Uncertain Gene Therapy Dynamics Will Fuel Challenges Yet Spark Hope

Key Takeaways

• Reliance on Vyjuvek faces challenges from unpredictable patient treatment patterns, pricing pressures, and reimbursement risks, impacting both revenue visibility and long-term margin stability.
  
• Expanding into new indications through the pipeline and broader patient access drives costs and risk, particularly given high R&D investment and dependence on successful clinical outcomes.
  
• Rising competition, unpredictable patient behavior, and increasing regulatory and cost pressures threaten the stability and profitability of future revenue streams.

Catalysts

A commercial-stage biotechnology company, discovers, develops, manufactures, and commercializes genetic medicines to treat diseases with high unmet medical needs in the United States.

• While Krystal Biotech is positioned to benefit from a global rollout of Vyjuvek, with strong full approval in the EU and anticipated launches in Japan, the unpredictable pattern of patient pauses and restarts, especially as DEB patients shift to maintenance dosing, could create ongoing quarterly volatility and hamper near-term revenue visibility.
  
• Although the addressable market for rare genetic diseases is expanding and healthcare policy continues to favor reimbursement for orphan drugs, intensifying global pricing pressures and the risk of reimbursement caps may limit Krystal’s ability to achieve and sustain premium pricing for Vyjuvek, potentially capping long-term revenue growth and eroding gross margins as they expand internationally.
  
• Despite progress in diagnostic advances enabling earlier patient identification, the company increasingly faces logistical hurdles reaching patients embedded deep in community care, as observed in the US where sales-force expansion is now required to drive patient starts. This adds cost and may slow penetration into the broader DEB population, impacting both top-line growth and net margins.
  
• While Krystal’s HSV-1 gene therapy platform pipeline offers diversification and potential upside, heavy reliance on new clinical data readouts for multiple programs in 2025 (CF, AATD, ophthalmology, aesthetics) introduces risk—any setbacks or delays in trial outcomes could slow future adoption and revenue streams, especially given the high R&D spend and cash burn required to advance these programs.
  
• Although Vyjuvek has demonstrated durable benefit and strong compliance so far, the chronic and variable nature of DEB—with treatment success leading to unpredictable treatment pauses—creates long-term uncertainty about persistence and lifetime value per patient, making it more difficult for Krystal to deliver stable, growing earnings as their patient population matures.

Krystal Biotech Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Krystal Biotech compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Krystal Biotech's revenue will grow by 17.7% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 37.2% today to 70.2% in 3 years time.
• The bearish analysts expect earnings to reach $381.8 million (and earnings per share of $9.55) by about July 2028, up from $124.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 16.1x on those 2028 earnings, down from 35.7x today. This future PE is lower than the current PE for the US Biotechs industry at 16.5x.
• Analysts expect the number of shares outstanding to grow by 0.59% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.4%, as per the Simply Wall St company report.

Krystal Biotech Future Earnings Per Share Growth

Risks

• Krystal Biotech’s future revenue growth could be challenged by increased competition in gene therapy, as the company has already acknowledged recent competitor approvals and may face longer sales cycles and market share erosion as more alternatives become available and physicians become more cautious.
  
• There is a structural risk that, as the company penetrates further into the DEB patient community, it encounters diminishing returns from a shrinking pool of untreated or less severe patients, requiring greater sales and marketing spend to achieve the same level of new patient starts, which could pressure future revenue growth and reduce net margins.
  
• Patient behavior around starting, pausing, and restarting VYJUVEK therapy appears to be unpredictable, especially as the mix of milder DDEB patients increases, which introduces uncertainty and volatility into recurring revenue streams and could make long-term revenue and earnings less stable.
  
• The company faces potential regulatory or legal headwinds as indicated by the ongoing DOJ subpoena regarding genetic testing; adverse outcomes or negative publicity from this or other regulatory scrutiny could impact future revenue recognition or result in unexpected expenses that erode net income.
  
• Rising research and development as well as general administrative costs, driven by increasing personnel and ongoing investment in pipeline expansion (such as ophthalmology and oncology programs), could result in a higher cash burn rate, threaten future profitability, and potentially lead to shareholder dilution if capital needs outpace internally generated cash flows.

Valuation

• The assumed bearish price target for Krystal Biotech is $176.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Krystal Biotech's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $252.0, and the most bearish reporting a price target of just $176.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $543.8 million, earnings will come to $381.8 million, and it would be trading on a PE ratio of 16.1x, assuming you use a discount rate of 6.4%.
• Given the current share price of $153.25, the bearish analyst price target of $176.0 is 12.9% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.