Krystal Biotech (KRYS 1.57%) saw its shares climb more than 77% this week, according to data provided by S&P Global Market Intelligence. The stock was only at $39.81 at Friday's close, then opened at $91.20 on Monday and climbed to as high as $102.99. While the stock has come down quite a bit, on Thursday it was still trading as high as $73 per share. The stock's 52-week low is $38.86.

A scientist is shown figuratively cutting a strand of DNA.

Image source: Getty Images.

What happened

The clinical-stage gene therapy company's stock got its bounce when Krystal announced on Monday that its lead program, Vyjuvek, had gone through its successful phase 3 trial to treat dystrophic epidermolysis bullosa (DEB), a rare inherited disease. Because of a defective gene, DEB patients' skin becomes extremely fragile, and blisters and tears from minor friction or trauma, usually on the hands, elbows, and knees. DEB patients deal with frequent skin infections from open wounds and are at an increased risk of developing squamous cell carcinoma.

In the trial, the company said Vyjuvek led to complete wound healing in 67% of the 31 subjects by six months. Krystal said the drug was well tolerated with no serious side effects. The company added it was on track to submit a Biologics License Application (BLA) with the Food and Drug Administration in the first half of next year.

All of this was music to investors' ears. The company, which had no revenue in its most recent third-quarter report, now has a clear path to cashing in, and the market reacted.

However, the enthusiasm regarding the stock waned a bit when the trial announcement was followed up by the news that the company was selling $200 million worth of stock to raise cash, thus diluting the stock's value for current stockholders.

Now what

Biotech stocks, particularly clinical-stage biotech stocks, present a big risk-reward opportunity, but now Krystal has something more concrete for investors to be excited about.

It's not just that Vyjuvek has been shown to be effective in trials; it's that the company's platform is unique in several ways, according to Krystal. The therapy is the first topical gene therapy, and it's the first gene therapy that can be repeated without triggering an immune response. The reason for that is the company has been able to reconfigure the HSV-1 virus that causes herpes and use it as a delivery system. Because the herpes virus is so common to humans, the re-engineered virus, using a noninfectious version, doesn't cause immune reactions.

DEB is rare, affecting only between 11 and 19 children per 1 million live births in the United States, according to a 2016 report in JAMA Dermatology, published by the American Medical Association. However, the success of Krystal's HSV-1 delivery system is also being tested against cystic fibrosis and could also be used as an aesthetic treatment, both of which would be more profitable for Krystal. The company is already testing its delivery system to see if it could be used to restore collagen and elastin proteins, as their production declines with age.