Puma Biotechnology, Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Dollar amounts are in millions unless otherwise noted. Puma is a commercial-stage biopharmaceutical company whose business is centered on NERLYNX (neratinib), alongside clinical development and international sublicensing.
Financial performance
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Product revenue, net | $48.8 | $53.9 | $97.4 | $99.4 |
| License revenue | $20.7 | — | $22.7 | $53.5 |
| Royalty revenue | $1.1 | $0.1 | $1.7 | $0.1 |
| Total revenue | $70.6 | $53.9 | $121.8 | $153.0 |
| Operating income (loss) | $7.1 | $(25.8) | $(7.1) | $(15.9) |
| Net income (loss) | $3.4 | $(37.4) | $(13.5) | $(47.5) |
| Operating cash flow | Not separately provided for quarter | $4.7 | $28.1 |
- Q2 2020 diluted earnings per share were $0.08; the company reported a six-month loss per share of $0.34.
- Q2 operating margin was approximately 10.1%, versus a 47.8% operating loss margin in Q2 2019. Six-month operating loss margin was approximately 5.8% of revenue.
- At June 30, cash and cash equivalents were $90.9 and marketable securities were $16.4; working capital was $64.7. Cash, cash equivalents and restricted cash totaled $103.1.
- Long-term debt was $100.0 principal, or $96.6 net of deferred financing costs and accretion. Stockholders’ equity was $23.4.
Changes versus comparable periods
- Q2 total revenue rose 31% year over year, driven by $20.7 of license revenue, including a $20.0 CANbridge milestone, a $0.5 Bixink upfront payment and a $0.2 Medison milestone. Product revenue fell 9%; management cited a 22% decline in NERLYNX bottles sold and higher variable-consideration reserves, partly offset by price increases.
- For the first half, total revenue fell 20%, chiefly because license revenue was $30.8 lower than in 2019. Product revenue declined 2%, with a 16% volume decline partly offset by higher gross selling prices. Royalty revenue increased as sublicensees began generating sales.
- Operating expenses declined in both periods. First-half SG&A fell 24%, largely from lower stock-based compensation, legal and professional fees, and COVID-related travel; R&D fell 31%, primarily due to trial closeouts and lower clinical-trial and contractor costs.
- First-half operating cash flow decreased to $4.7 from $28.1. Cash and marketable securities together were $107.3, down from $111.6 at year-end 2019, while total assets increased to $263.8 from $234.9.
Outlook, risks and unusual items
- Management provided no specific revenue or earnings guidance. It said existing cash, marketable securities and expected product sales and sublicense proceeds were expected to fund operations for at least one year after filing, while warning that estimates depend on assumptions and that future financing may be needed.
- COVID-19 restrictions limited sales-force contact with physicians and customers, adversely affected NERLYNX sales, and disrupted patient enrollment in U.S. studies and the SUMMIT basket trial. The company said it and key suppliers broadly maintained operations during the first half; further effects on sales, trials and timelines remained uncertain.
- The company had $100.0 of debt outstanding under a secured facility bearing interest at the greater of 9.0% or prime plus 3.5%. Interest-only payments run through August 2021, followed by principal amortization; maturity is June 2024. Revenue covenants apply. An August 5, 2020 amendment revised minimum revenue levels for the periods ending September and December 2020. The company reported covenant compliance at June 30.
- A June agreement with Pfizer permits installment payment of a triggered milestone: approximately $10.4 due in November 2020 and $21.9 in September 2021, including interest; unpaid amounts accrue interest at 6.25%.
- Accrued legal verdict expense was $31.5, including $9.1 for the Hsu securities class action and $22.4 for Eshelman. Hsu damages remain uncertain and the claims process was ongoing. The Eshelman judgment was $26.3 including prejudgment interest; Puma appealed, and the plaintiff cross-appealed. Actual damages could exceed accrued estimates.
- On July 28, 2020, Puma initiated arbitration alleging CANbridge breached or anticipatorily breached its greater-China sublicense. The dispute could affect future milestones and commercialization; its outcome was not estimable. A sublicensee received Malaysian marketing approval on July 16.
- The company reported ongoing operating losses since inception and expects significant losses to continue. It relies on third parties to manufacture NERLYNX and has a single commercial product, creating concentration and supply risks.
Important facts for investors to verify
- Whether NERLYNX sales volume stabilizes as pandemic-related restrictions and access to healthcare providers evolve, and how product revenue reserves change.
- Progress and outcome of the CANbridge arbitration, including any effects on sublicense revenue, potential milestones and China commercialization.
- Cash generation, financing needs and compliance with revised revenue covenants; confirm the timing and funding of the Pfizer installments and scheduled debt amortization.
- Developments in the Hsu claims process and appeals in both Hsu and Eshelman, including any change to the estimated legal liabilities.
- Clinical-trial enrollment and timelines, particularly for SUMMIT, and continued availability of third-party manufacturing and supply.