Krystal Biotech, Inc. (NASDAQ:KRYS) has something most biotech companies spend years trying to achieve: a drug that works, is approved, and is already generating meaningful revenue. VYJUVEK, a gene therapy for dystrophic epidermolysis bullosa, or DEB, helps patients with an underlying genetic problem that leaves their skin extremely fragile and prone to chronic wounds.
The commercial response has been strong. VYJUVEK generated $119.2 million in revenue in the second quarter, up 24% from a year earlier, while gross margin reached a barely believable 95%. Krystal also had more than 730 U.S. reimbursement approvals by the end of the quarter.
That is impressive. But it also creates a different question for investors. How long can Krystal keep this advantage?
Krystal Biotech, Inc. ranks ninth in our list of Top 10 Gene Therapy Stocks to Buy According to Hedge Funds. To see which stocks outranked KRYS, click HERE.
VYJUVEK has a real moat
The first part of the answer is that VYJUVEK is not an easy drug to replicate.
DEB is a rare genetic disease, so the patient population is small. That can make the economics of developing a treatment difficult, but it also gives a successful therapy a degree of protection. Krystal has spent years developing its gene therapy platform, manufacturing process, and treatment experience around these patients.
VYJUVEK is also not a one-and-done treatment. Patients use it repeatedly as part of their wound care. That gives Krystal the potential for recurring revenue as patients remain on therapy.
The company is also learning from its patients. As more people use VYJUVEK at home, Krystal is building experience around administration, patient education, and long-term treatment. The company says these programs are helping patients incorporate the therapy into their ongoing wound-care routines.
That matters because a moat in biotech isn’t always just a patent. Sometimes it is the combination of intellectual property, clinical evidence, manufacturing know-how, and experience treating a very specific disease.
But the moat has to survive competition
This is where the story gets less comfortable.
Krystal is targeting a rare disease with a large unmet need, and that makes VYJUVEK attractive. A competitor does not necessarily need to develop an identical gene therapy to challenge Krystal. It could eventually offer a treatment that lasts longer, is easier to administer, works better on certain wounds, or has a lower cost.
There is also the question of pricing and reimbursement. VYJUVEK’s value is clear to patients, but governments and insurers ultimately decide how much they are willing to pay. Krystal is still negotiating pricing and reimbursement in several European markets, including Germany, France, Italy and Spain. Revenue in Europe and Japan was broadly flat in the latest quarter partly because of a reserve related to the German pricing process.
The bigger risk, though, may be what happens after VYJUVEK.
Krystal needs to show that its technology can produce more than one successful drug. The company has two other programs in registrational studies, which are the late-stage trials used to support potential regulatory approval, and expects additional registrational studies to begin in 2027. Its pipeline includes treatments for eye diseases, cystic fibrosis and cancer.
If those programs work, VYJUVEK could become the first product in a much larger genetic-medicine platform. If they don’t, investors could be left valuing Krystal largely on one rare-disease drug.
The valuation has largely priced in that moat
The stock trades at 46.95x forward earnings. That is a hefty price for a company whose current commercial success is concentrated around one main product.
The good news is that VYJUVEK still has room to grow. Krystal estimates about 1,200 diagnosed U.S. patients in its initial target population and believes there could be roughly 3,000 patients in total, with many still undiagnosed. Management said it continues to see 35 to 50 new reimbursement approvals almost every quarter.
So the growth opportunity is not over.
But at 46.95x forward earnings, investors are already paying for several years of successful execution. They are not simply betting that VYJUVEK will remain a good drug. They are betting that Krystal can keep expanding it, defend its position, and turn the same technology into additional successful products.
Conclusion
Krystal has built a genuine moat around VYJUVEK, but it is not invincible. The drug has strong demand, high margins, and a meaningful remaining patient opportunity. The bigger test is whether Krystal can turn that first success into a broader platform before competition or disappointing pipeline results change the story.
At 46.95x forward earnings, the stock needs more than VYJUVEK to keep doing well. It needs investors to believe Krystal has built a repeatable business around its technology.
Market Sentiment
Hedge fund sentiment toward Krystal Biotech weakened in the second quarter. According to Insider Monkey’s database, 29 hedge funds held the stock in Q2, down from 33 in Q1. However, the value of those positions increased from about $1.56 billion to $2.15 billion.
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This article is originally published at Insider Monkey.
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