Episode Details

Krystal Biotech, Inc. (KRYS) Q2 2026 — Reported before the open (three months ended June 30, 2026). Revenue $119.222M, +24.1%, just UNDER a ~$120.9M Street number. Diluted EPS $1.79 vs ~$1.70 — a BEAT. Operating income $58.417M at a 49.0% margin. The stock fell anyway: from a $341.12 close it opened at $320.70, hit $297.73, and sat at $299.04 — DOWN 12.3%. The framing nobody applied: the 10-Q's geographic table, which the press release does not print, says UNITED STATES revenue was $91.633M against $96.042M — DOWN 4.6%, while Europe ($19.283M) and Japan ($8.306M) were both ZERO a year ago. THE CALL: AVOID (4/5, A SUPERB BUSINESS AT A PRICE THAT NEEDS THE WHOLE PIPELINE TO WORK) — base-case value ~$153.0 vs ~$299.04 today. KEY METRICS: - CALL: AVOID 4/5 — fair value ~$153 vs $299.04 (-48.8%), valued in two SEPARATE parts. VYJUVEK annuity: 2030 revenue $598M (US held FLAT at ~$367M despite the decline; ex-US more than doubling to ~$231M), 5.4% COGS, 21% tax, 0.5% terminal, 9.5% discount = $1,981M EV + $1,102.9M net cash over 30.657M shares = ~$100/sh. Plus the pipeline as a separate risk-adjusted option, $1,380M = $45/sh. Grid: bear $134 / base $146 / bull $188 — ALL NINE cells below the price; even the bull at 8% is $211. - US REVENUE WENT DOWN: the 10-Q geographic table reads US $91.633M vs $96.042M (-4.6%), Europe $19.283M vs ZERO, Japan $8.306M vs ZERO. Six months: US $179.122M vs $184.225M (-2.8%) — down year on year in BOTH quarters of 2026. Nor is ex-US compounding: derive Q1 2026 (US $87.489M, Europe $20.677M, Japan $8.191M) and Europe fell 6.7% sequentially, ex-US -4.4%, in the FIRST YEAR of a launch. Revenue rose 2.5% QoQ only because the US bounced off a weak Q1. - PENETRATION MATH: 730+ US reimbursement approvals and 640+ prescribers against ~894 US patients estimated eligible in a peer-reviewed economic evaluation. List price $24,250/vial x ~26 vials = ~$630k a patient-year; US revenue annualises to $367M = $502k per approval. So 65-82% of the eligible US pool is already paid for. Management's fair counter — a label update with more dosing flexibility, plus accrued rebates up $25.8M vs $14.8M — still says net revenue per patient is FALLING. - PIPELINE, PRICED HONESTLY: KB803 (corneal abrasions in DEB, registrational, top-line 4Q 2026) ~$120M peak x 55% = $190M. KB801 (neurotrophic keratitis, registrational) ~$450M x 40% = $440M. KB407 (cystic fibrosis, 5-pt open label, FDA alignment 4Q 2026) ~$700M x 20% = $300M. KB707 (inhaled NSCLC, 31% ORR with pembrolizumab) ~$900M x 15% = $250M. KB408/KB111/Gorlin/KB304 $200M. Total $1.38B = $45/sh; the market pays $6.08B = $198/sh. - THE OTHER SIDE, AND THE STREET: a superb business — 94.6% gross margin, 49.0% operating margin, $144.458M of six-month free cash flow, $1,102.9M of cash and investments, NO debt, no competitor, $965.9M since launch. Street: Buy — unanimously, 17 buy / 0 hold / 0 sell — target $364.50 avg, $342.00 median, range $300-$474 (+21.9%); even the LOWEST target is above the price. We ALIGN on the asset, DIFFER on what has been added to it, and are far more CAUTIOUS. What to watch: Bullish: KB803 hitting its endpoint in 4Q 2026 (the first registrational readout since VYJUVEK — it lifts the odds on KB801, KB407 and KB707 at once); US revenue growing two straight quarters; or German/French pricing settling at or above launch price. Bearish: a third straight quarter of US decline; EU pricing settling BELOW launch; or KB803 missing. Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision.