Karyopharm Therapeutics Inc (NASDAQ:KPTI) is catalyst rich over the next 18-months and is at onset of a multi-year re-rate higher. We contend that sell-side models are likely to migrate toward our 15% weighted average probability of success (possibly higher) in solid tumors over the next 12-months as the market begins to gain appreciation for what we present on Selinexor’s solid tumor potential. Additionally, topline data from 3 Registration-Directed trials (SADAL, SIRRT, SOPRA) are expected during 2H16, followed by the STORM study in multiple myeloma (a single-arm trial of 80 quad-refractory patients to: Velcade, Kyprolis, Revlimid, and Pomalyst) in 1H17.
The primary objective of this report is to provide a valuation framework to serve as a launching point where analysts should begin modeling KPTI’s XPO1 inhibitor Selinexor in solid tumors ahead of the first interim data from the SIGN trial (gynecologic malignancies) and KING trial (glioblastome) expected at ASCO this weekend (5/29-6/2). We focus our analysis of KPTI’s potential in solid tumors on the potential in KRas mut+ NSCLC (15% POS) and KRas mut+ PDAC (7% POS) that collectively represent $196M in risk-adjusted sales, and up to $2B non-risk adjusted sales potential under very conservative pricing and market share (26% and 35% respectively) assumptions. Consequently, our models suggest +120-180% upside over the next 12-18 months.
We believe this is a prudent step and is not premature in the current M&A environment. Recall, ABBV acquired PCYC for $21B, of which, at least $3B was assigned toward solid tumors, despite the fact that there was NO proof-of-concept data in humans, as only preclinical data was available. We are not suggesting this as a singular basis for KPTI’s valuation; only that it serves as strong validation for the value of the analysis presented throughout this report.
The options market is pricing in +/- 25% move ($7-$8) by June expiry with implied volatility ranking in the 63rd percentile over the past 52-weeks at 82%. Total open interest stands at 4,700 contracts, with more than one-third of open interest concentrated at the $30 strike in August. Our valuation work suggests there is 22-42% upside to analyst price targets should data sufficiently meet expectations we could see shares meeting the implied move set by the options market.
What specifically will drive this move?
In our view, all that is required is strong enough data to support analyst’s upgrading the weighted-average probability of success in solid tumors toward our 15% from their current 3-5% assumptions. With no value attributed to several tumor types under investigation by KPTI and imminent data at ASCO sets up a good risk-reward.
Our assessment of KPTI’s valuation today is that the market is only attributing $25-$30/share to Selinexor in r/r DLBCL, r/r Multiple Myeloma, r/r AML, and Richter’s Transformation (cMYC & BCR-ABL Lymphomas). Thus, we believe that at the current share price of $27.38, and an EV of only $845.13M suggests that the risk to valuation going into ASCO this weekend is entirely to the upside for solid tumors. However, we note that sentiment could turn negative if solid tumor data presented at ASCO fails to impress, and view any downside volatility toward $18 per share as a tremendous opportunity to get long for 2016 catalysts.
Our models suggests that there is max downside risk of -34% to what we would consider “floor value” at $18/share using a SOTP analysis including $7/share in cash, and $11/share for DLBCL, r/r AML, and r/r Richter’s Transformation. Note, under this scenario we exclude r/r Multiple Myeloma and all solid tumor indications for Selinexor, as well as all other pipeline assets or indications.
For each major value driver in our model pricing, market share, and treatment durations. While a few tumor indications such as head/neck cancers and gynecological cancers are included in sell-side models they are small by comparison to this entirely new segment (KRAS+) for which we believe there is strong clinical rationale and preclinical validation (similar to Imbruvica in solid tumors with ABBV that secured a $3B market valuation).
We believe that KPTI has significant upside in these solid tumor types and the markets remains unaware of the strength of the early data available. At the time of this writing, we estimate consensus is attributing less than 3-5% probability of success in solid tumors, and fail to include NSCLC or PDAC at all (2 of the largest cancer markets with the highest unmet need). We believe throughout the next 18 months KPTI’s valuation will undergo a significant re-rating on the probability of success in various solid tumors from 3-5% today toward ours at 15% by ASCO 2016 in June.