Q2 2024 Krystal Biotech Inc Earnings Call

Participants

Stéphane Paquette; VP, Business Development; Krystal Biotech Inc

Krish Krishnan; Chairman of the Board, President, Chief Executive Officer; Krystal Biotech Inc

Jennifer McDonough; SVP, Patient Access, Analytics and Operations; Krystal Biotech Inc

Christine Wilson; Head of US Sales and Marketing; Krystal Biotech Inc

Suma Krishnan; Founder, Chief Operating Officer, Director, President – Research and Development; Krystal Biotech Inc

Kathryn Romano; Chief Accounting Officer; Krystal Biotech Inc

Alec Stranahan; Analyst; Bank of America

Ritu Baral; Analyst; TD Cowen

Andrea Tan; Analyst; Goldman Sachs

Yigal Nochomovitz; Analyst; Citigroup

Gavin Clark-Gartner; Analyst; Evercore ISI

Dae Gon Ha; Analyst; Stifel

Debjit Chattopadhyay; Analyst; Guggenheim Securities

Presentation

Operator

Thank you for standing by, and welcome to Krystal Biotech ‘s second-quarter 2024 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 second 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 US 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 that 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.

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Krish Krishnan

Thank you, Stéphane. Thank you all for joining the call. Q2 2024 was a great quarter for us, during which we continued to make great progress, both with respect to VYJUVEK launch and on the clinical pipeline. More importantly, it was quite, quiet from external disruptions that we faced in 1Q of this year.
Today’s strong results reflect our commitment to improving the lives of patients suffering from DEB. The benefits that patients are realizing on both VYJUVEK, the first and only corrective therapy for this debilitating disease serve as a powerful reminder of what we can achieve as an organization. They also push us forward in our mission to treat them comprehensively and to develop new medicines for urgent unmet needs.
As we will discuss in a moment, strong fundamentals continue to propel our US launch. Patient demand remains high, and we are increasingly seeing positive impacts, both in patient starts and in new patient identification.
Access, as you are aware, is in a great place and compliance remains strong. Net product revenue growth in the quarter was up over 55% compared to 1Q 2024. We look forward to delivering further growth, both in the US and in overseas markets as we progress towards launches in Europe and Japan in 2025.
We’re also on the verge of a wave of clinical data readouts. Later this quarter, we expect to announce the first of these clinical updates for our Jeune Aesthetics program, KB301, which is being evaluated in two parallel Phase 1 cohorts for the treatment of wrinkles in unmet aesthetic areas. And before year end, we expect to issue interim clinical update both for KB408 for the treatment of alpha-1 antitrypsin deficiency and intra-tumoral KB707 for the treatment of injection accessible solid tumors.
Additional clinical updates are expected in 2025 as enrollment continues across our expanding clinical pipeline. We continue to invest in our manufacturing infrastructure and are presently working with the FDA on a scale-up of our current approved manufacturing process to increase both VYJUVEK margins with the potential for approval by end of the year.
The scale-up process would increase the number of vials produced per manufacturing run by fourfold. As you can discern, this will further improve margins, require fewer packaging slots at our vendor. and ease any potential supply chain constraints to meet the growing demand from global markets. We’re also on track to start tech transfer of our commercial process to ASTRA later this year.
Finally, I’m happy to report another profitable quarter for Krystal at $0.54 per share, up sequentially from $0.03 per share in the first quarter of 2024. In Q2, we accrued $12.5 million in litigation expenses that once again mitigated our EPS as it did in Q1. We presently anticipate one more final accrual of the litigation expense this year.
With strong and growing capital reserves, climbing revenues, and do commercial scale CGMP facilities, we’re well positioned as ever to execute on our long-term growth plans, expand our global footprint, and bring to market a portfolio of highly differentiated genetic medicines.
Moving now to our our results. Net VYJUVEK revenues for the quarter came in at $70.3 million, an increase of 55.3% compared to revenues from the first quarter of 2024. Note that this prior quarter had been affected by onetime disruptions.
So looking back over our first four full quarters since first sale in August of 2023, total net VYJUVEK revenues now exceed $166 million, and we continue to keep pace with the top tier of rare disease launches. Gross margins were 91% for the quarter. We continue to expect margins to be above 90% in the coming quarters, gradually improving to over 95% within a few years.
Gross-to-net adjustments in the first quarter were 18%. We expect gross-to-net to remain in the high-teens, reflecting a roughly even split of DEB patients on commercial and government plan. As we disclosed last quarter, please note that the net VYJUVEK revenues reported today also include an accrual for patients on contracted commercial plans for projected to potentially hit the cap of $900,000 gross per patient per calendar year in 2024.
Our rapid revenue growth in the quarter was driven by strong launch fundamentals and the tireless contributions of our team at Krystal. I’ll now hand it off to Jen and Christine, who’ll provide more color on our successes, helping patients get on VYJUVEK and stay on therapy. Jennifer?

Jennifer McDonough

Thank you, Krish. The number of dystrophic EB patients gaining access to VYJUVEK and benefiting from fundamentally corrective therapy grew significantly in the second quarter of 2024. I am pleased to say that commercial and Medicaid access remains strong nationwide.
We now receive positive policies or decisions from roughly 97% of all covered lives. This is up from 96% in our last report as we approach effectively full coverage across the country. With positive policies in place at all major plans, we are progressing patient steadily to treatment. And as of July, we have secured over 400 patient reimbursement approvals.
As you can see on the side, reimbursement approvals continue to be roughly evenly split across commercial and government plans. More importantly, we continue to see reimbursement approvals across the DEB patient population including patients of both DEB subtypes of all ages in similar proportions as reported last quarter.
I would like to point out that while reimbursement approvals are a good leading indicator of revenue. They do not immediately translate to revenue. As you know, it often takes two to three weeks after insurance authorization to schedule a first home visit by a nurse and sometimes further exasperated over the summer where usual routines are disrupted.
Conversion time held steady over the last quarter, and on average, it takes us four to six weeks to obtain insurance authorization and complete the first home treatments. Although the team continues to make process improvements, these were offset in the quarter by a high proportion of prescriptions coming from community prescribers, less familiar with rare disease reimbursement that required more active management by our team. Albeit taking a bit longer, thanks to the hands-on expertise and support of Krystal Connect, even in these cases, we are able to achieve successful access outcomes.
And finally, as we enter into our second year since approval, the volume of reauthorizations required each month continues to grow. And same as in our previous quarters, all reauthorizations to date have been approved or are in process.
Moving to the patient experience compliance. Patient preference for at-home administration remains effectively unchanged with 96% of the weekly treatments, again, occurring in the patient’s home. And we are pleased to report that compliance to weekly application through the end of the second quarter remains high at 90%, even as patient base and average length of therapy continues to grow.
We believe that the high VYJUVEK compliance is driven not only by the profound impact of corrector therapy has on the patients’ lives, but also the convenience of home administration facilitated by our team at Krystal Connect. As we progress in our launch, we remain unwavering in our focus on the patient experience and ensuring patients are able to access VYJUVEK promptly and conveniently to ensure maximum clinical benefit.
I will now hand it off to Christine to discuss recent sales and marketing activities, driving awareness and new DEB patient starts on VYJUVEK. Christine?

Christine Wilson

Thank you, Jen. I’m happy to share today that Krystal’s integrated commercial strategy organized around our three pillars of clean analytics, medical education, and patient activation is driving significant growth of VYJUVEK in the US. Our claims monitoring infrastructure continues to flag new alerts, enabling targeted deployments of our field force.
We are also making great progress raising DEB and VYJUVEK awareness among the medical community through our educational efforts, including recent publications and virtual speaker events. And perhaps most importantly, we are connecting the patients and enabling patient to patient dialogue, amplifying early successes and activating patients that may have otherwise resigned themselves to their disease.
Although our primary commercial focus remains on penetration of the 1,200 DEB patients identified at launch, and we continue to make rapid progress on this front, our commercial efforts are also organically expanding the DEB patient pool. This will take on greater emphasis as we progress in our launch and as we work to ensure all day patients, whether diagnosed today or not ultimately have the chance to access VYJUVEK therapy.
I would also like to feature today a few recent highlights from our work to raise awareness and activate DEB patients across the US. Earlier this quarter, a review article was published to serve as a practical guide for real-world use of VYJUVEK.
The article authored in collaboration with DEB key opinion leaders is now available, open access and provides to readers and overview of the DEB disease burden, VYJUVEK clinical trial outcomes as well as physician, patient, and caregiver recommendation. And later this year, we expect to publish detailed results from the OLE study, providing additional information to prescribers and the DEB community on the extended use of VYJUVEK.
These publications and related educational materials provide the medical community with easy access to critical data on the many benefits of VYJUVEK therapy and best practices on it’s use. We also help enrich our medical team’s interactions with care providers, either during one-on-ones or in the increasing number of virtual and in-person events that we put on across the country.
At the same time, we are making progress in facilitating patient to patient interactions, including holding our first patient webinars with EV lifestyle this quarter. With testimonies from multiple VYJUVEK advocates, these virtual events allow us to disseminate their learnings and successes across the country at events such as the Debra Care conference recently held in July.
We will be supplementing our virtual efforts with multiple in-person events in the second half of the year and in meeting series covering four major metropolitan areas across the US. Thanks to these initiatives and others, we made excellent progress in both raising the profile of DEB and communicating the value proposition of VYJUVEK to patients and their caregivers. It is gratifying to see this work translate into new patient starts and DEB diagnosis and look forward to the path ahead. Now, I hand it off to Suma to share pipeline highlights.

Suma Krishnan

Thank you, Christine. Our development team’s strong momentum to start 2024 continued throughout this past quarter as we made significant progress towards our goal of treating DEB comprehensively and globally, well, also advancing a broad pipeline of urgently needed redosable, genetic medicines. With respect to the global development of VYJUVEK, we remain on track for launches in both Europe and Japan by 2025.
In Europe, the EMA’s review of our marketing authorization application is progressing well. And in May, GMP certification of our commercial manufacturing facility, Ancoris, was granted by the European authorities. As we shared last quarter, based on recent discussion, we believe EMA like the FDA is also supportive of home dosing. We continue to expect a decision on our marketing authorization application before the end of the year and the first launch in Germany in 2025.
In Japan, we remain on track to file the Japanese New Drug Application on VYJUVEK in second half of the year. Having previously received orphan drug designation by Japan’s Pharmaceuticals and Medical Device Agency, a designation which confers specific benefits for orphan drug development, including priority review of applications, we remain on a trajectory for both a decision by the Japanese authorities as well as launch in 2025.
Our application to the Japanese authorities will include the results of our open-label extension study in the Japanese patients that was completed earlier this year. Key details, including safety and efficacy observations from the Japanese open-label extension studies are shown here.
Overall results closely mirrored those from our registrational Phase 3 trial. The Japanese study was a multicenter, open-label extension study in Japanese patients with DEB. The primary endpoint was the same as in our registrational study, complete closure of a prespecified primary wound at the six month time point.
Key inclusion criteria and dosing are shown on this slide. Importantly, we aligned with the Japanese regulatory authorities on the study design, number of patients for the Japanese study, and the use of US clinical data to fulfill requirement for the Japanese New Drug Application submission. In total, we enrolled five patients with one dropping out due to scheduling challenges. All enrolled patients add this (technical difficulty) and covered a wide age range.
As shown on the right, all four patients that completed the study achieved complete wound closure at the six month time point. In addition, VYJUVEK was well-tolerated in the Japanese population and both efficacy and safety profile was consistent with previous US studies. We view these results as supportive of our application to the Japanese regulators and look forward to filing later this year.
Moving now to a broader pipeline. Here, as well as we have made rapid progress, putting us on track for three readouts before the end of the year. We expect to share the first of these readouts later this quarter with interim top line results for both cohort three and four of our KB301 Phase 1 study. Both cohorts are running concurrently evaluate our aesthetic medicine candidate, KB301 and two potential target indication: lateral canthal lines at rest and improvement of dynamic wrinkles of the décolleté.
Following readouts from cohort three and four, we expect to select a single indication for Phase 2 development. In the fourth quarter, we also expect to disclose interim data updates from both our KB408 and intra-tumoral KB707 programs.
KB408 is our redosing oral inhaled therapy for alpha-1 antitrypsin deficiency, which is currently being evaluated in a Phase 1 SERPENTINE-1 study. SERPENTINE-1 is open label single dose escalation study in adult patients with AATD to allow assessment of safety, tolerability, alpha-1 antitrypsin levels, and key pharmaco-dynamic biomarkers. We have completed cohort one and are currently enrolling cohort two. With strong support from the Alpha-1 research community, we remain on track for an interim data readout before the end of 2024.
Intra-tumoral KB707 is an injectable formulation of our modified HSV-1 vector designed to deliver genes and coding both human IL12 and IL2 do the tumor microenvironment and promote systemic immune-mediated tumor clearance. It is being evaluated in a Phase 1 dose escalation and expansion study of OPAL-1. We have now completed all three dose escalation cohorts and dose expansion is underway. We’ll issue an interim data update before year end.
I’m happy to share that intra-tumoral KB707 was recently granted a rare pediatric disease designation for the treatment of osteosarcoma. This is in addition to a fast track designation granted last year. We are also making progress in our Phase o1ne studies evaluating inhaled KB407 for cystic fibrosis and inhaled KB707 for solid tumors of the lung.
We have now completed cohort 2 in our Phase 1 CORAL-1 study evaluating KB407 and completed the first dose level in our Phase 1 KYANITE-1 study evaluating inhaled KB707. We look forward to providing data updates on these programs as they advance.
Finally, we are moving ahead in our work towards developing an ophthalmic formulation, B-VEC for treatment of ocular complications in DEB patients. Earlier this year, [BVs] alignment with the FDA on single arm open label study to enable approval of B-VEC eyedrops for the treatment of lesions in the eye of DEB patients.
In support of this development strategy, earlier this month, we initiated a natural history study to prospectively collect data on the frequency and severity 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 the registrational study.
We remain on track to start the study before the end of this year with potential for topline data read in 2025. The next 12 months have the potential to be transformational for Krystal as we readout on trials that showcase the breadth of our gene therapy platform. We look forward to sharing these updates as they come and progressing our pipeline of highly differentiated genetic medicines. With that, I would like to turn the call to Kate.

Kathryn Romano

Thank you, Suma. With our growing demand for VYJUVEK in the US, our net product revenue for the quarter was $70.3 million, which represents a 55% increase over the first quarter of 2024. As VYJUVEK was approved by FDA in May of 2023 and our first sales occurred in August of 2023, there was no comparative period revenue.
Cost of goods sold was $6 million for the quarter or about 9% of net product revenue, resulting in a gross margin of 91%. Before our approval in May of 2023, costs associated with the manufacturing of VYJUVEK were expensed as research and development, and as previously mentioned, our first sales occurred in the third quarter of 2023. Therefore, there was no comparative period cost of goods sold in the second quarter of 2023.
Research and development expenses for the quarter were $15.6 million, inclusive of stock-based compensation of $2.8 million compared to $12.1 million for the prior year’s second quarter, inclusive of $2.9 million of stock-based compensation. Higher research and development expenses in the second quarter of 2024 were due to increased R&D related manufacturing and process optimization expenses for our product candidates, increased R&D depreciation expense, increased clinical development costs as well as increased license and regulatory costs this quarter. These increases were partially offset by capitalization of direct and indirect overhead cost to manufacture VYJUVEK being charged to inventory following FDA approval.
Selling, general and administrative expenses for the quarter were $27.6 million, inclusive of stock-based compensation of $10.4 million compared to $25.9 million for the prior year second quarter, inclusive of stock based compensation of $8.5 million. Higher selling general and administrative expenses in the second quarter of 2024 compared to the prior year’s similar quarter were primarily the result of increased stock-based compensation, increased commercial related professional services fees, increased VYJUVEK selling expenses and increased VYJUVEK’s patient access program costs. These increases were partially offset by a decrease in launch-related marketing costs incurred prior to our VYJUVEK launch in the second quarter of 2023.
This quarter, we again recorded litigation settlement expense of $12.5 million due to our anticipation of reaching the second milestone payments in the PeriphaGen settlement, which has triggered at $200 million in cumulative sales payable following the filing of our Form 10-K in which the $200 million milestone is achieved. The third and final milestone will be triggered by reaching $300 million in total cumulative revenue from sales of the company’s products.
Net income for the quarter was $15.6 million, which represented $0.54 per basic and $0.53 per diluted share. Our non-GAAP operating expense guidance for 2024 remains unchanged. This guidance excludes the non-cash impact of stock-based compensation.
Finally, we ended the second quarter with $345.8 million in cash on hand and $628.9 million in total cash plus short-term and long-term investments, marketing quarterly growth in our overall cash and investments position with an increase over our first quarter of 2024 cash and investments by about $7 million. And now I will turn the call back over to Krish.

Krish Krishnan

Thanks, Kate. With an annualized product revenue run rate already over $250 million and four quarters of positive EPS, we’ve been able to deliver significant value to our shareholders through the US launch of VYJUVEK. And yet we see opportunities for significantly more value creation in the years ahead, both through the global expansion of VYJUVEK and the advancement of our clinical stage programs, each of which addresses a clear unmet need and showcases the breadth of our platform.
With the benefit of commercial scale in-house GMP manufacturing infrastructure, we’re uniquely positioned to rapidly execute against these goals and bring to market, a portfolio of highly differentiated redosable genetic medicine. Thanks for listening. I’d like to now open the call for Q&A.

Question and Answer Session

Operator

Alec Stranahan, Bank of America.

Alec Stranahan

Hey, guys, thanks for taking our questions and congrats on the strong quarter. Two questions from us. First, just on patient compliance. How do you expect this to trend in the second half? Do you think it’s reasonable to expect this to reach some steady-state as new patients go on therapy and older patients maybe see a benefit from therapy?
And then second question, any changes in the way you plan to approach the international markets if VYJUVEK gets approved say in the EU or Japan? Thanks.

Krish Krishnan

Okay, thank you. On the second question, which is a quicker, no change in the approach we’ve had to date. We want to continue over UK and Japan. And we’re looking to do distributor agreements in countries outside of that (inaudible). So really no change to the way we’re looking to international markets.
And on the compliance trend, I will say I’ll make a couple of anecdotes. We also tried the OLE patients who on average have been to date on drug for about 35 months or so. And we are seeing a minority of patients drop below max compliance. And we defined max compliance as north of 90% as it’s always a situation where someone misses a vial for personal issues, whenever.
So we’re starting to see, at this point in time, especially with the OLE patients. That said, the majority of them are still tracking to pretty high compliance at four vials, noting that most of the patients in the OLE were severe. And so from a patient’s severity perspective, we’re starting to see some good trends with respect to the compliance. The mild to moderate — look, most of the dominant patients have been on drugs since the launch. And I’ll ask — I’ll turn it over to Jennifer to talk a little bit more about what she is seeing in the clients in the commercial sector.

Jennifer McDonough

Sure. Thanks, Krish. As we look at our one-year anniversary and kicked our First Defense in August. So we are able to start utilizing some of those cohorts that came on early on. And we are really excited around there adherence to the weekly redosing. So overall, weekly application and how we’re nursing, that seems to be working really well. Patients are even scheduled within their normal schedules. They’re on the same day believe which really seems to be lower.
For those folks that Krish mentioned as open-label extension, they are on a relatively long period of time, several years. They may have paused treatment for the most part because they may have no open wounds and then cycle back as life continues to happen for them.
So overall, we analyses first cohort with a very, very high compliance in that one-year period, which is that threshold that we’re looking at. And again, we believe that weekly convenience of home application and the impact that VYJUVEK is making on their daily lives is driving that high compliance percentage. So we’re really happy with what we’re seeing in real world.

Alec Stranahan

Thank you.

Operator

Ritu Baral, TD Cowen.

Ritu Baral

Hi, guys, good morning. Thanks for taking the question. I wanted to ask about the status of manufacturing approvals for expanded capacity. And my follow-up is on the European application. It sounds like you are seeking some sort of FDA sign-off on expansion in the ANCORIS plant. Will there be any sort of new inspection required, new assays? Are you kicking another floor in ANCORIS or will it be the same sort of square footage?

Krish Krishnan

I will hand it over to Suma to do the —

Suma Krishnan

So where we stand with ANCORIS is ANCORIS has the capacity to fully meet the commercial demand for the US and potentially in Europe. So as far as with the current scale, obviously, we are going into the large-scale production. We have filed [BAS] for that filing, and we anticipate that should — we hope to get that approved in and by of the year.
So we are pretty excited about our scale up. With regarding to the inspection of the ANCORIS facilities, again, as you know, we have been inspected by the FDA with very minimal 483s or any findings staying with the EMA. Again, they were very pleased with the inspection. The inspection results went pretty well.
I mean, obviously, you know, every two years we have routine inspections. I think we’re prepared. We know the agencies. We know all of the — what they look for. I think we are well prepared.
With regarding to scale-up, we maybe not proceed inspections. Again, we don’t know, but if we do, we are absolutely prepared. With regarding to ASTRA, we already transferred some of the key starting material into ASTRA, and we are already talking with the agency of getting ASTRA approved for this key starting raw materials. So we anticipate transfer of our actual process, which is a scale-up process to ASTRA sometime this year. I think we’re in good shape with manufacturing. We feel very — manufacturing is going pretty smoothly.

Ritu Baral

Great. And then on the European applications, can you give us the status on 120-day questions or have you moved on to the 180-day questions? And basically are the topics covered in those questions, related to home dosing? Are they materially different than what the FDA asked during its review period? And any points of note there?

Suma Krishnan

Yeah. I mean, we have completed responding to all of the questions we should be submitting it shortly. But pretty much the questions were very aligned and predictable. So there were no surprises because again, — because we have the PRIME designation, we had many scientific meetings with the EMA. So I think there were no surprises.
Obviously, EMA is thorough because we have core applicable countries. So again, the questions, all of them were addressable. Yes, home dosing was in that list of questions. And we have obviously responded to some of their questions regarding home dosing.
So home dosing is very much in the discussion point. And if you look at our [SNPC] right now, home dosing is part of our SNPC. So again, I think with regards to all of the questions and our responses, we feel very comfortable because there’s no surprises. Very similar trends from the FDA, and we are very prepared — we feel confident by responding to those questions in a timely manner.

Ritu Baral

Understood. Just to clarify these with a 180-day questions that you spoke of or the 120?

Suma Krishnan

The 120. That’s the — review is done, and we should get the 180 shortly.

Ritu Baral

Okay, got it. Thank you.

Operator

Andrea Tan, Goldman Sachs.

Andrea Tan

Good morning. Thanks for taking our questions on. And I was just wondering if you could provide color on the proportion of VYJUVEK patients who are coming from centers of excellence. And to what extent are you seeing uptake amongst other patients, you might have stepped away from these centers previously, investors require a little bit more work to bring back into the system? And then I have a follow-up.

Krish Krishnan

Sure. Thanks, Andrea. Jen?

Jennifer McDonough

Yeah, sure. So as we look at the analytics around measuring coming from COE versus community, we do know the majority of our patients are really seen in those areas, those sites of care. We see a trend towards the communities for sure. However, the centers are strong. They continue to — they prescribe as they see new patients or new patients are being diagnosed. We see them coming in earlier and earlier, which is a great trend. The second question?

Krish Krishnan

It was basically about COE and any overlap between COE and community?

Jennifer McDonough

Yeah. So again, the community continues to be strong. In this past quarter, the majority are coming from community, which is exactly where our strategy is pointing our sales team. So overall, it’s just as expected, with strong utilization in investment centers and in the community setting.

Andrea Tan

Great. And then my second question is actually for Suma. Just I’m hoping you might be able to frame expectations ahead of the 80 data later this year, specifically around how many patients we might be able to expect. Will be from both cohorts one and two? And then what will you be looking for specifically to make a go no-go decision on the program? Thanks again.

Suma Krishnan

Yeah. So again, cohort two is pretty much fully enrolled. So we expect to go into cohort three pretty sharply. I think cohort three is going to be our important cohort because you are going to go with the highest dose. And this is where we are going to have bronchoscopy and evaluate that. So obviously, we’ll have some data with regarding to expression of [A180], both in the lung, in the lavage, and also the look at systemic level if it’s in the plasma. So again, we expect to enroll patients and get molecular correction in a bronchoscopy data in these patients.

Andrea Tan

Got it. And to confirm, cohort three data will be the key data set that we’re expecting by year end?

Jennifer McDonough

Correct. That’s what we are targeting. yes.

Krish Krishnan

I will point, Andrea, we view the releases through Phase 1 data. It tough to predict if all the data would be on all the patients by the end of the year. But we definitely think that most of them would be in. So we’re still calling it interim Phase 1 to update.

Andrea Tan

Okay. Thanks so much.

Operator

Tim Lugo, William Blair.

Hi, this is John on for Tim. Thanks so much for taking our question. I was wondering if you could talk a little bit more about the number of new patients you’ve identified outside of the original 1,200 that were identified and talk a little bit more about your current comfort level with the estimated total of around 3,000 patients in the US?

Krish Krishnan

Okay. Let me start. We definitely are starting to see new patients being identified outside of the 1,200, basically analytics-driven. It’s not simple and direct as you can imagine because of the way that how some patients are treated, both in the COE and in the community. It’s tough to put an exact fine point on it. But our internal view on the matter is that we have expanded on the identified base by close to 10% at the moment.

Okay. And then your current comfort level around the estimated total around 3,000 patients?

Krish Krishnan

Still the same.

Okay. Thank you so much.

Operator

Yigal Nochomovitz, Citi.

Yigal Nochomovitz

Hi Krish and team, I had a question on the ocular formulation. Regarding the natural history run-in, I’m just curious what sort of eligibility criteria would you be using in that running to determine who would qualify for the treatment phase of that study?

Suma Krishnan

The qualification is — the inclusion criteria is the patient must have at least two episodes of blisters or incidences of blisters in the past six months. And I can tell you, it’s — the natural history study going pretty well because there’s a lot of patients with blister manifestation, more than I thought because these patients do have constant blister in their eyes. So two blisters, that’s what the agency discussed with. So that’s the requirement.

Yigal Nochomovitz

Okay, thanks. And I recall there was one instance of the compassionate use case in a 13 year old boy with VYJUVEK interocular. Have there been other instances of compassionate use or use off-label of VYJUVEK for ocular complications with the commercial drug.

Suma Krishnan

So right now, the boys that had the ocular, so it was in it’s left eye. Now, they have also treated his right eye. So both his left and right eye has been treated with VYJUVEK for an extended period of time. So that’s the only compassionate use. Obviously, we do get a lot of requests. But I think and now since we are now in the process of getting clinical studies going in the natural history, study has been rolled out, so we have a lot of patients enrolling in the natural history study. So we are hoping we’ll be able to enroll the study pretty fast.

Krish Krishnan

On your question on off-label use, the drug is mixed in the pharmacy. If it’s almost inconceivable the way it’s mixed and delivered and even remotely off-label use of the drug present.

Yigal Nochomovitz

Okay. Thank you.

Operator

Gavin Clark-Gartner, Evercore ISI.

Gavin Clark-Gartner

Hey, guys, thanks for taking the questions. I had one more granular one & one higher level question. First, just on the reimbursement approvals, I believe you had around 420 start forms as of mid-February and now on around 400 reimbursement approvals. I’m just wondering for some of those start forms that didn’t come through as reimbursement approvals, what’s the current status of them? And just overall, how many of the reimbursement approvals do you expect will ultimately make it to patients on drug at some point?

Krish Krishnan

So we’re certainly not going to the start forms because we’re never going to talk about start forms (inaudible) beaten up on that term for like six months for absolutely no reason. In terms of reimbursement approvals to net revenue, the most important thing is that it’s not immediate. It still takes two to three weeks to schedule a nurse. In some cases with the summer schedules. Co-morbidity in some cases. So there’s always a time lag, and Jen can elaborate on exactly what it is.
We track — now look, reimbursement approvals as I see is a great predictor of net revenue, but not an immediate predictor of net revenue. So if you look at it that way, I think it’s the closest indicator you can have to kind of estimating what net revenues could be in the future.
We’ve always said, look the start form. But we don’t call something a start form till it’s adjudicated. You can call it a scripts and as we go into the community, especially, genetic testing rates are lower. Even if they have been done many years ago, they used to be treated as the COE. Paperwork gets misplaced.
o more in that community, you should assume that the majority of scripts we get don’t convert to start forms till we get the genetic testing done. And so that’s important to note. But outside of that, besides the lag in time, given the high compliance, there isn’t anything magical about the way the launch is going to run really well. Patients who get on drug get compliant. We would like to see the patients get on drug sooner than they too, but life does get in the way. And we are super focused on patient experience, making sure we’re not rushing them into something that they’re not super comfortable with given personal life and schedules, et cetera.

Gavin Clark-Gartner

Yeah, that makes sense. And just one higher level question. As you kind of transition to a more mature period of the launch, I’m just wondering what we should expect for go-forward metrics. So you guys going to keep reporting the reimbursement approvals and the compliance every quarter, will you ever report patients on drug or maybe plan to give any guidance? Just wondering what we should expect for the go-forward metrics.

Krish Krishnan

I don’t believe we’re entering a mature phase of launch. The way we look at, we still believe we’re in a high growth. And I don’t want to call it a high growth but in a growth phase. Look, when we get to the mature phase of launch, hopefully sometime next year, our present intention which can change is simply to guide on revenue because as more and more people — like you know how Jen alluded to start and stop or — I’ll come back to it after summer. And I’m not that severe. Compliance will start to get — as you go into the community, go into dominant, compliance with get less clear over time.
We’re still at very high numbers. Our expectation, if you remember at the time of launch, was four vials a month for the first 18 months and going to two vials. And we were expecting compliance to drop to 50% in like 18 months post launch. The trend doesn’t look that it’s going that way at the moment, but we reserve our judgment on where it’s going to end up. We’re still in many ways the early stages of launch. So we’re in a growth period, early stage of launch. And if we ever get to the mature phase, we’ll probably — somebody guide on that revenue setup.

Operator

Dae Gon Ha, Stifel.

Dae Gon Ha

Great, good morning. Thanks for taking our questions off. Maybe a question for Krish or Christine, just in terms of looking at the commercial portion, you put the headwinds behind us since the first quarter. So I’m just kind of wondering, is this kind of community type setting phase going to continue where we can anticipate a little bit more of a conversion period delay? Or if you can maybe comment on the physician and patient behavior transitions or evolution, if you will, since the August 1 on commercial launch last year, that would be great.
And then second question specifically for Suma. Just reverting back to the KB408 expectation, is the anticipation that you’re going to focus more on the lung bronchoscopy measurement of the AAT concentration? And if so, what’s the bogey or what’s the level that you’re seeing as a potentially promising level. Thanks so much.

Christine Wilson

I’ve mentioned our complete monitoring infrastructure continued to apply new alerts, which is what has supported our ability to not just focus on the DOE but also in the community-based setting. And as we look about that community-based setting, we are finding patients all across the United States which is really exciting because it gives us an opportunity to introduce VYJUVEK to both the HCP and the patient.
Our intention is to continue on both tracks, right? We continue to cultivate our COEs. Our KOL advocacy continues to strengthen as time goes on. But in addition, we are seeing that growth in the community setting and that mentioned the dynamics are a bit different, as you would imagine in the community where patients may have been less engaged with the health care system as a whole, and therefore, it takes a bit more time to get the genetic testing done and political nodes that are required for reimbursement approval, et cetera. So we do anticipate that our growth continued in both platforms. We will see a combination of the timelines that are associated amongst both the COe and the community setting for VYJUVEK.

Suma Krishnan

With regarding to KB408, obviously, you want expression in the lung, right? I mean that’s what speaking talking to key KOLs, that’s what we hear. Again, nobody knows what kind of loans, we need to see a correction or improvements. But again, obviously, the lung improvement and functions we’re going to tighten as we start measuring them.
With regards to AAT, the beauty of AAT is it’s a secreted protein. And we already know that from our vector, we see high expression of the secreted protein, so we anticipate — when you go into the lungs and you nebulize it, it’s going to impact any cells that’s going to see any (inaudible) a lot of the protein that’s being generated. At least based on our animal data on our in vitro data, we expect high expression.
So when we look at the bronchoscopy, again, when we compare it to baseline, we would — that’s when we are going to compare, what are the difference and the level. And obviously, going forward, we’re going to start measuring improvement in lung function as part of the efficacy.
But again, I think that for 408, the beauty of 408 is there is no approved product for the therapy. So we, from a regulatory strategy point for us, as we believe we can go to the agency and go with the biomarker approach as if we are seeing expression levels in the lung and we can quantify them, the plan or the incentives for us to obviously be done with the agency and see if there is a pathway for accelerated approval with this particular indication. So that would be an opportunity for us.

Stéphane Paquette

This is Stéphane. And just adding on top of what Suma said, clearly, based on the mechanism here, the low levels that are important, we’re measuring systemically. That’s what’s going to drive decision-making for us. The PD biomarkers will give us a sense of if we’re in a kind of thing (inaudible) in the literature and understanding levels in the ELF, for example, relative to systemic, maybe 5% to 10% in that range. And so there are tools to benchmark what we would expect to be clinically useful AAT. which will then be bracketed by the information we get from baseline, both patients on an augmentation and those PD biomarkers is that having the effect that we want in the context of the loan. So collectively, we think that will give us the information we need to make a decision on progressing and fix inputs.

Krish Krishnan

I do have a final comment, please realize, we’re re-dosing of gene therapy, right? And we make the argument for CF, how we chip away at the problem and that unlike other gene therapies which are primarily for the most part one-and-done, people look at first read out. Just always bear in mind as we report data that we have the ability to re-dose into a more amenable situation than we started. But —

Dae Gon Ha

On that point, Krish, I guess this cohort three data won’t necessarily give us what the redosing or frequency may be, right?

Suma Krishnan

Yes, correct. Because it’s a single dose, but very quickly, we are going to go in maybe some of the same patient. We can enroll them into the extension study where we can start redosing them because I think one week we will have a good understanding what levels we see, and based on that, we are going to rollover patients and continue to collect that data.

Dae Gon Ha

That makes sense. Thank you very much.
And obviously, repeat bronchoscopy is tricky but we will try to see what we can gather. Many of these patients are amenable. They are open to doing allowing bronchoscopy because they seem to be okay there. So we will find enough patients to collect that data as redosable. Capture those levels.

Gavin Clark-Gartner

Great. Thanks so much.

Operator

(Operator Instructions) Debjit Chattopadhyay, Guggenheim Securities.

Debjit Chattopadhyay

Good morning or Chris, could you clarify what do you expect steady state given the earlier comments on some of the OLE patients out to month 35? Are these patients now at two vials per month? And what are you assuming steady-state revenue per patient?

Krish Krishnan

So let me just clarify the comment. I don’t recall saying two. So it could be three or two or one, something less than four. But I’ll let Jen comment on what exactly this shares is.

Jennifer McDonough

Yeah, we look at the cohort of patients that ranges vary, we kind of separate ended two different cohorts. One that consistently is remaining on therapy for four months for that entire year, then those folks that potentially are pausing and coming back. That’s the cohort that, as Krish said, it’s a little, I would say a premature kind of understand where they’re at. They do vary based on their lines of therapy and the other co-morbidities that they are dealing with, whether they’re in the hospital etc.
So we are continuing to trend. And I think it is little early to say where the finals results will be based on severity, based on where the rules are at, based on our analysis going on in the patients lives. But overall, again, the patients that are continuing, stay on weekly and then potentially a pause here and there as life happens for them. So we’ll continue to track it and as we expect to fail, eventually evolve as patients continue on therapy.

Krish Krishnan

Yeah. And I think, net revenues there, it’s sometime next year, we’ll have a much better idea what the number looks like. We’re still less than — we’re almost at 12 months into launch. We are still not at the 18 months here. So anything we said would be a bit premature. But right now, compliance is good. We’re tracking ahead of our expectations with respect to launch. So hopefully next year.

Debjit Chattopadhyay

So a couple of follow-ups here. Do you think you could get to over 700 patients on approved therapy by mid-25, which would roughly be about 60% of the identified 1,200 patients?

Krish Krishnan

Well, our goal in the long-term has been to get to 60% market share in two years. Although, I want to caveat a little bit at the time and we sense that we were talking in terms of start forms and in terms of patients on drug. But that said, our internal goal is just to be very clear on the topic is to work pretty hard to get to that number two years from launch. Yes, that’s the goal.

Debjit Chattopadhyay

And the ophthalmic indication, is that a separate BLA our label expansion? And what would be the pricing assumption for the segment.

Suma Krishnan

And it’s going to be a different DNA because, again, the volume is going to be just the safety outcome that will be different because it’s the eye. So it is a separate BLA. But again, as we mentioned, we have agreement with the agency, so we are embarking on this registrational trial, which we expect to complete next year. So it’s going to be a new BLA.

Debjit Chattopadhyay

I was just going to say if it’s a separate BLA, should we also expect a pediatric review voucher along with that.

Suma Krishnan

Yeah, as per the regulatory guidance for the same molecular entity — this is what happened to Bluebird if you guys remember, I think they do not issue a second pediatric voucher. It depends on the molecular entities. So that’s the guidance.

Debjit Chattopadhyay

Thank you so much.

Operator

This now concludes the call. At this time, thank you to all participants for joining the Krystal Biotech second-quarter 2024 earnings conference call. You may now disconnect.