While writing my weekly Biopharma Stock Watch article for our members, I stumbled across an exciting clinical-stage gene therapy company Krystal Biotech (Nasdaq: KRYS). Since we started following KRYS several weeks ago its share price has gained +50%! The primary driver being positive phase 2 data for the company’s lead gene therapy candidate KB103 under development as a topical treatment of Dystrophic EB (DEB), a lifelong debilitating disease. Current standards of care are only palliative, meaning they provide some relief from symptoms but do nothing to address the underlying disease pathology. DEB results from a mutation in the COL7A1 gene that makes effector proteins needed to assemble collagen. Children with the condition are called ‘butterfly children‘ because their skin is as delicate as a butterfly wings. DEB is rare affecting 1 out of every 20,000 people born. In severe cases, internal organs can become damaged leading to premature death. In the rest of this article I’ll discuss why like KRYS as an investment in gene therapy space. In a subsequent article, I will compare KRYS to its competitors in the race to develop the first commercial gene therapy for DEB.
About Krystal Biotech and Its STAR-D Platform
Krystal Biotech is a clinical-stage gene therapy company developing its proprietary Skin Targeted Delivery (STAR-D) platform with an emphasis on skin diseases. KRYS is taking on rare disease first with orphan designation, and then aims to expand into the aesthetics and chronic skin disease markets. The properties of its STAR-D platform, specifically its Herpes Simplex Virus 1 (HSV-1) vector, sets it apart from the competition. The HSV-1 vector has a payload capacity (i.e. amount of genetic information it can hold) of 150 Kb. That’s enough to fit multiple complete genes including regulatory sequences. For reference, the payload capacity of an Adeno-Associated Virus (AAV) is only 4.7 Kb. Secondly, the HSV-1 vector does not integrate into the patients genome or replicate like lentiviral or retroviral vectors do. This decreases the risk of disrupting off-target DNA sequences which could lead to cancer. Unlike other virus, HSV-1 does not elicit an immune response from the body. Genes that instruct the virus to replicate and destroy host cells are removed allowing for repeat administration without safety concerns. HSV-1 has a high affinity for skin cells and thus can penetrate and deliver its payload efficiently. Collectively, these qualities empower STAR-D to potentially become the first “off the shelf” gene therapy ever. What this means is treatments would not need to be customized for each individual. Moreover, this gives KRYS an edge over competitors developing gene therapies for specific types of mutation such as ProQR Therapeutics NV (PRQR).
Another strength is KRYS is fully integrated. In January of 2019 they completed building a commercial scale cGMP-compliant manufacturing facility. Doing so tightened the company’s control over its supply chain and ensures demand can be satisfied in the event of FDA approval. On the regulatory front things are looking good. KB-103 has orphan drug designation in the U.S and EU as well as FDA rare pediatric disease designation. We learned last week that in addition to meeting its primary endpoint in its phase 2 study, KB-103 was awarded regenerative medicine advanced therapy (RMAT) designation by FDA. KRYS’s second most advanced gene therapy KB-105 has rare pediatric disease designation and orphan drug designation in the U.S. KB-105 is being developed as a topical gene therapy for another rare, but serious, skin disease called TGM1-deficient ARCI. On June 14th KRYS filed an investigational new drug application (IND) for KB-105 to start a phase 1/2 study. On July 1st shareholders rejoiced in learning that KRYS was added to the Russell 2000 index.
KRYS closed last on Tuesday July 2nd at $44.15 and has a 52-week range of $14.28 to $46.90. The latest surges you see in the KRYS chart in June 2019 was elicited by the aforementioned positive phase 2 data in patients with DEB. KRYS has a very attractive dilution profile with 14.4 M shares outstanding and 9.2 M float. Investors can find solace in knowing that this low float is not linked to a reverse split. The ratio of insider and institutional ownership is nearly one at 34% and 43%, respectfully. The top three institutional firms being FMR LLC (7%), Frazier Management LLC (5%), and Baker Brothers Advisors (5%). Short interest is relatively low at seven percent of the float is shares short as of June 15th. Following a $100 M public offering last month at $40 per share KRYS is flush with 207 M in cash. This cash shall be used to support a phase 3 study of KB-103, to advance preclinical assets, ensure its new manufacturing facility is up to regulatory standards, and general operational and administrative purposes. A phase 3 study for KB-103 is anticipated to begin in the 2H19.
Phase 1/2 Study Results
Interim phase 1 results were announced in October 2018. Topical KB103 was applied on two adult patients with generalized recessive dystrophic epidermolysis bullosa (RDEB) in 2 wounds. A placebo was applied on two other wounds (4 wounds total). KB103 treated wounds closed completely in 2-weeks. One placebo treated wound did not heal completely during the study and the other took 10-weeks to heal completely. Functional COL7A1 proteins and anchoring microfibrils were detected confirming expression of the inserted gene. The principal investigator of the study Dr. Peter Marinkovich MD had this to say about the preliminary data:
Results on 2 patients demonstrate a meaningful clinical benefit and suggest that KB103 can afford a simple, convenient, painless way to administer treatment for patients suffering with this debilitating disease. These early data are encouraging and we look forward to continuing the study in pediatric populationsKRYS Press Release
Data from the phase 2 portion the trial and updated phase 1 results were reported on June 24th. Four additional patients (2 adult, 2 pediatric) were enrolled in December 2018. Three wounds from each patient were randomized for treatment with either KB103 or a placebo in a 2:1 ratio. Wounds selected in phase 2 were approximately 20cm^2 whereas the two wounds in phase 1 were about 10cm^2. Out of the six wounds included in the analysis four were categorized as recurring and two as chronic. The difference being that recurring wounds open and close spontaneously and chronic wounds had been open for over 12-weeks. Most wounds in RDEB patients are recurring. One of the four phase 2 patients withdrew voluntarily due to an inability to travel. This ended up presenting an opportunity KRYS capitalized on. KB103 is intended for use at home by a nurse or caregiver. Management at KRYS and investigators at Stanford negotiated with FDA for that patient to use KB103 at home. His data, however, was not considered in the same analysis of the other 3 patients. In short, there was an unambiguous treatment effect in KB103 treated wounds. Because the presence of COL7A proteins and microfibrils were detected in phase 1 the focus was on clinical endpoints for phase 2. The primary endpoints were 1) Time to 100% wound closure and 2) Duration of wound closure.
Five out of six KB103 treated wounds closed 100% by 90-days with an average time to 100% closure of 23-days. Among the four recurring wounds the average time to complete closure was 19-days. The average duration of complete closure for them was 71-days. The two KB103 treated wounds from phase 1 remained 100% closed for 6.2 and 6.6 months. In the combined phase 1/2 data the average time to 100% closure was 20-days. The one wound that did not fully close was a deep chronic wound that the patient reported had been open for 4-years. It did heal partly though. At thirty and ninety-days after treatment it had closed 35% and 42%, respectfully.The other chronic wound closed completely 41-days after treatment with KB103 and stayed closed for 49-days. Placebo treated wounds all remained completely open at the end of the observation period (day 90). Importantly, there were no adverse events serious or otherwise. An update on the durability of responses will be provided before embarking on phase 3. Investigators estimate that the average duration of closure at 120-days time-point to be 101-days.
Four mechanistic endpoints were included as well. The highlights so far is the expression of COL7A1 proteins and formation of microfibrils. More will be reported on this at the end of the study. KRYS will be meeting later this quarter with FDA to discuss its phase 3 study planned to initiate this year. If you are interested to hear more details about the latest results and update click here to listen to the conference call.
Looking at the most recent phase 1/2 clinical data KRYS presents an enticing investment opportunity. The gene therapy market is young and growing rapidly. It behooves investors to stake out a claim in companies poised to succeed. As I have argued before, companies with competent leadership, sufficient funding, and products that are safe and efficacious should succeed. From my research into KRYS thus far they seem to emulate these qualities. After the latest update on KB103 investors can be confident in KRYS’s STAR-D platform. The data observed in the June 24th update was as compelling, if not more so, than the preliminary phase 1 data from October 2018. What this means is the possibility of initial wound closure responses being due to pure chance is nil. Looking forward, the most important thing will be the duration of wound closure. I see this as the area of greatest susceptibility with regards to KRYS’s competitors. There are multiple autologous gene therapies under development for the same indication. As a topical therapy KRYS has a key advantages in terms of manufacturing, distribution, and application. At the same time, a less convenient therapy with superior response duration would be a threat. As for KRYS leadership, I give management two big thumbs up. In the past two years they have delivered shareholders immense value while keeping share count low. Analyst are in agreement that KRYS is a strong buy and I concur. After a recent round price target hikes the average price target according to TipRanks is $67.75.
I am/we are long KRYS. I was not compensated to write this article. It reflects my own thoughts and opinion.
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