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, 2020 . 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 ),Australia ,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. During the three months endedJune 30, 2021 , Puma received FDA approval for an alternate dosing regimen (two-week dose escalation) to be incorporated into theU.S. prescribing information. In addition, the FDA approved the commercial distribution of a new SKU (133 count) to support use of this regimen. InJune 2021 , the Company's Canadian partner, Knight Therapeutics, Inc., receivedHealth Canada's approval of NERLYNX 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. 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. Accordingly, our success depends not only on the safety and efficacy of our product candidates, but also on our ability to finance product development. 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 continue to be focused on protecting the health and safety of our employees while delivering on 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 restrictions and may in the future change or impose additional restrictions to control or limit the spread of COVID-19 and its variants. These restrictions include, but are not limited to "shelter-in-place" orders, quarantines, testing requirements or similar orders or restrictions. 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, the impact of COVID-19 has significantly reduced the ability of our commercial team and our sales force to travel and interact personally with physicians and members of the extended healthcare team. This has reduced our commercial team's access to 29 -------------------------------------------------------------------------------- healthcare providers, and a large portion of its promotional activities are now being conducted virtually. Although we have seen some recent easing of local restrictions, these have been inconsistent and have not led to a broad relaxation of requirements. These types of restrictions have adversely impacted our ability to engage with our customers and have adversely impacted sales of NERLYNX, and they may continue to do so. The respective commercial teams affiliated with certain 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 in the future. 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 Phase II 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. 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 six months endedJune 30, 2021 , 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 ofJune 30, 2021 and proceeds that will become available to us through product sales, royalties and sub-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. Some of these developments have had and may continue to have an adverse effect on our revenue and thus could have an adverse effect on our ability to satisfy the minimum revenue covenants in our Note Purchase 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 six months endedJune 30, 2021 from our accounting policies atDecember 31, 2020 , as reported in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 . We accounted for the following related to sub-license agreements during the six months endedJune 30, 2021 :
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.
Legal Contingencies and Expense:
For legal contingencies, we accrue a liability for an estimated loss if the
potential loss from any claim or legal proceeding is considered probable and the
amount can be reasonably estimated. Legal fees and expenses are expensed as
incurred based on invoices or estimates provided by legal counsel. We
periodically evaluate available information, both internal and external,
relative to such contingencies and adjust the accrual as necessary. We determine
whether a contingency should be disclosed by assessing whether a
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material loss is deemed reasonably possible. In determining whether a loss
should be accrued, we evaluate, among other factors, the degree of probability
of an unfavorable outcome and the ability to make a reasonable estimate of the
amount of the loss (see Note 13-Commitments and Contingencies in the
accompanying notes to the financial statements).
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 sub-license agreements.
Royalty revenue:
Royalty revenue consists of consideration earned related to product sales made by our sub-licensees in their respective territories pursuant to our sub-license agreements. 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 administrative 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, credit loss expense 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 six months endedJune 30, 2021 and 2020, 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 ended
Product revenue, net:
Product revenue, net was approximately$48.9 million for the three months endedJune 30, 2021 , compared to$48.8 million for the three months endedJune 30, 2020 . The increase in product revenue, net was primarily attributable to an increase in gross selling price that occurred in the third quarter of 2020 and in the first quarter of 2021; offset by a volume decrease of approximately 10.0% in bottles of NERLYNX sold, and an increase in reserves for variable consideration from approximately 14.4% of product revenue, net for the three months endedJune 30, 2020 to approximately 17.7% of product revenue, net for the three months ended 31
--------------------------------------------------------------------------------June 30, 2021 . The increase in reserves for variable consideration is primarily due to an increase in Medicaid claims and government chargebacks as a percentage of gross revenue. License revenue: License revenue was approximately$0.3 million for the three months endedJune 30, 2021 , compared to approximately$20.7 million for the three months endedJune 30, 2020 . During the three months endedJune 30, 2020 , the Company recognized one-time license revenue of$20.7 million for an upfront payment and for satisfaction of two performance-based milestones related to sub-license agreements.
Royalty revenue:
Royalty revenue was approximately$4.3 million for the three months endedJune 30, 2021 , compared to$1.1 million for the three months endedJune 30, 2020 . The increase was due to increased product sales by our sub-licensees as they continue to commercialize NERLYNX in additional territories.
Cost of sales:
Cost of sales was approximately$12.0 million for the three months endedJune 30, 2021 , compared to$9.4 million for the three months endedJune 30, 2020 . The increase was primarily attributable to the increase in the amortization of the intangible asset under our license agreement with Pfizer and increased royalty expense due to Pfizer.
Selling, general and administrative expenses:
For the three months endedJune 30, 2021 , SG&A Expenses were approximately$39.4 million , compared to approximately$29.3 million for the three months endedJune 30, 2020 . SG&A Expenses for the three months endedJune 30, 2021 and 2020 were as follows: (in thousands) June 30, $ % 2021 2020 2021/2020 2021/2020 Payroll and related costs$ 10,088 $ 10,817 $ (729 ) -6.7 % Professional fees and expenses 9,633 10,551 (918 ) -8.7 % Travel and meetings 1,030 517 513 99.2 % Facilities and equipment costs 1,401 1,427 (26 ) -1.8 % Stock-based compensation 16,731 4,730 12,001 253.7 % Other 527 1,305 (778 ) -59.6 %$ 39,410 $ 29,347 $ 10,063 34.3 %
For the three months ended
? an increase in stock-based compensation expense of approximately
million primarily due to the
from the modification to the term of Mr. Auerbach's warrant and
approximately $1.2 million from new grants, partially offset by the
decrease of approximately $2.2 million for stock awards that have fully
vested and a decrease of approximately $0.6 million from stock awards
forfeited; and
? an increase in travel and meetings of approximately $0.5 million as some
travel restrictions due to the COVID-19 pandemic have been lifted.
These increases were partially offset by:
? a decrease in professional fees and expenses of approximately $0.9
million , consisting primarily of a decrease of approximately $1.1 million
for professional fees, primarily related to decreased consultancy effortsrelated to marketing and commercialization support, partially offset by
an increase of approximately
fees in connection with various lawsuits;
? a decrease in other expenses of $0.8 million due to lower bad debt
expenses, partially offset by higher sponsorship fees; and
? a decrease in payroll and related costs of approximately $0.7 million .
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Research and development expenses:
For the three months endedJune 30, 2021 , R&D Expenses were approximately$18.6 million , compared to approximately$24.7 million for the three months endedJune 30, 2020 . R&D Expenses for the three months endedJune 30, 2021 and 2020 were as follows:
Research and development expenses For the Three Months Ended
Change
(in thousands) June 30, $ %
2021 2020 2021/2020 2021/2020
Clinical trial expense $ 6,982 $ 7,062 $ (80 ) -1.1 %
Internal R&D 8,209 9,894 (1,685 ) -17.0 %
Consultant and contractors 1,940 1,835 105 5.7 %
Stock-based compensation 1,507 5,900 (4,393 ) -74.5 %
$ 18,638 $ 24,691 $ (6,053 ) -24.5 %
For the three months ended
? a decrease in stock-based compensation expense of approximately $4.4
million , primarily due to a decrease of approximately $3.8 million for
stock awards that fully vested and a decrease of approximately $1.1 million from stock award forfeitures, partially offset by an increase of
approximately $0.5 million from new grants and other immaterial
fluctuations; and
? a decrease in Internal R&D of approximately
to a decrease in payroll and payroll-related expenses as a result of a
reduction in headcount.
Other income (expenses):
Other income (expenses) For the Three Months Ended Change
(in thousands) June 30, $ %
2021 2020 2021/2020 2021/2020
Interest income $ 121 $ 66 $ 55 83.3 %
Interest expense (3,518 ) (3,784 ) 266 -7.0 %
Legal verdict (expense) credit 14,902 (93 ) 14,995 -16123.7 %
Other income 60 77 (17 ) -22.1 %
$ 11,565 $ (3,734 ) $ 15,299 -409.7 %
Interest expense:
For the three months ended June 30, 2021 , we recognized approximately $3.5
million in interest expense, compared to $3.8 million of interest expense for
the three months ended June 30, 2020 . The decrease in interest expense was
primarily the result of the interest expense for the milestone payments being
paid to Pfizer in installments.
Legal verdict (expense) credit:
For the three months endedJune 30, 2021 , we reduced our legal expense accrual by$20.0 million with respect to the Eshelman v.Puma Biotechnology, Inc. , et al. judgment, and we increased our legal expense accrual by$5.1 million with respect to the Hsu v.Puma Biotechnology, Inc. , et.al judgment, which resulted in a$14.9 million net credit in legal verdict expense for the period.
Six Months Ended
Total revenue:
For the six months ended
Product revenue, net:
Product revenue, net was approximately$94.7 million for the six months endedJune 30, 2021 , compared to$97.4 million for the six months endedJune 30, 2020 . The decrease in product revenue, net was attributable to a volume decrease of approximately 33
-------------------------------------------------------------------------------- 15.0% in bottles of NERLYNX sold, and an increase in reserves for variable consideration from approximately 15.3% of product revenue for the six months endedJune 30, 2020 to approximately 18.3% of product revenue for the six months endedJune 30, 2021 . The increase in reserves for variable consideration is primarily due to an increase in Medicaid claims and government chargebacks as a percentage of gross revenue. The decrease in product revenue, net was partially offset by an increase in gross selling price that occurred in the third quarter of 2020 and in the first quarter of 2021.
License revenue:
License revenue was approximately$50.3 million for the six months endedJune 30, 2021 , compared to approximately$22.7 million for the six months endedJune 30, 2020 . The increase in license revenue is due to a large, upfront payment in connection with an amendment to a sub-license agreement entered into during the six months endedJune 30, 2021 .
Royalty revenue:
Royalty revenue was approximately
Cost of sales:
Cost of sales was approximately$41.5 million for the six months endedJune 30, 2021 , compared to$18.5 million for the six months endedJune 30, 2020 . The increase in cost of sales was primarily attributable to a one-time license termination fee, the increase in the amortization of the intangible asset under our license agreement with Pfizer and increased royalty expense due to Pfizer.
Selling, general and administrative expenses:
For the six months endedJune 30, 2021 , SG&A Expenses were approximately$67.7 million , compared to approximately$60.3 million for the six months endedJune 30, 2020 . SG&A Expenses for the six months endedJune 30, 2021 and 2020 were as follows: Selling, general, and administrative expenses For the Six Months Ended Change (in thousands) June 30, $ % 2021 2020 2021/2020 2021/2020 Payroll and related costs$ 20,599 $ 21,384 $ (785 ) -3.7 % Professional fees and expenses 20,416 20,981 (565 ) -2.7 % Travel and meetings 2,042 2,933 (891 ) -30.4 % Facilities and equipment costs 2,795 2,864 (69 ) -2.4 % Stock-based compensation 20,333 9,422 10,911 115.8 % Other 1,563 2,700 (1,137 ) -42.1 %$ 67,748 $ 60,284 $ 7,464 12.4 % For the six months endedJune 30, 2021 , SG&A Expenses increased by approximately$7.5 million compared to the same period in 2020, primarily attributable to the following:
? an increase in stock-based compensation expense of approximately
million primarily due to the
from the modification to the term of
increase of
of approximately
a decrease of approximately
This increase was partially offset by:
? a decrease in other expense of
software, educational and training costs for the commercial team;
? a decrease in travel and meetings of approximately $0.9 million related
to travel restrictions due to the COVID-19 pandemic;
? a decrease in payroll and related costs of approximately
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? a decrease in professional fees and expenses of approximately $0.6
million, consisting primarily of decreases of approximately
for professional fees, primarily related to decreased consultancy efforts
related to marketing and commercialization support and lower audit and IT
related expenses of $0.2 million , partially offset by an increase of
approximately $0.1 million in insurance premiums and an increase of
approximately
lawsuits.
Research and development expenses:
For the six months endedJune 30, 2021 , R&D expenses were approximately$38.9 million , compared to approximately$50.1 million for the six months endedJune 30, 2020 . R&D expenses for the six months endedJune 30, 2021 and 2020 were as follows: Research and development expenses For the Six Months Ended Change (in thousands) June 30, $ % 2021 2020 2021/2020 2021/2020 Clinical trial expense$ 13,108 $ 15,873 $ (2,765 ) -17.4 % Internal R&D 18,469 20,123 (1,654 ) -8.2 % Consultant and contractors 3,523 4,035 (512 ) -12.7 % Stock-based compensation 3,766 10,115 (6,349 ) -62.8 %$ 38,866 $ 50,146 $ (11,280 ) -22.5 % For the six months endedJune 30, 2021 , R&D Expenses decreased by approximately$11.3 million compared to the same period in 2020, primarily attributable to the following: ? a decrease in stock-based compensation expense of approximately$6.3 million , primarily due to a decrease of approximately$6.3 million for stock awards that fully vested and a decrease of approximately$1.0
million from stock award forfeitures, partially offset by an increase of
approximately $1.0 million from new grants and other immaterial
fluctuations;
? a decrease in clinical trial expenses of approximately
primarily due to the close out of certain clinical trials, and a
reduction in enrollments and patient on studies for open studies;
? a decrease in internal R&D expense of approximately $1.7 million ,primarily due to a decrease in payroll and payroll-related expenses; and
? a decrease in consultant and contractor expenses of approximately $0.5
million , primarily due to the close out of certain clinical trials.
Other income (expenses):
Other income (expenses) For the Six Months Ended Change
(in thousands) June 30, $ %
2021 2020 2021/2020 2021/2020
Interest income $ 134 $ 452 $ (318 ) -70.4 %
Interest expense (6,968 ) (6,852 ) (116 ) 1.7 %
Legal verdict (expense) credit 14,717 (186 ) 14,903 -8012.4 %
Other income 102 170 (68 ) -40.0 %
$ 7,985 $ (6,416 ) $ 14,401 -224.5 %
Interest income:
For the six months ended June 30, 2021 , interest income decreased by
approximately $0.3 million compared to the six months ended June 30, 2020 . The
decrease in interest income reflects less cash invested in money market accounts
and high-yield savings accounts in 2021 compared to 2020.
Interest expense:
For the six months ended June 30, 2021 , we recognized approximately $7.0 million
in interest expense, compared to $6.9 million of interest expense for the six
months ended June 30, 2020 .
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Legal verdict (expense) credit:
For the six months endedJune 30, 2021 , we reduced our legal expense accrual by$20.0 million with respect to the Eshelman v.Puma Biotechnology, Inc. , et al. judgment, and we increased our legal expense accrual by$5.3 million with respect to the Hsu v.Puma Biotechnology, Inc. , et.al judgment, which resulted in a$14.7 million net credit in legal verdict expense for the period.
Liquidity and Capital Resources
The following table summarizes our liquidity and capital resources as ofJune 30, 2021 andDecember 31, 2020 , and for the six months endedJune 30, 2021 and 2020, and is intended to supplement the more detailed discussion that follows: As of As of Liquidity and capital resources (in thousands) June 30, 2021 December 31, 2020 Cash and cash equivalents $ 89,848 $ 85,293 Marketable securities $ 19,127 $ 8,096 Working capital $ 29,851 $ 31,884 Stockholders' equity (deficit) $ 29,469 $ (5,951 ) Six Months Ended Six Months Ended June 30, 2021 June 30, 2020 Cash provided by (used in): Operating activities $ 15,587 $ 4,688 Investing activities (11,032 ) 25,158 Financing activities - 2 Net increase in cash, cash equivalents and $ 4,555 $ 29,848 restricted cash Operating Activities: For the six months endedJune 30, 2021 , we reported net income of approximately$11.3 million , compared to a net loss of approximately$13.5 million for the same period in 2020. Additionally, cash provided by operating activities for the six months endedJune 30, 2021 was approximately$15.6 million compared to approximately$4.7 million of cash provided by operating activities for the same period in 2020. Cash provided by operating activities for the six months endedJune 30, 2021 consisted of net income of approximately$11.3 million , an increase in accrued expenses and other of approximately$18.5 million , an increase in inventory of approximately$4.2 million , an increase in accounts receivable, net of approximately$4.0 million , an increase of approximately$1.2 million in accounts payable and in other immaterial fluctuations, and an increase of$1.0 million due to a recovery of credit loss expense; partially offset by a decrease of approximately$30.0 million of non-cash items, such as stock-based compensation and depreciation and amortization, and a decrease in other current assets of approximately$3.2 million . Cash provided by operating activities for the six months endedJune 30, 2020 consisted of a net loss of approximately$13.5 million , offset by approximately$23.7 million of non-cash items, such as stock-based compensation and depreciation and amortization, a decrease in accounts receivable, net of approximately$4.9 million , and other immaterial changes of$0.1 million ; partially offset by an increase in other current assets of approximately$3.1 million and a decrease in accounts payable of approximately$7.4 million . Investing Activities:
During the six months ended
Cash used in investing activities during the six months ended
Net cash provided by investing activities during the six months endedJune 30, 2020 consisted of approximately$51.5 million of maturities of available-for-sale securities, partially offset by the purchase of available for sale securities of approximately$16.4 million and an increase in intangible assets relating to the milestone achieved under the Company's license agreement with Pfizer of$10.0 million . 36
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Financing Activities:
During the six months endedJune 30, 2021 , and the same period in 2020, cash was materially unchanged by financing activities. However, duringApril 2020 , we borrowed and fully repaid approximately$8.4 million 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.
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 for by the loan and security agreement, or the Original Credit Facility, we borrowed$50.0 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$155.0 million , consisting of (i) an aggregate amount of$125.0 million , the proceeds of which, in part, were used to repay the$50.0 million we borrowed under the Original Credit Facility, and (ii) an aggregate amount of$30.0 million that we drew inDecember 2018 , which was available 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 an amendment and restatement of the loan and security agreement, which provided for 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 was 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 limited our ability to grant any interest in our intellectual property to certain permitted licenses and permitted encumbrances set forth in the agreement. The term loans under the New Credit Facility bore 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 preceded the month in which the interest will accrue, plus (b) 3.5%. We were 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 would have made 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 was due and payable in full onJune 1, 2024 , or the Maturity Date. Upon repayment of such term loans, we were also required to make a final payment to the lenders equal to 7.5% of the aggregate principal amount of such term loans outstanding as of the Effective Date. The effective interest rate as ofJune 30, 2021 was 12.75%. At our option, we were able to 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 occurred through and including the first anniversary of the funding date of such term loan, 2.0% of the amount prepaid if the prepayment occurred 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 occurred after the second anniversary of the funding date of such term loan and prior to the Maturity Date. The New Credit Facility included affirmative and negative covenants applicable to us, our current subsidiaries and any subsidiaries we would have created in the future. The affirmative covenants included, 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 were also required to 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 were to 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 included, 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. 37 -------------------------------------------------------------------------------- The New Credit Facility also included events of default, the occurrence and continuation of which could have caused interest to be charged at the rate that would otherwise have been applicable plus 5.0% and would have provided 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 included, 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 remained unsatisfied, unvacated, or unstayed for a period of 10 days after its entry. OnFebruary 27, 2020 , we entered into an amendment of the New Credit Facility with Oxford to establish our minimum revenue thresholds for the trailing year to date periods endingMarch 31 ,June 30 ,September 30 , andDecember 31, 2020 and the fiscal year 2021. OnAugust 5, 2020 , we entered into an amendment of the New Credit Facility with Oxford to amend the minimum revenue thresholds for the trailing year to date periods endingSeptember 30 andDecember 31, 2020 . OnFebruary 3, 2021 , we entered into an amendment of the New Credit Facility with Oxford to establish our minimum revenue thresholds for the trailing year to date periods endingMarch 31 ,June 30 ,September 30 andDecember 31, 2021 . As ofJune 30, 2021 , there were$100.0 million in term loans outstanding under the New Credit Facility, representing all of our long-term debt outstanding as of that date, and we were in compliance with all applicable covenants under the New Credit Facility. Note Purchase Agreement: OnJuly 23, 2021 , or the NPA Effective Date, we repaid the$100.0 million in term loans outstanding under the New Credit Facility, as well as all accrued interest, applicable exit, prepayment and legal fees owed to the lenders under the New Credit Facility in an amount of approximately$9.2 million , using cash on hand and$100.0 million in new borrowings from the issuance of notes under the note purchase agreement, or the Note Purchase Agreement, that we entered into on the NPA Effective Date with Athyrium Opportunities IV Co-Invest 1 LP, or, together with its affiliates, Athyrium, as administrative agent, and the purchasers party thereto from time to time, or the Purchasers, including Athyrium. Pursuant to the Note Purchase Agreement, the Purchasers agreed to purchase from us, and we agreed to issue to such Purchasers, notes payable by us. On the NPA Effective Date, we issued to the Purchasers notes in an aggregate principal amount for all such notes of$100.0 million . Subject to satisfaction of certain conditions set forth in the Note Purchase Agreement,$25.0 million in additional notes remains available to us under the Note Purchase Agreement. The obligations of us under the Note Purchase Agreement are secured by substantially all of our assets, including 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 notes issued under the Note Purchase Agreement bear interest at an annual rate equal to the sum of (a) 8.0% and (b) Adjusted Three-Month LIBOR for such Interest Period (as defined in the Note Purchase Agreement). We are required to make quarterly interest payments on each note issued under the Note Purchase Agreement commencing on the last business day ofSeptember 2021 , and continuing on the last business day of each March, June, September and December throughJune 30, 2024 , or the NPA Amortization Date. Commencing on the NPA Amortization Date, and continuing on the last day of each March, June, September and December thereafter, we will make consecutive equal quarterly payments of principal, together with applicable interest, in arrears to each Purchaser, calculated pursuant to the Note Purchase Agreement. All unpaid principal and accrued and unpaid interest with respect to each note issued under the Note Purchase Agreement is due and payable in full onJuly 23, 2026 , or the NPA Maturity Date. At our option, we may prepay the outstanding principal balance of all or any portion of the principal amount of the notes, subject to a prepayment fee equal to (i) a make-whole amount if the prepayment occurs on or prior to the second anniversary of the NPA Effective Date and (ii) 2.0% of the amount prepaid if the prepayment occurs after the second anniversary of the NPA Effective Date by on or prior to the third anniversary of the NPA Effective Date. Upon prepayment or repayment of all or any portion of the principal amount of the notes (whether on the NPA Maturity Date or otherwise), we are also required to pay an exit fee to the Purchasers equal to 2.00% of the aggregate principal amount of such notes prepaid or repaid. The Note Purchase Agreement 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 (i) maintain a minimum amount of unrestricted cash in deposit accounts subject to a control agreement in favor of Athyrium at any time and (ii) achieve at least a specified minimum amount of revenue (based on a combination of both sales of NERLYNX inthe United States and royalty revenues received by us for sales of NERLYNX outsidethe United States ), measured as of the last day of each four consecutive fiscal quarter period. The negative covenants include, among others, 38 -------------------------------------------------------------------------------- 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 Note Purchase Agreement 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 2.0% and would provide Athyrium, as administrative agent, with the right to exercise remedies against us and the collateral securing the new credit facility, including foreclosure against the property securing the obligations of us under the Note Purchase Agreement, including our cash. These events of default include, among other things, our failure to pay principal or interest due under the Note Purchase Agreement, a breach of certain covenants under the Note Purchase Agreement, our insolvency, a material adverse change, the occurrence of any default under certain other indebtedness in an amount greater than$750,000 and one or more judgments against us in an amount greater than$750,000 individually or in the aggregate that remains discharged or otherwise satisfied, in each case, as further described in the Note Purchase Agreement. The foregoing description of the Note Purchase Agreement and the notes is only a summary of the material terms thereof, and does not purport to be complete. The description is qualified in its entirety by reference to the Note Purchase Agreement and the form of note, which will be filed as exhibits to our Quarterly Report on Form 10-Q for the quarter endingSeptember 30, 2021 .
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$89.8 million and$19.1 million in marketable securities available atJune 30, 2021 . 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 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. 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 six months endedJune 30, 2021 , stock-based compensation represented approximately 31.4% and 22.6% of our operating expenses, respectively, compared to 19.7% and 17.7% for the same respective period in 2020, 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. 39
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Reconciliation of GAAP Net Income (Loss) to Non-GAAP Adjusted Net Income and
GAAP Net Income (Loss) Per Share to Non-GAAP Adjusted Net Income Per Share
(in thousands except share and per share data)
For the Three Months Ended June 30, For the Six Months Ended June 30,
2021 2020 2021 2020
GAAP net income (loss) $ (5,106 ) $ 3,395 $ 11,322 $ (13,538 )
Adjustments:
Stock-based compensation -
Selling, general and
administrative (1) 16,731 4,730 20,332 9,422
Research and development (2) 1,508 5,900 3,767 10,115
Non-GAAP adjusted net income
$ 35,421 $ 5,999 GAAP net income (loss) per share-basic$ (0.13 ) $ 0.09
$ 0.28 $ (0.34 ) Adjustment to net income (loss) (as detailed above)
0.45 0.27 0.60 0.49
Non-GAAP adjusted basic net
income per share $ 0.32 (3) $ 0.36 (4) $ 0.88 (3) $ 0.15 (4)
GAAP net income (loss) per
share-diluted $ (0.13 ) $ 0.08 $ 0.28 $ (0.34 ) Adjustment to net income (loss) (as detailed above)
0.45 0.27 0.59 0.49
Non-GAAP adjusted diluted net
income per share $ 0.32 (5) $ 0.35 (6) $ 0.87 (5) $ 0.15 (6)
(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 income per share was calculated based on 40,479,577 and 40,370,825 weighted-average shares
of common stock outstanding for the three and six months ended June 30, 2021 , respectively.
(4) Non-GAAP adjusted basic net income per share was calculated based on 39,432,030 and 39,361,596 weighted-average shares
of common stock outstanding for the three and six months ended June 30, 2020 , respectively.
(5) Non-GAAP adjusted diluted net income per share was calculated based on 40,986,716 and 40,939,688 weighted-average shares
of common stock outstanding for the three and six months ended June 30, 2021 , respectively.
(6) Non-GAAP adjusted diluted net income per share was calculated based on 39,997,571 and 39,815,867 weighted-average shares
of common stock outstanding for the three and six months ended June 30, 2020 , 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$40.0 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 amount payable to Pfizer (including interest) to be made in 2021 and the final payment occurring bySeptember 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, 2020 . 40
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