Puma Biotechnology, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Unaudited; amounts below are in U.S. dollars. Puma is a biopharmaceutical company whose commercial business is centered on NERLYNX (neratinib); in September 2022 it also licensed global development and commercialization rights to alisertib.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $57.1m | $46.2m | $162.4m | $197.8m |
| Product revenue, net | $54.3m | $43.4m | $146.3m | $138.1m |
| Royalty revenue | $2.8m | $2.8m | $16.0m | $9.5m |
| License revenue | — | — | — | $50.3m |
| Operating income (loss) | $2.4m | $(9.0)m | $13.7m | $(5.5)m |
| Net income (loss) | $(0.4)m | $(44.7)m | $5.6m | $(33.4)m |
| Diluted EPS | $(0.01) | $(1.09) | $0.13 | $(0.82) |
Margins: Q3 operating margin was approximately 4.2%, versus negative 19.4% a year earlier; nine-month operating margin was approximately 8.4%, versus negative 2.8%. Q3 net margin was approximately negative 0.6%; nine-month net margin was approximately 3.5%. These figures are calculated from reported revenue and income.
- Q3 revenue rose approximately 23.5%, driven by higher NERLYNX product revenue, which increased $10.9m. Management attributed the product increase to higher net selling price, an approximately 8.5% increase in bottles sold, and lower variable-consideration deductions.
- Nine-month revenue fell approximately 17.9% because 2021 included a $50.3m one-time Pierre Fabre license payment. Product revenue increased $8.2m, despite an approximately 4.9% decline in bottles sold, and royalties increased $6.6m, including higher sales in China.
- Q3 operating expenses were $54.7m, including a $7.0m acquired in-process R&D charge for alisertib. SG&A was $24.0m and R&D was $11.3m. Nine-month SG&A and R&D declined to $64.9m and $38.5m, respectively, primarily reflecting lower stock compensation, reduced headcount and lower clinical-trial activity.
Cash, liquidity and debt
- At September 30, 2022, cash and cash equivalents were $78.0m, marketable securities were nil, and restricted cash was $2.6m. Working capital was $62.4m; total assets were $198.8m. Stockholders’ equity was $22.2m, compared with a $2.4m deficit at December 31, 2021.
- Operating cash flow was negative $23.5m for the first nine months, compared with positive $26.1m in 2021. Investing activities provided $19.0m, mainly from maturities of securities; financing activities provided $9.8m, principally from a $10.0m private placement. Cash, cash equivalents and restricted cash increased $5.3m to $80.6m.
- Long-term debt was $100.0m principal, reported at $98.0m net of unamortized issuance costs and discounts. The notes require a 2% exit payment on principal payments; scheduled principal payments begin in 2024, with maturity in July 2026. Interest changes from LIBOR to adjusted three-month term SOFR beginning October 1, 2022; the contractual spread is 8%, with the benchmark component capped at 3.5%. The company reported covenant compliance at quarter-end and access to an additional $25.0m under the note agreement.
- In March 2022, Puma issued 3.58m shares at $2.79 each for approximately $10.0m gross proceeds, including purchases by its CEO and an Athyrium affiliate.
Changes, outlook and material matters
- Management stated that existing cash and expected product sales and sublicense receipts were sufficient for operating needs for at least one year after filing, but also expects continued significant losses and may need additional funding. Funding needs could rise with development, commercialization or acquisition activity; future financing is not assured and equity financing could dilute shareholders.
- The Takeda alisertib license requires Puma to fund global development and commercialization. The $7.0m upfront fee was expensed in Q3; the filing says it was paid in October 2022. Takeda may receive up to $287.3m in future regulatory and commercial milestones plus tiered royalties. No milestones were accrued at quarter-end.
- The $54.2m Hsu class-action settlement was paid in two installments in January and June 2022; the court approved the settlement and dismissed the case in August. In Eshelman, the appeals court had vacated the prior damages award and ordered a new damages trial; Puma accrued approximately $2.9m as its estimated most likely and high-end outcome. The filing cited a November 7, 2022 trial date. Puma’s related legal-malpractice action was voluntarily dismissed without prejudice, with intent to refile after the damages retrial.
- NERLYNX patent-related risks include the Sandoz U.S. generic litigation and Chinese proceedings. In September, Chinese authorities issued decisions adverse to Puma’s asserted patent coverage, lifting the stay of Acebright’s generic application; Puma said it could appeal and pursue civil litigation. The Sandoz case remained in discovery; the company reported Sandoz’s stated earliest launch timing as November 21, 2030, subject to other patents.
- COVID-19 restrictions had affected sales-force access to healthcare providers and trial enrollment, though Puma and key suppliers broadly maintained operations during the first nine months. A June 2022 cyber incident involved malware and acquisition of certain network files; Puma reported no material business or operational impact, but warned future incidents could disrupt operations or expose data.
- No numeric revenue or earnings guidance was provided. The filing emphasizes risks from reliance on NERLYNX as its principal commercial product, third-party manufacturing, clinical and regulatory outcomes, debt covenants, litigation, and the need for financing. Disclosure controls were deemed effective as of September 30, 2022.
Investor facts to verify
- NERLYNX sales trajectory, including the contrast between higher Q3 bottle volume and lower nine-month volume, and the sustainability of net pricing and favorable payer mix.
- Operating cash use and runway assumptions, including product sales, sublicense receipts, alisertib development spending, and compliance with Athyrium revenue and other covenants.
- SOFR-linked interest costs and the timing and amounts of debt principal and exit payments beginning in 2024.
- Outcome and financial exposure in the Eshelman damages retrial, and developments in U.S. and Chinese generic and patent proceedings.
- Alisertib development plans, future milestone obligations and royalties, and whether anticipated financing will be needed to support the program.