Business Context and Reporting Period
This Form 8-K, dated October 4, 2011, reports the completion of a reverse merger between Innovative Acquisitions Corp. (a shell company) and Puma Biotechnology, Inc. (a development-stage biopharmaceutical company). Upon closing, Innovative Acquisitions changed its name to Puma Biotechnology, Inc., and adopted Puma's business plan. The transaction was accounted for as a capital transaction. The company is focused on acquiring and developing pharmaceutical technologies, primarily for the treatment of cancer.
Key Financial Metrics
- Capital Raised: Immediately prior to the merger, Puma sold 14,666,733 shares of common stock to investors at $3.75 per share, generating aggregate gross proceeds of approximately $55 million.
- Cash Position: As of October 6, 2011, the company held approximately $52.2 million in cash, cash equivalents, and short-term investments.
- Revenue: The company has no product revenues to date and expects none until FDA approval is obtained.
- Expenses: General and administrative expenses for the six months ended June 30, 2011, were approximately $38,200. A $40,000 redemption payment to former shell company stockholders was recorded as an expense.
- Debt: A $150,000 convertible note held by the CEO was converted into 40,000 shares of common stock on October 6, 2011. No other material debt is reported.
- Outstanding Shares: 18,706,733 shares of common stock were outstanding as of October 6, 2011.
Material Changes
- Change in Control: The merger resulted in a change of control, with former Puma stockholders holding 100% of the outstanding shares of the surviving entity.
- Management Transition: All management of the former shell company resigned. Alan H. Auerbach was appointed President, CEO, and Chairman, and Charles R. Eyler was appointed Senior Vice President, Finance, and Treasurer.
- Asset Acquisition: The company acquired exclusive worldwide rights to three drug candidates (neratinib oral, neratinib intravenous, and PB357) via a license agreement with Pfizer Inc., which became effective upon the closing of the merger.
- Accounting Change: The independent registered public accounting firm was changed from MaloneBailey, LLP to PKF Certified Public Accountants.
Guidance, Outlook, and Risks
Outlook and Strategy: The company plans to focus on developing neratinib (oral) for HER2 positive metastatic breast cancer, gastric cancer, and melanoma. Management anticipates spending approximately $27 million on clinical development and R&D, $6.3 million on general and administrative expenses, and $0.5 million on facilities rent over the next 12 to 18 months. The company estimates it will need an additional $80 to $100 million to obtain FDA approval for neratinib.
Risks and Contingencies:
- Liquidity: While current cash is sufficient for 12 months, the company will require additional financing to complete development. Failure to raise capital could force a curtailment of operations.
- Regulatory Approval: There is no assurance that drug candidates will receive FDA approval. The company has terminated enrollment in two late-stage trials (NEfERTT and ExteNET) previously sponsored by Pfizer.
- Intellectual Property: The business is heavily dependent on the Pfizer license, which requires milestone payments totaling up to $187.5 million and ongoing royalties. Termination of this license would significantly harm the business.
- Market Liquidity: There is currently no trading market for the company's common stock, and it may be classified as a "penny stock," limiting liquidity.
Investor Verification Checklist
- Verify the status of the registration statement required to allow investors to resell shares issued in the private placement (required within 60 days of the merger).
- Confirm the specific terms and milestones of the Pfizer license agreement, particularly the $187.5 million in potential milestone payments.
- Monitor the company's cash burn rate against the projected $27 million R&D spend to assess the timeline for the next capital raise.
- Review the rationale and financial impact of winding down the NEfERTT and ExteNET clinical trials.
- Check for the filing of the Schedule 14C information statement regarding the removal of the preferred stock class.