Krystal Biotech - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 delivered solid execution: Revenue was $96.0M with gross margin 93% and diluted EPS $1.29; results were driven by patient restarts and early lift from salesforce expansion.
• Both top- and bottom-line beat S&P Global consensus: Revenue $96.0M vs $91.96M* and EPS $1.29 vs $1.13*; Q1 had missed both, highlighting improved in-quarter momentum [GetEstimates: Q2 2025].
• Global expansion catalysts advanced: EU launch on track (Germany in Q3, France in Q4) and Japan approval with home-administration label; launch in Japan targeted before year-end.
• Management flagged seasonality/usage dynamics: expects Q3 revenue below Q2 due to summer pauses, with a return to growth in Q4 as restarts and sales expansion normalize.
• Balance sheet remains strong with $820.8M cash and investments to fund EU/JP launches and multiple near-term readouts in lung and eye programs.

What Went Well and What Went Wrong

What Went Well

• International momentum: EMA approval earlier in the year and MHLW approval in Japan (broad label, including home/family administration), with first EU launch in Germany targeted for Q3 and France in Q4; Japan launch targeted by year-end.
• Commercial execution: Q2 revenue $96.0M, gross margin 93%, reimbursement approvals >575 in the U.S.; net income rose to $38.3M (diluted EPS $1.29).
• Pipeline progress: Oncology ORR improved to 36% for inhaled KB707 in late-line NSCLC; AATD program (KB408) confirmed functional AAT expression with reduced free neutrophil elastase and initiated repeat-dosing cohort; first patients dosed in ophthalmology programs KB803 (Phase 3) and KB801 (Phase 1/2).

Notable quotes:

• “We are on the cusp of a global expansion that will build on our U.S. sales momentum...” – CEO.
• “We were again profitable this quarter at $1.29 per share fully diluted...” – CEO.

What Went Wrong

• Seasonality/usage volatility: Management expects Q3 revenue to be below Q2 (summer pauses and evolving patient mix), with growth resuming in Q4; compliance while on drug ticked down to 82% (from 83% in Q1 and 85% at YE’24).
• Timing slippage in CF readout (KB407): “later this year” vs prior “mid-2025,” largely due to academic site contracting and onboarding through the TDN network.
• Rising operating costs in oncology: R&D allocation skewed to oncology given expensive combination cohorts (e.g., pembrolizumab) and preparations for potential controlled study, implying higher trials cost intensity.

Transcript

Speaker 3

Thank you for standing by and welcome to the Krystal Biotech Q2 2025 earnings call. At this time, all participants are in a listen-only mode. After the speakers' presentations, there will be a question and answer session. As a reminder, today's conference is being recorded. I would now like to hand the conference over to your host, Stéphane Paquette, Vice President of Corporate Development. Please begin.

Speaker 1

Good morning and thank you all for joining today's call. Earlier today we released our financial results for the second quarter of 2025. 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, Laurent Goux, Senior Vice President and General Manager for Europe, 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 Krishnan. Thank you. Good morning everyone and welcome to the Krystal Biotech earnings call. We'd like to touch on four topics in this call. First, the Vyjuvek launch, which is progressing well, and the upcoming launches in Europe and Japan are expected to significantly add to what is already a top-tier trajectory in the U.S. Second, we're expecting several clinical readouts in the upcoming months for diseases in lung and the eye, which could propel Krystal into its next stage of growth and dramatically increase our ability to deliver benefits to patients. We'll talk briefly on our recent KB304 readout, which we believe validates the platform and the opportunity that exists for our subsidiary Jeune in aesthetics.

Finally, I'm proud to report that we've been able to achieve these milestones while maintaining operational discipline. We were again profitable this quarter at $1.29 per share, fully diluted, marking now two years of consistently positive EPS for the company. Moving on to our 2Q results, Q2 net Vyjuvek revenue was $96 million. This brings total net Vyjuvek revenue since launch to over $525 million. The return to growth in Q2 was due to patients who paused earlier getting back on drug and the additional impact of our ongoing salesforce expansion. It's important to note that salesforce hiring is still underway. We expect the full impact of our new hires will only be felt over the next few quarters as hiring is completed. Reps are trained to be fully operational in the field. Gross margins and GTN were largely consistent with prior quarters.

I'm also happy to report that we saw an increase of reimbursement approvals over the course of 2Q and we have secured over 575 reimbursement approvals for patients in the U.S. Compliance while on drug as of the end of the second quarter came in at 82%. However, we do expect compliance to trend down in the coming quarters as severe patients who started early are now achieving durable wound closure on Vyjuvek and as the percentage of moderate and mild patients increase in the overall patient mix. As we discussed last quarter, complete wound closure and treatment pauses are fantastic outcomes for patients and exactly what we set out to do when founding this company.

It's also been rewarding to see patients grow increasingly comfortable with the pausing and restarting dynamic and gaining confidence in the fact that when wounds do open they can easily access Vyjuvek and again achieve durable wound closure. These treatment successes, together with the tireless commitment of our Krystal Connect patient support team, are what allow us to build strong trust-based patient relationships for the long term. They also help activate new patients and together with our recent publications and digital tools, they raise awareness of what is achievable with regular Vyjuvek therapy. This also means that we remain in a period with inherent unpredictability quarter to quarter. Consistent with Vyjuvek's mechanism of action and skin turnover, we are seeing a growing number of patient restarts, but the exact cadence at the individual patient level is highly variable and still difficult to predict.

Based on the summer pausing trends we're seeing over the first few weeks of 3Q, our current expectation is that 3Q revenues will come in below what we're reporting here today, with the return to growth in 4Q driven by a growing patient funnel, restart, and salesforce expansion efforts. As usage patterns stabilize in the U.S., we expect this waviness to subside with transformative patient outcomes driving long-term sustainable growth, penetration of the identified patient pool, and bringing new patients to therapy. The growth trajectory for Vyjuvek will also benefit from global expansion and our launch overseas. Laurent Goux, our GM for Europe, will touch on the European launch dynamics and near-term activities in a moment. Before getting into the European opportunity, I want to highlight another fantastic milestone for our team. Late last month we announced the approval of Vyjuvek by Japan's Ministry of Health, Labor and Welfare.

We received a broad label from the Japanese authorities similar to the one approved in Europe earlier this year that includes all DEB patients from birth with the option of home, self, or family administration. The label also provides clinicians flexibility with how to diagnose DEB patients and does not require a genetic test, facilitating onboarding and initiation of treatment. Japan is another attractive market into which Krystal can launch directly, with hundreds of DEB patients in urgent need of a safe and effective therapy. We already have our core team in place to secure a pricing decision in the upcoming months and launch before year end. Thanks to the recently completed and published Japanese open-label extension data, key opinion leaders in Japan already have initial experience with Vyjuvek, which is a tailwind for our launch.

I'll now turn it to Laurent to share more detail on our European launch plans and latest timelines. Laurent, thank you Krish.

Speaker 2

I'm pleased to present an update on the upcoming European launch of Vyjuvek. After receiving approval earlier this year, we are on track for our European launch this quarter. In the second half of 2025, we will bring this important therapy to patients in Germany and then in France. Based on our latest analysis, the identified pool of patients in each country exceeds 500 patients. These patients are supported by four expert centers in both Germany and France, but also 20 to 30 additional sites, usually university hospitals. Please note that the launch in France is subject to the continuity of the ATU Preco or Early Access program. We are working closely with local authorities to ensure that eligible patients can benefit from this pathway.

We have already established dedicated commercial teams in both countries, with roughly eight team members on the ground in each market, supported by an additional eight colleagues at our European headquarters and leveraging U.S. back office resources in Germany. We anticipate for our first commercial patient to be treated in August, making an important milestone in our efforts to bring meaningful solutions to the DEB patients and the healthcare professionals. To facilitate rapid and effective access, we have established comprehensive patient service and education programs. These initiatives are designed to support home administration of the therapy as well as administration by caregivers, ensuring that patients can benefit from our treatment regardless of their healthcare settings. These different possibilities are allowed by the very strong label approved by EMA. Since approval, the team has worked on identifying the key centers and preparing them to enroll patients.

Our focus is to ensure successful launch, driving uptake at key centers and ensuring an efficient patient experience. This launch is a significant step for Krystal Biotech, reflecting both our commitment to rare disease patients and strategic execution of our international commercial plans. I will now hand the call back over to Chris.

Speaker 1

Thank you, Laura. With Vyjuvek delivering transformational clinical outcome for patients, we remain as confident as ever in the blockbuster trajectory for our first approved genetic medicine in the U.S. We're already starting to see the benefits of our salesforce expansion, which we expect to drive significant penetration of the remaining identified patient pool in Europe. With a broad label, flexible dosing options, and a large identified patient pool, we see a path for steady multi-year growth as we work with key centers and launch sequentially in major markets. The broad label in Japan adds another high value launch market, which should start adding meaningfully to our top line in 2026. Increasingly, we're pursuing meaningful opportunities in rest of the world markets accessible through distributors and partners. Altogether, these put Vyjuvek on an exciting trajectory and provide a strong financial foundation and significant optionality for the company.

I'll now hand it off to Suma to touch on recent pipeline development at Krystal.

Speaker 4

Thank you, Karish. Our R&D team has had another productive quarter as we work diligently to build a true portfolio of high value genetic medicines. Today I will touch on key accomplishments including clinical data updates for oncology and aesthetic programs, progression of KB408 into repeat dosing for AATD, as well as two new study starts that set up for multiple near term readouts in both the lung and eyes. I would like to start with a few highlights on inhaled KB707. Earlier this summer at ASCO, we shared an update on our phase 1/2 study Kyanite 1, evaluating inhaled KB707 for solid tumors of the lung. This update included safety data from 39 subjects treated with inhaled KB707 as monotherapy as well as an efficacy data update for the 11 KB707 treated patients with late line NSCLC.

With an extended follow up and a new data cut of April 15, 2025, we saw deepening of the responses in the NSCLC cohort with an improved objective response rate of 36%. Median duration of response and progression free survival were not yet reached. Just as importantly, inhaled KB707 continued to be safe and generally well tolerated and amenable to administration in the outpatient setting. We are increasingly excited about the profile of inhaled KB707 monotherapy in the clinic. In addition, combination therapy cohorts have been open in Kyanite 1 and enrollment is ongoing. We have also made exciting progress with KB408 for the treatment of AATD lung disease. We recently completed dosing and bronchoscopy of a third AATD patient dosed with KB408 in Cohort 2.

As shown on the slide, we again saw robust airway transduction resulting in functional AAT expression as demonstrated by neutrophil elastase binding in the ELF. Please note that this patient was on background IV augmentation, and yet we still detected a reduction of free neutrophil elastase following KB408 dosing across all three bronchoscopy patients. We have seen transduction rates in the 30% to 40% range after a single dose. The safety profile of KB408 continues to be attractive across all five patients dosed in Cohort 2. Based on these data, we recently amended the Serpentine 1 protocol and started dosing in a newly opened Cohort 2B to investigate repeat dosing in Cohort 2 dose levels. Our study objectives with this new cohort are to evaluate safety and tolerability of repeat dosing as well as assess additive efficacy of repeat dosing and explore optimal dosing timing based on durability of effect.

Design details are summarized on the slide. Patients will undergo a baseline bronchoscopy, receive four weekly doses of KB408, and then receive a bronchoscopy either one or two weeks after the final dose to assess expression and durability. We expect the data generated from Cohort 2B to dictate our approach with respect to the advanced clinical development of KB408, including potential accelerated approval approaches. We are also making steady progress on KB407 with TDN sanctioning and the addition of new network sites providing expanded access to CF patients, including those that are currently ineligible for modulators. We now have our fourth patient enrolled in Cohort 3 and expect to soon have five TDN sites up and running to support completion of both Cohort 3 as well as subsequent repeat dosing studies.

Based on the latest patient screening and enrollment timelines, we expect to be able to share molecular data later this year. Finally, we have our recent clinical data in aesthetics, where we reported positive results from our 2 to 1 randomized double-blind and placebo-controlled study evaluating our second aesthetic candidate, KB304. KB304 is a combination aesthetic therapy encoding both collagen III and elastin to drive aesthetic improvements in the skin. As the Jeune team shared a few weeks ago, investigators and subjects alike reported meaningful aesthetic improvements across multiple attributes, including wrinkles and elasticity, with clear and statistically significant advantages over placebo. The images shown on the right highlight the improvement achieved by some of our KB304-treated subjects. The safety profile of KB304 was also in line with expectations. All adverse events were mild to moderate and transient.

Based on the broad aesthetic improvement observed with KB304 in Part 2, we have decided to progress KB304 into a Phase 2 study for the treatment of wrinkles of the décolleté. In support of this goal, we also recently completed development and validation of a décolleté-specific photonumeric scale. We intend to align on the Phase 2 protocol later this year, enabling a potential Phase 2 study start in the first half of 2026. Finally, I would like to add that we started two ophthalmology clinical trials in the last two months: Iolite, a Phase 3 study evaluating KB803 for the treatment and prevention of corneal abrasions in DEB patients, and Emerald1, a Phase 1/2 study evaluating KB801 for the treatment of neurotrophic keratitis. Both of these programs leverage the unique attributes of our platform and showcase what is achievable with our HSV1-based platform in the front of the eye.

We are looking forward to sharing data progress updates on those programs as they progress altogether. This steady execution sets up for many near term readouts in cystic fibrosis, AATD, neurotrophic keratitis, and dystrophic epidermolysis bullosa that we expect will validate the breadth of opportunity that exists with our HSV1-based platform. With that I would like to turn the call to Kate.

Speaker 5

Thank you Suma and good morning everyone. I'd like to provide some highlights from our second quarter financial results that were reported in our press release and filing this morning. As Krish mentioned earlier, our net product revenue for Vyjuvek was $96 million for the second quarter of 2025. This marks continued growth as compared to the second quarter of 2024 as well as 9% growth over the recent first quarter of 2025. Gross to net revenues remain consistent with prior quarters. Cost of goods sold was $7.2 million compared to $6 million in the prior year's second quarter and gross margin remained relatively consistent at 93% in 2Q25. Research and development expense was $14.4 million compared to $15.6 million in the prior year.

The decrease quarter over quarter is primarily due to the timing of our various research and development manufacturing runs, offset slightly by increased clinical development costs across many of our product candidates. General and administrative expenses were $35.2 million compared to $27.6 million in the prior year second quarter primarily due to increased professional services fees including marketing services, consulting and legal. We also saw increased personnel related costs compared to last year due mainly to growth in our headcount to support global commercialization and this was inclusive of increased stock based compensation costs from new grants. Operating expenses for the quarter included non-cash stock based compensation of $14.1 million as compared to $13.2 million in the second quarter of 2024. You'll note that our non-GAAP R&D and SG&A guidance remains unchanged on slide 14.

Net income for the quarter was $38.3 million which represented $1.33 per basic and $1.29 per diluted share. This is compared to $15.6 million in the prior year's second quarter at $0.54 per basic and $0.53 per diluted share. Finally, I am happy to comment on the sustained strength of our balance sheet. We closed the quarter with over $820 million in combined cash and investments, with continued growth in our net cash provided by operating activities over previous quarters. We believe this puts us in a great position ahead of our upcoming Europe and Japan launches as well as for the significant number of research and development objectives we have set forth for the remainder of 2025 and into 2026. With that, I'll now turn the call.

Speaker 4

Back over to Krish.

Speaker 1

Thanks, Kate. With clear growth drivers for Vyjuvek in the U.S. and abroad, plus the additional upside of a potential KB803 launch for corneal abrasions over the next few years, we're excited about the path ahead for Vyjuvek and for Krystal. It's important to understand that this upward trajectory will not necessarily be linear, but looking beyond the short term, this is a multi-year growth story that has only just begun. Add a rich and growing pipeline of clinical stage programs targeting clear unmet needs with step jump implications for Krystal, we see opportunities to build significant shareholder value in the years ahead. In the months ahead, lung readouts in cystic fibrosis and AATD together with ophthalmology readouts in neurotrophic keratitis and DEB will make clear the potential of our platform across multiple tissues and open up blockbuster product opportunities.

Finally, our inhaled KB707 program for NSCLC continues to progress well and stay tuned for readouts in 2026. Thanks for listening and I'd like to now open the call for Q&A.

Speaker 3

Certainly. At this time we will be conducting a question and answer session. If you have any questions or comments, please press Star one on your phone at this time. We ask that while posing your question, you please pick up your handset if listening on speakerphone to provide optimum sound quality. Please hold while we poll for questions. Your first question for today is from Roger Song with Jefferies.

Speaker 4

Hi, this is Fiona Alpha. Roger, congrats on the quarter and thanks for taking our questions. My first question is just to clarify. The revenue growth for this quarter is not impacted by the salesforce expansion, and if you think the volatility for the next quarters will be offset by the salesforce expansion kicking in and the EU launch. Thank you.

Speaker 1

No, as I alluded to in my script, part of the increase in Q2 was driven by people, patients who are pausing, getting back on drug to start, and we have been hiring reps since the tail end of Q1, so there was an incremental effect. I think the point I was trying to make is the full impact of all the hires will be felt over the next couple quarters as they come on board, get trained, and are fully functional in the field.

Speaker 4

Yeah, that's very helpful. Thank you.

Speaker 3

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

Speaker 1

Hey guys, thanks for taking the questions. Could you just give us a little more quantitative commentary on the magnitude of how much slower the first few weeks of the quarter have been versus Q1? Just any rough way to think about that now? We're not going to get to that level of detail, Gavin. It is early in the quarter. I was just trying to set expectations that in the summer people take vacation and the summer holidays always have an impact on pauses. Beyond that it's tough for me to quantify because it's such a variable thing. The quarter is just maybe one third of its way in. I just wanted to point out that summer is usually filled with more pauses than usual. Okay, great. Just a quick follow up for us.

Vyjuvek, what's the mix of RDEB versus DDEB patients either in reimbursement approvals or in start forms that are coming onto therapy? Thanks. That's a good question. I believe as of the last quarter, that mix is more like 64/36 in that range. I asked Stéphane. Stéphane, if you have a clearer number, can you jump in? Yeah, it's basically in line. We didn't see really much movement at all in the breakdowns for reimbursement approvals either. RDEB, DDEB, age, even insurance plan. One of the reasons we didn't really get into it this time around, but they're largely stable. Maybe shifting, you know, as always, you know, shifting very gradually, the DDEB side. Okay, great, thanks.

Speaker 3

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

Speaker 1

Hi, team. This is Joshua Fleishman on the line for Ritu. Congrats on the quarter and thanks for taking our question. How do you expect for drug holidays to factor into the original guidance of 720 U.S. patients initiating Vyjuvek? On Europe, how should we think about pricing and what's important to the countries' health technology assessments? Thank you. With respect to 720, Joshua, as we mentioned last quarter, we're on track, but we're maybe a quarter or two behind. Sometime early next year is when we think we'll get to that number. Our original ambitious goal was to get there by September or October of this year. I think we're still very pleased with the track we're on and we hope to get there pretty quickly.

In terms of EU pricing, I'm going to let Laurent speak to it and I'll come back to the last question when he's done. Thank you, Krish. Yep.

Speaker 2

Thank you, Krish. Reimbursement application processes are proceeding as planned with the HTA bodies in the main countries in Europe. As you know, in Germany we benefit from free pricing during the first 12 months post approval, and then the negotiation with GKV are about to start. Now, it's a bit premature to provide any feedback given that we have not received any feedback from the authorities with regard to our HTA dossier.

Speaker 1

But.

Speaker 2

The early engagement we had with the key authorities throughout Europe were very productive, and the unmet medical need in DEB is well recognized by the payers. The potential benefit, transformational benefit of Vyjuvek seems to be understood.

Speaker 1

Krish? Yeah. Thanks, Laurent. Joshua, your last question was on something around technology used in Salesforce. It was on what's important to the country's health technology assessments. Gotcha. Great. Does that answer your question?

Speaker 2

Any follow up?

Speaker 1

Nope.

Speaker 2

That's great.

Speaker 1

Thank you so much.

Speaker 3

Your next question is from Sami Corwin with William Blair.

Speaker 4

Hey there.

Speaker 3

Good morning.

Speaker 4

Congrats on the quarter and thanks for taking our questions. I have another couple questions about the upcoming European launches.

Speaker 3

I know previously you mentioned that there might be a dynamic of onboarding patients.

Speaker 4

Based on their need to get.

Speaker 3

Treated in a physician office first.

Speaker 4

I wonder if you could comment on that a little bit and then.

Speaker 3

Do you have any goal in terms of the reimbursement ramp like the 720 number that was initially applied for the U.S. launch?

Speaker 1

Thank you Laurent.

Speaker 2

Yes Krish, thanks for the question. The requirement for an appointment at a specialty center is quite customary in practice in Europe to access a prescription in general and even more for specialty drugs. It's not something unusual that you have to go through an appointment at the center. This is the reason why the team has dedicated the past three months to identifying the centers, understanding the potential bottlenecks, and ensuring their readiness to enroll patients either through education, advanced scheduling, or addressing any other needs on a case by case basis. These are the main guidelines. With regard to the number of patients covered in Europe, when a country grants reimbursement, it will be for the entire population that will be designated in the reimbursement approval. There is no case by case request once the drug is approved by the payer body, the national insurance in most cases.

Speaker 3

Okay, if I could rephrase those questions slightly. Is it possible for patients to do that initial appointment in a group, or does it need to occur on a patient-by-patient basis? I guess instead of a patient ramp, do you have a goal in terms of onboarding patients to drug over a particular period of time?

Speaker 2

I don't think we have communicated any guidance for patient on drug. This will be a stepwise approach, and that will depend on when the countries will be reimbursing the product. We have the same goal as the U.S., which is to reach 60% of the patient pool, the eligible patient pool, within the first two to three years.

Speaker 1

But.

Speaker 2

We have not communicated more detailed numbers.

Speaker 4

Great, thanks.

Speaker 3

Your next question for today is from Alec Stranahan with Bank of America.

Speaker 1

Hey guys, this is Matthew on for Alec. Appreciate you taking our questions. Maybe on the pipeline, notice that the timeline for CF data was mid-2025, now by year end. Anything to read into this or is this just, you know, enrollment timelines? Maybe you can remind us of sort of the number, type of patients we expect in that first readout.

Speaker 4

Yeah, I can take this question. As you may be aware, we did announce that the TDN, you know, we got endorsement from the TDN, so that opened up all the TDN sites. We have been actively working. We have at the moment six TDN sites that we are in contract and budget phase. Unfortunately, with these academic sites, just the whole process and paperwork took more time than we anticipated. Our team really pushed, but we are getting close. We believe once we can get these sites up and running, which we are pretty close, we should be able to enroll the patients. That pushed out, but hopefully we can enroll multiple patients across these sites once they are up and operational.

Speaker 1

With respect to the data announcement, look, you know, Cohort 3 is essentially three patients on modulator and three null. What we're looking to show is molecular data on three null mutation patients in cystic fibrosis.

Speaker 4

Correct. Keep in mind, null patients are harder to get by, but the TDN sites do have them. We have patients, but you also need patients that are willing to enroll, which is not easy. We are there. We're getting there.

Speaker 1

Gotcha. Thank you.

Speaker 3

Your next question for today is from Andrea Newkirk with Goldman Sachs. Hi, thank you for taking our question. This is Morgan on for Andrea Newkirk, following up on one of the previous questions. Do you anticipate a similar dynamic will be required in Japan, such that patients will need to be seen by a healthcare practitioner before initiating Vyjuvek? Also, can you share some details on the fifth patient dosed in cohort 2 for AATD in terms of the % cells that were transduced and the level of AAT expression and distribution.

Speaker 4

Of KB408 across the lungs? Thank you so much.

Speaker 1

On the Japan question. Yeah, it's very similar to Europe. It's the way all drugs like the first visit is in a physician office. No change there in terms of the AAT. I'd ask somebody to go back to that slide. I don't know. Stéphane, if you can pull up that slide on AAT. Just give us a minute. Yeah. As you could. We're trying to.

Speaker 2

It should be.

Speaker 1

Of course you can.

Speaker 4

Basically, all three patients, we saw expression in the biopsy sample. You could clearly show expression from baseline increase, obviously in the lavage. One of the patients, we had difficulty recovering the right amount of lavage because this whole procedure is pretty tricky. It's because of some of the issues with recovery of the lavage. We were not able to get the level. In two patients we were able to show both expression of. In the lavage, we were able to measure AAT and show neutrophil elastase and binding and reduction of the neutrophil elastase. In all of the patients in their biopsies, we did see expression of AAT above the levels of baseline. Okay, great. Thank you.

Speaker 3

Your next question is from Joseph Pantginis with H.C. Wainwright. Hi everybody.

Speaker 0

Good morning. Thanks for taking the questions. Two topics if you don't mind. First on Vyjuvek. Krish, you talked about one topic. I know it might be too early and also might include a lot of patient variability. I don't know if it really could be answered. How would you view, you know, based on the pausing and restarting and chronic wounds being closed versus mild to moderate. How would you define if you can steady state for a patient as they're on Vyjuvek over the long term with regard to starts and restarts and wound reopening?

Speaker 1

We've said consistently even at the pre-launch stage that steady state implies that the entire patient base on average consumes about 26 vials a year. We're not there yet. We believe we'll get to steady state when the ratio of RDEB to DDEB patients is about 50% each. If you have an even split of recessive and dominant and they've been on drug a while, we expect the average consumption across the patient base to be 26 vials a year. That is how we define steady state. If you look at the compliance, if you look at the RDEB DDEB ratio, you look at the vials consumed, we're definitely months away from getting to that point.

Speaker 0

Okay, that's helpful, thank you. I just want to switch gears to Jeune right now. I'll start with the phase two program. The prepared comments with regard to decollete phase two, you talked about a photonumeric scale. I guess I wanted to discuss the novelty of that. What are the key aspects of the regulatory discussions around this endpoint?

Speaker 4

I mean obviously as you know with KB304, it's a combination of collagen III and elastin. I mean with adding elastin and we clearly know that we can express elastin from animal models with our vector, the definition of elastin obviously is not, you know, it's not going to be, it's going to be slightly different. You're going to see improvement in texture of the skin, skin quality, et cetera, et cetera. That's something that we captured in our KB304 study. If you look at our patient's feedback, I mean, or their rating, that's some of the consistent feedback that we got from consistently all the patients that were on the drug that they felt their skin was smoother, the texture felt better. Some of that cannot be captured just by photonumeric scale. We do want to talk to the agency about the novel mechanism.

Obviously with this division, we know that we can express collagen III, we'll express elastin and we need to, you know, we're going to propose some sort of, you know, quality evaluation for the patient reported outcome of skin quality and skin texture. This is something we're going to sit down, be at the agency and have that discussion. We have developed a photonumeric scale at the moment for the decollete. We have a scale that's developed and validated. We want to do some sort of a combination and then have that discussion with the agency.

Speaker 0

Got it. Just quickly on Jeune again. I know, Krish, you've talked about this in the past with regard to potential options of how the Jeune corporate aspect might play out with regard to, say, keeping it a subsidiary part of Krystal, spinning out, or what have you. Do you have any potential thoughts on when we might see visibility on potential outcomes there?

Speaker 1

Yeah, I think following the announcement on KB304 and Suma's starting to have conversations with the FDA from a development perspective. We expect to start phase two in the upcoming months. Meanwhile, Nishant, the CEO and the CFO of Jeune, are actively pursuing, are diligently working towards getting Jeune financed and spun out. The broad timing on that is roughly before the end of phase two. Our expectation is by the middle to the end of 2026, we're expecting Jeune to be a separate subsidiary of Krystal Biotech. Great.

Speaker 0

Appreciate all the answers.

Speaker 3

Your next question is from Joshua Schimmer with Cantor Fitzgerald.

Speaker 2

Great, thanks for taking the questions. Just two quick ones. Krish, can you clarify that when you suggest a decline in Vyjuvek revenue, quarter over quarter in the third quarter, is that in the U.S. only or does that encompass worldwide? You do have the offsetting launch in Europe. Second question, your R&D expense allocation, at least in the 10Q, seems very heavily weighted to the oncology program specifically. Just curious as to why that's the case and what trends you expect to see going forward across the other programs. Thank you.

Speaker 1

Hey, on the decline, that was on the U.S. commentary. It was a completely 100% U.S. specific commentary. Take into account like we saw last year, that in the summer months families go on vacation and there's more disruptions and pauses than usual. With respect to the R&D breakdown on costs, cancer trials are expensive and I'll have.

Speaker 4

I can surely chime in. Obviously you guys saw the monotherapy data. We are now in the process, the study's already started between the combination. Keytruda is not cheap and it's expensive. Also, given the agency's recent vaccine and other stuff, we believe we have very strong data. We want to position ourselves to meet with the agency and start talking about a control study. This is something we'll have based on our discussion with the agency. We anticipated that into the cost, what it would take if you would go into a full blown study.

Speaker 1

Thank you.

Speaker 3

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

Speaker 1

Hey, Christine team. Thanks. Two questions. Could you talk about the, you talked a lot about the 720, the 60%, as you pointed out. I'm curious about the other 40%, the 420 to get to the full 1,200. What have you said or what can you say today about the timelines to capture that aspect of the U.S. market? Look, the 720, it's a number like if you look at the past history of drugs that have been launched, the best of the launches have gotten to about 60% market share in two years. This is more of an academic benchmark than anything related to. It has nothing to do with, we're going to stop at 720. We fully believe that the entire 1,200 patient base is something that we need to target.

We had set a goal in terms of the rate of launch trying to get to like a 60% market share and compete with the best of prior launches out there. The only point I'll make is as you get past 700, the profile of patients that we get will be much more moderate to mild, much more out in the community, probably higher on the age scale. That does not mean every wound is important for Vyjuvek to be treated. By no means are we trying to convey that once we get to 720 we're on some different mode of pathway. We'll continue with the same level of diligence and effort to get to the remaining 1,200.

Once we get to that point, we'll definitely start thinking about how to go after the gap between the 1,200 and the 3,000, which is a much more undiagnosed, difficult to find target population. Okay, that's helpful. I think you made a comment with respect to France that something about the continuity of the EAP. Can you just expand on that? Are there specific risks to continuity or why wouldn't there be continuity of the EAP that would impact the transition to the commercial? Can you just walk through that in more detail, please? Yeah, Laurent. Yes.

Speaker 2

I mean, this is a more formal aspect to it. We had the ATU precos pre marketing authorization in France, and now we are waiting for the ATU precos post authorization. It does happen, even though it's very rare, but it does happen that some companies don't. We will respect the process that we have engaged with the authorities. We are confident that, yes, the patients will be able to have access to the drug under the ATU post authorization.

Speaker 1

Okay, thank you.

Speaker 3

Your next question is from Debjit Chattopadhyay with Guggenheim Securities.

Speaker 1

Hey, good morning and thank you for taking the questions. I have got a couple of clarifications. On the 82% compliance, could you sort of clarify what percentage of patients are currently using 4 months of IL versus 3, 2, 1, etc.? How have recessive patients evolved versus the dominant patients? I have a follow up. I was following you along. Can you just repeat the first part of your question? The 82% compliance rate, what percentage of these patients are on four vials versus three, two, one? We're just trying to get a better feel for how to calculate that 82% or how to calculate in our models, rather. The way we define compliance has always been consistent and the same since the time of the launch.

The easiest way to think about compliance is if you are on drug for 10 weeks and you miss a week, you're at 90% compliance. That said, if somebody paused for an extended period and got back on drug, they kind of hurt compliance. If you never came back on drug, you kind of helped compliance. That is why it's compliance while you're on drug as opposed to if you're not on drug. That said, irrespective of how one calculates compliance, whether on a quarterly basis or a six month basis or an annual basis, we're talking a range somewhere between 76% and 84%. It's not that far off with respect to that. There could be many ways to calculate and we try not to get into when it's not that material to the overall situation. Appreciate the clarification.

Just to follow up on the utilization that you're seeing in the recessive patients versus the dominant. I know you mentioned once you get to 50/50, roughly 26 vials per patient, but right now, what are you seeing in the recessive versus dominant? The recessive are definitely much more consistent and have been since the beginning of the launch. We even look at what is the compliance of the people who came on the drug in Q3 of 2023. How are they doing today? All the pauses and stops and starts are heavily impacted by moderate to mild patients. Typically, adult moderate to mild patients are who make this pause and start difficult to figure out. The RDEB is extremely consistent on drug for the most part.

Some of them now are approaching a point where the wounds are fully healed and so there is an opportunity for them to take a break and get back on drug. The entire conversation around stops and starts is on the moderate to mal side. Awesome. One last one. Based on the single arm data, what kind of TPS scores are you enrolling in the COMBA program in non-small cell lung cancer? Thanks so much. TPS scores.

Speaker 4

Okay. I mean, we are looking at, obviously, we are agnostic, right? It doesn't matter what kind of PD-1 expression or a PD-L1 expression, right? I mean, we are looking for frontline failed patients. Either they failed PD-1 or PD-1 plus platinum therapy. Once they fail, we know re-challenging with PD-1, the number of overall responses goes down from 30% to 35% to 10%. We are agnostic. We have seen, we looked at our data with monotherapy with patients that have failed PD-1 or where they were mutation specific. We still seem to have an impact and we work, we see stable disease or in some cases we also see partial responses. We feel we are pretty much agnostic. We are going to stratify our enrollment. Obviously, we look at PD-1 high patients and PD-1 low.

In our recruitment study and our analysis, we will try to stratify and collect that data and see, you know, the impact of whether when you use in combination with Pembro, are we seeing better impact with higher PD-1 expression versus negative PD-1 expression?

Speaker 1

Thank you. Good luck.

Speaker 4

Thank you. Thank you.

Speaker 3

We have reached the end of the question and answer session and today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.