Krystal Biotech, Inc. (NASDAQ:KRYS) Q3 2024 Earnings Call Transcript

Krystal Biotech, Inc. (NASDAQ:KRYS) Q3 2024 Earnings Call Transcript November 4, 2024

Krystal Biotech, Inc. beats earnings expectations. Reported EPS is $0.909, expectations were $0.9.

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

Stéphane Paquette: Good morning, and thank you all for joining today’s call. Earlier today, we released our financial results for the third quarter of 2024. The press release is available on our website at www.krystalbio.com. We also filed our earnings 8-K and 10-Q with the SEC earlier today. Joining me today will be Krish Krishnan, Chairman and Chief Executive Officer; Suma Krishnan, President of Research and Development; Jennifer McDonough, Senior Vice President of Patient Access, Analytics and Operations; Christine Wilson, Senior Vice President and Head of U.S. Sales and Marketing; and Kate Romano, Chief Accounting Officer. This conference call will and our responses to questions may contain forward-looking statements. You are cautioned not to rely on these forward-looking statements, which are based on current expectations using the information available as of the date of this call and are subject to certain risks and uncertainties that may cause the company’s actual results to differ materially from those projected.

A description of these risks, uncertainties, and other factors can be found in our SEC filings. With that, I will turn the call over to Krish.

Krish Krishnan: Thank you, Stephane. Good morning, and welcome to the call. Look, as I mentioned in my PR attribution, we’re well on our way to achieving the two-year target that we set at the time of the launch. And by comparison to any other launch in orphan diseases or genetic therapies, we believe our launches exceeded all expectations to date. In my mind, there are two primary drivers for this success. The first obviously being the drug itself with all its attributes of efficacy, safety, patient convenience, et cetera. And the second being our assiduous focus on patient and physician experience. We have allowed the physician and the patient to drive demand at a pace they’re comfortable with and it’s been rewarding, especially in an indication where the expectation is that they will be on drug for a long time.

On top of that, global opportunities for VYJUVEK come into focus. Ophthalmic formulation is progressing towards a registrational study in the next few months. And so we’re starting to see increasing upside in the total market opportunity for the VYJUVEK franchise overall, as we work toward treating DEB patients globally and comprehensively. In Europe, we’re presently on track for a CHMP opinion before year-end and our recent breakthrough with HAS granting early reimbursed access in France reflects the significant demand for VYJUVEK in Europe. And with our JNDA submitted last month, we’re also on track for a 2025 launch in Japan. And so all preparations are underway for launch in EU4, UK and Japan sequentially next year. Meanwhile, we had a positive readout for Jeune Aesthetics KB301 in Q3 where we saw clear efficacy signals.

And that propels us forward to a Phase 2 study expected to start next year and also continue to work on the Jeune Aesthetics pipeline. That was the first of many data readouts upcoming from our deep clinical-stage pipeline. We’re looking-forward to reporting on two more programs before year-end, including our first data on HSV-1 based gene delivery to the lung, a tissue that has to date been hard to reach with other approaches. So both on the commercial and clinical fronts, we’re excited and look-forward to the rest of 2024 and 2025. Finally, I’m happy to report that Krystal was again profitable this quarter at $0.95 per share, up sequentially from $0.54 per share in the second quarter of 2024. In Q3, we accrued $12.5 million in litigation expenses that once again mitigated our EPS as it did in our two prior quarters.

This is the final accrual related to the litigation expense and there will be no additional litigation accruals moving forward. With increasing profitability, a strong balance sheet and upcoming expansion of our VYJUVEK franchise, both in the U.S. and through ex- U.S. launches and our eye drop formulation, we’re super stoked about both the near-term and the long-term outlook for Krystal. Moving now to our results. Net VYJUVEK revenue for the Q came in at $83.8 million, while gross margins in GTN continued to behave as expected. Thanks to the strong growth we achieved this quarter, total net VYJUVEK revenues since launch in August 2023 has already surpassed $250 million. Achieving this milestone only a little over a year after our first sale is a tremendous achievement for our organization and a testament to the value VYJUVEK is providing to patients suffering from DEB.

Also, please note that net VYJUVEK revenue reported today again includes an accrual for patients on contracted commercial plans who are projected to potentially hit the cap of $900,000 gross per patient per calendar year in 2024. With that, I’ll hand it off to Jenn and Christine to share more detail on our recent accomplishments and strong fundamentals, which we expect will sustain our launch for years to come. Jenn?

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

Reimbursement approval splits are largely in line with recent quarters and roughly evenly split between commercial and government plans. Approvals continue to come across the entire DEB patient population, including patients of all ages and with either dominant or recessive forms of the disease. With near complete coverage for commercial and Medicaid lives nationwide, the access for VYJUVEK is strong. This has enabled us to achieve 100% success rate on reauthorizations, all have either been approved or are in process and sets us up well for sustained success in the U.S. Our Krystal Connect team works closely with the home healthcare providers, employing a patient-centric approach that focuses on patient needs and preferences. The team navigates things such as summer vacations, family activities, work and back-to-school schedules to successfully integrate weekly treatments into the family’s normal routine.

Patient preference for at home administration is effectively unchanged and currently, 97% of the weekly treatments occur in the home setting. With now over one year of real-world experience, the team is developing and implementing strategies to ensure patients receive the best possible experience starting and staying on VYJUVEK. This includes developing enhanced education, tools and other resources for patients and nurses. We focus on topics such as preparing for treatment, practical considerations for wound selection and options for hydrophobic dressings. We recognize that every patient has unique needs and the impact of the disease varies for each patient. Our program and resources include regular touch points to support monitoring treatment progress and identifying potential issues early and addressing them promptly.

While we continue to see a high compliance to weekly treatment at 87% across our DEB patient population, including new starts for both recessive and dominant dystrophic EB, please note that for some patients that have been on VYJUVEK for over an extended period of time, in particular, who have been participated in our OLE study, we are seeing maintenance treatment patterns emerge. This includes cycling between periods of treatment pauses due to wound closure. While it’s early and we believe it would be premature to estimate the frequency or the duration of treatment pauses, we can expect reported compliance to weekly treatment across the entire patient base to trend down in upcoming quarters. As we continue our launch, the Krystal Connect team is fully focused on ensuring patients have a smooth experience starting and staying on therapy.

We are developing and investing in strategies that lead to better treatment outcomes and overall satisfaction. We are building long-term patient relationships and are committed to providing sustained worry-free access to corrective therapy where and when they need it. I will now hand it off to Christine to discuss recent sales and marketing activities that which have us on track to hit our most ambitious pre-launch penetration targets. Christine?

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

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

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

Finally, as part of our annual recognition and support of EB Awareness Week, which took place just last week, the Krystal team hosted educational webinars for our target physician audience, as well as sponsored a patient and caregiver webinar in conjunction with one of our EB advocacy partners. These live webinars feature dermatologists with real-world DEB and VYJUVEK experience as well as VYJUVEK-treated patients, sharing their personal experience of the positive impact that VYJUVEK has brought to their conditions. Members of the Krystal team also attended the Deborah of America benefit during EB Awareness Week, which honors those in the EB community and champions their ongoing mission to advance EB research and patient care. These are just a few highlights from our ongoing commercial efforts to drive awareness, streamline the physician experience, and help more patients get on treatment faster.

It has been deeply rewarding to see these efforts translate into reimbursement approvals and with continued education, we are optimistic that we can achieve not only the near-term targets we have set, but ultimately grow well past them in later years. Now, I will hand it off to Suma to share pipeline results.

Suma Krishnan: Thank you, Christine. Our development team continues to execute at a high level. And over the past few months, we have achieved key milestones to not only broaden DEB patient access, but also advance our diverse pipeline of redosable genetic medicines. Leading off with an update on the global development of B-VEC, steady progress has poised for commercial launches in both Europe and Japan next year. In Europe, EMA’s review of our marketing authorization application is progressing well. EU GMP certification was granted for our commercial manufacturing facility ANCORIS earlier this year and our latest interactions with the EMA suggest support for home dosing and a broad label, including DEB patients from birth. Based on the current pace of discussions, we expect a CHMP decision before the end of the year and the first launch in Germany in the first half of 2025.

In the interim, we also achieved an access breakthrough in France in September, Haute Autorite de Sante in France approved pre-marketing early reimbursed access to B-VEC under the Accès Précoce program. DEB patient access to B-VEC under AP1 is expected to start later this year. AP1 allows for early access to innovative therapies in France prior to European regulatory approval and is a reflection of the strongly positive benefit-risk ratio provided by B-VEC in a patient population with high unmet need. In addition to rapidly broadening patient access in France, this approval will also provide physicians with an opportunity to build clinical experience with B-VEC even in advance of commercial launch. In Japan, we also achieved a major milestone with the recent submission of our Japan New Drug Application.

Our application to the Japanese authorities include the results of our open-label extension study in Japanese patients in which overall results closely mirrored dose from our registrational Phase 3 trial. Having previously received orphan drug designation by Japan’s Pharmaceutical and Medical Device Agency, we expect a priority review, putting us on track for both a decision by Japanese authorities as well as launch in 2025. Shifting focus to our broader pipeline, we are very excited to report the first of many upcoming data readouts last quarter. In this data readout for Jeune Aesthetics KB301, we reported clear and clinically significant improvements in not only wrinkles, but many other skin attributes, including radiance, hydration and crepiness.

This robust efficacy signal taken together with our previous reports of durable benefit positions KB301 as a potentially transformational product in the field of regenerative aesthetics. We look forward to progressing KB301 into Phase 2 next year. This is just the beginning. Before the end of the year, we expect to disclose interim updates on the KB408 and KB707 programs. KB408 is our redosable inhaled therapy for alpha-1 antitrypsin deficiency which is currently being evaluated in a Phase 1 SERPENTINE-1 study. SERPENTINE-1 is an open-label, single-dose escalation study in adult patients with AATD to allow assessment of safety, tolerability, alpha-1 antitrypsin levels and key pharmacodynamic biomarkers. With strong enrollment and a recent protocol amendment to include bronchoscopies in Cohort 2, we hope to provide interim molecular data before the end of the year.

A readout, we expect to showcase the significant potential of HSV-1 for gene delivery to the lung. KB707 is a modified HSV-1 vector designed to deliver genes encoding both human IL-12 and IL-2 to the tumor microenvironment and promote systemic immune-mediated tumor clearance. Two formulations, one for the intratumoral injection and the other for delivery via inhalation are being evaluated in Phase 1 dose escalation and expansion studies. Both studies are enrolling well. And with this phase, we expect to share an interim data update focused on safety and early immune profiling data before end of the year. I’m also happy to share that intratumoral KB707 was granted a rare pediatric disease designation for the treatment of rhabdomyosarcoma, both inhaled and intratumoral KB707 has now been granted Rare Pediatric Disease Designation and Fast Track designation by the FDA.

We expect additional data updates in 2025, including follow-on updates on our oncology programs as well as initial data from our ongoing Phase 1 study evaluating inhaled KB407 for cystic fibrosis. We recently activated two additional clinical sites in our Phase 1 CORAL-1 study evaluating KB407 and are now on a path to report intermolecular data for KB407 in the first half of 2025. Finally, we are on track to both start and report interim data from our registrational trial IOLITE next year. IOLITE will be a single-arm, open-label study designed to evaluate KB803, our newly developed ophthalmic formulation of B-VEC for the treatment of ocular complications in DEB patients. In the interim, we continue to enroll in a natural history study to prospectively collect data on the frequency of corneal abrasions in patients with DEB.

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

Kate Romano: Thank you, Suma. In the third quarter, Krystal saw continued VYJUVEK revenue growth with net product revenue of $83.8 million, representing an increase of approximately $75.3 million over the third quarter of 2023, which was the first quarter that we had revenue after our approval in May of 2023. Cost of goods sold was $6.7 million for the quarter or about 8% of net product revenue, resulting in a gross margin of 92%. In the third quarter of 2023, cost of goods sold was artificially low at $223,000 as a result of a significant portion of the cost to manufacture being previously expensed to research and development expense prior to product approval. Research and development expenses for the quarter were $13.5 million, inclusive of stock-based compensation of $2.3 million compared to $10.6 million for the prior year’s third quarter, inclusive of $2.3 million of stock-based compensation.

Higher research and development expenses in the third quarter of 2024 were due to increased clinical development costs, increased R&D-related manufacturing costs for our pipeline candidates and increased R&D facilities and equipment costs this quarter. These increases were partially offset by capitalization of direct and indirect over-cost to manufacture VYJUVEK, being charged to inventory following our FDA approval. Selling, general and administrative expenses for the quarter were $28.7 million, inclusive of stock-based compensation of $11 million compared to $23.7 million for the prior year’s third quarter, inclusive of stock based compensation of $6 million. Higher selling, general and administrative expenses in the third quarter of 2024 compared to the prior year’s third quarter were primarily the result of increased commercial-related professional service fees and VYJUVEK marketing costs.

The most significant increase in SG&A is related to the increase in stock compensation expense of $5 million quarter-over-quarter. We again recorded litigation settlement expense this quarter of $12.5 million due to our anticipation of reaching the third and final milestone payment in the PeriphaGen settlement, which is triggered at $300 million in cumulative sales payable within 30 days following the filing of our Form 10-K in which the $300 million milestone is achieved. We now have fully accrued for the entirety of this matter and if achieved, anticipate making the final related payments in early 2025. Net income for the quarter was $27.2 million, which represented $0.95 per basic and $0.91 per diluted share. We have reduced and narrowed the range of our non-GAAP R&D and SG&A expense guidance, which is now expected to be between $115 million and $125 million for the full-year ending December 31, 2024.

As a reminder, this guidance excludes the non-cash impact of stock-based compensation. Finally, we ended the third quarter with $374 million in cash-on-hand and $694.2 million in total cash plus short-term and long-term investments, marking continued quarterly growth in our overall cash and investment position with an increase over our second quarter of 2024 cash and investments balanced by about $65 million. And now I will turn the call back over to Krish.

Krish Krishnan: Thanks, Kate. So, in closing, I’d like to highlight the significant potential for value creation in the years ahead to be driven both by VYJUVEK and our deep clinical stage pipeline. Our VYJUVEK launch having already achieved over $250 million in net revenue is progressing very well. However, as we saw in Q4 of last year, we do anticipate some disruption over the holiday season as life gets in the way for many families. That said, our conviction in the overall trajectory of our launch remains unchanged. More importantly, this is only the beginning of the opportunity we see for the VYJUVEK franchise. In the coming years, we expect ex- U.S. expansion, development and launch of our eye drop formulation for KB803, both driving significant revenue growth.

Meanwhile, our KB301 readout is a reminder of the significant yet-to-be tapped potential that we see in our pipeline. With multiple readouts coming up, we think we’re on the verge of demonstrating the true potential of our HSV-1-based gene therapy platform. And with the benefit of commercial scale in-house GMP manufacturing infrastructure, growing revenues, five quarters of positive EPS, we have the necessary resources to pursue these opportunities efficiently and in such a way to maximize value for our shareholders. Thanks for listening. I’d like to open the call for Q&A

Q&A Session

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

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

Krish Krishnan: Hi, Alec, on your first question — this is Krish. On your first question on how many patients are going to hit the cap, we’re not particularly disclosing that aspect of it. You can kind of glean that the cap is in the GTN and the whole point of crewing was to make sure there’s no volatility with respect to net revenues in any of the quarters. That’s the whole point. And I think we’re on track to make sure that the net revenue growth is pretty smooth over Q1, Q2, Q3 and Q4. We’ll have a much better sense as we go further into the launch on that point. With respect to duration of wound closure, a couple of things I want to mention. Look, there are depending on the location of the wound and the nature of the activity, this can be pretty varied across individuals.

Our thesis is still to stick on, even though we’ve seen much larger durations of wound closure in some patients, we still stick to the science behind it, which is given the half-life of collagen, we expect the average wound to be durable for about 90 days.

Suma Krishnan: And then can I add? Also — I agree, I mean we get — we are seeing very good clinical benefits. The wounds are closing and they are staying durable. But also what happens is these patients are now increasing their activity. We hear from patients now they can go out and do more physical activities, they can walk. As a result, they see breakdown in the skin, but now they’re very — I mean, they want the wound to be treated because they see the benefit of treating VYJUVEK. So the patients are being extra cautious. So even if their wounds are closed and if they are wide open, they want the drug back on. So that’s the trend that we see in the commercial setting.

Alec Stranahan: Makes sense. Thank you.

Operator: Your next question is from Yigal Nochomovitz with Citigroup.

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

Krish Krishnan: Christine?

Christine Wilson: Sure. Yes, we’re excited about our goal is to receive patients wherever they may be. And our social media campaigns are allowing us to do that. We are seeing benefit of finding some patients that are not yet engaged or haven’t been engaged for some period of time with the healthcare system that is allowing to reach them, educate them and engage them and really accessing their PCP. So we are pleased. As we mentioned, the volumes will, right, from a patient base to begin with, right, as we’re in this ultra-rare space, but our opportunity to reach every patient is ultimately our goal and one by one we’re getting there.

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

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

Yigal Nochomovitz: Thanks.

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

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

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

Krish Krishnan: On pricing, Ritu, we’re going to do our very best to get the maximum price possible. We’re starting, but — excuse me. You think about pricing, in Germany, for example, we get to launch with the U.S. price for the first six months as we start to begin negotiations in Germany, the first country of launch. At the end of six months, we’ll start accruing expecting a certain price that we land with at the end of 12 months. So the actual pricing in Europe in the first country doesn’t really get set till 1Q of, say, 2026 at this moment. We will have an AMNOG price given the NPP. So one will be public is the U.S. and the AMNOG price. But overall expectations for us, if you combine all of Europe, look, some — at the conservative end, about 50% of the U.S. price, and we’ll do our very best given all the product differentiators for VYJUVEK to make a strong case in an ultra-rare disease to land somewhere between the 50% and the U.S. right first.

Ritu Baral: Great. Thanks for the color.

Suma Krishnan: I just want to add one more thing is, we are still on track to get home dosing in Europe. So based on the 180 days, so that’s something very positive for us.

Operator: Your next question is from Sami Corwin with William Blair.

Sami Corwin: Hi there. Thanks for taking my question. How do you expect the decline in compliance to impact revenue? And do you plan on giving any revenue guidance for 2025? And then just as a follow-up, you’ve kind of pointed out to reimbursement approvals as a measure of the VYJUVEK launch in the U.S., what metrics are we kind of looking for the launch as it progresses in Europe and Japan next year?

Krish Krishnan: Hi, Sami, I missed the first half of your first question ahead of the guidance. What were you saying?

Sami Corwin: How you expect the decline in compliance to impact revenue?

Krish Krishnan: Oh, in the U.S., you mean?

Sami Corwin: Yes.

Krish Krishnan: Look, when we launched — at the time of the launch, our expectation was that patients would be utilizing four vials a month and our expectation was that it would get to about two vials a month, 18 months post-launch. That was the expectation we had at the time of launch. We seem to be much ahead with respect to compliance because the overwhelming proportion of patients in the study were recessive and potentially more severe in the early days of launch. So we’re tracking a little bit higher of that. We’re already at like 15 months and we don’t expect to get to 50% over the next three months. So we’re ahead and that, as I mentioned before, is primarily because the percentage of our DEB patients is much higher than the dominant patients in the study.

With respect to revenue guidance next year, we’re still thinking and internally talking about it. We have put ourselves in a position where we’re actually expecting an EU launch early in 1Q and we have to get closer to figure out the rate at which the German launch progresses. And then we’re up in France under the AP-2 or the AP-1 program. So a lot of moving parts next year to be extremely definitive about guidance at this point. But hopefully, by the time the next Q comes around, we’ll have more clarity on what we’re going to talk about with respect to guidance in 2025. With respect to your last question, in the U.S., we had reimbursement approvals. In the EU, everything is a bit different. Germany is a bit different than France, it’s a bit different than Japan.

And so we haven’t made a decision at this point in time. And as we get closer to the CHMP opinion, we’ll sit down and talk about what makes the best sense in terms of expecting what net revenues for 2025 will end up being.

Sami Corwin: Great. Thank you.

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

Gavin Clark-Gartner: Hi, guys. Thanks for taking the questions. I just wanted to focus in on AATD and the data coming later this year? A first question here, can you just level-set on the amount of data that we’ll be getting? Like how many patients per cohort, which patients can be on augmentation therapy? And also remind us on the — which cohorts the lavages are done in and at what time point?

Suma Krishnan: Sure. Right now we are in the process of enrolling Cohort 2. We have finished enrolling three patients. We are going to enroll additional patients in Cohort 2 and based on our animal study and our NHP study, we feel this is a cohort that we really need to evaluate molecular correction for this dose because we did see nice expression at this equivalent dose in the NHP animal model. So we have additional patients. They are basically ZZ patients. These are conditions — right now we have patients that are not on augmentation and on augmentation. So we will do — evaluate them before and after for molecular correction in their lung lavage. So we hope to have a couple of patients enrolled before end of the year and hope to have data on that cohort by end of the year with regards to levels of expression, multiple biomarkers, A1AT expression, neutrophil elastase, binding of neutrophil elastase.

So we’ll understand and I have a complete picture of what are inhaled a molecule is doing.

Gavin Clark-Gartner: That’s helpful. And do you believe that the bronchoalveolar lavages or the bronchoscopies will be more informative and what’s your — what’s the bar on either of those measures?

Suma Krishnan: So we are looking at everything. I mean, obviously, these patients were subjected to bronchoscopy. So we have their baseline bronchoscopy done. We not just — we have — we collected the lavage, we did biopsies. So we have both and brushing of the lung. So all three was taken at the baseline and after dosing. So we will look at all of that in completeness to understand what it looks like. As far as levels, I mean, again, we are hoping — I mean, again, we feel — hopefully we — I mean these patients will not have A1AT. So we’re going to — I hope to see good expression levels of A1AT, at least one micromole in the lung lavage.

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

Suma Krishnan: I mean, also keep in mind, we are looking at entirety, right. You’re looking at expression of neutrophil elastase, the binding of A1AT in the next neutrophil elastate. So it’s not just the expression of A1AT. You want to make sure you’re seeing wild-type A1AT and it’s functional. So that’s critical. So we’re going to — those are — that’s the kind of data that’s going to be critical for us and hopefully that’s what we will achieve to see clinical benefit.

Gavin Clark-Gartner: That’s really helpful. Thank you.

Operator: Your next question is from Dae Gon Ha with Stifel.

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

Suma Krishnan: So I’ll take your question first and then I think I think the commercial team will answer your question one. Yes, I think for Cohort 1 and I mean, if we see an expression we need to, I think we will stop at Cohort 2. If not, I mean, we have the option to go to Cohort — to move to Cohort 3 because so far we don’t see any dose-limiting toxicity in our Cohort 2. So we have the option, but I think we are at a pretty good dose level right now with Cohort 2. And if we get — you’ve seen what we see then, I think we will be ready to go into repeat dosing with Cohort 2 or the option to go into Cohort 3.

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

Dae Gon Ha: I guess, Suma, just to clarify Cohort 1 and 2 data for the year-end update for AATD.

Suma Krishnan: Correct. That’s what we’re shooting for. I mean, we have patients enrolled in the bronchoscopy portion and hopefully, we’ll keep adding more patients to that.

Dae Gon Ha: Sounds good. Thanks very much, guys.

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

Debjit Chattopadhyay: Hi, good morning and thanks for taking my questions. So as patients approach the reimbursement caps, coupled with the holiday season, how should we think about 4Q? Do you expect a significant growth here or this is going to be a sequentially flat quarter? And then on the 2025 guidance, I understand lots of moving parts as far as Europe is concerned, but why not guide to the U.S. market, especially now that you have trends both from the summer and the holiday season under your belt? Thanks so much.

Krish Krishnan: Yes. Look, on the first question, the only reason I made that comment, I remember some confusion last year after we came through Q4. And the only point I’m trying to make is Thanksgiving and Christmas, right? Those are at least two weeks where patients try to not have a dose or due to life or family or vacations or whatever and also the nurses have their own schedules. So the only reason for making that comment was not to directionally point to some weakening or flattening. We’re still on track for the 720 reimbursement approvals as we said at the time of the launch. I just wanted to alleviate concerns post Q4 right now by saying, please think about the holidays, life gets underway. With respect to guidance for 2025, you are right.

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

Operator: Your next question is from Andrea Newkirk with Goldman Sachs.

Andrea Newkirk: Good morning. Thanks for taking our question. Maybe one here on the European launch. Just curious if you could share what activities are currently underway as you prepare for this potential launch starting in Germany? And then as you do look to next year, what type of step up in infrastructure do you believe is required to support the launch? Thanks so much.

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

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

Krish Krishnan: I think, in Germany, most of them will be onboarded before the end of the year. In France, maybe some by the end of the year and some early next year. And so — and we’re also — we also have a team out in Japan. We have like six to eight employees in Japan today and they’ll be onboarded in the first half in anticipation of a 2H launch in Japan.

Operator: There are no further questions in queue.

Krish Krishnan: So thank you all for joining the call. We look forward to answering any follow-on questions in the upcoming days. Thank you.

Operator: Thank you for joining the Krystal Biotech’s third quarter earnings conference call. This concludes today’s event. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.