Karyopharm: Can Its Big Rally Continue?

Scars are not signs of weakness, they are signs of survival and endurance.�� �� Rodney A. Winters

The stock of a one time 'Busted IPO' and 'Tier 4' biotech concern continued its impressive rally last week and is up again Monday in early trade.

The stock is up more than 80% over the past six months as can be seen from the chart above. Given this, it is time to revisit this name and outline a potential Buy-Write option strategy in the paragraphs below.

Company Overview:

Karyopharm Therapeutics (KPTI) is Massachusetts-based clinical-stage pharmaceutical company just outside Boston. The firm is focused on discovering, developing, and commercializing novel first-in-class drugs directed against nuclear transport and related targets for the treatment of cancer and other major diseases. Karyopharm Therapeutics has a market capitalization of just north of $1.1 billion and trades just over $19.00 a share.

Pipeline:

Source: Company Website

Karyopharm's main drug candidate is selinexor which has received Fast Track status for the treatment of patients with multiple myeloma who have received at least three prior lines of therapy.

Selinexor works to transiently bind to XPO1 transporter proteins, so that tumor suppressor proteins can remain in the nucleus of a cell. Malignant cells over-produce XPO1 which results in tumor suppressor proteins, as well as other beneficial proteins, being transported out of the nucleus. It��s essential that tumor suppressor proteins stay in the nucleus because their function is highly dependent upon their location within the cell. Tumor suppressor proteins are an integral part of the body��s natural defense mechanism in identifying and preventing cancer.

As can be seen by clicking here, the compound has numerous trial readouts scheduled over the next two years.

Recent Events Bolstering Shares:

In late May, the company reached an agreement with China based Antegene for the exclusive development and commercialization of four Karyopharm candidates including selinexor that only applies to various regions of Asia, including China obviously. As part of the deal Karyopharm received a $12 million upfront payout. It also can receive up to $150 million in milestones, tiered double-digit royalties for selinexor and eltanexor and tiered single-to-double-digit royalties for the other two candidates in its pipeline.

Late this week the company presented encouraging trial results from its Phase 1/2 trial 'STOMP' at the big EHA conference in Stockholm. This study is for lead drug selinexor + dexamethasone, combined with Velcade, Pomalyst or Darzalex, in previously treated patients with multiple myeloma.

Analyst Commentary & Balance Sheet:

The current median analyst price target on KPTI is just north of $24.00 a share currently. After STOMP results were presented, H.C. Wainwright reiterated their Buy rating and Street high price target of $30 on Karyopharm with the following color on Friday

We believe this data bodes well for the ongoing Phase 3 BOSTON trial, for which top-line data is expected in 2019. We note that standard Vd regimens (control arm of BOSTON) have an ORR of 60-65% and PFS of 7-9 months according to previous studies. More positive data in the selinexor in the STOMP SDd arm. In the combination selinexor, Darzalex, and low dose dex (SDd) arm evaluating MM patients who received at least three prior lines of therapy, including a PI and an immunomodulatory drug (IMiD), or patients with MM refractory to both a PI and an IMiD, the ORR was 74% (n=19) with an ORR of 82% in Darzalex na茂ve patients (n=17) in evaluable patients as of June 5, 2018. This is relatively in line with prior data, as of for eight Darzalex na茂ve patients, with an ORR of 88%.��

The company ended the first quarter of 2018 with just over $140 million in cash on the books. Karyopharm then did a secondary offering in early May that was well-received and that raised a tad over $150 million in proceeds. The company has stated this will fund all operations through the third quarter of 2019. Karyopharma anticipates filing for accelerated approval of selinexor in multiple myeloma during 2018 with the FDA as well as marketing authorization in Europe for the same indication by the end of this year.

Verdict:

Obviously we liked the risk/reward on Karyopharm better at ~$11 in September when it was added to the model portfolio of the Busted IPO Forum. However, the company has definable potential catalysts on the horizon. Near term funding issues have also been resolved and the shares enjoy solid analyst support. On a longer term basis, slow accumulation to acquire a small stake in Karyopharm within a well-diversified biotech portfolio still seems warranted.

Option Strategy:

An alternative way to accumulate an initial stake or to increase exposure to KPTI is via a Buy-Write order. Using the November $20 call strikes, fashion a Buy-Write order with a net debit of between $16 to $16.30 a share range (net stock price - option premium). This mitigates some downside risk and sets up a more than solid potential return for its five month 'hold' period.

The employed are punished by having to do what they do not love. The self-employed are punished by the opposite.�� �� Mokokoma Mokhonoana

Author's note: If you would like to get these types of articles as soon as they are published, just become a real-time follower of the Busted IPO Forum by clicking here, hitting the big orange "Follow" button, and selecting the "real-time alerts" option.

Disclosure: I am/we are long kpti.

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.

New York Becomes the First State to Pass a Workaround to SALT Tax Limits Imposed by Tax Reform

On Dec. 22, 2017, the Tax Cuts and Jobs Act was signed into law and fundamentally reformed the federal tax system in the United States. Among the many changes, tax reform modified a long-standing federal deduction for state and local taxes.

The SALT deduction, as it's often called, previously allowed taxpayers to deduct the full amount of their state and local taxes from federal taxable income. Now, taxpayers are limited to deducting just $10,000 total, including property and income taxes.

Capping the SALT deduction was a change�New York Governor Andrew Cuomo said would "destroy" New York.�With Cuomo so concerned about the impact, it came as no surprise when New York became the first state to try circumventing� new federal rules to protect SALT deductions for residents.

Other states have since followed suit, but the legality of their efforts is questionable.

Here's what New York is trying to do to avoid caps on SALT deductions

A recent agreement among state lawmakers on the New York state budget�included two different approaches to avoiding federal limits on SALT deductions.

The first involves creating a charitable contribution fund, which is a state-operated charity. The idea is for taxpayers to make these donations in lieu of paying state income tax. Taxpayers who donate to this fund are, theoretically, eligible to deduct the full amount of their donations from their federal taxes since donations for charitable giving aren't subject to the same limits as SALT deductions.

Local government bodies were also authorized to create charitable organizations taxpayers will be permitted to donate to in exchange for property tax credits. This would make local taxes, including real estate or property taxes, fully deductible.

The second workaround would allow employers to opt into an Employer Compensation Expense Program to voluntarily pay a new payroll tax of 5% on employee compensation exceeding $40,000.�Employers would bear the burden of paying employees' state taxes and deduct the cost. Because�employees would see lower gross pay, there are provisions in the law to try to keep their net pay the same as before tax reform.

Will these proposed changes help shield New York residents from SALT limitations?

New Jersey and Connecticut have followed New York's lead in creating new programs allowing taxpayers to forego state tax payments and instead make charitable contributions to special state-created charitable funds.

Connecticut also proposed a new income tax on most pass-through businesses while creating new tax credits at the individual or corporate level to offset this tax increase.

However, the IRS has taken notice and the Treasury is currently at work on regulations to curtail state efforts to shield residents from the impact of tax reform.�

The IRS is likely to render the charitable giving workaround impossible, as it�released a statement�addressing federal tax treatment of funds transferred to charitable organizations controlled by state and local governments. The IRS will consider�the substance of these transfers, rather than just the form. Charitable donations are typically deductible only if there's a charitable intent and the donator doesn't receive a substantial benefit. Avoiding state taxes would be a substantial benefit, so the charitable donation deduction would be disallowed.

It's not yet clear if the IRS will address other proposals, such as New York's attempt to create a new payroll tax or Connecticut's new proposed tax on pass-through entities. However, these programs are a lot more complicated and may be met with resistance by workers who will see their gross salary decline and businesses disinterested in incurring new tax obligations.

What happens next?

New York, New Jersey, Connecticut, and other states hit hard by capped SALT deductions are unlikely to abandon efforts to shield residents from a big federal tax increase. Many states whose residents are likely to see the biggest tax increases are blue states whose residents reward politicians for defying the Trump administration.

However, the IRS has a lot of power to interpret tax laws and issue new regulations, and taxpayers may not want to take the risk of being audited -- and potentially owing back taxes and penalties -- if the IRS doesn't believe state schemes to preserve SALT deductions pass muster.