Thank you for standing by, and welcome to the Krystal Biotech Q2 2025 Earnings 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.

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.

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.

Stephane, thank you. Good morning, everyone, and welcome to the Krystal earnings call. We'd like to touch on 4 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 subsidiaries 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 and $1.29 per share fully diluted, marking now 2 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 sales team expansion. It's important to note that sales force 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 at as of the…

Thank you, Krish. 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 4 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 Accès Précoce 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 8 team members on the ground in each market, supported by an additional 8 colleagues at our European headquarter 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, 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 Krish.

Thank you, Laurent. 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 sales force 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 multiyear growth as we work with key centers and launched sequentially in major markets. The broad label in Japan adds another high-value launch market which is start adding meaningfully to our top line in 2026. And 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, said Krystal.

Thank you, Krish. 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 2 new study starts that set us 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 I/II 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 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 outpatient setting. We are increasingly excited about the profile of inhaled KB707 monotherapy in the clinic. In addition, combination therapy cohorts have been opened 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 this slide, we again saw robust airway transduction, resulting in functional AATD expression as demonstrated by neutrophil elastase binding in the ELF. Please note that this patient was a background IV augmentation and yet we still detected a reduction of…

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 marked 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 remained consistent with prior quarters. Cost of goods sold was $7.2 million compared to $6 million in the prior year second quarter, and gross margin remained relatively consistent at 93% in 2Q '25. 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 head count to support global commercialization and this was inclusive of increased stock-based compensation costs from new grants. Operating expenses for the quarter included noncash 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 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 back over to Krish.

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 multiyear growth story that has only just begun. At a rich and a 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 CF and AATD, together with ophthalmology readouts in NK and DEB will make clear the potential of our platform across multiple tissues and open up blockbuster product opportunities. Finally, our inhaled 707 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.

[Operator Instructions] Your first question for today is from Roger Song with Jefferies.

This is Fiona on for Roger. Congrats on the quarter. My first question is just to clarify, the revenue growth for this Q is not impacted by the sales force expansion. And if you think the volatility for the next quarters will be offset by the sales force expansion kicking in and the EU launch?

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 and start -- and we have been hiring reps since the tail end of Q1. And 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 of quarters as they come on board, get trained and are fully functional in the field.

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

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.

No, we're not going to get to that level of detail, Gavin. And it is early in the quarter. I was just trying to set expectations that in the summer, people take vacation in the summer holidays always has an impact on pauses. But beyond that, it's tough for me to quantify because it's such a variable thing. The quarter is just maybe 1/3 of its way in. But I just wanted to point out that summer is usually filled with more pauses than usual.

Okay. Great. Just a quick follow-up. For U.S. VYJUVEK, what's the mix of RDEB versus DDEB patients either in reimbursement approvals or in start forms that are coming on to therapy?

That's a good question. I believe, as of the last quarter, that mix is more like 64-36 in that range. But I ask Stephane, Stephane if you have a clearer number, can you jump in?

Yes, 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 the insurance plan. So it's one of the reasons we didn't really get into it this time around, but they're largely stable. Maybe shifting -- as always shifting, very gradually on the DDEB side.

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

This is Joshua Fleishman on the line for Ritu. Congrats on the quarter. How do you expect for drug holidays to factor into the original guidance of 720 U.S. patients initiating VYJUVEK? And on Europe, how should we think about pricing? And what's important to the country's health technology assessments?

With respect to 720, Joshua, as we mentioned last quarter, we're on track, but we're maybe a quarter or 2 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, October of this year. And so 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. Laurent?

Thank you, Krish. Reimbursement application processes are proceeding as planned with 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 negotiation with GKV are about to start now. It's a bit premature to provide any feedback given that we have not received any from the authorities with regard to our HTA dossier. But the early engagement we had with the key authorities throughout Europe were very productive. And the unmet medical need of -- in DEB is well recognized by the payers and the potential benefit -- transformational benefit of VYJUVEK seems to be understood. Krish?

Thanks Laurent. And Joshua, your last question was on something around technology used in sales force?

It was on what's important to the country's health technology assessment.

Okay, great. Does that answer your question? Any follow-up?

No, that's great.

Your next question is from Sami Corwin with William Blair.

Congrats on the quarter. I have another couple of questions about the upcoming European launches. I know previously, you mentioned that there might be a dynamic of onboarding patients based on their need to get treated in a physician office first. So I wonder if you could comment on that a little bit. And then do you have any goal in terms of the reimbursement ramp like the 720 number that was initially applied for the U.S. launch?

Laurent?

Yes, Krish. Thanks for the question. I mean 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. So it's not something unusual that you have to go through an appointment at a center. I mean this is the reason why the team has dedicated the past 3 months in notifying 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. So these are the main guidelines. Then 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. So there is no case-by-case request once the drug is approved by the payer body, the national insurance in most cases.

Okay. If I could rephrase those questions slightly then. So 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? And then 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?

So I don't think we are -- 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. So 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 2 to 3 years. But we have not communicated more detailed numbers.

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

This is Mathew on for Alec. Maybe on the pipeline, I noticed that the timeline for CF data was mid-2025, now by year-end. Anything to read into this? Or is this just enrollment timelines? And then maybe you can remind us of sort of the number type of patients we expect in that first readout.

Yes, I can take this question. As you may be aware that we did announce that the TDN -- we got endorsement from the TDN. So that opened up all the TDN sites. So we have been actively working, we have -- at the moment, 6 TDN sites, that's we are in contract and budget phase. So unfortunately, with these academic sites, just the whole process and paperwork took more time than we anticipated. Our team really pushed, but we're getting close. So we believe once we can get these sites up and running, which we are pretty close we should be able to enroll the patients. So that pushed out. But hopefully, we can enroll multiple patients across these sites once they are up and operational.

And with respect to the data announcement, look, you know Cohort 3 is essentially 3 patients on modulator and 3 now. And what we're looking to show is molecular data on 3 null mutation patients in CF.

And again, keep in mind, now patients are harder to get by, but the TDN sites do that -- have them. So we have patients, but you also need patients that are willing to bronch, which is not easy, but we are there. We're getting there.

Your next question for today is from Andrea Newkirk with Goldman Sachs.

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 health care practitioner before initiating VYJUVEK. And then also, can you share some details on the fifth patient dose in Cohort 2 for AATD in terms of the percent cells that were transduced and the level of AAT expression and distribution of 408 across the lungs.

On the Japan question, yes, it's very similar to Europe. It's the way all drugs like the first visit is in a physician office. So no change there. In terms of the AAT, I'd ask somebody to go back to that slide I don't know, Stephane, if you can pull up that slide on AAT, just give us a minute. Yes. And as you can...

So basically, all 3 patients we saw expression in the biopsy samples. We could clearly see expression from baseline increase. Are we seeing the lavage, one of the patients we had difficulty recovering the right amount of lavage because this whole procedure is pretty tricky. And it's because of some of the issues with recovery of the lavage, we were not able to get the levels. But in 2 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. But in all of the patients, in the biopsies, we did see expression of AAT about the levels of baseline.

And [Technical Difficulty]

Your next question is from Joe Pantginis with H.C. Wainwright.

Two topics, if you don't mind. So 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. So I don't know if it really could be answered. How would you view 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 around VYJUVEK over the long term with regard to starts and restarts and wound reopening?

We've said consistently even from -- at the prelaunch stage that steady state implies that the entire patient base, on average, consumes about 26 vials a year. And we're not there yet. And we believe we'll get to steady state when the ratio of RDEB to DDEB patients is about 50% each. So if you have an even split of recessive and dominant. And there are in a -- they've been on drug a while; we expect the average consumption across the patient base to be 26 vials a year. So that is how we define steady state. And 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.

Okay. That's helpful. And then I just want to switch gears to Jeune right now. I'll start with the Phase II program. The prepared comments with regard to décolleté Phase II, you talked about a photonumeric scale, I guess I wanted to discuss the novelty of that and what are the key aspects of the regulatory discussions around this end point.

I mean, obviously, as you know, with 304, it's a combination of collagen 3 and elastin, So I mean, with adding elastin and we clearly know that we can express elastin from animal models with a vector. The definition of elastin, obviously, it's not going to be -- it's going to be slightly different. You're going to see improvement is texture of the skin, skin quality et cetera, et cetera. And that's something that we captured in our 304 study. If you look at our patients' feedback, I mean or they are rating, that's some of the consistent feedback that we got from -- consistently all the patients that were on the drug that they fill out their skin was smoother, the texture felt better. So obviously, some of that cannot be captured just by photonumeric scale. So we do want to talk to the agency about the novel mechanism, obviously, with this division, we know that they can express collagen 3 will express elastin. And we need to -- we're going to propose some sort of quality evaluation for the patient-reported outcome of skin quality and skin texture. So this is something we're going to sit down we -- with the agency and have that discussions. We have developed a put a numeric scale at the moment for the décolleté. So we have a scale that's developed and validated. So we want to do some sort of a combination and then just have that discussion with the agency.

Got it. And then just quickly on Jeune again. I know, Krish, you've talked about this in the past with regard to potential options of how 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?

Yes. I think following the announcement on 304 and Suma is starting to have conversations with the FDA. From a development perspective, we expect to start Phase II in the upcoming months. And meanwhile Nishant, the CEO and the CFO of Jeune are actively pursuing or diligently working towards getting Jeune financed and spun out. And the broad timing on that is roughly before the end of Phase II. So our expectation is by the middle to the end of 2026, we're expecting Jeune to be a separate subsidiary of Krystal.

Your next question is from Josh Schimmer with Cantor.

Just 2 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 because you do have the offsetting launch in Europe? And then second question, your R&D expense allocation, at least in the 10-Q seems very heavily weighted to the oncology program specifically. Just curious as to why that's the case and what trends do you expect to see going forward across the other programs?

On the decline, that was on the U.S. commentary, it was completely 100% U.S. specific commentary taking into account like we saw last year that in the summer months, families gone vacation and there's more disruptions and pauses than usual. With respect to the R&D breakdown on cost, cancer trials are expensive when have...

I can surely chime in. Obviously, you guys saw the monotherapy data. We are now in the process -- the study has already started; we're doing the combination. KEYTRUDA is not cheap and it's expensive. And also given the agencies recent disrupting and other stuff, we believe we have very strong data. So we want to position ourselves to meet with the agency and start talking about a controlled study. So -- we -- I mean, again, this is something we'll have based on our discussion with the agency, but we anticipated that into the cost. What it would take if you would go into a full-blown study.

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

2 questions. Could you talk about -- you've 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 above the timelines to capture that aspects 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 2 years. So this is more of an academic benchmark than anything related to -- oh, 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. But 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. And so -- but it does not mean every wound is important for VYJUVEK to be treated, and it's -- 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. And 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. And then I think you made a comment with respect to France, something about the continuity of the EAP. Can you just expand on that? Are there specific risks 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?

Yes, Laurent?

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

Your next question is from Debjit Chattopadhyay with Guggenheim Securities.

I have got a couple of clarifications. So on the 82% compliance, could you sort of clarify what percentage of patients are currently using 4 months of vial versus 3, 2, 1, et cetera? And how are you -- how have recessive patients evolved versus the dominant patients? And I have a follow-up.

Yes, Debjit, I was following you along. Can you just repeat the first part of your question?

So the 82% compliance rate, what percentage of these patients are on 4 vials versus 3, 2, 1? We're just trying to get a better feel for how to calculate that 82% or how to calculate in our models rather?

Look, the way we define compliance has always been consistent and the same since the time of the launch. I mean, the easiest way to think about compliance is if you are on drug for -- if you're 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 hit -- they kind of hurt compliance. And if you never came back on drug, you kind of helped compliance. So it's just -- so that's why it's compliance while you're on drug as opposed to if you're not on drug. But that said, Debjit, irrespective of how one calculates compliance, whether on a quarterly basis or a 6-month basis or an annual basis, we're talking a range somewhere between 76% and 84%. Like it's not that far off with respect to -- and there could be many ways to calculate, and we try not to get into and it's not that material to the overall situation.

I appreciate the clarification. And just a follow-up then on the utilization that you're seeing in the recessive patients versus the dominance. 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 dominance?

The recessive are definitely much more consistent and have been since the beginning of the launch. I mean 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 is 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. But the entire conversation around stops and starts is on the moderate to mild side.

Awesome. And then one last one. So based on the single-arm data, what kind of TPS scores are you enrolling in the combo program in non-small cell lung cancer?

TPS scores.

Okay. I mean we are looking at -- obviously, we are agnostic, right? It doesn't matter what kind of PD-1 expression or PD-L1 expression, right? I mean we are looking for frontline failed patients. So either they failed PD-1 or PD-1 plus platinum therapy. So once they fail, we know rechallenging with PD-1, the number of overall response goes down from 30% to 35% to 10%. So we are agnostic. We have seen -- we looked at our data with monotherapy with patients that have failed PD-1 or with 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. So we feel we are pretty much agnostic. So we are going to stratify our enrollment. Obviously, we look at PD-1 high patients and PD-1 0. So we -- in our recruitment study and our analysis, we will try to stratify and collect that data and see 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.

Thank you. 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.