Puma Biotechnology, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. Puma is a biopharmaceutical company focused on developing and commercializing cancer therapies. NERLYNX (neratinib) was its only commercial product. Unless noted otherwise, amounts below are in U.S. dollars.
Key financial results
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Total revenue | $98.2 million | $51.2 million |
| Product revenue, net | $45.8 million | $48.6 million |
| License revenue | $50.0 million | $2.0 million |
| Royalty revenue | $2.4 million | $0.6 million |
| Cost of sales | $29.6 million | $9.1 million |
| Operating expenses | $78.0 million | $65.5 million |
| Operating income (loss) | $20.1 million | $(14.3) million |
| Net income (loss) | $16.5 million | $(16.9) million |
| Diluted earnings (loss) per share | $0.40 | $(0.43) |
| Cash from (used in) operations | $15.7 million | $(11.5) million |
- Liquidity: At March 31, cash and cash equivalents were $95.7 million and marketable securities were $13.4 million. Working capital was $23.4 million, down from $31.9 million at year-end 2020. Cash, cash equivalents and restricted cash totaled $107.8 million.
- Debt: $100.0 million principal was outstanding under the Oxford loan facility; the balance-sheet carrying amount was reduced by financing costs and includes an accreted final payment. The effective interest rate was 12.75%, with principal amortization scheduled to begin in August 2021 and maturity in June 2024. The company reported compliance with covenants at quarter-end.
- Equity: Stockholders’ equity was $16.4 million, compared with a $6.0 million deficit at December 31, 2020.
Material changes and notable items
- Total revenue increased primarily because Puma recognized a $50.0 million upfront license payment under an amendment granting Pierre Fabre rights to develop, manufacture and commercialize NERLYNX in greater China. The amended arrangement also provides eligibility for up to $240 million in additional regulatory and sales milestones and double-digit tiered royalties, subject to the applicable terms and future performance.
- Product revenue declined about 6%. Management attributed the decrease to approximately 20% fewer bottles sold and higher variable-consideration reserves (about 19% of product revenue versus 16%); price increases partly offset the decline. COVID-19-related limits on physician engagement and patient access continued to weigh on commercial activity.
- Royalty revenue rose as sublicensees began commercializing NERLYNX in additional territories. Puma disclosed approximately $581.6 million in potential milestones across its sublicense agreements; achievement and timing were uncertain.
- Cost of sales included a $20.0 million one-time fee to CANbridge to terminate the greater China sublicense and recover those rights. The company settled the related arbitration, with both parties dropping their respective claims, and then amended the Pierre Fabre sublicense. Cost of sales also reflected Pfizer-related amortization and royalties.
- Research and development expense fell 21% to $20.2 million, mainly due to clinical studies nearing completion or closing, and lower stock-based compensation. Selling, general and administrative expense decreased 9% to $28.2 million, including lower travel and stock-based compensation.
Outlook, risks and contingencies
- Management said available cash, marketable securities and expected product and sublicense proceeds were expected to fund operating needs for at least one year after filing. It also expects continued significant losses over the foreseeable future and noted that funding needs could exceed available resources; future financing is not assured.
- COVID-19 had disrupted patient enrollment in the United States and the SUMMIT basket trial, and could further affect clinical timelines, NERLYNX sales, supply chains and revenue-based loan covenants. Operations and key suppliers were broadly maintained during the quarter.
- The company depends on third parties to manufacture NERLYNX and drug candidates and relies heavily on NERLYNX for product revenue. Loan covenants include minimum revenue requirements; a default could increase interest and permit remedies against collateral, including cash.
- Litigation: Accrued legal-verdict expense was approximately $47.7 million. It included an estimated $24.9 million for the Hsu securities class action and approximately $22.9 million for the Eshelman defamation judgment. Hsu claimed damages totaled $50.5 million, with Puma estimating claims after challenges could range from $24.9 million to $51.4 million; final damages and timing remained uncertain. Puma appealed the Eshelman judgment, whose total was $26.3 million including prejudgment interest; potential damages could be higher than the recorded estimate. The appeal was argued May 4, 2021, after quarter-end.
- The filing reported no material change to previously disclosed risk factors. Management concluded disclosure controls and procedures were effective as of March 31, 2021.
Important facts for investors to verify
- Whether NERLYNX prescription volume and net product revenue stabilize, particularly as COVID-19 effects and rebate reserves change.
- Whether the $50.0 million Greater China upfront payment and future milestone and royalty opportunities translate into sustainable cash generation; milestone amounts are contingent.
- Progress and outcomes of the Hsu claims challenge and Eshelman appeal, including any change in estimated damages, interest or payment timing.
- Ability to meet loan revenue covenants and service debt as principal amortization begins in August 2021.
- Whether cash generation, clinical spending and third-party manufacturing capacity support the stated liquidity outlook and development plans.