Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2023

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include the accounts of (i) Karyopharm Therapeutics Inc., (ii) Karyopharm Securities Corp. (“KPSC”), our wholly-owned Massachusetts corporation incorporated in December 2013, (iii) Karyopharm Europe GmbH, our wholly-owned German limited liability company, incorporated in September 2014, (iv) Karyopharm Therapeutics (Bermuda) Ltd., a limited liability company, registered in Bermuda in March 2015 and dissolved in January 2022, and (v) Karyopharm Israel Ltd., our wholly-owned Israeli subsidiary formed in June 2018. All intercompany balances and transactions have been eliminated in consolidation.

Segment Information

Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker in deciding how to allocate resources and in assessing performance. We view our operations and manage our business in one operating segment, which is the business of discovering, developing and commercializing drugs to treat cancer and certain other diseases. All of our revenue to date is attributable to the U.S.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

On an ongoing basis, we evaluate our estimates, including estimates related to our net product revenue, license and other revenue, clinical trial accruals, stock-based compensation expense, interest expense on our deferred royalty obligation, our embedded derivative liability, valuation allowances, and other reported amounts of expenses during the reported period. We base our estimates on historical experience and other market-specific or relevant assumptions that we believe to be reasonable under the circumstances. Although we regularly assess these estimates, actual results could differ from those estimates. Changes in estimates are recorded in the period in which they become known.

Concentrations of Credit Risk and Off-Balance Sheet Risk

Financial instruments which potentially subject us to credit risk consist primarily of cash, cash equivalents and investments. We hold these investments in highly rated financial institutions, and, by policy, limit the amounts of credit exposure to any one financial institution. These amounts at times may exceed federally insured limits. We have not experienced any credit losses in such accounts and do not believe we are exposed to any significant credit risk on these funds. We have no off-balance sheet concentrations of credit risk, such as foreign currency exchange contracts, option contracts or other hedging arrangements.

The following table summarizes customers that represent 10% or greater of our consolidated total revenue:

	For the Years Ended December 31,
	2023			2022			2021
Customer A		35	%		32	%		22	%
Customer B		23	%		24	%		14	%
Customer C		13	%		13	%		8	%
Menarini		17	%		10	%		36	%
Antengene		2	%		9	%		15	%

The following table summarizes customers with amounts due that represent 10% or greater of our consolidated accounts receivable, net balance:

	As of December 31,
	2023			2022
Customer A		31	%		21	%
Customer B		22	%		21	%
Customer C		11	%		6	%
Menarini		17	%		2	%
Antengene		3	%		47	%

Fair Value Measurements

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We disclose information on all assets and liabilities reported at fair value that enables an assessment of the inputs used in determining the reported fair values. The fair value hierarchy prioritizes valuation inputs based on the observable nature of those inputs. The fair value hierarchy applies only to the valuation inputs used in determining the reported fair value and is not a measure of credit quality. The hierarchy defines three levels of valuation inputs:

Level 1 inputs: Quoted prices in active markets for identical assets or liabilities

Level 2 inputs: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly

Level 3 inputs: Unobservable inputs that reflect our own assumptions about the assumptions market participants would use in pricing the asset or liability.

Cash and Cash Equivalents

Cash and cash equivalents consist primarily of demand deposit accounts and deposits in short-term money market funds. Cash equivalents are stated at cost, which approximates fair value. We consider all highly liquid investments with maturities of three months or less from the date of purchase to be cash equivalents. We do not hold any money market funds with significant liquidity restrictions that would be required to be excluded from cash equivalents.

Investments

We determine the appropriate classification of our investments at the time of purchase. All of our investments are reported as short-term as they are available for use during the normal cycle of business. We review any investment when its fair value is less than its amortized cost and when evidence indicates that the investment’s carrying amount is not recoverable within a reasonable period. We evaluate whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, we consider the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists and if the present value of cash flows expected to be collected is less than the amortized cost basis, an allowance is recorded on our consolidated balance sheet, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that is not related to a credit loss is recognized in other comprehensive income (loss).

Changes in the allowance for credit losses are recorded as a provision for (or reversal of) credit loss expense. Losses are charged against the allowance when we believe the uncollectability of an investment is confirmed or when either of the criteria regarding intent or requirement to sell is met.

Accounts Receivable

Amounts are recorded as accounts receivable when our right to consideration is unconditional other than the passage of time. Accounts receivable consists of amounts due from customers, net of customer allowances for cash discounts and chargebacks. Our contracts with customers have standard payment terms that generally require payment within 30 to 65 days. We analyze accounts for collectability and periodically evaluate the creditworthiness of our customers. We determined an allowance for credit losses was not material as of December 31, 2023 and 2022 as we have had no bad debt write-offs to date and we do not currently have credit issues with any customers.

Accrued Research and Development Costs

We estimate our accrued research and development costs by reviewing quotes and contracts, identifying services that have been performed on our behalf, and estimating the associated cost incurred for services performed when we have not yet been invoiced or otherwise notified of the actual cost. Most of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met. We make estimates of our accrued research and development costs at each balance sheet date in our financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary. The significant estimates in our accrued research and development costs include fees to be paid to contract research organizations (“CROs”), and contract manufacturing organizations (“CMOs”) in connection with research and development activities as well as fees to be paid to investigative sites in connection with clinical studies, for which we have not yet been invoiced.

We base our expenses related to CROs and CMOs on our estimates of the services performed and efforts expended pursuant to quotes and contracts with CROs and CMOs that conduct research and development activities on our behalf. The payment terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our service providers will exceed the level of services performed and result in a prepayment. In accruing service fees, we estimate the time period over which the services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimates, we adjust the accrual or prepayment accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, if our estimates of the status and timing of services performed differ from the actual status and timing of services performed, it could result in us reporting amounts that are too high or too low in any particular period. To date, our estimates have not been materially different than amounts actually incurred.

Deferred Royalty Obligation

We treat the debt obligation to HealthCare Royalty Partners III, L.P. and HealthCare Royalty Partners IV, L.P. (“HCR”), as discussed further in Note 10, “Long-Term Obligations”, as a deferred royalty obligation, amortized using the effective interest rate method over the estimated life of the revenue streams. We recognize interest expense thereon using the effective rate, which is based on our current estimates of future revenues over the life of the arrangement. We periodically assess our expected revenues using internal projections, impute interest on the carrying value of the deferred royalty obligation, and record interest expense using the imputed effective interest rate. To the extent our estimates of future revenues are greater or less than previous estimates or the estimated timing of such payments is materially different than previous estimates, we will account for any such changes by adjusting the effective interest rate on a prospective basis, which will adjust future interest expense with a corresponding impact to the classification of our deferred royalty obligation. The assumptions used in determining the expected repayment term of the deferred

royalty obligation and amortization period of the issuance costs requires that we make estimates that could impact the short-term and long-term classification of such costs, as well as the period over which such costs will be amortized.

Common Stock Warrants

We classify our common stock warrants in stockholder’s equity if they only allow for settlement in shares of our common stock, are indexed to our common stock, and meet the criteria for equity classification. See Note 8, “Stockholders’ Equity” for further detail.

Revenue Recognition

To determine revenue recognition, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy a performance obligation. At contract inception, we assess whether the goods or services promised within a contract with a customer are distinct and, therefore, represent a separate performance obligation. Goods or services that are determined not to be distinct are combined with other promised goods and services until a distinct bundle is identified. We then determine the transaction price, which is the total amount of consideration we expect to receive from a customer in exchange for the promised goods or services and includes an estimate of any variable consideration in the contract. We then allocate the transaction price to each performance obligation and recognize the associated revenue when (or as) our customer obtains control of the goods or services within the performance obligation.

Incremental costs of obtaining a contract with a customer are capitalized and amortized consistent with the pattern of transferring the goods or services to which the cost relates when the expected amortization period of the asset is greater than one year. Incremental costs are expensed as incurred if the expected amortization period of the asset that we would have recognized is one year or less.

Product Revenue Recognition

We ship XPOVIO in the U.S. to specialty pharmacies and specialty distributors, collectively referred to as our customers, under a limited number of distribution arrangements with such third parties. Our specialty pharmacy customers resell XPOVIO directly to patients, while our specialty distributor customers resell XPOVIO to healthcare entities, who then resell to patients. We also enter into certain arrangements with group purchasing organizations and/or other payors that provide for government mandated and/or privately negotiated rebates, chargebacks, and discounts with respect to the purchase of our products.

Each unit of XPOVIO that is ordered by our customers represents a distinct performance obligation that is completed when control of the product is transferred to the customer. Accordingly, we recognize product revenue when the customer obtains control of our product, which occurs at a point in time, generally upon delivery pursuant to our agreements with our customers. If taxes are collected from customers relating to product sales and remitted to governmental authorities, they are excluded from revenue.

Revenue from product sales is recorded at the net sales price, which includes estimates of variable consideration for which reserves are reported. These reserves, as detailed below, are based on the amounts earned, or to be claimed on the related sales, and are generally classified as reductions of accounts receivable (if the amount is payable to the customer) or a current liability (if the amount is payable to a party other than a customer). Certain amounts are known at the time of sale based on contractual terms and are recorded pursuant to the most likely amount method, which is the single most likely amount in a range of possible considerations. Other amounts are estimated pursuant to the expected value method, which is the sum of probability-weighted amounts in a range of possible consideration amounts. Relevant factors used in the expected value method include: current contractual and statutory requirements, specific known market events and trends, industry data, and forecasted customer buying and payment patterns. These reserves reflect our best estimates of the variable consideration based on the terms of the respective underlying contracts.

The following are the components of variable consideration related to product revenue:

Cash discounts and distributor fees: We provide customary discounts on XPOVIO sales to our customers for prompt payment, the terms of which are explicitly stated in our contracts with such customers. We also pay fees to our customers for sales order management, data, and distribution services, the terms of which are also explicitly stated in our contracts with such customers. Such fees are not for a distinct good or service and, accordingly, are recorded as a reduction of revenue, as well as a reduction to accounts receivable (cash discounts) or as a component of accrued expenses (distributor fees).

Product returns: Consistent with industry practice, we offer our customers and other indirect purchasers a limited right of return for purchased units of XPOVIO for damage, defect, recall, and/or product expiry (beginning three months prior to the product’s expiration date and ending twelve months after the product’s expiration date). We estimate the amount of product sales that will be returned using quantitative and qualitative considerations, such as visibility into the inventory remaining in the distribution channel.

Reserves for estimated returns are recorded as a reduction of revenue in the period that the related revenue is recognized, as well as a component of accrued expenses.

Based on the distribution model for XPOVIO, contractual inventory limits with our customers, the price of XPOVIO, and limited contractual return rights, we expect minimal XPOVIO returns. We update our estimated return liability each reporting period based on actual shipments of XPOVIO subject to contractual return rights, changes in expectations about the amount of estimated and/or actual returns, and other qualitative considerations.

Chargebacks: Chargebacks for fees and discounts represent the estimated obligations resulting from our contractual commitments to provide products to qualified healthcare entities at prices lower than the list prices charged to our customers who purchase XPOVIO directly from us. Our customers charge us for the discount provided to the healthcare entities. Chargebacks are generally determined at the time of resale to the qualified healthcare provider by our customers. Accordingly, reserves for chargebacks consist of credits that we expect to issue for units that remain in the distribution channel inventory at the end of the reporting period that we expect will be sold to qualified healthcare entities, as well as chargebacks that customers have claimed, but for which we have not yet issued a credit. We record reserves for chargebacks based on contractual terms in the same period that the related revenue is recognized, resulting in a reduction of product revenue and accounts receivable. We generally issue credits to the customer for such amounts within a few weeks after the customer notifies us of the resale to a discount-eligible healthcare entity.

Government rebates: We are subject to discount obligations under state Medicaid programs, Medicare, the Department of Veterans Affairs, the Department of Defense, and others. These reserves are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability, which is included as a component of accrued expenses. For Medicare, we estimate the number of patients in the prescription drug coverage gap for whom we will owe an additional liability under Medicare Part D. Our liability for these rebates consists of invoices received for claims from prior and current quarters that have not been paid or for which an invoice has not yet been received, estimates of claims for the current quarter, and estimated future claims that will be made for product that has been recognized as revenue, but which remains in distribution channel inventories at the end of the reporting period.

Other incentives: Other incentives offered by us include co-payment assistance, which we provide as financial assistance to patients with commercial insurance that requires prescription drug co-payments by the patient. We calculate the accrual for co-payment assistance based on estimates of claims and the average co-payment assistance amounts per claim that we expect to receive associated with sales of XPOVIO that have been recognized as revenue but remain in distribution channel inventories at the end of the reporting period. Such estimates are based on industry experience with similar products, as well as actual amounts from our product sales to date. Any adjustments to such estimated liabilities on units in the distribution channel at period end, as well as actual amounts incurred on units sold through the distribution channel during the period, are recorded in the same period that the related revenue is recognized, resulting in a reduction of product revenue and the establishment of a current liability, which is included as a component of accrued expenses.

Product revenue reserves and allowances: As noted above, cash discounts and chargebacks are recorded as reductions of accounts receivable and product returns, distributor fees, government rebates, and other incentives are recorded as a component of accrued expenses. Actual amounts of consideration ultimately received may differ from our estimates. If actual results in the future vary from our estimates, we will adjust these estimates, which would affect product revenue, net and earnings in the period in which such variances become known.

License and Asset Purchase Agreements

We generate revenue from license or similar agreements with pharmaceutical companies for the development and commercialization of certain of our products and product candidates. Such agreements may include the transfer of intellectual property rights in the form of licenses, transfer of technological know-how, delivery of drug substances, research and development services, and participation on certain committees with the counterparty. Payments made by the customer may include non-refundable upfront fees, payments upon the exercise of options, payments based upon the achievement of defined milestones, and royalties on sales of products and product candidates if they are approved and commercialized. Our license and asset purchase agreements are detailed in Note 5, “License and Asset Purchase Agreements”.

At contract inception, we evaluate all goods or services in the agreement to determine if they are distinct. If they are not distinct, they are combined with other promised goods or services to create a bundle of promised goods or services that are distinct. Distinct goods or services and distinct bundles of goods or services are considered performance obligations. Optional future services where any additional consideration paid to us reflects their standalone selling prices do not provide the customer with a material right and, therefore, are not considered performance obligations. Optional future services that are priced in a manner which provides the

customer with a significant or incremental discount are considered performance obligations because they provide the customer with a material right.

We utilize judgment to estimate the transaction price at contract inception. We evaluate contingent milestones to determine if they should be included in the transaction price using the most likely amount method. Milestone payments that are not within our control, such as regulatory approvals, are not considered likely of being achieved until those approvals are received and are excluded from the transaction price using the most likely amount method. The transaction price is then allocated to each performance obligation on a relative standalone selling price basis, for which we recognize revenue as or when the performance obligations are satisfied. At the end of each reporting period, we re-evaluate our estimate of the transaction price, including the probability of achieving milestone payments that may not be subject to a material reversal, and adjust the transaction price if necessary. Any such adjustments are recorded on a cumulative catch-up basis, which would affect license and other revenue in the period of adjustment.

We then determine whether the performance obligations are satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. We evaluate the measure of progress, as applicable, for each reporting period and, if necessary, adjust the measure of performance and related revenue recognition.

When consideration is received, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a contract, a contract liability is recorded within deferred revenue. Contract liabilities within deferred revenue are recognized as revenue after control of the goods or services is transferred to the customer and all revenue recognition criteria have been met.

For arrangements that include a license of intellectual property and sales-based royalties, including sales-based milestone payments, we recognize revenue when the related sales occur because the license of intellectual property is deemed to be the predominant item to which the royalties relate.

We account for asset purchase agreements under the accounting standards for business combinations and research and development, as applicable. In-process research and development acquired in an asset acquisition is expensed immediately unless there is an alternative future use. Subsequent payments made for the achievement of milestones are evaluated to determine whether they have an alternative future use or should be expensed.

Research and Development Expenses

Research and development costs are charged to expense as incurred and include, but are not limited to:

•employee-related expenses, including salaries, benefits, travel and stock-based compensation expense;

•expenses incurred under agreements with CROs, CMOs and consultants that help conduct clinical trials and preclinical studies;

•the cost of acquiring, developing and manufacturing clinical trial materials, including comparator products;

•facilities, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance and other supplies; and

•costs associated with preclinical activities and regulatory operations.

Costs for certain research and development activities, such as clinical trials, are recognized based on various inputs, including an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations, and other information provided to us by our vendors based on their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are accordingly reflected in our financial statements as prepaid or accrued research and development costs.

Selling, General and Administrative Expenses

Selling, general and administrative costs are charged to expense as incurred and consist primarily of salaries, benefits, travel, and other related costs, including stock-based compensation, for personnel in executive, finance, commercial and administrative

functions. Other significant costs include facility costs not otherwise included in research and development expenses, legal fees relating to patent and corporate matters and fees for accounting and consulting services.

Accounting for Stock-Based Compensation

We grant stock-based awards to employees and non-employees, including stock options, restricted stock units (“RSUs”), performance-based restricted stock units (“PSUs”) and shares issued under our employee stock purchase plan (“ESPP”). We account for all stock-based awards at their fair value as of the grant date and recognize compensation expense on the consolidated statements of operations on a straight-line basis over the vesting period of the award. We use the Black-Scholes option pricing model to determine the fair value of stock options as of the grant date. The fair value of RSUs is the quoted closing market price per share of our common stock on the Nasdaq Global Select Market on the grant date. Forfeitures are recognized as they occur.

PSUs are awards which will vest if certain performance goals are achieved over a certain performance period. Certain portions of certain PSU awards vest based on continuous service to the Company throughout the performance period even if the performance goal is not achieved. Stock-based compensation expense for PSUs is determined using the grant date fair value, which is the quoted closing market price per share of our common stock on the Nasdaq Global Select Market on the grant date. The grant date fair value of PSUs with a market condition also includes a discount that represents the likelihood that the related performance goals will not be achieved. Stock-based compensation expense for PSUs with a market condition is recognized on a straight-line basis over the service period. Market conditions include goals related to the performance of our common stock. Stock-based compensation expense for PSUs without a market condition is not recognized until the achievement of the performance goal is deemed probable (the “Probable Date”). At the Probable Date, we record a cumulative catch-up expense for the portion of the grant date fair value attributable to the period from the grant date to the Probable Date. The remaining expense is recognized over the remaining service period on a straight-line basis.

Foreign Currency Transactions

The functional currency of our subsidiaries in Germany and Israel are the Euro and Shekel, respectively. Foreign currency transaction gains and losses are recorded on the consolidated statements of operations and were immaterial for the years ended December 31, 2023, 2022 and 2021.

Income Taxes

We use the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and the tax reporting basis of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. We provide a valuation allowance against deferred tax assets unless, based upon the available evidence, it is more likely than not that the deferred tax assets will be realized. We have evaluated available evidence and concluded that we may not realize the benefit of our deferred tax assets; therefore, a valuation allowance has been established for the full amount of the net deferred tax assets. We recognize interest and/or penalties related to income tax matters in income tax expense. Our state tax provision pertains to income generated by our KPSC entity. Our foreign tax provision pertains to foreign income taxes due by our German and Israel subsidiaries, both of which operate on a cost-plus profit margin basis.

Net Loss Per Share

Basic and diluted net loss per common share is calculated by dividing net loss by the weighted-average number of common shares outstanding for the periods. Diluted net loss per share is computed by dividing the diluted net loss by the weighted average number of common shares, including potential dilutive common shares assuming the dilutive effect of outstanding stock options and unvested restricted stock units. For periods in which we have reported net losses, diluted net loss per common share is the same as basic net loss per share, since dilutive common shares are not included if their effect is anti-dilutive.

The following potentially dilutive securities were excluded from the calculation of diluted net loss per share due to their anti-dilutive effect (in thousands):

	As of December 31,
	2023		2022		2021
Outstanding stock options		8,621		13,026		12,178
Unvested RSUs and PSUs		7,666		3,403		2,301

As discussed further in Note 10, “Long-Term Obligations”, we have the option to settle the conversion obligation for our 3.00% convertible senior notes due 2025 (the “Notes”) in cash, shares or any combination of the two. Based on our net loss position, there was no impact on the calculation of dilutive loss per share during the years ended December 31, 2023, 2022 and 2021.

As discussed further in Note 8, “Stockholders’ Equity”, there were warrants to purchase up to 9,787,563 shares of our common stock outstanding as of December 31, 2023. These warrants were excluded from the calculation of basic and diluted net loss per common share during the years ended December 31, 2023, 2022 and 2021 as the warrant holders do not have an obligation to share in our losses.

Comprehensive Loss

Comprehensive loss consists of net loss and certain changes in stockholders' deficit that are excluded from net loss, which currently consists of unrealized gains and losses on investments and foreign currency translation adjustments.