Krystal Biotech Inc

NASDAQ:KRYS

Earnings Call Analysis

Strong VYJUVEK Launch Boosts Company Prospects

The company has successfully launched VYJUVEK in the U.S., focusing on patient adherence and generating $8.6 million in net revenues within the first few months since August 2023. This pharmaceutical firm anticipates EU and Japan launches for VYJUVEK and B-VEC in 2025, with approvals expected in the EU in 2024 and a Japanese NDA filing planned after a study extension later that year. Aligned with shareholder interests, the company boasts a $600 million balance sheet, facilitating the progression of its rich clinical pipeline, including a Phase 1 trial for oncology therapy KB707. Cross-functional advancements signal continued strategic and financial prowess, capitalizing on a robust platform to treat debilitating diseases and a commitment to increasing shareholder value.

Strategic Positioning and Financial Health

With a strong launch of VYJUVEK in the U.S. and a robust pipeline, the company is strategically and financially poised to support VYJUVEK's global rollout and advance its clinical programs. The company's balance sheet is strong, featuring $600 million, which promises substantial support for upcoming launches and clinical developments.

Clinical Programs and Expansion

The company has made significant progress on the clinical front, with VYJUVEK's marketing authorization filed in Europe, anticipating EU approval in the second half of 2024, and expecting launches in both the EU and Japan in 2025. Clinical advancements in treating dystrophic epidermolysis bullosa (DEB) and squamous cell carcinoma (SCC) are underway, with plans to present data in 2024. Furthermore, their HSV-1 platform clinical pipeline is moving forward, with the Phase 1 clinical trial of KB408 set to begin in the first quarter of 2024, and initial patient dosing with intratumoral KB707 already commenced. Novel treatments in dermatology are progressing, aiming to initiate further trials by 2024.

Financial Results and Revenue Growth

The initial launch of VYJUVEK resulted in $8.6 million in net product revenues from the start of sales in August through the third quarter of 2023. The sale of a Priority Review Voucher produced a significant one-time gain of $100 million, greatly impacting net income and EPS for the quarter. Research and Development expenses slightly decreased year-over-year, while Selling, General, and Administrative expenses increased due to the launch-related costs. Overall, the company remains well-funded, with enough capital to support activities in the upcoming quarters.

Sustained Value Delivery

Management's shareholding aligns with the interests of investors, aiming to consistently increase shareholder value. The company's transition to a fully integrated entity enhances its capabilities in both development and commercialization, enabling substantial progress in delivering medicines for debilitating diseases.

Earnings Call Transcript 2023-Q3

[Operator]

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

[Meg Dodge, executive]

Good morning, and thank you all for joining today's call. Earlier, we released our financial results for the third quarter of 2023. The press release is available on our website at krystalbio.com. Our earnings 8-K was filed earlier today. And additionally, we filed our 10-k with the SEC. Joining me on the call are Krish Krishnan, Chairman and Chief Executive Officer; Suma Krishnan, President of Research and Development; and Kathryn Romano, Chief Accounting Officer. I'd like to note that during this call, we'll 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 risks can materially and adversely affect the business, results of operations, and trading prices of Krystal's common stock. For a detailed description of applicable risks and uncertainties, we encourage you to view our SEC filings. The company does not undertake any obligation to publicly update its forward-looking statements, including any financial projections provided today based on subsequent events or circumstances. With that, I'd like to now turn the call over to Krish. Krish?

[Krish Krishnan, executive]

Thank you, Meg. Welcome to Krystal Biotech's first-ever earnings call. It's a bit of a coincidence that we're having our first earnings call when we have positive earnings, but I want to be clear that this quarter's positive EPS is simply driven by the sale of the priority to be run through in Q3. More importantly, we're having this call on the hem of DEB awareness week. We thank the entire Dystrophic Epidermolysis Bullosa community to work tirelessly to improve outcomes for patients with the genetic disease. As we recognize the challenges that the patients and their families face every single day, our goal remains focused on helping as many DEB patients as possible. We know that the disease extends far beyond the skin, and we're committed to continuing to work to treat this disease comprehensively. We will discuss our early initial efforts in treating DEB patients with lesions in the eye and those with squamous cell carcinoma of the skin later in this call. With that, I'd like to say that after the first full quarter into the bulge of a glance, I'm extremely pleased and proud that the commercial progress we're making. We continue to see strong patient demand into Q4. And as we announced, we finished Q3 with 284 Start Forms since VYJUVEK was approved. Our estimate right now is about an 85% conversion from Start Forms to patients on plug, but we'll continue to update the stat in subsequent quarters as more and more Start Forms continue to convert. That said, even at 85%, we're at a 20% penetration of the identified base of patients following 1 full quarter post launch. Of the 284 Start Forms received, 20% were from patients suffering from the dominant form of DEB. As I've mentioned before, patient scripts from dominant DEB patients continue to expand our base of identified patients. One-third of 33% of the Start Forms were from patients ten years of age to as young as six months old. We track that because it gives us a better sense of an overall estimate of the induction phase as we believe that patients younger than ten years of age could potentially have a longer induction phase than adults, meaning that they will potentially consume more viral gene for a longer period of time than adults did. So of the 284 stock farms, 20% were from dominant DEB patients, 33% from patients ten years or younger, and presently estimate an 85% conversion related to patients on drug, which could potentially be higher as we move into subsequent quarters. What is interesting and maybe a bit surprising is that only 46% less than half of patients Start Forms were from centers of excellence with the balance of scripts written by the community physicians. So it has not been a bolt from the center of excellence, but rather a steady flow of Start Forms. And this is attributable to: one, that some KOLs wanting a patient to physically visit at their centers prior to initiating them on baseband. Now that takes a certain amount of time because a lot of patients do not live right next to the center of excellence and scheduling can often be a challenge given the busy schedule of these KOLs. Some other Kells, generally, those who did not have prior experience with Vivek in a clinical study or in the open-label extension study are choosing a gated approach, prioritizing their most siler patients on reseat first, seeing how it goes and then writing prescriptions for moderate patients. That said, we've encountered no reluctance from any KOL with respect to wanting to put their patients on base is simply a timing issue. And our medical affairs team is working closely with these KOLs to educate them on the importance of getting the patients scored on Basabe as soon as possible. With respect to reimbursement, 45% of the patient platforms that have been received as of the end of Q3 were from patients with a commercial insurance plan. Most of these patients, over 80% of them are already eligible for commercial reinvestment. As we mentioned in the press release, the company has succeeded positive coverage to terminations from all major commercial national health plans and several regional health plans. So 45% commercial insurance of the remaining 55% on government insurance, 74% are presently eligible for reimbursement, and we expect the remaining to be eligible once the permanent J-code becomes available in January 2024. So overall, access is in a very good place, and we expect almost all patients to be eligible for some form of reimbursement early in 2024. At this point, we intend to transition to reporting number of patients on drug as opposed to patient starts forms as patients on drug will become a much better predictor of net revenues and staff homes. So we talked about color on the start forms and on access, now about conversion to net revenues. Krystal's guiding principle and advisory launch is centered around the pension experience, and we worked tirelessly to ensure that each patient have with respect to getting on VYJUVEK staying on is smooth, timely and half of state. We're partnering with patients and families who are previously traveling to a center of excellence for palliative treatment and transitioning them to a home health visit by an HCP to apply the medication at a convenient time in their weekly schedule. Think about that.Definitely, more steps involved than simply having a physician right script and getting it filled at the local pharmacy. In addition, we're also working with payers who almost all agree that the home setting is pledged for the patient. So patient experience is foremost on our mind and the respective reason, we work to ensure that we do not make a patient wait for long that we don't accept the start from unless we have a clear line of sight into getting our patients access to VYJUVEK within a reasonable time. Our goal in 2024 is to convert Start Forms to patients on drug in about 2 to 3 weeks. We're not there yet, but we expect we'll have most of access in place by the end of the year. And we're learning from some of the experiences on the initial set of patients. So we feel really confident in achieving that objective. It's really difficult to go below 2 to 3 weeks because it takes many families or a week or two to get comfortable with us and schedule upon health filing. So this launch has been all about home dosing. Over 88% of the patients' doctors received by the end of September were for patients who want to be dosed at home. And we expect that trend to continue and potentially go high. This has definitely helped adherence to drug, which has been excellent to rate and currently tracks around 96%. We shall continue to update this statistic in upcoming quarters. So following approval in May, it took us a few weeks to get the drug in the channel, negotiate reimbursement and schedule home health visits. So our first paid patient did not get on VYJUVEK until early August. So the net revenue number of USD 8.6 million is approximately 2 full revenue months in Q3. During a period where both commercial and government policies and reimbursement continue to be negotiated and issued. The point being, while patient Start Forms is attributable to a full quarter, net product revenue is only attributable to two or more months in the quarter. So to summarize, we believe we have a strong launch in our hands. We see really good demand from both recess and dominant patients. access coverage has been relatively smooth and home health visits are pointing to a high patient compliance. We expect this momentum to continue going forward. Beyond the U.S. commercial launch, we're also looking to expand the number of patients treated VYJUVEK, and we are working towards a name patient program in EU as we await our marketing authorization approval in the second half of 2024 and launched after. Suma will speak to the strength of our pipeline shortly, but with close to USD 600 million on our balance sheet, a strong launch and a very productive pipeline, we're well positioned strategically and financially to support the global launch of VYJUVEK and advance our clinical programs. I shall turn the call over to Suma to provide color on the clinical programs.

[Suma Krishnan, executive]

Thank you, Chris. This is an exciting time for us in that with the approval of VYJUVEK, our commercial team is leading a way for a successful U.S. launch. Our objective is to provide VYJUVEK globally and someday keep the debilitating disease comprehensively. To that extent, we filed a marketing authorization with the European Medical Agency in October, and we anticipate an approval in the EU in the second half of 2024. Additionally, following acceptance of the open-label extension study of PVC by Japan pharmaceutical and medical device agencies in July 2023, we initiated the extension study and dosed 5 patients. Following completion of the open-label extension study in Japan, we intend to file a Japanese new drug application for B-VEC for DEB in the first half of 2024. We are presently expecting launch in the EU and in Japan in 2025. With respect to treating this disease comprehensively, you have all seen the remarkable benefits in keeping B-VEC patients with lesions in the eye, and we are in early stages of working with the FDA to develop an approach for selling VYJUVEK for this indication. We estimate approximately 750 patients with this manifestation in the U.S. In addition, we are hoping to enroll DEB patients with squamous cell carcinoma of the skin in our Phase I oncology study. While VYJUVEK potentially slow down the onset of SCC in the skin in the long term, having a near-term benefit that KB707 will go a long way towards treating the disease comprehensively. Moving on to a rich clinical pipeline using our HSV-1 platform. On KB407, we completed cohort 1 of the Cohort 1 study with no severe or serious adverse events and plan on initiating Cohort-2 in the upcoming weeks. We anticipate announcing data from this study in 2024. In addition, we continue to work closely with the TDM network of the CS Fund issue to provide us access to the broader network, which will enable us to complete the study a lot faster than the pace we are at right now. On KB408 for the treatment of alpha-1 antitrypsin deficiency, which is formulated for any delivery through the respiratory cells of the lungs via nebulization. The Phase I clinical trial is a Phase I open-label, single-dose escalation study in adult patients with AATD with the PiZZ geotype, 3 planned dose levels of KB408 will be evaluated with three patients in each cohort to evaluate the safety, tolerability, and expression of the protein in lung cells and 0. In September, we announced that FDA cleared our IND for KB408 and agency granted KBB408 orphan drug designation. We expect to dose the first patient in the clinic in a Phase I clinical trial in the first quarter of 2024. Our oncology program, KB717 has made advancements is that quarter after the FDA cleared our IND and granted us for pasta application for KB707 in July for the treatment of locally advanced or metastatic solid tumor malignancies. As a reminder, KB707 is a modifying EV1 vector designed to deliver genes including both IL-12, IL-2 to the tumor microenvironment and promote systemic immune meant tumor point. We have two formulations of KB707 in development, the liquid formulation for intratumoral injection and an inhaled formulation for lung delivery. The intratumoral KD707 Phase I OP-1 study is an open-label, multicenter, monotherapy, dose escalation and expansion study, enrolling patients to globally advanced or metastatic solid tumors who are lapsed or are refractory to standard of care with at least one measurable and injectable accessible tumor. The primary objective of the study is to value safety and tolerability of KB707. Efficacy will also be assessed by multiple measures, including overall response rate, progression for survival and overall survival and the effect of KB707 monotherapy will be assessed in tumor tissue, like node and blood. In October, the first patient was dosed in the Phase I study to evaluate intratumoral-KB707 in patients with globally advanced or metastatic formic tumor malignancies. We are on track to file an amendment to the existing KB707IND in the fourth quarter of 2023 to allow us to evaluate Innal7 in a clinical trial to take dues in the patient's zones. We expect to dose the first patient with B7 in the first half of 2024. Data was presented at the society for immunotherapy of cancer in October. Our localized delivery of common general IL-12 and IL-2 for the treatment of cutaneous malignancies, we presented preclinical data showing back intratumor injection enhances tumor regression or survival in B16 Pt marine melanoma compared to control or single rector treatment.Additional data was presented showing that when administered into tractoring enhances tumor progression and survival in K7 Murine, osteosarcoma lung metastasis model compared to control or single rector treatment. Regarding our dermatology program, KB405 for the treatment of TGM1, ARCI and KB104 to take patients with medical syndromes, we continue to move forward with both programs. We are on track to commence the Phase II cohort of the KB105-2 trial for the treatment of TGM1-ARCI in 2024. For KB104, we plan to file an IND to initiate the clinical trial of KB104 to two patients with nephritic syndrome in late 2024. As stated in our press release, other pipeline programs continue to advance. I'd like to finish by saying we are presenting working to advance for ongoing clinical programs and anticipate presenting clinical data across these programs in 2024, besides advancing our preclinical and clinical efforts in the skin and in ophthalmology. With that, I would like to turn the call to Keith.

[Kathryn Romano, executive]

Thank you, Suma. With our focus in the VYJUVEK launch being centered around the patient journey and resulting initial strong patient adherence on drug in the first few months of launch, we recorded USD 8.6 million in net product revenues, which began in August of 2023 through the end of the third quarter. As VYJUVEK was approved by the FDA in May of 2023, there were no comparative period revenues. Cost of goods sold was USD 223,000 for the quarter as compared to 0 for the previous year's third quarter due to initial sales of VYJUVEK after FDA approval was obtained on May 19, 2023. Prior to receiving FDA approval, costs associated with the manufacturing of VYJUVEK were expensed as research and development expense and as such, a portion of the cost of inventory sold during the period had been previously expensed prior to FDA approval. We expect that cost of goods sold will continue to be lower as we sell off the remaining inventory that had a portion of its costs that were previously expensed as R&D prior to approval. Research and development expenses for the quarter were USD 10.6 million, inclusive of USD 2.3 million of stock-based compensation compared to USD 11.5 million, inclusive of USD 2.2 million of stock-based compensation for the quarter ended September 30, 2022. This overall decrease of USD 887,000 was primarily due to costs related to the manufacturing of VYJUVEK being recorded to inventory following our FDA approval that were previously expensed to research and development expense. Selling, general and administrative expenses for the quarter were USD 23.7 million, inclusive of USD 6 million of stock-based compensation compared to USD 19.9 million, inclusive of USD 6.9 million of stock-based compensation for the quarter ended September 30, 2022. This overall increase of USD 3.8 million was largely due to costs incurred related to launching VYJUVEK such as salaries, travel, technology and other professional fees and was offset by lower marketing costs due to the timing of developing marketing materials. This quarter, we also recorded a gain from the sale of our rare pediatric disease priority review voucher, which was awarded to the company in connection with the FDA's approval of Vibe of USD 100 million. I want to emphasize that this gain was a one-time item recorded in other income and was the primary driver of net income and positive EPS this quarter. Finally, we closed the quarter well capitalized with USD 598.6 million in cash, cash equivalents and investments on hand as of September 30, and we believe this cash on hand is sufficient to fund all of our planned activities for the next several quarters. And with that, I will turn the call back over to Krish.

[Krish Krishnan, executive]

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

[Operator]

Absolutely. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from the line of Robert Finke with Guggenheim Partners. Your line is now open.

[Robert Finke, analyst]

Good morning. This is Robert. Thank you for taking my question. Congrats on the strong launch. One question for Meg Dodge. Do you anticipate any slowdown in the fourth quarter compared to third quarter as far as patients Start Form rates are concerned? And if so, what's the reason? Thank you.

[Meg Dodge, executive]

As of now, Robert, the base continues to be as it was at the end of 3Q. What is difficult to predict is how the holidays if at all, are going to have an impact on the pace of Start Forms. So my best answer is that that now we continue at the same pace, and it remains to be seen how the next 2 months go by. With respect to peak demand, look, when I will remake call at the time of approval, it was simply based on a base of 1,200 to 1,500 identified patients paying about USD 500,000 annually. That's how we came up with USD 750 million. As we find more dominant patients as we start getting approved in Europe and Japan at the date of identified patient grows, we'll continue to update that number.

[Robert Finke, analyst]

Great. And one follow-up from us. The Start Form numbers for stood from approximately 20% in second quarter to 13.5% in the third quarter. What's your best estimation for why this has occurred?

[Meg Dodge, executive]

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

[Operator]

The next question comes from the line of Alec Stranahan with Bank of America Merrill Lynch.

[Alec Stranahan, analyst]

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

[Meg Dodge, executive]

We believe so, that 85% is an estimate, right? We don't have enough to make a very substantive prediction on that number, 85%. This is based on some patients maybe wanting not to get pulled in for a while. Some patients do not have insurance, some patients choosing to wait to see a lot of the patients are doing. So it's a clear estimate. We definitely expect that number to go up. I alluded to that in the call. But in terms of process, look, we'd like to get quality and audited stock on to begin with because that helps from a timing perspective of converting them to patients on drug. We don't have a fully full start form with the physician support and the genetically containing a lot of information on prior what they have the priority of the patient, it takes longer. It took longer with insurance to get them reimbursed. And to avoid that, we were trying to get a clear line of sight before we totally accepted a softbound internally because patients get very anxious once they submit a start form to get access to the drug as soon as possible. We try to reach the cap with some the 3 VIAL program, we're waiting for the insurance. And that varies depending on the field commercial or Medicaid. And once we get a start forms essentially about a couple of things happened in parallel on it getting them on the reimbursement and the other path is to work with our specific pharmacy to get the nurses to come home at a time that's convenient to them. And that usually takes a depot. So that's essentially the process. But once the patient is on drug and the reimbursement is in place, the adherence rate that's been really high because the nurses essentially basically going home to fit with the patient schedule as opposed to put any burden on the patient having to travel to get to week to one site. And as I mentioned, a significant percentage of our patients are on home dosing at the moment.

[Alec Stranahan, analyst]

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

[Meg Dodge, executive]

Yes. I think we're sticking to what we've been saying that our intent is to launch in EU5 and Japan. We already have a team in the EU. We're starting to think about building a small team in Japan in anticipation of a launch -- in terms of supply of the drug, it will all be supplied from Ancoris, which has the capacity for a global supplier of Vizag -- at the right point in time, may be supplemented with us, which is now up and running. So essentially, we do not anticipate setting up any manufacturing facility in either Europe or Japan.

[Operator]

The next question comes from the line of Ritu Baral with TD Cowen.

[Ritu Baral, analyst]

Khris, I wanted to sort of get my arms around the sort of intent to prescribe. So, you mentioned that the 284 start forms if I'm interpreting your answer correctly, the 284 start forms that you reported this morning, these are high-quality accepted start forms. And there are additional start forms that either you have not accepted or that you're sort of pushing back and, I guess, waiting to tally as part of your report. Can you give us an idea of qualitative or quantitative about the number of outstanding like half-fill start forms or inadequate start forms, just to give us an idea of intent to prescribe? And then I'm also wondering about the non-center of excellence prescribing doctors. Is there a profile of these doctors that is emerging? And then I have another follow-up.

[Krish Krishnan, executive]

Yes, I'll start the second one first. predominantly be burns is the profile of the community position, but that varies it could be a domicile some of the patients for the drug transfusion centers probably being tired of going to dentologists and managing palliatively at home in the past. But in terms of the start forms itself, look, we like to accept a very high-quality stuff on. Sometimes we make exceptions when there's an urgent need or a request by the physician, but by and large, the start forms are highly audited. In terms of providing any kind of guidance on how many mature that they're trying to convert, I think it will be a bit premature and not right for me to talk about that. But I will say that we expect now with access in place, we expect the pace to be distressed, if not better going forward.

[Ritu Baral, analyst]

Got it. And then I just wanted to ask a follow-up on the persistent rate persistence rate. How are you defining that 96%? Is it patients who are reimbursed and who either skip a week? Or are you calling patients who skip like two weeks in a row?

[Krish Krishnan, executive]

I'm just wondering how that 96% is defined. It's basically -- I mean, to simplify, look, if somebody misses a vial once in a while, somebody misses a visit for some personal reason or a schedule, but most of the patients on drug are at full vials of equal advancement. So when I say compliance is fairly high, it means we're setting 4 vials of equal advancement at the moment.

[Operator]

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

[Carly Kenselaar, analyst]

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

[Krish Krishnan, executive]

Carly, thanks for the question. On Axis, I think we both are smooth. There's nothing unexpected. We have a good system of offering contracts to payers if they are accepting then they get a little bit of the price gap. So both on the commercial side and on the government side, access has been at a good pace, like we're pleased. We expect to get the J code finalized officially published in January, which is, I think, on time based on when we got approval. So overall, pretty pleased nothing unexpected. In terms of patients at the center of excellence, it's a great question. It's a tough one because a lot of pieces who once saw a solid physician at the center of excellence, a lot of them have actually stopped going back to the local community in the absence of an approved drug. And so tying what we like -- the way we think about it is the number of active patients presently at a center of excellence. And so which is why if you look at the stock forms for the -- if you think about like only 26% from the center of excellence, we believe there is demand left at the centers of excellence, limited by the 2 factors I mentioned. One, physicians wanting to literally have a patient visit prior to getting them on basic, which is -- which happens in very diseases up quite a bit, and it's a tough one to overcome because they'd like to see the patient talk to them about at least some of them. And the second is something we're trying to indicate around, which is when physicians decide I'm going to put a handful of my patients, see how Vice that works are opening the gate to the remainder of the patients. And that we disagree a bit with and we're using our medical affairs to work very -- I mean, very closely with these tailors to convey the and see us getting the patients on drug.

[Operator]

The next question comes from the line of Dae Gon Ha with Stifel.

[Dae Gon Ha, analyst]

Congrats on the progress, Krish. Maybe one more on the VYJUVEK before switching over to KB407. In terms of the third quarter, I guess, can you talk about sort of the cadence of Star forms that kind of came in? I know you don't want to talk about sort of the Q, but what can you qualitatively say about that? And bearing in mind the holiday season is upon us, is that cadence at all kind of representative you think or at least 20%, 30% cut. How should we think about that from a modeling perspective? And then second question on KB407. Just wondering if you can narrow that guidance in '24. Is it closer to ECFS or NACFC, and just looking at the competitors' recent data, it seems like expression of the protein may not necessarily be representative of clinical profile. So can you maybe remind us what's the differentiation that you think you're going for.

[Krish Krishnan, executive]

Yes. Look on cadence with the holidays. I wouldn't -- I wasn't advocating any kind of discount. I was simply saying that the pace has been good as of now, as of this call. And with the upcoming holidays, we don't know if it will continue or will there be a pause and it varies depending on the patient and the urgency and the family situation. So I wasn't dying to any slowdown at all. I was just saying we don't know. On the 407, look, it's tough for us to guide when without access to the TDM network were because if that takes a similar meningitis a bit longer to find these patients outside the net for convincing patient on drug. So unfortunately, not able to like the other programs to put prediction on rent, we will pay the Soma, do you want to comment on -- let me say one thing on the expression. I'll turn it over to Suma -- our view on full EMT, which I think you were asking look, you have to remember it's a micro CFTR, right? So micro, it's not the full genome Microgen, -- and so I would participate with the comment, I think one should expect that protein expression should relocate the functionality in our opinion. But Suma, do you want to add to that?

[Suma Krishnan, executive]

I think you provided pretty much on the back, Krish. I agree. I mean, again, if you look at the digital tenet, it's not very clear where you see the expression because it's all over, there's a lot of questions. We also focus on the export from that expression data, and they have similar consoles. So again, we don't know what Krish said is if you're seeing this kind of expression level, is it the full CP15 and how does that correlate the function -- is the question that's still on. With regards to CDN, we are working very diligently. We have done beyond what other companies have fun with regards to turn function, and we're pretty confident we'll get there. So we are close. We're looking at all different studies, including NTD animal studies. We're looking -- we know we can express the full link coking or Weston block. We see it we're very confident. We just need to get the asset for function optimize. So we feel pretty good. I think Hopefully, we will see sooner and we can do that study mostly aggressively enrolled.

[Operator]

The next question comes from the line of Timothy Lugo with William Blair.

[Tim Lugo, analyst]

Going back to VYJUVEK ,can you talk about the progress you've made identifying patients outside of the initial, I think, 1,200 or 1,100 patients that you had identified during the summer. And I guess on top of that, penetrating 30% into that as of now, I think is what you mentioned, you talked about, I guess, really the need for a CEO if you're going to get 50% penetrated into the population within the next couple of quarters.

[Krish Krishnan, executive]

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

[Tim Lugo, analyst]

Well, you just update on just the 1,200 patients or 1,100 patients that you've identified so far?

[Krish Krishnan, executive]

Yes. What I did to get to 20%, just to be clear, we got 284 stock farms. You multiply that by 85% conversion rate divided by 1,200, we're close to 21%. That was -- that's how we estimate the 20% penetration, it could be a bit higher if the 85% is higher than the estimate at the moment. With respect to finding patients, it's to date after one full quarter in the launch, it's been more opportunistic than deliver it, meaning we're still working off the Tier 1 Tier 2s that we identify is going after trying to get them converted. Our objective is to get more serious about finding patients by 1,200 early next year as we start to do now the base emitter of identified patients.

[Tim Lugo, analyst]

And with that, I guess can you update us on your thoughts around new Chief Commercial Officer.

[Krish Krishnan, executive]

Yes. So in the past of looking honestly, we've written a few candidates at different levels in the Q at the moment. We hope to have one in place early in 2024. That's the objective. What's important to us is we find someone with a good fit in the way we operate. And thankfully, there's been a lot of interest from the bunch of candidates so far.

[Operator]

The next question comes from the line of Gavin Gartner with Evercore ISI.

[Gavin Clark-Gartner, analyst]

One thing on the progress of the launch. So you noted our goal of getting to two to three weeks for the conversion cycle from PFS to paid revenue, number start from launch? And how long do you think it will take you to get to that two to three weeks?

[Krish Krishnan, executive]

Yes. We're hoping to get to 2 to 3 weeks in 2024, hopefully in the first half, first quarter. Right now, it's -- right now, it's pretty -- I mean it was long and it continues to come down. When we started, it was more like six, seven weeks, and a lot of it had to do with submitting for reimbursement, getting denied, resubmitting single-case forms. The reimbursement was not smooth. So that was a big aspect and that has gotten steadily better over time. So that's one that we can speak to you good about getting to 2 to 3 legs. You find that families take about two to three weeks to schedule a nose visit. There's some time in figuring out the right notes that they are comfortable with finding a time that works for them. That I don't think is compressible. So our goal is to three weeks in 2024. And so every month that's gone by, we've been steadily coming down the curve of conversion and we're at a good point at the moment and we hope to get to two to three weeks early in 2022.

[Gavin Clark-Gartner, analyst]

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

[Krish Krishnan, executive]

I would say, I would say the percentage of commercial versus Medicaid has met economics 51% came also over 35% Medicaid.

[Gavin Clark-Gartner, analyst]

Okay. And go ahead.

[Krish Krishnan, executive]

Yes. And as we go into -- starting October, we expect a lot of the mandatory space to start covering and so we expect the mitigate number to go up a bit.

[Gavin Clark-Gartner, analyst]

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

[Krish Krishnan, executive]

Yes, they're all converted. I would say 60% in the second 40% in the third... All right. That's very helpful.

[Operator]

Robert, your line is now open with the follow-up question from Guggenheim Securities.

[Robert Finke, analyst]

And Chris, thanks for taking your follow-up. On the comment we made about expecting it to be the same or better that reimbursement is largely in place, there's a protein to patient start forms for conversion to reimbursement on therapy.

[Krish Krishnan, executive]

Thank you. I may have said that comment in both contexts. -- definitely conversion with Axesat and that's obvious, like if they're not getting dinged and we're getting reimbursed when we file that process is smooth. Definitely, the conversion should be faster and better. The comment I made on the start forms was that this continues to be good at the moment. And I let it open to figure out what happens over the holidays, which we have no visibility to at the moment.

[Robert Finke, analyst]

Thank you. Appreciate it.

[Operator]

We now have another follow-up question from the line of Ritu Baral with TD Cowen.

[Ritu Baral, analyst]

Krish, going back to the rejected start forms. Can you mention like what are the most feared for that, that you're encountering? Is it formal genotyping of these patients is it insurance coverage? Is it like purely administrative super lot sort of stuff. What is that reason? And then another follow-up. Got it. And then are you seeing any early trends in intent to implement buy and bill from any of these centers? And are you seeing like clinics at centers of actual is sort of adding either clinic days or availability for appointments such that patients can come in more easily?

[Krish Krishnan, executive]

Buy and bill has been minimal. I'm certain to remember that there's one. Actually, it's probably zero. What happens at the centers of excellence, like there is everybody, the KOLs and centers of excellence, the payers, everybody would like the patient to be dosed at home. And so, the only thing in the case of the center of excellence is the first vial I mean, for first vial we need the person to come visit them examine the person before putting them on base of it. But once they decide to put on base of that, the actual process is not buy and bill, but sent back to the patient's home.

[Operator]

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