Krystal Biotech: Ready For Launch (NASDAQ:KRYS)

The real voyage of discovery consists not in seeking new landscapes, but in having new eyes.”― Marcel Proust.

Today, we put Krystal Biotech, Inc. (NASDAQ:KRYS) in the spotlight. The stock has gained some 50% over the past year, bolstered by a key FDA approval. What is ahead for Krystal Biotech as it engages in its first market launch as a company? An analysis follows below.

Company Overview:

Krystal Biotech is headquartered in the heart of Steeler Nation in Pittsburgh, PA. This now commercial stage biotech concern is focused primarily on developing genetic medicines for patients with rare diseases. The stock currently trades around $113.00 a share and sports a market capitalization of just north of $3 billion.

Product Pipeline & Recent Developments:

Probably the biggest development in company history happened in the back half of May of last year, when the FDA approved Krystal’s lead drug candidate VYJUVEK to treat dystrophic epidermolysis bullosa or DEB. VYJUVEK thus became the first-ever redosable gene therapy approved by the FDA as well as the first approved treatment for DEB. Annual maintenance cost is expected to average just over $450,000.

DEB is a very rare affliction that affects the connective tissue in the skin and nails. DEB causes skin layers to separate, leading to painful and debilitating blisters and wounds. There are approximately 3,000 individuals affected by this affliction in the U.S. This is roughly split from the recessive and dominant forms of the disease, VYJUVEK is approved for both. Some 9,000 individuals are estimated to be impacted worldwide by DEB.

VYJUVEK started to be rolled out in the United States in the third quarter following FDA approval. By the end of the quarter, the newly approved drug had garnered 284 Patient Start Forms from 136 unique prescribers across the United States. Net product revenues came in at $8.6 million for the quarter.

Outside of VYJUVEK, Krystal’s pipeline is early stage and spans disease areas as diverse as oncology and cystic fibrosis. All of the key trial milestones, outside VYJUVEK, the company lists for 2024 revolve around Phase 1 development. Krystal’s experimental cancer therapy KB707 being evaluated as a treatment for solid tumors in Phase 1 development was awarded Fast Track status by the FDA last week, it should be noted.

Analyst Commentary & Balance Sheet:

The stock is universally loved by the analyst community. Since the company posted Q3 results on November 6th, nine analyst firms including Goldman Sachs, TD Cowen and Evercore ISI have reissued/assigned Buy/Outperform ratings on the stock. Price targets proffered range from $139 to $180 a share.

Krystal Biotech ended the third quarter with nearly $600 million in cash and marketable securities on its balance sheet. This balance was bolstered by $100 million in connection with a priority review voucher the company sold in August that garnered via the FDA approval of VYJUVEK. Operating expenses (R&D and SG&A) were $34.3 million in the third quarter and the company lists no long-term debt. A couple of company insiders have been heavier sellers of late, disposing of approximately $10 million worth of shares collectively both in September and December of last year.

Verdict:

Krystal Biotech is tracking to losing less than 50 cents a share in FY2023 on just under $40 million in sales. The current analyst firm consensus has the company losing 12 cents a share in FY2024 as revenues jumped to $200 million. It should be noted there are wide variances both around earnings (loss of $2.96 a share to profits of $1.62 a share) and sales ($103 million to $291 million) from the ten analyst firms that have offered projections for the coming fiscal year.

William Blair has stated it sees $1.1 billion in annual sales for VYJUVEK by 2030, of which some $670 million is projected to come from the United States. In November, Goldman Sachs projected peak sales for VYJUVEK of $1.6 billion globally. Cantor Fitzgerald had peak sales of $1 billion for VYJUVEK in a view it published in October. H.C. Wainwright is currently projecting $900 million of peak sales for VYJUVEK.

Assuming the company can get to $1 billion in sales by 2030, the stock seems to be attractive on a longer-term basis, not putting any value on the early-stage assets in Krystal’s pipeline. The stock has a market cap of under $2.5 billion once equating for the net cash on the company’s balance sheet.

There are some caveats on that assessment. The first marketing rollout for a company’s first approved product are historically dicey. Krystal should be aided immensely that its target audience is small and known, a small sales force should be able to effectively reach this limited population without too many “hiccups” along the way.

Krystal Biotech, Inc. will divulge the first full quarter of VYJUVEK sales when Q4 numbers hit the wires within a week or two. This should allow analysts to narrow their sales and earnings projections for FY2024. I will probably initiate a starter position in KRYS ahead of those results via covered call orders in the week ahead. We will also try to peak back in on this story near the end of 2024 to see how things are progressing for this promising biotech company.

One of the advantages of being disorganized is that one is always having surprising discoveries.”― A.A. Milne.