Puma Biotechnology, Inc. — Q2 2019 Form 10-Q
Quarter ended June 30, 2019; unaudited. Puma is a biopharmaceutical company focused primarily on U.S. commercialization of NERLYNX (neratinib) and development of neratinib for additional cancer indications. Financial amounts below are in millions, except per-share data.
Financial performance
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Total revenue | $53.9 | $50.8 | $153.0 | $117.3 |
| Net product revenue | $53.9 | $50.8 | $99.4 | $86.8 |
| License revenue | — | — | $53.5 | $30.5 |
| Operating loss | $(25.8) | $(41.4) | $(15.9) | $(64.8) |
| Net loss | $(37.4) | $(44.3) | $(47.5) | $(68.7) |
| Basic and diluted loss per share | $(0.97) | $(1.17) | $(1.23) | $(1.82) |
| Operating cash flow | Not separately presented | Not separately presented | $28.1 | $(23.9) |
- Q2 product revenue rose about 6% year over year; management attributed the increase primarily to a 10% increase in gross selling price, partly offset by higher variable consideration. H1 product revenue grew about 15%, reflecting higher sales and price, partly offset by increased variable consideration.
- Q2 gross profit, calculated as total revenue less cost of sales, was approximately $44.6 million, or 82.7% of revenue, versus $41.9 million, or 82.6%, a year earlier. Q2 operating loss narrowed to $25.8 million from $41.4 million; net loss included refinancing costs and higher interest expense.
- H1 license revenue included a $51.0 million Pierre Fabre upfront payment and revenue from other license-related performance obligations. H1 2019 also included $55,000 of royalty revenue from license partners.
- H1 operating cash flow was positive despite the net loss. The filing cites noncash expenses and increases in accrued expenses, including a $9.0 million post-marketing commitment liability, as important contributors.
Liquidity, debt and balance sheet
- At June 30, cash and cash equivalents were $27.2 million and marketable securities were $90.5 million, or $117.7 million combined. Restricted cash was $13.2 million. Working capital was $65.9 million, down from $135.9 million at December 31, 2018.
- Long-term debt had $100.0 million principal outstanding and a $93.4 million carrying value net of financing costs and other adjustments. In June, Puma refinanced $155.0 million of prior debt with $100.0 million of new borrowing and cash on hand, reducing principal debt by $55.0 million. The refinancing generated an $8.1 million extinguishment loss.
- The new facility bears interest at the greater of 9.0% or prime plus 3.5%; monthly interest-only payments run through August 1, 2021, with principal amortization thereafter and maturity on June 1, 2024. It includes a final payment equal to 7.5% of specified principal and revenue covenants. The debt is secured by substantially all personal property other than intellectual property, with 65% of subsidiary shares also pledged.
- Lease accounting adoption added right-of-use assets and lease liabilities; reported lease liabilities were $26.3 million at quarter-end. The company reported compliance with its new credit-facility covenants as of June 30.
Changes, outlook and risks
- Compared with Q2 2018, SG&A fell 16.5% to $33.5 million and R&D fell 14.8% to $36.9 million, largely reflecting lower stock-based compensation and reduced personnel-related costs. H1 SG&A increased 3.0% to $79.0 million, while H1 R&D declined 19.5% to $72.6 million.
- Management estimated R&D spending of $110–$120 million over the next 12 months, excluding stock-based compensation, and expected SG&A to increase with commercialization. It expected clinical R&D expenses to decline in 2019 versus 2018, while medical affairs, pharmacovigilance and regulatory costs could rise.
- Management said cash, marketable securities and expected product sales and upfront license payments were sufficient for operating needs for at least one year after filing. It also cautioned that ongoing losses and potential additional development or commercialization spending may require further financing; future funding is not assured.
- Legal matters are material. Puma accrued $31.35 million for verdict-related expenses: $9.0 million for the Hsu securities class action and $22.4 million for the Eshelman defamation case, the latter net of insurance reimbursement. Hsu damages were estimated at $9–$18 million, with higher damages possible; Eshelman’s potential damages were estimated as high as $26.3 million, potentially higher. Post-trial proceedings, claims processes, appeals, interest and fees could change amounts.
- Key business risks include dependence on NERLYNX as its principal product, reliance on third-party manufacturers, customer and distribution concentration, clinical and regulatory uncertainty, and debt covenants and variable interest rates. The filing reported no material change to previously disclosed risk factors. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether NERLYNX sales growth, net pricing and variable-consideration deductions support sustainable product revenue and margins.
- How much operating cash flow depends on noncash items and liability accruals, and how cash and marketable securities change as planned R&D and commercialization spending proceeds.
- Progress against the new loan’s revenue covenants, interest burden, amortization schedule and final payment obligation.
- Final outcomes and cash exposure in the Hsu and Eshelman cases, including any additional interest, fees, insurance recoveries or appeal results.
- Timing and realization of license-partner milestones and royalties; the filing states that milestone timing was not estimable.