Puma Biotechnology, Inc.
Q2 2022 Earnings Call Transcript

Published: 7 Aug 2022

[Operator:]

Good afternoon. My name is Alex, and I will be your conference call operator today. [Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the conference call over to Mariann Ohanesian, Senior Director of IR for Puma Biotechnology. You may begin your conference.

[Mariann Ohanesian:]

Thank you, Alex. Good afternoon, and welcome to Puma’s conference call to discuss our financial results for the second quarter of 2022. Joining me on the call today are Alan Auerbach, Chief Executive Officer, President and Chairman of the Board of Puma Biotechnology; Maximo Nougues, Chief Financial Officer; and Jeff Ludwig, Chief Commercial Officer. After market closed today, Puma issued a news release detailing second quarter 2022 financial results. That news release, the slides that Jeff will refer to and a webcast of this call are accessible via the home page and Investors sections of our website at pumabiotechnology.com. The webcast and presentation slides will be archived on our website and available for replay for the next 90 days. Today’s conference call will include statements about the company’s future expectations, plans and prospects that constitute forward-looking statements for purposes of federal securities laws. Such statements are subject to risks and uncertainties. And actual events and results may differ from those expressed in these forward-looking statements. For a full discussion of these risks and uncertainties, please review our periodic and current reports filed with the Securities and Exchange Commission from time to time, including our annual report on Form 10-K for the year ended 12/31/21 and our quarterly report on Form 10-Q for the period ended June 30, 2022. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this live conference call, August 4, 2022. The company undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this conference call, except as required by law. During today’s call, we may also refer to certain non-GAAP financial measures that involve adjustments to our GAAP figures. We believe these non-GAAP metrics may be useful to investors as a supplement to, but not a substitute for, our GAAP financial measures. Please refer to our second quarter 2022 news release for a reconciliation of our GAAP to non-GAAP results. I will now turn the call over to Alan.

[Alan Auerbach:]

Thank you, Mariann, and thank you all for joining our call today. Today, Puma reported total revenue for the second quarter of 2022 of $59.5 million. Total revenue includes product revenue net, which consists entirely of NERLYNX sales, as well as license fees and royalties from our sub-licensees. Product revenue net was $51.3 million in the second quarter of 2022, which represents an increase, as expected, from the $40.7 million in product revenue net reported in the first quarter of 2022 and $48.9 million in product revenue net reported in Q2 2021. Product revenue for the second quarter of 2022 included approximately $2.7 million on inventory build at our specialty pharmacies and specialty distributors. Royalty revenue was $8.2 million in the second quarter of 2022, an increase from $5 million in Q1 of 2022 and $4.3 million in Q2 2021. We recorded no license revenue in the latest quarter. We reported 3,200 bottles of NERLYNX sold in the second quarter of 2022, an increase of 520 from 2,680 bottles sold in Q1 2022. We estimate that the Q2 inventory build amounted to approximately 175 bottles. As noted on our last quarter call, we estimate that inventory stocking in late 2021 caused a reduction of approximately 282 bottles in Q1 2022. In Q2 2022, new prescriptions, NRx, were down approximately 8% compared to Q1, while total prescriptions, TRX, were up about 1.6%. Jeff will provide further details in his comments and slides. I will now provide a clinical review of the quarter. And then Jeff Ludwig will add additional color on NERLYNX commercial activities. Maximo Nougues will follow with highlights of the key components of our financial statements for the second quarter of 2022. As we have mentioned on our prior calls, Puma has an ongoing basket trial of neratinib and HER2-mutated cancers, referred to as the SUMMIT trial. The arm of trial that has enrolled the most patients to date is the arm that is testing neratinib in patients with homoreceptor positive, HER2-negative breast cancer who have a HER2 mutation. And as we have discussed on previous investor calls, Puma has been looking to pursue a regulatory approval in this indication, and more specifically, for the triplet of neratinib plus trastuzumab plus fulvestrant, for which clinical data was presented at the recent American Society of Clinical Oncology Annual Meeting in June. As investors are aware, at the American Society of Clinical Oncology Meeting in June, data was presented on the HER2-targeted antibody drug conjugate in HER2 in patients with HER2-negative HR-positive metastatic breast cancer in a trial referred to as DESTINY-Breast04 or DBO4. This trial showed an improvement in progression-free survival and overall survival. And assuming that it is approved, we believe it is likely to become the new standard of care for patients with HER2-negative metastatic breast cancer. Based on the inclusion criteria for DB04, we believe that it is likely that the population of patients studied in DB04 overlaps with that of SUMMIT for neratinib in HR-positive, HER2-negative, HER2-mutated breast cancer. While we do not know what percent of the patients in DB04 had HER2 mutations, we acknowledge that in HER2 is a HER2-targeted agent and has shown activity in and is in the NCCN guidelines for other HER2-mutated tumors. Due to this, we believe that it is unlikely that the FDA would grant accelerated approval for neratinib based on the SUMMIT data and would instead require us to either

[Jeff Ludwig:]

Thanks, Alan. Appreciate it. And thanks to everyone for joining our second quarter earnings call. Before I move into the commercial review, just a reminder that I will be making forward-looking statements. Now I continue to be inspired by the stories of women battling breast cancer, but saddened by the overall impact of this disease. I am hopeful given the progress being made, but know there is so much more that needs to be done. We remain committed to helping women and their families battling breast cancer, and believe that NERLYNX can play a more important role in both early stage disease as well as in metastatic disease. Our overall commercial strategy has not changed. We remain focused on 3 areas

[Maximo Nougues:]

Thanks, Jeff. I will begin with a brief summary of our financial results for the second quarter of 2022. Please note that I will make comparisons to Q1 2022, which we believe is a better indication of our progress as a commercial company than year-over-year comparisons. For more information, I recommend that you refer to our Q2 2022 10-Q, which will be filed today and includes our consolidated financial statements. For the second quarter of 2022, we reported net income based on GAAP of $9.4 million or $0.21 per share. This compares to a Q1 2022 net loss of $3.4 million or $0.08 per share. On a non-GAAP basis, which is adjusted to remove the impact of stock-based compensation expense, we reported net income of $12.6 million or $0.28 per share for the second quarter of 2022. Gross revenue from NERLYNX sales was $63.4 million in Q2 2022 versus $51.5 million in Q1 2022. As Alan mentioned, net product revenue from NERLYNX sales was $51.3 million compared to the $40.7 million we reported in the first quarter of 2022. We believe that Q2 net sales included approximately $2.7 million of inventory build from our distributors. Royalty revenue totaled $8.2 million in the second quarter of 2022, an increase from $5 million in Q1 2022. Our gross to net adjustment in Q2 2022 was 19% compared to the 21% gross to net adjustment in Q1 2022. Lower Medicaid share, lower co-pay and lower coverage gap due to seasonality are the main drivers for the decline versus prior quarter. Cost of sales for Q2 2022 was $14.9 million, including $2 million for the amortization of intangible assets related to our neratinib license. Capital sales for Q1 2022 was $10.8 million. Going forward, we will continue to recognize amortization of milestones to the licensor for about $2 million per quarter as cost of sales. For the fiscal year 2022, Puma reiterates its prior guidance that net product revenue will be in the range of $180 million to $190 million. We also anticipate that our gross to net for the full year 2022 will be between 20% and 21%, slightly better than our prior guidance. Furthermore, for fiscal year 2022, we anticipate receiving royalties from our partners around the world in the range of $27 million to $30 million, lower than our prior guidance due to the timing of our NERLYNX shipments to our partner in China and potential negative foreign exchange impact. We don’t expect license revenue in 2022. In addition, we expect our full year net income to be in the range of 10 to -- sorry, $6 million to $10 million. We recognize there continues to be a great deal of uncertainty regarding the impact of COVID-19. And this may continue to negatively impact our sales, royalties and license revenue. We anticipate that for Q3 2022, NERLYNX net sales will be in the range of $44 million to $47 million. This guidance assumes that some of the inventory buildup in Q2 is reduced in Q3. We additionally anticipate that we will see an additional increase in inventory in Q4, as we have seen in prior years. We expect Q3 royalty revenues will be in the range of $3 million to $6 million. This is a reduction in the royalty revenue compared to Q2. This reduction is caused by the timing of shipments to our partner in China. According to our agreement, Puma received royalties when the product is sold to the distributor in China. The timing of the shipments and sales have been negatively impacted by the challenges associated with supply chain delays and the various shutdowns in China. Precisely forecasting the shipping and delivery times have been challenging. Therefore, we are conservatively anticipating that shipments we were expecting in Q3 could move to Q4, which will subsequently reduce Q3 royalties and increase Q4 royalties. We further estimate that our gross to net adjustment in Q3 2022 will be approximately 19.5% to 20.5%. Puma anticipates a Q3 net loss between $1 million and $2 million. SG&A expenses were $20.6 million in the second quarter of 2022 compared to $20.4 million for the first quarter. SG&A expenses included noncash charges for the stock-based compensation of $2.1 million for the second quarter of 2022 compared to $2.2 million for Q1 2022. SG&A expenses in Q2 included a payroll tax credit under the CARES Act of $2 million. Research and development expenses were $12 million in the second quarter of 2022 compared to $15.2 million for the first quarter. R&D expenses included noncash charges for stock-based compensation of $1.1 million in the second quarter of 2022 compared to $0.9 million for the first quarter. R&D expenses in Q2 2022 included a payroll tax credit under the CARES Act of $1.8 million. In the second quarter of 2022, Puma reported cash burn of approximately $14 million compared to cash burn of approximately $17 million in Q1 2022. Our Q2 2022 cash burns includes a final payment of approximately $27.1 million related to our class action lawsuit. As a reminder, in Q1 2022, we made a payment of $27.1 million related to the class action lawsuit and executed a private placement of [$14] million. As a result of cost containment across -- sorry, as a result of cost containment actions across the company implemented in the fourth quarter of 2021, Puma continues to expect lower operating expenses in 2022 compared to 2021. More specifically, we anticipate SG&A expenses to be down approximately 15% to 20% and R&D expenses to be down 10% to 15% year-over-year. At June 30, 2022, we had $60.8 million in cash, cash equivalents and marketable securities. Our cash receivables balance was $34 million. Our accounts receivable terms range between 10 and 68 days, while our days sales outstandings are about 44 days. We estimate that as of June 30, 2022, our distribution network maintained approximately 4 weeks of inventory. Overall, we continue to deploy our financial resources to focus on the advancement of neratinib through ongoing clinical trials and the commercialization of NERLYNX.

[Alan Auerbach:]

Thanks, Maximo. During 2020 and 2021, the COVID-19 pandemic presented significant commercial challenges to Puma and presented significant barriers to commercial access for Puma’s commercial team. As Jeff mentioned, we are starting to see a positive trend in face-to-face interactions with HCPs, which we believe is the result of COVID cases declining and vaccination and booster rates increasing, resulting in these commercial barriers reducing. However, we also recognize the uncertainty as to whether access to health care providers will continue to trend positively. And we are remaining conservative in our outlook for improvements in access for this year. Puma’s senior management in cooperation with the Board of Directors continues to remain focused on improving NERLYNX sales in 2022 and beyond. In the fourth quarter of 2021, we implemented a reduction in expenses, with the goal of reducing expenses in order to maximize operating cash flows. We believe that the positive net income reported in the quarter was a direct result of these expense reductions. We -- the company remains committed to continuing to achieve these operational cash flows, and we’ll continue to reduce expenses if needed to achieve this. We look forward to updating investors on this in the future. There continues to remain a significant unmet need for patients battling breast cancer, lung cancer and other solid tumors. We at Puma are committed and passionate about finding more effective ways at helping these patients during their journey. And we’ll continue to strive to achieve that goal. This concludes today’s presentation. We will now turn the floor back to the operator for Q&A. Operator?

[Operator:]

[Operator Instructions] Our first question comes from the line of Geoff Meacham with Bank of America.

[Unidentified Analyst:]

So this is [Hau] calling in for Geoff Meacham. So I think my first question is really, as we mentioned, given COVID recovery, you are seeing more live interactions for your sales force. I just wonder, in term of the sales force structure, do you see any change needed to sort of adapt to this more live interaction per se? Or are you seeing maybe the mix of virtual plus live would be sort of the new normal moving forward?

[Jeff Ludwig:]

Hau, I appreciate that question, and makes good sense. What I’ll tell you is a couple of things. One, we firmly believe NERLYNX is promotionally sensitive. So getting that sales force share of voice out there is very important to us. We’re very happy to see that live visits continue to increase in Q1 versus Q2, and we certainly hope that trend continues. We did restructure in the latter half of last year. I can tell you that I feel currently like we are at the right size to capitalize on the opportunity given some of the restrictions that are out there in the oncology space. And specifically, you commented on something, I do believe the new normal will be a combination of live versus virtual. We pay very close attention to the effectiveness of our field force. And as I said right now, we feel good about it. If we feel at a later date that things need to change, we’ll certainly make adjustments and talk about that then. But feel very good right now with the trends.

[Alan Auerbach:]

I can add to that. I think that right now, we’re very comfortable with the size of the sales force. If we start to see sales growth which would necessitate we need to increase the size of it, we would certainly address that. But we would need to see a significant trend of sales growth in order for us to increase the size of it.

[Operator:]

Your next question comes from Divya Rao with Cowen.

[Divya Rao:]

This is Divya on for Mark. This is more of a clarification. But will you guys be presenting updated HER2-mutated breast cancer data before taking it to the FDA? Or can we expect kind of a concurrent disclosure of the data along with the go/no-go label expansion decision? And then just curious if we could get a little bit of color on the compliance rates now that the dose titration regimen has been on the label for about a year now.

[Alan Auerbach:]

Okay. So Divya, on the first one, I would anticipate we will probably present updated data on the Basket trial, the SUMMIT trial for breast cancer at the San Antonio Breast Cancer meeting. That will be my assumption. Whether or not we would do it concurrent with a FDA disclosure or just present it at the meeting, I don’t know the answer to that. It depends on which -- the timing of when those are occurring. But I would anticipate there will be additional disclosure of the data this year.

[Jeff Ludwig:]

And Divya, let me take that second question regarding dose escalation and if we’re seeing an impact on duration or persistency. Again, we’re very happy to see that adoption continue to grow. As you see and you look at the slide, the majority of that increased adoption did occur within the last year following the inclusion of dose escalation into our label. So that yearly cohort of patients has not had enough time to mature, but we’re certainly monitoring that group. But let me give you some more insight though. Looking back at fully mature yearly cohorts, what I can tell you, what we’ve seen is we’ve seen a steady increase in the length of the therapy going back 2018, 2019 and 2020 for patients who started on a lower dose, with the largest increase in compliance occurring in 2020 or more recently. Now if I look at smaller cohorts, even look at some monthly cohorts, say, in the last Q4, Q1, what I can tell you also, as we monitor those patients who start on lower dose, we clearly don’t have the ability to follow that entire length of therapy because those cohorts haven’t matured. But if you think about dose escalation likely to have the biggest impact in the first month or 2, what I can tell you is that we see a benefit in the tune of about 5% to 7% increase in compliance between month 1 and month 2. So we are seeing that benefit. Now will that benefit continue to play out to the full length of therapy? I don’t know yet. We’ll follow that very closely. But we do like to see that early positive impact. We also know through market research that physicians are very positive. Physicians staff are very positive. And we’ve got strong podium support. I will point out the obvious though that adherence has many other factors besides length of therapy, from treatment fatigue, overall benefits, cost side effects, et cetera. So we are watching those cohorts very closely.

[Operator:]

Your next question comes from the line of Gena Wang with Barclays.

[Unidentified Analyst:]

This is Sheldon on for Gena. Maybe something on the OpEx. You reiterated your guidance on the cost cutting of -- on R&D and SG&A. But so far, for the first 2 quarters of the year, it seems like if the trend continues, you will probably seem -- have more -- much more cost saving than your guidance. So do you expect second half to significantly ramp up on both R&D and SG&A? And more longer term, how do you -- whatever would you further make to achieve a more sustainable profitability?

[Alan Auerbach:]

I’m sorry. Can you clarify your question regarding the expenses, the R&D expenses and the SG&A?

[Unidentified Analyst:]

Yes, yes. I think if you just take the second quarter run rate, it seems like the annual R&D and SG&A will come with a higher reduction of expense, then your guidance of 10% to 15% R&D, 15% to 20% SG&A. Is that correct? If you achieved annual cost saving in those range, it seems to imply that the second half would have some ramp-up.

[Maximo Nougues:]

So just to clarify, right, as I mentioned on the call, Q2, we had a credit, a CARES Act credit in our payroll for about $3.8 million. So you need to net that out of the run rate if you’re looking at that. And also, if you look at a comparison, Q2 versus year-to-date versus the prior year, last year, we had a onetime warrant cost and a stock-based compensation. So you need to also take that into account.

[Unidentified Analyst:]

I see. I think that’s the difference. So my second question is on the -- more about long-term profitability.

[Alan Auerbach:]

Yes. Okay. So in terms of your second question, as we gave you guidance, we are expecting to be net income positive for the year. I believe we set a $1 million to $2 million net loss in Q3. And that would obviously imply Q4 is positive net income again. We certainly recognize the importance of being net income positive and cash flow positive. And absolutely, as I said at the end of my speech, us focusing on protecting those cash flows and net income is something very important to us. So if additional cost cuts need to be made to continue our -- the company being cash flow positive and net income positive, we are, of course, committed to doing that.

[Operator:]

This concludes our question-and-answer session. I would like to turn the conference back to Mariann for closing remarks.

[Mariann Ohanesian:]

Thank you for joining us today. As a reminder, this call may be accessed via replay of the webcast at pumabiotechnology.com beginning later today. Have a good evening.

[Operator:]

Ladies and gentlemen, thank you for participating in today’s conference call. This concludes our program. Everyone, have a great day. You may now disconnect.