Puma Biotechnology, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Unaudited consolidated results. Puma is a biopharmaceutical company focused on NERLYNX (neratinib), its sole commercial product, and oncology drug development.
Key financial results
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Total revenue | $50.8m | $56.4m | $172.6m | $209.3m |
| Product revenue, net | $49.3m | $53.5m | $146.7m | $152.9m |
| Operating loss | $(12.1)m | $(14.4)m | $(19.3)m | $(30.4)m |
| Net loss | $(31.5)m | $(16.9)m | $(45.0)m | $(64.4)m |
| Basic loss per share | $(0.79) | $(0.44) | $(1.14) | $(1.67) |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $6.4m | $20.8m |
Gross margin, calculated as total revenue less cost of sales divided by total revenue, was approximately 80.4% in Q3 2020 versus 83.4% in Q3 2019, and 83.5% for the first nine months of 2020 versus 87.3% in 2019. This measure includes license and royalty revenue as well as product revenue.
At September 30, 2020, cash and cash equivalents were $90.1m and marketable securities were $18.9m. Working capital was $41.6m, compared with $75.5m at year-end 2019. Restricted cash totaled approximately $12.2m. Debt principal outstanding was $100.0m; the balance sheet reports $5.7m current and $91.7m long-term debt, net of financing costs and including accretion. Stockholders’ deficit was $0.5m.
Changes versus comparable periods
- Q3 revenue declined 9.9% year over year. Management attributed lower product revenue to a 23% decrease in NERLYNX bottles sold and higher variable-consideration reserves, partly offset by roughly 10% gross price increases in Q1 and Q3. Reserves rose to about 16% of product revenue from 12%, mainly due to government rebates.
- Nine-month product revenue declined 4.1%; bottle volume fell approximately 18%, partly offset by price increases. License revenue fell to $22.7m from $56.3m, while royalties increased to $3.1m from $0.2m as sublicensees expanded sales.
- Operating expenses fell year over year: nine-month SG&A decreased 18.6% to $89.9m and R&D decreased 28.4% to $73.5m. The filing cites lower stock-based compensation, trial closeouts and COVID-related reductions in travel; these reductions were partly offset by other costs.
- Despite a lower operating loss, Q3 net loss widened, chiefly because of a $15.9m legal verdict expense related primarily to the Hsu class action estimate. Nine-month net loss improved from 2019, which included an $8.1m debt-extinguishment loss.
- Cash from operations declined to $6.4m from $20.8m for the nine-month period. Cash, cash equivalents and restricted cash increased $29.0m, with investing cash flow helped by securities maturities; this should not be read as equivalent to operating cash generation.
Outlook, risks and unusual items
- Management said available cash, cash equivalents, marketable securities and expected product and sublicense receipts should fund operating needs for at least one year after filing. It also expects continuing losses and remains dependent on commercialization and potential future financing. No specific revenue or earnings guidance is provided.
- COVID-19 restrictions reduced in-person physician engagement and adversely affected NERLYNX sales; the company also reported disruptions to U.S. patient enrollment and its SUMMIT basket trial. It warned of possible further clinical-trial, revenue, supply-chain and covenant effects. Third-party suppliers and manufacturers broadly maintained operations through the reported period.
- Hsu class action: Claims reports reflected approximately $50.5m in claimed damages. Puma accrued $24.8m and estimated challenged claims could result in damages of $24.8m–$51.3m; the final amount remained uncertain, with claims challenges and appeals pending. The changed estimate added approximately $15.7m of Q3 expense and reduced Q3 and year-to-date net income by that amount.
- Eshelman case: A judgment, including prejudgment interest, totaled $26.3m; Puma accrued $22.6m and appealed. The company said the ultimate amount could differ from its estimate. It secured an $8.9m letter of credit backed by restricted cash and separately sued former counsel for malpractice.
- CANbridge dispute: Puma initiated arbitration over its Greater China sublicense; CANbridge asserted counterclaims. The arbitration was pending, and Puma had recorded about $0.1m in related legal expense.
- The Pfizer license milestone triggered a $40m payment, payable in installments; unpaid amounts accrue interest at 6.25%. The balance sheet included $31.0m of current accrued in-licensed rights. Puma also reported a $100m secured loan at a 12.75% effective interest rate, with interest-only payments through August 2021, principal amortization thereafter and maturity in June 2024. Revenue covenants apply; Puma stated it was compliant as of September 30, 2020, after covenant levels were amended for 2020.
- Potential sublicense milestone payments of approximately $536.3m depend on future performance obligations; timing and achievement could not be estimated. Puma relies on third parties to manufacture NERLYNX and has a single marketed product. Disclosure controls were assessed as effective.
Investor facts to verify
- NERLYNX prescription demand and volume trends, including the impact of COVID-19, pricing and rebate reserves.
- Cash generation, the timing and collectability of sublicense receipts, and liquidity relative to continuing losses and debt payments.
- Final damages and payment timing in Hsu and Eshelman, appeal outcomes, and the effect of legal judgments on restricted cash and debt covenants.
- Compliance with minimum-revenue loan covenants and the ability to meet debt amortization and Pfizer milestone installments.
- Clinical-trial enrollment and timelines, third-party manufacturing continuity, and the progress of sublicense commercialization and arbitration.