Puma Biotechnology, Inc. — Q3 2015 Form 10-Q
Reporting period: Three and nine months ended September 30, 2015. Puma is a clinical-stage biopharmaceutical company focused on developing cancer treatments, principally neratinib. It reported no product sales; accordingly, profit margins are not meaningful. Figures below are in millions of dollars unless stated otherwise.
Financial performance and position
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | No product sales | No product sales | No product sales | No product sales |
| Research and development expense | $51.9 | $32.1 | $156.0 | $83.4 |
| General and administrative expense | $8.8 | $3.9 | $22.2 | $11.3 |
| Operating loss | $(60.7) | $(36.0) | $(178.2) | $(94.7) |
| Net loss | $(60.4) | $(35.8) | $(177.6) | $(94.5) |
| Basic and diluted loss per share | $(1.87) | $(1.19) | $(5.55) | $(3.16) |
| Cash used in operating activities | Quarterly value not provided | Quarterly value not provided | $(121.4) | $(58.7) |
At September 30, 2015, cash and cash equivalents were $23.6 million and marketable securities were $224.2 million, for combined balances of $247.8 million. Working capital was $229.3 million, total assets were $271.6 million, and stockholders’ equity was $244.8 million. Total liabilities were $26.8 million, including $25.3 million of current liabilities; the balance sheet reports no debt. Cash and cash equivalents decreased $14.9 million during the first nine months.
Net financing cash flow was $232.0 million for the first nine months, including $205.1 million net proceeds from a January public offering and $26.9 million from option exercises. Investment cash flows included purchases and maturities of securities. Stock-based compensation was $73.3 million for the nine-month period, a substantial non-cash component of reported expenses.
Changes versus the prior comparable period
- Q3 net loss increased to $60.4 million from $35.8 million; nine-month net loss increased to $177.6 million from $94.5 million.
- Q3 R&D expense rose 61.8% and G&A expense rose 127.8%; for the nine months, R&D increased 87.1% and G&A increased 96.6%.
- Management attributed much of the expense growth to higher stock-based compensation, increased clinical-trial activity, expanded staffing, and preparation for regulatory submissions.
- Nine-month operating cash use more than doubled year over year. Management identified a $16.4 million payroll-tax payment related to employee option exercises as included in 2015 operating cash use.
Outlook, risks, and other notable items
- Management expected continued losses and negative operating cash flow. It estimated next-12-month R&D spending of $115–$130 million and G&A spending of $12–$14 million, both excluding stock-based compensation.
- Management believed cash, cash equivalents, and marketable securities on hand would fund planned clinical development through 2016 and into 2017. The company had no committed sources of future financing and warned that financing might not be available on acceptable terms; additional equity financing could dilute shareholders.
- The company anticipated filing a U.S. FDA New Drug Application in Q1 2016 and an application with the European Medicines Agency; timing and development costs remain subject to clinical and regulatory uncertainty.
- In July 2015, Puma amended leases to add office space in Los Angeles and South San Francisco. The expansions were expected to commence around April 2016, with additional monthly rent of approximately $150,000 and $51,400, respectively, under 10-year terms with annual increases.
- A securities class action was amended in October 2015, alleging misleading statements concerning the company and its prospects. Puma stated it intended to defend the case; litigation could be costly and divert management resources.
- Disclosure controls and procedures were assessed as effective as of September 30, 2015. The filing reported no material change in internal control over financial reporting during the quarter.
Investor verification points
- Track neratinib clinical and regulatory milestones, including the anticipated Q1 2016 FDA filing, and verify progress against the stated development timeline.
- Compare actual cash use and spending with management’s forward estimates; assess whether the stated runway remains supported by cash and marketable securities.
- Monitor stock-based compensation, which materially increases GAAP losses and contributed $73.3 million of expense in the first nine months of 2015.
- Review developments and potential financial effects of the securities class action and the expanded office lease commitments.
- Confirm future financing needs and any dilution risk; management cautioned that additional capital may be required and is not assured.