Puma Biotechnology, Inc. — FY2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018. The filing also reports quarterly results; Q4 2018 revenue was $71.1 million and net loss was $30.7 million. The company develops and commercializes cancer therapies, with its business principally dependent on NERLYNX (neratinib).
Financial performance and position
| Metric | FY2018 | FY2017 |
|---|---|---|
| Total revenue | $251.0 million | $27.7 million |
| NERLYNX product revenue, net | $200.5 million | $26.2 million |
| License revenue | $50.5 million | $1.5 million |
| Cost of sales | $34.6 million | $5.6 million |
| Operating expenses: SG&A / R&D | $146.2 million / $164.9 million | $106.7 million / $207.8 million |
| Operating loss | $94.7 million | $292.4 million |
| Net loss | $113.6 million | $292.0 million |
| Net loss per share, basic and diluted | $2.99 | $7.85 |
| Cash used in operating activities | $24.1 million | $172.5 million |
Product gross margin was approximately 82.7%, calculated as product revenue less reported cost of sales divided by product revenue. This is a derived measure; cost of sales includes royalties and amortization as well as manufacturing costs. The filing does not provide a standalone Q4 cash-flow or margin figure.
- Year-end liquidity: Cash and cash equivalents of $108.4 million and marketable securities of $57.0 million; together, $165.4 million. Restricted cash was an additional $4.3 million. Current assets were $203.0 million and current liabilities $67.1 million.
- Debt: $155.0 million principal outstanding under the SVB/Oxford facility; net carrying amount was $151.9 million. The facility matures May 1, 2023, bears interest at the greater of 8.25% or prime plus 3.5%, and has revenue and other covenants.
- Balance sheet: Total assets of $259.1 million, liabilities of $224.8 million, and stockholders’ equity of $34.3 million at year-end.
Material changes and business developments
- Total revenue rose to $251.0 million from $27.7 million, reflecting a full year of U.S. NERLYNX sales after its July 2017 launch and recognition of international license payments. Product revenue was $200.5 million; license revenue was $50.5 million.
- License revenue included payments associated with CANbridge and Pint agreements, including a $30 million CANbridge upfront payment, a $10 million CANbridge regulatory milestone, and a $10 million Pint upfront payment recognized after the relevant obligations were met.
- Net loss narrowed to $113.6 million from $292.0 million. R&D expense declined 20.7%, mainly as the ExteNET trial wound down and stock-based compensation decreased. SG&A increased 37.0%, principally due to commercial staffing and sales and marketing activity.
- Operating cash use declined substantially year over year. The filing attributes cash flows to noncash expenses and working-capital movements; the improvement should not be interpreted as the company having reached profitability.
- The European Commission authorized NERLYNX in September 2018 for a specified extended-adjuvant population: hormone-receptor-positive, early-stage HER2-positive disease, within one year of completing trastuzumab-based therapy. The company entered additional territory licensing arrangements; a Canadian license with Knight was signed in January 2019.
Outlook, risks, and unusual items
- Management estimated R&D spending of approximately $120–$130 million over the next 12 months, excluding stock-based compensation. It expected clinical R&D expense to decline in 2019 versus 2018, while SG&A was expected to increase with commercialization activity. International commercialization plans, including the approach in Europe, remained under evaluation.
- Management stated that year-end cash, marketable securities, and anticipated product-sale proceeds were expected to fund operating needs for at least one year after filing. The company also cautioned that it expects continuing losses and remains dependent on adequate funding.
- The December 2018 NALA Phase III announcement reported statistically significant improvement in centrally confirmed progression-free survival for neratinib plus capecitabine versus lapatinib plus capecitabine (p=0.0059). Overall survival improvement was numerical but not statistically significant (p=0.21); time to intervention for symptomatic CNS disease favored neratinib (p=0.043). Full results were to be submitted to regulators and presented in 2019.
- NERLYNX’s principal disclosed tolerability issue is diarrhea. In the CONTROL study interim data, grade 3 diarrhea was 10.8% with loperamide plus colestipol, compared with 30.7% with loperamide alone; these were study results, not a guarantee of real-world outcomes.
- The company recorded a $9.0 million FY2018 expense and accrual for the Hsu securities class-action verdict. A January 2019 jury verdict awarded $4.50 per eligible share on one of four remaining statements; the company estimated potential damages after claims at $9–$18 million, but stated the final amount remained uncertain and could be higher. Final judgment and appeals remained outstanding.
- Key risks include dependence on a single commercial product, concentration of revenue among three specialty-pharmacy customers (CVS/Caremark 39%, Accredo/Acaria 25%, Diplomat 13% of 2018 total revenue), reliance on third-party manufacturers, reimbursement and adoption uncertainty, clinical and regulatory risks, and restrictive debt covenants. The company reported compliance with applicable debt covenants at December 31, 2018.
- The company reported audited financial statements with an unqualified opinion and effective internal control over financial reporting. Adoption of the new lease standard in 2019 was expected to add right-of-use assets and lease liabilities of up to approximately $30 million.
Important facts for investors to verify
- NERLYNX sales trajectory, net pricing, patient persistence, reimbursement access, and whether sales growth supports the debt facility’s revenue covenants.
- Cash consumption and funding needs against the stated liquidity outlook, including debt service, interest costs, and the 7.5% final payment due on funded term-loan principal.
- Full NALA results, regulatory submissions and decisions, and the status and outcomes of other clinical programs.
- Final Hsu class-action damages, appeals, insurance recovery, and the outcome of the separate Eshelman litigation.
- Licensee progress toward regulatory approval and commercialization, and the timing and collectability of contingent milestones and royalties.