Puma Biotechnology, Inc. — Q1 2017 Form 10-Q
Business context and reporting period
Unaudited results cover the three months ended March 31, 2017, compared with the three months ended March 31, 2016. Puma is a clinical-stage biopharmaceutical company focused primarily on oral neratinib for HER2-positive breast cancer. It had no product sales and had not launched a commercial product. The FDA NDA and EMA MAA for neratinib in the extended adjuvant setting were submitted in July and June 2016, respectively.
Financial results and liquidity
| Metric | Q1 2017 | Q1 2016 or comparison |
|---|---|---|
| Revenue | None | None |
| Research and development expense | $54.8 million | $60.2 million; down 9.0% |
| General and administrative expense | $18.4 million | $11.0 million; up 66.7% |
| Total operating expenses / operating loss | $73.2 million | $71.2 million |
| Net loss | $72.9 million | $71.0 million |
| GAAP loss per share, basic and diluted | $1.97 | $2.19 |
| Operating cash used | $36.0 million | $35.0 million |
| Cash and cash equivalents, March 31 | $105.1 million | $194.5 million at December 31, 2016 |
| Marketable securities, March 31 | $88.9 million | $35.0 million at December 31, 2016 |
| Working capital, March 31 | $160.9 million | $199.0 million at December 31, 2016 |
| Total liabilities / stockholders’ equity, March 31 | $49.2 million / $167.4 million | $43.0 million / $209.8 million at December 31, 2016 |
Cash, cash equivalents and marketable securities totaled approximately $194.0 million at March 31, 2017. Cash and securities are not equivalent to operating cash flow: operating activities used $36.0 million, investing activities used $54.1 million—primarily purchases of available-for-sale securities—and financing activities provided $0.7 million. No borrowings are listed in the presented balance sheet. Gross margin is not applicable because the company reported no revenue.
Stock-based compensation was $29.8 million. The company also presented non-GAAP adjusted net loss of $43.1 million, or $1.16 per share, excluding stock-based compensation; these measures are not substitutes for GAAP results.
Material changes versus the prior period
- Net loss increased by approximately $1.9 million, while operating cash use increased by approximately $1.0 million.
- G&A expense rose $7.4 million, principally from higher professional fees, payroll, facility costs and stock-based compensation, including preparation for potential commercialization.
- R&D expense fell $5.4 million, mainly because drug-supply manufacturing and logistics costs declined after manufacturing campaigns completed in 2016.
- Cash and cash equivalents declined from year-end, while marketable securities increased as the company invested excess cash in short-term securities.
Outlook, management commentary and risks
- Management estimated R&D spending of approximately $140 million to $150 million over the next 12 months, excluding stock-based compensation. It expected modestly lower R&D spending on existing trials, but spending could increase if new trials begin.
- The company anticipated no product revenue for at least the next three to six months, if ever. It expected product approval, if achieved, no earlier than approximately the second half of 2017, but gave no assurance of approval this year or at all.
- G&A expenses were expected to increase as Puma assessed commercialization options and potentially hired sales and supporting staff, pending FDA action on the NDA.
- The filing states that significant operating losses raise substantial doubt about the company’s ability to continue as a going concern. Management said additional funding may be needed for operations and a commercial launch; no committed financing sources were available, and future financing could be unavailable or dilutive.
- Several lawsuits remain pending, including a securities class action, derivative actions and a defamation lawsuit. No contingency liability was accrued because management did not consider any contingency probable and estimable; the filing says material adverse outcomes are possible and the proceedings require significant resources.
- Management reported disclosure controls and procedures were effective as of March 31, 2017, with no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Regulatory status and timing of FDA and EMA decisions on neratinib, and any relevant safety or clinical developments.
- Actual cash burn, securities available for use, and whether additional capital is needed or obtained; the going-concern disclosure highlights financing dependence.
- Progress and costs of commercialization preparations, including hiring and the company’s eventual sales or partnership strategy.
- R&D spending against the $140 million to $150 million 12-month estimate, excluding stock-based compensation.
- Developments in pending litigation and any resulting financial, operational or reputational impact.