Puma Biotechnology, Inc.
Q1 2022 Earnings Call Transcript

Published: 5 May 2022

[Operator:]

Good afternoon. My name is Karen, 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, Karen. Good afternoon, and welcome to Puma's conference call to discuss our financial results for the first 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 first quarter 2022 financial results. That news release, the slides that Jeff will refer to and a webcast of this call are accessible via the homepage 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 SEC from time to time, including our annual report on Form 10-K for the year ended December 31, 2021. 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, May 5, 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 first 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 first quarter of 2022 of $45.7 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 $40.7 million in the first quarter of 2022, which represents a decline as expected from the $51.0 million in revenue -- in product revenue reported in the fourth quarter of 2021 and $45.8 million in product revenue reported in Q1 2021. Product revenue for the first quarter of 2022 included approximately $4.3 million of inventory drawdown at our specialty pharmacies and specialty distributors. Royalty revenue was $5 million in the first quarter of 2022, an increase from $2.9 million in Q4 2021 and $2.4 million in Q1 2021. We recorded no license revenue in the latest quarter. We reported 2,680 bottles of NERLYNX sold in the first quarter of 2022, a decline from the 3,454 bottles sold in Q4 of 2021. As we noted on last quarter's call, bottles sold in the fourth quarter included an estimated 345 bottles representing inventory stocking at our specialty pharmacies and specialty distributors. We estimate that inventory stocking decreased by approximately 282 bottles in Q1 of 2022. In Q1 2022, new prescriptions were up approximately 17% compared to Q4, while total prescriptions were down approximately 1.7%. 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 first quarter of 2022. As we have mentioned in our prior calls, Puma has an ongoing basket trial of neratinib in HER2-mutated cancers referred to as the SUMMIT trial. In the fourth quarter of 2021, Puma met with the FDA to discuss the regulatory path for neratinib in patients with hormone receptor positive HER2-negative breast cancer who have a HER2 mutation. Investors will remember that based on the meeting with the FDA in the fourth quarter of 2019, this arm of the SUMMIT trial was modified such that patients were randomized to receive either fulvestrant alone, fulvestrant plus trastuzumab or the combination of neratinib plus fulvestrant plus trastuzumab. Under the initial Simon's Two-Stage Design, each of the 3 arms enrolled 7 patients during stage 1. If no patient in a given arm responded, that arm was closed to further enrollment. If in the first stage, 1 or more patients responded, the arm was then expanded up to 18 patients. If less than 4 patients in the expanded arm responded that arm was closed to further enrollment, if more than 4 patients responded, the arm was expanded to 30 patients. As was previously disclosed to investors and as presented at the San Antonio Breast Cancer Symposium in 2021 for the first 7 patients who were treated in the fulvestrant alone arm of the trial, no patients achieved a response. In the 7 patients who were treated with fulvestrant plus trastuzumab arm of the trial, no patients achieved a response. In the first 7 patients who were treated in the neratinib plus fulvestrant plus trastuzumab arm of the trial, one or more responses were seen and therefore, the criteria was meant to expand the Stage 2 of the Simont2-stage design. That arm of the trial was expanded to further enrollment and an additional 18 patients have been enrolled with the combination of neratinib plus fulvestrant plus trastuzumab. Enrollment to that this arm has been stopped while we analyze the additional data. At the meeting with the FDA in the fourth quarter of 2021, the data from the 7 patients randomized to each of the 3 arms we shared with the FDA. Puma also told the FDA that they had an additional 18 patients who had been treated with the combination of neratinib plus fulvestrant plus trastuzumab and the data from these 18 patients could be shared with the FDA in 2022. Puma plans to submit to FDA in the second half of 2022 and schedule a meeting to discuss the regulatory path for neratinib in this indication. Puma anticipates that the FDA will either allow the company to file for accelerated approval based on the existing single-arm data or may require additional data or may require a separate randomized trial for this indication. If a randomized trial is required, the company will make a decision as to whether or not to proceed based on the time and cost of the trial versus the potential market opportunity. Additional data from this cohort will be presented at the American Society of Clinical Oncology Annual Meeting in June of 2022. Puma will also plan to present data at the ASCO annual meeting from the cohort of patients in the SUMMIT with HER2 mutated biliary tract cancer who were treated with neratinib. Puma will continue to update investors on the status of this as it progresses. As investors are also aware, in November 2020, we announced interim data from another cohort of the SUMMIT trial, more specifically the cohort of patients with metastatic non-small cell lung cancer with epidermal growth factor or EGFR, exon 18 mutations who have been previously treated with an EGFR targeted tyrosine kinase inhibitor. As was shown in the data that was presented, there were 4 responses out of 11 patients, and therefore, the criteria have been met to proceed to Stage 2 of the Simon's Two-Stage Design and enroll 30 patients. There are currently 31 patients enrolled in this arm of the trial, and we anticipate that we will have additional data from this cohort to report in the second half of 2022. Once we receive this data, we plan to meet with the FDA to discuss the regulatory path for this indication. Puma anticipates that the FDA will either allow the company to file for accelerated approval based on the single-arm data or may require additional data for a separate randomized trial for this indication. If a randomized trial is required, the company will make a decision whether or not to proceed based on the time and cost of the trial versus the potential market opportunity. Enrollment to this arm of the trial has been halted while we analyze the current data and wait for regulatory guidance. As mentioned on the last earnings call, Puma is also evaluating several drugs to potentially in-license that would allow the company to diversify itself and leverage Puma's existing R&D, regulatory and commercial infrastructure. Puma will continue to update investors on the status of this as it progresses. I will now turn the call over to Jeff Ludwig, Puma's Chief Commercial Officer, for a review of our commercial performance during the quarter.

[Jeffrey Ludwig:]

Thanks, Alan. Appreciate it, and thanks to everyone for joining our first quarter earnings call. Before I move into the commercial review, just a reminder that I will be making forward-looking statements. So let me start by reinforcing our commitment and our passion about helping patients in their battle with breast cancer. We believe that NERLYNX can play a key role in both early stage disease to prevent reoccurrence after adjuvant trastuzumab-based therapy as well as in metastatic disease. Commercially, we remain focused on 3 areas

[Maximo Nougues:]

Thanks, Jeff. I will begin with a brief summary of our financial results for the first quarter of 2022. Please note that I will make comparisons to Q4 2021, which we believe is a better indication of our progress as a commercial company and year-over-year comparisons. For more information, I recommend that you refer to our Q1 2022 10-Q, which will be filed today and includes our consolidated financial statements. For the first quarter of 2022, we reported a net loss based on GAAP of $3.4 million or $0.08 per basic and diluted share. This compares to a Q4 2021 net income of $4.2 million or $0.10 per share. On a non-GAAP basis, which is adjusted to remove the impact of stock-based compensation expense. We reported a net loss of $0.3 million or $0.01 per basic and diluted share for the first quarter of 2022. Gross revenue from NERLYNX sales was $51.5 million in Q1 2022 versus $64.5 million in Q4 2021. As Alan mentioned, net product revenue from NERLYNX sales was $40.7 million compared to the $51 million we reported in the fourth quarter of 2021. We believe that Q1 net sales included approximately $4.3 million of inventory drawdown from our distributors. Royalty revenue totaled $5 million in the first quarter of 2022, an increase from $2.9 million in Q4 2021. Our gross to net adjustment in Q1 2022 was 21%, flat from the gross to net adjustment in Q4 2021. We increases to coverage GAAP and co-pay charges were offset by decreases in Medicaid expenses to keep our quarter-over-quarter gross to net flat. Cost of sales for Q1 2022 was $10.8 million, including $2 million for the amortization of intangible assets related to our neratinib license. Cost of sales for Q4 2021 was $11.9 million. Going forward, we will continue to recognize amortization of merchants or the license sold for about $2 million per quarter as cost of sales. For fiscal year 2022, Puma reiterates its previous guidance that net product revenue will be in the range of $180 million to $190 million. We also anticipate that our gross to net adjustments for the full year 2022 will be between 21% and 22%, slightly better than our prior guidance. Furthermore, for fiscal year 2022, we continue to anticipate receiving royalties from our partners around the world in the range of $27 million to $34 million, and we don't expect license revenue in 2022. 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 Q2 2022, NERLYNX net sales will be in the range of $44 million to $47 million. We also anticipate Q2 royalty revenues will be in the range of $7 million to $9 million. We estimate that the gross to net adjustment in Q2 2022 will be approximately 20% to 21%. Puma anticipates that net income in Q2 of 2022 will be slightly positive. SG&A expenses were $20.4 million in the first quarter of 2022 compared to $22.5 million in Q4 2021. The SG&A expenses included noncash charges for stock-based compensation of $2.2 million for the first quarter of 2022 compared to $2.4 million for Q4 2021. Research and development expenses were $15.2 million in the first quarter of 2022 compared to $14.2 million for Q4 2021. R&D expenses included noncash charges for stock-based compensation or $0.9 million in the first quarter compared to $1.8 million for Q4 2021. In the first quarter of 2022, Puma reported cash burn of $17 million compared to cash burn of $5.4 million in Q4 2021. In Q1 2022, we made a payment of $27.1 million related to our class action lawsuit and executed a private placement for Tandem [ph]. 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 March 31, 2021, we had $73.9 million in cash, cash equivalents and marketable securities. Our accounts receivables balance was $27 million. Our accounts receivable turns ranged between 10 and 68 days, while our days sales outstandings are about 47 days. We estimate that as of March 31, 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. We are hopeful that with COVID cases declining and vaccination and booster rates increasing, these barriers will reduce in the future, which should improve the ability of our commercial team to access and interact with health care providers to increase their awareness of the NERLYNX data. We also recognize the uncertainty as to when access to health care providers will improve, and we are remaining conservative in our outlooks for improvements in access for this year. Puma senior management in cooperation with the Board of Directors continues to remain focused on improving NERLYNX sales in 2022 and beyond. For the fourth quarter of 2021, we implemented a reduction in expenses with the goal of reducing expenses in order to maximize operating cash flows. The company remains committed to protecting these operational cash flows and will 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 effective ways at helping these patients during their journey, and we will 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] We'll take our first question from Ed White with H.C. Wainwright.

[Ed White:]

Good afternoon, thanks for taking my questions. Just a couple of questions on the sales force. You had mentioned that 60% of your calls are live. Can you give us some background about where that -- what the change has been over the last quarter? And perhaps did you see a change from January to March?

[Jeffrey Ludwig:]

Yes. Ed, sure. Happy to do that. The short answer to both is yes. We saw a larger percent of live calls in Q1 versus Q4. So we saw improvement there. January was slightly better than December, but February and March, we saw a fairly significant and steady improvement on live versus virtual. So we've seen that trend continue actually throughout the quarter.

[Ed White:]

And do you have any data showing that live is better than virtual as far as the account penetration is concerned?

[Jeffrey Ludwig:]

So I've seen a couple of things. Feedback from the field certainly is that the live interactions are deemed to be more valuable. We've also seen market research from ZS that says the sort of fatigued virtual calls across the industry has started to weigh in. And so we qualitatively and quantitatively believe that live calls are better. It's giving us more time in front of customers as well.

[Alan Auerbach:]

And Ed, if I can add to that. I think the other aspect with Live calls is that oftentimes, the rep is going into a practice that's got multiple physicians and multiple HCPs there as well as nurses and other things. When they're live, they get the opportunity to interact with lots of people, whereas on a virtual call, it's just going to be one-on-one with the health care provider, the nurse or something like that. So in a live situation, we kind of refer to it as the total office call being able to speak to as many people in the office as possible. You obviously have more of an opportunity for that.

[Ed White:]

Okay. Thanks, Alan. And last question, just you had mentioned that the distribution network is sitting at on about 4 weeks of inventory currently. Do you expect that to remain stable? Or should we see a change perhaps down to 3% or up to 5% at some point?

[Jeffrey Ludwig:]

Ed, we do see some fluctuations in our inventory levels, but that level is about normal. We don't expect it to be significantly different than that. As we mentioned in the call, we saw a fairly significant inventory build in the fourth quarter. We subsequently saw that decline largely early on in the first quarter, and it's now, for the most part, stabilized week-over-week. So we think that's a fairly good inventory estimate at this time.

[Alan Auerbach:]

Yes, to put a few more numbers behind it. In the fourth quarter, we said that the inventory build was about 345 bottles. We saw that work down by 282 bottles in Q1. So there's still a little bit -- they're still in there, not huge, looks like around 50 or 60 bottles or so. My anticipation would be that, that might get fully worked down over Q2 and Q3. And then again, in Q4, we would expect to see an inventory build like we see every year. So that would be kind of the what I would expect for the future quarters.

[Ed White:]

Thanks. And if I could sneak in one last question. Can you make any comments on duration that the patients are staying on drug. How is it looking for the number of bottles per patient?

[Jeffrey Ludwig:]

And we do track duration of therapy. And what you see with NERLYNX is that first refill is really important. If we can get patients through that first refill, that first second month on drug into that second month in drug, the discontinuation rates drop off, which is what we're trying to achieve here. We certainly believe that with the increase of dose escalation, we will see more second fills or the first refill. The bulk of our patients on dose escalation, as you look at our slide, really has occurred in the last 3, 6, 9 months. We see that bolus above 50%. We are tracking those cohorts. I don't have any updated data to quantify that yet. But what I can tell you is in dealing with customers, the feedback from customers on dose escalation is that it's much easier for patients, much easier for the practice, much easier for physicians. We've also seen that physicians that adopt dose escalation are more likely to treat additional patients with NERLYNX as well. Hopefully, that helps some.

[Ed White:]

That does. Thanks so much for taking my questions.

[Alan Auerbach:]

You're welcome.

[Operator:]

We'll take our next question from Yigal Nochomovitz with Citi.

[Unidentified Analyst:]

This is Ashiq Mubarack [ph], on for Yigal. Thanks for taking my question. I apologize if I missed this in your prepared remarks, I was hopping between calls. But can you help level set for your upcoming ASCO data for the Summit cohorts? Maybe any color on how many patients' level of detail level of follow-up that you'll present for both the HER2 mutant breast and biliary tract cancer presentations.

[Alan Auerbach:]

Yes. So in terms of the HER2 mutant breast, I believe it would be the additional 18 patients that have been enrolled since we last updated. And then on the biliary, I apologize, I don't remember the number off the top of my head, but it would be the full cohorts that will be presented. And in terms of the data, I would expect to see the standard response rates, PFS and things like that.

[Unidentified Analyst:]

Okay. Then maybe I'll sneak in one more follow-up. I know you've been weighing FDA discussions related to the potential for accelerated approval in HER2-mutant breast and EGFR exon 18 lung. Do you have any updated thoughts on how you've been weighing that ROI in terms of maybe the need to run additional studies, I'm just curious what your latest thoughts are?

[Alan Auerbach:]

Well, yes, I think we have all seen that the FDA seems to be a little more reticent to allow accelerated approvals on single-arm data. They just had the recent panel -- the ODAC panel discussion on that whole topic. And so I think there's certainly risk to that, given the way the FDA appears to be communicating things. We obviously won't know until we speak with them and until we analyze all the data as well. So we really don't know. Now in terms of kind of the risk benefit and ROI of doing that, if we're going to start a randomized trial in 2003, assuming the full 3 years for that trial to go forward, you're talking about probably 2026, getting that data for an approval in 2027 and our composition of matter patent expires in 2030. So that would be the calculations we would be using to determine the ROI on that.

[Operator:]

We'll take our next question from [indiscernible] with Cowen & Company. The floor is yours.

[Unidentified Analyst:]

This is Divya on for Mark. I just have two. One is on the commercial side, but do you have a sense for the sort of breakdown in terms of payer distribution between the commercial and maybe government or Medicare-based plans? And then, just another question on just the revenue breakdown based on your guidance. It looks like for the first half of the year, we're looking at like about $87 million at the upper end and then about an 18% increase in H2. Do you have any color on kind of the assumptions you're making for that increase in H2 would be helpful.

[Jeffrey Ludwig:]

Thanks for the questions. I'll take the first question you had on payer mix. And obviously, our payer mix does fluctuate, but let me give you a general color. We have about 65% of our business is commercial payers. I would say about 23% or so, 24% is government, Medicare, Medicaid, VA, DoD. And then we do have certainly about 10% or so that is either other or uninsured that does not include any acknowledgment of insurance coverage.

[Alan Auerbach:]

And then on your second question, which is the revenue breakdown, our assumption is that you will see a slight growth in terms of the Q2 to Q3 with the bulk of that growth being Q3 to Q4.

[Unidentified Analyst:]

Okay, that's helpful. Thank you.

[Alan Auerbach:]

And then as we mentioned, we're expecting to be slightly net income positive in Q2.

[Operator:]

And for our next question, we'll move to Geoff Meacham with Bank of America. Please proceed.

[Alex Hammond:]

Hi, this is Alex Hammond on for Jeff Meacham. Thank you for taking our questions. Can you talk about your expectations from the Cohort 4 B and 4 C, of the Phase II trial of the combination of Kadcyla plus neratinib in patients with HER2-positive breast cancer and brain metastases who have been previously treated with Kadcyla. Thank you so much.

[Alan Auerbach:]

Yes. So this is on TBCRC 022, which is our trial of neratinib in patients with brain mets. So as you correctly point out, there are 2 cohorts. One of them is neratinib plus Kadcyla in patients who are Kadcyla-naive, the other is neratinib plus Kadcyla in patients who have already seen Kadcyla. So this is going to be a very interesting data because it's going to be very applicable to the current treatment paradigm for HER2-positive breast cancer with brain mets because you are certainly seeing patients who've previously seen Kadcyla either in the adjuvant setting or in the metastatic setting and then have brain mets. And then you're also seeing patients where they did not have Kadcyla, either adjuvant or metastatic and perhaps got Tukysa as their first treatment and therefore, they're Kadcyla naive. So our expectation would be that we would see -- I don't remember the number of patients off the top of my head. I'm guessing it's somewhere around 20, 25-ish where we would see the response rates in PFS in both of those cohorts I do believe we will see patients who've previously been treated with Tukysa as well. So I think it's going to be a very real world applicable. And remember that neratinib is in the NCCN guidelines for brain mets. So if indeed, the data is positive, we would have the opportunity to potentially submit it to the NCCN for inclusion, which would allow physicians to be able to utilize it if they so wished.

[Alex Hammond:]

Thank you.

[Operator:]

And for our next question, we'll turn the floor over to Gena Wang with Barclays.

[Unidentified Analyst:]

This is Sheldon [ph] on for Gena. Maybe one on the exon 18 mutation non-small cell lung cancer cohort that's expected in second half of this year. So you mentioned that you have 31 patients enrolled. Could you comment on how many of those patients have passed TKI failure. So I suppose that will be the ultimate cohorts that will support the FDA approval, right?

[Alan Auerbach:]

Yes, correct. So from a registrational perspective, it would be -- that we would be focusing on the patients who have already seen an EGFR TKI. So the exon 18 mutations when they're naive to an EGFR TKI tend to be responsive to a first-line TKI and that can be the first-generation drugs. So gefitinib and erlotinib. Or can be the second-generation drugs like afatinib and osimertinib. My understanding is, I think those 30 patients, the large majority of them have already seen a TKI because that was where we had focused the development of the drug. So I would envision that the large majority of them have indeed failed in EGFR-TKI.

[Operator:]

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