Puma Biotechnology, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; filed May 7, 2020. Puma is a biopharmaceutical company focused on developing and commercializing cancer therapies. NERLYNX (neratinib) is its only commercial product. The FDA approved NERLYNX with capecitabine for certain advanced or metastatic HER2-positive breast cancer patients in February 2020.
Financial performance and liquidity
| Metric | Q1 2020 | Q1 2019 or prior balance date |
|---|---|---|
| Total revenue | $51.2 million | $99.1 million |
| Product revenue, net | $48.6 million | $45.6 million |
| License revenue | $2.0 million | $53.5 million |
| Royalty revenue | $0.6 million | None |
| Operating costs and expenses | $65.5 million | $89.2 million |
| Operating loss (profit) | $(14.3) million | $9.8 million |
| Net loss | $(16.9) million | $(10.1) million |
| Basic and diluted loss per share | $(0.43) | $(0.26) |
| Cash used in operating activities | $11.5 million | $16.1 million |
| Cash and cash equivalents | $83.4 million | $60.0 million at Dec. 31, 2019 |
| Marketable securities | $17.2 million | $51.6 million at Dec. 31, 2019 |
| Working capital | $68.2 million | $75.5 million at Dec. 31, 2019 |
| Long-term debt, net of financing costs | $95.8 million | $95.0 million at Dec. 31, 2019 |
| Stockholders’ equity | $9.4 million | $17.5 million at Dec. 31, 2019 |
Amounts are in U.S. dollars. Cash, cash equivalents and restricted cash totaled $96.0 million at quarter-end. The company reported no separately stated margin guidance; cost of sales was $9.1 million, compared with $8.0 million a year earlier.
Material changes versus Q1 2019
- Total revenue fell 48%, chiefly because Q1 2019 included substantial upfront and milestone license revenue. Product revenue rose about 7%: a roughly 10% increase in gross selling price was partly offset by a roughly 9% decline in NERLYNX bottle volume.
- The company shifted from operating profit to operating loss. Net loss widened despite lower total operating expenses, as the prior-year comparison included $16.4 million of legal verdict expense.
- Selling, general and administrative expense declined 32% to $30.9 million, primarily on lower professional fees and stock-based compensation. Research and development expense declined 29% to $25.5 million, mainly due to trial close-outs and lower stock-based compensation.
- Operating cash use improved by $4.6 million. Cash and cash equivalents increased, while marketable securities decreased; cash from investing activities primarily reflected maturities of securities, rather than operating cash generation.
Outlook, risks and unusual items
- Management expects continued significant losses and says available cash, cash equivalents, marketable securities and expected product and sublicense proceeds should fund operating needs for at least one year after filing. This assessment depends on assumptions and is not a guarantee; the company remains dependent on commercialization and potential additional financing.
- COVID-19 could reduce NERLYNX demand, restrict sales and physician interactions, disrupt clinical-trial enrollment and regulatory timelines, and affect suppliers and manufacturers. Puma reported enrollment disruptions in the United States and its SUMMIT basket trial, but said it and key suppliers broadly maintained operations during the quarter. The full financial impact could not be predicted.
- At March 31, 2020, the company had $100.0 million principal outstanding under its secured credit facility, bearing interest at the greater of 9.0% or prime plus 3.5%. Interest-only payments run through August 2021; principal amortization follows, with maturity in June 2024. The facility includes minimum product-revenue covenants and other restrictions; Puma reported compliance at quarter-end.
- Legal exposure remains significant. Accrued legal verdict expense was $31.4 million, comprising estimates for Hsu and Eshelman matters. The Eshelman judgment, including prejudgment interest, was $26.3 million; Puma appealed, and the plaintiff cross-appealed. The Hsu claims process remained ongoing, with estimated damages of $9.1 million to $18.1 million. Actual amounts may differ and could exceed recorded estimates.
- Subsequent events: Puma returned an $8.4 million Paycheck Protection Program loan on April 30, 2020. Its China sublicensee received NERLYNX marketing approval on April 27. Puma signed a South Korea sublicense on April 28, with upfront and milestone payments totaling up to $6 million and double-digit royalties; these events occurred after quarter-end.
Key facts for investors to verify
- Whether U.S. NERLYNX volume, pricing and revenue trends—and COVID-19 effects on demand and clinical programs—develop as management expects.
- Progress and timing of international sublicense milestones and royalties, including the China approval and South Korea agreement.
- Cash use and available liquidity relative to management’s stated one-year runway, while accounting for restricted cash and the facility’s revenue covenants and repayment schedule.
- Developments in the Hsu and Eshelman proceedings, including appeals, claims, final damages, and any changes to the $31.4 million accrued legal amount.
- Whether clinical-trial activity, third-party manufacturing and regulatory reviews remain on schedule despite pandemic-related disruptions.