Puma Biotechnology, Inc. — Q3 2013 Form 10-Q
Reporting period: Three and nine months ended September 30, 2013. Amounts below are in U.S. dollars; financial statement amounts are generally in millions unless stated otherwise.
Business context
Puma is a development-stage biopharmaceutical company focused on acquiring and developing cancer drug candidates. It had no product revenue and reported no product sales. Its lead program was oral neratinib (PB272), with development also underway for intravenous neratinib and backup candidate PB357. The company described clinical programs in HER2-positive metastatic breast cancer, non-small cell lung cancer, and HER2-mutation-positive solid tumors. Management said it did not expect product approval until approximately 2015, assuming no unforeseen safety issues.
Financial performance and position
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| R&D expense | $12.1 | $17.8 | $32.0 | $41.4 |
| General and administrative expense | $2.3 | $8.1 | $6.8 | $11.1 |
| Operating loss | $(14.3) | $(25.9) | $(38.8) | $(52.5) |
| Net loss | $(14.3) | $(25.9) | $(38.7) | $(52.4) |
| Net loss per share, basic and diluted | $(0.50) | $(1.29) | $(1.35) | $(2.62) |
| Cash used in operating activities | Not separately stated in the cash flow statement | Not separately stated in the cash flow statement | $(41.5) | $(19.2) |
There are no gross-margin metrics because Puma had no product sales. At September 30, 2013, cash and cash equivalents were $51.3 million, marketable securities $44.4 million, and licensor receivable $11.3 million. Working capital was $91.4 million; total assets were $115.1 million, total liabilities $20.3 million, and stockholders’ equity $94.8 million. The balance sheet reported no debt.
Cash and cash equivalents declined by $86.1 million from year-end 2012. Nine-month investing cash use was $44.8 million, principally the purchase of $44.4 million in corporate bonds. Financing provided $0.1 million from option exercises. Accumulated development-stage deficit was $123.3 million.
Changes versus comparable periods
- Q3 net loss narrowed by $11.6 million year over year; nine-month net loss narrowed by $13.7 million.
- Reported G&A fell year over year, chiefly because 2012 included substantial warrant-related stock compensation. The 2012 quarterly comparison included a $6.6 million warrant-related expense; that expense did not recur in 2013.
- Reported R&D declined, largely because the company reached the contractual cost cap on legacy clinical trials and the licensor became responsible for excess external costs. Meanwhile, company-initiated clinical development spending increased: nine-month outside other clinical development expense rose to $10.5 million from $2.4 million.
- Operating cash use increased to $41.5 million from $19.2 million for the first nine months, reflecting working-capital movements, including prepaid clinical costs and payments relating to legacy trials.
Outlook, risks, and unusual items
- Management estimated the next 12 months’ R&D spending at $45–$55 million and G&A spending at $7–$8 million, both excluding stock-based compensation. It believed cash, cash equivalents, marketable securities, and the licensor receivable would fund anticipated expenditures through 2014 and into 2015; additional financing could be sought sooner.
- The company expected continuing losses and negative operating cash flow. It had no committed financing and warned that unavailable or unfavorable financing could force delays or discontinuation of development programs; equity financing could dilute shareholders.
- Management expected CRO and supporting clinical-trial costs and R&D headcount to rise through 2014. It also anticipated higher professional fees as it prepared for large-accelerated-filer reporting and Sarbanes-Oxley requirements beginning in 2014.
- The $11.3 million licensor receivable represented reimbursable legacy-trial costs; the company had not reserved against it. Although the licensor’s contractual review period was 60 days, management said review and payment had been taking approximately 90–105 days.
- In October 2013, Puma entered a CRO agreement for a new Phase II PB272 trial in HER2-mutated solid tumors, with payments of up to approximately $2.2 million over about 37 months. The agreement may be cancelled on 30 days’ notice, subject to payment for services already rendered.
- Available-for-sale corporate bonds had an approximately four-month weighted-average maturity. Management described interest-rate exposure as minimal. Disclosure controls were concluded effective as of September 30, 2013; no material change in internal control was reported. The filing reported no material pending legal proceedings and no material change in previously disclosed risk factors.
Important facts for investors to verify
- Whether the $11.3 million licensor receivable is collected on the expected timetable and whether reimbursement timing continues to pressure operating cash flow.
- Whether the stated cash runway and spending estimates remain achievable as clinical trials and CRO activity expand; the filing also refers to “six product candidates” in its financing discussion although it identifies three licensed candidates elsewhere.
- Clinical-trial enrollment, results, safety findings, manufacturing readiness, and regulatory timelines for neratinib and other candidates; the filing provides no assurance of approval.
- Future financing requirements, availability and terms, including potential equity dilution, and the effect of increased compliance and professional costs.
- The impact of stock-based compensation and the CEO’s 2,116,250-share warrant, exercisable at $16 per share through October 2021, on future dilution and reported expenses.