PUMA BIOTECHNOLOGY, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the notes thereto included in Item 1 in this Quarterly Report on Form 10-Q, or this Quarterly Report. The following discussion should also be read in conjunction with our audited consolidated financial statements and the notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K for the year endedDecember 31, 2019 . Unless otherwise provided in this Quarterly Report, references to the "Company," "we," "us," and "our" refer toPuma Biotechnology, Inc. , aDelaware corporation, together with its wholly owned subsidiaries.
Overview
We are a biopharmaceutical company with a focus on the development and commercialization of innovative products to enhance cancer care. We in-license from Pfizer, Inc., or Pfizer, the global development and commercialization rights to PB272 (neratinib, oral), PB272 (neratinib, intravenous) and PB357. Neratinib is a potent irreversible tyrosine kinase inhibitor, or TKI, that blocks signal transduction through the human epidermal growth factor receptors, HER1, HER2 and HER4. Currently, we are primarily focused on the development and commercialization of the oral version of neratinib, and our most advanced drug candidates are directed at the treatment of HER2-positive breast cancer and HER2 mutated cancers. We believe neratinib has clinical application in the treatment of several other cancers as well, including other tumor types that over-express or have a mutation in HER2 or EGFR, such as breast cancer, cervical cancer, lung cancer or other solid tumors. Prior to 2017, our efforts and resources had been focused primarily on acquiring and developing our pharmaceutical technologies, raising capital and recruiting personnel. In 2017, theU.S. Food and Drug Administration , or FDA, approved NERLYNX, formally known as PB272 (neratinib, oral), for the extended adjuvant treatment of adult patients with early stage HER2-overexpressed/amplified breast cancer following adjuvant trastuzumab-based therapy. InFebruary 2020 , NERLYNX was also approved by the FDA in combination with capecitabine for the treatment of adult patients with advanced or metastatic HER2-positive breast cancer who have received two or more prior anti-HER2-based regimens in the metastatic setting. In 2018, theEuropean Commission , or EC, granted marketing authorization for NERLYNX in theEuropean Union for the extended adjuvant treatment of adult patients with early stage hormone receptor positive HER2-overexpressed/amplified breast cancer and who are less than one year from the completion of prior adjuvant trastuzumab-based therapy. We have entered into exclusive sub-license agreements with various parties to pursue regulatory approval, if necessary, and commercialize NERLYNX, if approved, in numerous regions outsidethe United States , includingEurope (excludingRussia andUkraine ),Canada ,China ,Southeast Asia ,Israel ,Mexico ,South Korea , and various countries and territories in Central andSouth America . We plan to continue to pursue commercialization of NERLYNX in other countries outsidethe United States , if approved. Our expenses to date have been related to hiring staff, commencing company-sponsored clinical trials and the build out of our corporate infrastructure and, since 2017, the commercial launch of NERLYNX. To date, our major sources of working capital have been proceeds from product and license revenue, public offerings of our common stock, proceeds from our credit facility and sales of our common stock in private placements.
Impact of COVID-19
Our priorities during the COVID-19 pandemic are protecting the health and safety of our employees while continuing our mission to develop and commercialize innovative products to enhance cancer care. Substantially all geographic regions in which ourU.S. sales force operates have imposed, and those regions or other regions in which our sales force operates may in the future impose, "shelter-in-place" orders, quarantines or similar orders or restrictions to control the spread of COVID-19. These types of restrictions may deter or prevent cancer patients from traveling to see their doctors and result in a decline in revenue for NERLYNX, our only commercial product. Additionally, our commercial team and sales force have limited travel and personal interactions with physicians and customers, including visits to healthcare provider offices due to limitations that have been imposed at certain hospitals and medical facilities, and are currently conducting a large percentage of promotional activities virtually. These types of restrictions have adversely impacted our ability to engage with our customers and have adversely impacted sales of NERLYNX, our only commercial product, and they may continue to do so. The respective commercial teams of certain of the companies to which we sub-license the commercial rights to NERLYNX, and on which we rely for our international sales, have chosen or have been forced to take similar action, and other sub-licensees of NERLYNX may choose or be forced to take similar action. Furthermore, the COVID-19 pandemic has resulted in dramatic increases in unemployment rates, which may result in a substantial number of people becoming uninsured or underinsured. Any of these developments may have an adverse effect on our revenue. We have observed disruptions in patient enrollments inthe United States and in our SUMMIT basket trial. If the COVID-19 pandemic continues to spread in the geographies in which we are conducting clinical trials, we may experience additional disruptions in those clinical trials, which could have a material adverse impact on our clinical trial plans and timelines. 28 -------------------------------------------------------------------------------- Our ability to continue to operate without any significant negative impacts will in part depend on the length and severity of the COVID-19 pandemic and our ability to protect our employees and our supply chain. We continue to follow and monitor recommended actions of government and health authorities to protect our employees worldwide. For the nine months endedSeptember 30, 2020 , we and our key third-party suppliers and manufacturers were able to broadly maintain operations. We rely exclusively on third-party manufacturers to manufacture NERLYNX. We intend to satisfy our near-term liquidity requirements through a combination of our existing cash and cash equivalents and marketable securities as ofSeptember 30, 2020 and proceeds that will become available to us through product sales, royalties and license milestone payments. However, this intention is based on assumptions that may prove to be wrong. Changes may occur that would consume our available capital faster than anticipated, including the length and severity of the COVID-19 pandemic and measures taken to control the spread of COVID-19, as well as changes in and progress of our development activities, the impact of commercialization efforts, acquisitions of additional drug candidates and changes in regulation. Any of these developments may have an adverse effect on our revenue and thus our ability to satisfy the minimum revenue covenants in our loan and security agreement.
Critical Accounting Policies
As of the date of the filing of this Quarterly Report, we believe there have been no material changes to our critical accounting policies and estimates during the three months and nine months endedSeptember 30, 2020 from our accounting policies atDecember 31, 2019 , as reported in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2019 . We accounted for the following related to sub-license agreements during the nine months endedSeptember 30, 2020 :
License Revenue:
We recognize license revenue under certain of our sub-license agreements that are within the scope of ASC 606. The terms of these agreements may contain multiple performance obligations, which may include licenses and research and development activities. We evaluate these agreements under ASC 606 to determine the distinct performance obligations. Non-refundable, up-front fees that are not contingent on any future performance and require no consequential continuing involvement by us, are recognized as revenue when the license term commences and the licensed data, technology or product is delivered. We defer recognition of non-refundable upfront license fees if the performance obligations are not satisfied. Prior to recognizing revenue, we make estimates of the transaction price, including variable consideration that is subject to a constraint. Amounts of variable consideration are included in the transaction price to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur and when the uncertainty associated with the variable consideration is subsequently resolved. Variable consideration may include nonrefundable upfront license fees, payments for research and development activities, reimbursement of certain third-party costs, payments based upon the achievement of specified milestones, and royalty payments based on product sales derived from the collaboration. If there are multiple distinct performance obligations, we allocate the transaction price to each distinct performance obligation based on its relative standalone selling price. The standalone selling price is generally determined based on the prices charged to customers or using expected cost-plus margin. Revenue is recognized by measuring the progress toward complete satisfaction of the performance obligations.
Summary of Income and Expenses
Product revenue, net:
Product revenue, net consists of revenue from sales of NERLYNX. We sell NERLYNX to a limited number of specialty pharmacies and specialty distributors inthe United States . We record revenue at the net sales price, which includes an estimate for variable consideration for which reserves are established. Variable consideration consists of trade discounts and allowances, product returns, provider chargebacks and discounts, government rebates and other incentives.
License revenue:
License revenue consists of consideration earned for performance obligations satisfied pursuant to our license agreements.
Royalty revenue:
Royalty revenue consists of consideration earned related to product sales made by our licensees in their respective territories pursuant to our license agreements.
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--------------------------------------------------------------------------------Cost of sales:
Cost of sales consists of third-party manufacturing costs, freight, and indirect overhead costs associated with sales of NERLYNX. Cost of sales also includes period costs related to royalty charges payable to Pfizer, the amortization of milestone payments made to Pfizer, certain inventory manufacturing services, inventory adjustment charges, unabsorbed manufacturing and overhead costs, and manufacturing variances.
Selling, general and administration expenses:
Selling, general and administrative expenses, or SG&A Expenses, consist primarily of salaries and payroll-related costs, stock-based compensation expense, professional fees, business insurance, rent, general legal activities, and other corporate expenses. We expense SG&A Expenses as they are incurred.
Research and development expenses:
Research and development expenses, or R&D Expenses, include costs associated with services provided by consultants who conduct clinical services on our behalf, contract organizations for the manufacturing of clinical materials and clinical trials. During the three and nine months endedSeptember 30, 2020 and 2019, our R&D Expenses consisted primarily of clinical research organization, or CRO, fees; fees paid to consultants; salaries and related personnel costs; and stock-based compensation. We expense our R&D Expenses as they are incurred. Internal R&D Expenses primarily consist of payroll-related costs, and also include equipment costs, travel expenses and supplies.
Results of Operations
Three Months Ended
Total revenue: For the three months endedSeptember 30, 2020 , total revenue was approximately$50.8 million , compared to$56.4 million for the three months endedSeptember 30, 2019 . Product revenue, net: Product revenue, net was approximately$49.3 million for the three months endedSeptember 30, 2020 , compared to$53.5 million for the three months endedSeptember 30, 2019 . The decrease in product revenue, net was attributable to a volume decrease of approximately 23% in bottles of NERLYNX sold, and an increase in reserves for variable consideration from approximately 12% of product revenue for the three months endedSeptember 30, 2019 to approximately 16% of product revenue for the three months endedSeptember 30, 2020 . The increase in reserves for variable consideration is primarily due to an increase in government rebates as a percentage of gross revenue. The decrease in product revenue, net was partially offset by an approximately 10% increase in gross selling price that occurred in the first quarter of 2020 and again in the third quarter of 2020.
License revenue:
There was no license revenue for the three months ended
Royalty revenue:
Royalty revenue was$1.4 million for the three months endedSeptember 30, 2020 , compared to$0.1 million for the three months endedSeptember 30, 2019 . The increase was due to increased product sales by our sub-licensees as they began to commercialize NERLYNX in additional territories.
Cost of sales:
Cost of sales was approximately$9.9 million for the three months endedSeptember 30, 2020 , compared to$9.4 million for the three months endedSeptember 30, 2019 . The increase in cost of sales was primarily attributable to an increase in the amortization of the milestone payments made to Pfizer and increased royalty expense due to Pfizer related to the increase in royalty revenue, which was partially offset by decreased royalty expenses due to Pfizer related to the decrease in product revenue, net. 30 --------------------------------------------------------------------------------
Selling, general and administrative expenses:
For the three months endedSeptember 30, 2020 , SG&A Expenses were approximately$29.6 million , compared to approximately$31.4 million for the three months endedSeptember 30, 2019 . SG&A Expenses for the three months endedSeptember 30, 2020 and 2019 were as follows: Selling, general, and administrative expenses For the Three Months Ended Change (in thousands) September 30, $ % 2020 2019 2020/2019 2020/2019 Payroll and related costs$ 10,274 $ 9,586 $ 688 7.2 % Professional fees and expenses 11,271 10,526 745 7.1 % Travel and meetings 1,090 2,964 (1,874 ) -63.2 % Facilities and equipment costs 1,412 1,439 (27 ) -1.9 % Stock-based compensation 4,101 5,600 (1,499 ) -26.8 % Other 1,450 1,287 163 12.7 %$ 29,598 $ 31,402 $ (1,804 ) -5.7 %
For the three months ended
• a decrease in stock-based compensation expense of approximately $1.5
million primarily due to a decrease of approximately $1.6 million for
stock awards that have fully vested and a decrease of approximately
million from stock awards forfeited, partially offset by an increase of
approximately $1.5 million from new grants; and
• a decrease in travel and meetings of approximately $1.9 million related
to travel restrictions due to the COVID-19 pandemic.
These decreases were partially offset by
• an increase in professional fees and expenses of approximately $0.7
million , consisting of an increase of $0.3 million related to higher
insurance premiums, an increase of approximately $0.5 million in legal
related expenses and an increase of
directors costs, partially offset by a decrease of approximately $0.1
million in connection with consultants and contractors and other
immaterial fluctuations; and
• an increase in payroll and related cost of $0.7 million .
Research and development expenses:
For the three months endedSeptember 30, 2020 , R&D Expenses were approximately$23.3 million , compared to approximately$30.0 million for the three months endedSeptember 30, 2019 . R&D Expenses for the three months endedSeptember 30, 2020 and 2019 were as follows:
Research and development expenses For the Three Months Ended
Change
(in thousands) September 30, $ %
2020 2019 2020/2019 2020/2019
Clinical trial expense $ 8,257 $ 11,251 $ (2,994 ) -26.6 %
Internal R&D 9,441 9,512 (71 ) -0.7 %
Consultant and contractors 2,183 2,651 (468 ) -17.7 %
Stock-based compensation 3,463 6,613 (3,150 ) -47.6 %
$ 23,344 $ 30,027 $ (6,683 ) -22.3 %
For the three months ended
• a decrease in clinical trial expense of approximately
primarily due to the close out of two clinical trials and lower CRO site
visits and related expenses due to actions taken in response to the
COVID-19 pandemic;
• a decrease in stock-based compensation expense of approximately $3.2
million , primarily due to a decrease of approximately $1.9 million for
stock awards that fully vested and a decrease of approximately $1.6 million from stock award forfeitures, partially offset by an increase of
approximately $0.3 million from new grants; and
• a decrease in consultant and contractor expense of approximately $0.5
million , primarily due to the close out of certain clinical trials and
lower staffing needs.
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Other income (expenses):
Other income (expenses) For the Three Months Ended Change
(in thousands) September 30, $ %
2020 2019 2020/2019 2020/2019
Interest income $ 22 $ 569 $ (547 ) -96.1 %
Interest expense (3,627 ) (3,052 ) (575 ) 18.8 %
Legal verdict expense (15,855 ) - (15,855 ) -100.0 %
Other income 128 46 82 178.3 %
$ (19,332 ) $ (2,437 ) $ (16,895 ) 693.3 %
Interest income:
For the three months ended September 30, 2020 , interest income decreased
approximately $0.5 million for the three months ended September 30, 2020
compared to the same period in 2019. The decrease in interest income reflects
less cash invested in money market accounts and high-yield savings accounts in
2020 compared to 2019.
Interest expense:
For the three months ended September 30, 2020 , we recognized approximately $3.6
million in interest expense, compared to $3.1 million of interest expense for
the three months ended September 30, 2019 . The increase in interest expense was
primarily the result of the interest expense for the milestone payments being
paid to Pfizer in installments.
Legal verdict expense:
For the quarter ended September 30, 2020 , we recognized $15.9 million in legal
verdict expense, which primarily represents an increase to our estimate of
potential amounts that may be owed to class action participants as a result of
the Hsu v. Puma Biotechnology, Inc. claims process. During the three months
ended September 30, 2020 , we changed our estimate of the legal verdict expense
and the associated legal expense accrual for the Hsu lawsuit. Our previous
estimate was based on data and assumptions that were available at the time.
During the third and fourth quarter of 2020, we obtained additional data,
previously unavailable, from the claims report and amended claims report filed
with the Court. The claims report asserts $50.5 million in damages, which is
larger than the amount previously estimated. We intend to challenge these claims
and estimate that the damages could range from $24.8 million to $51.3 million .
As a result, we have increased our estimate of the legal accrual on a
prospective basis beginning in the third quarter of 2020 to $24.8 million ,
resulting in the additional $15.7 million legal verdict expense. The total
amount of aggregate class-wide damages still remains uncertain and will be
ascertained only after an extensive claims challenge process and the exhaustion
of any appeals.
Nine Months Ended
Total revenue: For the nine months endedSeptember 30, 2020 , total revenue was approximately$172.6 million , compared to$209.3 million for the nine months endedSeptember 30, 2019 . Product revenue, net: Product revenue, net was approximately$146.7 million for the nine months endedSeptember 30, 2020 , compared to$152.9 million for the nine months endedSeptember 30, 2019 . The decrease in product revenue, net was attributable to a volume decrease of approximately 18% in bottles of NERLYNX sold, partially offset by an approximately 10% increase in gross selling price that occurred in the first quarter of 2020 and again in the third quarter of 2020. 32 --------------------------------------------------------------------------------
License revenue:
License revenue was approximately$22.7 million for the nine months endedSeptember 30, 2020 , compared to$56.3 million for the nine months endedSeptember 30, 2019 . The decrease in license revenue is primarily due to a decrease in upfront payments and satisfaction of different performance-based milestones related to sub-license agreements in the nine months endedSeptember 30, 2020 , compared to the nine months endedSeptember 30, 2019 .
Royalty revenue:
Royalty revenue was$3.1 million for the nine months endedSeptember 30, 2020 , compared to$0.2 million for the nine months endedSeptember 30, 2019 . The increase was due to increased product sales by our sub-licensees as they began to commercialize NERLYNX in additional territories.
Cost of sales:
For the nine months endedSeptember 30, 2020 , cost of sales was approximately$28.4 million compared to$26.7 million for the nine months endedSeptember 30, 2019 . The increase in cost of sales was primarily attributable to increased royalty expense due to Pfizer related to the increase in royalty revenue and an increase in the amortization of the milestone payments made to Pfizer, which was partially offset by decreased royalty expenses due to Pfizer related to the decrease in product revenue, net.
Selling, general and administrative expenses:
For the nine months endedSeptember 30, 2020 , SG&A Expenses were approximately$89.9 million , compared to approximately$110.4 million for the nine months endedSeptember 30, 2019 . SG&A Expenses for the nine months endedSeptember 30, 2020 and 2019 were as follows: Selling, general, and administrative expenses For the Nine Months Ended Change (in thousands) September 30, $ % 2020 2019 2020/2019 2020/2019 Payroll and related costs$ 31,658 $ 31,409 $ 249 0.8 % Professional fees and expenses 32,252 39,218 (6,966 ) -17.8 % Travel and meetings 4,023 8,419 (4,396 ) -52.2 % Facilities and equipment costs 4,276 4,378 (102 ) -2.3 % Stock-based compensation 13,523 22,927 (9,404 ) -41.0 % Other 4,150 4,084 66 1.6 %$ 89,882 $ 110,435 $ (20,553 ) -18.6 %
For the nine months ended
• a decrease in stock-based compensation expense of approximately $9.4
million primarily due to a decrease of approximately $7.6 million for
stock awards that have fully vested and a decrease of approximately
million from stock awards forfeited and other immaterial fluctuations,
partially offset by an increase of approximately $3.9 million from new
grants;
• a decrease in professional fees and expenses of approximately $7.0
million, consisting primarily of decreases of approximately
in legal fees in connection with various lawsuits and approximately
million for professional fees, primarily related to decreased consultancy
efforts related to marketing and commercialization support, partially
offset by an increase of approximately $0.8 million in insurance
premiums, $0.3 million in audit and board of directors fees and other
immaterial fluctuations; and
• a decrease in travel and meetings of approximately $4.4 million related
to travel restrictions and cancellations of on-site events due to the
COVID-19 pandemic.
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Research and development expenses:
For the nine months endedSeptember 30, 2020 , R&D Expenses were approximately$73.5 million , compared to approximately$102.6 million for the nine months endedSeptember 30, 2019 . R&D Expenses for the nine months endedSeptember 30, 2020 and 2019 were as follows:
Research and development expenses For the Nine Months Ended
Change
(in thousands) September 30, $ %
2020 2019 2020/2019 2020/2019
Clinical trial expense $ 24,130 $ 40,665 $ (16,535 ) -40.7 %
Internal R&D 29,564 29,485 79 0.3 %
Consultant and contractors 6,218 9,596 (3,378 ) -35.2 %
Stock-based compensation 13,578 22,864 (9,286 ) -40.6 %
$ 73,490 $ 102,610 $ (29,120 ) -28.4 %
For the nine months ended
• a decrease in clinical trial expense of approximately
primarily due to the close out of certain clinical trials;
• a decrease in stock-based compensation expense of approximately $9.3
million primarily due to a decrease of approximately $6.4 million for
stock awards that fully vested and a decrease of approximately $4.8 million from stock award forfeitures, partially offset by an increase of
approximately $1.8 million from new grants and other immaterial
fluctuations; and
• a decrease in consultant and contractors expenses of approximately
million, primarily due to the close out of certain clinical trials.
Other income (expenses):
Other income (expenses) For the Nine Months Ended Change
(in thousands) September 30, $ %
2020 2019 2020/2019 2020/2019
Interest income $ 474 $ 2,349 $ (1,875 ) -79.8 %
Interest expense (10,479 ) (11,943 ) 1,464 -12.3 %
Legal verdict expense (16,041 ) (16,350 ) 309 -1.9 %
Loss on debt extinguishment - (8,103 ) 8,103 -100.0 %
Other income 298 31 267 861.3 %
$ (25,748 ) $ (34,016 ) $ 8,268 -24.3 %
Interest income:
For the nine months ended September 30, 2020 , we recognized approximately $0.5
million in interest income compared to approximately $2.3 million of interest
income for the nine months ended September 30, 2019 . The decrease in interest
income reflects less cash invested in money market accounts and high-yield
savings accounts in 2020 compared to 2019.
Interest expense:
For the nine months ended September 30, 2020 , we recognized approximately $10.5
million in interest expense, compared to $11.9 million of interest expense for
the nine months ended September 30, 2019 . The decrease in interest expense was
primarily the result of having less borrowings outstanding in 2020 than in 2019.
The decrease was partially offset by an increase in interest expense for the
milestone payments being paid to Pfizer in installments.
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--------------------------------------------------------------------------------Legal verdict expense: For the nine months endedSeptember 30, 2020 , we recognized an additional$16.0 million in legal verdict expense that primarily represents an increase to our prior estimate of potential amounts that may be owed to class action participants as a result of the Hsu v.Puma Biotechnology, Inc. claims process. During the period endedSeptember 30, 2020 , we changed our estimate of the legal verdict expense and the associated legal expense accrual for the Hsu lawsuit. Our previous estimate was based on data and assumptions that were available at the time. During the third and fourth quarter of 2020, we obtained additional data, previously unavailable, from the claims report and amended claims report filed with the Court. The claims report asserts$50.5 million in damages, which is larger than the amount previously estimated. We intend to challenge these claims and estimate that the damages could range from$24.8 million to$51.3 million . As a result, we have increased our estimate of the legal accrual on a prospective basis beginning in the third quarter of 2020 to$24.8 million , resulting in the additional$15.7 million legal verdict expense. The total amount of aggregate class-wide damages still remains uncertain and will be ascertained only after an extensive claims challenge process and the exhaustion of any appeals. For the nine months endedSeptember 30, 2019 , we recognized approximately$16.4 million in legal verdict expense related to the Eshelman v.Puma Biotechnology, Inc. , et al. verdict. The legal verdict expense of$16.4 million for the nine months endedSeptember 30, 2019 was the result of our initial estimate of the total damages payable in the matter of$22.4 million , net of$6.0 million in insurance reimbursements. Loss on debt extinguishment: For the nine months endedSeptember 30, 2019 , we recognized approximately$8.1 million in loss on debt extinguishment related to the fees paid in connection with our debt refinancing during the second quarter of 2019.
Liquidity and Capital Resources
The following table summarizes our liquidity and capital resources as of
As of As of
Liquidity and capital resources (in thousands) September 30, 2020 December 31, 2019
Cash and cash equivalents $ 90,082 $ 60,037
Marketable securities $ 18,942 $ 51,607
Working capital $ 41,607 $ 75,459
Stockholders' (deficit) equity $ (453 ) $ 17,463
Nine Months Ended Nine Months Ended
September 30, 2020 September 30, 2019
Cash provided by (used in):
Operating activities $ 6,408 $ 20,810
Investing activities 22,580 5,595
Financing activities 45 (67,066 )
Net increase (decrease) in cash, cash equivalents $ 29,033 $ (40,661 )
and restricted cash
Operating Activities:
For the nine months ended September 30, 2020 , we reported a net loss of
approximately $45.0 million , compared to approximately $64.4 million for the
same period in 2019. Additionally, cash provided by operating activities for the
nine months ended September 30, 2020 was approximately $6.4 million compared to
approximately $20.8 million of cash provided by operating activities for the
same period in 2019, respectively.
Cash provided by operating activities for the nine months ended September 30,
2020 consisted of a net loss of approximately $45.0 million , offset by
approximately $34.2 million of non-cash items, such as stock-based compensation
and depreciation and amortization, an increase in accrued expense and other of
approximately $21.0 million , a decrease in prepaid expenses and other of
approximately $4.4 million , and a decrease in accounts receivable, net of
approximately $1.8 million . These increases were partially offset by a decrease
in accounts payable of approximately $6.7 million , an increase in other current
assets of approximately $3.1 million and other immaterial changes.
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Cash provided by operating activities for the nine months ended September 30,
2019 consisted of a net loss of approximately $64.4 million , a decrease in
prepaid expenses and other of approximately $2.9 million , a decrease in other
current assets of approximately $1.5 million , an increase of approximately $30.3
million in accrued expenses and other, an increase of approximately $9.0 million
in a post-marketing commitment liability, and approximately $60.0 million of
non-cash items, such as stock-based compensation, depreciation and amortization,
and debt extinguishment fees; partially offset by an increase in net accounts
receivable of approximately $6.4 million , an increase in inventory of
approximately $0.5 million , and a decrease in accounts payable of approximately
$11.6 million .
Investing Activities:
During the nine months ended September 30, 2020 , net cash provided by investing
activities was approximately $22.6 million , compared to net cash provided by
investing activities of $5.6 million for the same period in 2019.
Net cash provided by investing activities during the nine months ended September
30, 2020 consisted of approximately $57.0 million of maturities of
available-for-sale securities, partially offset by the purchase of available for
sale securities of approximately $24.4 million and an increase in intangible
assets relating to the milestone achieved under the Company's license agreement
with Pfizer of $10.0 million .
Net cash provided by investing activities during the nine months ended September
30, 2019 consisted of approximately $132.7 million of sales or maturities of
available-for-sale securities, partially offset by $127.1 million of purchases
of available-for-sale securities.
Financing Activities:
During the nine months endedSeptember 30, 2020 , net cash was unchanged by financing activities. DuringApril 2020 , approximately$8.4 million was borrowed and fully repaid with no penalty or interest fromSilicon Valley Bank , or SVB, under the Paycheck Protection Program, or PPP, of the Coronavirus Aid, Relief, and Economic Security Act. During the same period in 2019, cash used in financing activities was approximately$67.1 million , which consisted of approximately$80.0 million in debt repayments, approximately$7.8 million in debt extinguishment costs and approximately$5.6 million in debt issuance costs, partially offset by approximately$25.0 million in proceeds from long-term debt and approximately$1.3 million in proceeds from the exercise of stock options.
Loan and Security Agreement:
InOctober 2017 , we entered into a loan and security agreement with SVB, as administrative agent, and the lenders party thereto from time to time, or the Original Lenders, includingOxford Finance, LLC , or Oxford, and SVB. Pursuant to the terms of the credit facility provided by the loan and security agreement, or the Original Credit Facility, we borrowed$50 million . InMay 2018 , we entered into an amendment to the loan and security agreement, which provided for an amended credit facility, or the Amended Credit Facility. Under the Amended Credit Facility, the Original Lenders agreed to make term loans available to us in an aggregate amount of$155 million , consisting of (i) a term loan in an aggregate amount of$125 million , the proceeds of which, in part, were used to repay the$50 million we borrowed under the Original Credit Facility, and (ii) a term loan in an aggregate amount of$30 million that we drew inDecember 2018 , which was available to us under the Amended Credit Facility as a result of achieving a specified minimum revenue milestone. OnJune 28, 2019 , or the Effective Date, we entered into a new credit facility, or the New Credit Facility, with Oxford, as collateral agent, and the lenders party thereto from time to time, including Oxford, pursuant to which we repaid the$155.0 million outstanding under the Amended Credit Facility, as well as all applicable exit and prepayment fees owed to the Original Lenders under the Amended Credit Facility, using cash on hand and$100.0 million in new borrowings from the New Credit Facility. Under the New Credit Facility, we issued to Oxford new and/or replacement secured promissory notes in an aggregate principal amount for all such promissory notes of$100.0 million evidencing the New Credit Facility. No additional money remains available to us under the New Credit Facility. The New Credit Facility is secured by substantially all of our personal property other than our intellectual property. We also pledged 65% of the issued and outstanding capital stock of our subsidiaries,Puma Biotechnology Ltd. andPuma Biotechnology B.V. The New Credit Facility limits our ability to grant any interest in our intellectual property to certain permitted licenses and permitted encumbrances set forth in the agreement. 36 -------------------------------------------------------------------------------- The term loans under the New Credit Facility bear interest at an annual rate equal to the greater of (i) 9.0% and (ii) the sum of (a) the "prime rate," as reported in The Wall Street Journal on the last business day of the month that immediately precedes the month in which the interest will accrue, plus (b) 3.5%. We are required to make monthly interest-only payments on each term loan under the New Credit Facility commencing on the first calendar day of the calendar month following the funding date of such term loan, and continuing on the first calendar day of each calendar month thereafter throughAugust 1, 2021 , or the Amortization Date. Commencing on the Amortization Date, and continuing on the first calendar day of each calendar month thereafter, we will make consecutive equal monthly payments of principal, together with applicable interest, in arrears to each lender under the New Credit Facility, calculated pursuant to the New Credit Facility. All unpaid principal and accrued and unpaid interest with respect to each term loan under the New Credit Facility is due and payable in full onJune 1, 2024 , or the Maturity Date. Upon repayment of such term loans, we are also required to make a final payment to the new lenders equal to 7.5% of the aggregate principal amount of such term loans outstanding as of the Effective Date. At our option, we may prepay the outstanding principal balance of any term loan in whole but not in part, subject to a prepayment fee of 3.0% of any amount prepaid if the prepayment occurs through and including the first anniversary of the funding date of such term loan, 2.0% of the amount prepaid if the prepayment occurs after the first anniversary of the funding date of such term loan through and including the second anniversary of the funding date of such term loan, and 1.0% of the amount prepaid if the prepayment occurs after the second anniversary of the funding date of such term loan and prior to the Maturity Date. The New Credit Facility includes affirmative and negative covenants applicable to us, our current subsidiaries and any subsidiaries we create in the future. The affirmative covenants include, among others, covenants requiring us to maintain our legal existence and governmental approvals, deliver certain financial reports, maintain insurance coverage and satisfy certain requirements regarding deposit accounts. We must also achieve certain product revenue targets, measured as of the last day of each fiscal quarter on a trailing year-to-date basis. New minimum revenue levels will be established for each subsequent fiscal year by mutual agreement of us, Oxford, as collateral agent, and the lenders under the New Credit Facility. The negative covenants include, among others, restrictions on our transferring collateral, incurring additional indebtedness, engaging in mergers or acquisitions, paying dividends or making other distributions, making investments, creating liens, selling assets and suffering a change in control, in each case subject to certain exceptions. The New Credit Facility also includes events of default, the occurrence and continuation of which could cause interest to be charged at the rate that is otherwise applicable plus 5.0% and would provide Oxford, as collateral agent, with the right to exercise remedies against us and the collateral securing the New Credit Facility, including foreclosure against the property securing the New Credit Facility, including our cash. These events of default include, among other things, our failure to pay principal or interest due under the New Credit Facility, a breach of certain covenants under the New Credit Facility, our insolvency, a material adverse change, the occurrence of any default under certain other indebtedness in an amount greater than$500,000 and one or more judgments against us in an amount greater than$500,000 individually or in the aggregate that remains unsatisfied, unvacated, or unstayed for a period of 10 days after its entry. OnAugust 5, 2020 , we entered into an amendment to the amended and restated loan and security agreement to revise the minimum revenue levels that we must achieve under the terms of the New Credit Facility for the year-to-date periods endingSeptember 30, 2020 andDecember 31, 2020 .
As of
Current and Future Financing Needs:
We did not receive or record any product revenues until the third quarter of 2017. We have spent, and expect to continue to spend, substantial amounts in connection with implementing our business strategy, including our planned product development efforts, our clinical trials, our research and development efforts and our commercialization efforts. We may choose to begin new research and development efforts or we may choose to launch additional marketing efforts. These efforts may require funding in addition to the cash and cash equivalents totaling approximately$90.1 million and$18.9 million in marketable securities available atSeptember 30, 2020 . While our consolidated financial statements have been prepared on a going concern basis, we expect to continue incurring significant losses for the foreseeable future and will need to generate significant revenue to sustain operations and successfully commercialize neratinib. While we have been successful in raising financing in the past, there can be no assurance that we will be able to do so in the future. Our ability to obtain funding may be adversely impacted by uncertain market conditions, including on account of the global COVID-19 pandemic, our success in commercializing neratinib, unfavorable decisions of regulatory authorities or adverse clinical trial results. The outcome of these matters cannot be predicted at this time. 37 -------------------------------------------------------------------------------- In addition, we have based our estimate of capital needs on assumptions that may prove to be wrong. Changes may occur that would consume our available capital faster than anticipated, including the length and severity of the COVID-19 pandemic and measures taken to control the spread of COVID-19, as well as changes in and progress of our development activities, the impact of commercialization efforts, acquisitions of additional drug candidates and changes in regulation. Potential sources of financing include strategic relationships, public or private sales of equity or debt and other sources of funds. We may seek to access the public or private equity markets when conditions are favorable due to our long-term capital requirements. If we raise funds by selling additional shares of common stock or other securities convertible into common stock, the ownership interests of our existing stockholders will be diluted. If we are not able to obtain financing when needed, we may be unable to carry out our business plan. As a result, we may have to significantly limit our operations, and our business, financial condition and results of operations would be materially harmed. In such an event, we will be required to undertake a thorough review of our programs, and the opportunities presented by such programs, and allocate our resources in the manner most prudent.
Non-GAAP Financial Measures
In addition to our operating results, as calculated in accordance with generally accepted accounting principles, or GAAP, we use certain non-GAAP financial measures when planning, monitoring, and evaluating our operational performance. The following table presents our net loss and net loss per share, as calculated in accordance with GAAP, as adjusted to remove the impact of stock-based compensation. For the three and nine months endedSeptember 30, 2020 , stock-based compensation represented approximately 14.3% and 16.6% of our operating expenses, respectively, and 19.9% and 21.5% for the same period in 2019, in each case excluding cost of sales. Our management believes that these non-GAAP financial measures are useful to enhance understanding of our financial performance, are more indicative of our operational performance and facilitate a better comparison among fiscal periods. These non-GAAP financial measures are not, and should not be viewed as, substitutes for GAAP reporting measures. Reconciliation of GAAP Net Loss to Non-GAAP Adjusted Net Loss and GAAP Net Loss Per Share to Non-GAAP Adjusted Net Loss Per Share (in thousands except share and per share data) For the Three Months Ended September 30, For the Nine Months Ended September 30, 2020 2019 2020 2019 GAAP net loss $ (31,463 ) $ (16,885 ) $ (45,001 ) $ (64,396 ) Adjustments: Stock-based compensation - Selling, general and administrative 4,101 5,600 13,523 22,927 (1) Research and development 3,464 6,613 13,579 22,864 (2)
Non-GAAP adjusted net loss $ (23,898 ) $ (4,672 ) $ (17,899 ) $ (18,605 )
GAAP net loss per share-basic $ (0.79 ) $ (0.44 ) $ (1.14 ) $ (1.67 ) Adjustment to net loss (as detailed above) 0.19 0.32 0.69 1.19 Non-GAAP adjusted basic net loss per share $ (0.60 ) (3) $ (0.12 ) (4) $ (0.45 ) (3) $ (0.48 ) (4)
(1) To reflect a non-cash charge to operating expense for selling, general, and
administrative stock-based compensation.
(2) To reflect a non-cash charge to operating expense for research and
development stock-based compensation.
(3) Non-GAAP adjusted basic net loss per share was calculated based on 39,695,444
and 39,437,691 weighted-average shares of common stock outstanding for the
three and nine months ended
(4) Non-GAAP adjusted basic net loss per share was calculated based on 38,893,757
and 38,675,961 weighted-average shares of common stock outstanding for the
three and nine months ended September 30, 2019 , respectively.
Off-Balance Sheet Arrangements
We do not have any "off-balance sheet agreements," as defined by
Contractual Obligations
InJune 2020 , we entered into a letter agreement, or the Letter Agreement, with Pfizer relating to the method of payment associated with our achievement of a milestone that triggered a$40 million payment under our license agreement with Pfizer. The Letter Agreement permits us to make the milestone payment in installments with the majority of the amounts payable to Pfizer (including interest) to be made in 2021 and the final payment occurring onSeptember 30, 2021 . Unpaid portions of the milestone payment will accrue interest at 6.25% per annum until paid. Other than as described in the preceding paragraph, there have been no material changes outside the ordinary course of business to our contractual obligations and commitments as described in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year endedDecember 31, 2019 . 38
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