Karyopharm Therapeutics Inc. — Q3 2019 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2019. Unless noted otherwise, amounts are in U.S. dollars; financial statement amounts below are rounded to millions.
Business context
Karyopharm is an oncology-focused biopharmaceutical company. In July 2019, the FDA granted accelerated approval for XPOVIO (selinexor) with dexamethasone for certain heavily pretreated adults with relapsed or refractory multiple myeloma (RRMM). U.S. commercial shipments began that month, making this the company’s first product launch. Approval is based on response rate and remains subject to confirmatory evidence of clinical benefit.
Financial performance and liquidity
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Total revenue | $13.1m | $0.2m | $22.8m | $30.1m |
| Net product revenue | $12.8m | — | $12.8m | — |
| Operating expenses | $52.6m | $49.4m | $168.8m | $152.6m |
| Operating loss | $39.4m | $49.2m | $146.0m | $122.4m |
| Net loss | $41.4m | $48.1m | $150.9m | $120.2m |
| Basic and diluted loss per share | $0.67 | $0.79 | $2.46 | $2.17 |
Q3 product sales were net of $2.1m in deductions, primarily distribution fees and cash discounts, with reserves for chargebacks, rebates and returns. Cost of sales was $1.0m, including $0.7m of royalties. This is not a representative ongoing product margin: much of the manufacturing cost of inventory on hand at FDA approval had previously been expensed as R&D.
For the nine months, R&D expense fell to $90.8m from $122.5m, while selling, general and administrative expense rose to $77.0m from $30.1m, principally reflecting commercial-launch staffing and activities. License and other revenue declined to $10.0m from $30.1m, largely because 2018 included substantial Biogen and Ono revenue. Net loss widened year over year for the nine-month period, despite a narrower Q3 loss; interest expense on the convertible notes contributed to the year-over-year deterioration.
Net cash used in operating activities was $151.3m for the nine months, versus $110.9m a year earlier. Investing activities provided $112.0m, mainly reflecting investment maturities, and financing activities provided $89.4m, including net HCR proceeds of $73.7m and $14.6m from ATM share sales. At September 30, cash and cash equivalents were $168.0m; short- and long-term investments were $101.5m. The company reported $269.6m of cash, cash equivalents and investments and stated these resources, together with expected product and alliance receipts, should fund current plans for at least 12 months from issuance of the statements.
At September 30, total assets were $297.7m, total liabilities $237.9m and stockholders’ equity $59.9m. Convertible senior notes had $172.5m principal outstanding and a $108.0m net carrying amount. The balance sheet reported a $73.6m deferred royalty obligation. The company had 62.7m common shares outstanding at quarter-end and 62.8m as of October 29, 2019.
Outlook, material developments and risks
- Management expected R&D expense to remain relatively consistent in Q4 2019 as it moderated development spending while continuing selinexor development and regulatory work. SG&A was expected to remain consistent for the rest of 2019 to support commercial activities.
- The company anticipated an EMA decision on its selinexor application in early 2020. In September 2019, the EMA’s CHMP raised outstanding issues concerning confirmation of the adjudicated response rate and GCP inspection findings and corrective measures.
- Management anticipated submitting an NDA for selinexor in DLBCL by the end of 2019 and an EMA application in 2020. These were plans, not assured outcomes; FDA feedback cited tolerability, dose optimization and the potential need for randomized trials.
- XPOVIO’s accelerated approval requires post-marketing work, including the Phase 3 BOSTON confirmatory study and additional trials. Failure to verify benefit or satisfy requirements could jeopardize continued approval.
- The company continued to incur significant losses and said additional funding would be needed to meet longer-term objectives. HCR provided $75m under a revenue-interest financing, with a right to a further $75m subject to milestones, mutual approval and closing conditions. HCR’s return is tied to future product revenues, is capped at 185% of the investment amount, and includes minimum-return provisions if specified repayment thresholds are not met.
- A securities class action filed in 2019 alleges federal securities-law violations relating to disclosures about the SOPRA and STORM studies. The company said it believes the allegations are without merit and intends to defend the case; damages sought are unspecified.
- Other material risks include XPOVIO’s commercial acceptance, safety and reimbursement; dependence on third-party manufacturers and distributors; clinical and regulatory uncertainty; financing needs and debt obligations; and potential dilution from equity issuance.
Important facts for investors to verify
- Whether XPOVIO sales grow and generate sufficient net revenue after rebates, discounts and other deductions, and how launch costs evolve.
- Progress and results of BOSTON and other required post-approval studies, including implications for continued accelerated approval.
- Resolution of the EMA’s outstanding issues and the status and timing of the DLBCL regulatory applications.
- Cash burn and runway relative to management’s 12-month estimate, and the terms, repayment triggers and total cost of HCR financing.
- Developments in the securities litigation and any resulting financial or operational effects.