Puma Biotechnology, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. The company develops and commercializes cancer therapies and depends primarily on NERLYNX (neratinib), its sole commercial product.
Financial results and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $46.2 million | $50.8 million | $197.8 million | $172.6 million |
| Product revenue | $43.4 million | $49.3 million | $138.1 million | $146.7 million |
| Operating loss | $9.0 million | $12.1 million | $5.5 million | $19.3 million |
| Net loss | $44.7 million | $31.5 million | $33.4 million | $45.0 million |
| Net loss per share | $1.09 | $0.79 | $0.82 | $1.14 |
- Nine-month license revenue was $50.3 million, up from $22.7 million, largely due to an upfront payment tied to an amendment to a sublicense. Royalty revenue rose to $9.5 million from $3.1 million.
- Operating cash flow was positive $26.1 million for the first nine months, compared with $6.4 million in 2020. Investing activities used $15.5 million and financing activities used $31.9 million; cash, cash equivalents and restricted cash declined $21.3 million.
- At September 30, cash and cash equivalents were $63.9 million and marketable securities were $23.6 million. Working capital was $20.7 million. Current liabilities were $116.3 million against current assets of $136.9 million.
- Debt was $100 million principal under the Athyrium notes, with $96.8 million reported net of discounts and issuance costs. The notes mature in 2026, carry interest of 8% plus three-month LIBOR subject to a floor and cap, and include minimum-cash and revenue covenants. The company reported covenant compliance at quarter-end.
- Cost of sales was $51.8 million for the nine months, including a $20 million one-time fee to terminate the CANbridge sublicense. This makes period-to-period cost and margin comparisons less representative.
Changes versus the prior comparable periods
- Q3 total revenue fell 8.9%, as lower U.S. product revenue more than offset higher royalties. NERLYNX bottle volume declined approximately 18% in Q3 and 16% over the nine-month period; higher gross selling prices partly offset the declines. Reserves for variable consideration also increased, principally due to Medicaid claims and government chargebacks.
- Nine-month total revenue increased 14.6%, driven by higher license and royalty revenue despite lower product revenue.
- Nine-month operating loss narrowed, but Q3 net loss increased substantially. Q3 included $24.5 million of legal verdict expense and an $8.1 million loss on debt extinguishment, in addition to operating losses.
- Research and development expense declined 21.5% for the nine months, reflecting lower stock compensation, reduced headcount, trial close-outs and lower enrollment and monitoring costs. SG&A rose 4.4%, mainly because of a $13.6 million noncash warrant-modification charge, partly offset by lower other costs.
Outlook, risks and unusual items
- Going concern: Management disclosed substantial doubt about the company’s ability to continue as a going concern for the twelve months following issuance. The filing cites recurring losses, funding needs, the expected $54.2 million class-action settlement payments, and potential pressure on the minimum-cash covenant. Additional financing may be needed; availability and terms are uncertain.
- Class-action settlement subsequent event: After quarter-end, the parties reached a settlement in principle for approximately $54.2 million, payable in January and June 2022. The court dismissed the case subject to settlement approval; a formal agreement and approval remained outstanding when described in the filing.
- Other legal matters: The company estimated potential Eshelman damages at approximately $2.8 million after an appellate court vacated the prior damages award and remanded for a new damages trial. It also disclosed a patent-infringement suit against AstraZeneca and a generic-drug notice from Sandoz regarding NERLYNX.
- COVID-19 and operations: Management said pandemic restrictions reduced access to healthcare providers and adversely affected NERLYNX sales; patient enrollment and clinical-trial activity were also disrupted. Third-party manufacturers remain essential to supply.
- Restructuring: On November 2, 2021, the company announced a workforce reduction of approximately 13%, mainly in commercial and research roles. It expected about $1.2 million in severance costs, to be recorded in Q4 2021 and paid by March 31, 2022.
- No specific forward revenue or earnings guidance is provided in the filing. The company expects continued losses and states that funding needs depend on commercialization, development spending, litigation, and other uncertain factors.
Investor verification priorities
- Confirm final court approval, documentation, and payment timing for the $54.2 million class-action settlement, and assess its effect on cash and debt covenants.
- Review Athyrium’s minimum-cash and revenue covenant thresholds, the company’s headroom under them, and availability of the additional $25 million borrowing capacity.
- Track NERLYNX volume, net pricing, rebates and chargebacks, plus sublicensee sales and royalty growth; these drive revenue and liquidity.
- Check outcomes and potential costs of the Eshelman proceedings, the AstraZeneca patent case, and the Sandoz generic challenge.
- Assess the effects of the announced workforce reduction and continuing COVID-related commercial and clinical-trial disruptions.