I'll give you guys a break after my 2,000 worder on Coherus BioSciences.

Krystal Biotech (NASDAQ: KRYS) announced on August 18 the FDA accepted its biologics license application (BLA) for Vyjuvek in dystrophic epidermolysis bullosa (DEB). Investors now have three more pieces of information regarding the regulatory pathway:

• Shorter Review: The FDA granted priority review designation, which means regulators intend to make an approval decision in six months rather than the standard review period of 10 months.
• Approval Decision Date: The FDA intends to make an approval decision by February 17, 2023. This is known as the Prescription Drug User Fee Act (PDUFA) date.
• No AdComm Meeting: The FDA communicated it doesn't currently plan on holding an Advisory Committee (AdComm) Meeting. This is when regulators bring in independent experts to discuss the application. It would delay the approval decision date and add more uncertainty to the regulatory pathway.

Two things to keep in mind.

• First, the FDA could still decide to hold an AdComm Meeting. That would have a negative impact on shares and delay a decision.
• Second, the FDA could request additional manufacturing data on Vyjuvek. A BLA filing is tens of thousands of pages long – and over half of it covers manufacturing data, not clinical data. This risk is heightened for gene therapy candidates and can result in significant delays. This risk may be lower for Krystal Biotech because it will initially manufacture Vyjuvek at its Ancoris facility, which also produced the materials used in late-stage clinical trials.

There are no approved treatments for DEB in the United States. It's a terrible disease with severe impacts on quality of life that's extremely expensive to manage. Clinical data that's publicly available through investor materials and scientific literature suggest Vyjuvek will eventually earn approval, even if the FDA holds an AdComm meeting and requests additional manufacturing data.

Nonetheless, it's important to acknowledge the possibility of increased share volatility until Vyjuvek earns regulatory approval. That's just par for the course, but the long-term outcome for Vyjuvek – approval, launch, and commercial success – is unlikely to be meaningfully impacted.

Price Targets

(No change.)

The current risk/reward for Krystal Biotech is considered favorable. This is considered a Growth (Quality) position. Current price targets for the company are as follows:

• Current valuation (market close August 18): $1.91 billion / $74.41 per share
• Attractive Near: $2.0 billion / $67.77 per share
• Prioritize Below: <$1.5 billion / $50.82 per share
• Caution Above: $2.5 billion / $84.71 per share

Krystal Biotech reported 25.66 million shares outstanding as of July 29th, 2022. The price targets above assume 29.5 million shares outstanding, which include an additional 15% dilution. A public offering of common stock is likely near the approval decision for Vyjuvek and would help to fund its commercial launch and ramp.

Ol' Maxxie's Position

Krystal Biotech has a target allocation of 5% in my personal portfolio, which is my third-largest Growth position. I calculate target allocations based on total principal put into my portfolio.

Further Reading

• August 2022 press release announcing FDA acceptance of BLA filing
• July 2022 company update discussing the potential to sell priority review vouchers (PRV) for at least $100 million in cash

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