Puma Biotechnology, Inc. — Q2 2013 Form 10-Q
Reporting period: Three and six months ended June 30, 2013. The filing was signed August 6, 2013. Puma is a development-stage biopharmaceutical company with no product revenue to date; its spending is focused on developing oncology drug candidates.
Financial performance and liquidity
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Revenue | None; Puma had not generated product sales | |||
| Research and development expense | $10.4 million | $13.0 million | $20.0 million | $23.6 million |
| General and administrative expense | $2.3 million | $1.8 million | $4.5 million | $3.1 million |
| Operating loss | $12.7 million | $14.8 million | $24.5 million | $26.6 million |
| Net loss | $12.7 million | $14.8 million | $24.4 million | $26.6 million |
| Basic and diluted loss per share | $0.44 | $0.74 | $0.85 | $1.33 |
| Cash used in operating activities | Not separately stated | Not separately stated | $29.5 million | $11.6 million |
At June 30, cash and cash equivalents were $60.9 million, marketable securities $46.6 million, and working capital $103.6 million. Total cash, cash equivalents and marketable securities were approximately $107.5 million. A further $14.8 million was due from the licensor for clinical-trial costs; Puma had not reserved against this receivable. Total assets were $128.0 million, total liabilities $21.0 million, and stockholders’ equity $107.0 million. The balance sheet lists no debt. Profit margins are not meaningful because there was no revenue.
Six-month investing cash outflow was $47.1 million, principally reflecting $46.7 million invested in corporate bonds; financing cash flow was zero. Cash and cash equivalents declined $76.5 million, partly as funds were moved into marketable securities. The filing reports a $74,000 unrealized loss on those securities for the six-month period.
Material changes versus the prior comparable period
- Q2 net loss narrowed by about $2.1 million year over year; six-month net loss narrowed by about $2.2 million. Loss per share also declined, while weighted-average shares increased from 20.0 million to 28.7 million following the prior-year equity offering.
- Six-month operating cash use increased to $29.5 million from $11.6 million. The filing attributes cash use in part to a $4.2 million increase in the licensor receivable and $1.8 million in prepaid expenses and other assets as trials ramped up.
- R&D expense fell year over year, mainly because licensor/CRO costs for legacy trials declined after Puma reached the contractual cost cap in Q4 2012. Within R&D, outside other clinical-development costs increased as Puma-funded trials and manufacturing work ramped up.
- G&A expense rose, primarily due to higher stock-based compensation, payroll and facility costs. Stock-based compensation expense was $2.6 million for the first half of 2013 versus $0.2 million in the first half of 2012.
Outlook, risks and other notable items
- Puma licenses three candidates: oral neratinib (PB272), intravenous neratinib (PB272), and PB357. Oral neratinib was being developed for advanced breast cancer and non-small cell lung cancer; the filing cites a Phase III trial in HER2-positive metastatic breast cancer and a Phase II trial in non-small cell lung cancer. The company planned to evaluate PB357 further in 2013.
- Management estimated cash resources would fund clinical development through 2014 and into 2015, and stated approval of a candidate was not expected until approximately 2015, assuming no unforeseen safety issues. Puma expected to incur losses and negative operating cash flows during development.
- For the next 12 months, management estimated R&D spending of $45–$55 million, excluding stock-based compensation, and G&A spending of $7–$8 million, also excluding stock-based compensation. Puma said it might seek additional financing earlier or to pursue opportunities; it had no committed financing. Financing may be unavailable or dilutive, and inability to raise funds could delay or curtail development.
- Licensor reimbursement timing is a liquidity risk: contractual review is 60 days, but the filing says review and payment had taken about 90–105 days. Puma reported receiving approximately $7.7 million in June 2013 for 2012 costs and approximately $4.0 million in July for first-quarter 2013 costs; it expected remaining amounts by year-end.
- The filing reports no pending or known threatened legal proceedings, no material change in risk factors from the 2012 Form 10-K, and effective disclosure controls as of June 30, 2013. Puma also disclosed that public float exceeded $700 million on June 28, 2013, with large-accelerated-filer status expected from January 1, 2014.
- The filing presents non-GAAP adjusted losses excluding stock compensation and specified legacy-trial costs; these measures are not substitutes for GAAP results. Its liquidity discussion refers once to “six product candidates,” although the business overview identifies three licensed candidates.
Investor verification priorities
- Confirm collection and timing of the $14.8 million licensor receivable, including the portion invoiced, subsequent receipts, and any continuing payment delays.
- Track trial progress, safety findings, regulatory milestones and the pace and cost of company-initiated clinical programs, especially as spending ramps.
- Reconcile actual cash burn and investment maturities against management’s funding runway and 12-month expense estimates; distinguish operating cash use from purchases of marketable securities.
- Review financing needs and potential dilution, including whether the stated three-candidate pipeline or the isolated “six product candidates” reference is accurate.
- Assess the basis and limitations of non-GAAP adjustments and compare them with GAAP losses and cash flows.