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Item 1. Business

2021-03-01 compared with 2020-03-10 · 216 added, 186 removed, 323 unchanged (55% of the section changed)

Krystal Biotech, Inc.

(the “Company,” “Krystal,” “we,” or “us,” or other similar pronouns) is a clinical-stage gene therapy company dedicated to developing and commercializing novel medicines for patients suffering from skin diseases.

We have developed a proprietary gene therapy platform to develop off-the-shelf treatments for skin diseases for which we believe there are no known effective treatments.

Our platform consists of a patented engineered viral vector based on the herpes simplex virus type 1 (“HSV-1”) containing skin-optimized gene transfer technology , which we refer to as the Skin TARgeted Delivery (“STAR-D”) platform .

We are initially using our STAR-D platform to develop treatments for rare or orphan monogenic dermatological indications caused by the absence of or a mutation in a single gene.

We plan to leverage our platform in the future to expand our pipeline to include non-monogenic dermatological indications and skin conditions.

Our Gene Therapy Platform

We believe that certain inherent features of the HSV-1 virus, combined with the modifications we have made to the virus in the form we employ as our gene delivery backbone, provides our proprietary gene therapy platform with specific advantages over other viral vector platforms for use in dermatological applications, including the following:

(the “Company,” “Krystal,” “we,” or “us,” or other similar pronouns) is a clinical-stage biotechnology company focused on the development of easy to use, redosable gene therapies to dramatically improve the lives of patients living with rare diseases.

We have developed a proprietary gene delivery platform that enables off-the-shelf treatments for serious rare diseases with significant unmet need, initially in the areas of dermatology and respiratory diseases.

Our platform consists of a patented, engineered viral vector derived from the herpes simplex virus type 1 (“HSV-1”) that we have optimized for local and repeat gene transfer to epithelial cells.

We are initially using our platform to develop treatments for rare or orphan monogenic diseases caused by the absence of or a mutation in a single gene.

We are also leveraging our innovative platform to develop novel therapies to treat more prevalent conditions.

Further, we have incorporated a wholly owned subsidiary, Jeune Inc, under which we are developing treatments for use in the setting of aesthetic skin conditions.

Our Redosable Gene Therapy Platform

We believe that certain inherent features of HSV-1 virus, combined with the modifications we have made to the viral backbone provides our proprietary gene therapy platform with specific advantages over other viral and non-viral vector platforms including the following:

• Repeat Administration :

One of the major challenges with many viral vector platforms is that the host immune system may recognize them as foreign agents and launch a robust immune response, resulting in toxicity and rapid removal of the virus.

Wild type HSV-1 is known to persist in the body by becoming latent and hiding from the immune system.

We have harnessed the natural ability of HSV-1 to evade host-mediated immunogenicity, while removing specific viral elements that exacerbate the host immunity, thus making our viral vector safer for repeat administration as needed to achieve durability of effect.

The immune evasive properties of our vector also enable us to treat patients who may have baseline antibodies to HSV-1, ensuring that prior exposure to the wildtype virus will not limit the number of patients who may be amenable to treatment with our product candidates.

• Non-Integrating Nature :

Upon entry into cells, the HSV-1 vector persists as an episomal unit in the nucleus, meaning it remains physically separate from the host cell chromosome.

Other vectors we are aware of currently being used in the development of gene therapy treatments for dermatological conditions, such as the lentiviral and retroviral vectors, integrate into the host cell DNA to achieve gene expression.

Integration into the host cell DNA carries the risk of disrupting host genes and consequently can lead to a risk of causing cancer, or oncogenesis.

In contrast, a non-integrating vector such as our HSV-1 vector does not carry the risk of disrupting the expression of host cell genes and the cancer-causing risks such disruptions could create.

Also, because the skin cells turnover rapidly, we believe that the risk of disrupting host genes far outweighs any benefits of integration.

Certain other viral vectors currently being used in the development of gene therapy treatments, such as the lentiviral and retroviral vectors, integrate into the host cell DNA to achieve gene expression.

Integration into the host cell DNA carries the risk of disrupting host genes.

In contrast, a non-integrating vector such as our HSV-1 vector does not carry the same risk of disrupting the expression of host cell genes.

• Payload Capacity :

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These deletions also enable the vector to easily accommodate a payload of 35Kb or greater without any significant impact on yield or titer.

In our lead product candidate, beremagene geperpavec (“ B-VEC”, previously “KB103”), we have successfully inserted two functional copies of the complete ~9Kb human COL7A1 gene.

In contrast, packaging capacity for most other viral vectors being used in dermatological indications is under 8Kb, which limits their ability to deliver large skin genes directly to the skin.

In addition, we believe the high payload capacity of our viral vector will allow us to insert single and multiple genes and effectors, allowing for the potential treatment of non-monogenic dermatological conditions such as psoriasis, atopic eczema and chronic wounds.

In our lead product candidate, B-VEC, we have successfully inserted two functional copies of the complete ~9Kb human COL7A1 gene.

In contrast, packaging capacity for most other vectors being used is at or under ~10Kb, which limits their ability to deliver large transgenes.

In addition, we believe the high payload capacity of our viral vector will allow us to insert multiple and/or combinations of genes or effectors that could enable the treatment of non-monogenic conditions.

• High Transduction Efficiency :

Poor infection of skin epithelia has remained a major hurdle for direct delivery of most viral vectors .

HSV-1 has a natural affinity, or tropism, for the skin epithelium, consequently our vector penetrates skin cells much more efficiently than other viral vectors, resulting in transduction efficiencies or cell penetration as high as 95% in cell-based studies.

This efficient cell infection or penetration ability, along with the high pay load capacity of our vector are responsible for the high levels of transgene expression we have observed in animal models.

In addition, these factors are critical contributors to our ability to create an off-the-shelf gene therapy treatment where others ar e taking autologous approaches, such as skin grafts.

Because the genes that cause many skin diseases are quite large, many of our competitors can only fit a single gene, or in some cases may need to manipulate the genetic material in order to fit the limit ed payload capacity of their vectors.

Based on published research, we believe that some autologous gene therapy approaches may have transduction efficiencies as low as 10% in skin.

T o develop an effective treatment in the face of payload capacity and trans duction limitations, they may need to introduce the therapeutic gene into a patient’s tissues or cells ex vivo to create an individual treatment, which is re-administered back to the patient once the gene-modified tissues have achieved a sufficient level o f gene expression.

The greater payload capacity of our vector and the high transduction efficiencies achieved allow us to deliver a full gene directly to any patient’s tissues for in vivo gene expression without additional manipulation.

Poor transduction efficiency has remained a major hurdle for direct delivery of most vectors particularly in the epithelia of the skin and lung.

HSV-1 has a natural affinity, or tropism, for epithelial cells, consequently our vector penetrates and delivers its payload much more efficiently than other vectors, resulting in transduction efficiencies or cell penetration as high as 95% in cell-based studies.

The greater payload capacity of our vector and the high transduction efficiencies achieved allow us to deliver a full gene (or genes) directly to any patient’s tissues for off-the-shelf, in vivo gene expression without additional manipulation.

• Direct Delivery :

Our engineered HSV-1 vector allows for direct topical or intradermal delivery.

The advantages of direct delivery are that our products can be administered in an outpatient setting, requiring no hospitalization or expensive, invasive, and time-consuming procedures or sophisticated medical teams.

Taking gene therapy to the patient minimizes patient travel and circumvents upfront burdens typical of gene therapies.

Repeat Administration :

Wild type HSV-1 is known to persist in the body by becoming latent and hiding from the immune system.

Because the tendency of our viral vector to invoke an immune response is low, our ability to repeat administration is enhanced.

HSV-1 is extremely stable and resistant to degradation by physical shearing, solvents, and enzymes, facilitating purification and final formulation of our viral vector product candidates.

These characteristics of HSV-1 provide a stability advantage to B-VEC, our lead product candidate.

Although frozen for long-term storage, it is also stable under refrigerated conditions for short-term storage and shipment, and stable over several freeze-thaw cycles.

Our engineered HSV-1 vector allows for noninvasive or minimally invasive local gene delivery.

The advantages of direct delivery are that our products can be administered in a doctor’s office or potentially the patient’s home, requiring no hospitalization or expensive, invasive, and time-consuming procedures or sophisticated medical teams.

Taking gene therapy to the patient minimizes patient travel and circumvents upfront logistical burdens typical of other gene therapy approaches.

• Stability :

HSV-1 is extremely stable and resistant to degradation by physical shearing, solvents, and enzymes, facilitating purification and flexibility with final formulation of our product candidates.

Our vectors are stable frozen for long-term storage, under refrigerated conditions for short-term storage and shipment, in addition to being stable over several freeze-thaw cycles.

This should facilitate our ability to ship our products globally from our manufacturing facilities in Pennsylvania.

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Successful and reproducible execution of both processes is critical for clinical manufacturing and scale-up.

Our scientific team collectively has decades of experience and expertise in HSV engineering and purification that has allowed us to successfully optimize our HSV-1 vector production process.

Our scientific team collectively has decades of experience and expertise in HSV engineering and purification that has allowed us to successfully optimize our HSV-1 vector production process and develop in-house CMC capabilities.

• Existing Regulatory Precedent :

The first US Food and Drug Agency (“FDA”)- and European Medicines Agency (“EMA”)-approved oncolytic virus product, Imlygic ® by Amgen, for treatment of melanoma, a skin cancer, is based on a genetically engineered HSV-1 virus.

Because this product also employs an HSV-1 backbone, it has created a regulatory precedent for approval of an HSV-1-based therapy.

The first FDA- and European Medicines Agency (“EMA”)-approved oncolytic virus product, Imlygic ® by Amgen, for treatment of melanoma, a skin cancer, is based on a genetically engineered HSV-1 virus.

Because this product also employs an HSV-1 backbone, it has

created a regulatory precedent for approval of an HSV-1-based therapy.

In addition, Imlygic ® is a chronic therapy, given bi-weekly, which provides support for the use of an HSV-1 backbone in chronic gene therapy of the type we are developing.

The above listed benefits of our engineered vector make the STAR-D platform a suitable choice for topical and intra-dermal application and repeat delivery of skin genes in an off-the-shelf and non-invasive manner.

The above listed benefits of our innovative platform make it the ideal choice for topical and intradermal applications to treat skin diseases, skin conditions and inhaled formulations to treat respiratory diseases.

Our Product Candidates

The following table summarizes information regarding our product candidates in various stages of clinical and preclinical development:

Additional detail on our gene therapy platform and clinical development of our product candidates can be found on our website at the following link:

http://ir.krystalbio.com/index.php/static-files/344e2bc7-ba33-44f2-9b07-8798059b2b68

Beremagene Geperpavec (“B-VEC”)

Our lead product candidate, B-VEC seeks to use topical gene therapy to treat dystrophic epidermolysis bullosa, or DEB, a rare and severe monogenic skin disease for which there is currently no approved treatment.

DEB affects the skin and mucosal tissues and is caused by one or more mutations in a gene called COL7A1, which is responsible for the formation of the protein type VII collagen, or COL7, that forms anchoring fibrils that bind the dermis, or inner layer of the skin, to the epidermis, or outer layer of the skin.

Rare Skin Programs

Beremagene Geperpavec (“B-VEC”) for dystrophic epidermolysis bullosa (“DEB”)

Disease Background

Dystrophic epidermolysis bullosa, or DEB, is a rare and severe monogenic skin disease.

DEB affects the skin and mucosal tissues and is caused by one or more mutations in a gene called COL7A1, which is responsible for the formation of the protein type VII collagen ("COL7) that forms anchoring fibrils that bind the dermis ( inner layer of the skin) to the epidermis (outer layer of the skin).

In DEB patients, the genetic defect in COL7A1 results in loss or malfunctioning of these anchoring fibrils, leading to extremely fragile skin that blisters and tears from minor friction or trauma.

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DEB patients may suffer from open wounds, skin infections, fusion of fingers and toes and gastrointestinal tract problems throughout their lifetime, and may eventually develop squamous cell carcinoma, a potentially fatal condition.

Based on information from DEBRA International, a worldwide alliance of patient support groups for epidermolysis bullosa, or EB, of which DEB is a subset, we believe there may be as many as 125,000 people who are affected by DEB.

We believe that there are, at present, approximately 3,000 diagnosed DEB patients in the United States.

There is currently no approved cure for DEB.

The current treatment for DEB is limited to palliative care, which is estimated to cost between $200 thousand and $400 thousand annually per patient in the United States.

We believe our approach to treating DEB with B-VEC is novel.

We believe that there are, at present, approximately 3,000 diagnosed DEB patients in the United States and ~9,000 worldwide.

The current standard of care for DEB patients is limited to palliative measures that seek to provide relief from some of the symptoms of DEB but do not meaningfully impact disease outcomes.

Other known efforts to develop DEB treatments employ autologous approaches to creating therapeutic products.

While not disease-modifying, current treatment is estimated to cost between $200,000 and $400,000 annually per patient in the United States.

B-VEC is a redosable, off-the-shelf gene therapy designed to deliver two copies of the COL7A1 gene when applied topically, directly onto an open wound.

Unlike the current standard of care, B-VEC seeks to treat DEB at the molecular level by providing the patient’s skin cells the template to make normal COL7 protein, thereby addressing the fundamental disease-causing mechanism.

B-VEC was specifically designed to be easily administered by a healthcare professional in a doctor’s office

or potentially at the patient’s home.

The FDA and the EMA have each granted B-VEC orphan drug designation for the treatment of DEB, and the FDA has granted B-VEC fast track designation and rare pediatric designation for the treatment of DEB.

In addition, in 2019, the FDA granted Regenerative Medicine Advanced Therapy (“RMAT”) to B-VEC for the treatment of DEB and the EMA granted PRIority MEdicines ("PRIME"), eligibility for B-VEC to treat DEB.

We believe our approach to treating DEB is positively differentiated relative to other known efforts to develop corrective treatments that employ autologous approaches.

Autologous treatments use a patient’s own tissues and cells to manufacture an individualized therapy.

Such therapies tend to be expensive, invasive and time consuming to use, and require extensive patient travel, extended hospital stays, highly sophisticated medical teams and procedures.

In contrast, B-VEC is designed to be an off-the-shelf treatment for DEB that can be applied topically to a patient’s skin.

Unlike the current standard of care, B-VEC seeks to treat DEB at the molecular level through gene therapy and is intended to be a non-invasive treatment that can be used without requiring hospitalization or individually customized treatment.

C linical Development of B-VEC

In October 2019, we announced positive results from our Phase 1/2 clinical trial of B-VEC at Stanford University.

Safety data from all patients showed that B-VEC was well tolerated with no serious adverse events (SAEs) reported.

Clinical Development of B-VEC

On July 28, 2020, we announced initiation of our Phase 3 pivotal study known as GEM-3.

The trial is a randomized, double-blind, intra-patient placebo-controlled multicenter study designed to evaluate the efficacy and safety of B-VEC for patients suffering from both recessive and dominant forms of DEB.

The trial aims to enroll approximately thirty (30) participants with DEB, aged 6 months or older at time of consent.

Investigator identified wound pairs, up to three in each patient, are deemed the “primary” wounds.

These primary wounds will be treated once weekly for six months with either B-VEC or placebo, until wound closure.

If a wound were to re-open at any point during the study, weekly dosage will resume until closure.

The dose administered to each wound is dependent on the size of the wound and ranges from 4x10^8 to 1.2x10^9 PFU per wound.

A maximum vector dose per patient per week has been defined on the basis of preclinical and clinical safety data.

In the event that the maximum dose per patient has not been reached based on dosing of the primary wounds, the study investigators and patients will have the opportunity to select additional “secondary” wounds across which the remaining weekly dose may be applied.

We expect to complete enrollment in this study in the first quarter of 2021 and anticipate having top-line data from this trial in 4Q21.

We expect to file a Biologics License Application ("BLA") with the FDA shortly thereafter.

We are aligned with the EMA on a pivotal trial design and we believe that data from GEM-3 will form the basis of a Marketing Authorisation Application ("MAA"), filing shortly after the BLA.

In May 2020, complete Phase 1/2 data from the GEM-1 and GEM-2 studies was presented at the Society of Investigational Dermatology ("SID") meeting.

The Phase 1 portion of the trial commenced in May 2018 at Stanford University, and we announced positive interim results from this clinical study on two patients in October 2018.

The Phase 2 portion of the trial commenced in December 2018 at Stanford University, and we announced positive interim results from this clinical study on two patients in June 2019.

We also enrolled two additional patients in the Phase 2 study in June 2019.

In the combined Phase 1 and Phase 2 study, 9 out of 10 wounds treated with B-VEC closed completely (100%).

The average time to 100% wound closure on all B-VEC treated wounds in combined Phase 1 and Phase 2 study was 17.4 days (median 14 days).

In the combined study, the average duration of wound closure on two patients following 100% wound closure, as of the last follow up, was 113 days (median 110 days).

In the wound that did not close, B-VEC was re-administered resulting in the wound closing completely within 7 days following re-administration.

The wound was originally reported to be open for over 4 years.

The wound has remained closed for over 100 days (and ongoing).

We anticipate commencing pivotal Phase 3 FDA trials in the first half of 2020.

For more information on the B-VEC Phase 1/2 clinical trial, visit:

http://ir.krystalbio.com/news-releases/news-release-details/krystal-biotech-announces-final-update-phase-12-clinical-trial

Our second pipeline candidate, KB105, delivers functional human transglutaminase-1 (“TGM1”) genes using our gene therapy platform to patients with TGM1-deficient autosomal recessive congenital ichthyosis (“ARCI”).

The Phase 2 portion of the trial commenced in December 2018 at Stanford University, and we announced positive interim results from this clinical study on June 24, 2019.

KB105 for TGM1-deficient autosomal recessive congenital ichthyosis (“TGM1-ARCI”).

Disease Background

ARCI is a life-long, severe monogenic skin disease.

While a number of genetic mutations have been associated with the development of ARCI, the most common cause of ARCI is an inactivating mutation in the TGM1 gene encoding the enzyme transglutaminase-1, a protein that is essential for the proper formation of the skin barrier.

While a number of genetic mutations have been associated with the development of ARCI, the most common cause of ARCI is an inactivating mutation in the human transglutaminase-1 (“TGM1”) gene encoding the enzyme transglutaminase-1, a protein that is essential for the proper formation of the skin barrier.

Mutations in the TGM1 gene, and the subsequent disruption to the epidermal barrier, leads to pronounced dehydration, trans-epidermal exposure to unwanted toxins and surface microorganisms, and a greatly increased risk of infection.

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Severe heat intolerance and nail dystrophy are also frequently observed.

There are approximately 20,000 cases of TGM1-deficient ARCI worldwide and about 400 new cases per year globally.

Our approach is to leverage our gene therapy platform using our non-replicating, non-integrating engineered HSV-1 vector to deliver the TGM1 gene to keratinocyte skin cells, potentially allowing them to produce the TGM1 protein that is lacking in this patient population.

KB105 is designed to be an off-the-shelf treatment for TGM1-deficient ARCI that can be applied topically and directly to a patient’s skin.

The application of KB105 does not require expensive, invasive, time-consuming procedures or sophisticated medical teams.

There are currently no treatments targeting molecular correction of this disease.

There are approximately 20,000 cases of TGM1-deficient ARCI worldwide and about 400 new cases per year globally.

KB105 is a redosable, off the-shelf gene therapy designed to deliver two copies of the TGM1 gene when applied topically, directly to a patient’s exfoliated skin.

The goal of direct supplementation of TGM1 protein at the site of administration is local correction and phenotypic improvement.

Like B-VEC, KB105 was designed to be easily administered by a healthcare professional in the doctor’s office or, potentially, at the patient’s home.

The FDA and the EMA have each granted KB105 orphan drug designation for the treatment of TGM1-ARCI, and the FDA has granted KB105 fast track designation and rare pediatric designation for the treatment of TGM1-ARCI.

Clinical Development of KB105

We believe that safety has been established for KB105 based on in vitro and in vivo proof-of-concept studies.

Biodistribution and toxicity data from animal studies indicate that KB105 can be safely and repeatedly administered to the skin at high doses without systemic vector exposure.

Topically applied KB105 has been shown to efficiently transduce permeabilized skin and express human TGM1 in a dose-dependent manner.

KB105-expressed TGM1 has colocalized with native TGM1 substrates, indicating delivery to the appropriate epidermal layer.

KB105’s robust production of TGM1 in vitro and in vivo supports its use in ARCI patients.

In September 2019, we initiated a Phase 1/2 clinical trial of KB105.

We anticipate interim Phase 1/2 clinical readouts in the first half of 2020.

Our third pipeline candidate, KB104, delivers functional Serine Protease Inhibitor Kazal-type 5 (“SPINK5”) genes using our gene therapy platform to patients suffering from Netherton Syndrome, which is a debilitating monogenic autosomal recessive skin disorder that causes defective keratinization, severe skin barrier defects, and recurrent infections.

Infants with severe Netherton Syndrome symptoms are associated with failure to thrive, hypernatremic dehydration secondary to excess fluid loss, delayed growth, short stature, and recurrent infections.

Clinically, Netherton Syndrome is characterized by congenital ichthyosiform erythroderma, hair shaft defects, recurrent infections, and a defective skin barrier.

A predisposition to allergies, asthma, and eczema is also characteristic of Netherton Syndrome.

Ultimately, those afflicted by Netherton Syndrome often experience chronic skin inflammation, severe dehydration, and stunted growth.

The disease arises due to mutations in the SPINK5 gene, resulting in loss of activity of its encoded serine protease inhibitor protein SPINK5 (also known as Lympho-Epithelial Kazal type-related Inhibitor (“LEKTI”)).

In August 2020, we initiated the second phase of our Phase 1/2 clinical trial of KB105 to treat ARCI.

We have enrolled one patient in whom four rectangular 100cm2 (4-inch x 4-inch) areas of skin were selected as Target Areas.

Two sites will receive an initial and a repeat dose of 4.0 x 10^9 PFU/Treated Area ("TA") while the other two sites will receive 1.0 x 10^10 PFU/ TA.

Data from this patient is anticipated in the first half of 2021 and will inform the dosing regimen and enrollment criteria for the enrollment of subsequent patients in 2021.

The primary objective of the study is to assess the improvement in localized severity of disease through an Investigator’s Global Assessment (“IGA”) of disease severity in the treatment area and TGM1 expression and activity and to evaluate safety through the incidence of adverse events associated with KB105 post administration.

In May 2020, initial clinical data from the first phase of the Phase 1/2 study which enrolled adult patients were presented at the SID meeting.

KB104 for Netherton Syndrome

Disease Background

Netherton Syndrome is a debilitating monogenic autosomal recessive skin disorder.

The disease arises due to mutations in the Serine Protease Inhibitor Kazal-type 5 (“SPINK5”) gene, resulting in loss of activity of its encoded serine protease inhibitor protein SPINK5 (also known as Lympho-Epithelial Kazal type-related Inhibitor (“LEKTI”)).

In healthy individuals, SPINK5 is one of the serine protease inhibitors expressed in the outermost layers of the skin, and it plays a critical role in the regulation of serine proteases which hydrolyze extracellular proteins that hold corneocytes together.

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Consequently, hyperactivated serine proteases in the skin cause uncontrolled desquamation, leading to a defective skin barrier.

In infants severe Netherton Syndrome can be associated with failure to thrive, hypernatremic dehydration secondary to excess fluid loss, delayed growth, short stature, and recurrent infections.

Clinically, Netherton Syndrome is characterized by congenital ichthyosiform erythroderma, hair shaft defects, recurrent infections, and a defective skin barrier.

A predisposition to allergies, asthma, and eczema is also characteristic of Netherton Syndrome.

Ultimately, those afflicted by Netherton Syndrome often experience chronic skin inflammation, severe dehydration, and stunted growth.

There are approximately 38,000 cases of patients worldwide and about 700 new cases per year globally.

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Existing approaches are limited to palliative treatments, including topical moisturizers, repair formulas and steroids.

Clinical Development of KB104

A properly localized human SPINK5 gene was detected 48 hours after topical KB104 application in mice without toxicity.

KB104 is a redoseable gene therapy designed to deliver two copies of the SPINK5 gene to relevant skin cells when applied topically.

By directly supplementing the skin with functional SPINK5, the goal of therapy is to locally correct the desquamation and improve the barrier function of the skin.

In preclinical testing a properly localized human SPINK5 gene was detected 48 hours after topical KB104 application in mice without toxicity.

KB104-mediated human SPINK5 was expressed in the correct layer of skin at the transcript and protein levels.

We anticipate filing an Investigational New Drug, or IND, in the second half of 2020.

Rare Pulmonary Programs

KB407 for Cystic Fibrosis (“CF”)

Disease Background

CF is the most common inherited genetic disorder in the United States and is caused by mutations in the cystic fibrosis transmembrane conductance regulator (“CFTR”) gene.

Lack of functional CFTR protein in secretory airway epithelia results in defective Cl-, bicarbonate, and thiocyanate secretion, coupled with enhanced Na+ absorption and mucus production, leading to dehydration and acidification of the airway surface liquid.

CF is characterized by recurrent chest infections, increased airway secretions, and eventually, respiratory failure.

While CF comprises a multiorgan pathology affecting the upper and lower airways, gastrointestinal and reproductive tracts, and the endocrine system, the primary cause of morbidity and mortality in CF is due to progressive lung destruction.

According to the U.S.

Cystic Fibrosis Foundation (“CFF”), the median age at death for patients with CF in the United States was 30.8 years in 2018.

Currently approved CFTR modulating therapies are limited to patients with specific genetic mutations and there is a significant unmet medical need for the ~10% of patients with CF who have genetic mutations non-amenable to currently approved CFTR small molecule “modulators”.

According to the CFF, approximately 30,000 patients in the United States and more than 70,000 patients worldwide are living with CF, and approximately 850 new cases of CF were diagnosed in 2018.

KB407 is a redosable gene therapy designed to deliver two copies of the CFTR gene directly to the airway epithelia via inhaled (nebulized) administration.

By inducing expression of full length, normal CFTR protein in the lung, treatment with KB407 has potential to restore ion and water flow into and out of lung cells to correct the lung manifestations of the disease in patients regardless of their underlying genetic mutation.

Preclinical efforts to date have shown that KB407 successfully transduces patient-derived epithelial cells and delivers functional CFTR in vitro in 2D and 3D organotypic systems, and is amendable to non-invasive inhaled administration in vivo, as indicated by successful delivery to the lungs through the use of a clinically relevant nebulizer in small animal models.

Successful delivery and distribution throughout the lung also was observed in a nonhuman primate.

We expect to announce additional preclinical data from the GLP toxicology study, which evaluated repeat doses of KB407 in 36 nonhuman primates, and initiate a clinical trial in 1H2021.

The FDA has granted KB407 orphan drug designation and rare pediatric designation for the treatment of cystic fibrosis.

Other Programs

While our focus is on the development of gene therapies to treat serious rare diseases, we are also evaluating the potential of our platform to address more prevalent and/or non-genetic conditions.

To that end, on April 24, 2019, we incorporated Jeune, Inc.

a wholly-owned subsidiary, for the purposes of undertaking preclinical studies for aesthetic skin conditions.

KB301 for aesthetic skin conditions

Disease Background

The skin is largely composed of collagen-rich connective tissue, with dermal collagen, composed primarily of types 1 and 3 collagen fibrils, representing >90% (dry weight) of human skin.

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, chronic light exposure, pollution) pressures.

The goal of skin biorejuvenation is, in part, to enhance the synthesis of human dermal collagens ( i.e.

, neocollagenesis), thereby correcting the molecular defect underlying the aged phenotype.

We believe that our approach of directed expression of full-length human type 3 collagen via intradermal application of KB301 provides a unique and straightforward approach to restoring collagen homeostasis, and by extension, reconstructing an optimal physiologic environment in the skin to treat wrinkles.

Facial injectables, including hyaluronic acid, botulinum toxin type A, collagen, polymer fillers, and calcium hydroxyapatite microparticles, are intended to correct perceived facial defects ( e.g.

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Due to the rising awareness of cosmetic procedures, the growing geriatric population, and a shift from invasive to minimally/non-invasive treatment options, the aesthetics facial injectables market is projected to grow to more than a $12 billion industry by 2025.

KB301 leverages our clinical experience in delivering genes of interest to the skin, and is designed to stimulate biorejuvenation of the skin via delivery of the gene that encodes for type III collagen ("COL3") when administered via intradermal injection.

Clinical development of KB301

Transduction with KB301 induced secretion of mature, full-length type III collagen (COL3) from primary aged human fibroblasts with no observable impact on cell viability, even when the vector was administered at high doses.

Properly localized (dermal) human COL3 was detected in a dose-dependent manner within 48 hours of intradermal injection of KB301 in mice without systemic vector exposure or toxicity.

Furthermore, KB301 was shown to be similarly effective for human COL3 production after single and repeated intradermal administration to immunocompetent animals, demonstrating safety and efficacy of recurrent dosing.

We anticipate filing an Investigational New Drug, or IND, application in the second half of 2020.

We initiated a Phase 1 safety clinical trial for the treatment of wrinkles and acne scars on August 25, 2020.

We expect to announce initial safety data from the first cohort of this study in 1Q21.

On October 8, 2020, we announced presentation of preclinical data supporting the ongoing development of KB301 at the American Society for Dermatologic Surgery 2020 Virtual Meeting.

Future Opportunities

We are currently focused on skin diseases but have commenced early stage research to apply our gene therapy platform to develop medicines for non-dermatological rare diseases.

We also believe that the large payload capacity of the viral vector in the STAR-D platform will allow us to deliver multiple genes and other effectors using the platform which will afford us the opportunity to treat non-monogenic skin diseases like psoriasis and atopic dermatitis, as well as conditions that are not necessarily the result of an inherited genetic defect, such as chronic wounds and aesthetic skin conditions, such as wrinkles and nasolabial folds.

For example, as proof-of concept for STAR-D-mediated delivery of anti-inflammatory antibodies, we have observed positive therapeutic intervention in chronic skin disease progression upon topical application of a vector-encoded antibody in an animal model of atopic dermatitis.

If we are able to successfully develop and commercialize products to treat non-orphan dermatological diseases, we intend to seek collaborative alliances towards commercializing these therapies among the broader population of patients in these indications.

Our vision is to become a fully integrated biotechnology company with in-house facilities compliant with current Good Manufacturing Process (“cGMP”) for to rare diseases and to work with collaborators on broad indications and aesthetic skin conditions.

We maintain full royalty-free global rights to all of our product candidates.

We believe the ability to redose as well as the large payload capacity of our proprietary vectors will allow us to deliver multiple genes and other effectors, which could enable development of therapies to treat non-monogenic skin diseases like psoriasis and atopic dermatitis, as well as conditions that are not necessarily the result of an inherited genetic defect, such as chronic wounds.

For example, as proof-of concept we have generated a library of vectors designed to deliver anti-inflammatory antibodies.

Further, we evaluated one of these vectors in an animal model of atopic dermatitis where expression of the vector-encoded-antibody was confirmed and efficacy was observed.

If we are able to successfully generate product candidates to treat non-orphan diseases, we intend to seek collaborative alliances towards the development and potential commercialization of these therapies.

Manufacturing

In-House Good Manufacturing Practice (“GMP”) Facilities

On January 24, 2020, we announced the ground breaking of our second commercial gene therapy facility in the Pittsburgh, Pennsylvania area.

This cGMP facility, named ASTRA, will have the capacity to produce commercial gene therapy medicines to treat patients suffering from debilitating rare diseases.

The ASTRA facility is being designed as a state-of-the-art cGMP manufacturing facility that, beyond expanding Krystal’s current production platform, will allow the in-house incorporation of raw material preparation, excipient manufacturing, testing, packaging, labeling and distribution, fully-integrating all components of the supply chain from starting materials to patient experience.

The ASTRA facility will initially be used as a commercial back-up facility for B-VEC.

Eventually, the ASTRA facility will expand to produce investigational and commercial material for our pipeline products.

We expect the 100,000 square foot facility to be completed and validated with an expected completion date of early 2021.

In January 2019, we completed the construction of our own commercial scale cGMP-compliant manufacturing facility, ANCORIS , to enhance supply chain control, increase supply capacity for clinical trials and ensure commercial demand is met in the event that B-VEC and our other product candidates receive marketing approval.

The clinical material for the pivotal trial and initial commercial launch material of B-VEC will be produced at ANCORIS.

We intend to use ASTRA and ANCORIS for clinical and commercial production of our product candidates.

Having in-house cGMP facilities will allow us to maintain better quality control, shorter lead times, lower costs and better control over our intellectual property.

We intend to continue to devote substantial resources to developing the STAR-D platform which forms the basis of our manufacturing process.

Our Manufacturing Process

Our proprietary manufacturing process for clinical-grade B-VEC was developed and optimized internally based on our STAR-D platform and involves both an upstream production process and downstream purification process.

We have built in-house current good manufacturing practices (“cGMP”) facilities to enable better quality control, shorter lead times, lower costs and better command over our intellectual property.

Our first, 7,500 square foot commercial scale cGMP-compliant manufacturing facility, ANCORIS, is producing the pivotal and long-term extension study material for B-VEC at commercial scale and we expect to produce initial commercial launch material of B-VEC at the same facility.

Our second commercial scale cGMP facility, ASTRA, is 150,000 square feet and expected to be complete and validated in 2022.

It is a state-of-the-art cGMP manufacturing facility that, in addition to adding significant capacity to support the growing pipeline, will also allow the in-house incorporation of raw material preparation, excipient manufacturing, testing, packaging, labeling and distribution, thereby fully-integrating all components of the supply chain from starting materials to patient experience.

We announced the ground breaking of ASTRA on January 24, 2020.

Our proprietary manufacturing process which was initially developed for B-VEC and is now being used across our platform, was developed and optimized internally and involves both an upstream production process and downstream purification process.

Recombinant viral vectors are made safe by removal of specific viral machinery, including packaging proteins, so that they are rendered incapable of, or attenuated for, replicating in human cells.

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Our process requires three critical components:

Production of a master virus seed stock, or MVSS;

Production of complementing master cell bank, or MCB;

• Production of a master virus seed stock ("MVSS");

• Production of complementing master cell bank ("MCB");

• Optimized transduction parameters.

For B-VEC, the MVSS is scaled up from a single purified clone of the modified HSV-1 vector expressing the therapeutic COL7A1 gene.

For each of our product candidates, we generate a MVSS which is scaled up from a single purified clone of the modified HSV-1 vector expressing the therapeutic effector.

The MCB is a complementing cell line that stably expresses the HSV-1 viral proteins that are required for HSV-1 growth but have been deleted from the recombinant HSV-1 backbone.

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Optimization of MCB, MVSS and production methods requires extensive knowledge and technical experience with the HSV-1 genome and significant upfront effort to design and select the best virus seed stock and complementing cell line.

To date we have screened hundreds of cell line clones to find the best complementing cell lines, and similarly designed and generated the optimal virus seed stocks for our portfolio candidates.

To date we have screened hundreds of cell line clones to find the best complementing cell lines, and similarly designed and generated the optimal virus seed stocks for each of our product candidates.

The viral seed stock expresses the therapeutic proteins under the control of strong constitutive or tissue-specific promoters and additional non-coding regulatory sequences have been included to optimize gene expression.

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Unlike the upstream process, steps used to purify and concentrate the viral vector product are often common across different viral vector platforms and usually involve multiple stages of purification, clarification, concentration, and diafiltration, with the ultimate goal to remove contaminants and concentrate the product.

We believe we have successfully developed a robust and reproducible process for purifying our viral vector to required concentrations for clinical use, while successfully removing contaminants to meet FDA guidelines.

We believe that the MVSS and MCB are a vital part of the production of B-VEC, as they will ensure the reproducible production of multiple clinical batches in a short six-week cycle time frame and in a cost-effective manner.

We have made significant investments in developing the most comprehensive and optimized manufacturing p rocess for our vector product candidate including:

Sufficient scale to support stability of B-VEC with sufficient longevity that a small number of initial batches will likely provide adequate clinical supply up to pivotal Phase 3 trials;

A proprietary vector manufacturing technique that produces a highly purified B-VEC;

We have developed a robust and reproducible process for purifying our viral vector to required concentrations for clinical use, while successfully removing contaminants to meet FDA guidelines.

We believe that the MVSS and MCB are a vital part of the production of our product candidates, as they ensure the reproducible production of multiple clinical and potentially commercial batches in a short six-week cycle time frame and in a cost-effective manner.

We have made significant investments in developing the most comprehensive and optimized manufacturing process for our vector product candidates including:

• A proprietary vector manufacturing technique and a series of high-efficiency purification processes that produce highly purified therapeutic vectors and can be adapted for each product candidate;

• A critical list of GMP assays to accurately characterize our process and the HSV-1 vectors we produce.

A series of high-efficiency purification processes, which can be adapted and customized for our HSV-1 platform products.

We believe these improvements and our continued investment in our STAR-D platform will enable us to develop best in class, next generation gene therapy products for dermatological indications.

The biotechnology and pharmaceutical industries are highly competitive.

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We believe our competitors fall into two broad categories:

Autologous Approaches:

• Corrective approaches:

We are aware of two companies, Abeona and Castle Creek Pharmaceuticals, which are developing autologous or grafting gene therapy approaches to treating DEB.

We are also aware of a recombinant-protein based approach being developed by Phoenix Tissue Repair.

• Palliative Treatments:

We are aware of companies such, as Castle Creek Pharmaceuticals, who are developing product candidates taking a palliative approach to treating the disease.

We are aware of companies such, as Amryt Pharmaceuticals and Castle Creek Pharmaceuticals, who are developing product candidates taking a palliative approach to treating the disease.

Autosomal Recessive Congenital Ichthyosis ("ARCI")

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We are unaware of any companies currently conducting active clinical trials in Netherton Syndrome presently.

Cystic Fibrosis

We are aware of several preclinical or early clinical stage nucleic-acid-based programs for the treatment of CF including TranslateBio, Spirovant, and 4D Molecular Therapeutics.

Intellectual Property

In January 2020, Krystal diversified its patent estate through the issuance of US Patent and Trademark Office (“USPTO”) patent number 10,525,090 covering our second product candidate, KB105, as well as medical applications of this product for treating ARCI.

We believe the speed in which the patent prosecution was successfully concluded for this application is indicative of Krystal’s pioneering work in HSV-based gene therapies in the field of dermatology.

In December 2019, Krystal strengthened its international patent portfolio covering our lead product candidate, B-VEC, when the European Patent Office issued an intent to grant European patent application number 16826873 directed, in part, to pharmaceutical compositions comprising B-VEC, as well as uses thereof.

In October 2019, the USPT O granted the Company US patent number 10,441,614 covering its fully integrated vector platform, STAR-D, for skin-targeted therapeutics , as well as methods of its use for delivering any effector of interest to the skin.

This new patent provides further validation of the Company’s novel work in the field of skin diseases leveraging its HSV-1-based gene therapy technologies.

In September 2019, the Australian patent office granted the Company its first foreign patent (Application No.

2016401692) in Australia for its lead product candidate B-VEC.

This patent covers pharmaceutical compositions comprising B-VEC, as well as medical uses such as the treatment of wounds, disorders, or diseases of the skin, particularly those found in epidermolysis bullosa patients.

On December 18, 2018, the USPTO granted US Patent No.

10,155,016 which covers compositions containing B-VEC, formulated for alternate routes of administration.

On January 16, 2018, we announced that the USPTO had granted US Patent No.

9,877,990, which covers compositions comprising HSV vectors encoding certain effectors and methods of using the same for providing prophylactic, palliative or therapeutic relief of a wound, disorder or disease of the skin.

A corresponding international patent application has been filed in accordance with the Paris Cooperation Treaty, which has entered into the national phase in more than ten foreign jurisdictions.

We believe that the granting of these patents, which are entirely owned by the Company, protects our core STAR-D viral platform and products based thereupon, and affords us freedom to use this platform for the development of novel therapeutics for multiple applications.

Our success depends in part on our ability to maintain proprietary protection surrounding our product candidates, platform technology, and know-how, to operate without infringing the proprietary rights of others, and to prevent others from infringing our proprietary rights.

We have a portfolio of patents, patent applications and other intellectual property owned entirely by the Company - that protect our core platform technology (sometimes referred to as STAR-D) and products based thereupon, and affords us freedom to use this platform for the development of novel therapeutics for multiple applications.

We continue to advance our IP portfolio actively through the filing of new patent applications, divisionals, and continuations relating to our technologies as we deem appropriate.

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We also seek to preserve the integrity and confidentiality of our data, trade secrets, and know-how, including by implementing measures intended to maintain the physical and electronic security of our research and manufacturing facilities, as well as our information technology systems.