Thank you for standing by, and welcome to the Krystal Biotech First Quarter 2025 Earnings Call. At this time, all participants are on 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, Stephane Paquette, Vice President of Corporate Development. Please begin.

Good morning, and thank you all for joining today's call. Earlier today, we released our financial results for the first quarter of 2025. The press release is available on our website at www.krystalbio.com. We also filed our earnings 8-K and 10-K 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.

Thank you, Stephane. Good morning everyone. I'd like to start today by thanking the Krystal team. We're fortunate to be in such a good position commercially, clinically, and financially to help patients amidst the turbulent macro and FDA backdrop. I'd like to briefly touch on four topics. VYJUVEK going global, the upcoming clinical readouts in 2025, primarily CF Alpha-1, a very exciting second ophthalmic program to treat neurotrophic keratitis that just entered the clinic, and briefly discuss in the end how Krystal's insulated in the current macro and FDA situation. With the positive EC decision now behind us and the broad label that we were fortunate to receive, we're excited about launching in Europe where the burden of finding genetically confirmed patients is much lower than it has been in the U.S. We would like to highlight that this is a full approval and not a conditional approval, now that's pretty rare, and we do not have any post-approval efficacy study requirements with respect to the EU. We're planning to launch in Germany and France in Q3, while simultaneously working on preparations to move the other EU countries towards launch. With a large number of already identified DEB patients across the continent, it's my belief that the opportunity in the EU could be bigger than what the market presently anticipates. With respect to Japan, the regulatory review is progressing well. And as noted in the slide, the manufacturing inspection is now complete. We expect to obtain approval in Q3 of 2025 and commence treating patients in Japan as early as Q4 2025. And now on to our 1Q results, Christine and Jen will discuss the U.S. launch details shortly. Net VYJUVEK revenue for the quarter came in at $88.2 million, and gross margins and GTM were pretty consistent with prior…

Thank you, Krish. I am happy to share continued growth in the number of U.S. patients gaining access to VYJUVEK with the number of patients with reimbursement approvals exceeding 540 as of April 2025. The access landscape across the United States remains very strong. We continue to maintain effectively full nationwide commercial and Medicaid coverage. We are seeing no friction with reauthorizations. All have either been approved or unprocessed, and changes in insurance that occurred in the first quarter were also processed smoothly with timelines in line with industry standards. Reimbursement approvals were again similar to recent quarters with roughly even splits between commercial and government plans. We also continue to see approvals across the entire DEB population, including patients of all ages with either dominant or recessive forms of the disease. Patient preference for at-home administration is again effectively unchanged with 97% of treatments occurring in the home setting. As Krish mentioned, as patients are experiencing real-world treatment success and wound closure, we are seeing meaningful treatment pauses and maintenance treatment. Treatment success is a fantastic outcome, not only for DEB patients, but also for Krystal. Success on VYJUVEK brings about patients' and caregivers' recognition that VYJUVEK is reliable and effective in treating and retreating wounds, which will change the course of the disease and enable patients to take control of their lives. In turn, successful outcomes will result in lifetime VYJUVEK usage, support better understanding of the benefits of lifetime VYJUVEK usage in the medical community, and encourage new DEB patients to seek out usage of VYJUVEK, all of which will drive Krystal's long-term success. The benefits of patient success on VYJUVEK is why we pay so much attention to patient experience. Our commitment to patients via Krystal Connect goes far beyond simply treating patients. Because VYJUVEK is…

Thank you, Jen. With the steady stream of new patients over the past few months, we continue to make progress towards our goal of making VYJUVEK available to as many DEB patients as possible across the U.S. We have the privilege of hearing directly from patients giving us valuable insights into the diverse way this condition impacts daily life. Each patient's journey is unique. For example, one, long-time patient believed that DEB had a minimal impact on his career or quality of life until he began treatment with VYJUVEK. After experiencing wound improvement, he realized how much pain he had simply learned to live with. Stories like this are exactly why our work matters. These personal experiences are a key element of our consumer communication strategy. Importantly, feedback from healthcare providers has been clear. VYJUVEK is making a meaningful impact across every segment of the DEB patient population. This includes both RDEB and DDEB patients, ranging from mild to severe, regardless of age. While each patient's path is different, physicians consistently report durable wound healing and positive outcomes. It's evident that VYJUVEK is transforming care in a powerful and measurable way. In the last quarter, we observed a slowdown compared to the previous quarters in the number of reimbursement approvals, and this is directly tied to the pace of patient start forms we received in 1Q. We're entering a phase where the patients we aim to reach are further embedded in their communities, often under the care of HCPs who may have limited experience with DEB and in understanding the importance of treatment and who see their patients less frequently. Our reps are dealing with longer interaction times with each physician to meet and educate and pull through a patient start form. We started to address this in 1Q by…

Thank you, Christine. Before getting into our clinical pipeline, I want to take a moment to highlight two publications that came out just last month in support of VYJUVEK, including our open-label extension study results. Our OLE study, published in the American Journal of Clinical Dermatology, includes findings from an expanded study population across all ages and ethnicities with a medium VYJUVEK exposure of over 500 days. These data clearly demonstrated that long-term use of VYJUVEK is safe and delivers durable wound closure with clinical benefits compounding over time. Dramatic improvements were also reported for patients with large and chronic wounds, reinforcing that wounds of any size can benefit from VYJUVEK therapy. The second publication in the British Journal of Dermatology describes a case of VYJUVEK therapy successfully promoting wound healing following surgical excision of a large squamous cell carcinoma lesion in a recessive DEB patient. Not only did the authors report that this patient achieved closure of large wound over 100 centimeters square in size within a few months, it remained closed at 4 and 10-month follow-up. These data underscore the consistent clinical benefits provided by VYJUVEK and supports its use in the routine management of SCC. Both these studies reinforce the versatility of VYJUVEK in treating wounds of all types and sizes. The benefits of VYJUVEK therapy for the treatment of large and chronic wounds in particular are showcased here, with multiple examples of large wound healing among our OLE participants. On the left, we have a case where at the start of the OLE, the patient's entire upper back was an open wound. With regular treatment, we saw steady and continual improvements approaching complete closure at the one-year mark. On the right, we have images from the patient that started in our Phase 3 study and continued…

Thank you, Suma, and good morning, everyone. I'd like to provide a few highlights from our Q1 financial results that were reported in our press release earlier today. As Krish noted, our net product revenue for VYJUVEK was $88.2 million for the first quarter of 2025. This marked meaningful growth from the first quarter of 2024, up 95% from the prior year. Cost of goods sold was $5 million compared to $2.4 million in the prior year's first quarter, and gross margin remained relatively consistent at 94% in 1Q 2025. Research and development expenses were $14.3 million compared to $11 million in the prior year, primarily due to an increase in personnel-related expenses, including stock compensation expense, clinical development costs, and increased manufacturing costs related to our product candidates. General and administrative expenses were $32.7 million compared to $26.1 million in the prior year, primarily due to an increase in personnel-related expenses, including stock compensation expense, as well as charitable contributions and increased professional service expenses. Operating expenses included non-cash stock-based compensation of $13.5 million as compared to $9.3 million in the prior year's first quarter. Net income for the quarter was $35.7 million, which represented $1.24 per basic and $1.20 per diluted share. In closing, we ended Q1 well capitalized with $765.3 million in total cash plus investments, noting quarterly growth in our overall cash and investments position and putting us in excellent shape to execute on our European launch and to invest in our significant clinical programs this year. And now, I will turn the call back over to Krish.

Thanks, Kate. You heard from Jen that the successes that patients are achieving today, characterized by pauses, drive our success tomorrow and are the tailwinds that will support long-term utilization, further market adoption, and penetration in the U.S. and abroad, and productive access discussions with ex-U.S. payers. You heard from Christine that our reps are dealing with longer interaction times with each physician, and we've already started to address this in 1Q by enhancing the size of our field sales team. That said, with strong patient outcomes demonstrating the value of regular VYJUVEK therapy, our conviction on the total market opportunity and the long-term profitability of VYJUVEK franchise have only been strengthened. You heard from Suma on the upcoming readouts and productive clinical pipeline, and Kate confirmed the strength of our financial situation. All of the above give us plenty of ammunition to deliver on shareholder value in 2025. Thanks for listening, and I'd like to now open the call for Q&A.

Certainly. At this time, we will be conducting a question-and-answer session. [Operator Instructions]. Your first question for today is from Alec Stranahan with Bank of America.

Hey, guys. Thanks for taking our questions. Just a couple from us. First, on the VYJUVEK sales in 1Q, curious how insurance changes or any other effects sort of impacted the trends you're seeing in 1Q? And is it fair to maybe model a bit of a rebound at 2Q, just given the trends we saw last year? And then, I've got a follow-up.

Look, there was an impact from insurance changes. It wasn't as prominent as it was last year because we already have a J-code in place, but this is something we expect every year, and especially those with insurance changes, there's a time lag, and that part of it makes it up in 2Q, makes up that component of it, catches up.

Okay, that makes sense. And then it looks like the new reimbursement approvals is slowing down as well. Since the percent access determinations appears stable at 97%. Is this sort of a natural shrinking in the addressable population, or should we maybe expect some swings on this number as well? Thanks a lot.

No, look, I was clear in my opening conversation that, look, we have no hesitation, no questions about the total market opportunity, which we defined as about 1,200 identified patients and a total prevalence of close to 3,000 in the U.S. But as Christine mentioned, it is taking longer for our reps to pull through a patient Start Form, especially as they get deeper into the community. And so to address that, we have been, we already started increasing the size of the commercial effort to address that slowness.

Okay, makes sense. Yes, thanks for the color and congrats on the continued progress.

Thanks, Alec.

Your next question is from Roger Song with Jefferies.

Great. Thanks for the update and taking all questions. A couple questions from us as well. The first one is related to the compliance. Totally understand those patients are doing great and then following treatments as they walk close and understanding the fluctuation of the situation. Just curious about what's your updated thoughts around the long-term compliance rate going to look like? And also given that you will -- you already treat all the patients for a year, do you have any patients with the restarting the VYJUVEK? How does the experience look like in terms of the timing of the restart and then what's the duration of the use of the VYJUVEK as they restart? Thank you.

Look, with respect to compliance, Roger, when we launched about, I don't know, 18 months ago, we had expected that we'd be at 50% compliance, 18 months post-launch. We're not there. We're way ahead, like as you noted. But as the mix of RDEB and DDEB patients get closer and closer to each other, we expect the compliance to hit 50% in the long term. And it's tough to predict when that would happen, but it's definitely heading in that direction, but a lot slower than we had anticipated it to be. And on your second question,

Which was specific, I think, to pauses and restarts, as I mentioned in the script, it is very individualized for every patient. Wound closure and wound durability is just very specific to patients and where their wounds are located and the type of friction and some other outside influences that do impact the behavior of the wounds and the reopening. But, yes, we definitely are seeing patients pause and then come back as their wounds all reappear or reopen or other wounds are created. So, yes, so we are seeing all that behavior.

I mean, which is a good thing. I mean, this is what we want to see in these patients. What we can see is our treatment is effective, it's durable. And as you know, these patients, even if they're durable, as Jen mentioned, sometimes they get more confident and they do more activities because of wound healing. And sometimes that can result in created wounds because of those additional activities. And then obviously they're so used to getting these wounds treated, they signal that they need the drug again. So the flexibility really does help these patients, the drugs.

Got it. Yes, thank you for the comment. And then just one more question from me is the German label or this label seems pretty favorable. And then you say, well, you will launch VYJUVEK in German, in the year. So how should we think about the trajectory of that compared to U.S.? I believe in the past that you also benchmark to U.S. launch. So do you still hold the same view here? Thank you.

Yes. So look Roger, Germany, we plan to launch in Q3. As I mentioned in the call, patient identification is less of an issue in Europe. They're all genetically sequenced, and it really helps because now, in terms of our growth targets, we have the same objective in every country, trying to get to like a 60% market share in two years. It is a really big stretch. It's a really big goal, but even getting close to it means that the launch has gone really, really well. But in terms of trajectory, I think we need a quarter or so after launch to kind of determine, but there is quite a bit of existing demand to get on drugs, both in Germany and in France.

Excellent. Thanks. Congrats for the quarter.

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

Good morning guys, thanks for taking the question. On the increase in Salesforce, Krish, by how much are you increasing headcount and are these sort of boots on the ground reps or are they sort of back office helping with reimbursement and patient support and how much of this new initiative essentially for increasing the Salesforce is related to rising DDEB? How much is potential increasing competition coming up in the next 12 months?

Jen, you want to take the first step?

Yes, I'll take us out of this. So we started our efforts here in Q1 based on, as mentioned, as we get deeper in the community, it takes more educational efforts of both the HCPs as well as to work to engage the patients into the HCP offices. So as a result of that, we did enhance our field force efforts starting in Q1. We're still monitoring the impact of that and then evaluating how we wanna proceed from there. But it's really about our goal is to achieve and strive to reach every DEB patient. And in doing that, it's taking more time so we're adding efforts to support that.

I just want to -- it's not a function of a competitive situation at all. It's more in terms of trying to get a certain level of demand in a particular quarter as the time to get a PSF is taking longer as we go further into the community.

And how much of this, Krish, is related to DDEB? In our last tracking survey, we were seeing rapid uptake in DDEB patients and intent to treat by clinicians in more DDEB. So we're just wondering how that impacts numbers, return to treatment, whether these patients resolve their lesions faster, et cetera.

Yes, I mean, our percentage of DDEB patients is definitely on the rise. DDEB patients, because they're not severe, need a little bit more education in terms of getting VYJUVEK. We make a strong case. We have seen a lot of dominant patients, not a lot, but a percentage of dominant patients. So just as severe as recessive, sometimes they learn to live with the disease. And so to pull them through requires education on the part of the physician, education with respect to how the disease can potentially get, there's always a chance of getting squamous cell. And so, yes, so you're right, Ritu. I think as we go into the community, as we start to get more dominant patients, the cycle time of getting a PSF is taking longer. And by having additional reps and having reps cover a territory that was not as big as prior will definitely help bring it forward.

Thank you.

Great, thank you.

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

Hey guys, thanks for taking the questions. On the compliance side, so the figure you report is still reported as since launch. I was curious how it's tracking on more of a quarterly or a run rate type of basis?

Look, Gavin, I'll answer. Look, we've been consistent in mentioning compliance since launch. It has served well over the last 12, 15 months or so, but definitely will paint a slightly different picture than what happens in a quarterly basis. And I'll turn it over to Jen to describe the quarterly behavior. The only point I'll make, the reason we're not putting up another stat in terms of your answer, as I mentioned in the call, it's tough to predict pausing, right? Let's say it was a particular number and they all come back over the next quarter. And all of a sudden you're in this wavy pattern again. So we're being cautious about trying to put a number out that we don't have enough history on, but with that, we'll send it over.

I think one thing that we can be solid on is that patients are compliant to weekly therapy. That is not an issue. The convenience around at home dosing allows that weekly application with no issue at all. So as prescribed weekly to open wound, we're 100% confident on and patients are not concerned about that at all. And I mentioned in my speech around persistence, that's the combination that we're trying to evaluate as Krish mentioned So on a quarterly basis, patients are extremely compliant in that high range because they're taking it week-to-week. It's the persistence when we look at like a one year mark or an 18 month mark that we're being cautious on as we try to understand the wounding behaviors and how we segment patients potentially based on their disease severity.

Got it, that makes sense. And just to follow-up on the same topic, I believe the way you do the calculation, if a patient has been completely off drug for a certain amount of time, I think they get excluded from the denominator of the calculation. Is that right? And what's that period of time again?

No, actually it's while they're on therapy. So if they do come back, then we look at that start date, end date from the entire time that they had experience with VYJUVEK. So they would always be in the denominator. We don't take them out. So if they come back on, like I said, their compliance percentage would go down. It's when they stay off that it just maintains where they were at while they were on therapy.

Okay. So in other words, if someone comes off drug, they don't get counted until they come back on?

Well, they stay in the calculation of where they were at while they were on therapy.

Okay, got it. Thank you.

Your next question for today is from Sami Corwin with William Blair.

Hey guys, congrats on the progress and thanks for taking my question. I was wondering if you could talk a bit more about the EU launch and how we should think about the cadence a patient starts and the first dose needs to be administered in an office by a physician. And then kind of going back to the patient start-stops. I mean, any stats you could really provide us on patients that have stopped therapy and not restarted? Thank you.

With respect to the EU launch, Sami, I think if there were to be a gaining factor which we are proactively addressing, it's the time it takes for the first appointment with the physician and how many can a center or a doctor accommodate in the early stages of launch. But if we can figure that part out, once they have actually had met with the physician, there's an opportunity for the patient to quickly transfer it into a home dosing situation where they can actually have care given administration or in some cases, self-administration. So -- and the rate of which, I mean, how quickly can you get an appointment? It varies by country. But we have anticipated this issue over the last six months or so. Laurent, who's the General Manager of Europe is working pretty aggressively to facilitate this. We'll know more after the first one or two months of launch how quickly this is happening and provide color. But we feel good in the sense that, I mean, this is probably the best question with respect to launch and we talked through it and are taking steps towards mitigating that.

I can add, our MSOs have already reached out to the centers. They've educated the physicians. Everybody's pretty excited, because keep in mind there was no corrective therapy for any of these patients. So I think the most of the physicians that get educated about the drug, now that it's approved, they see the label. So obviously now, I mean, hopefully they will prioritize getting these patients in.

And on your second question, Sami, on starts and stops, look, there are a very small percentage of patients who do not come back on drug. And most of the time, the rationale is they are undergoing a complication that's more severe than the nature of DEB itself, which is a skin manifestation. Squamous cell carcinoma, mortality, and in terms of coming back, we, outside of that factors, I don't want to call them the beyond, that had nothing to do with the safety of the drug or the efficacy of the drug or the convenience, patients come back on drugs. Some come back in 30, some come back in 60, some come in 90, some 120 plus. It all depends on, it's highly individual, depends on where the wound is, if they're recessive, if they're dominant, but we honestly have had no concern at all with respect to them coming back on drug. And we actually like that pattern because that's the tail on the top that we believe will continue for a very long time. But Jen and her team, they do a great job of managing the patient experience while on drug and it's really served us well.

Got it, appreciate the call.

Your next question is from Andrea Newkirk with Goldman Sachs.

Good morning, thank you for taking the question. Krish, in the context of the approval of a competitor product last week, just curious based off of your market research, how you're thinking about VYJUVEK utilization on the forward and how those two products can coexist? And then Suma, just quickly, if you could speak a little bit more about what we should be looking for at ASCO, how many more patients or extent of follow-up will be included? Thank you.

Look, I'll start on the recent approval question. Look, when Krystal was founded in 2016, it was founded on the principle that Suma felt that an autologous way of treating DEB is not sustainable. That was the premise of Krystal founding. And I'll turn it over. There are issues on this. I mean, there's so many differences on safety side, efficacy side, convenience side. Suma, if you can quickly talk about ASCO.

I mean, as you said, we don't consider the product competition at the moment because of the differences. Obviously, it's indicated for just our DEB and clearly there are safety differences, as you can see on oncogenesis, anaphylaxis and also the graft is not sterile. So that itself can cause infection in these patients. So there are a lot of safety issues from an efficacy perspective. There is a controlled study, not blinded, and it's done at just majority of the patients came out of Stanford. So it's an unblinded study, unlike us. We are randomized, blinded, multi-site study. And if you look at efficacy, the efficacy is, I mean, pretty robust for us, 100% closure at six months. There's 50% at six months. I mean, though they say there's improvement in pain, adverse event if you have pain-induced during surgery, the patient has to be biopsied. The biopsies can fail, they have to repeat, administer. And if you look at their dose, it's just 40 centimeters spare of graft. Often these wounds are not exactly shape of a graft. So they have to use this in their label. They have to debride these wounds, open the wounds to administer the duct. So there is additional burden to these patients. So once, I mean, there's apples and oranges, whereas us, its home administered, easy. To compare label-to-label, we don't consider this as a competition. So now, I mean, our second question was an ASCO. We are absolutely excited about our ASCO poster. It's going to be a poster talk. Many of the physicians are, I mean, it's novel, because we can administer cytokines directly to the lungs in a safe, effective manner. We have already demonstrated that. I mean, safety is one of the biggest concerns. We have overcome that burden. And in December, we presented the data in 11 patients in NMCCL [ph]. And at that time, we had data cut of November, now we have additional, I mean, three or four months data on the same patients that we presented. So you will see revised numbers on advocacy, safety, as well as you will see images of the scans, where you saw shrinking of the tumor. So we're very, very excited about the poster.

Your next question for today is from Debjit Chattopadhyay with Guggenheim Securities.

Hey, good morning, and thank you for taking the questions. I have a couple. So, number one, could you elaborate on the subpoena with respect to the genetic testing? And does that impact prior revenue recognition or future implications?

Hey, on that, we're fully cooperating with the DOJ, and we have no further comment on that at the moment.

And the second question, just to clarify, the 83% compliance rate that is being reported, that includes the patients who are, let's say one week on, one week off, right? I mean, your 83% assumes that there is going to be partial compliance, at least in the patients who are on therapy for the longest?

Correct.

That's right. It includes any missed dose, like while they're on therapy. So that's how it gets adjusted lower. If somebody misses and then comes back, it would calculate as missed doses.

And one last follow-up. In the patients who are still being treated or managed at the community centers who you still don't have on therapy, did we assume that off the bat, these are milder patients and compliance to start off is going to be on the lower end of what you currently have versus the more severe or DEB patients? Thank you.

Look, early on, irrespective of whether you're RDEB or DDEB in the community or a COE, your compliance is pretty good. Where the line DBA is the wound completely -- one of the reasons for patients stopping on drugs, the biggest reason is all wounds are healed. And all wounds are healed, happens faster in a dominant patient, much faster than in a recessive patient. And then in terms of comeback times, dominant patients take a bit longer on the repeat than the RDEB patients who are much more sensitive, much more focused on their wounds. But outside of that, besides one being -- and then there's a spectrum, right? There's a severe, there's a moderate, there's a mild, but the nature of getting on being so early on, the compliance is no different between recessive and dominant for an extended period.

Thank you.

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

Hi, Krish and team. I had a question on the Japan market with the upcoming approval there. Can you just discuss how the Japan market will contribute to the global revenue picture for VYJUVEK? And do you have any numbers in terms of the identified patients there in Japan based on genetic testing, as well as the overall prevalence compared to Europe and the United States? Thanks.

Yes, you should look the overall prevalence, and I'm giving a number that could be off 10%, is about 500, north of 200, 225, some of that range are fully identified. We just had the inspection, which went pretty well. So it's a pretty attractive market. And pricing tends to be -- no, I wouldn't say comparable to the U.S., but somewhere between U.S. and Europe price is where Japan price ends, if we do a good job of making a strong value proposition. And if you look at some of the other companies in the rare disease market, Japan's been very attractive compared to some European countries. And so we look forward to launching in Japan, hopefully by the end of this year, if not early next year.

And you mentioned you just had the inspection, what was the outcome of that?

I mean, this was, we had both the clinical and the CMC inspection because we did study, we did have Japanese particular study, and obviously the manufacturing facility at Encoris was inspected for the drug.

Yes, look, because we don't have the official answer here, I mean, I can broadly say the inspection went well, there were no-

No findings.

Yes.

Okay, thank you.

Thank you. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.