Puma Biotechnology, Inc. — Q2 2017 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2017. Amounts below are in millions of dollars unless noted. Puma is a biopharmaceutical company focused on neratinib and other cancer drug candidates. It reported no product revenue for the period; FDA approval of its first product came after quarter-end.
Financial performance and liquidity
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Revenue | None reported | None reported | None reported | None reported |
| SG&A expense | $24.9 | $12.3 | $43.3 | $23.3 |
| R&D expense | $53.3 | $54.2 | $108.1 | $114.4 |
| Operating loss | $(78.2) | $(66.5) | $(151.4) | $(137.7) |
| Net loss | $(77.8) | $(66.6) | $(150.7) | $(137.6) |
| Basic and diluted loss per share | $(2.10) | $(2.05) | $(4.08) | $(4.23) |
| Cash used in operating activities | Not separately provided in statements | Not separately provided in statements | $(82.0) | $(65.8) |
- SG&A rose 103% year over year in Q2 and 86% for the six-month period, mainly due to professional fees, commercialization preparation, higher headcount and stock compensation. R&D fell 2% in Q2 and 6% year to date, reflecting lower clinical/manufacturing costs and stock compensation, partly offset by other clinical and launch-support costs.
- At June 30, cash and cash equivalents were $80.8 and marketable securities were $70.8, totaling approximately $151.6 of available funds. Current assets were $160.8 and current liabilities $47.2; working capital was $113.6. Total assets were $172.8 and stockholders’ equity $120.1.
- The balance sheet reports no interest-bearing debt. Total liabilities were $52.7, including $47.2 of current liabilities and $5.5 of deferred rent. Cash and cash equivalents declined $113.7 in the first half.
- No meaningful operating margin is available because no product revenue was reported. Stock-based compensation was $56.7 for the first half and a significant non-cash expense.
Material developments and outlook
- On July 17, 2017, after the reporting period, FDA approved NERLYNX (neratinib) for extended adjuvant treatment of adults with early-stage HER2-positive breast cancer following trastuzumab-based therapy. The product became available by U.S. prescription; management expected product revenue in the quarter ending September 30, 2017.
- FDA approval triggered a one-time regulatory milestone payment to Pfizer under the license agreement. The filing does not provide a clear value for that payment. Royalties are also due on net product sales.
- Management estimated R&D spending of $140–$150 million over the next 12 months, excluding stock-based compensation. It expected SG&A to rise as it hires and supports a U.S. sales force and commercializes NERLYNX; it anticipated existing-trial R&D, excluding stock compensation, to remain near Q2 levels absent additional trials.
- The EMA review remained pending. The regulator requested additional analyses and paused its review; Puma expected to respond by December 22, 2017 and anticipated an EMA opinion in Q1 2018. Foreign sales require local approval.
- Management expects continued significant losses and negative operating cash flows. It stated commercialization may require funding beyond the $151.6 million of cash and marketable securities available at June 30; no committed financing sources were in place. The filing cites substantial doubt about the company’s ability to continue as a going concern.
Risks, contingencies and unusual items
- Commercial success depends heavily on NERLYNX, and Puma had limited product-launch and sales experience. Risks include physician and patient acceptance, side effects including diarrhea, pricing and reimbursement, manufacturing and supply, competition, and building an effective sales organization.
- FDA approval is limited to the stated indication and includes post-marketing commitments. Failure to meet commitments or unfavorable study results could lead to additional restrictions or withdrawal. Approval for other indications or in Europe is not assured.
- Three principal legal matters are disclosed: a securities class action, a defamation action, and two shareholder derivative actions. Puma recorded no contingency accrual because it did not consider any matter probable and estimable, but stated outcomes are uncertain and adverse outcomes are possible. The securities case is set for trial in November 2018.
- Available-for-sale investments were short-term, primarily commercial paper and corporate bonds; management characterized interest-rate exposure as minimal. Approximately $85.7 million of cash and equivalents exceeded applicable deposit insurance limits.
- Disclosure controls and procedures were assessed as effective at June 30, 2017; the company reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- NERLYNX launch performance, initial prescriptions, net pricing, payer coverage, and any revenue actually recognized after quarter-end.
- Cash burn, the timing and amount of the Pfizer milestone and royalties, and whether additional financing will be needed; assess the going-concern disclosure against subsequent cash and operating results.
- EMA review outcome and timing, post-marketing commitments, and progress of clinical programs and manufacturing capacity.
- Developments and potential financial exposure in the securities, defamation, and derivative lawsuits.
- Share dilution and equity compensation: 37.1 million shares were outstanding at June 30, and 37.2 million at August 3, 2017.