Krystal Biotech Inc. (KRYS:NASDAQ) is a biotechnology company focused on the development of re-dosable gene therapies for patients living with debilitating diseases. The firm has developed a gene delivery platform that enables off-the-shelf treatments for serious dermatology and respiratory diseases.
This unique platform uses an engineered viral vector derived from the herpes simplex virus type 1 optimized for repeat, local gene transfer to epithelial cells.
In addition to the recently approved Vyjuvek for DEB, Krystal Biotech's product candidates in various stages of clinical and preclinical development include KB105 for TGM1-deficient autosomal recessive congenital ichthyosis, KB104 for Netherton Syndrome, KB407 for Cystic Fibrosis, and KB408 for Alpha-1 antitrypsin deficiency.
The company is also developing a candidate formula KB301 designed for aesthetic purposes via a subsidiary, Jeune Aesthetics Inc., focusing on preclinical and clinical studies for aesthetic skin conditions.
The Catalyst: FDA Approval
On May 19, the company announced that "the U.S. Food and Drug Administration has approved Vyjuvek for the treatment of patients six months of age or older with DEB. Vyjuvek is designed to address the genetic root cause of DEB by delivering functional copies of the human COL7A1 gene to provide wound healing and sustained functional COL7 protein expression with redosing."
According to the announcement, Vyjuvek is the first-ever re-dosable gene therapy and the first and only medicine approved by the FDA for treating DEB that can be administered in either a professional healthcare setting or the home.
"DEB is a rare and serious disease that affects the skin and mucosal tissues caused by one or more mutations in the COL7A1 gene," the announcement explains. "The COL7A1 gene is responsible for the production of functional COL7 protein that forms anchoring fibrils necessary to bind the dermis (inner layer of the skin) to the epidermis (outer layer of the skin). The lack of functional anchoring fibrils in DEB patients leads to extremely fragile skin that blisters and tears with minor friction or trauma."
According to Precedence Research, "The global cell and gene therapy market size was exhibited at US$18.61 billion in 2022 and is projected to hit around US$93.78 billion by 2030, growing at a CAGR of 22.41% during the forecast period 2022 to 2030."
DEB patients suffer from open wounds, which lead to recurrent skin infections and fibrosis that can cause the fusion of fingers and toes and ultimately increase the risk of developing an aggressive form of skin cancer.
Approval of the drug was based on two clinical studies, the GEM-1/2, which showed Vyjuvek was associated with durable wound closure, and the GEM-3 trial, which was an intra-patient, double-blinded, multi-center, randomized, placebo-controlled study that met both its primary endpoint of complete wound healing at six months and its key secondary endpoint of complete wound healing at three months.
"This is a devastating disease," said M. Peter Marinkovich, M.D., primary investigator of the GEM-3 trial, Director of the Blistering Disease Clinic at Stanford Health Care, and Associate Professor of Dermatology at the Stanford University School of Medicine. "Until now, doctors and nurses had no way to stop blisters and wounds from developing on DEB patient skin, and all we could do was to give them bandages and helplessly watch as new blisters formed."
According to Mainkovich, the new therapy, "both heals patient wounds and prevents skin from re-blistering because it actually corrects the underlying skin defect of DEB. Because it's safe and easy to apply directly to wounds, it doesn't require a lot of supporting technology or specialized expertise."
"Data from our GEM-1/2 trial and our GEM-3 trial, published in Nature Medicine and the New England Journal of Medicine, respectively, demonstrated the strength of both studies showing that Vyjuvek safely and effectively improved wound healing," says Suma Krishnan, Krystal Biotech President of Research and Development.
"For so many years, all we have been able to offer DEB patients was palliative care, but now, based on the strength of the company's clinical trial data, there is a safe and effective FDA-approved treatment."
Chairman and CEO of Krystal Biotech, Krish S. Krishnan, explains that the approval "ushers in a whole new paradigm to treat genetic diseases and is an important milestone for patients affected by DEB as well as their families and caregivers."
The Motley Fool stated that "Krystal is a growth stock that could end up being a buyout candidate because of its newly approved therapy . . . Krystal has a relatively big pipeline that includes eight programs that target cystic fibrosis, other rare skin diseases, and lung disorders."
"For Krystal, this is a transformative achievement that highlights our commitment to developing and commercializing novel therapies for patients with rare diseases and demonstrates Krystal's capability as a fully-integrated company ready to launch and bring Vyjuvek to patients as quickly as possible and deliver additional transformative medicines to patients as we advance our pipeline."
The therapy is expected to be available in the United States in the third quarter of 2023, with the company beginning promotion immediately. As part of the approval, the FDA issued Krystal Biotech a Rare Pediatric Disease Priority Review Voucher (PRV), which confers priority review to a subsequent drug application that would not otherwise qualify for priority review.
Brett Kopelan, Executive Director of debra of America, the national organization dedicated to improving the lives of all people living with DEB in the US, stated that "with the FDA approval of Vyjuvek, the DEB population has reached a monumental milestone in the treatment of this horrible disorder. Our hopes have now been realized for a safe and effective treatment for one of the most devastating symptoms of the disorder."
The European Medicines Agency has granted Vyjuvek orphan drug designation and PRIME (PRIority MEdicines) eligibility for the treatment of DEB, with the official Marketing Authorization Application procedure leading to potential approval in 2024. Krystal Biotech is also working with the Pharmaceuticals and Medical Devices Agency in Japan to seek approval for launch in 2025 in Japanese markets.
Why This Sector? Multiple Uses for the Base Technology
Krystal Biotech's unique engineered viral vector for repeat, local gene transfer to epithelial cells may be seeing its first approved use in the DEB treatment market alone, but the underlying simple and effective technology could prove ideal for delivering a whole host of genetic therapies across the spectrum of medical need.
According to Precedence Research, "The global cell and gene therapy market size was exhibited at US$18.61 billion in 2022 and is projected to hit around US$93.78 billion by 2030, growing at a CAGR of 22.41% during the forecast period 2022 to 2030."
Why This Company? Private Placement Financing
Just three days after news broke of the FDA approval, Krystal Biotech "announced that it has entered into a securities purchase agreement for the sale of 1,729,729 shares of its common stock at US$92.50 per share in a private placement (the PIPE) to certain qualified institutional buyers. Gross proceeds from the PIPE are expected to be approximately US$160 million."
According to the release, the PIPE financing was led by Avoro Capital Advisors and Redmile Group, LLC, with participation from Braidwell LP and Frazier Life Sciences.
"We are extremely pleased to have the support of this strong investor group," CEO Krishnan stated at the time. "These additional funds, together with our existing cash, cash equivalents, and investments, should allow us to fund the Vyjuvek launch, future operations, and the advancement of our growing pipeline through the end of 2026."
Krishnan explained that the influx of funds would allow the company to "retain the optionality of monetizing the Priority Review Voucher … at a future date with favorable terms and without any dilution."
Why Now? Obvious Upside
The same day the company announced its new financing, Benzinga.com published an analyst roundup explaining that "over the past three months, 11 analysts have published their opinion on Krystal Biotech stock. These analysts are typically employed by large Wall Street banks and tasked with understanding a company's business to predict how a stock will trade over the upcoming year."
On May 24, Stifel GMP raised its target price to US$145 from US$103. Guggenheim Research raised its target price to US$130, and Chardan Capital increased its target price to US$118 the same day.
"These 11 analysts have an average price target of US$126.64 versus the current price of Krystal Biotech at US$110.64, implying upside."
The Motley Fool also responded to the news on May 22, stating that "Krystal is a growth stock that could end up being a buyout candidate because of its newly approved therapy. The company uses HSV-1, a common virus, as a vector to deliver gene therapies. Krystal has a relatively big pipeline that includes eight programs that target cystic fibrosis, other rare skin diseases, and lung disorders."
On May 24, Stifel GMP raised its target price to US$145 from US$103. Guggenheim Research raised its target price to US$130, and Chardan Capital increased its target price to US$118 the same day.
Streetwise Ownership Overview*Ownership and Share Structure
According to Reuters, 13.94% of Krystal Biotech stock is held by management and insiders. Chairman and CEO Krish Krishnan has 6.30%, with 1.73 million shares. President Suma Krishnan has 6.23%, with 1.71 million. Director Dan Janney has 0.84%, with 0.23 million, and Director Dino A. Rossi has 0.30%, with 0.23 million.
0.22% in the hands of strategic investor International Biotechnology Trust PLC, according to Reuters.
80.22% held by institutional investors, according to the company. Fidelity Management & Research Corp. has 9.49%, with 2.62 million shares. Redmile Group LLC. has 6.95%, with 1.91 million. Avoro Capital Advisors LLC has 6.36%, with 1.75 million. BlackRock Institutional Trust has 5.27%, with 1.45 million, and The Vanguard Group Inc. has 4.36%, with 1.20 million.
The remainder is retail.
The company has a free float of 23.64 million shares, with a total of 27.53 million shares outstanding and a market cap of US$3.33 billion, and trades in the 52-week range between US$49.17 ad US$127.02.
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