter had been affected by onetime disruptions.

So looking back over our first 4 full quarters since first sale in August of 2023. Total net VYJUVEK revenues now exceed $166 million, and we continue to keep pace with the top tier of rare disease launches.

Gross margins were 91% for the quarter. We continue to expect margins to be above 90% in the coming quarters, gradually improving to over 95% within a few years. Gross to net adjustments in the first quarter were 18%. We expect gross to net will remain in the high teens, reflecting a roughly even split of debt patients on commercial and government plans.

As we disclosed last quarter, please note that the net VYJUVEK revenues reported today also include an approval for patients on contracted commercial plans were projected to potentially hit the cap of $900,000 gross per patient per calendar year in 2024.

Our rapid revenue growth in the quarter was driven by strong launch fundamentals and the tireless contributions of our team at Krystal. I'll now hand it off to Jen and Christine, who will provide more color on our successes, helping patients get on VYJUVEK and stay on therapy. Jennifer?

[Jennifer McDonough, executive]

Thank you, Krish. The number of dystrophic EB patients gaining access to VYJUVEK and benefiting from fundamentally corrective therapy grew significantly in the second quarter of 2024. I am pleased to say that commercial and Medicaid access remains strong nationwide. We now have received positive policies or decisions from roughly 97% of all covered lives. This is up from 96% in our last report as we approach effectively full coverage across the country.

With positive policies in place at all major plans, we are progressing patients steadily to treatment. And as of July, we have secured over 400 patient reimbursement approval. As you can see on the slide, reimbursement approvals continue to be roughly evenly split across commercial and government plans. More importantly, we continue to see reimbursement approvals across the DEB patient population, including patients of both DEB subtypes and of all ages in similar proportions as reported last quarter.

I would like to point out that while reimbursement approvals are a good leading indicator of revenue, they do not immediately translate to revenue. As you know, it often takes 2 to 3 weeks after insurance authorization to schedule a first-home visit by a nurse and sometimes further exacerbated over the summer where usual routines are disrupted.

Conversion times held steady over the last quarter, and on average, it takes us 4 to 6 weeks to obtain insurance authorization and complete the first home treatment. Although the team continues to make process improvements, these were offset in the quarter by a high proportion of prescriptions coming from community prescribers less familiar with rare disease reimbursement that required more active management by our team. Albeit taking a bit longer, thanks to the hands-on expertise and support of Krystal Connect. Even in these cases, we are able to achieve successful access outcomes.

And finally, as we enter into our second year since approval, the volume of reauthorizations required each month continues to grow. And same as in our previous quarters, all reauthorizations to date have been approved or are in process.

Moving to the patient experience compliance. Patient preference for at-home administration remains effectively unchanged, with 96% of the weekly treatments again occurring in the patient cell. And we are pleased to report the compliance to weekly application through the end of the second quarter remains high at 90%, even as patient base and average length of therapy continues to grow.

We believe that the high [ IGRA ] compliance is driven not only by the profound impact of corrective therapy has on the patient's lives, but also the convenience of home administration facilitated by our team at Krystal Connect.

As we progress in our launch, we remain unitary focus on the patient experience and ensuring patients are able to access VYJUVEK [indiscernible] and conveniently to ensure maximal clinical benefit. I will now hand it off to Christine to discuss recent sales and marketing activities, driving awareness and new DEB patient starts on VYJUVEK. Christine?

[Christine Wilson, executive]

Thank you, Jen. I'm happy to share today that Krystal's integrated commercial strategy organized around our 3 pillars of clean analytics, medical education and patient activation is driving significant growth of VYJUVEK in the U.S.

Our claims monitoring infrastructure continues to flag new alerts, enabling targeted deployments of our field force. We're also making great progress raising DEB and VYJUVEK awareness among the medical community through our educational efforts, including recent publications and virtual speaker events.

And perhaps most importantly, we are connecting to patients and enabling patient-to-patient dialogue, amplifying early successes and activating patients that may have otherwise resigned themselves to their disease.

Although our primary commercial focus remains on penetration of the 1,200 DEB patients identified at launch, and we continue to make [indiscernible]. Our commercial efforts are also organically expanding the DEB patient pool. They will take on greater emphasis as we progress in our launch and as we work to ensure all DEB patients whether those today or not ultimately have a chance to access VYJUVEK therapy.

I would also like to feature today a few recent highlights from our work to raise awareness and activate DEB patients across the U.S. Earlier this quarter, a review article was published to serve as a practical guide for real-world use of VYJUVEK. The article authored in collaboration with DEB key opinion leaders is now available open access and provides to readers an overview of the debts burden, VYJUVEK clinical trial outcomes as well as physician, patient and caregiver recommendations.

And later this year, we expect to publish detailed results from the [ OLE ] study, providing additional information to prescribers and the debt community on the extended use of VYJUVEK. These publications and related educational materials provide the medical community with easy access to critical data on the many benefits of VYJUVEK therapy and best practices on its use.

They also help enrich our medical team's interactions with care providers, either during one-on-ones or in the increasing number of virtual and in-person events that we put on across the country. At the same time, we are making progress in facilitating patient-to-patient interaction, including holding our first patient webinar with EB lifestyle this quarter.

With testimonies for multiple VYJUVEK advocates, these virtual events allow us to disseminate their learnings and successes across the country at events such as the Deborah Care conference recently held in July. We will be supplementing our virtual efforts with multiple in-person events in the second half of the year and [ in meeting ] series covering 4 major metropolitan areas across the U.S.

Thanks to these initiatives, and others, we made excellent progress in both raising the profile of DEB and communicating the value proposition of VYJUVEK to patients and their caregivers. It is gratifying to see this work translate into new patient starts and diagnosis and look forward to the pop ahead. Now I'll hand it off to Suma to share pipeline highlights.

[Suma Krishnan, executive]

Thank you, Christine. Our development team's strong momentum to start 2024, continued throughout this past quarter as we made significant progress towards our goal of treating debt comprehensively and globally while also advancing a broad pipeline of urgently needed redoseable genetic medicines.

With respect to the global development of [indiscernible], we remain on track for launches in both Europe and Japan by 2025. In Europe, EMA's review of our marketing authorization application is progressing well and in May, GMP certification of our commercial manufacturing facility, Ancoris, was granted by the European authorities.

As we shared last quarter, 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 and the first launch in Germany in 2025.

In Japan, we remain on track to file the Japanese new drug application on B-VEC in 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 of applications. We remain on a trajectory for both a decision by the Japanese authorities as well as launch in 2025.

Our application to the Japanese authorities will include the results of our open-label extension study in the Japanese patients that was completed earlier this year. Key details, including safety and efficacy observations from the Japanese open-label extension study are shown here.

Overall, results closely mirrored those from our registrational Phase III trial. The Japanese study was a multicenter, open-label extension study in Japanese patients with DEB. The primary endpoint was the same as in our registrational study, complete closure of a prespecified primary wound at the 6-month time point. Key inclusion criteria and dosing are shown on the slide.

Importantly, we aligned with the Japanese regulatory authorities on the study design, number of patients for the Japanese study and the use of U.S. clinical data, to fulfill requirement for the Japanese new drug application submission. In total, we enrolled 5 patients with one dropping out due to scheduling challenges. All enrolled patients had recessive DEB and covered a wide age range.

As shown on the right, all 4 patients that completed the study achieved complete wound closure at the 6-month time point. In addition, B-VEC was well tolerated in the Japanese population and both efficacy and safety profile was consistent with previous U.S. studies. We view these results as supportive of our application to the Japanese regulators and look forward to filing later this year.

Moving now to our broader pipeline here as well as we have made rapid progress putting us on track for 3 readouts before the end of the year. We expect to share the first of these readouts later this quarter with interim top line results for both Cohort 3 and 4 of our KB301 Phase I study. Both cohorts are running concurrently to evaluate our aesthetic medicine candidate, KB301, and 2 potential target indication. Improvement of lateral capital lines at rest and improvement of dynamic wrinkles of the [indiscernible].

Following readouts from Cohort 3 and 4, we expect to select a single indication for Phase II development. In the fourth quarter, we also expect to disclose interim data updates from both our KB408 and intratumoral KB 77 programs. KB408 is our redoseable inhaled therapy for alpha-1 antitrypsin deficiency, which is currently being evaluated in a Phase I [indiscernible] study.

[indiscernible] is open-label, single-dose escalation study in adult patients with AATD to allow assessment of safety, tolerability, alpha-1 antitrypsin levels and key pharmacodynamic biomarkers. We have completed Cohort 1 and are currently enrolling cohort 2. With strong support from the Alpha 1 research community, we remain on track for an interim day readout before the end of 2024.

Intratumoral KB 707 is an injectable formulation of our modified HSV-1 vector designed to deliver genes encoding both human [ High12 ] and IL-2 to the tumor microenvironment and promote systemic immune-mediated tumor clearance. It is being evaluated in a Phase I dose escalation and expansion study of OPA 1. We have now completed all 3 dose escalation cohorts and dose expansion is underway. We will issue an interim data update before year-end.

I'm happy to share that [indiscernible] was recently granted a rare pediatric disease designation for the treatment of osteosarcoma. This is in addition to a fast track designation granted last year. We are also making progress in our Phase I studies evaluating inhaled [ B-47 ] for cystic fibrosis at inhaled KB 707 for solid tumors of the lung. We have now completed Cohort 2 in our Phase I Cohort 1 study evaluating K40 and completed the first dose level 1 [ INI-1 ] study evaluating inhaled [ K-70]. We look forward to providing data updates on these programs as they advance.

Finally, we are moving ahead in our work towards developing an ophthalmic formulation of B-VEC for treatment of ocular complications in debt patients. Earlier this year, we reached alignment with the FDA on single-arm open-label study to enable approval of B-VEC eyedrops for the treatment of lesions in the eye of DEB patients.

In support of this development strategy, earlier this month, we initiated a natural history study to effectively collect data on the frequency and severity of corn elaborations in patients with DEB. This study will also serve as a running period for patients who may be eligible to participate in the registrational study.

We remain on track to stop the study before the end of this year with potential for top line data read in 2025. The next 12 months have the potential to be transformational for Krystal as we read out on trials that showcase the breadth of our gene therapy platform. We look forward to sharing these updates as they come, progressing our pipeline of highly differentiated generic medicines. With that, I would like to turn the call to Kate.

[Kathryn Romano, executive]

Thank you, Suma. With our growing demand for VYJUVEK in the U.S., our net product revenue for the quarter was $70.3 million, which represents a 55% increase over the first quarter of 2024. As VYJUVEK was approved by the FDA in May of 2023, and our first sales occurred in August of 2023, there was no comparative revenue.

Cost of goods sold was $6 million for the quarter or about 9% of net product revenue resulting in a gross margin of 91%. Before our approval in May of 2023, costs associated with the manufacturing adviser back were expensed as research and development and as previously mentioned, our first sales occurred in the third quarter of 2023. Therefore, there was no comparative period cost of goods sold in the second quarter of 2023.

Research and development expenses for the quarter were $15.6 million, inclusive of stock-based compensation of $2.8 million compared to $12.1 million for the prior year second quarter, inclusive of $2.9 million of stock-based compensation. Higher research and development expense in the second quarter of 2024 were due to increased R&D-related manufacturing and process optimization expenses for our product candidates, increased R&D depreciation expense, increased clinical development costs, as well as increased license and regulatory costs this quarter. These increases were partially offset by capitalization of direct and indirect overhead cost to manufacture VYJUVEK being charged to inventory following FDA approval.

Selling, administrative expenses for the quarter were $27.6 million, inclusive of stock-based compensation of $10.4 million, compared to $25.9 million for the prior year second quarter, inclusive of stock-based compensation of $8.5 million.

Higher selling, general and administrative expenses in the second quarter of 2024 compared to the prior year's similar quarter were primarily the result of increased stock-based compensation, increased commercial-related professional services fees, increased VYJUVEK selling expenses and increased VYJUVEK patient access program costs. These increases were partially offset by a decrease in launch-related marketing costs incurred prior to our VYJUVEK launch in the second quarter of 2023.

This quarter, we again recorded a litigation settlement expense of $12.5 million due to our anticipation of reaching the second milestone payment in the [ periphegen ] settlement which is triggered at $200 million in cumulative sales payable following the filing of our Form 10-K in which the $200 million milestone is achieved.

The third and final milestone will be triggered by reaching $300 million in total cumulative revenue from sales of the company's products. Net income for the quarter was $15.6 million, which represented $0.54 per basic and $0.53 per diluted share. Our non-GAAP operating expense guidance for 2024 remains unchanged. This guidance excludes the noncash impact of stock-based compensation.

Finally, we ended the second quarter with $345.8 million in cash on hand and $628.9 million in total cash plus short-term and long-term investments, marking quarterly growth in our overall cash and investments position with an increase over our first quarter of 2024 cash and investments by about $7 million. And now I will turn the call back over to Krish.

[Krish Krishnan, executive]

Thanks, Kate. With an annualized product revenue run rate already over $250 million and 4 quarters of positive EPS, we've been able to deliver significant value to our shareholders through the U.S. launch of VYJUVEK. And yet, we see opportunities for significantly more value creation in the years ahead, both through the global expansion of VYJUVEK launch and the advancement of our clinical stage programs, each of which addresses a clear unmet need and showcases the breadth of our platform.

With the benefit of commercial scale in-house [ GMP ] manufacturing infrastructure, we're uniquely positioned to rapidly execute against these goals and bring to market a portfolio of highly differentiated redoseable genetic medicines. Thanks for listening. I'd like to now open the call for Q&A.

[Operator]

[Operator Instructions]. Your first question for today is from Alec Stranahan with Bank of America.

[Alec Stranahan, analyst]

Congrats on the strong quarter. Two questions from us. First, just on patient compliance. How do you expect this to trend in the second half? Do you think it's reasonable to expect this to reach some steady state as new patients go on therapy in older patients maybe see a benefit from therapy? And then second question, any changes in the way you plan to approach the international markets if VYJUVEK [indiscernible] approved, say, in the EU or Japan?

[Krish Krishnan, executive]

Alec, thank you. The second question, which is quicker. No change in the ports we've had to date. We want to sell launch in EU or U.K. and Japan and we're looking to do distributor agreements in countries outside of that, the [indiscernible]. So really no change to the way we're looking at international [indiscernible].

[Unknown Executive]

On the compliance trend, I will say I'll make a couple of anecdotes. But we also take the [ OLE ] patients who, on average, have been to date on drug for about 35 months or so. And we are seeing a minority of patients drop below [ MAX ] compliance, and we defined [ MAX ] compliances north of 90% because there's always a situation if someone misses a vial for personal issues, whatever.

So we're starting the -- at this point in time, especially with the [ OLE ] patients. That said, the majority of them are still tracking to pretty high compliance at 4 bios, noting that most of the patients in the OLE were severe. And so from a patient severity perspective, we're starting to see some good trends with respect to compliance. On the mild to moderate, look, most of the dominant patients have been on drug since the launch. And I'll ask -- I'll turn it over to Jennifer to talk a little bit more about what you're seeing in compliance in the commercial segment.

[Jennifer McDonough, executive]

Sure. Sure. Thanks, Krish. So yes, I think as we look at our 1-year anniversary as [indiscernible] first dispense was in August. So we are able to start analyzing some of those cohorts that came on early -- and we are really excited around their adherence to the leasing dosing. So for overall weekly allocation, the in-home nursing that seems to be working really well, [indiscernible] schedule within their -- within their normal schedules the same day of the week, which really seems to be well.

For those folks that Krish mentioned a open-label extension have been on a relatively long period of time, several years. They may pause treatment for the most part because they may have no [ over-won ] and then they cycle back as life continues to happen for that.

So overall, as we analyze this first Cohort we see very, very high compliance in that 1-year period, which is kind of that threshold that we're looking at. And again, we believe that weekly [indiscernible] of home application and the impact of VYJUVEK making on their daily is driving that high compliance percentage. So we're really happy with what we're seeing in the real world.

[Operator]

The next question is from Ritu Baral from TD Cowen.

[Ritu Baral, analyst]

I wanted to ask about the status of manufacturing -- the manufacturing approvals for expanded capacity? And then my follow-up is on the European application. It sounds like you are seeking sort of FDA sign-off on expansion in the Ancoris plant? Will there be any sort of new inspection required new assays? Are you taking like another floor in Ancoris or will it be the same sort of square footage?

[Krish Krishnan, executive]

I'll turn it over to Suma.

[Suma Krishnan, executive]

So where we stand with Ancoris is -- Ancoris has a capacity to fully meet the commercial demand for the U.S. and has potentially [indiscernible]. So as far as with the current scale, obviously, we are we are going to the large-scale production. We have filed the PAS for that filing, and we anticipate that should -- we hope to get that approved by end of the year. So we're pretty excited about our [indiscernible].

With regarding to the distraction of Ancoris facility. Again, as you know, we have been inspected by the FDA with very minimal 483s or any finding. Same today e-mail, again, they were very pleased with the inspection. The sector result went pretty well. I mean, obviously, every 2 years, we have routine inspection. I think we are prepared. We know all the agency, we know all of the -- what they look for. I think we are well prepared.

With regarding to scale up, we made the [indiscernible] again, we don't know. But if we do, we are absolutely prepared. With regarding to [ ASTRO, ] we have already transferred some of our team starting material in to our [indiscernible] and that's filed that's -- I mean, we are already talking with the agency of getting our store group for the key starting raw materials. So the anticipated transfer of our actual process, which is the scale of process to Astra sometime this year. So I think we're in good shape of manufacturing. We feel very -- manufacturing is pretty -- going pretty smoothly.

[Ritu Baral, analyst]

Great. And then on the European applications, can you give us the status on like 120-day questions? Or have you moved on to the 180-day questions? And basically, are the topics covered in those questions related to home building, are they materially different than what the FDA asked during its review period? And any points of note there?

[Suma Krishnan, executive]

Yes. I mean we have completed -- I mean responding to all of the questions, which should be submitting it [indiscernible]. But pretty much the questions were very aligned and predictable. So there are surprises into it was because we can -- because we have the prime that we mentioned, we had many scientific meetings with the agent. So I think there were no surprises. Obviously, EMA thorough because we have the [indiscernible] apple country.

So again, the question we were all of them were addressable. Yes, home dosing was in that list of questions. And we have obviously responded to some of their questions regarding home dosing. The home dosing is very much in the discussion point. And if you look at our S&P right now, [indiscernible] of our SPCs.

So again, I think with regards to all of the questions and our responses, we say comfortable because there's no surprises. Very similar trends from the FDA, and we are prepared. We feel confident upon responding to those questions in a timely manner.

[Ritu Baral, analyst]

Understood. Just to clarify, these were the 180-day questions that you spoke of or the 120?

[Suma Krishnan, executive]

I mean the 120, that's the -- I mean, review is done, and we should get the 180 [indiscernible].

[Operator]

Your next question for today is from Andrea Tan from Goldman Sachs.

[Andrea Tan, analyst]

I was just wondering if you could provide color on the proportion of VYJUVEK patients who are coming from centers of excellence? And to what extent are you seeing uptake amongst other patients who might have stepped away from these? Second does that require a little bit more work to bring back into the system? And then I have a follow-up.

[Unknown Executive]

Thanks, Andrea. Yes, sure. So as we look at the analytics around measuring is coming from a COE versus community, we do know the majority of our patients are really seen in both areas, those types of care we see a trend towards the community for sure. However, the centers are strong.

They continue to -- as they prescribe as they see new patients or new patients are being diagnosed. We see them coming in earlier and earlier, which is a great trend. The second part of that question.

[Unknown Executive]

It was basically about COE and any overlap between COE and [indiscernible].

[Suma Krishnan, executive]

Yes. So the community continues to be strong. I think in this past quarter, the majority are coming from community, which is exactly what our strategy is pointing our sales team. So overall, just as expected with strong utilization in both the centers and in the community setting.

[Andrea Tan, analyst]

Great. And then my second question is actually for Suma just I'm hoping you might be able to expectations ahead of the AAT data later this year. specifically around how many patients we might be able to expect? Will it be from both cohorts 1 and 2? And then what will you be looking for specifically to make no go decision on the program?

[Suma Krishnan, executive]

Yes. So again, Cohort 2 is pretty much fully enrolled. I mean, again, so back to go into Cohort 3 pretty shortly. I think Cohort 3 is going to be our important cohort because we're going to go with the highest dose, and this is where we are going to have long cost [indiscernible]. And evaluate that, obviously, we'll have some data risk regarding to [indiscernible] both in the lung, in the lavage and also we look at systemic levels, if it's in the plasma. So again, we expect to enroll patients and get some [indiscernible] with the rooftop data indication.

[Andrea Tan, analyst]

Got it. And to confirm Cohort 3 data will be the key data set that we're expecting by year-end?

[Suma Krishnan, executive]

Correct. That's what we're targeting.

[Andreas Orth, executive]

Yes. I would find out -- Andrew here, we view the releases Phase I data, like it's tough to predict all the data would be in on all the patients from the end of the year, but we definitely I think that most of them would be in. So we're still calling it Phase II update.

[Operator]

Your next question is from Tim Lugo with William Blair.

[Unknown Analyst]

This is John on for Tim. I was wondering if you could talk a little bit more about the number of new patients you've identified outside of the original 1,200 that were identified? And then talk a little bit about your current comfort level with the estimated total of around 3,000 patients in the U.S.

[Unknown Executive]

Okay. Let me start. Look, we definitely are starting to see new patients being identified outside of the 1,200. It's basically analytics driven. And it's not as simple and direct, as you can imagine, because of the because there's the way that how some patients are treated both in the COB and in the community, it's tough to put an exact fine point on it. But our internal view on the matter is that we have expanded on the identifying base by close to 10% at the moment.

[Unknown Analyst]

Okay. And in your current comfort level around the estimated total around 3,000 patients?

[Unknown Executive]

It's still the same.

[Operator]

Your next question for today is from Yigal Nochomovitz with Citi.

[Yigal Nochomovitz, analyst]

I had a question on the ocular formulation. Regarding the natural history running, I'm just curious what sort of eligibility criteria would you be using in that running to determine who would qualify for the treatment phase of that study?

[Suma Krishnan, executive]

I mean the qualification is -- I mean, the voting criteria is the patient must have the case 2 episodes of [indiscernible] in the past 6 months. And I can tell you, I mean, it's the natural list study is going pretty well because the laro patients with listed [indiscernible] I mean, more than I thought because these patients do have concentration. So [indiscernible] what the agency discussed it with that for requirement.

[Yigal Nochomovitz, analyst]

Okay. And I recall there was one instance of a compassionate use case in a 13-year-old boy with VYJUVEK intraocular. Have there been other instances of compassionate use or use off-label IgE for ocular complications with the commercial drug?

[Suma Krishnan, executive]

So right now, the board that had the ocular so it was in his left time. Now we have also get treated as right time. So both is left and right time and treated advisor for an extended period of time. So that's the only compassion team. Obviously, we do get a lot of requests. But I think now since we are in the process of getting clinical studies going in the natural [indiscernible] study has been rolled out.

So we have a lot of patients are rolling in the natural history terms. We are hoping we'll be able to enroll the study pretty fast in.

[Unknown Executive]

On your question on off-label use. Look, the drug is mixed in the [indiscernible]. It's almost inconceivable the way it's mixed and delivered to conflate any even remotely uplift reduce on the [indiscernible].

[Operator]

Your next question for today is from Gavin Clark Gartner with Evercore ISI.

[Gavin Clark-Gartner, analyst]

I had one more granular one and one higher level question. First, just on the reimbursement approvals. So I believe you had around 420 start forms as of mid-February and now on around 400 reimbursement approvals. I'm just wondering for some of those start forms that didn't come through as reimbursement approvals, what's the current status of them? And just overall, how many of the reimbursement approvals do you expect will ultimately make it 2 patients on drug at some point?

[Unknown Executive]

So we're [indiscernible] not going to the term start forms because we're never going to talk about sort forms. And we exited that you've got beaten up on that term [indiscernible] for absolutely no reason.

In terms of reimbursement approvals to net revenue. The most important thing to -- that it's not immediate. It still takes 2 to 3 weeks to schedule open those in some cases with the summer schedules, comorbidity in some cases. So there's always a time lag, and Jen can elaborate on exactly what it is.

We track -- now look, reimbursement approvals, as I say is a great predictor of net revenue, but not an immediate predictor of net revenue. So if you look at it that way, I think it's the closest indicator you can have kind of estimating what net revenues could be in the future. We've always said, look, the start or we don't call something a [indiscernible] until it's judicated. You can call it a [ scrip ] and as we go into the community, especially, genetic testing rates are lower, even if they have been done many years or they used to be treated in the paperwork gets misplaced.

So more in the community issue this year that the majority of scripts we get don't convert to start forms still we get the genetic testing done. So that's important note. But outside of that, besides the lag in time, given the high compliance, there isn't anything magical about the way the launch is going really well.

Patients who get on drug, get compliant. We would like to see that patients get on drug sooner than they do, but life does get in the way. And we are super focused on patient experience making sure we're not rushing them into something that they're not super comfortable with given personal life and schedules, et cetera.

[Gavin Clark-Gartner, analyst]

Yes. That makes sense. And just one higher-level question then. As you kind of transition to a more mature period of the launch, I'm just wondering what we should expect for go-forward metrics. So are you guys going to keep reporting the reimbursement approvals and the compliance every quarter? Will you ever report patients on drug or maybe plan to give any guidance? Just wondering what we expect for the go-forward metrics.

[Unknown Executive]

First, I don't believe we're entering the mature phase of launch. The way we look at -- we still believe we're in a high growth -- I don't want to call it high growth -- in growth phase. Look, when we get to the mature phase of launch, hopefully sometime next year, our present intentions, which can change is simply to guide on revenue because there's more and more people like you know how to start and stuff or I'll come back to it after summer. Not that severe, [indiscernible] will start to get as you go into the community going to dominant compliance will get less clear over time.

We're still at very high numbers. Our expectation, if you remember, at the time of launch, was 4 vials a month for the first 18 months and going to 2 miles. So we were expecting combine to drop to 50% in like 18 months post launch. The trend doesn't look that is going that way at the moment. but we reserve our judgment on where it's going to end up. Still -- we're still in many ways in the early stages of it. So we're in a growth period, early stages of launch and if we ever get to the mature phase, we'll probably simply guide it on net revenues [indiscernible] time.

[Operator]

Your next question is from Dae Gon Ha Ho with Stifel.

[Dae Gon Ha, analyst]

Maybe a question for Krish or Christine. Just in terms of looking at the commercial portion, you put the headwinds behind us since the first quarter. So I'm just kind of wondering, is this kind of community type setting phase going to continue where we can anticipate a little bit more of a conversion period delay? Or if you could maybe comment on sort of the physician and patient behavior transitions or evolution, if you will, since the August 1 commercial launch last year, that would be great.

And then second question, specifically for Suma, just reverting back to the KB 408 expectation. I mean, is the anticipation that you're going to focus more on the lung bronchoscopy measurement of the AAT concentration? And if so, what's the bogey or what's the level that you're kind of seeing as a potentially promising level?

[Christine Wilson, executive]

[indiscernible]. Yes. So I mentioned, our clean monitoring infrastructure continues to apply new alerts, which is what has supported our ability to not just focus on the COEs, but also in the community-based setting. And as we look about that community-based setting, we are finding patients all across the United States, which is really exciting because it gives us an opportunity to introduce VYJUVEK both the HCP and the patient. Our intention is to continue on both tracks, right? We continue to cultivate our COEs. Our to advocacy continues to strength as time goes on. But in addition, we are seeing that in the community setting.

And as much on the dynamics are a bit different as you would imagine, in the community, right, where patients may have been last engaged with the health care system as a whole. And therefore, it takes a bit more time to get the genetic testing done, the political notes that are required for reimbursement approval at IRAs. So we do anticipate that as our growth continues in both platforms, we will see a combination of time lines that are associated amongst both the COB and the [ BD ] setting for pull-through.

[Unknown Executive]

Great. Thanks, Christine. Suma?

[Suma Krishnan, executive]

Sure. With [indiscernible] obviously, I mean you want expression in the lungs, right? I mean that's what's speaking to our key KOLs. That's what we hear. I mean, again, nobody knows what kind of levels we need to see a correction or [indiscernible]. But again, obviously, the log improvement and functions we can total as we start measuring them.

With regards to [indiscernible] the beauty of AAP is a secreted protein. And it's -- we already know that from a [indiscernible], we see high expression of the secreted protein. So we anticipate when you go into the month, then you levelize it, it's going to impact any cells porcine and bile to see all the [indiscernible] as being generated, at least based on our animal data and in vitro data, we expect high expression.

So when we look at the broad cost [indiscernible], when we compare it to baseline, we would not going to compare what is the difference on the levels. And obviously, going forward, we're going to start measuring improvements in lung coming as part of the efficacy. But again, I think [indiscernible] the beauty of [indiscernible], I mean there is no approved product for this therapy.

So we -- from a regulatory strategy point for us, as we believe -- we can go to the agency and go with the biomarker approach. That's if you are seeing expression levels in the lung and you can quantify them, the plan or the incentive for us to obviously sit down with the agency and see if there is a pathway for accelerated approval with this particular indication. So that would be an opportunity.

[Stéphane Paquette, executive]

Yes. Dae Gon, this is Stéphane. Just adding on a couple of what Suma said, clearly, based on the mechanism here, it's the loan levels that are in for measuring systemically, but that's not what's going to drive decision-making for us that the PD biomarkers will give us a sense of if we're in a clinically useful AAT range. So it's also in the literature and understanding levels in [ ELF, ] for example, relative to systemic maybe 5% to 10% in that range.

And so there are tools to benchmark what we would expect to be clinically useful AAT, which will then be bracketed by the information we get from baseline, let patients on and off augmentation and this PD biomarkers is having the effect that we want in the context of the [indiscernible]. So collectively, we think that will give us information we need to make a decision on progressing into Phase II [indiscernible].

[Unknown Executive]

I do have a final comment. Please realize we're redoseable gene therapy, right? And we make the argument for probably [indiscernible] too way up a problem and that unlike other therapies, which are primarily for the most part, one and done, people look at the first read out, just always bear in mind as we report data that we have the ability to redose into a more amenable situation than we started with.

[Dae Gon Ha, analyst]

On that point, Krish, I guess this Cohort 3 data won't necessarily give us what the redoseable frequency may be, right?

[Unknown Executive]

I mean yes, correct. Because it's a single dose, but very quickly, we are going to go in maybe some of those same patients we can roll them into the extension study where we can start redosing them. Because I think 1 week, we will have a good understanding on levels we see. And based on that, we are going to roll over those patients and continue to collect that data. There may be some cost to be sticking, but we'll try hope what we can get on the question. Many of these patients are amenable. They are open to doing -- allowing broadcast because -- [ this ] seems to be okay with it. So we will find enough patients to [indiscernible] that data with [indiscernible] reusable what [indiscernible] to those levels.

[Operator]

[Operator Instructions]. Your next question is from Debjit Chattopadhyay with Guggenheim Securities.

[Debjit Chattopadhyay, analyst]

Krish, could you clarify what you expect steady state given the earlier comments on some of the OLE patients out to [indiscernible? These patients now are 2 [ houses ] per month and -- what are you assuming steady-state revenue per patient?

[Krish Krishnan, executive]

So let me just clarify the comment. I don't know -- I don't recall saying to sort of be 3 or 2 or 1, something that can forward, but I'll let Jen comment on what exactly [indiscernible].

[Jennifer McDonough, executive]

Yes. So as we look at the cohort of patients that may do very we kind of separated into kind of 2 different cohorts, one that consistently is remaining on therapy of 4 months. for that entire year. And then those folks that potentially are causing and coming back. And that's the cohort that as Krish said, it's a little, I would say, premature to kind of understand where they're at. They do vary based on the [ leotherapy ] and the other comorbidities that they are dealing with whether we're in the hospital, et cetera.

So we are continuing to trend. I think it is a little early to say where the final [indiscernible] will be based on severity, based on where the wounds are at,, based on everything else that's going on in the patient side. But overall, again, the patients that are continuing level staying on weekly and then potentially applause here and there as like happens for them. And so we'll continue to track it and as we expect to stay eventually evolve as patients continue on therapy.

[Krish Krishnan, executive]

Yes. And I think net revenue -- I mean, sometime next year, we'll have a much year what the number looks like. We're still less than -- I mean we're almost at 12 months into launch. We're still not at the 18 months ahead. So anything we said would be a bit premature. But right now, compliance is good. We're tracking ahead of our expectations with respect to launch. So hopefully next year.

[Debjit Chattopadhyay, analyst]

Awesome. So a couple of follow-ups here. Do you think you could get to over 700 patients on approved therapy by mid- which would roughly be about 60% of the identify 1,200 patients?

[Krish Krishnan, executive]

Look, our goal in the long term has been to get to 60% market share in 2 years. Although I will carry out a little bit. At the time we said that we were talking in terms of [indiscernible] and not in terms of patients on truck. But that said, our internal goals just to be very clear on the topic is to work pretty hard to [ guys ] to get to that number 2 years from launch. Yes. That's the goal.

[Debjit Chattopadhyay, analyst]

Got it. And the ophthalmic indication, is that a separate or a label expansion? And what should be the pricing assumption for this segment?

[Suma Krishnan, executive]

It's going to be a different BLA because, again, the volume is going to be the safety outcome doesn't be different because of the AI. So it is a separate BLA. But again, as we mentioned, we have agreement with the agency. So we are what we're embarking on is the registrational trial which we expect to complete next year. So it's going to be a new year.

[Debjit Chattopadhyay, analyst]

Yes. sorry. Sir, I was just going to say, if it's a separate BLA, should we also expect pediatric review [indiscernible] along with that?

[Suma Krishnan, executive]

Yes. I mean, as per the regulatory guidance for the same molecular entity, I mean, this is what happened to bluebird, if you guys ever I think they do not issue a second pediatric market. It depends on the model the nicer entity.

[Operator]

This now concludes the call. At this time, thank you to all participants for joining the Krystal Biotech Second Quarter 2024 Earnings Conference Call. You may now disconnect.