Puma Biotechnology, Inc. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; filed February 27, 2020. The filing also reports unaudited fourth-quarter results. Puma is a biopharmaceutical company focused primarily on developing and commercializing NERLYNX (neratinib), with revenue largely dependent on this product and related licensing arrangements.
Financial results and liquidity
| Metric | 2019 | 2018 |
|---|---|---|
| Total revenue | $272.3 million | $251.0 million |
| Product revenue, net | $211.6 million | $200.5 million |
| License revenue | $60.3 million | $50.5 million |
| Royalty revenue | $0.4 million | None reported |
| Cost of sales | $36.8 million | $34.6 million |
| Operating loss | $39.1 million | $94.7 million |
| Net loss | $75.6 million | $113.6 million |
| Net loss per share, basic and diluted | $1.95 | $2.99 |
| Operating cash flow | +$22.4 million | -$24.1 million |
Product revenue increased about 5.5%; total revenue rose about 8.5%, with licensing revenue contributing materially. Product gross margin, calculated as product revenue less cost of sales divided by product revenue, was approximately 82.6%. The company remained unprofitable. Research and development expense fell 19.4% to $132.9 million, and selling, general and administrative expense fell 3.1% to $141.7 million.
At December 31, 2019, cash and cash equivalents were $60.0 million and marketable securities were $51.6 million. Current assets were $166.3 million versus current liabilities of $90.8 million. The company reported $100.0 million of debt principal outstanding ($95.0 million net of financing adjustments), bearing interest at the greater of 9% or prime plus 3.5%, with maturity in June 2024. Interest-only payments run through August 2021, after which principal payments begin. Management said available cash, securities, product sales and license payments were expected to fund operating and capital needs for at least one year after filing; it also expects significant losses to continue.
Fourth-quarter 2019 revenue was $62.9 million and net loss was $11.2 million, or $0.29 per share. Fourth-quarter 2018 revenue was $71.1 million and net loss was $30.7 million, or $0.80 per share.
Material changes and notable items
- Revenue growth was driven by higher product revenue and licensing arrangements. Product revenue benefited from two 10% gross price increases during 2019, partly offset by higher variable consideration, including government rebates.
- Operating loss narrowed by $55.6 million year over year, principally alongside lower R&D expense. Net loss also improved, but included $16.4 million of legal verdict expense, $15.0 million of interest expense and an $8.1 million debt-extinguishment loss.
- Operating cash flow turned positive, although cash and cash equivalents declined to $60.0 million from $108.4 million. The 2019 operating cash flow included substantial non-cash stock compensation and increases in accrued expenses and post-marketing commitments.
- The June 2019 refinancing replaced the prior $155 million facility with a $100 million Oxford credit facility; the company paid down debt using cash and incurred refinancing-related costs. No additional borrowing capacity remained under the new facility.
- International licensing generated significant upfront and milestone revenue. The Pierre Fabre agreement contributed $60 million upfront, of which $51 million was recognized as license revenue in 2019; the agreement also carries a $9 million post-marketing commitment liability. Additional contingent milestones and royalties are not assured.
Outlook, risks and contingencies
- Commercial and regulatory: On February 25, 2020, after year-end, the FDA approved neratinib with capecitabine for certain adults with advanced or metastatic HER2-positive breast cancer after two or more prior anti-HER2 regimens. The approval was based on the Phase III NALA trial. NALA improved centrally confirmed progression-free survival versus lapatinib plus capecitabine; the overall-survival difference was not statistically significant.
- Clinical and safety: Diarrhea is a prominent neratinib adverse event. In interim CONTROL study results, grade 3 diarrhea ranged from 15% with dose escalation to 34% with colestipol prophylaxis and loperamide as needed. Clinical-trial interim results may change as data mature.
- Concentration and execution: NERLYNX is expected to account for most product revenue. CVS/Caremark and Accredo/Acaria represented approximately 34% and 22% of 2019 product revenue, respectively. The company relies on third-party manufacturers and international sublicensees, and has no owned manufacturing facilities.
- Debt and liquidity: The Oxford facility includes minimum product-revenue covenants, restrictions on certain business actions, and default remedies that may include foreclosure on collateral, including cash. The company cautions that future financing may be needed if assumptions change or commercial performance disappoints.
- Litigation: In the Hsu securities class action, a jury found liability on one challenged statement; estimated claims-related damages were $9–$18 million, but the final amount remained uncertain. In the Eshelman case, a jury awarded $15.9 million compensatory and $6.5 million punitive damages; post-trial motions and an intended appeal were pending. Puma accrued $22.4 million for Eshelman and estimated potential damages could reach approximately $26.3 million, excluding the possibility of a higher amount.
- Other risks: The company reported an accumulated deficit of approximately $1.28 billion and stated it may never achieve profitability. Other key risks include competition, reimbursement and pricing pressure, patent challenges, adverse events, regulatory outcomes, and dependence on Pfizer-licensed intellectual property. No specific revenue or earnings guidance was provided.
Key facts for investors to verify
- Whether NERLYNX sales growth, net pricing and rebate levels support sustained product revenue and improved cash generation.
- Cash, marketable securities, restricted cash and debt balances, including covenant compliance and the timing of required principal repayments.
- Final outcomes and cash exposure for the Hsu and Eshelman litigation, including appeals, claims and insurance recoveries.
- Commercial uptake and financial contribution of the newly approved metastatic indication and international sublicense territories.
- Whether clinical trial data, diarrhea management, manufacturing capacity and patent protection support the company’s development and commercialization plans.