Krystal Biotech Inc

NASDAQ:KRYS

Earnings Call Analysis

Krystal Biotech Reports Strong Growth and Future Potential for VYJUVEK

In the latest earnings call, Krystal Biotech highlighted a significant revenue increase of $83.8 million for VYJUVEK, following a successful launch that has exceeded $250 million in net revenue since its introduction. The company reported a remarkable gross margin of 92% and net income of $27.2 million or $0.95 per share. Additionally, they narrowed their full-year non-GAAP R&D and SG&A expense guidance to $115-$125 million. With $374 million in cash on hand, and plans to expand globally, including launches in Germany and Japan slated for 2025, Krystal remains optimistic about sustaining growth amid seasonal challenges.

Strong Revenue Growth from VYJUVEK

Krystal Biotech reported robust financial results for the third quarter of 2024, driven by significant growth in the revenue of its recently launched product, VYJUVEK. The company achieved net product revenue of $83.8 million, marking a substantial increase of approximately $75.3 million compared to the same quarter in the previous year, which was its inaugural revenue quarter post-approval in May 2023. With total net revenue since VYJUVEK's launch surpassing $250 million, this milestone reflects the market's positive response to the product in treating dystrophic epidermolysis bullosa (DEB).

Impressive Gross Margins

The cost of goods sold (COGS) for the quarter was reported at $6.7 million, constituting about 8% of net product revenue. This resulted in an impressive gross margin of 92%. Such high margins suggest that the company is managing its production costs efficiently, which is crucial for its profitability, especially as it scales operations.

R&D and SG&A Expenses are Rising

The company has seen an uptick in both research and development (R&D) and selling, general, and administrative (SG&A) expenses. R&D expenses rose to $13.5 million, up from $10.6 million year-over-year, largely due to increased clinical development costs and manufacturing costs for pipeline candidates. Meanwhile, SG&A expenses increased to $28.7 million from $23.7 million, reflecting heightened marketing efforts surrounding the VYJUVEK launch. This includes $5 million growth in stock compensation expenses quarter-over-quarter, indicating that the company is heavily investing in its human resources as it grows.

Positive Profitability Achievements

Despite increased expenditures, the company reported a net income of $27.2 million for the quarter, translating to earnings of $0.95 per share (basic). This represents a sequential increase from earnings of $0.54 per share in the previous quarter. Notably, this quarter marks the fifth consecutive quarter of profitability, demonstrating Krystal's capability to manage its profitability while pursuing growth.

Upcoming Challenges and Guidance

While growth is expected, Krystal anticipates potential disruptions during the holiday season, which might impact patient treatment adherence. The leadership is aware of seasonal trends affecting patient behavior, particularly delays in treatments due to family schedules. Nevertheless, they maintain a positive long-term outlook as they navigate through these seasonal fluctuations. The company has also narrowed its non-GAAP R&D and SG&A expense guidance for the full year to between $115 million and $125 million.

Strong Cash Position for Future Investments

At the end of the third quarter, Krystal reported $374 million in cash on hand and a total of $694.2 million when combined with its investments. This robust financial position provides the company with sufficient liquidity to fund ongoing R&D efforts and commercial launches as it expands VYJUVEK's reach into new markets globally.

Global Expansion Plans

Krystal is poised for international expansion with plans to launch VYJUVEK in Europe and Japan. They aim to receive a CHMP opinion for European regulatory approval by year-end and expect to launch in Germany in early 2025. Meanwhile, the recent approval for early access reimbursement in France highlights significant market interest and potential for sales growth in Europe.

Pipeline and Future Data Readouts

The company is also actively developing its pipeline with multiple clinical trials underway. Positive data on Jeune Aesthetics’ KB301 and ongoing studies for KB407 for cystic fibrosis and KB707 for rabdomyosarcoma are anticipated to yield results in upcoming quarters. These developments suggest a strong future growth trajectory beyond VYJUVEK as Krystal aims to leverage its gene therapy platform.

Strategic Marketing Efforts and Patient Engagement

Krystal's commercial strategy is driving engagement with patients and healthcare providers. They have achieved over 460 reimbursement approvals and are actively addressing the seasonal effects on treatment initiation. Their marketing outreach includes social media campaigns and direct-to-consumer strategies that have led to billions of impressions, positioning them well for continued patient engagement and market penetration.

Earnings Call Transcript 2024-Q3

[Operator]

Thank you for standing by and welcome to Krystal Biotech's Third Quarter Earnings Conference Call. [Operator Instructions] As a reminder, today's conference is being recorded. I would now like to hand the conference over to your host, Stephane Paquette, Vice President of Corporate Development. Please begin.

[Stephane Paquette, executive]

Good morning, and thank you all for joining today's call. Earlier today, we released our financial results for the third quarter of 2024. The press release is available on our website at www.krystalbio.com. We also filed our earnings 8-K and 10-Q with the SEC earlier today. Joining me today will be Krish Krishnan, Chairman and Chief Executive Officer; Suma Krishnan, President of Research 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, Stephane. Good morning, and welcome to the call. Look, as I mentioned in my PR attribution, we're well on our way to achieving the 2-year target that we set at the time of the launch. And by comparison to any other launch in orphan diseases or generic therapies, we believe our launch has exceeded all expectations to date. In my mind, there are 2 primary drivers for this success. The first obviously being the drug itself with all its attributes of efficacy, safety, patient convenience, et cetera. And second being, our assiduous focus on patient and physician experience. We've allowed the physician and the patient to drive demand at a pace they are comfortable with, and it's been rewarding, especially in an indication where the expectation is that they will be on drug for a long time.

On top of that, global opportunities for VYJUVEK come into focus. Ophthalmic formulation is progressing towards a registrational study in the next few months. And so we're starting to see increasing upside in the total market opportunity for the VYJUVEK franchise overall as we work toward treating debt patients globally and comprehensively. In Europe, we're presently on track for a CHMP opinion before year-end and our recent breakthrough with [ HAS ], granting early reimbursed access in France reflects the significant demand for VYJUVEK in Europe. And with our JNDA submitted last month, we're also on track for the 2025 launch in Japan. And so all preparations are underway for launching EU4, U.K. and Japan, sequentially next year.

Meanwhile, we had a positive readout for Jeune Aesthetics', KB301, in Q3, where we saw clear efficacy signals and that propels us forward to a Phase II study expected to start next year and also continue to work on the Jeune Aesthetics' pipeline. That was the first of many data readouts upcoming from our deep clinical stage pipeline. We're looking forward to reporting on 2 more programs before year-end including our first data on HSV-1 based gene delivery to the lung, a tissue that has to date been hard to reach with other approaches. So both on the commercial and clinical fronts we're excited and look forward to the rest of 2024 and 2025.

Finally, I'm happy to report that Krystal was again profitable this quarter at $0.95 per share, up sequentially from $0.54 per share in the second quarter of 2024. In Q3, we accrued $12.5 million in litigation expenses that once again mitigated our EPS as it did in our 2 prior quarters. This is the final accrual related to the litigation expense and there will be no additional litigation approvals moving forward. With increasing profitability, a strong balance sheet and upcoming expansion of our VYJUVEK franchise, both in the U.S. and through ex U.S. launches and our eye drop formulation were super stoked about both the near term and the long-term outlook for Krystal.

Moving now to our results. Net VYJUVEK revenue for the Q came in at $83.8 million, while gross margins in GTN continue to behave as expected. Thanks to the strong growth we achieved this quarter, total net VYJUVEK revenue since launch in August 2023 has already surpassed $250 million. Achieving this milestone only a little over a year after our first sale is a tremendous achievement for our organization and a testament to the value VYJUVEK is providing to patients suffering from DEB. Also, please note that net VYJUVEK revenue reported today again includes accrual for patients on contracted commercial plans who are projected to potentially hit the cap of $900,000 gross per patient per calendar year in 2024.

With that, I'll hand it off to Jen and Christine to share more detail on our recent accomplishments and strong fundamentals, which we expect will sustain our launch for years to come. Jen?

[Jennifer McDonough, executive]

Thank you, Krish. I am pleased to report another quarter of strong VYJUVEK access growth across the U.S. in spite of summer seasonality headwinds as our team works tirelessly to help more and more patients gain control over this terrible disease. As of October, the number of patients with reimbursement approvals is up to over 460. Reimbursement approvals were modestly impacted by transient summer seasonality effects in this quarter. These scheduling disruptions are now behind us. More importantly, and thanks to our flexible support infrastructure that adapts to patient schedules and time lines, we have been able to keep patients and their applications for reimbursement on track to achieve positive access outcomes.

Reimbursement approval splits are largely in line with recent quarters and roughly evenly split between commercial and government plans. Approvals continue to come across the entire dud patient population, including patients of all ages and with either domain or recessive forms of the disease. With near complete coverage for commercial and Medicaid live nationwide, the access for VYJUVEK is strong. This has enabled us to achieve a 100% success rate on reauthorizations, all have either been approved or are in process and sets us up well for sustained success in the U.S. Our Krystal Connect team works closely with the home health care providers, employing a patient-centric approach that focuses on patient needs and preferences.

The team navigates things such as summer vacations, family activities, working back-to-school schedules to successfully integrate weekly treatment into the family's normal routine. Patient preference for at-home administration is effectively unchanged and currently, 97% of the weekly treatments occur in the home setting. With now over 1 year of real-world experience, the team is developing and implementing strategies to ensure patients receive the best possible experience [indiscernible] and staying on VYJUVEK. This includes developing enhanced education, tools and other resources for patients and nurses.

We focus on topics such as preparing for treatment, practical considerations for wound selection and options for hydrophobic dressings. We recognize that every patient has unique needs and the impact of the disease varies for each patient. Our program and resources include regular touch points to support monitoring treatment progress and identifying potential issues early and addressing them promptly. While we continue to see a high compliance to weekly treatment at 87% across our dev patient population, including new starts for both recessive and dominant dystrophic EB, please note that for some patients that have been on VYJUVEK for over an extended period of time, in particular, who have been participated in our OLE study, we are seeing maintenance treatment patterns emerge.

This includes cycling between periods of treatment pauses due to wound closure. While it's early, and we believe it would be premature to estimate the frequency or the duration of treatment prizes, we can expect reported compliance to weekly treatment across the entire patient base to trend down in upcoming quarters. As we continue our launch, the Krystal Connect team is fully focused on ensuring patients have a smooth experience starting and staying on therapy. We are developing and investing in strategies that lead to better treatment outcomes and overall satisfaction.

We are building long-term patient relationships and are committed to providing sustained worry-free access to corrective therapy where and when they need it.

I will now hand it off to Christine to discuss recent sales and marketing activities which have us on track to hit our most ambitious prelaunch penetration targets. Christine.

[Christine Wilson, executive]

Thank you, Jen. As Jen just mentioned, at launch, we set an ambitious target for commercial organization. We established a goal of 60% penetration of the identified patient pool, equating to roughly 720 reimbursement approvals within 2 years of launch. I'm happy to say that based on our progress to date, our ongoing sales and marketing efforts and the sustained demand we are seeing in the field, we remain on track to achieve this goal. Our core commercial strategy focused on the 3 pillars of claims analytics, medical education and patient activation is paying off. We are seeing strong demand across both key centers and in the community as we continue to drive awareness of VYJUVEK and the real-world impact to health care professionals, patients and caregivers.

Healthcare professional education remains a major focus. We continue to educate physicians and their support staff on how VYJUVEK is the only FDA-approved therapy that treats the genetic cause of death sharing the clinical data that supports long-term use in wound healing for all patients from localized to severe disease and showing the stunning real-world results patients are seeing at home. In addition, we are working with physicians, particularly those in the community who may not regularly see these patients to educate them on the streamlined process for getting their patients started on VYJUVEK. This is a high-touch, customer-centric model that delivers a positive onboard experience for both the prescriber and the patients. The prescriber base is expanding.

Over 70% of the prescribers in 3Q were new writers. This demonstrates that our targeting efforts are effective and at both KOLs and community physicians see the value of VYJUVEK and ease of prescribing. We have also made significant progress recently in our direct-to-consumer outreach. We are now live on all planned social media channels, showcasing real-world experiences for both pediatric and adult patients, some of whom have been on therapy since 2020. Since January of this year, our paid social direct-to-consumer advertising has served over 31.3 million impressions, connecting prospective patients and caregivers with VYJUVEK. The 3Q launch into new social platforms, along with lead generation advertising on social media, will continue to drive user engagement and expand our reach.

Finally, as part of our annual recognition and support of EB Awareness Week, which took place just last week, the Krystal team hosted educational webinars for our target physician audience as well as sponsor a patient and caregiver webinar in conjunction with one of our EB advocacy partners. These live webinars feature dermatologists with real-world [ Deb ] and VYJUVEK experience as well as VYJUVEK patients showing their personal experience of the positive impact that VYJUVEK has brought to their conditions. Members of the Krystal team also attended the [indiscernible] benefit during EB Awareness Week which honors those in the EB community and champions or ongoing mission to advance EB research and patient care.

These are just a few highlights from our ongoing commercial efforts to drive awareness, streamline the physician experience and help more patients get on treatment faster. It has been deeply rewarding to see these efforts translate into reimbursement approvals and with continued education, we are optimistic that we can achieve not only the near-term targets we have set but ultimately grow well past them in later years.

Now I will hand it off to Suma to share pipeline results.

[Suma Krishnan, executive]

Thank you, Christine. Our development team continues to execute at a high level. And over the past few months, we have achieved key milestones to not only broaden that patient access, but also advance our diverse pipeline of redoseable genetic medicines. Leading off with an update on the global development of PVAC, steady progress has poised for commercial launches in both Europe and Japan next year. In Europe, EMA's review of our marketing authorization application is progressing well. EU GMP certification was granted for our commercial manufacturing facility and [indiscernible] earlier this year, and our latest interactions with the EMA suggest support for home dosing and a broad label, including debt patients from [indiscernible].

Based on the current pace of discussions, we expect a CHMP decision before the end of the year and a first launch in Germany in the first half of 2025. In interim, we also achieved an access breakthrough in France in September out Otorite-Desante in France approved premarketing early reimbursed access to B-VEC under the [ AXA Pecos ] program, that patient access to back under AP1 is expected to start later this year. AP1 allows for early access to innovative therapies in France prior to union regulatory approval, and is a reflection of the strongly positive benefit risk ratio provided by B-VEC in a patient population with high unmet need.

In addition to rapidly broadening patient access in France, this approval will also provide physicians with an opportunity to build clinical experience with B-VEC even in advance of commercial launch. In Japan, we also achieved a major milestone with the recent submission of our Japan new drug application. Our application to the Japanese authorities include the results of our open-label extension study in Japanese patients, in which overall results closely mirror those from our registrational Phase III trial. Having previously received orphan drug designation by Japan's Pharmaceuticals and Medical Device Agency, we expect a priority review putting us on track for both the decision by Japanese authorities as well as launch in 2025.

Shifting focus to our broader pipeline. We are very excited to report the first of many upcoming data readouts last quarter. In the state readout for June aesthetics KB301, we reported clear and clinically significant improvements in [ Napoli ] wrinkles, but many other skin attributes, including radiance, hydration and creepiness. This robust [ Fc ] signal taken together with our previous reports of durable benefit, physicians KB301, as a potentially sensational product in the field of regenerative aesthetics. We look forward to progressing KB301 into Phase I next year. This is just the beginning. Before the end of the year, we expect to disclose income updates on 348 and KB707 programs.

KB408 is our redoseable inhaled therapy for alpha-1 anti-tip antitrypsin deficiency which is currently being evaluated in a Phase I [ CertainTIME-1 ] study. [indiscernible] is an 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 with strong enrollment and our recent protocol amendment to include bronchoscopies in Cohort 2, we hope to provide interim molecular data before the end of the year.

A readout, we expect to showcase the significant potential of HSV-1 for gene delivery to the lung. KB707 is our modified HSV-1 vector designed to deliver genes encoding both human [ High12 ] and IL-2 to the tumor micro environment and promote systemic immune-mediated tumor clearance. Two formulations, one, for the [indiscernible] injection and the other for delivery by inhalation are being evaluated in Phase I dose escalation and expansion studies. Both studies are enrolling well. And with this phase, we expect to share an interim data update focused on safety and early immune profiling data before end of the year. I'm also happy to share that intratumoral KB707 was granted a rare pediatric disease designation for the treatment of rabdommyosarcoma, both in [indiscernible] KB707 has now been granted rare pediatric disease designation and Fast Tack resignation by the FDA.

We expect additional data updates in 2025, including follow-on updates on our oncology program as well as initial data from an ongoing Phase I study evaluating [indiscernible] KB407 for cystic fibrosis. We recently activated 2 additional clinical sites in our Phase I CORE1 study evaluating KB407 and are now on a path to report intermolecular data for KB407 in the first half of 2025. Finally, we are on track to both start and report interim data from our registrational trial, [indiscernible] next year. [indiscernible] will be a single-arm open-label study designed to evaluate KB803 our newly developed ophthalmic formulation of B-VEC for the treatment of ocular complications in depth patients. In the interim, we continue to enroll in our natural history study to prospectively collect data on the frequency of corneal abrasions in patients with depth.

This study will also serve as a run-in period for patients who may be eligible to participate in [indiscernible] and should enable us to accelerate enrollment in this registrational study. We have entered an exciting period for Krystal as we unveil trial results that we expect will highlight the visibility of our gene delivery program. We look forward to sharing these updates as they unfold and advancing our pipeline of uniquely differentiated genetic therapies.

With that, I would like to turn the call to Kate.

[Kathryn Romano, executive]

Thank you, Suma. In the third quarter, Krystal saw continued VYJUVEK revenue growth with net product revenue of $83.8 million representing an increase of approximately $75.3 million over the third quarter of 2023, which was the first quarter that we had revenue after our approval in May of 2023. Cost of goods sold was $6.7 million for the quarter or about 8% of net product revenue, resulting in a gross margin of 92%. In the third quarter of 2023, cost of goods sold was artificially low at $223,000 as a result of a significant portion of the cost to manufacture being previously expensed to research and development expense prior to product approval.

Research and development expenses for the quarter were $13.5 million, inclusive of stock-based compensation of $2.3 million compared to $10.6 million for the prior year's third quarter inclusive of $2.3 million of stock-based compensation. Higher research and development expenses in the third quarter of 2024 were due to increased clinical development costs increased R&D-related manufacturing costs for our pipeline candidates and increased R&D facilities and equipment costs this quarter. These increases were partially offset by capitalization of direct and indirect over cost to manufacture VYJUVEK being charged to inventory following our FDA approval.

Selling, general and administrative expenses for the quarter were $28.7 million, inclusive of stock-based compensation of $11 million compared to $23.7 million for the prior year's third quarter, inclusive of stock-based compensation of $6 million. Higher selling, general and administrative expenses in the third quarter of 2024 compared to the prior year's third quarter were primarily the result of increased commercial related professional service fees and VYJUVEK marketing costs. The significant increase in SG&A is related to the increase in stock compensation expense of $5 million quarter-over-quarter. We again recorded litigation settlement expense this quarter of $12.5 million due to our anticipation of reaching the third and final milestone payment in the periphagen settlement which is triggered at $300 million in cumulative sales payable within 30 days following the filing of our Form 10-K in which the $300 million milestone is achieved.

We now have fully accrued for the entirety of this matter and if achieved, anticipate making the final related payments in early 2025. Net income for the quarter was $27.2 million, which represented $0.95 per basic and $0.91 per diluted share. We have reduced and narrowed the range of our non-GAAP R&D and SG&A expense guidance which is now expected to be between $115 million and $125 million for the full year ending December 31, 2024. As a reminder, this guidance excludes the noncash impact of stock-based compensation.

Finally, we ended the third quarter with $374 million in cash on hand and $694.2 million in total cash plus short-term and long-term investments, marking continued quarterly growth in our overall cash and investment position with an increase over our second quarter of 2024 cash and investments balance by about $65 million.

And now I will turn the call back over to Krish.

[Krish Krishnan, executive]

Thanks, Kate. So in closing, I'd like to highlight the significant potential for value creation in the years ahead to be driven both by VYJUVEK and our deep clinical stage pipeline. Our VYJUVEK launch, having already achieved over $250 million in net revenue is progressing very well. However, as we saw in Q4 of last year, we do anticipate some disruption over the holiday season as life gets in the way for many families. That said, our conviction in the overall trajectory of our launch remains unchanged. More importantly, this is only the beginning of the opportunity we see for the VYJUVEK franchise.

In the coming years, we expect ex-U.S. expansion development and launch of our drop formulation for KB803, both driving significant revenue growth. Meanwhile, our KB301, is a reminder of the significant yet to be a potential that we see in our pipeline. With multiple readouts coming up, we think we're on the words of demonstrating the true potential of our HSV-1 based gene therapy platform. And with the [indiscernible] of commercial scale in-house GMP manufacturing infrastructure, growing revenues, 5 quarters of positive EPS, we have the necessary resources to pursue these opportunities efficiently and in such a way to maximize value for our shareholders. Thanks for listening. I'd like to open the call for Q&A.

[Operator]

[Operator Instructions] Your first question for today is from Alec Stranahan with BOA.

[Alec Stranahan, analyst]

Just 2 from us. First, could you give us a sense of how many patients are at or near their annual cap currently? Is this something we should be looking for when we model sales into year-end? Or should the new patient adds throughout the year sort of offset this? And second, I appreciate this data is probably still evolving. But on the duration of wound closures over time, curious if there's any trends coming out of your clinical studies you could point to for duration of wound closure. Just trying to get a sense of how long a pause due to wound closure could last before a patient would need to receive therapy again?

[Krish Krishnan, executive]

Look, on your first -- this is Krish here. On your first question on how many patients are going to hit the cap. We're not particularly disclosing that aspect of it. You can kind of glean the caps in the GTM and the whole point of growing was to make sure there's no volatility with respect to net revenues in any other quarters. That's the whole point. And I think we're on track to make sure that the net revenue growth is pretty smooth over Q1, Q2, Q3 and Q4. And we'll have a much better sense as we go further into the launch of that point. With respect to duration of wound closure, a couple of things I want to mention.

Look, there are -- depending on the location of the wound, and the nature of the activity, this can be pretty varied across individuals. Our thesis is still to stick on -- even though we've seen much larger durations of wound closure in some patients, we still stick to the science behind it which is given the half-life of collagen, we expect the average wound to be durable for about 90 days.

[Unknown Executive]

I mean I can also agree. I mean, we guess we are seeing very good clinical benefits. The wounds are closing and they are staying durable. But also what happens is these patients are increasing their activity. We hear from patients now they can go out and do more physical activities, they can work. As a result, they see breakdown in the skin, but now they're very -- I mean they want the wound to be treated because they see the benefit of treating vigilant. So the patients are being extra cautious. So even if the wounds up close and if they write open, they want the drop back on. So that's the trend that we see in the commercial setting.

[Operator]

Your next question is from Yigal Nochomovitz with Citi Group.

[Yigal Nochomovitz, analyst]

I was just curious about your broader marketing campaign. So I think you mentioned something about the very broad footprint on the social media platforms, 31.3 impression. Can you comment to what extent that's actually helping identify patients? Or obviously, it's a low conversion rate given the market size, but I'm just curious how that's working as far as identifying patients? And if any of that effort has translated to new start?

[Krish Krishnan, executive]

Christine?

[Christine Wilson, executive]

Sure. Yes, we're excited about our goal is to receive patients wherever they may be and our social media campaigns are allowing us to do that. We are seeing benefit of signing solutions that are not yet engaged or haven't been engaged for some period of time with the healthcare sets done that is allowing to reach them and keep them and engage them in a accessing 30 CPs. So we are pleased, as you mentioned, the volumes will, right, from a patient base to begin with, right, as were in the ultrarare space. But our opportunity to reach every patient is ultimately our goal and one by one we're getting there.

[Yigal Nochomovitz, analyst]

Okay. And then I think, Krish, on the last call, you mentioned that [indiscernible] about 10% more patients from the 1,200 base that was sort of forecast at the launch. I'm just curious if you had any updated thoughts in terms of that number or you're comfortable with that statement now?

[Krish Krishnan, executive]

In terms of comfortable, yes, we were comfortable when we reported the number. The trend continues to go up. And if we hit a significant milestone moving forward, we'll report again. But more and more patients as VYJUVEK tends to be well used and the volume of patients increases, the awareness goes up, we are starting to see the market expand beyond the original estimate.

[Operator]

Your next question for today is from Ritu Baral with TD Cowen.

[Ritu Baral, analyst]

I'm going to focus on Europe with my 2 questions today. Have you guys received the 180-day questions? And if so, can you comment on the topics and whether you've responded and whether at this point, you're expecting oral arguments. And then I think it was similar to your point on label expectations. You mentioned that -- it sounded like you could go down to DEB patients from birth literally but you didn't comment on recessive versus dominant. Is that a question in Europe? And then the follow-up question is for Krish on pricing in Europe. What can you say on how we should be thinking about European pricing versus U.S. pricing and how to best model that?

[Unknown Executive]

Thanks, Ritu for the question. Yes, we did receive the 180 questions. And in fact, today is our response -- as a response to the 180 question. I mean most of the -- all the issues are resolved. There doesn't seem to be an oral meeting at the point set with the EMA at the moment. So that's where we stand. With regarding to the label, the label right now as the way goes based on our 180-day comment on the SMBC is going to be from birth in the EV patients. That includes both dominant and representations for the SMBC.

[Krish Krishnan, executive]

On pricing, Ritu, we're going to do our very best to get the maximum on price possible. We're starting -- excuse me. I think about pricing, in Germany, for example, we get to launch with the U.S. price for the first 6 months as we start to begin negotiations in Germany, the first country of launch. At the end of 6 months, will start accruing expecting a certain price that we land with at the end of 12 months. So the actual pricing in Europe in the first country doesn't really get set until 1Q of, say, 2026 at this moment. We will have an have-not price given the NBP. So what will be public is the U.S. and the [ AmDocprice ].

But overall expectations for us, if you combine all of Europe, look at the conservative end, about 50% of the U.S. price, and we'll do our very best given all the product differentiators for [indiscernible] to make a strong case in an ultra-rare disease to land somewhere between the 50% and the U.S. [ vipers ].

[Unknown Executive]

I just want to add one more thing is we are still on track to get home dosing in euro. So based on the 180 days. So that's something very positive for us.

[Operator]

Your next question is from [ Amit Corwin ] with William Blair.

[Unknown Analyst]

How do you expect the declining compliant to impact revenue? And do you plan on giving any revenue guidance for 2025? And then just as a follow-up, you kind of pointed us to reimbursement approvals as a measure of the VYJUVEK launch in the U.S. What metrics are we kind of looking for the launch [indiscernible] in Europe and Japan next year?

[Krish Krishnan, executive]

I missed the first half of your first question ahead of the guidance. What were you saying?

[Unknown Analyst]

How you expect the decline in compliance to impact revenue?

[Krish Krishnan, executive]

In the U.S. [indiscernible] Look, when we launched -- at the time of the launch, our expectation was the patients would be utilizing 4 vials a month and our expectation was that it would get to about 2 vials a month, 18 months post launch. That was the expectation we had at the time of launch. We seem to be much ahead with respect to compliance because the overwhelming proportion of patients in the study were recessive when potentially more severe in the early days of launch. So we're tracking a little bit higher of that.

We're already at like 15 months and we don't expect to get to 50% over the next 3 months. So we're ahead. And that, as I mentioned before, is primarily because the percentage of our patients is much higher than the dominant patients in the study. With respect to revenue guidance next year, we're still thinking and internally talking about it. We have put ourselves in a position where we're actually expecting an EU launch early in 1Q and we have to get closer to figure out the rate at which the German launch progresses.

And then we're up in France under the AP2 or the AP1 program. So a lot of moving parts next year to be extremely definitive about guidance at this point. But hopefully, by the time the next Q comes around, we'll have more clarity on what we're going to talk about with respect to guidance in 2025. With respect to your last question, in the U.S., we had reimbursement approvals. In the EU, everything is a bit different. Germany is a bit different than France. It's a bit different than Japan. And so we haven't made a decision at this point in time. And as we get closer to the CHMP opinion, sit down and talk about what makes the best sense in terms of expecting what net revenues for 2025 will end up being.

[Operator]

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

[Gavin Clark-Gartner, analyst]

I just wanted to focus in on AATD and the data coming later this year. A first question here, can you just level that on the amount of data that we'll be getting? Like how many patients per cohort, which patients can be on augmentation therapy and also remind us the with cohorts the lavages are done in and at what time point?

[Unknown Executive]

Yes. Right now, we are in the process of enrolling cohort 2. We happen in enrolling 3 patients. We are going to enroll additional patients in cohort 2, as based on our animal study and our NHP study. We feel this is a cohort that we really need to evaluate molecular correction for this dose because we did the nice expression that this equaling dose in the NHG animal model. So we have additional patients. They are basically ZZ patients. There are conditions that right now, we have patients that are not on augmentation and on augmentation. So we will do -- evaluate them before and after for molecular correction in their long lavage.

So we hope to have couple of locations are low before end of the year and hope to have data on that cohort by end of the year with regards to levels of expression, multiple biomarkers, [indiscernible] binding up neutral. So will I understand, I have a complete picture of what are in held [indiscernible].

[Gavin Clark-Gartner, analyst]

That's helpful. And do you believe that the [ bronchoalvlar ] lavages or the bronchoscopies will be more informative. And what's the bar on either of those measures?

[Unknown Executive]

So we are looking at everything. I mean, obviously, these patients were subjected to [indiscernible] we have their baseline broncoscopy done. We noticed we have -- we collected the [indiscernible], we did biopsies. So we have [indiscernible]. So all 3 was taken at the baseline and after dosing. So we will look at all of that in completeness to understand what it looks like. As far as levels, I mean, again, we are hoping -- I mean, again, we -- I mean, these patients will not have A118, so we're going to hope to see good expression levels of the A118,at least one micromolar in the [indiscernible]

[Krish Krishnan, executive]

Gavin, I do want to add one point. We are a redosing mechanism, right? So -- and one of our objectives following a good readout in AATD is to go into a redosing type situation. So while one is kind of like a target we've set for ourselves, if you look at the complete package and we get close enough to it, we will look to redosing to kind of move the program forward. But I do want to be clear, at this point, we do not have any sense of what the levels are in any of these situations.

[Unknown Executive]

I mean, also keep in mind, we are looking at the entirety, right? You're looking at [indiscernible] the binding of A182 [indiscernible]. So it's not just a present of A180. You want to make sure you're seeing wild [indiscernible] and it's functional. So that's critical. So we're going to -- those are -- that's the kind of data that's going to be critical for us. And hopefully, that's what led to see clinical benefit.

[Operator]

Your next question is from Dae Gon Ha with Stifel.

[Dae Gon Ha, analyst]

Two from us as well. Going back to the VYJUVEK launch metric, you mentioned 460 being reimbursed. I was kind of curious if you can maybe give us a little bit more color around how that distribution is between centers of [indiscernible] and the primary care, I guess, the community dots. Just kind of curious what kind of growth we should be expecting going into Q4 and the future? And secondly, on the AATD, just to kind of level set and clarify here. Suma, is it the expectation that the year-end update is Cohort 1 and 2 and therefore, you will make a go-forward decision as well as the protocol amendment for redosing after the Cohort 2? Or will you still go through Cohort 3A and 3B, which I recall was the [indiscernible] or without [indiscernible]?

[Suma Krishnan, executive]

So I'll take your question first, and then I think the commercial team will answer your question one. Yes, I think a Cohort 1 and -- I mean, if we see the expression we need to, I think we will stop at Cohort 2. If not, I mean, we have the option to go to move to Cohort 3 because so far, we don't see any dose-limiting toxicity in our Cohort 2. So we have the option. But I think we are at a pretty good dose level right now with Cohort 2. And if we get -- you see what we see then, I think we will be ready to go into [indiscernible] with Cohort 2 or the auction board to go Cohort 3.

[Unknown Executive]

I'm happy to answer question number two. Our success has been built on the fact that we balanced growth in both the COEs and the community setting. Our KOLs continue to position VYJUVEK in a very healthy way. What we see in the COEs is either new patients that are coming in and where patients who maybe haven't yet seen the COE since the approval of biking back. In the community setting, as was mentioned, 70% of our prescribers in Q3 were new prescribers, and that's because we are successful in identifying where these patients are through our claims alert, but allowing us to find these patients all across the United States, including in the community setting. So we need to do both in order for us to continue to see the growth trajectory that we see today.

[Dae Gon Ha, analyst]

I guess, Suma, just to clarify, cohort 1 and 2 data for the year-end update for AATD.

[Suma Krishnan, executive]

Correct. That's what we're showing for. I mean we have patients enrolled in the broncoscopy portion and hopefully, we'll keep adding more patients to that.

[Operator]

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

[Debjit Chattopadhyay, analyst]

So as patients approach their reimbursement caps coupled with the holiday season. How should we think about 4Q? Do you expect a significant growth here? Or is this going to be a sequentially flat quarter? And then on the 2025 guidance, I understand a lot of moving parts. As far as Europe is concerned, but why not guide to the U.S. market, especially now that you have trends both from the summer and the holiday season under your belt?

[Unknown Executive]

Yes. Look, on the first question, the only reason I made the comment, I remember some confusion last year after we came through Q4. And the only point I'm trying to make is Thanksgiving and Christmas. Those are at least 2 weeks where patients try to not have a dose or due to like a family of vacations or whatever, and also the nurses have their own schedules. So the only reason for making that comment was not to directionally point to some weakening or flattening. We're still on track for the 720 reimbursement approvals, as we said at the time of the launch. I just wanted to alleviate concerns post Q4 right now by saying, please think about the holidays, life gets in the way.

With respect to guidance for 2025, you are right. We will have a much better handle of the U.S. We will not have a handle Germany or France or some of the other ex-U.S. countries. And so at the end of the year, we'll sit down and think about going into the Q4, if that's something that would be useful to shareholders as a way to model. Fully realizing that it will be supplemented by revenues potentially in Germany and France and hopefully even Japan.

[Operator]

Your next question is from [ Andrea Newkirk ] with Goldman Sachs.

[Unknown Analyst]

Maybe one here on the European launch. Just curious if you could share what activities are currently underway as you prepare for this potential launch starting in Germany. And then as you do look to next year, what type of infrastructure do you believe is required to support the launch?

[Unknown Executive]

Yes, Thanks, Andrea. With respect to activities, Look, we're starting to work on the dossiers ahead of the pricing negotiations in several countries. The commercial team in Germany is [indiscernible] and would probably -- and a commercial team in France is expected to be in place by the end of the year, the first 2 countries we're going to be launching in. In terms of infrastructure, look, we're not -- we're expecting somewhere about 10 employees per country at a high level. And that usually includes pretty much all aspects of commercial like medical affairs, reps, maybe somebody for access, et cetera. So a rough estimate would be less than 10 employees per country for each of the European countries.

[Unknown Analyst]

Got it. And should we expect those to be onboarded, I guess, maybe closer to the potential launch in each of those -- as those countries come online?

[Unknown Executive]

I think in Germany, most of them will be onboarded before the end of the year. In France, maybe some by the end of the year and some early next year. And so -- and we're also -- we also have a team out in Japan. We have like 6 to 8 employees in Japan today, and they'll be onboarded in the first half in anticipation of a 2 [indiscernible] launch in Japan.

[Operator]

There are no further questions in queue.

[Unknown Executive]

[indiscernible] So thank you all for joining the call. We look forward to answering any follow-on questions in the upcoming days. Thank you.

[Operator]

Thank you for joining the Krystal Biotech's Third Quarter Earnings Conference Call. This concludes today's event. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.