KRYS - Krystal Biotech: Harnessing Genetic Medicine To Transform Rare Disease Treatment

2023-05-05 13:33:58 ET

Summary

• Krystal Biotech is strategically positioned in the biotech sector with its unique focus on developing genetic medicines for rare diseases, offering a promising investment opportunity.
• ??Krystal Biotech's financial outlook is increasingly positive, driven by the potential of its advanced pipeline and a solid foundation built on scientific rigor and strategic execution.
• The company's B-VEC for treating DEB with ocular complications and the initiation of the Phase 1 study of KB301 for aesthetic indications underlines its innovative approach and potential for growth.

Krystal Biotech's (KRYS) robust pipeline, combined with its pioneering approach to gene therapy, presents a compelling case for investment. The company's lead product, beremagene geperpavec (B-VEC), is being developed as a topical treatment for Dystrophic Epidermolysis Bullosa (DEB), a severe, often life-threatening condition with limited treatment options. The novelty of B-VEC's approach, coupled with the high unmet need in DEB, makes for an intriguing opportunity.

Stable Financials Support Secure Future

Krystal Biotech's cash position of $383.8 million as of December 31, 2022, is a testament to its financial strength. This capital buffer not only shields the company from near-term economic volatility but also equips it with the firepower necessary to pursue strategic initiatives, whether that's accelerating research and development (R&D) or making tactical acquisitions. In a sector where burn rate often outpaces income, this robust cash reserve is an indicator of Krystal's foresight and financial prudence.

When it comes to research and development, it's crucial to understand the rise in expenses within its proper context. The increase from $27.9 million in 2021 to $42.5 million in 2022 highlights the company's dedication to innovation. A biotech firm's worth resides in its pipeline and the potential discoveries it contains. Allocating resources towards R&D is vital for future expansion, and Krystal's decision to strengthen its investment demonstrates their forward-looking outlook, positioning themselves for sustained success.

As for the rise in general and administrative expenses from $40.4 million in 2021 to $77.7 million in 2022, it may raise eyebrows initially. However, this trend must be viewed in light of the company's strategic growth trajectory. Administrative expenses often increase as a company scales, supporting expansion initiatives, personnel, and infrastructure. With a secure financial position, Krystal Biotech is likely investing in its operational capacities to pave the way for future development .

It may be concerning to note that in 2022, there were net losses amounting to $140.0 million. However, it is not uncommon for biotech companies to experience such losses due to the high costs of research and development, as well as the prolonged process of introducing products to the market. In fact, it is typical for these firms to operate at a loss during their early years. The losses per share in 2022 were -$5.49, which is higher than the -$3.13 losses in 2021, but this is in line with the trend. It is important to remember that these losses are often part of the necessary journey towards profitability in this sector.

Gene Therapy Pipeline

Krystal Biotech is a leading player in the realm of gene therapy, boasting a diverse portfolio of groundbreaking treatments. Its flagship product, B-VEC , is a pioneering solution for Dystrophic Epidermolysis Bullosa. This revolutionary therapy targets the gene responsible for this debilitating skin disorder, providing a new lease on life for patients suffering from this condition. As of early 2023, the FDA is reviewing Krystal's Biologics License Application for B-VEC, with an anticipated decision by May. Furthermore, the company is gearing up for the Marketing Authorization Application procedure in Europe, targeting approval in early 2024.

Alongside B-VEC, Krystal Biotech is progressing two more products in the dermatological domain. KB105-02 , is a promising treatment for TGM1 deficient autosomal recessive congenital ichthyosis, a disorder causing severe skin scaling and thickening. The approach, which involves delivering a functional TGM1 gene to skin cells, will advance into Phase 2 clinical trials in 2023. Concurrently, the company is making strides with KB104, a potential treatment for Netherton Syndrome , a condition characterized by red, scaly skin. An investigational new drug application for KB104 is on the horizon for 2023.

In the respiratory sphere, Krystal Biotech is harnessing its gene therapy expertise to tackle both Alpha-1 Antitrypsin Deficiency (AATD) and Cystic Fibrosis ((CF)). The company is preparing to launch a Phase 1 clinical trial in 2023 for KB407 , which aims to deliver a functioning CFTR gene to lung cells, addressing the root cause of CF. Meanwhile, KB408 is in the preclinical stage, with plans to initiate a Phase 1 clinical trial for AATD treatment in late 2023.

In the aesthetic arena, the company's KB301 is a novel solution for skin rejuvenation. Its innovative mechanism promotes the production of type III collagen, associated with youthful skin. After promising results from the Phase 1 PEARL-1 study, the company is set to launch a Phase 2 study in 2023.

B-VEC Case Study Results

Krystal Biotech recently revealed promising data on the application of their gene therapy, B-VEC, in a unique context. This innovative usage is for patients suffering from dystrophic epidermolysis bullosa, a debilitating disease that often leads to distressing ocular complications.

DEB is a life-altering disease , one that leaves patients with limited choices for relief. A significant fraction of DEB patients suffers from ocular complications, where the go-to treatments often involve invasive surgical procedures.

Krystal Biotech's report detailed the successful use of B-VEC as a treatment for a DEB patient struggling with recurring cicatrizing conjunctivitis. After the patient underwent a surgical procedure on the right eye, B-VEC was administered at regular intervals. Remarkably, the treatment was well tolerated and resulted in full corneal healing within three months. By the seven-month mark, the patient's visual acuity had improved dramatically.

Throughout the treatment, no drug-related adverse events were observed. The patient did experience two serious non-drug-related events, but these did not interrupt the B-VEC treatment.

Ocular complications in DEB patients are far from uncommon. Over half of patients diagnosed with recessive DEB may experience such issues, which can include corneal abrasion, scarring, and eyelid blisters. Unfortunately, the FDA has not approved specific treatments for these ocular manifestations of DEB. The company is now planning to engage with regulatory authorities to explore the expansion of B-VEC's utility to address this pressing need.

Phase 1 Study of KB301

Jeune Aesthetics, an affiliate of the innovative biotechnology company Krystal Biotech, is making strides with its pioneering product, KB301. This product delivers the COL3A1 gene to skin cells, prompting the production of natural type 3 collagen-a fundamental protein for skin health. Jeune's novel approach positions KB301 as a potential game-changer in the regenerative aesthetics space, capable of addressing and possibly reversing the biological impacts of aging skin.

Recently, Jeune launched a third cohort in the Phase 1 study of KB301 , focusing on the improvement of lateral canthal lines at rest. The focus on lateral canthal lines at rest is based on the encouraging results from the previous studies of KB301 on the upper and lower cheek, including the lateral canthal region, which showed durability and effectiveness.

The selection of lateral canthal lines at rest as a target indication is a strategic choice, given that there are currently no FDA-approved injectable treatments for this issue. The prevalence of fine lines and wrinkles in this delicate area has made the treatment of lateral canthal lines at rest a highly sought-after solution among adult patients across the age spectrum. Prior to this, the Phase 1 or PEARL-1 study found KB301 to be both safe and tolerable for patients, even when administered repeatedly. In March of last year, efficacy and safety were demonstrated by Jeune, highlighting KB301's potential to improve fine lines and wrinkles.

Gene Therapies Harbor Unique Risks

Krystal Biotech's innovative drug pipeline is based on gene therapy, an approach that comes with its own set of unique challenges and potential points of failure. For instance, B-VEC's mechanism of action involves introducing a corrected version of the gene COL7A1 into the patient's cells, enabling them to produce the Type VII collagen protein that's missing in DEB patients. While promising, the success of B-VEC hinges on a few critical factors.

Firstly, there's the issue of effective delivery. The delivery vehicle (a viral vector) must be capable of transporting the therapeutic gene to the target cells without being intercepted and destroyed by the immune system. If the body's immune response is too strong, it could neutralize the therapy before it even reaches the target cells. Conversely, a weak immune response could indicate that the vector isn't expressing the therapeutic gene sufficiently, compromising the treatment's effectiveness.

Secondly, there's a risk of off-target effects. While the vector is designed to introduce the gene into specific cells, there's always a possibility that it might also insert the gene into non-target cells, leading to unintended consequences. Additionally, even when the gene integrates into the correct cells, it could integrate at an unintended site within the genome, potentially disrupting other important genes and leading to adverse events.

Thirdly, there's the matter of durability. Gene therapies like B-VEC are often touted for their potential to offer long-lasting, even curative, effects. However, it's still an open question how long these effects will truly last. There's a risk that the therapeutic effect might wane over time, necessitating repeat treatments.

Jeune's lead product, KB301, is a gene therapy designed to rejuvenate aging skin by delivering the COL3A1 gene to skin cells. The potential risks and challenges associated with KB301 are similar to those of B-VEC: effective delivery, off-target effects, and durability of effect.

Furthermore, KB301 faces the additional challenge of being a cosmetic gene therapy , a relatively uncharted territory. The aesthetic outcomes are subjective and difficult to measure objectively, which could complicate the evaluation of its efficacy. Additionally, the risk-benefit calculation is different for cosmetic treatments compared to life-saving therapies. Even minor side effects could be deemed unacceptable , and any adverse events could have significant implications for patient acceptance and regulatory approval.

KB407 and KB408, both in development for the treatment of respiratory conditions (Cystic Fibrosis and Alpha-1 Antitrypsin Deficiency, respectively), face the challenge of delivering the therapeutic genes to the lung cells effectively. The lung is a complex organ with multiple barriers to effective gene transfer, including mucus and the immune system. There's also the issue of achieving a sufficient level of gene expression in the target cells to have a therapeutic effect, which is a significant challenge in the context of the lung.

Lastly, as with any gene therapy, there's the overarching issue of manufacturing and scalability. Producing gene therapies is a complex, costly process that involves multiple steps, each with its own potential points of failure. It remains to be seen whether Krystal Biotech will be able to scale up their manufacturing processes to meet potential demand while maintaining the quality and consistency of their products.

Advantages Over Competitors

Krystal Biotech's unique selling proposition lies in its novel gene therapy platforms that specifically target genetic diseases with high unmet medical needs. It's worthwhile to analyze the competitive landscape in which Krystal operates to underscore its unique positioning.

The most direct competitor in this space is probably Abeona Therapeutics , (NASDAQ: ABEO ) which also develops gene therapies for DEB. However, a significant advantage that B-VEC may have over Abeona's EB-101 is the route of administration. B-VEC is a topical treatment, which could offer a more patient-friendly, less invasive application compared to the surgically applied skin grafts required for EB-101.

Regarding Jeune Aesthetics' KB301, the most relevant competition might come from companies offering dermal fillers and botulinum toxins, such as Allergan and Galderma. While these treatments offer temporary relief from wrinkles and skin aging, KB301 potentially addresses the core cause of skin aging. If proven effective, this could give KB301 a substantial competitive edge, as it could offer longer-lasting and more natural-looking results compared to current treatments.

Krystal's products for cystic fibrosis (KB407) and Alpha-1 Antitrypsin Deficiency (KB408) enter a more crowded market. Vertex Pharmaceuticals, (VRTX) for example, has a robust portfolio of approved modulator therapies for cystic fibrosis, which correct the function of the defective CFTR protein. However, these therapies are not curative and do not treat all patients, particularly those with rare mutations. KB407, on the other hand, potentially offers a one-time treatment that could benefit a broader patient population.

Similarly, the standard of care for AATD is augmentation therapy, which involves regular infusions of the AAT protein . However, this approach only slows the progression of lung damage, and the infusions can be burdensome for patients. KB408, by introducing a healthy AAT gene into the patient's lung cells, could potentially stop the progression of the disease with a single treatment and offer a significant improvement in patient quality of life.

Looking Ahead

In conclusion, Krystal Biotech's position within the biotechnology sector paints a promising financial picture. The company's dedication to developing genetic medicines for patients with rare diseases sets it apart from competitors, offering a unique investment opportunity. This unique positioning, coupled with a robust product pipeline, suggests a potential upward trajectory for the company's financial performance.

The company's financial health is underscored by a sound balance sheet, reflective of strategic capital allocation and robust fiscal management. This, coupled with promising recent results, further strengthens the case for the company's financial growth.

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