PBYI - Puma Biotechnology: Profitable Troubled But Worth A Good Look

2023-12-14 01:41:25 ET

Summary

• Puma Biotechnology is a commercial-stage biotech with a struggling approved drug, neratinib, but potential for gains.
• The company is focused on refining current indications for neratinib and investigating dose optimization.
• Puma Biotechnology's growth strategy relies on the development of alisertib, an aurora kinase A inhibitor, but success is uncertain.

Topline Summary

Puma Biotechnology ( PBYI ) is a commercial-stage biotech that has struggled almost since day one to find sure footing for its sole approved drug, a kinase inhibitor called neratinib. While they continue to develop alisertib, it is a kinase inhibitor with spotty development history, so there's a lot of risk of achieving no new indications in the near or long term. Still, they're cash flow positive and trading at the level of a troubled developmental biotech. This creates an investment opportunity with a lot of potential for gains.

Pipeline Overview

Neratinib

The main drug for PBYI at this stage is neratinib, an EGFR family-targeted tyrosine kinase inhibitor. It has 2 approved indications: one for "extended adjuvant" therapy (treatment after surgery to help prevent disease recurrence) and one that came a few years later for metastatic, HER2-positive breast cancer after 2 or more prior lines of therapy.

While there are a few ongoing trials involving neratinib in patients with HER2-positive breast cancer, label expansion is not currently what the company is touting as a particular sales growth driver. Rather, they're focused on refining the current indications through outreach, as well as ongoing investigations into dose optimization.

Specifically, the risk of diarrhea with neratinib is a well-known and treatment-limiting complication of the agent, and it's been one of the main reasons for the company to have a potential blockbuster indication not to meet its potential. While experts recommend that adequate prevention and monitoring can limit the impact of diarrhea, in the real-world setting, where oncologists almost certainly do not specialize in breast cancer management alone (let alone just in HER2-positive breast cancer, which is not the most common form), something like 82% of patients still initiate treatment at the full dose, and diarrhea remains the most common reason for treatment discontinuation.

In their latest earnings call , PBYI highlighted that in quarter 3 of 2023 around 71% of patients who received commercial neratinib initiated at a lower starting dose, indicating the success of the ongoing effort to achieve widespread adoption of this strategy. This is important because neratinib continues to hold a unique niche with its extended adjuvant approval. There's not really another HER2 drug, not even the more exciting trastuzumab deruxtecan, that's used in this particular setting.

Alisertib

Arguably, the lynchpin piece of PBYI's growth strategy moving forward is getting approval of completely new agents. For this, they're developing the aurora kinase A inhibitor alisertib, formerly being developed by Takeda but dropped due to underwhelming clinical trial results . It was then licensed to PBYI in 2022 with the hopes of developing some of the promising early signals observed in breast cancer and small cell lung cancer . Most recently, a published JAMA Oncology paper highlighted the potential efficacy of adding alisertib to fulvestrant in previously treated, HR-positive breast cancer might improve outcomes in patients who had prior exposure to CDK4/6 inhibitors.

However, it's worth noting that in the overall population (which was the main treatment group for the study), response rates were not improved to the extent that was predicted, so it was overall deemed negative. The company announced the design of a phase 2 trial earlier this week with the intention of exploring alisertib combination therapy in patients with prior exposure to CDK4/6 inhibitors and endocrine therapy-resistant metastatic breast cancer.

Also in Q3, PBYI filed an IND to begin a phase 2 trial of alisertib monotherapy in patients with small cell lung cancer , an indication that has Orphan Drug designation.

Financial Overview

From their Q3 2023 filing , PBYI held $125 million in total current assets, including $81.8 million in cash and equivalents and $3.2 million in marketable securities. Their long-term debt is notable at $76.6 million, down from $98 million in the same time period in 2022.

Their total revenues were $56.1 million for the quarter, down by $1 million year over year. After total operating costs, interest income, and taxes, the net income for the quarter was $5.8 million.

Strengths and Risks

First off, PBYI has a track record now of achieving good sales. Not necessarily the blockbuster that was hoped for years ago, but neratinib is continuing to provide wind for the sails. While they guide that revenues should pick up and remain cyclical, it's difficult to imagine carving out large, new inroads with neratinib.

So the future growth of the company would appear to rest almost squarely on the shoulders of the alisertib project. What can we make of that?

Honestly, I'm pretty skeptical of the potential success of this agent. First, you have an unproven target in Aurora kinase A, with no drugs approved that target it. This means you need a good, strong clinical evidence base to move it forward, which alisertib just doesn't have. The few trials where there is a signal for efficacy justify further exploration, but when you run so many small phase 1 and 2 trials, you're bound to get a positive signal in a few of them just by chance.

So that's why the HR-positive breast cancer story being touted by PBYI is so convincing. What is it about prior CDK4/6 exposure and endocrine resistance that would make alisertib work where it didn't in other areas? I'm rooting for it, but I won't be surprised if it doesn't pan out.

And for small cell lung cancer, I'm deeply hopeful of a positive outcome, but that disease is a graveyard for promising drugs. There's a reason that the "major developments" move the needle only a tiny bit and that the vast majority of drugs fail to accomplish anything at all. It will be a big deal if alisertib activity is confirmed in these patients, but it's also a tall giant to fight.

Bottom-Line Summary

From the outside looking in, future approvals do not really look assured for any of this company's drugs. That creates a high-reward, but very high-risk situation. The fact that they're cash flow positive means they can continue to operate indefinitely, though, so there's a lot of hope, and the market really doesn't value this positive cash flow very highly, with Seeking Alpha estimating a forward P/E of just around 7. If just one indication pans out, the current sub-$200m market cap is going to be a massive bargain.

For that reason, I am tentatively optimistic that PBYI is being undervalued at this time. This is a buy with a lot of risk for me. They're not facing a cash crisis. They have irons in the fire, even if there is not a lot of excitement for them. I think there's a real chance for the market tide to turn.

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