Puma Biotechnology, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023; filed November 2, 2023. Unaudited consolidated results. Puma commercializes NERLYNX for certain HER2-positive breast cancers and is developing alisertib, licensed from Takeda.
Financial performance
Amounts below are in millions of dollars, except per-share data and percentages.
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $56.1 | $57.1 | $163.5 | $162.4 |
| Product revenue, net | $51.6 | $54.3 | $149.9 | $146.3 |
| Royalty revenue | $4.5 | $2.8 | $13.5 | $16.0 |
| Income from operations | $8.6 | $2.4 | $17.8 | $13.7 |
| Net income (loss) | $5.8 | $(0.4) | $9.3 | $5.6 |
| Diluted earnings (loss) per share | $0.12 | $(0.01) | $0.20 | $0.13 |
| Operating margin | 15.3% | 4.2% | 10.9% | 8.4% |
| Gross margin, based on total revenue less cost of sales | 76.3% | 78.1% | 76.5% | 76.4% |
Cash flow: Operating activities provided $16.6 million in the first nine months of 2023, versus $23.5 million used in the prior-year period. Investing activities used $11.0 million, principally reflecting the $12.5 million Pfizer milestone payment and purchases of marketable securities, partly offset by maturities. Financing activities provided no cash in 2023; the prior-year period included $9.8 million of net private-placement proceeds. Cash, cash equivalents and restricted cash increased $5.6 million to $84.4 million.
Liquidity and debt: At September 30, cash and cash equivalents were $81.8 million and marketable securities were $3.2 million, for $85.0 million combined; working capital was $58.0 million. Athyrium debt had $100.0 million principal outstanding plus a $2.0 million exit payment; its balance-sheet carrying amount was $99.3 million, including current and long-term portions. The notes are secured by substantially all company assets, carry an effective interest rate of 12.99%, and mature July 23, 2026. Principal payments are scheduled to begin June 2024. Puma reported covenant compliance at quarter-end.
Changes and operating trends
- Q3 revenue declined 1.7% year over year: net product revenue fell about $2.7 million, partly offset by a $1.7 million increase in royalties. Puma attributed lower quarterly product revenue mainly to about 10% fewer NERLYNX bottles sold, partly offset by higher net selling price.
- For the first nine months, revenue rose 0.7%. Product revenue increased about $3.6 million as higher net selling price more than offset a 3.7% decline in bottles sold; royalty revenue fell about $2.5 million, primarily due to timing of the sublicensee’s China sales.
- Q3 operating income improved versus a year-earlier quarter that included $7.0 million of acquired in-process R&D expense. Nine-month SG&A rose 7.4% to $69.7 million, mainly due to payroll costs, the absence of prior-year CARES Act tax credits, travel, and a credit-loss provision. Nine-month R&D declined 2.5% to $37.5 million as lower clinical-trial costs were partly offset by higher internal R&D costs.
- Interest expense rose to $10.0 million for the nine-month period from $8.3 million, reflecting higher rates on Athyrium debt and imputed interest on the Eshelman settlement installment. Interest income increased to $1.9 million from $0.3 million.
Outlook, risks and unusual items
- Liquidity outlook: Management said available cash and securities, together with expected product-sale and sublicense receipts, should cover operating cash needs for at least one year after filing. It also cautioned that funding needs may exceed available resources and that future financing is not assured. The filing provides no specific revenue or earnings guidance.
- Funding and covenant risks: Management expects significant ongoing spending and says continued operations depend on revenue and access to funding. Athyrium covenants require minimum cash balances and minimum product revenue; the debt terms also restrict certain business and financing actions. The company reported compliance at September 30, 2023.
- Commercial and development risks: NERLYNX is the company’s primary product and is expected to account for the vast majority of product revenue. Puma relies on third parties to manufacture its products and candidates. Alisertib development carries execution and clinical risk; Takeda may receive up to $287.3 million in future milestones plus royalties.
- Generic competition: China approved Acebright’s generic NERLYNX application on September 12, 2023. Puma also described ongoing or potential Chinese generic proceedings involving other applicants. The U.S. Sandoz settlement permits generic entry on or around December 8, 2030, subject to adjustment under the agreement.
- Legal matters: The company’s AstraZeneca patent case is scheduled for jury trial beginning May 13, 2024. Puma’s legal-malpractice suit was refiled in June 2023 and defendants moved to dismiss. The Eshelman settlement totals $16.0 million: an $8.0 million payment was made in January 2023 and the final $8.0 million is due by November 1, 2024. The data-security class action was dismissed with prejudice in September 2023.
- Unusual and subsequent items: Puma paid Pfizer $12.5 million in Q1 2023 after meeting a 2022 commercial-sales milestone and capitalized the payment as an intangible asset. A $0.6 million lease right-of-use asset impairment was recorded in connection with a sublease. On October 26, 2023, after quarter-end, Puma reduced its workforce by approximately 5%; it expects about $0.4 million in costs, recorded in Q4.
Important facts for investors to verify
- Whether NERLYNX sales volume, pricing and international sublicensee sales can support revenue and the Athyrium revenue covenants.
- Cash generation, planned debt payments beginning in 2024, interest-rate exposure and the covenant requirements under the Athyrium notes.
- The commercial impact and timing of generic NERLYNX entry in China, and the status of related patent disputes.
- Clinical, regulatory, funding and milestone obligations associated with alisertib development.
- Updates on the AstraZeneca and malpractice cases, the remaining Eshelman settlement payment, and the effects of the workforce reduction.