Krystal Biotech: Reached My Price Target, Waiting For A Drop (NASDAQ:KRYS)

Krystal Biotech (NASDAQ:KRYS) has been an excellent performer for us here at TPT. We got into the stock in February, averaged down once in May for an average price of $50, and I put a conservative $80 price target to KRYS with a one-year window. We just hit our price target (“PT”) twice in the last few months. The second time was in January, and I let go of KRYS, at a 65% profit.

I could have held on, because Krystal Biotech, Inc.’s February 19 PDUFA has now been extended to May 19, which is the major catalyst. But I like to stay disciplined with my buy/sell prices, and it would have been crazy to turn my back on a 65% profit in less than a year. I will buy back if there’s a sharp fall for inconsequential reasons, in order to take advantage of the May PDUFA catalyst. However, I sort of doubt that is going to happen.

Krystal Bio is developing Vyjuvek for Dystrophic Epidermolysis Bullosa (DEB), where it has excellent phase 3 data in hand. There are 10,000 DEB patients in the developed countries, and palliative treatment costs between $200k-$400k per year. Amryt Pharma plc’s (AMYT) Filsuvez, approved in EU but rejected in the U.S., is not a gene therapy, and almost certainly isn’t as good as Vyjuvek – which does have durability concerns.

So anyway, Filsuvez has been facing pricing pressure in Germany, where it is currently priced at $62,000, down from the initial plan of $104,000, per year. Being a) a gene therapy, b) with better data, and c) potential U.S. approval, for U.S. markets, which usually get premium pricing, Vyjuvek can probably be priced much higher here in the U.S. According to this Statista report, fortunately or unfortunately, depending on where you are situated vis-à-vis a drug – buyer or seller – the U.S. market commands twice, sometimes thrice the price of EU drugs. Germany is especially good at bargaining with drug companies, so wouldn’t be surprised if Vyjuvek can command prices north of $200,000 – as long as they can remain durable. There are 1000 U.S. patients as I estimated earlier; the company, I think, wants to go with double that number. If we take 1500 U.S. patients, that’s a $300mn market, currently with no competition. I think we can agree with Krystal’s worldwide estimate of the DEB market being $1bn.

Speaking of competition, Abeona (ABEO), too, has produced very strong data from its own gene therapy EB-101, which works in the same way as Vyjuvek, i.e., by adding COL7A1 to the body. So, while Krystal is a year ahead of Abeona in development, there’s looming competition. I did note last time, however, that Krystal has a convenience advantage:

Abeona and Castle River also have upcoming data readouts for their gene therapies. However, both Abeona and Castle River’s therapies are personalized gene therapies with elaborate procedures. “Abeona’s treatment involves surgically transplanting sheets of cells onto patients’ wounds while Castle Creek’s uses intradermal injections.” If KRYS data remains competitive, it will win over the elaborate procedure issue, which should definitely lead to higher costs.

Krystal’s own pipeline outside of DEB is quite an early stage, so there’s not much of a fallback option if things go wrong with the PDUFA. I guess I am just listing my reasons for exiting KRYS when it hit my PT, and not holding on for more. I should say, however, that one reason I liked KRYS in the first place was its aesthetics pipeline, which it owns through ownership in a company called Jeune. This pipeline already had proof of concept data last year, and aesthetics is a big market – which was a big reason I liked Krystal. Jeune gave Krystal a nice little diversity, didn’t let it put all its eggs in the small DEB basket. Last month, they also had some solid durability data from JN301.

As to the cause of the PDUFA extension, here’s what the company says:

Krystal said that the manufacturing information submitted by the company included additional information about a replaced hardware unit in the concentration step of the manufacturing process and comparability data supporting the use of the unit.

The unit did not affect processing parameters or product contact materials, according to the company.

Krystal also says that labeling discussions will be done no later than April 20, that there will be no advisory committee meeting, and that they will not need a REMS program, either. That last is good news, because it sort of shows there will not be any major warning label to Vyjuvek, if approved.

Financials

KRYS has a market cap of $2.01bn and a cash reserve of $407mn. Research and development expenses for the quarter ended September 30, 2022 were $11.5 million, while General and administrative expenses were $19.9 million. At that rate, they have a cash runway of over 10 quarters.

Bottom Line

I liked Krystal Biotech, Inc. stock last year, bought when it was low, doubled down, set a conservative price target, and exited when KRYS got to that PT. I have no qualms about that decision because, like I just discussed here, there are a few doubtful angles here with Krystal Biotech, Inc. I still have a good opinion about Krystal Biotech, Inc., and I would be a buyer, but not at this price.

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