Biotech

Bhavneesh Sharma

Top 20 Ranking (28.2% Avg Return) --TipRanks

How To Profit From The AdCom For KPTI's Selinexor

An FDA Advisory Committee (AdCom) meeting in a few weeks to discuss Selinexor presents potential trading opportunities in Karyopharm Therapeutics (KPTI).

Catalyst:

Selinexor in addition to dexamethasone in treating patients with refractory multiple myeloma, MM who have received at least 3 prior therapies and whose disease is refractory to at least one proteasome inhibitor, one immuno-modulating agent, and one anti-CD38 monoclonal antibody, and their current treatment regimen.

Timeline

  • AdCom briefing documents posted: February 22, 2019
  • Advisory Committee meeting: February 26, 2019
  • PDUFA: April 6, 2019

Selinexor is an oral selective inhibitor of nuclear transport, SINE compound. It binds with and inhibits the nuclear transport protein XPO1 leading to accumulation of tumor suppressor proteins in the cell nucleus. This leads to selective induction of apoptosis in cancer cells, while largely sparing normal cells.

Does the drug work?

STORM was a phase 2b, single-arm, study testing selinexor in MM patients who were refractory to several prior lines of treatment (median 7 prior regimens prior to Selinexor). 68% of patients were refractory to all five standard of care multiple myeloma drugs- Revlimid, Velcade, Pomalyst, Kyprolis and Darzalex. The objective response rate in this highly refractory patient population who had failed all available treatments was 26.2% (2cCRs w MRD-, 6 VGPRS, 24 partial responses). The response rate was 20.8% in quadruple-refractory MM and 20% in penta-refractory MM. The median duration of response was 4.4 months. The figure showing the impact on the survival is shown below. 

Safety:

The most common non-hematological adverse events were: fatigue, nausea, reduced appetite, weight loss, and reduced appetite. The most common hematological toxicities were: grade 3 or higher cytopenias which were not associated with clinical sequelae. There were no major clinical toxicities. The incidence of grade3 or 4 adverse events were: nausea (9.8%), fatigue(18.7%), thrombocytopenia (53.7%), and neutropenia (18.7%).

There are no other approved therapies in this highly refractory (quadruple and penta-refractory multiple myeloma). FDA has recognized the clinical need for this drug and granted it Fast Track designation and its regulatory approval application as Priority Review. European Medicines Agency, EMA has also granted accelerated assessment to its regulatory application. 

How big is the commercial opportunity?

The target market in this indication is approx. 13,000 patients with refractory MM who die every year just in the U.S. in the absence of other effective therapies. At an average wholesale price of $135,000/year in line with darzalex (anti-CD38 monoclonal antibody), the annual revenue opportunity for selinexor in this indication is $1.75 billion. To further expand the target MM population for selinexor, the company is conducting clinical trials that are testing the drug at an earlier stage of MM in combination with existing approved therapies, e.g. phase 1b/2 STOMP study is testing selinexor+low dose dexamethasone in combination with Revlimid, Velcade, Pomalyst, Kyprolis and Darzalex. This might further expand the annual revenue potential for selinexor in this indication. The global multiple myeloma market size is approx. $17 billion/year. The top-selling drug for MM Revlimid has 2018 projected sales of $9.7 billion. Darzalex, which is used in highly refractory MM patients is projected to have $2 billion in 2018 sales. Compared to this large revenue opportunity, Karyopharm Therapeutics has a market cap of just $523 million (Selinexor is also in clinical trials in refractory diffuse large B cell lymphoma, another large target market, but I will not go into the details of this indication for the purpose of this article since the focus is the above-mentioned catalyst). Readers interested in more details about other ongoing clinical trials for selinexor are referred to the latest corporate presentation

Other pharmaceutical companies have recognized the commercial potential of selinexor, for example, Ono Pharmaceuticals has licensed its rights for Japan and few other Asian territories while Antengene Group has licensed its right for China. Karyopharm is seeking partners for the European market where MAA submission is expected this quarter.

How to trade this event:

KPTI options with April expiration did not have much of implied volatility and investors were almost certain that there would be no hurdles in getting the FDA to approve the drug since no AdCom was planned. Then, suddenly, FDA announced on February 7 that an advisory committee meeting will be held on February 26 to discuss the regulatory application and the investors took it as a sign that this may not be as sureshot approval as they expected. The March expiration options have high implied volatility as investors expect the stock price to react to the Adcom with high volatility. As of today, the March expiration options are implying approx. 40% move in either direction.

The product depth of KPTI options showing the implied volatility at different strike prices for March 15 expiration options is demonstrated in the figure given below. Please note the higher implied volatility at $10 strike puts compared to $7.5 strike pts for the same month expiration.

The trade is :

1. Sell $10 strike, March 15 expiration call option. And

2. Buy $12.50 strike, March 15 expiration call option.

Net premium collected= $35 per contract after commissions

This is an example of a short call spread strategy to take advantage of the high implied volatility of the option contracts. 

Scenario 1:

The AdCom is positive and the stock jumps to $12-$12.50: The short $10 strike calls are worthless while the $12.50 strike call is now worth $160 each contract (using Black Schoeles calculator). Net profit on the trade= $120 per contract.

Scenario 2:

The Adcom is negative and the stock falls to $5.25-$5.50. The premium from selling the $10 call is kept in full ($125 per contract) while the $12.50 strike calls expire worthlessly. Net profit on the trade= $35 per contract.

Another covered call strategy for those investors who plan to hold a long stock position through the event is to sell $10 strike, March expiration calls and collect the premium which may provide a downside hedge if the Adcom unexpectedly results in some negative comments that cause the stock to fall.

Even if the Adcom gives some negative comments, the drug is badly needed in this highly refractory MM population and so I expect FDA to approve the drug in April PDUFA. I have a long stock position in the stock and am prepared to hold it through the AdCom and PDUFA.

Risks in the investment:

Investing in development stage biotechnology companies is a highly risky area of investment and it is possible to lose the entire capital invested. It is suggested to allocate small amounts of capital (e.g. 1-2% to each trade) to diversify the portfolio and protect one against the loss of capital due to unexpected clinical trial failures, FDA issuing a complete response letter, etc. There is no guarantee that the AdCom meeting will be positive and the FDA will approve selinexor in the above mentioned refractory MM population).

Disclaimer:

This article represents my own opinion and is not a substitute for professional investment advice. It does not represent a solicitation to buy or sell any security. Investors should do their own research and consult their financial adviser before making any investment. Investing in equities, especially biotech stocks has the risk of significant losses and may not be suitable for all investors. While the sources of information and data in this article have been checked, their accuracy cannot be completely guaranteed.

I am/we are long KPTI.

Bhavneesh Sharma covers biotech as one of the original contributing analysts at FATRADER. A market expert with a medical degree and MBA, he is ranked among the top 15 financial bloggers and top 100 overall financial experts (including Wall Street analysts) on TipRanks.
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