Puma Biotechnology, Inc. — Q3 2016 Form 10-Q
Reporting period: Three and nine months ended September 30, 2016. Amounts below are in U.S. dollars; financial statement amounts are converted from thousands to millions unless otherwise stated.
Business context
Puma is a clinical-stage biopharmaceutical company focused primarily on developing oral neratinib for HER2-positive breast cancer, with other potential cancer indications under evaluation. The company reported no product sales and expects no product revenue until regulatory approval. In July 2016, it submitted an FDA New Drug Application for neratinib in the extended-adjuvant setting; it submitted a corresponding European Marketing Authorization Application in June 2016.
Financial results and liquidity
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Research and development expense | $52.0 million | $51.9 million | $166.4 million | $156.0 million |
| General and administrative expense | $14.0 million | $8.8 million | $37.3 million | $22.2 million |
| Net loss | $65.8 million | $60.4 million | $203.4 million | $177.6 million |
| Net loss per share, basic and diluted | $2.02 | $1.87 | $6.26 | $5.55 |
| Cash used in operating activities | $34.9 million | $36.9 million | $100.7 million | $121.4 million |
Because Puma had no product revenue, a revenue-based margin is not meaningful. Stock-based compensation was $88.0 million for the first nine months of 2016, including $29.8 million in Q3; the filing states it represented 43.3% of nine-month operating loss. The company also reported a $0.4 million loss on disposal of leasehold improvements during the nine-month period.
At September 30, 2016, cash and cash equivalents were $52.5 million and marketable securities were $56.4 million, for combined cash, cash equivalents and marketable securities of $108.9 million. Working capital was $79.8 million; total assets were $134.0 million, total liabilities $42.9 million, and stockholders’ equity $91.1 million. The balance sheet reports no borrowings or other debt; current liabilities were $37.6 million. Cash and cash equivalents increased $21.0 million during the first nine months, while investing activities provided $121.4 million, primarily reflecting net sales and maturities of marketable securities.
Changes versus prior comparable periods
- Q3 net loss increased $5.4 million year over year; nine-month net loss increased $25.8 million.
- Q3 G&A expense rose 59.2%, and nine-month G&A expense rose 68.0%, reflecting higher stock compensation, headcount, professional fees and facilities costs. Management cited commercialization preparation and litigation-related costs among the drivers.
- Q3 R&D expense was essentially flat year over year; nine-month R&D expense increased 6.6%. Higher stock compensation, internal development costs and regulatory filing preparation were partly offset by lower clinical-trial costs.
- Nine-month operating cash use decreased by $20.7 million compared with 2015, despite the larger net loss, partly due to noncash items and changes in operating liabilities and assets.
Outlook, risks and contingencies
- Management estimated next-12-month spending, excluding stock-based compensation, of $115–130 million for R&D, $15–20 million for G&A and $8–10 million for sales and marketing and commercialization preparation. Costs could increase substantially if neratinib is approved, including sales and marketing costs and licensor milestone payments.
- Management said September 30 liquidity, together with approximately $161.8 million of net proceeds from an October 2016 stock offering, was expected to fund operations for 12–18 months. The offering comprised 3,750,000 shares plus 562,500 additional shares purchased by underwriters at $40 per share, before underwriting discounts and expenses.
- The company expects continuing losses and negative operating cash flow and may need additional financing. Future funding is not assured; equity financing could dilute existing shareholders, and inadequate funding could delay or discontinue development programs.
- Clinical development, regulatory review and commercialization are subject to uncertainty, including trial results, enrollment, costs, approval timing and the choice of commercialization strategy. Management expected R&D costs excluding stock compensation for existing trials to decrease slightly as filing-related work concluded.
- Pending matters include a securities class action, two shareholder derivative actions and a defamation lawsuit. The court denied the company’s motion to dismiss the class action on September 30, 2016; Puma said it would vigorously defend the cases and cautioned that adverse outcomes are possible and legal proceedings require significant resources.
- Management reported disclosure controls and procedures were effective as of September 30, 2016, with no material change in internal control over financial reporting during the quarter. The filing reported no material change to the risk factors in the company’s 2015 Form 10-K.
Important facts for investors to verify
- Progress and timing of FDA and EMA review of the neratinib applications, and any resulting approval, labeling or safety developments.
- Cash runway assumptions against actual operating cash use, commercialization spending and the October 2016 offering proceeds.
- Clinical program results, development costs and any changes to the stated spending outlook.
- Stock-based compensation’s scale and effect on reported losses, share dilution and future expense.
- Developments in the securities, derivative and defamation litigation, including potential costs or outcomes.