PBYI - The Prognosis For Puma Biotechnology

2023-04-03 11:28:47 ET

Summary

• Today, we put a small biotech company called Puma Biotechnology, Inc. in the spotlight.
• The stock appears cheap on a price to sales basis, but the company had been dogged by a lawsuit and some other issues.
• Is Puma a buy at just over three bucks a share? An investment analysis follows in the paragraphs below.

Power resides only where men believe it resides. [...] A shadow on the wall, yet shadows can kill. And ofttimes a very small man can cast a very large shadow. ”? George R.R. Martin, A Clash of Kings

Today, we take a deeper look at Puma Biotechnology, Inc. ( PBYI ) . This small biopharma's one approved product has not lived up to initial expectations but the company added another compound to its pipeline last summer and hopes to begin registrational trials for that candidate to treat small cell lung cancer by the end of 2023.

Company Overview:

Puma Biotechnology is headquartered in Los Angeles and this small biopharma concern is focused on the development and commercialization of products to enhance cancer care. Currently the stock trades just above three bucks a share and sports an approximate market capitalization of $145 million.

The company's primary asset is called neratinib which goes by the brand name NERLYNX. This compound is a tyrosine kinase inhibitor anti-cancer medication. Neratinib was approved in the summer of 2017 as an extended post surgery breast cancer treatment. It was the first compound to be approved for this indication at the time. In the first quarter of 2020, NERLYNX's label was expanded as a treatment of third-line Her2-positive breast cancer.

Puma was evaluating neratinib to treat metastatic HER2-negative hormone receptor positive breast cancer that has HER2 mutation as well as in patients with metastatic non-small cell lung cancer that has an exon 18 mutation. However, the company dropped these efforts when it determined data from this study 'SUMMIT' would be sufficient to garner accelerated approval from the FDA.

Puma owns U.S. rights to NERLYNX. In April of 2019, Puma Biotechnology licensed the European rights to neratinib to Pierre Fabre. Puma received a $60 million upfront payment for this agreement as well $345 million in potential regulatory and other milestone pay-outs as well as double-digit royalties on commercialized sales. In the first quarter of 2021, the companies extended this agreement to also include Greater China, which includes mainland China, Taiwan, Hong Kong and Macau.

NERLYNX sales have not lived up to initial projections. As a recent article here on Seeking Alpha pointing out, neratinib has some unwanted side effects such as instances extreme diarrhea and faces new and superior competition.

Puma expanded their pipeline in September of last year by acquiring the rights to compound called alisertib from Japanese drug maker Takeda ( TAK ) . Puma paid $7 million upfront as part of that deal and Takeda could earn just over $285 million in additional milestone pay-outs as well as tiered royalties on any eventual commercialized sales. Alisertib is a selective, small-molecule, orally administered inhibitor of aurora kinase A and Puma will focus its initial development efforts around alisertib to evaluated it as a potential treatment of two types of breast cancer and small cell lung cancer.

Management has stated that Alisertib ' In clinical trials to date, alisertib has shown single agent activity and activity in combination with other cancer drugs in the treatment of various cancers including hormone receptor positive breast cancer, triple negative breast cancer, small cell lung cancer and head and neck cancer. '

Puma is targeting meeting with the FDA sometime in the first half of this year to discuss and align on the registration path for alisertib in small cell lung cancer. Once that is accomplished, management anticipates initiating clinical trials of alisertib in small cell lung cancer in the second half of this year.

Fourth Quarter Results:

Puma Biotechnology reported fourth quarter results on March 3rd. Revenues rose just over 18% on a year-over-year basis to $65.7 million. Of that, $53.7 million was from net product revenue, up just over five percent from the same period a year ago. 3,323 bottles of NERLYNX sold in the fourth quarter of 2022, which is up sequentially from the 3,197 bottles sold in the third quarter of 2022.

The company had royalty revenue of $12 million during the quarter, up from $2.9 million in 4Q2021. Puma had no licensing fees during the quarter, compared to $1.5 million in the fourth quarter of 2021.

Leadership provided FY2023 Nerlynx revenue guidance of between $205 million and $210 million. Management also anticipates garnering royalties from the company's partners around the world in the range of $25 million to $30 million. No license revenue is expected in FY2023. Net income for the year is expected to come in between $20 million and $24 million.

Despite higher revenues, Puma reported a GAAP net loss of 12 cents a share or $5.6 million. This compares to a GAAP net loss of 1 cent a share in 4Q2021 or $400,000. However, this was entirely due to an increase in Puma's legal accrual due to a lawsuit settlement of $12.4 million. In late 2021, the company decided to settle a class action brought by investors accusing Puma of misrepresenting clinical trial results for a cancer drug. Puma's management agreed to pay a $54.2 million judgment rather than continue to appeal.

Analyst Commentary & Balance Sheet:

Just less than a month ago, Barclays assigned a Hold rating and $2 price target on PBYI. Two weeks ago, H.C. Wainwright maintained its Hold rating and $8 price target on the stock. Those are the only analyst ratings I can find on Puma Biotechnology over the past year.

Several insiders sold just over $200,000 worth of shares collectively to open 2023. There have been no insider transactions since. Just under four percent of the outstanding float in the shares is currently held short. Puma ended FY2022 with approximately $80 million in cash and marketable securities on its balance sheet against just under $100 million in long term debt.

Verdict:

The four analyst firms that have current earnings projections have PBYI earning between 19 and 41 cents a share in FY2023 on a low single digit rise in revenues to just under $235 million. In FY2024, they see sales dropping slightly and project anywhere from a loss of one cent a share to 38 cents a share in profit.

The company has done a good job in recent years of getting NERLYNX approved in myriad jurisdictions across the globe. That said, it is hard to get too excited about Puma Biotechnology. NERLYNX is not a 'best of breed' compound. Sales have not lived up to expectations and are flatlining. Neratinib will also start to face generic competition as early as late 2030.

It is too early to tell if alisertib will move the needle for Puma and the company is sparsely covered on Wall Street. Given the company's long history of destroying shareholder value, it appears the prudent thing to do is to pass on any investment recommendation around PBYI despite its cheap price to sales ratio.

The measure of a man is what he does with power. ”? Plato

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