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Small-Cap Confidential
Undiscovered stocks that can make you rich

January 12, 2021

Karyopharm (KPTI) pre-announced Q4 2020 results yesterday morning and I watched the stock, which was weak (closed down 8%) throughout the day as I pondered the results. I’ll get to my thoughts in a minute. First, the numbers.

Karyopharm (KPTI) and Personalis (PSNL) Pre Announce Q4 Results

Karyopharm (KPTI) pre-announced Q4 2020 results yesterday morning and I watched the stock, which was weak (closed down 8%) throughout the day as I pondered the results. I’ll get to my thoughts in a minute. First, the numbers.

Revenue is expected to be in the range of $35 million to $36 million in Q4 ($108 million to $109 million for 2020). That’s materially better than Q4 consensus estimates, which ranged from roughly $24 million to $30 million. However, the outperformance is due to approximately $15 million in milestone payments booked in Q4 ($5 million from FORUS Therapeutics for an upfront payment for distribution of XPOVIO in Canada, and $10 million from Antengene Therapeutics, which handles regulatory approvals in Australia, Singapore and South Korea).

Stripping out those payments, Karyopharm missed expectations because XPOVIO sales were only around $20 million to $20.5 million, well below the roughly $26 million expected. Management cited three reasons for the underperformance: lack of patient visits to healthcare providers due to Covid-19, lack of sales team access to physicians due to Covid-19 and higher competition in the penta-refractory multiple myeloma setting.

Where does this leave us?

On the one hand, it’s been a frustrating journey with this stock because, despite seemingly positive developments moving the business forward, there appears to be little investor appetite to buy into the potential. That’s in sharp contrast to many other biotech and technology stocks where investors are MORE than happy to drive share prices higher based on expected positive developments.

On the other hand, Karyopharm just received a major approval that greatly expands its market size and is ramping up international distribution (as evidenced by the milestone payments). Covid-19 is an issue now, but won’t be forever. Given all factors it seems that this business should be able to really take off moving into the back half of 2021, if sales staff can get in front of physicians with any regularity.

But the stock’s performance stinks, and it has since we entered the position in May. The opportunity cost of holding KPTI has been material. If the big payoff hits, that’s all water under the bridge. But there are no guarantees, and meanwhile there are plenty of other biotech and Medtech stocks that are crushing KPTI, even though those businesses have been affected by the pandemic too.

As a final consideration, management spoke at the JPMorgan Healthcare Conference yesterday afternoon. The stock is down around 3% today.

As you know, I don’t like to walk away from stocks, especially when the proverbial pot of gold feels like it’s just around the corner. But truth be told, there are plenty of pots of gold out there. I’m ready to move on to a new opportunity that has more energy behind it right now. We easily could revisit KPTI when the tide turns, but for now, moving to sell. SELL

Personalis (PSNL) Releases Preliminary Q4 Results

Speaking of more attractive opportunities, Personalis (PSNL) reported preliminary Q4 results after the close on Monday that were largely in line with expectations.

Revenue is expected to be up 11% to $20.2 million in Q4 and up 21% to $78.6 million in 2020. Biopharma revenue is seen as better than expected, up 73% to $7.6 million, while revenue from the U.S. Department of Veterans Affairs Million Veterans Program (VA MVP) is seen lower than expected, down 9% to $12.6 million. The company’s cash position at year end was around $203 million. Additionally, 45 customers placed orders for NeXT as of the end of December, with six of those being new customers. Several customers placed orders for the new liquid biopsy offering.

The takeaway is that the biopharma ramp up is occurring, but clearly the base is still very small. That can work either for or against Personalis, but with the trend headed in the right direction there’s no reason to back away from the stock now.

Management will present tomorrow at the Needham Virtual Growth Conference if you want to tune in. Then, the official earnings call will be on February 25, at which point we should get some idea of guidance for 2021. Continue to average in. BUY