Krystal Biotech, Inc. (KRYS) stock intrinsic value fair value estimate & owner earnings analysis

Krystal Biotech sells one approved product, VYJUVEK, a gene therapy applied topically to the open wounds of patients with dystrophic epidermolysis bullosa (DEB), a rare inherited skin disease. The FDA approved it on May 19, 2023 as the first gene therapy that can be reapplied over time. In September 2025 the label was widened to cover patients from birth. Revenue has climbed from $50.7 million in 2023 to $290.5 million in 2024 and $389.1 million in 2025, at a 94% gross margin. In the first half of 2026 revenue was $235.6 million versus $184.2 million a year earlier, up about 28%, and net income was $110.7 million. Growth is slowing, though: second-quarter 2026 revenue of $119.2 million was only about 2.5% above the first quarter's $116.4 million. How we measure earnings. We start with cash from operations, remove the swings from customer payments, inventory and accrued rebates, deduct stock-based pay as a real cost, and deduct the capital spending needed to keep the business running (spending tied to growth is excluded). On that basis, owner earnings were $3.00 per share in 2024 and $5.83 per share in 2025 ($174.8 million: cash from operations $200.9 million, plus $38.1 million of working-capital outflow removed, less $54.5 million of stock-based pay, less $9.7 million of maintenance capital spending, on 29.95 million diluted shares). Earlier years were loss-making research and build-out years, and 2023 was the launch year, so we measure the business from 2024 onward. Two things matter for the level. First, 2025 earnings were helped by tax losses: the company reports it used up its federal loss carryforwards in 2025, so more of each dollar of profit now goes to tax. Taxing 2025 profits at a 21% federal rate would have meant roughly $0.93 per share more tax than the company actually paid. Second, the first half of 2026 shows a higher earning power: cash from operations of $155.2 million less $27.8 million of stock-based pay and $10.7 million of capital spending is $116.7 million, about $233 million a year or roughly $7.60 per share. Because we could not fully separate first-half working-capital movements, we use $7.00 per share as the starting level for 2026. The company also earns about $28 million a year of interest on its cash and investments, which is included in these figures. Earnings grew 94% from 2024 to 2025; our starting level for 2026 is 20% above 2025, so we are not assuming growth faster than what the company just achieved. What protects the earnings. VYJUVEK's composition-of-matter patents in the United States, Europe and Japan run to December 28, 2036 (before any extensions), and the company expects 12 years of U.S. biologic exclusivity, which from the May 2023 approval runs to May 2035. Those are dated, named protections, so the base and bull cases credit earnings through 2036. After that we fade earnings to zero over five years, because nothing in the filings shows what keeps the earnings once protection ends. Base case: $62 per share. Earnings stay at $7.00 per share from 2026 through 2036 with no growth, then fade evenly to zero by 2041. We credit no further growth. The first-half 2026 earnings level has already been reached, so holding it is not growth. We leave out new European launches (Germany and France pricing talks run until at least the second half of 2026 and 2027, and Italy is only being discussed), because none has secured a price. We also leave out the pipeline (including the cystic fibrosis candidate KB407), because it has no revenue and nothing we can evidence yet. Bear case: $34 per share. Nearly all revenue depends on one product and one customer: a single U.S. customer generated about 75% of 2025 revenue and 87% of 2024 revenue. A competing gene therapy, Abeona's Zevaskyn, was also approved in 2025. In this case the first-half 2026 gains do not hold. Earnings are $6.00 per share in 2026, drop to $4.90 in 2027 (2025's $5.83 less the extra tax now due) and then shrink 5% a year through 2036, with nothing after that. Bull case: $78 per share. The company's own overseas launches succeed. The company estimates more than 9,000 DEB patients worldwide versus more than 3,000 in the U.S., over 1,000 are already identified in Germany and France, and Japan pricing was settled before the October 2025 launch. Earnings start at $7.00 per share and grow 8% a year from 2027 through 2030 to about $9.50, hold through 2036, then fade to zero by 2041. What could make this wrong. If the loss of the largest customer or a competitor's product cuts sales sooner than our bear case, or if the first-half working-capital movements turn out to have flattered cash flow, the value would be lower. If overseas prices are agreed at attractive levels, it would be higher. We used a 6% discount rate in all cases, and we did not subtract debt or add the company's cash separately, because interest on that cash is already in the earnings. The margin-of-safety price is $31 per share, about half our base case and just under our bear case, because the earnings rest on one product with concentrated customers and a dated patent horizon.