Puma Biotechnology, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Amounts are in U.S. dollars; financial statement amounts below are in millions unless stated otherwise.
Business context
Puma is a biopharmaceutical company whose principal commercial product is NERLYNX (neratinib), used to treat certain HER2-positive breast cancers. U.S. sales are complemented by product sales and royalties from international sublicensees. The company reports one operating segment and remains substantially dependent on NERLYNX.
Financial performance and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $59.5 | $53.4 | $105.3 | $151.6 |
| Product revenue, net | $51.3 | $48.9 | $92.0 | $94.7 |
| Royalty revenue | $8.2 | $4.3 | $13.2 | $6.6 |
| Operating income (loss) | $12.1 | ($16.6) | $11.3 | $3.4 |
| Net income (loss) | $9.4 | ($5.1) | $6.0 | $11.3 |
| Diluted EPS | $0.21 | ($0.13) | $0.14 | $0.28 |
- Q2 revenue increased approximately 11% year over year, as higher U.S. product revenue and international royalties more than offset lower U.S. bottle volume. The company attributed royalty growth mainly to increased partner sales, including in China.
- For the first half, revenue declined approximately 31%, primarily because the 2021 period included a one-time $50.0 million license fee. Product revenue was down about 3%; bottle volume fell approximately 10.9%, partly offset by higher net selling price. Royalties doubled to $13.2 million.
- Cost of sales was $14.9 million in Q2 and $25.8 million for the first half. Approximate gross margin was 75% in each 2022 period; the filing does not present gross margin as a reported measure. First-half 2021 cost of sales included a $20.0 million charge related to termination of the CANbridge distribution agreement.
- Operating expenses fell year over year: Q2 SG&A was $20.6 million (down 48%) and R&D was $12.0 million (down 36%); first-half SG&A was $41.0 million (down 40%) and R&D was $27.2 million (down 30%). Management cited lower headcount, reduced clinical activity, CARES Act payroll tax credits, and lower stock compensation. The 2021 comparison also included a $13.6 million warrant-modification compensation charge.
- At June 30, cash and cash equivalents were $52.8 million and marketable securities $8.0 million, totaling $60.8 million. Working capital was $57.4 million, versus $30.4 million at year-end 2021. Cash and restricted cash totaled $55.3 million.
- Operating cash flow was negative $40.8 million for the first half, versus positive $15.6 million a year earlier. The primary driver was approximately $54.3 million of payments on the Hsu class-action settlement, alongside other working-capital movements. Investing activities provided $11.0 million; financing activities provided $9.8 million from the March private placement.
- Long-term debt was $97.7 million net of discounts and issuance costs; principal outstanding was $100.0 million, with $102.0 million including the contractual exit payment. The secured Athyrium notes mature in July 2026, bear interest at 8% plus capped three-month LIBOR, and require principal payments beginning June 2024. The company reported compliance with covenants at June 30.
Material changes, outlook and risks
- Management said cash, marketable securities, product sales and sublicense proceeds were expected to fund operating cash needs for at least one year after filing. It also cautioned that additional funding may be needed and that future financing is not assured. No specific revenue or earnings guidance was provided.
- The Athyrium agreement imposes minimum product-revenue and cash-balance requirements and restricts certain business and financing activities. Management warned that weaker sales or other changes could affect covenant capacity.
- The company settled the Hsu class action for approximately $54.2 million, paid in two installments during 2022. Final court approval was entered August 3, 2022, after quarter-end. A $2.9 million accrual remained for the Eshelman case; damages remained uncertain pending a new trial scheduled for November 2022. Puma’s malpractice case related to Eshelman also remained unresolved.
- Patent disputes include litigation concerning AstraZeneca’s Tagrisso and Sandoz’s proposed generic NERLYNX, plus a Chinese patent proceeding concerning a generic application. Outcomes and any financial benefit are uncertain.
- In June 2022, an unauthorized actor deployed malware and acquired certain files from Puma’s network. The company reported no material business or operational impact but warned that future cybersecurity incidents could disrupt operations or expose data.
- COVID-19 restrictions and reduced in-person access to healthcare professionals were described as adverse to commercialization; patient enrollment disruptions affected U.S. activity and the Phase II SUMMIT trial. Puma relies on third parties to manufacture its product and candidates.
- The company completed a $10.0 million private placement in March, issuing 3,584,228 shares at $2.79 per share to CEO Alan Auerbach and an Athyrium affiliate. Shares outstanding were 45.3 million at June 30.
- Disclosure controls and procedures were judged effective as of June 30, 2022; no material change in internal control over financial reporting was reported for the quarter.
Important facts for investors to verify
- NERLYNX sales trends: U.S. bottle volumes, net pricing, variable-consideration deductions, and growth and sustainability of China and other sublicensee sales.
- Cash burn and runway, including the effect of settlement payments, and compliance with Athyrium revenue and liquidity covenants.
- Debt interest-rate exposure, repayment schedule and restrictions under the secured note agreement.
- Outcome and potential costs of the Eshelman damages retrial, patent disputes, and remaining related legal proceedings.
- Cybersecurity incident scope and remediation, and any subsequent operational or data-protection effects.
- Clinical development timelines and spending, particularly given reduced trial activity and management’s stated reliance on additional revenue or financing to sustain operations.