Slow and steady may win the race, but the approach can still be frustrating. That's especially true when Wall Street is involved.
Krystal Biotech (KRYS) provided a third-quarter 2022 business update on Nov. 7 that presented little new information. The company summarized recent announcements and kicked development timelines further into the future. Investors now have to wait even longer for the company to initiate the next phase of clinical development.
Investors don't have much to complain about. The company remains on track with its lead drug candidate, Vyjuvek, which is expected to earn FDA approval in 2023. The problem is Wall Street has the attention span of a goldfish. Failing to manage the optics and show steady signs of progress can make it easy for analysts and investors to lose interest.
Krystal Biotech needs to make a better effort to keep the goldfish fed in 2023. Luckily, the stage is set.
A Valuable Gene Therapy Platform
Gene therapy aims to treat disease by delivering corrective genetic material into a patient's cells. The delivery vehicle is often a hollow virus, called a capsid, modified to hold the desired genetic material and find its way to a specific cell type. For example, a disease caused by genes expressed in the liver shouldn't be targeted by a gene therapy aimed at muscle tissues.
The most common viral capsids used in the global industry pipeline are called adeno-associated virus (AAV) vectors. They're the most understood, offer decent customization options, and have the most well-established manufacturing infrastructure. But they still have notable drawbacks.
- AAV vectors or capsids have a limited carrying capacity. That often forces drug developers to use modified genes rather than the exact human gene with the best corrective potential.
- AAV vectors are highly immunogenic, which means they trigger the immune system. This often results in the patient's body creating neutralizing antibodies against the gene therapy. That's great for a vaccine, but a terrible disadvantage for AAV gene therapies. Immunogenicity results in less of the genetic material reaching its destination and prohibits patients from receiving a second (or third) dose. This is the real reason gene therapies are often considered "one-and-done" treatments, not because they're a cure.
- Because AAV vectors are highly immunogenic, drug developers only get one chance to provide a therapeutic benefit to patients. That has led to very high dose levels in an attempt to sneak enough drug product past the immune system, but high-dose gene therapy can be toxic or fatal.
- Adenoviruses circulate during cold season and are one of the primary causes of respiratory illnesses. As a result, many individuals already have neutralizing antibodies to commonly-used AAV vectors, which often means they are ineligible for receiving AAV gene therapy.
Krystal Biotech is developing a gene therapy platform based on herpes simplex virus (HSV). It boasts several important advantages compared to AAV gene therapy:
- HSV vectors have a very large carrying capacity. They can carry over 10 times more genetic material than an AAV gene therapy and over twice that of a lipid nanoparticle (LNP), which is becoming the preferred route for delivering gene editing drugs. The large capacity means Krystal Biotech can deliver full-length human genes to patients – sometimes providing multiple copies within a single capsid.
- HSV vectors are not very immunogenic. This allows Krystal Biotech to deliver as many doses as needed to provide therapeutic benefit, or continuously over a patient's lifetime.
- Similarly, individuals do not need to be screened for neutralizing antibodies before receiving an HSV vector. No patients are excluded from treatment due to immunogenicity concerns.
The advantages of HSV gene therapy could soon provide relief to patients. Krystal Biotech developed Vyjuvek (formerly B-VEC) to treat dystrophic epidermolysis bullosa (DEB). The rare skin disease is caused by a deficient COL7 gene, which the treatment provides with a topical gel applied to the skin.
A phase 3 clinical trial measured the ability to provide complete healing in skin wounds associated with the disease. At six months, 67% of wounds treated with Vyjuvek achieved complete healing compared to only 21.6% treated with placebo.
There are no approved treatments for DEB in the United States, but the FDA will make an approval decision for Vyjuvek by February 17, 2023. It will allow Krystal Biotech to transition into a commercial-stage drug developer. It also provides a solid proof of concept for HSV gene therapy broadly.
Feed the Goldfish in 2023
The slow pace of development for the rest of the pipeline has become a frustrating component for investors. Like it or not, Wall Street wants to see steady signs of progress each quarter. If analysts have the attention span of a goldfish, then management must do a better job feeding them information.
Vyjuvek has a very high likelihood of earning regulatory approvals in 2023, but the next major programs have seen little to no clinical progress during 2022. That's problematic because pipeline assets are valued using net present value calculations. If there isn't any new data, then financial models cannot be updated to reflect greater (or lesser) value.
Krystal Biotech promises to begin the next wave of clinical development soon, but the delays are piling up.
- KB407 (cystic fibrosis) is expected to begin phase 1 clinical trials in the United States and Australia before the end of 2022. The Australian study is now 12 months behind the initially provided timeline. Nonetheless, this could become the most valuable asset in the pipeline and one of the most valuable assets in the global industry pipeline.
- KB105 (congenital ichthyosis) is expected to dose patients in a phase 1/2 clinical trial in early 2023. That's one-quarter later than the prior timeline.
- KB104 (Netherton syndrome) is expected to request in the first half of 2023 permission to initiate a phase 1 clinical trial. That's two quarters behind the prior timeline.
- KB301 (skin wrinkles) is expected to begin a phase 2 clinical trial in the first half of 2023. That's one to two quarters behind the prior timeline.
On the one hand, it makes sense to focus bandwidth on getting Vyjuvek through the regulatory process and commercial launch. The asset will generate operating losses in its first two or three years on the market, but it has peak annual sales potential of over $500 million. That could allow the business to self-fund development for the rest of the pipeline.
On the other hand, delivering on the promise of HSV gene therapy requires investing in and developing multiple assets. Krystal Biotech has shown investors frustratingly few signs of broad pipeline progress during 2022. Luckily, the stage is set to make good on development promises in 2023. It's time to feed the goldfish.
