Thank you for standing by, and welcome to the Krystal Biotech Q4 2024 Earnings Call. At this time, all participants are on a listen-only mode. After the speakers' presentations, there will be a question-and-answer session. As a reminder, today's conference is being recorded. I would now like to hand the conference over to your host, Stephane Paquette, Vice President of Corporate Development. You may begin.

Good morning, and thank you all for joining today's call. Earlier today, we released our financial results for the fourth quarter and full year of 2024. The press release is available on our website at www.krystalbio.com. We also filed our earnings 8-K and 10-K 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.

Stephane, thank you. Good morning, and welcome to the call. 2024 was a strong year for Krystal. VYJUVEK U.S. launch continues to progress well and tracks in the top tier of rare disease launches. The strength of the launch speaks to the robust efficacy and safety profile of VYJUVEK and our relentless focus on patient and physician experience. In addition, in 2024, we demonstrated that we can safely and repeatedly deliver genes to the lung with a nebulizer across our cystic fibrosis, alpha-1 antitrypsin and non-small cell lung cancer programs, clearly validating the lung as a second target tissue for our platform. There were also strong early signs of efficacy in our readouts, and we fully expect the data to mature later this year. Looking ahead at 2025, we have three primary things to accomplish: first, a successful VYJUVEK launch in the EU and Japan; second, to translate the early signs of efficacy into strong results across our CF and A1AT programs; and third, to prepare for the anticipated launch of B-VEC to treat lesions in the eye of DEB patients. If we do this right, we believe the company will be in a much stronger place with respect to revenue, net income and market cap going into 2026. For the year, net income per share was $3.12 per share, up sequentially from $0.40 per share in 2023. This is our sixth straight quarter of positive EPS and fourth straight quarter of sequential earnings growth. In addition to operational success, we have also put ourselves in a strong financial position for future growth. In aesthetics, Jeune Aesthetics reported strong KB301 Phase 1 data for the treatment of the décolleté and we plan to start a Phase 2 study later this year. We're in the process of building out a seasoned management team at Jeune Aesthetics with more to come on this later in 2025. $341 million in net revenue within 18 months of launch and sequential revenue growth for six straight quarters is a tremendous achievement and a testament to the tireless contributions by our commercial and patient support teams on behalf of patients with DEB. Net VYJUVEK revenue for the quarter came in at $91.1 million, bringing revenue for 2024 to $290.5 million. Gross margins in total drug network were consistent with prior quarters. I'll now turn it over to Jen and Christine to share more details on the U.S. launch.

Thank you, Krish. Looking back on 2024 and now the early days of 2025, I'm incredibly proud of what our team has been able to accomplish. With steady progress over the entire year and a strong access landscape carrying over from 2024 into 2025, a growing number of DEB patients have or will soon benefit from fundamentally corrective VYJUVEK therapy. I'm also happy to share a major milestone achievement for our United States team as we recently crossed 500 reimbursement approvals nationwide. As of February, the number of patients with reimbursement approvals exceeds 510. This is in spite of losing a few weeks to holidays in the fourth quarter. With a good pickup of the pace and approvals to start 2025 as well as strong underlying demand trends, we remain confident in our ability to hit our ambitious prelaunch penetration targets. Reimbursement approval splits were again largely in line with recent quarters and roughly evenly split between commercial and government plans. Approvals continue to come across the entire DEB population, including patients of all ages and with either dominant or recessive forms of the disease. With effectively full nationwide commercial and Medicaid coverage, the access landscape for VYJUVEK remains strong. Reauthorizations are getting processed smoothly; all have either been approved or are in process. In the community, we are still seeing a lag from prescription to approval dictated primarily by the availability of genetic test results and prescriber familiarity with access pathways. As always, our Krystal Connect team is working closely with home health care providers to meet patient needs and preferences. It is this infrastructure and patient-centric approach that has allowed us to navigate scheduling constraints and holidays to ensure patients can get on and stay on treatment. Patient preference for at-home administration is, again, effectively unchanged with 97% of the weekly treatments occurring in the home setting. Patient compliance to weekly treatments while on drug was 85% as of the end of the fourth quarter. In the third quarter, it was 87%. As we progress our U.S. launch, we are thrilled to see that patients are achieving durable wound closure and getting to live fuller, more active lives. This, of course, is the whole point of VYJUVEK. As patients enjoy their first pauses in therapy and then settle into a more regular maintenance regimen, we do expect to see compliance continue to trend toward the rates that we guided at launch. We are learning from real-world experience that the treatment journey for each patient is unique and dynamic. A 21-year-old initiating therapy after decades of blistering and wounding may have a very different journey than a very active toddler. The time to wound closure and durability are dependent on a myriad of inputs, including nutritional status and iron levels, as well as the patient's age, their mobility and activity levels, and of course, the location and the age of the specific wound treated. Because each patient and each wound area is unique, the length and frequency of treatment pauses are personalized to the patient. Critically, patients and their prescribers understand the importance of treatment persistence, and patients that have benefited from a pause due to full wound closure are now transitioning into an ongoing wound maintenance routine with VYJUVEK helped by our Krystal Connect team. As always, our team will be with them every step of the way to ensure they have steady access and can continue to enjoy the benefits of regular VYJUVEK treatment. I will now hand it off to Christine to discuss recent sales and marketing activities, which are keeping us on our top-tier launch trajectory. Christine?

Thank you, Jen. As we enter 2025, it is my pleasure to report that tactics that we developed in 2024 continue to pay dividends, driving significant growth in reimbursement approvals and strong patient demand across the country. Prescribing trends, claims analytics and patient engagement all point to strong and sustained underlying demand. Education and patient activation remain core focus areas for our field team as we look to further penetrate into the identified patient pool. We partnered with multiple advocacy groups in EB in the fourth quarter to host live webinars led by prescribing physicians and patients who share their experience with VYJUVEK and positive progress that they've experienced since starting on therapy in 2023. In addition, and in honor of EB Awareness Week, we hosted a national broadcast led by Dr. John Browning. The virtual platform allowed us to reach healthcare professionals across the United States and showcase our clinical trial data, longer-term safety and efficacy data and case studies of patients on VYJUVEK. This event also included a patient ambassador on VYJUVEK sharing their firsthand experience. This comprehensive showcase of trial data and real-world insights emphasized the clear and durable benefits of therapy and critically demonstrated the significant impact it can have for patients. We also equipped our sales team with new promotional material that emphasizes the long-term safety and efficacy of VYJUVEK. These materials not only reinforce the durable wound healing benefits that can be achieved only with a corrected therapy like VYJUVEK, they also underscore that all DEB patients can benefit from therapy with actual patient images demonstrating healing in both the R-DEB and D-DEB subtypes across both the adult and pediatric spectrum. Most importantly, these efforts have yielded tangible results. Not only did we achieve significant reimbursement approval growth over the past few months, we also continue to expand our prescriber base. Over 65% of prescribers in the fourth quarter were new writers. With each new prescriber, awareness of DEB and VYJUVEK grows, extending our reach into new communities. As the number of patients on therapy grows, I would also like to highlight that we have personalized and ongoing communication with patients and their caregivers to ensure they are supported throughout their journey. These communications are via phone call, email or text, all based on the preferences of patients and their families. These touch points are another part of our commitment to patients, allowing us to move proactively to meet their needs with practical resources and EB community connections, while also gaining valuable insights to support new patient starts. With strong underlying demand, growing awareness and a broadening prescriber base, we are excited to continue growing the number of patients on VYJUVEK across the U.S. Now I will hand it back to Krish to share an overview of our global expansion plans for 2025.

Thanks, Christine. We expect a positive CHMP opinion on our application later this month. And based on this timeline, we expect our first EU launch in Germany around midyear, along with commencing an access per course AP2 program in France. The opportunity that exists in Europe is significant with many already identified DEB patients in urgent need of fundamentally corrective therapy. In Germany and France alone, there are over 1,000 identified DEB patients. As in the U.S., our initial focus will be to penetrate the identified patient pool. We're also on track for the regulatory decision in Japan later this year, enabling launch into another market with hundreds of already identified DEB patients. In support of this filing and our launch, we have established our head office team in Tokyo and have started hiring our field force. It has always been our goal to treat DEB globally and comprehensively. And thanks to the continued efforts of our development team, we're also working steadily towards treating lesions in the eye of DEB patients. Suma will now share more detail on both our ophthalmic B-VEC program and our broader pipeline.

Thank you, Krish. As Krish just noted, we are committed to treating DEB comprehensively and are very excited to be progressing our second product, KB803, towards a potential approval to address the ocular complications associated with DEB. In support of this goal, we initiated a natural history study last year to prospectively collect data on the frequency of corneal abrasions in DEB patients. This study is providing valuable information on the burden of disease and is helping us refine endpoint selection for our Phase 3 study. The natural history study may also serve as a run-in to our registrational trial, adding more baseline data to contextualize our Phase 3 results. The high rate of enrollment in the study with approximately 50 patients enrolled underscores the unmet need and demand for a corrective therapy for the eye and, given the run-in options, should provide an opportunity to rapidly enroll our Phase 3 once initiated. We are finalizing the study design and statistical analysis plan with the agency and remain on track to initiate our registrational Phase 3, which we refer to as our IOLITE study, in the first half of the year. Assuming rapid enrollment, given the run-in option, we continue to expect top-line data before year-end. We look forward to sharing updates on IOLITE and our natural history study in the coming months. We also announced a series of updates on our inhaled programs last quarter that, in our view, validate the lung as a second target tissue for our HSV-1-based gene delivery platform. Included in these updates was the first look at safety and gene delivery data for our KB408 program, which collectively demonstrated that we could safely deliver functional genetic cargo to the lung. KB408 is a redoseable inhaled therapy for the treatment of AATD, a serious disease linked to the absence of functional AAT in the lung. KB408 is designed to deliver two copies of the SERPINA1 gene, which encodes for normal human AAT protein to enable local AAT production in the lung itself. KB408 is currently being evaluated in our first-in-human Phase I SERPENTINE-1, an open-label single-dose escalation study in adult patients with AATD. SERPENTINE-1 is designed to include up to three dose escalation cohorts evaluating single administration of 10^9, 10^10 and 10^11 plaque-forming units (PFU) of KB408 via inhalation. In December of last year, we announced an interim clinical data update including safety data for seven patients enrolled in the first two dose escalation cohorts of SERPENTINE-1 as well as molecular data from two patients in the second cohort that had consented to bronchoscopy. KB408 was found to be well tolerated at both tested dose levels with only mild to moderate and transient adverse events observed. No serious adverse events or dose-limiting toxicities were reported. In addition, clear evidence of successful gene delivery was observed in both patients that underwent bronchoscopies with the proportion of conducting airway epithelial cells positive for AAT increasing from 0% to 39% in one patient and from 3% to 35% in the other. Secretion and functionality of the encoded AAT was also demonstrated in the patient with available samples, with AAT levels in epithelial lining fluid reaching 729 nanomolar and the proportion of active neutrophil elastase dropping from 97.2% to 40.2% after a single KB408 dose. Following this data update, we simultaneously expanded the second SERPENTINE-1 cohort, and opened enrollment in the third for more comprehensive molecular assessment at both dose levels. We are working closely with the Alpha-1 Foundation and the Therapeutic Development Network on SERPENTINE-1 and expect to announce complete study results later this year. Our second rare respiratory disease program, KB407, is also progressing well. KB407 is our redoseable inhaled therapy designed to deliver two copies of a full-length CFTR transgene for the mutation-agnostic treatment of cystic fibrosis. As summarized on this slide, we have built out a robust preclinical data package that demonstrates that KB407 efficiently transduces target airway epithelial cells, leading to the expression of full-length properly localized glycosylated and functional CFTR. On the back of this data and a growing clinical data set, I'm pleased to report that we recently received full sanctioning of the KB407 Phase I protocol, providing further validation of our program and opening up access to network trial sites for future clinical development efforts. We also recently announced an initial safety update on cystic fibrosis patients treated with KB407 in the first two dose escalation cohorts of CORAL-1, our ongoing first-in-human Phase I study. Both single and repeat inhaled administration of KB407 was well tolerated with only mild to moderate and transient adverse events. Again, there were no reports of serious adverse events or dose-limiting toxicities, reinforcing the attractive safety profile of our vector when delivered via inhalation. With the first two cohorts successfully cleared and KB407 well tolerated, we have progressed to our third cohort and expect to report top-line results, including molecular data, around the middle of this year. These are just a few of the recent highlights from our clinical-stage pipeline. We also recently reported early evidence of monotherapy activity with inhaled KB707 in heavily pretreated patients with advanced lung cancer; and earlier in the year, shared positive safety and efficacy results of our aesthetic candidate, KB301, which we are progressing into Phase 2. As we look forward, 2025 is shaping up to be another busy year. Some of the key development milestones for our team are laid out here. In addition to the initiation and completion of our registrational study evaluating KB803 for ocular complications of DEB, we are also expecting to provide molecular data updates for our rare respiratory disease programs KB408 and KB407 as well as first-in-human data for a second aesthetic product candidate, KB304, which encodes both type III collagen and elastin. Our oncology programs will continue to progress with potential interim updates later in the year. As our recent data announcements have demonstrated, the potential of our HSV-1-based gene delivery goes well beyond the skin. We are looking forward to making rapid progress across our pipeline in 2025 and further validating the breadth of the opportunities in front of us targeting the skin, lung and eye. With that, I would like to turn the call to Kate.

Thank you, Suma. In the fourth quarter, Krystal saw continued VYJUVEK revenue growth with net product revenue of $91.1 million, representing an increase of approximately $49 million over the fourth quarter of 2023, which was the first full quarter that Krystal had revenue after our approval in May of 2023. Cost of goods sold for the quarter was $4.9 million resulting in a gross margin of 95%. In the fourth quarter of 2023, cost of goods sold was $2.9 million, resulting in a 93% gross margin. Research and development expenses for the quarter were $13.5 million inclusive of stock-based compensation of $2.3 million compared to $11.4 million for the prior year's fourth quarter inclusive of $2.4 million of stock-based compensation. Higher research and development expenses in the fourth quarter of 2024 were mainly due to increased clinical trial-related costs, increased R&D manufacturing costs for our pipeline candidates and increased license and regulatory fees. Selling, general and administrative expenses for the quarter were $31.3 million inclusive of stock-based compensation of $11.0 million compared to $24.8 million for the prior year's fourth quarter, which was inclusive of stock-based compensation of $7.5 million. Higher selling, general and administrative expenses in the fourth quarter of 2024 were primarily the result of increased personnel-related costs, increased professional service fees and increased VYJUVEK sales and marketing costs as compared to the prior year's fourth quarter. Net income for the quarter was $45.5 million, which represented $1.58 per basic and $1.52 per diluted share. I'd also like to provide some perspective on our forecast for operating expenses in 2025. We expect to incur between $150 million and $175 million in combined non-GAAP R&D and SG&A costs this year. This projection excludes stock-based compensation. This expected increase in operating expenses compared to 2024 is driven primarily by increased SG&A costs for our planned commercial launches outside of the United States and increased R&D costs from our continued clinical and regulatory costs associated with our expanded pipeline programs. In closing, we ended the fourth quarter with $344.9 million in cash on hand and $749.6 million in total cash plus short-term and long-term investments, noting quarterly growth in our overall cash and investments position with an increase over our third quarter of 2024 cash and investments balance by about $55 million. And now I will turn the call back over to Krish.

Thanks, Kate. As you heard from Christine and Jen, patients are achieving profound benefits with VYJUVEK and getting to live fuller, more active lives. We're steadily expanding our prescriber base and further penetrating into the community setting. With one full calendar year of launch in the U.S. behind us and increasing presence in key European markets and Japan, our conviction in the global peak sales estimate of over $1 billion for VYJUVEK has only strengthened. As we look forward, I'd like to share a few key lessons we have learned since launch so we're aligned on how we get to realize the opportunity in front of us. The first lesson has to do with timing, from initial patient interest to starting treatment. As Jen mentioned earlier, patients and prescribers in the community often need more support to navigate the path to success. Our turnaround time on average is still between 45 and 60 days with respect to these patients. The second lesson is the realization that we never really get a full quarter when we are talking about VYJUVEK. VYJUVEK is a weekly therapy administered at home by HCPs, and life gets in the way for these patients in each quarter. In the first quarter, many families will be changing insurance; in the second, we have to work through summer holidays; in the third, Labor Day and back-to-school for families; and in the fourth, we navigate around major U.S. holidays. In spite of that, I'm pleased and proud to report sequential net VYJUVEK revenue growth and continue to have strong conviction in our global VYJUVEK peak sales estimates. The third lesson has to do with high compliance, which has been well above what we estimated at the time of launch. That said, we are entering a phase where some patients are now able to take initial pauses, enjoy the benefits of durable wound closure and come back on drug when there is a wound disruption. This is a fantastic outcome for patients and their families. Our Krystal Connect team remains in close contact with all of our patients, and when new wounds emerge, reinitiation of treatment is seamless. Our relationship with our patients is for the long term, and we want them to feel the freedom of being able to live their lives as they choose: independently, actively, with the confidence of knowing that they can now control their wounds with VYJUVEK. Finally, we've done a terrific job of accruing for the price cap of VYJUVEK. We've had no volatility in net revenues in 2024 and we do not expect to have any going forward. Finally, in closing, as you can see from the slide, we have several important clinical and regulatory milestones in 2025 to demonstrate the full breadth of our platform. And we're excited for 2025 with what we can deliver to patients and shareholders. I'd like to thank my Krystal colleagues for their dedication and perseverance that underscore our excitement in the long-term outlook for Krystal and the patients we aim to serve. Thanks for listening, and I'd like to open the call for Q&A.

Operator instructions. Your first question for today is from Alec Stranahan with Bank of America.

Thanks for taking my questions, and congrats on the continued progress. Just two from us. First, on VYJUVEK. Wondering if you saw any year-end stocking in Q4. And maybe you could just remind us how accounting for the patient annual cap fed into the Q4 results and sequentially into 2025 as this is reset.

Thanks, Alec. Thanks for your question. Nothing substantially different in Q4 versus any other quarters. So, there was no change in stocking or inventory with respect to Q4 as compared to Q3 or Q2 or Q1. And in terms of the price cap, at the end of every quarter, we look back starting at the beginning of 2024, see how patients are doing and revisit the calculation at the end of Q2, Q3 and Q4. So, we actually believe, as I said in my remarks, that we do a really good job of making sure there's no volatility in revenue. Of course, cap calculation is complicated because it is at a payer level and has a lot to do with the mix within each payer, the number of patients and when they start during the year. But we've done a pretty good job of removing volatility from the equation.

Okay. That makes sense. And maybe one quick one on the CF study. I guess how is enrollment going? Is Cohort 3 maybe accruing faster or in line with Cohorts 1 and 2? And maybe walk us through how the CFF TDN sanctioning — maybe help us with this. Thank you.

No, it's definitely super helpful. But we just got started. So, there's always a time lag when you just get started; it takes a few months to get a few patients on drug. But enrollment in Cohort 3 has already begun, and I'll let Suma add some more color to this story.

Yes. Absolutely. Getting TDN sanctioning was very important because all the major academic sites that can do bronchoscopy, have expertise in CF and have these patients are now very excited. In fact, many of them reached out to us directly to participate. We have seven to eight sites active. We are in the process of completing all of the administrative work for these contracts and budgets, as Krish mentioned. But we have two sites that are part of the TDN that are up and running, and we have already enrolled patients for this cohort. It's going pretty well.

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

Good morning, guys. Thanks for taking my questions. I wanted to ask a little bit about what you guys are expecting from Europe in the second half of the year. Krish, I believe you mentioned that there are about 1,000 patients total between Germany and France that are identified. Can you give any additional breakdown of that 1,000 between the two geographies? Are they treated at centers of excellence, like in the U.S.? And if so, is there a number between the two geographies? And then I have my second question. My follow-up question is on pricing. How are you thinking about the initial sort of German free price range? And the French at least expanded access price. And how should we be thinking about modeling longer-term price in Europe?

Thanks, Ritu. At a high level, both Germany and France are a bit more concentrated than the United States. That said, Germany is closer to the U.S. in terms of distribution and France is much more concentrated among centers of excellence. The breakdown of the 1,000 is about 600 in Germany and 400 in France at a very high level. In terms of pricing, in Germany, for the first six months, we get to launch with the U.S. price as we put the dossier in place and start the negotiations. At the end of six months, depending on how negotiations are going, we start accruing for the next six months. And the expectation is in 12 months, we would get an actual German price and be at steady state from that point on. In France, we're under the AP2 program, and it requires us to start accruing from day one. The AP2 program should start maybe slightly after the German launch but not too far out. In France, maybe in about 15 to 18 months from approval, we expect to get a price in France. And that's how the timing is laid out.

Got it. Very quick follow-up. Should we be thinking about home dosing in Europe as well?

Yes, you should. For sure.

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

Good morning. Thanks for taking my question. Just on the reimbursement approvals first. If I'm doing my math correctly, last quarter, about 50% of new patients coming on were dominant patients. And this quarter, that seems to be up to about 75% dominant patients. Is that math correct? Do you think this trend will continue? And how do you account for that in your compliance assumptions?

Gavin, the percentage of dominant and recessive varies quarter-by-quarter. Your math is correct that we did see more dominant in Q4 than in Q3 as we go into the community. But although at a high level people think about recessive being more severe than dominant, there are a lot of patients who are in the cusp — dominant patients who are just as severe as recessive and recessive patients who are just mild as dominants. So, I would not expect a material change in compliance based solely on the percentage of dominant patients. It could easily shift back in subsequent quarters.

Very helpful. And then just one bigger picture question. So, you have about $750 million cash on the balance sheet. Consensus has you doing around $250 million cash flow this year, ballpark $300 million next year depending on how exactly ex-U.S. launch goes. So even if you did want to allocate a good chunk of capital to additional R&D, you still have a lot of financial flexibility. So how are you thinking about buybacks, capital allocation overall as you kind of progress to the next phase here? Thank you.

Look, it's a valid point and definitely a discussion point within Krystal. We're just figuring out the timing of such a buyback and the extent that is meaningful and measurable. So it is a valid question, Gavin, and we're thinking about it pretty seriously going forward.

Your next question for today is from Sami Corwin with William Blair.

Good morning. Thanks for taking my question. Congrats on the progress. I was wondering if you could provide a high-level update on the regulatory process. I think we initially expected to hear a decision from CHMP in late 2024. So, I was curious if you had any insight into the reason behind the delay. And then my second question is, given you could face some DEB commercial competition as early as 2Q, just how you're thinking about maintaining and expanding market share in the face of that competition. Thank you.

I can address the first question. The delay was because we were working to secure the best label. We have a very favorable label, and nuances around home dosing and caregiver administration needed to be ironed out. There were training materials that needed to be prepared to support that on the label. So that was the reason for the delay, and the extra time helped us get all of those documents and training materials in place to achieve that favorable label.

On the competition, at a high level, it's tough to beat the value proposition of VYJUVEK, both in terms of efficacy and convenience. If you look at how 98% of our patients are opting for home dosing and not even going to a local physician office, we have learned that the profile of VYJUVEK is well aligned with patient expectations. That said, we are not ignoring the potential for a more competitive market later in the year. Our medical affairs team is having the right conversations with physicians and our patient services team with patients. We feel pretty good about our ability to hit the two-year target and the overall peak sales in spite of competition.

Your next question for today is from Ry Forseth with Guggenheim.

This is Ry from Debjit's team. For KB407, how are you thinking about FEV1 in terms of the bar for advancing the program? And is that bar sort of consistent across genotypes?

We're just starting to dose our patients in the efficacy cohort. The long-term direction for Krystal is to target the null population, which is a complete unmet medical need. There have been comments in the field that in null patients, any kind of FEV1 improvement — over 3%, 4%, 5% up to 10% — can be considered a very positive outcome for these patients. But please realize we are in a redosing paradigm. So, no matter where we start with these patients, we have the opportunity to build upon FEV1 levels over time. We feel really good about our focused strategy on going after the null mutation; and then as a secondary effort, becoming mutation agnostic.

There are null patients and also a set of patients who do not benefit from corrector-type therapies. Those are the populations we are targeting. As Krish mentioned, because we are redoseable, we have flexibility. We will look at improvements in FEV1. There's regulatory flexibility for us to pursue an open-label study with natural history comparisons. So if we show functionality, expression and even a slight improvement in FEV1, we believe we have a favorable regulatory pathway to move this program rapidly forward, similar to the eye program.

Your next question for today is from Josh Schimmer with Cantor.

Two quick ones. First, can you help quantify the impact of the annual cap on VYJUVEK in 2024 and how you think that might impact in 2025 and whether you're planning any changes to that cap? And then second, the 10-K has some new language around VYJUVEK manufacturing process changes and some risks around that, at least theoretical. Have there been any changes to the VYJUVEK manufacturing process? And if so, can you explain what?

You want to go?

So, for the cap, we have been seeing about 8% of commercial patients on the cap consistently from the beginning.

For the manufacturing process, we have scaled up. We transitioned to higher-level bioreactor manufacturing and filed the process change with the FDA and received approval. This scale-up process is approved by the FDA and can be adapted across our pipeline. So CMC risk is reduced for other pipeline products that may need more commercial material. This scale-up was very positive for us and supports our ability to make material for additional programs.

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

I just wanted to ask on AATD, could you give us a little bit more color on what we should expect to see from the expanded Cohort 2 and Cohort 3 data? What are the more comprehensive molecular assessments that you're considering beyond AAT levels and what therapeutic effect do you hope to see that you would consider clinically meaningful for these patients? And I have a follow-up.

On Cohort 2, we are mostly adding more patients to confirm what we reported previously. We were pleased with the early results and want to add one or two more patients to confirm levels in the lung, any increase in systemic circulation and to quantify molecular levels. Cohort 3 is essentially the same as Cohort 2 but at a higher dose. So I do not expect anything dramatically different between the two cohorts.

We are looking for dose response. We did not expect to see the levels of AAT in the lung that we observed at Cohort 2's dose level, so we were very pleased. It's a safe dose that showed functional AAT expression at a meaningful level. We want to see what we achieve at the third, higher dose because it is safe, and we want to see whether the increase correlates to levels in the serum as well. If we see a good correlation between lung and serum levels with increasing dose, that may inform moving forward into repeat dosing. Once we have that correlation, we can discuss a biomarker approach with the FDA where serum levels could be used as a surrogate to avoid repeat bronchoscopies for molecular assessment.

Okay. Great. And just as a quick follow-up. I understand that plasma AAT should be a relevant benchmark if synthesis were to occur in the liver because of the need to transport into the circulatory system to get to the lung. But since you're synthesizing in the lung, should we maybe not put too much weight on plasma AAT since it's not directly aligned with the therapeutic goals? How should we think about that?

I think you'll look at the correlation between dose and levels in the lung and what levels we see in the plasma. We want to see that correlation as the dose increases. Once we can define that ratio, we can go to the agency and discuss a biomarker-based path where serum levels are used as a meaningful readout for a lung-administered therapy, which could potentially reduce the need for bronchoscopy-based assessments.

To repeat Suma's point, our main interest is levels in the lung and the correlation to systemic levels so that we can potentially avoid bronchoscopies for regulatory approval.

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

For Jen and Christine, I'm just curious based off of what you're seeing right now in terms of the rate of reimbursement approvals, what is needed to reaccelerate patients coming on to drug in order to reach your 60% penetration goal within 2 years of launch?

I can start. We definitely saw some slowdown over the holidays with physician offices and payers being less responsive during that time. We have already increased our trajectory and have a healthy pipeline of potential patients. We're on path for that 60% penetration. We started seeing improvements in approval timing as we moved into the new year, though there were some delays with reverification season in the first few weeks of January. Overall, we feel we have the right processes in place and expect approvals to continue to reaccelerate.

Okay. And Krish, just when you think about that $1 billion peak sales opportunity globally, could you provide a little bit more granularity on how the U.S. versus the EU opportunity breaks down across that $1 billion plus, or even Japan as well?

At a high level, there are about 3,000 patients in the U.S., roughly 3,000 patients in Europe and about 3,000 worldwide in other markets. The split of the $1 billion-plus across geographies is largely a function of pricing differences. Pricing in Europe is generally a fraction of the U.S. price — our modeling assumes anywhere from roughly 50% to 70% of the U.S. price depending on the country and negotiation outcome. The prevalence is similar across these markets, so the global peak sales estimate depends primarily on the eventual European and Japanese prices. We feel good about the dossier and our ability to make a compelling case in negotiations given the strong efficacy and convenience profile of the product.

Thank you. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.

Thank you all.