Karyopharm Therapeutics: Unjustified Sell-Off Provides An Opportunity To Reload My Position

Summary

• Karyopharm Therapeutics reported their Q3 earnings with a beat on revenue and a slight miss on EPS. The company revealed that XPOVIO is making inroads into multiple myeloma.
• Despite the encouraging earnings, the ticker has been sucked into the small-cap sell-off. I am looking to take advantage of the discounted share price and reload my KPTI position.
• I will review the company's Q3 earnings and will also highlight points that help bolster investor sentiment. In addition, I reveal my plans for accumulating KPTI as we leave 2021.

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Karyopharm Therapeutics (NASDAQ:KPTI) continues to advance their pipeline and execute on the market. The company beat the Street's earnings estimates despite strong COVID-19 headwinds. Sadly, the share price has been sucked into the small-cap sell-off and is trading just above the 52-week lows. I believe this unjustified sell-off is a great opportunity to reload my position for another profitable trade while growing my core position.

I will review the company's Q3 earnings and will highlight points to help bolster investor sentiment. I took a look at some of the recent clinical data from Karyopharm and will discuss some upcoming pipeline catalysts. Finally, I take a look at the charts to identify some key levels for investors which will reveal my game plan for reloading my KPTI position.

Q3 Earnings

Karyopharm has accelerated growth in Q3 and continues to report encouraging trends since XPOVIO’s second-line plus launch at the beginning of this year. XPOVIO’s net sales came in a $26.7M, which is a 32% increase quarter-over-quarter and a 25% increase year-over-year. The company reported a significant increase in scripts with over 9K prescriptions filled as of the end of Q3.

Figure 1: Q3 Results (Source: KPTI Presentation)

Overall, total revenue was $37.7M compared to $21.3 M for the Q3 of 2020. Karyopharm reported $11M from licenses and other revenue including $9.8M in milestone payments for approval of Selinexor in South Korea.

R&D expenses were $45.8M, which is up from $37M in Q3 of last, but that was primarily due to the $7.4M asset purchase of new medicines in the quarter. As for SG&A, Q3’s expenses were $35.1M, up from $31M in Q3 of last year. The company finished Q3 with $209.3M in cash, cash equivalents, and restricted cash investments. Karyopharm expects that cash position, as well as revenue, will be adequate to fund the company into the “middle of 2023.”

Bullish Highlights

The company’s Q3 earnings have provided several bullish points that investors should take note of. First and foremost, is the 32% quarter-over-quarter and the 25% year-over-year net product revenue growth.

Figure 2: XPOVIO Revenue Since Launch (Source: KPTI Presentation)

Secondly, there is a growing demand for XPOVIO, with a 26% growth quarter-over-quarter. Thirdly, Karyopharm reported seeing some positive trends coming from the penta-refractory to earlier lines and in the high-risk elderly and renal dysfunction subgroups.

Thirdly, the company mentioned that they have been "adding more accounts every quarter and we're increasing our penetration at the top myeloma accounts." So, the trend is showing more prescribers writing scripts and they are writing them more often.

Another bullish highlight is the company's comments about patients staying on therapy longer as XPOVIO moves into earlier lines, which should improve the duration and refill rate.

Finally, it is important to note that the company was able to execute despite the enduring COVID-19 headwinds.

Admittedly, one can argue that this level of growth is expected at this point in the commercial launch and these trends are not 100% indicative of future success. However, I will continue to point out that this company launched XPOVIO right into the middle of the pandemic and they are more than just weathering the storm. I firmly believe these trends will accelerate as the healthcare system acclimates to the pandemic environment.

Upcoming Catalysts

The company has a number of key near-term catalysts which will continue to strengthen the company’s organization, pipeline, and commercial ability.

Figure 3: KPTI Investment Highlights (Source: KPTI Presentation)

Foremost, Karyopharm is also anticipating the conclusion of the review of XPOVIO’s MAA by CHMP in the EU, which is expected to be completed in the first half of next year. Karyopharm plans to initiate their Phase III study of XPOVIO in multiple myeloma by year-end, which could further validate the drug’s prowess in the multiple myeloma arena. For solid tumors, Karyopharm expects top-line data from their Phase III SIENDO study in endometrial cancer later this year or early next year. Karyopharm has submitted supplementary Phase II XPOVIO data for the treatment of myelofibrosis to be presented at ASH this month. In the immediate term, Karyopharm will host their virtual investor day on December 8^th, which will reveal the company’s strategic objectives and pipeline goals.

These catalysts along with the company’s efforts to increase XPOVIO sales in the second line plus treatment setting ought to deliver strong growth in the coming year, which should ultimately translate into the share price.

My Plan

KPTI continues to be wrapped up in the small-cap sell-off that has accelerated since the start of November. This has led to an unjustified sell-off in the share price, which is moving closer to testing the 52-week lows. Luckily, I booked some profits following the Q3 earnings, but I have been waiting to reload my KPTI position and I believe this could be an opportunity to start accumulating.

Typically, I look for signs of a reversal before clicking the buy button, but I am willing to start buying KPTI at a discounted value. Looking at Figure 4, we can see the Street expects the company to report strong year-over-year growth for the remainder of this decade.

Figure 4: KPTI Earnings Estimates (Source: Seeking Alpha)

At this rate, the company should be close to breakeven around $400M-$500M, which would be in roughly 4-5 years. Yes, 4-5 more years of burning cash means the company would have had to run at least one secondary offering to offset the losses. Still, even if the company was to double the number of shares, the ticker is still trading at discount for its 2025 or 2026 estimated sales. If I add heavy discounts for time and error, KPTI is still considerably undervalued when it trades under $6.50 per share.

Looking at the Daily chart (Figure 5), we can see the share price recently tested the $6.50 area, so, I am going to set a few buy orders around $6.50 and the $6.00 area.

Figure 5: KPTI Daily (Source: TrendSpider)

I will attempt to accrue a half-sized position before year-end and will look to add to the position following positive earnings reports. Once I have gotten my fill, I will set some sell orders at some technical levels in order to generate some profit and return to a house “money position” as soon as possible, while still adding to my core position.

Long-term, I am looking to stay involved in the ticker for at least five more years in anticipation the company will expand XPOVIO’s label into several other indications and/or be acquired for a premium valuation.

Thank you for reading my research on Karyopharm Therapeutics. If you want to learn even more about my method and how I discover these investment opportunities, please stand by because I am launching On The Pulse Analytics, a subscription marketplace service on Seeking Alpha in the near future and the initial wave of subscribers will be offered a lifetime discount. Further details are around the corner, so please keep an eye out and read my research.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of KPTI either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.