The biotechnology industry is an excellent place to start for those looking for stocks with explosive growth potential. Shares of biotech companies can quickly skyrocket following positive business-related news. In addition, considering the demand for innovative life-saving drugs only to pick up, investing in the right biotech company could help investors produce market-beating returns for a long time.
Let's look at one biotech that's made quite a bit of noise of late: Krystal Biotech (KRYS +2.81%). This company's shares have soared by more than 40% in the past month, but given its long-term prospects, that could only be the beginning.
Data by YCharts.
A major clinical win
Krystal Biotech is a clinical-stage company that focuses on gene-editing therapies for rare and underserved diseases, particularly those that affect the skin. The company's leading pipeline candidate, Vyjuvek, is an investigational treatment for dystrophic epidermolysis bullosa (DEB). This rare genetic condition causes very fragile skin in patients who suffer from it, which, in turn, can result in severe injuries from minor cuts and bruises -- not to mention life-threatening complications such as squamous cell carcinoma (a form of skin cancer).
Krystal Biotech's recent run of form on the stock market came on the back of positive data from a phase 3 clinical trial for Vyjuvek. The study enrolled 31 patients and investigated Vyjuvek's ability to heal wounds associated with DEB. During the trial, 67% of injuries treated with the gene-editing therapy achieved complete wound healing six months after treatment, compared to only 22% of wounds treated with a placebo. Also, Vyjuvek did not cause any severe adverse reaction, which speaks volumes for the therapy's safety profile.
On the back of these results, Krystal Biotech plans to submit an application to the U.S. Food and Drug Administration for Vyjuvek in the first half of 2022.
Image source: Getty Images.
What is the potential market for this therapy? Krystal Biotech estimates that there are 3,000 DEB patients in the U.S. and roughly 9,000 globally. Current therapy options for the disease are subpar and do not impact disease outcomes, but they cost patients between $200,000 and $400,000 per year. Unfortunately, Gene therapies aren't known to be cheap: One of the most expensive drugs on the market is Novartis' Zolgensma, a gene therapy for spinal muscular atrophy. Zolgensma costs a whopping $2.1 million per year.
Zynteglo, another gene therapy for transfusion-dependent beta-thalassemia developed by Bluebird Bio and approved in Europe, came with a price tag of 1.58 million Euros ($1.8 million).
We don't know how much Vyjuvek will cost if approved, but investors should expect something north of $100,000, in my view. And at that price, even with a modest patient population of 3,000 patients, Vyjuvek could be profitable for a company that currently has no products on the market.
Should you bet on this biotech?
Krystal Biotech does have several other pipeline programs, but all are still in the early stages of their development. The company's performance in the next year will largely depend on Vyjuvek. And while the data looks good, there is always the possibility of unforeseen regulatory setbacks, particularly with smaller companies like Krystal Biotech.
One more thing to consider: Krystal Biotech's financial position. As of Sept. 30, the gene-editing specialist had $362.3 million in cash and cash equivalents, a handsome sum of money for a clinical-stage biotech. That was before the company decided to raise additional funds through a secondary offering -- a typical move biotechs pull after their shares skyrocket on the back of clinical wins.
With the additional $200 million in gross proceeds thanks to this secondary offering, Krystal Biotech should have the funds to sustain its operations well into next year, based on its net cash used in operations of about $27 million during the third quarter. However, there is always the possibility that Krystal Biotech will resort to yet another round of stock offering, especially once it starts ramping up commercialization efforts for Vyjuvek (if it comes to that).
With all that said, let's get back to the question at hand: Could this Krystal Biotech make you rich? It could, but a lot would have to go right for that to happen. Unless the company's management team can flawlessly execute from here on out, I wouldn't bet on it. But even if Krystal Biotech isn't a millionaire-maker, it could still be an attractive option for biotech investors.
Potential headwinds remain with this company -- clinical setbacks for some of its other programs and a regulatory setback related to Vyjuvek would be devastating. That's why Krystal Biotech remains risky, and interested investors should start by initiating a small position in this company. For risk-averse investors, there are plenty of better options in the biotech industry to consider.
