Puma Biotechnology, Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018. Unaudited results; financial amounts below are in U.S. dollars, millions, unless stated otherwise.
Business context
Puma is a biopharmaceutical company focused on developing and commercializing cancer treatments. Its FDA-approved product, NERLYNX (neratinib), began U.S. commercialization in July 2017. Q1 2018 was the first comparable first quarter with product sales and licensing revenue. The company also develops other neratinib formulations and drug candidates.
Key financial results
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Product revenue, net | $36.0 | $0 |
| License revenue | $30.5 | $0 |
| Total revenue | $66.5 | $0 |
| Cost of sales | $6.4 | $0 |
| SG&A expense | $36.6 | $18.4 |
| R&D expense | $46.9 | $54.8 |
| Operating loss | $(23.4) | $(73.2) |
| Net loss | $(24.3) | $(72.9) |
| Net loss per share, basic and diluted | $(0.65) | $(1.97) |
| Cash used in operating activities | $(6.3) | $(36.0) |
Product revenue less cost of sales implies an approximate product gross margin of 82%. This excludes the effect of licensing revenue and is not a company-reported margin measure.
At March 31, cash and cash equivalents were $78.6; restricted cash was $4.3. Current assets were $111.2, current liabilities $58.1, and working capital $53.1. Total assets were $169.6 and stockholders’ equity $57.5. Debt was $50.0 principal, or $48.6 net of deferred financing costs; it bears variable interest at the greater of 7.75% or prime plus 3.5%, and matures October 2022. Q1 interest expense was $1.1.
Material changes and drivers
- Revenue growth reflects U.S. NERLYNX sales and $30.5 of upfront license fees recognized under agreements with CANbridge and Medison. Product revenue was concentrated: three customers represented 37%, 22%, and 14% of total revenue, respectively.
- SG&A rose 99% year over year, mainly reflecting commercialization and sales-force costs; employee count increased from 33 to 143, primarily in sales and marketing.
- R&D declined 14%, mainly due to lower ExteNET-related CRO costs and stock-based compensation, partly offset by increased internal staffing costs.
- Net operating cash use improved, but reported cash flow benefited substantially from noncash stock-based compensation of $25.4. Cash and restricted cash together declined $3.1 during the quarter.
Outlook, risks and unusual items
- Management estimated R&D spending of $120–$130 over the next 12 months, excluding stock-based compensation, and expected 2018 SG&A to exceed 2017 levels as commercialization continued. R&D was expected to decline slightly from 2017 as clinical activity wound down.
- The company reported ongoing losses and negative operating cash flow and stated that substantial doubt existed about its ability to continue as a going concern. Management said it depends on successful NERLYNX commercialization and access to additional funding; future financing is not assured.
- The EMA’s CHMP issued a negative opinion recommending refusal of the NERLYNX application for extended adjuvant treatment in early-stage HER2-positive breast cancer. Puma requested re-examination and was awaiting the outcome.
- The March 2018 Pint license covers 22 Central and South American countries and territories. Its $10 upfront payment was not recognized at quarter-end because required documents remained outstanding; the agreement also provides for up to approximately $24.5 in potential milestones and royalties.
- After quarter-end, on May 8, 2018, Puma received $125 gross proceeds from the first tranche of a new loan facility of up to $155. The company intended to use proceeds to repay the existing $50 term loan and support corporate and NERLYNX commercial needs. A further $30 tranche is conditional on revenue and other requirements.
- Pending matters include a securities class action, a defamation case, derivative actions, and a stockholder fee claim. The filing says outcomes are uncertain; it does not provide a clear estimate of potential losses.
Investor verification points
- Track U.S. NERLYNX demand, net pricing, reimbursement and returns, and the extent of customer concentration.
- Confirm whether the Pint documentation condition was met and whether the $10 upfront payment was received; distinguish contingent milestones from recognized revenue.
- Monitor the EMA re-examination and any regulatory or clinical developments that could affect commercialization and forecasts.
- Assess cash runway, financing needs, loan covenants and revenue thresholds, including the terms and use of the May 2018 loan proceeds.
- Review legal proceedings and potential costs or outcomes as they develop.
- Reconcile the MD&A non-GAAP reconciliation, which lists Q1 2018 GAAP diluted loss per share as $(0.60), with the financial statements’ basic and diluted loss per share of $(0.65).