Puma Biotechnology(PBYI) - 2020 Q4 - Annual Report

Part I Business Overview Puma Biotechnology is a biopharmaceutical company focused on developing and commercializing its primary cancer care product, NERLYNX - Puma Biotechnology, Inc is a biopharmaceutical company focused on developing and commercializing innovative products to enhance cancer care, with NERLYNX (neratinib) as its lead product[15][356][518] - NERLYNX is an oral, potent irreversible tyrosine kinase inhibitor (TKI) that blocks signal transduction through HER1, HER2, and HER4 receptors[15][32][356] - NERLYNX received FDA approval in July 2017 for extended adjuvant treatment of early-stage HER2-overexpressed/amplified breast cancer and in February 2020 for metastatic HER2-positive breast cancer in combination with capecitabine[15][35][51] - The European Commission (EC) granted marketing authorization for NERLYNX in August 2018 for extended adjuvant treatment of early-stage hormone receptor positive HER2-overexpressed/amplified breast cancer[18][35] - The company commercializes NERLYNX in the US with a direct specialty sales force of approximately 68 sales specialists and through exclusive sub-license agreements in various regions outside the US[18][89][91] - Puma Biotechnology is actively conducting Phase II clinical trials to evaluate neratinib's safety and efficacy for other indications, including HER2-mutated HER2-negative cancers and EGFR exon 18 mutated non-small cell lung cancer[21][66][69][79] - The company's strategy includes executing the NERLYNX commercial plan, advancing neratinib development for other cancer indications, expanding the product pipeline, and evaluating commercialization strategies[25] - Puma Biotechnology relies exclusively on third-party contractors for drug formulation and manufacturing of NERLYNX and its drug candidates[132][133] - The company holds a worldwide exclusive license from Pfizer for neratinib, with key US patents expiring between 2025 and 2031[92][93][94][104] - Research and development expenses totaled $97.7 million in 2020, a decrease from $132.9 million in 2019 and $164.9 million in 2018[191] NERLYNX Approvals by Country (as of December 2020) | Indication | Country | Approval Date | | :---------- | :------ | :------------ | | Extended adjuvant | United States | July 2017 | | Extended adjuvant | European Union | August 2018 | | Extended adjuvant | Australia | March 2019 | | Extended adjuvant | Canada | July 2019 | | Extended adjuvant | Argentina | August 2019 | | Extended adjuvant | Hong Kong | October 2019 | | Extended adjuvant | Singapore | November 2019 | | Extended adjuvant | Switzerland | March 2020 | | Extended adjuvant | Brunei | April 2020 | | Extended adjuvant | China | April 2020 | | Extended adjuvant | Chile | April 2020 | | Extended adjuvant | New Zealand | June 2020 | | Extended adjuvant | Taiwan | June 2020 | | Extended adjuvant | Ecuador | July 2020 | | Extended adjuvant | Malaysia | July 2020 | | Metastatic | United States | February 2020 | | Metastatic | Argentina | January 2021 | Workforce by Location (as of December 31) | Location | December 31, 2020 | December 31, 2019 | | :--------- | :------------------ | :------------------ | | Los Angeles | 86 | 83 | | South San Francisco | 67 | 70 | | Field | 114 | 116 | | Total | 267 | 269 | Risk Factors The company faces significant risks including operating losses, single-product dependency, and challenges in commercialization and financing - Puma Biotechnology has a history of operating losses, with an accumulated deficit of approximately $1.3 billion as of December 31, 2020[206] - The company is currently a single-product company, with NERLYNX being the sole source of product revenue, making its success almost entirely dependent on NERLYNX's commercial performance[209] - Commercial success of NERLYNX is uncertain and depends on market penetration, physician and patient acceptance, and the ability to manage side effects like diarrhea[210] - The company may not be able to secure additional financing on favorable terms, which could force delays or termination of product development or commercialization efforts[212][214] - The credit facility with Oxford Finance LLC places restrictions on business operations and financial flexibility, including minimum revenue covenants[215][216] - Reliance on international third-party sub-licensees for development and commercialization of NERLYNX outside the US poses risks if these partners fail to meet obligations[211][269] - NERLYNX or other drug candidates may cause undesirable side effects, which could delay or prevent regulatory approval or limit commercial potential[248] - The company has no experience in drug formulation or manufacturing and relies exclusively on third parties, exposing it to risks of supply disruption and quality issues[272][274] - The COVID-19 pandemic has harmed and could continue to harm business operations, financial condition, and ongoing clinical trials[277][279] - The company depends significantly on intellectual property licensed from Pfizer, and termination of this license would severely harm its business[307] - The company is subject to securities litigation, including the Hsu v. Puma Biotechnology, Inc., et al. class action lawsuit, which could result in substantial damages[325][337] Unresolved Staff Comments The company reports no unresolved comments from SEC staff Properties The company leases adequate office space in Los Angeles and South San Francisco for its corporate and operational needs - The company leases 65,656 sq ft of office space in Los Angeles, CA (corporate headquarters) and 29,470 sq ft in South San Francisco, CA[336] - Both leases terminate in March 2026, with the South San Francisco lease having a five-year extension option[336] Legal Proceedings The company is involved in several material legal proceedings, including class action lawsuits and a licensing dispute - In Hsu v. Puma Biotechnology, Inc., et al., a jury found liability on one of four alleged misstatements, with claimed damages ranging from $24.8 million to $51.4 million[337][122][123] - In Eshelman v. Puma Biotechnology, Inc., et al., a jury found the company liable for defamation, awarding $26.3 million including interest, which the company has appealed[338][123] - The company resolved a licensing dispute with CANbridge Biomed Limited, agreeing to pay a one-time termination fee of $20.0 million to regain all rights to NERLYNX in Greater China[339][463][123] - Puma Biotechnology filed a legal malpractice lawsuit against its former attorneys in the Eshelman case, seeking recovery of the awarded amount[340][123] Mine Safety Disclosure The company has no mine safety disclosures as it is not subject to the relevant Dodd-Frank Act requirements Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on NASDAQ under 'PBYI', and it has not paid dividends and does not plan to - Puma Biotechnology's common stock has been quoted on the NASDAQ Global Select Market under the symbol 'PBYI' since January 3, 2017[342] - As of February 18, 2021, there were nine holders of record and approximately 14,500 additional owners holding common stock in 'Street Name'[343] - The company has never declared or paid cash dividends and does not anticipate doing so in the foreseeable future; dividend payments are also restricted under its credit facility[344][332] Cumulative Total Return Comparison (December 31, 2015 = $100) | | 12/31/2015 | 12/31/2016 | 12/31/2017 | 12/31/2018 | 12/31/2019 | 12/31/2020 | | :----------------------- | :--------- | :--------- | :--------- | :--------- | :--------- | :--------- | | Puma Biotechnology, Inc | 100.00 | 39.16 | 126.08 | 25.96 | 11.16 | 13.09 | | Nasdaq Biotechnology Index | 100.00 | 78.65 | 95.67 | 87.19 | 109.08 | 137.90 | | Nasdaq Composite Index | 100.00 | 108.87 | 141.13 | 137.12 | 187.44 | 271.64 | Selected Financial Data This section presents a five-year summary of the company's key consolidated financial data Consolidated Statement of Operations Data (in millions, except share and per share data) | | 2020 | 2019 | 2018 | 2017 | 2016 | | :----------------------------------- | :----- | :----- | :----- | :----- | :----- | | Product revenue, net | $196.7 | $211.6 | $200.5 | $26.2 | $— | | License revenue | 22.7 | 60.3 | 50.5 | 1.5 | — | | Royalty revenue | 5.7 | 0.4 | — | — | — | | Cost of sales | 39.4 | 36.8 | 34.6 | 5.6 | — | | Selling, general and administrative | 118.4 | 141.6 | 146.2 | 106.7 | 53.8 | | Research and development | 97.7 | 132.9 | 164.9 | 207.8 | 222.8 | | Operating loss | (30.4) | (39.0) | (94.7) | (292.4) | (276.6) | | Net loss | (60.0) | (75.6) | (113.6) | (292.0) | (276.0) | | Net loss per common share—basic and diluted | (1.52) | (1.95) | (2.99) | (7.85) | (8.29) | | Weighted-average common shares outstanding—basic and diluted | 39,576,107 | 38,768,653 | 37,942,411 | 37,169,678 | 33,295,114 | Consolidated Balance Sheet Data (in millions) | | As of December 31, 2020 | As of December 31, 2019 | As of December 31, 2018 | As of December 31, 2017 | As of December 31, 2016 | | :-------------------------- | :---------------------- | :---------------------- | :---------------------- | :---------------------- | :---------------------- | | Total assets | $244.2 | $234.9 | $259.1 | $165.5 | $252.8 | | Total liabilities | 250.2 | 217.4 | 224.8 | 112.2 | 43.0 | | Total stockholders' (deficit) equity | (6.0) | 17.5 | 34.3 | 53.3 | 209.8 | Other Financial Data (in millions) | | Years Ended December 31, 2020 | Years Ended December 31, 2019 | Years Ended December 31, 2018 | Years Ended December 31, 2017 | Years Ended December 31, 2016 | | :--------------------------------------- | :---------------------------- | :---------------------------- | :---------------------------- | :---------------------------- | :---------------------------- | | Net cash provided by (used in) operating activities | $0.8 | $22.4 | $(24.1) | $(172.5) | $(141.7) | | Net cash provided by (used in) investing activities | 23.4 | 5.2 | (57.6) | (15.4) | 142.2 | | Net cash provided by (used in) financing activities | 0.1 | (67.1) | 108.5 | 75.1 | 162.4 | Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes the company's financial performance for 2020 and 2019, including revenue, expenses, and liquidity - Total revenue decreased to $225.1 million in 2020 from $272.3 million in 2019, primarily due to a decrease in product and license revenue[370] - Product revenue, net, decreased by $14.9 million (7.0%) in 2020, driven by a 21% volume decrease in NERLYNX bottles sold[371] - License revenue decreased by $37.6 million in 2020 due to lower upfront payments and performance-based milestones from sub-license agreements[372] - Royalty revenue increased by $5.3 million in 2020, reflecting increased product sales by sub-licensees in international territories[373] - Total operating costs and expenses decreased by 17.9% to $255.5 million in 2020 from $311.3 million in 2019[374][376][377] - Net loss for 2020 was $60.0 million, compared to $75.6 million in 2019[354][388] - The company reported positive cash flows from operating activities of $0.8 million in 2020, down from $22.4 million in 2019[391] - As of December 31, 2020, the company had $100.0 million in principal amounts outstanding under its New Credit Facility, with an effective interest rate of 12.75%[402][407] Revenue Breakdown (in millions) | Revenue Type | 2020 | 2019 | Change (2020 vs 2019) | | :------------- | :----- | :----- | :-------------------- | | Product revenue, net | $196.7 | $211.6 | $(14.9) | | License revenue | $22.7 | $60.3 | $(37.6) | | Royalty revenue | $5.7 | $0.4 | $5.3 | | Total Revenue | $225.1 | $272.3 | $(47.2) | Selling, General and Administrative Expenses (in thousands) | Category | 2020 | 2019 | Change ($) | Change (%) | | :-------------------------- | :----- | :----- | :--------- | :--------- | | Payroll and related costs | $41,313 | $41,415 | $(102) | -0.2% | | Professional fees and expenses | $42,935 | $49,060 | $(6,125) | -12.5% | | Travel and meetings | $4,726 | $10,987 | $(6,261) | -57.0% | | Facilities and equipment costs | $5,673 | $5,803 | $(130) | -2.2% | | Loss on impairment of asset | $— | $1,183 | $(1,183) | -100.0% | | Stock-based compensation | $17,778 | $27,892 | $(10,114) | -36.3% | | Credit loss expense | $1,000 | $— | $1,000 | 100.0% | | Other | $5,063 | $5,299 | $(236) | -4.5% | | Total SG&A expenses | $118,488 | $141,639 | $(23,151) | -16.3% | Research and Development Expenses (in thousands) | Category | 2020 | 2019 | Change ($) | Change (%) | | :-------------------------- | :----- | :----- | :--------- | :--------- | | Clinical trial expense | $31,428 | $51,545 | $(20,117) | -39.0% | | Internal R&D | $38,736 | $39,603 | $(867) | -2.2% | | Consultant and contractors | $8,689 | $12,268 | $(3,579) | -29.2% | | Stock-based compensation | $18,797 | $29,435 | $(10,638) | -36.1% | | Total R&D expenses | $97,650 | $132,851 | $(35,201) | -26.5% | Liquidity and Capital Resources (in thousands) | Category | December 31, 2020 | December 31, 2019 | | :------------------------------------------------- | :------------------ | :------------------ | | Cash and cash equivalents | $85,293 | $60,037 | | Marketable securities | $8,096 | $51,607 | | Working capital | $31,884 | $75,459 | | Stockholders' (deficit) equity | $(5,951) | $17,463 | | Net cash provided by (used in) operating activities | $773 | $22,376 | | Net cash provided by (used in) investing activities | $23,403 | $5,163 | | Net cash provided by (used in) financing activities | $68 | $(67,067) | | Net increase (decrease) in cash, cash equivalents and restricted cash | $24,244 | $(39,528) | Contractual Obligations (as of December 31, 2020, in thousands) | Contractual Obligations | Total | Less than 1 year | 1 - 3 years | 3 - 5 years | More than 5 years | | :---------------------- | :---- | :--------------- | :---------- | :---------- | :---------------- | | Operating lease obligations | $29,776 | $5,365 | $11,114 | $13,297 | $— | | Debt obligations (principal and interest) | $126,509 | $23,194 | $78,214 | $25,101 | $— | | Total | $156,285 | $28,559 | $89,328 | $38,398 | $— | Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk exposure relates to interest rate changes affecting its cash equivalents and term loans - The company's primary market risk exposure is to changes in interest rates, affecting cash equivalents and outstanding term loans[440][442] - Excess cash is invested in cash equivalents with objectives of liquidity and principal preservation[440] - A 10% increase in interest rates is not expected to materially affect the realized value of cash equivalents[441] - As of December 31, 2020, outstanding term loans totaled $100 million, bearing variable interest, and a 100 basis point increase in interest rates would not have materially affected interest expense for 2020[442] Financial Statements and Supplementary Data This item refers to the consolidated financial statements and supplementary data presented elsewhere in the Annual Report Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with accountants on accounting and financial disclosure matters Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of year-end 2020 - As of December 31, 2020, the CEO and CFO concluded that the company's disclosure controls and procedures were effective[446] - There were no material changes in internal control over financial reporting during the year ended December 31, 2020[447] - Management assessed the effectiveness of internal control over financial reporting as of December 31, 2020, based on the COSO 2013 framework, and concluded it was effective[450] - KPMG LLP, the independent registered public accounting firm, issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2020[451][453] Other Information The company amended its agreement with Pierre Fabre to extend NERLYNX rights to Greater China and terminated its agreement with CANbridge - On February 24, 2021, Puma Biotechnology entered into the Second Pierre Fabre Amendment, extending NERLYNX commercial rights to Greater China[461][649] - Under the Pierre Fabre amendment, the company will receive a $50.0 million upfront payment and up to $240.0 million in additional milestone payments, plus royalties[461][649] - Concurrently, the company terminated its sub-license agreement with CANbridge BIOMED Limited for Greater China, paying a one-time termination fee of $20.0 million to regain all rights[463][649] Part III Directors, Executive Officers and Corporate Governance This item incorporates by reference information from the company's 2021 Proxy Statement Executive Compensation This item incorporates by reference information regarding executive compensation from the company's 2021 Proxy Statement Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This item incorporates by reference information regarding security ownership from the company's 2021 Proxy Statement Certain Relationships and Related Transactions, and Director Independence This item incorporates by reference information regarding related transactions and director independence from the company's 2021 Proxy Statement Principal Accounting Fees and Services This item incorporates by reference information regarding accounting fees and services from the company's 2021 Proxy Statement Part IV Exhibits, Financial Statement Schedules This section lists all exhibits and financial statement schedules filed as part of the Annual Report on Form 10-K - The report includes the Report of Independent Registered Public Accounting Firm, Consolidated Financial Statements, and Notes to Consolidated Financial Statements[471] - Consolidated Financial Statement Schedules have been omitted as they are not required or applicable[472] - An Exhibit Index is provided, listing various agreements, plans, and certifications, including the License Agreement with Pfizer Inc and the Loan and Security Agreement with Oxford Finance LLC[472][476][477][478][479] Form 10-K Summary The company states that no Form 10-K Summary is included in this report