Executive Summary / Key Takeaways

• Global Commercial Expansion Driving Growth: Krystal Biotech is rapidly expanding the commercial footprint of its lead product, VYJUVEK, a redosable gene therapy for Dystrophic Epidermolysis Bullosa (DEB). Following a successful U.S. launch that generated over $525 million in cumulative net revenue by Q2 2025, the company is now launching in Europe (Germany, France in Q3 2025) and Japan (Q4 2025), targeting a global peak sales estimate exceeding $1 billion.
• Differentiated HSV-1 Gene Therapy Platform: The company's proprietary HSV-1 vector platform offers a significant technological advantage, enabling efficient, redosable, and non-invasive delivery of therapeutic transgenes. This differentiation is evident in VYJUVEK's high patient preference for home administration and the promising preclinical/clinical data from its diverse pipeline, which demonstrates sustained gene expression and reduced treatment burden across multiple organ systems.
• Robust and Diversified Pipeline Progress: Krystal is advancing a deep clinical-stage pipeline beyond DEB, with multiple near-term readouts expected in respiratory (Cystic Fibrosis, Alpha-1 Antitrypsin Deficiency) and ophthalmology (Neurotrophic Keratitis, ocular DEB) programs. These programs leverage the platform's versatility and hold potential for blockbuster product opportunities.
• Strong Financial Foundation: Krystal has achieved seven consecutive quarters of positive EPS, with diluted EPS of $1.29 in Q2 2025. With over $682 million in cash and investments as of June 30, 2025, the company possesses substantial financial flexibility to fund its global commercialization efforts and extensive R&D pipeline.

• Strategic Outlook and Value Creation: While near-term revenue may experience some "waviness" due to patient pausing patterns, the long-term outlook is strong. The planned spin-out of Jeune Aesthetics by mid-to-end 2026 and continued pipeline validation are poised to unlock significant shareholder value, positioning Krystal as a leader in genetic medicines.

Krystal Biotech's Genesis and Vision: A New Era in Genetic Medicine

Krystal Biotech, Inc. commenced operations in April 2016, founded on the principle that an autologous approach to treating Dystrophic Epidermolysis Bullosa (DEB) was not sustainable. This foundational insight propelled the company to develop a novel, off-the-shelf gene therapy platform. The company's strategic evolution included its conversion to a Delaware C-corporation in March 2017 and the subsequent establishment of Jeune Aesthetics, Inc. in April 2019, diversifying its therapeutic focus.

Krystal has since grown into a fully integrated, commercial-stage, global biotechnology company. Its overarching strategy centers on leveraging its patented herpes simplex virus-1 (HSV-1) gene therapy platform to discover, develop, manufacture, and commercialize genetic medicines for diseases with high unmet medical needs. This approach has been instrumental in shaping its current market position and strategic responses to the dynamic biotechnology landscape.

The HSV-1 Platform: A Differentiated Technological Moat

Krystal's core technological differentiator lies in its engineered HSV-1 gene therapy platform. This platform creates vectors that efficiently deliver therapeutic transgenes to cells of interest in multiple organ systems. A key advantage is the amenability of these vectors to non-invasive or minimally invasive routes of administration, allowing for treatment in a healthcare professional's office or even the patient's home.

This technology offers specific, tangible benefits over alternative approaches. For VYJUVEK, its lead product, the platform enables redosable, topical application, contributing to durable wound closure and an impressive 97% patient preference for at-home administration. In its respiratory pipeline, KB408 for Alpha-1 Antitrypsin Deficiency (AATD) has demonstrated robust airway transduction, achieving rates in the 30-40% range after a single dose, along with functional AAT expression. For ocular conditions, KB801 for Neurotrophic Keratitis (NK) has shown in preclinical studies that a single dose can result in sustained Nerve Growth Factor (NGF) production, peaking at 24 hours and remaining elevated for days, surpassing NGF levels achieved with six doses of a recombinant protein within 15 minutes of the last dose. This significantly reduces the treatment burden from a six-times-daily regimen to infrequent dosing.

These technological advantages are central to Krystal's competitive moat. They enable the company to pursue first-in-class or best-in-class therapies that offer superior patient convenience and potentially better long-term outcomes. This translates into stronger market positioning, potential for higher pricing power, and better margins through efficient therapy delivery and reduced need for frequent, invasive interventions. The company's two in-house, commercial-scale Current Good Manufacturing Practice (CGMP) manufacturing facilities further enhance this moat by ensuring control over production and derisking the Chemistry, Manufacturing, and Controls (CMC) aspect for its expanding pipeline.

VYJUVEK's Commercial Ascent: U.S. Dominance and Global Horizons

VYJUVEK's journey from FDA approval in May 2023 to its current global expansion underscores Krystal's commercial prowess. The U.S. launch has been remarkably successful, with net product revenue reaching $96.04 million for the three months ended June 30, 2025, representing a 37% increase over the prior year. Year-to-date for the six months ended June 30, 2025, net revenue stood at $184.225 million, a 59% increase year-over-year, bringing cumulative net revenue since launch to over $525 million. The gross margin has remained consistently high at 93%, reflecting efficient operations.

Operationally, Krystal has secured over 575 reimbursement approvals for U.S. patients, with 97% opting for convenient home administration. While compliance to weekly treatment was 82% as of Q2 2025, management anticipates this figure may trend down as more severe patients achieve durable wound closure and the patient mix shifts towards moderate and mild cases. This "pausing" is viewed as a positive outcome for patients, enabling them to take control of their lives. However, these patterns introduce inherent unpredictability in quarterly revenues. Management expects Q3 2025 revenues to be below Q2 2025 due to summer holiday-related pauses, with a return to growth in Q4 driven by an expanding patient funnel, restarts, and the full impact of sales team expansion. The company aims to reach its initial target of 720 U.S. patient reimbursement approvals (representing 60% market share) by early 2026.

Globally, VYJUVEK is poised for significant expansion. The European Commission granted marketing authorization in April 2025, followed by Japan's Ministry of Health, Labour and Welfare (MHLW) approval in July 2025. Both approvals provide broad labels, allowing for home, self- or family administration from birth, and notably, Japan does not require genetic testing for diagnosis. Krystal plans direct commercial launches in Germany and France in Q3 2025, targeting over 1,000 identified patients across these two countries alone (approximately 600 in Germany, 400 in France). Japan is expected to launch by year-end 2025, with a core team already in place to secure pricing. The company's conviction in VYJUVEK's global peak sales estimate exceeding $1 billion has strengthened, with European pricing expected to range from 50-70% of U.S. prices, depending on negotiations.

Expanding the Horizon: A Robust and Diversified Pipeline

Beyond VYJUVEK, Krystal is rapidly advancing a diverse pipeline of genetic medicines, showcasing the versatility of its HSV-1 platform across multiple organ systems.

In respiratory diseases, KB407 for Cystic Fibrosis (CF) is in a Phase 1 CORAL-1 study, with molecular data from the third and final cohort expected before year-end 2025. The study has received full sanctioning from the Cystic Fibrosis Foundation TDN, providing expanded access to patients. KB408 for Alpha-1 Antitrypsin Deficiency (AATD) is in a Phase 1 SERPENTINE-1 study, where it has demonstrated robust airway transduction and functional AAT expression. The protocol has been amended to investigate repeat dosing in Cohort 2B, with data expected to inform potential accelerated approval pathways.

Krystal's ophthalmology programs are also gaining momentum. KB803, a redosable eye drop formulation of B-VEC for ocular complications in DEB patients, initiated its Phase 3 IOLITE study in June 2025. This trial follows a compassionate use case that showed full corneal healing by three months and significant visual acuity improvement. A natural history study with 48 enrolled patients is serving as a run-in to accelerate IOLITE enrollment. Additionally, KB801 for Neurotrophic Keratitis (NK) began its Phase 1/2 EMERALD-1 study in July 2025. Preclinical data for KB801 highlights its potential to significantly reduce the treatment burden for NK patients by enabling sustained Nerve Growth Factor (NGF) production with infrequent dosing, a notable advantage over the currently approved therapy requiring six daily doses.

In oncology, KB707, a redosable immunotherapy for solid tumors, is progressing in Phase 1/2 studies. Inhaled KB707 in the KYANITE-1 study demonstrated early monotherapy activity in 11 heavily pre-treated non-small cell lung cancer (NSCLC) patients, achieving an objective response rate (ORR) of 36% and a disease control rate (DCR) of 54% as of April 2025, with a favorable safety profile. Both inhaled and intratumoral formulations of KB707 have received Rare Pediatric Disease Designation (RPDD) and Fast Track Designation from the FDA, with further readouts expected in 2026.

The company's aesthetics subsidiary, Jeune Aesthetics, is also advancing its pipeline. KB304, designed to deliver collagen and elastin for décolleté wrinkles, reported positive Phase 1 PEARL-2 results in July 2025, showing significant improvements in wrinkles, elasticity, and other skin attributes. A Phase 2 study for KB304 is expected to initiate in H1 2026. Jeune Aesthetics is strategically positioned for a potential spin-out as a separate subsidiary by mid-to-end 2026, aiming to maximize shareholder value.

Financial Strength and Capital Allocation

Krystal Biotech's financial performance reflects its operational discipline and commercial success. The company has achieved seven consecutive quarters of positive EPS, with diluted EPS reaching $1.29 in Q2 2025. As of June 30, 2025, Krystal maintained a robust liquidity position with approximately $682 million in cash, cash equivalents, and short-term investments, which management believes is sufficient to fund operations for at least the next 12 months.

Operating cash flow for the six months ended June 30, 2025, was $83.7 million, demonstrating strong cash generation from its commercial activities. The company's capital allocation strategy prioritizes continued investment in its expanding pipeline and global commercialization efforts. For 2025, Krystal anticipates non-GAAP R&D and SG&A costs (excluding stock-based compensation) to be between $150 million and $175 million, driven by increased expenses for international launches and pipeline advancement. The company is also actively considering share buybacks, given its substantial financial flexibility.

Competitive Landscape and Strategic Positioning

Krystal Biotech occupies a distinct niche in the biotechnology sector, focusing on redosable gene therapies for rare skin diseases. Its competitive standing is primarily defined by its proprietary HSV-1 platform, which offers unique advantages over rivals.

Direct Competitors:

• Sarepta Therapeutics (SRPT): While SRPT is a leader in neuromuscular genetic diseases with established RNA-based therapies, Krystal's skin-specific gene delivery provides a more targeted, non-invasive approach for dermatological conditions. Krystal's technology potentially offers superior gene expression durability for localized treatments, which could lead to better long-term patient outcomes. However, SRPT currently holds an advantage in market positioning for established therapies, translating to stronger revenue and cash flow.
• BioMarin Pharmaceutical (BMRN): BMRN focuses on a broader range of rare genetic and metabolic disorders, utilizing enzyme replacement and gene therapies. Krystal's redosable platform offers greater flexibility for chronic skin conditions, potentially improving patient outcomes and ease of administration. Krystal demonstrates faster innovation cycles in skin-specific applications, but BMRN's diversified portfolio and established commercialization lead to more robust financial metrics.
• Amicus Therapeutics (FOLD): FOLD specializes in lysosomal storage disorders. Krystal's platform, with its potential for sustained therapeutic effects through repeated dosing, could offer notably better performance in gene expression durability for skin diseases. While Krystal's patient-centric designs are innovative, FOLD's more advanced revenue streams currently provide stronger financial performance.
• Vertex Pharmaceuticals (VRTX): VRTX is a dominant force in cystic fibrosis and other genetic diseases. Krystal's KB407 is in early development for CF, but VRTX's blockbuster drugs generate substantial profitability and cash flow. Krystal's localized gene delivery technology offers differentiation in ease of use for its specific targets, but it lags VRTX in overall financial scale and R&D investment returns.

Krystal's primary competitive advantage, its proprietary HSV-1 vector, enables redosable, non-invasive delivery, leading to superior patient outcomes and convenience. This is exemplified by VYJUVEK's 97% home administration rate, which significantly reduces patient burden compared to more invasive or complex competitor treatments. Similarly, KB801's ability to maintain sustained NGF production with infrequent dosing offers a stark contrast to existing therapies requiring frequent, burdensome administration. These technological moats allow Krystal to command pricing power and achieve robust growth in its niche markets.

However, Krystal faces vulnerabilities inherent to its stage of development. Its pipeline is still largely clinical-stage, leading to high R&D costs and a more limited commercialization track record compared to its more mature competitors. This can result in higher operational costs and potentially slower market share capture in new therapeutic areas. Krystal strategically mitigates these by focusing on a patient-centric approach through Krystal Connect, expanding its sales force, engaging in direct-to-consumer marketing, and pursuing global diversification to build a geographically resilient business. The high barriers to entry in gene therapy, including substantial R&D costs and stringent regulatory hurdles, also serve to protect Krystal's specialized niche.

Risks and Challenges

Despite its strong trajectory, Krystal faces several pertinent risks. Commercial volatility is a key concern, as patient pausing patterns, particularly among moderate to mild DEB patients, are inherently unpredictable and can lead to quarter-to-quarter revenue "waviness." Regulatory and market access challenges persist, including a U.S. Department of Justice subpoena regarding its genetic testing program and commercial practices, the outcome of which remains uncertain. Broader healthcare legislative reforms, such as the Inflation Reduction Act and the "One Big Beautiful Bill Act," could also impact pricing and reimbursement. The continuity of the Accès Précoce early access program in France is also a factor to monitor for its European launch.

While VYJUVEK holds strong differentiators, the competitive landscape could evolve with new entrants, such as Abeona (ABEO)'s EB-101. Clinical development carries inherent risks, including unpredictable costs and timelines, as seen with the challenges in CF trial enrollment. Finally, international operations expose Krystal to diverse regulatory environments, intellectual property enforcement complexities, staffing challenges, and foreign currency fluctuations.

Conclusion

Krystal Biotech is rapidly ascending as a leader in genetic medicines, propelled by the commercial success of VYJUVEK and a robust, diversified pipeline. The company's proprietary HSV-1 gene therapy platform provides a distinct technological advantage, enabling redosable, non-invasive treatments that offer superior patient convenience and durable therapeutic effects across skin, respiratory, and ocular indications. This technological edge, combined with a patient-centric commercial strategy and strong financial discipline, underpins Krystal's ability to capture significant market share in ultra-rare diseases globally.

With VYJUVEK's successful U.S. launch now extending to Europe and Japan, and multiple pipeline readouts anticipated in the near term, Krystal is poised for sustained revenue growth and significant value creation. While investors should monitor the inherent quarterly revenue fluctuations and evolving competitive dynamics, the company's strong balance sheet, consistent profitability, and strategic focus on technological leadership position it favorably to unlock blockbuster opportunities and deliver long-term shareholder value.