We're putting Krystal Biotech in the doghouse.

The company has the unique ability to perpetually delay the advancement of any clinical programs not named Vyjuvek. Solt DB Invest still expects Vyjuvek to earn U.S. Food and Drug Administration (FDA) approval on or near May 19, 2023. However, the increased executional risk for other assets needs to be acknowledged by investors.

A Longitudinal View of Delays

Years ago, I developed the habit of downloading and saving every investor presentation from every company I follow. Companies typically only have one or two presentations available at a time, but slides can be subtly changed each month or over the course of a year. Sentences are removed or added, timelines are tweaked, and partners or programs drop off entirely.

Investor presentations represent only one small piece of information, but they contain information that might not be mentioned anywhere else. Unfortunately, subtle changes might not be mentioned anywhere else, either.

Consider the shifting timelines Krystal Biotech has listed across nine investor presentations from October 2021 through May 2023.

Asset: KB105

Indication: TGM1-deficient Autosomal Recessive Congenital Ichthyoses (ARCI) (dermatology / skin)

• In the October 2021 investor presentation, Krystal Biotech expected to resume dosing in a phase 1/2 study during 2022.
• In the December 2022 investor presentation, Krystal Biotech shifted the timeline for starting a phase 1 clinical trial to the first half of 2023.
• As of this writing, the phase 1 clinical trial is expected to start in the first half of 2023.

Asset: KB104

Indication: Netherton syndrome (dermatology / skin)

• In the October 2021 investor presentation, Krystal Biotech expected to file an investigational new drug (IND) application in 2022. This would allow the company to begin a phase 1 clinical trial.
• In the January 2022 investor presentation, Krystal Biotech said it also expected to initiate a phase 1 clinical trial in 2022.
• In the May 2022 investor presentation, Krystal Biotech dropped any mention of starting a clinical trial in 2022.
• In the December 2022 investor presentation, Krystal Biotech shifted the timeline for starting a phase 1 clinical trial to the first half of 2023.
• In the February 2023 investor presentation, Krystal Biotech shifted the timeline for filing an IND to the second half of 2023. It did not mention starting a phase 1 clinical trial.
• As of this writing, the IND is expected to be filed in 2023.

Asset: KB407

Indication: Cystic fibrosis (pulmonary / lung)

• In the October 2021 investor presentation, Krystal Biotech expected to initiate a phase 1 study in Australia by the end of 2021.
• In the January 2022 investor presentation, the timeline for the Australia trial start date shifted to the first half of 2022. The company expected to begin a phase 1 study in the United States in the second half of 2022.
• In the July 2022 investor presentation, the timeline for the Australia trial start date shifted to the second half of 2022.
• In the December 2022 investor presentation, Krystal Biotech still maintained it would initiate phase 1 clinical trials in both Australia and the United States before the end of 2022.
• In the February 2023 investor presentation, Krystal Biotech shifted the timeline for starting a phase 1 clinical trial to the first half of 2023.
• As of this writing, Krystal Biotech says it's screening patients for the phase 1 study in Australia and expects to initiate a phase 1 study in the United States in the first half of 2023. The study has been cleared to begin by the FDA.

Investors have been subjected to similar delays for the aesthetic pipeline from the Jeune Aesthetics subsidiary. Delays happen and timelines shift, but the chronic lack of execution across the portfolio suggests Krystal Biotech has significant internal problems.

Forecast & Modeling Insights

(Increased weighting of executional risk)

Solt DB Invest will continue to evaluate development timelines. At this time, we don't expect clinical execution risks to negatively impact the approval or launch of Vyjuvek, but the odds are uncomfortably greater than zero. Our view is that the asset has a significant competitive edge for an indication with a concentrated patient population and few treatment options. That can hide or make up for executional deficiencies -- but it may not.

Krystal Biotech can correct for these deficiencies by finding experienced partners to help with clinical development across its portfolio. An acquisition of the company, for its herpes simplex virus (HSV) gene therapy technology platform and manufacturing facility, would also allow for an acceptable exit for individual investors.

Margin of Safety & Allocation

(Downgraded portfolio category, reduced suggested allocation range.)

Krystal Biotech is considered a Growth (Speculative) position. The current Margin of Safety range for the company based on our 2023 model is below:

• Current Price (market close May 5): $84.24 per share
• Likely Undervalued:          <$50.58 per share
• Midpoint:                            $67.44 per share
• Likely Overvalued:           >$84.30 per share
• Allocation Range:              Up to 5%

The Margin of Safety range based on our post-approval model is below:

• Current Price (market close May 5): $84.24 per share
• Likely Undervalued:         <$91.19 per share
• Midpoint:                            $108.07 per share
• Likely Overvalued:            >$124.96 per share
• Allocation Range:              Up to 5%

Krystal Biotech reported 25.788 million shares outstanding as of March 22, 2023. The Margin of Safety range above assumes 29.656 million shares outstanding, which prices in another 15% dilution. We expect a public offering of common stock in May 2023 following FDA approval of Vyjuvek.

Further Reading

• May 2023 press release announcing first-quarter 2023 results and a business update
• April 2023 article analyzing our view of the move into lateral canthal lines, or Crow's feet, for the Jeune Aesthetics subsidiary
• December 2022 article sharing details from our post-approval model

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