Puma Biotechnology, Inc. — 2016 Form 10-K
Reporting period: Fiscal year ended December 31, 2016. The filing is an annual report, not a standalone quarterly filing; selected fourth-quarter results are included below. Puma is a clinical-stage biopharmaceutical company focused primarily on neratinib, with no approved products and no product revenue during the period.
Financial performance and position
| Metric | FY 2016 | FY 2015 | Change / context |
|---|---|---|---|
| Revenue | $0 | $0 | No product sales |
| Research and development expense | $222.8 million | $208.5 million | Up 6.9% |
| General and administrative expense | $53.8 million | $31.8 million | Up 69.1% |
| Operating loss | $276.6 million | $240.3 million | Loss widened |
| Net loss | $276.0 million | $239.3 million | Loss widened 15.3% |
| Net loss per share, basic and diluted | $8.29 | $7.45 | Loss per share increased |
| Cash used in operating activities | $141.7 million | $154.5 million | Cash use decreased |
| Cash and cash equivalents | $194.5 million | $31.6 million | At year-end |
| Marketable securities | $35.0 million | $184.3 million | At year-end |
| Total assets / liabilities | $252.8 million / $43.0 million | $239.8 million / $33.8 million | At year-end |
Cash, cash equivalents and marketable securities totaled approximately $229.5 million at year-end. Current liabilities were $37.5 million. No borrowings are listed in the presented balance sheet; liabilities primarily comprise accounts payable, accrued expenses and deferred rent. No operating margin is meaningful because Puma had no revenue. Net loss included $117.3 million of non-cash stock-based compensation, approximately 42.5% of net loss.
In the fourth quarter of 2016, net loss was $72.7 million, or $2.04 per share, compared with a $61.7 million loss, or $1.90 per share, in fourth-quarter 2015. Quarterly revenue was zero in both periods.
Material developments and outlook
- Puma filed an FDA NDA in July 2016 and submitted an EMA marketing authorization application in June 2016 for neratinib as extended adjuvant treatment for early-stage HER2-positive breast cancer after trastuzumab-based therapy. The filing says the FDA accepted the NDA for review and the EMA validated the application.
- In the ExteNET Phase III trial, the primary analysis reported a 33% reduction in the risk of invasive disease recurrence or death versus placebo at two years (hazard ratio 0.67; p=0.009). An interim five-year analysis reported a 26% risk reduction (hazard ratio 0.74; p=0.017); this was not prespecified, and full five-year data were expected in the second half of 2017.
- Severe diarrhea is a prominent tolerability issue. In ExteNET, 39.9% of neratinib-treated patients had grade 3 or higher diarrhea without prophylaxis. Interim CONTROL results reported grade 3 diarrhea in 28.1% with loperamide prophylaxis and 15.0% with loperamide plus budesonide; these groups were small and the combination cohort had shorter treatment exposure.
- The Phase III PUMA-NER-1301 trial of neratinib plus capecitabine versus lapatinib plus capecitabine in third-line HER2-positive metastatic breast cancer was ongoing. Puma also reported multiple Phase I/II studies in breast cancer, HER2-mutated tumors and lung cancer.
- Management said it expected regulatory approval no earlier than approximately the second half of 2017, but cautioned approval and commercialization were not assured. Commercialization strategy remained undecided: options included a direct sales force, third parties or a combination. Puma reported inventory sufficient to support at least the first year of a potential launch.
- For the next 12 months, management estimated R&D spending of $140 million to $150 million, excluding stock-based compensation, and expected G&A costs to rise with commercialization preparation. It anticipated continued losses and negative operating cash flow.
- Puma raised approximately $161.9 million net in an October 2016 public offering, issuing 4.3125 million shares including the underwriters’ option. Shares outstanding rose to 36.8 million at year-end.
Risks, contingencies and unusual items
- The independent auditor’s report included an explanatory paragraph expressing substantial doubt about Puma’s ability to continue as a going concern, based on significant operating losses. Management said further financing may be needed; no committed financing source was in place.
- The company depends heavily on neratinib, regulatory decisions, clinical outcomes and third-party manufacturing and trial contractors. FDA or EMA review, manufacturing inspections, safety findings or trial delays could prevent or delay approval.
- Commercial success depends on building or contracting sales capabilities, market acceptance, reimbursement, pricing and adequate commercial supply. Puma had no sales, marketing or distribution infrastructure at filing.
- Four legal proceedings were disclosed: a securities class action, two shareholder derivative actions and a defamation suit. The class action motion to dismiss was denied, with trial set for November 2018; the defamation motion to dismiss was denied in February 2017. Puma said the outcomes and potential loss could not be determined.
- The Pfizer license carries potential milestone payments totaling approximately $187.5 million if all milestones are achieved and royalties at a fixed rate in the low-to-mid-teens on licensed-product net sales. These are contingent on development and commercialization milestones and sales.
- Operating lease obligations totaled $41.4 million, including $4.0 million due within one year. Clinical-trial and other contractor agreements had estimated obligations of $123.1 million, including potential milestone payments; many agreements were cancelable on 30–45 days’ notice.
- Stock-based compensation was a substantial non-cash expense. Excluding it, Puma reported non-GAAP adjusted net loss of $158.7 million, a company-defined measure that should not replace GAAP results.
Most important facts to verify
- Current FDA and EMA review status, approval decision timing, label scope and any required post-approval studies.
- Full five-year ExteNET results and whether the interim, non-prespecified analysis is confirmed; assess benefit against the absolute DFS difference and diarrhea burden.
- Updated CONTROL safety results, including diarrhea-related discontinuations, adherence, and whether prophylaxis findings hold in broader patient populations.
- Cash runway against projected operating burn and launch costs, and whether additional financing or dilution is likely.
- Commercialization plan, manufacturing readiness, reimbursement assumptions and royalty/milestone economics under the Pfizer license.
- Developments and potential financial exposure from the pending lawsuits and other contingencies.